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Archive for the ‘Bankruptcy Advice’ Category

Timing Bankruptcy to Cover New Debts

July 20th, 2020 at 7:00 am

A bankruptcy covers the debts you owe as of the moment you file your case, not future debts. So how do you know when to file your case?

 

In last week’s blog post we introduced how to time your bankruptcy filing. We gave a list of 15 examples of timing considerations. Today we start with the first example: timing your bankruptcy filing so that it covers as many debts as possible.

Debts You Might Owe Very Soon

Here are two situations in which you expect to soon owe a debt that you don’t owe at the moment.

First, let’s say you have a medical condition for which you are about to see a doctor or other health professional. Or it’s an ongoing condition for which you get treatment regularly. Let’s assume that you know that you can’t afford to pay the upcoming medical bills for these upcoming services. You are already feeling overwhelmed by your present debts. You’re feeling pressure to file bankruptcy now to get relief from those debts. But you’re wondering if you should wait to file bankruptcy until after you’ve finished incurring the upcoming medical debts.

Or second, let’s say you’ve been relying on credit cards, cash advances and such to get by. You’re falling further and further behind, and you know the situation is not sustainable. You recognize that you’ll never be able to pay all your debts, so you need bankruptcy relief. But you don’t know when you should stop using the credit and file bankruptcy.

Here’s some guidance.

Bankruptcy Only Includes Existing Debts

Debts that you legally owe at the moment you file your bankruptcy are included in your bankruptcy case. Debts you don’t owe until after you file your bankruptcy are not included. That include debts you incur the next day. Or actually, even debts you incur an hour after your filing.

For example, usually 3 or 4 months after filing a Chapter 7 “straight bankruptcy” case you receive a discharge. That legally writes off most debts, including virtually all medical debts and unsecured credit card debts. But that only covers those medical and credit card (and other) debts legally owed at time of filing.

And in a Chapter 13 “adjustment of debts,” only the debt in existence at the time of filing are covered in the court-approved payment plan.

What Determines whether a Debt is Included

Under bankruptcy law, a debt is defined as a “liability on a claim.” Section 101(12) of the U.S. Bankruptcy Code. In other words, a debt is what you owe on a “claim.” And a “claim” is a “right to payment” that a creditor has against you. Section 101(5) of the Bankruptcy Code. Therefore, the issue is whether you and/or the creditor have acted to trigger a right of payment from you. If so, and that occurred before you file the bankruptcy case, the debt is included.

So, a medical provider has a right to payment from you immediately upon providing you the medical services. A credit card creditor has a right of payment from you immediately you’re your use of the card for a purchase or cash advance. Similar triggers create a debt with other types of debts.

What’s Not Required

Notice in the two above examples we said the right to payment exists “immediately upon” the triggering event.  So the debt exists then as well. This does not require the creditor to send a bill, or for you to receive it.

Notice this also means that neither you nor the creditor needs to know the amount of the debt. For bankruptcy purposes it’s already a debt that can be included in your bankruptcy case. The amount can be worked out later.

The debt can also be “contingent.” You may not actually have to pay the debt yourself; that may depend on a separate event. For example, someone else may also be liable on a joint debt, or it may be covered by insurance. But it’s still a debt for bankruptcy purposes.

Also, you may not agree that you owe the debt. It can be “disputed.” It’s still a debt for bankruptcy purposes and thus included in your bankruptcy case. The creditor and you may resolve the dispute later, if necessary.

(See Section 101(5)(a) of the Bankruptcy Code.)

Trigger Event Not Always Obvious

With a medical or credit card debt it’s quite straightforward when the debt has been created. And that’s true of the majority of debts; it’s usually pretty obvious. For example, you become liable on a vehicle loan debt when you sign or otherwise legally enter into the loan agreement. Same when you buy furniture on a contract, or incur a payday loan.

But how about an annual federal or state income tax debt? What triggers that into a debt? 

There’s a relatively simple answer on this: legalistically you owe the tax as of the end of that tax year. So as of January 1 of the following year you can include that tax in your bankruptcy case. (The effect of including it is a different question. The tax must meet certain conditions to discharge it under Chapter 7, for example. But if it doesn’t meet those conditions, you can pay it under the favorable conditions of Chapter 13.)

Tougher Situations

How about more complicated debts? How about a debt arising out of a divorce, such as an obligation to pay one of the marital debts? Or to pay child support? Do you have to wait (and not file your bankruptcy case) until the divorce is final? Or don’t some of those debts arise from the marriage itself so you can file bankruptcy earlier?

Or how about an apartment lease that you signed a while ago but want to get out of now? Is the triggering event when you signed the lease? Or is a new debt created every month you stay in the apartment? If it’s the latter then does that mean that you may still owe for the time you stay there past your bankruptcy filing date?

Similarly, on a condo foreclosure, would you continue owing homeowner association dues for the months after your bankruptcy filing? Does it matter that you’ve moved out if the condo is still in your name until the foreclosure is final?

In these and many other less straightforward situations the answers are not nearly so obvious. And the answers may be surprising and financially dangerous.

Such as in the last example. Generally you DO keep incurring each new month of homeowner dues. And you do so as long as the lender has not completed the foreclosure process. That could take many months, or in some circumstances even years. Those accruing dues would not usually be covered by a bankruptcy case you filed before those months/years of dues accrued.

So deciding when to file your case can get complicated fast.

The Best Advice is to Get Some Good Advice

Even in relatively clear situations—the above medical, credit card, and income tax ones—there are delicate bankruptcy timing issues.

If you’re anticipating many months (or even years) of medical procedures, should you wait until they’re done? What if you’re being sued/foreclosed/repossessed and don’t feel you can wait?

When does it make sense to wait to the end of a calendar year to include that tax debt in your Chapter 13 case? Are there other alternatives such as a partial-year tax filing?

The timing issues get even more complicated in the other less-straightforward examples we gave, and in countless others.

The honest truth is that the timing solution will always depend on your unique situation. It’s actually true: you are unique, your combination of circumstances is unique, and your timing solution must be unique.

It’s the job of your bankruptcy lawyer to understand you and your situation. He or she is trained and experienced about your legal options, timing and otherwise. He or she has spent a career wrestling through tough situations like yours. You’ll learn about your timing options, the advantages and disadvantages of each, and likely get a recommendation about what’s best.

 

Timing Your Bankruptcy

July 13th, 2020 at 7:00 am

The timing of your bankruptcy case is important, sometimes extremely important. It can determine if your case is as successful as it can be.

 

Five weeks ago we started a series on why you should get legal advice from a bankruptcy lawyer. We’ve also been making a point of showing why it’s smart to do so early, when you start considering bankruptcy.

It’s super important to get this legal advice so that you can learn:

  1. if bankruptcy is the best option for you, and how to pursue other alternatives
  2. how Chapter 7, 11, 12, and 13 work, and whether either are right for you
  3. what actions you should take to position yourself, whether you’re possibly or definitely filing bankruptcy
  4. what you should avoid doing
  5. the best timing for your bankruptcy filing

If you want to look back, we covered #1 and #2 five weeks ago. The next four blog posts got into different aspects of what you should and shouldn’t be doing before filing (#3 and #4). These included keeping assets (4 weeks ago), taking on debt (3 weeks ago), filing income tax returns and paying the taxes (2 weeks ago), and paying child/spousal support (1 week ago).

Today we start on how to best time the filing of your bankruptcy case.

Bankruptcy Timing

Frankly, this is a huge topic. That’s because so much our financial lives are tied to time. One day you don’t owe a debt. The next day you go to a medical appointment and immediately owe a debt to the doctor’s office. You get the bill with a due date (after insurance pays a portion, if you’re fortunate enough to have insurance). If you can’t pay it by the due date, the debt goes into collections at some point in time. Then at some point you get sued, which turns—a certain amount of time later—into a judgment against you. After a short period of time (usually), that turns into a garnishment of your paycheck. All of these steps involve timing, with deadlines and time-based events.

Similarly, bankruptcy involves many issues of timing. Using the example above, filing bankruptcy stops the debt collection process wherever it is at the time.  If a lawsuit has been filed by the collector but no judgment yet entered, bankruptcy stops the entry of a judgment. If a judgment has been entered but no garnishment yet ordered, bankruptcy filing at that time prevents the garnishment. If your wages are the midst of being garnished, bankruptcy stops the garnishment. Whether it stops your current paycheck from being garnished or the next one, it all depends on timing.

Important Examples of Good (and Bad) Timing

The timing of your bankruptcy filing can affect all of the following. Whether:

  1. the bankruptcy case includes recent or ongoing debts or not
  2. you have to pay an income tax in full, in part, or not at all
  3. you must pay interest on an income tax because of a tax lien
  4. you can discharge (legally write off) a credit card debt, or a portion of it
  5. you can discharge a student loan debt
  6. you qualify for a vehicle loan cramdown—reducing monthly payments, interest rate, and total debt—and still keep the vehicle
  7. you qualify for a personal property collateral cramdown—paying less—and still keep the collateral
  8. you stop the repossession of your vehicle in time, or lose it to the vehicle loan creditor
  9. you prevent the foreclosure of your home in time, enabling you to catch up over time
  10. you get more time to sell your home, including years from now
  11. you qualify for a Chapter 7 case under the “means test,” or must instead file under Chapter 13
  12. you qualify for a 3-year Chapter 13 payment plan or instead must pay for 5 years
  13. your sale or gifting an asset is a “fraudulent transfer
  14. your payment to a friendly creditor is a “preference
  15. you can keep all of your assets if you’ve moved from one state to another in the past several years

Conclusion

Just looking down this list gives you a better idea how important the timing of your bankruptcy can be. We’ll be covering these timing issues one-by-one in our next blog posts. There’s a good chance that one, or even a number of them, apply to you. If any do, and you need to know more about it, please call us. We would appreciate being your bankruptcy lawyers, helping you fully  benefit from the law.

 

More Actions to Take When Considering Bankruptcy

June 22nd, 2020 at 7:00 am

If you’re considering filing bankruptcy, what debts can you incur and which should you avoid? What are the possible consequences?


Two weeks ago we listed 5 crucial things you’d benefit from learning about if you’re thinking about bankruptcy:

  1. if bankruptcy is indeed the best option for you
  2. how Chapter 7, 11, 12, and 13 work, and whether one is right for you
  3. what actions you should take to position yourself for either a possible or definite filing
  4. what you should avoid doing
  5. the best timing for your bankruptcy filing

We covered the first 2 of these back then. Then last week we got into # 3 and #4, actions you should take and those to avoid before bankruptcy. We focused on keeping, and not selling or giving up your:

  1. assets
  2. especially any retirement funds
  3. collateral on debts, such as your home, vehicles, or furniture

But there are many other actions that could be smart to take or to avoid as you’re contemplating bankruptcy. Consider the following questions. Should you:

  1. take on more debt to buy time and maybe avoid filing bankruptcy?
  2. file unfiled income tax returns and/or prioritize paying unpaid income taxes?
  3. catch up on late child or spousal support payments?
  4. file for divorce before or after filing bankruptcy?

We’ll cover the first of these today, the rest in upcoming blog posts.

Taking on More Debt

Taking on more debt can take many forms. Whether doing so is smart depends on which form it takes. It also depends on each person’s own circumstances.

Here are some of the most common forms:

  1. increasing unsecured debt from present creditor(s), such as adding to present credit card(s)
  2. getting new unsecured debt, such as accepting a new credit card offer
  3. getting new secured debt, such as buying a vehicle or furniture on credit
  4. increasing or getting new “priority debt,” essentially income taxes or child/spousal support

Let’s look at the first two of these today, involving increased or new unsecured debt.

Increasing Present Unsecured Debt

If the goal is to improve your financial situation, digging a deep financial hole deeper seldom works. It’s seldom a successful recipe for avoiding bankruptcy. But there may be exceptions.

Most of the time the decision to go deeper in debt is an act of near desperation. It’s generally not a well-thought out decision. You don’t have enough in your checking account to get something you need (or believe you need). So you put it on the credit card. You know it puts you further behind but you feel you don’t have much choice.

Or sometimes you do have a plan, or at least an attempt at one. You sit down (by yourself or with your spouse or a significant other). You look at your bills and the rest of your financial life and try to figure out what you should do about your increasing debt. You may tell yourself, for example, that you’ll keep on adding to your credit cards for no more than 2-3 more months. Until you get back to work, or into a better paying job, or until you pay off another debt and free up some cash flow. And if those things won’t happen then you’ll think about getting bankruptcy advice.

But whether you’re adding to your debt impulsively or following a plan, it’s really hard to know if you’re doing the right thing for yourself. It’s almost impossible to be objective because these are really personal, emotion-driving circumstances. There’s almost always a lot of fear and hope involved. Your self-esteem is on the line. And it gets crazy complicated if there’s a spouse or other loved one deeply involved. These are not good environments for making good decisions.

Getting New Unsecured Debt

The situation is similar if you have the opportunity to get a new source of unsecured debt. You wonder if it makes sense to transfer some of your current debt to the new source of credit. It may have a lower interest rate, or better payment terms, at least for the short term. Consolidating all or part of your unsecured debt seems to make sense. It looks sensible for the short term, and you hope it will help you make long term progress on your debts.

Or again, maybe you just can’t meet your expenses this month and feel you have no choice. So the new source of credit enables you to get by for another month or two.

Risk of Challenges to Discharge of a Debt

But incurring new debt can be risky ahead of filing bankruptcy. This is true if it’s additional debt on an existing account. The creditor could challenge the “discharge” (legal write off) of recently incurred debt in your bankruptcy case. The recent debt could be considered fraudulent. The argument would be that you incurred it without intending to pay it or any sensible ability to do so. (See Section 523(a)(2) of the U.S. Bankruptcy Code.)

That could be especially problematic if you are consolidating a lot of your debt with a new creditor or on a new account. Such actions could convert debt(s) that you could have legally discharged into one(s) you cannot.

Again, the larger the amount of the debt you recently accrue the greater this risk. The more that is at issue the more likely the creditor would raise the challenge. And of course the more the amount of the money the more you may still owe in spite of filing bankruptcy.

Rare Challenge to the Discharge of Any Debts

In certain (admittedly rare) circumstances taking certain actions before or during a bankruptcy could be even more dangerous. Lying on bankruptcy documents, hiding assets and such, could threaten your ability to discharge ANY of your debts. (See Section 727(a) of the Bankruptcy Code.)

 Incurring a significant amount of new debt soon before filing bankruptcy might also run you afoul of this provision.

The Best Pre-Bankruptcy Advice

It’s near impossible to know whether in your unique circumstances it make sense to incur a certain debt or not. As we said above, it’s hard not to act mostly out of hopes and fears—to be driven by such emotions. Even if you have the discipline to stop and try to figure things out, it’s still difficult to be objective.

Then if you do get your head and heart in the right place, you still don’t have information you need. Under what circumstances would incurring a new debt result in the creditor’s dischargeability challenge of that debt? What debt amounts and their timing would likely be okay and what would not? What debt actions by you would be acceptable and what would not?

The answers to these questions turn on your individual circumstances. The only source of the right answers to your truly unique questions is your bankruptcy lawyer.

Under the counsel of a lawyer, you’ll cut through the emotions to an objective analysis of your situation. You’ll get the information you need—the law as it applies to you—leading to answers to your questions. You’ll know better what debts you can incur and those you shouldn’t.

 

Top Things You Should Know About Declaring Bankruptcy

March 12th, 2020 at 3:11 am

TX bankrupcty lawyers, TX chapter 7 lawyersBeing in debt can feel like you are drowning, especially if you are so far into debt that you do not see a way out. Whatever the reason for the extreme amount of debt, there are options that you can consider to help with the debt. For many people, bankruptcy can be the right option to relieve them of most, or even all of their debt. However, filing for bankruptcy is not easy and can actually be quite complicated and confusing. Each bankruptcy case is different, so it is not always simple for you to know what to expect after you declare bankruptcy. Here are a few things you should know if you are considering filing for bankruptcy.

Bankruptcy Does Not Happen Overnight

Some people think of bankruptcy as being similar to small claims court where you usually receive your disposition the same day you attend court. This is not the case. The bankruptcy process is complex and typically lasts at least a few months if you file for a Chapter 7 bankruptcy. If you file for a Chapter 13 bankruptcy, the case is open and ongoing for three to five years, the duration of your repayment plan.

Not Everyone Qualifies for Bankruptcy

Not just anyone can get a bankruptcy. Especially for a Chapter 7 bankruptcy, there are certain requirements that you must meet, such as being below a certain income level and passing the means test. The means test is a way of determining your monthly income and expenses to figure out how much disposable income you have each month.

If You Do Qualify, Not All Debts Are Eligible to Be Discharged

Another misconception that people have is that they will be completely free of debt once they have filed for bankruptcy. This depends on a couple of things. First, it depends on the type of bankruptcy you file and second, it depends on the type of debt you have. Most unsecured debt will be discharged in a Chapter 7 bankruptcy, such as credit card debt. However, student loan debt, federal, state and local taxes, alimony and child support debt cannot be discharged or forgiven in bankruptcy.

Your Bankruptcy Will Affect Your Credit

Though bankruptcy can have a huge effect on your life, perhaps one of the most prominent effects is what bankruptcy does to your credit. After a Chapter 7 bankruptcy is finished, it will be reported on your credit report and will stay there for up to 10 years. Most creditors will shy away from loaning money to someone with bankruptcy, so it may be hard for you to open a credit card, take out a mortgage or buy a car.

A New Braunfels, TX Bankruptcy Attorney Can Help

If you are unsure of whether or not bankruptcy is right for you, you should talk with a skilled San Antonio, TX bankruptcy lawyer. At the Law Offices of Chance M. McGhee, we can help you understand all of your options available to you to manage your debts. We can also help you make the right decision about what is best for you and your family’s situation. To schedule a free consultation, call our office today at 210-342-3400.

 

Sources:

https://www.thebalance.com/top-things-to-know-about-bankruptcy-316198

https://www.thesimpledollar.com/credit/bankruptcy/what-to-expect-when-filing-for-bankruptcy/

 

Nondischargeable Co-Signed Debts

November 11th, 2019 at 8:00 am

Co-signed debts get tougher if your co-signer challenges the discharge of your obligation to him or her, or if the debt isn’t dischargeable. 

 

Last week we discussed obligations on co-signed debts, both to the joint creditor and to your co-signer. In that discussion we assumed that both those obligations could be discharged (written off) in bankruptcy. But what if the co-signer challenges your ability to discharge the debt? And what if the underlying debt can’t be discharged, such as a recent income tax? We address these two situations today.

Co-Signer Challenging Discharge

If you file bankruptcy any creditor can challenge your ability to discharge a debt. But creditors’ grounds for successfully doing so are narrow, so such challenges are rather rare. The creditor essentially has to prove that you committed fraud in incurring the debt. You must have misrepresented your intentions at the time the obligation was created.

How would this happen with a co-signer? Assume that you needed a co-signer to incur a debt. As that time you intended to pay the debt so that the co-signer would not need to pay it. But because of unforeseen circumstances—for example, you lost a job or got sick—you couldn’t pay it. Your co-signer is upset that he or she has to pay it. He or she is unhappy that you are discharging your obligation to pay the debt through bankruptcy. He or she is even more unhappy that you are discharging your obligation to pay back him or her for paying off the debt. So he or she files an objection to this discharge of your obligation to him or her.

Would the Challenge Be Successful?

That objection by your co-signer to the discharge of your obligation to him or her would not likely get anywhere. In fact, your co-signer would likely by advised by a lawyer not to waste money on such a groundless objection. That’s because at the time you incurred the obligation you committed no fraud or misrepresentation. You intended to pay the underlying debt so that your co-signer would not need to.

Your co-signer would only have grounds for a successful objection to discharge if the facts were different. Assume that you lied to your co-signer at the time you persuaded him or her to co-sign the debt. You said you had no other debts when you had many debts. Or you said your income was very reliable when you knew that it was not. Under these circumstances your co-signer could allege that you misrepresented the facts to induce him or her to co-sign the debt. If the bankruptcy judge is persuaded that this is what happened, your obligation to your co-signer would not get discharged and you’d have to pay him or her whatever amount he or she paid on the underlying debt.

Nondischargeable Co-Signed Debts

Now on to the other scenario, in which the underlying debt itself can’t be discharged in bankruptcy. Recall the example of a recent income tax debt. Assume that you filed joint income tax returns with your spouse last year and you jointly owe the IRS $3,000. Now you’re getting divorced. This $3,000 joint debt is too recent to be able to discharge in bankruptcy. So you are both fully liable on that tax. In fact, even if the divorce court decrees that one spouse must pay that tax, the IRS still considers both fully liable.  

Assume the divorce decree obligates you to pay this tax but you can’t afford to do so. You can’t discharge the tax obligation in bankruptcy. If you file a Chapter 7 “straight bankruptcy” case you also can’t discharge your separate obligation to your spouse created by the divorce decree for you to pay that tax instead of your spouse. So you need to make arrangements with the IRS to pay the tax. This would likely be in monthly installments, after discharging your other debts in your Chapter 7 case. You’d pay off the tax, and any additional interest and penalties.

This would be slightly different in a Chapter 13 “adjustment of debts” case. Again you can’t discharge the tax debt because it is too recent. However, under Chapter 13 you would be able to discharge your separate obligation to your spouse created by the divorce decree to pay all of the tax yourself. The practical difference? Under Chapter 13 you generally don’t have to pay ongoing interest and penalties. However, those would continue to accrue for your spouse, and he or she would likely be required to pay them. This would happen in spite of the divorce decree because bankruptcy law is stronger.

Possibly Nondischargeable Co-Signed Debts

The last scenario is a co-signed debt that could possibly be challenged as nondischargeable.

Assume you owe a business loan to a bank that you and a business partner co-signed. The business failed and you’re filing bankruptcy. Your now-former business partner has much more assets than you and is hoping to avoid filing. The bank is challenging your bankruptcy discharge of the business loan on the basis of some alleged misrepresentation. Assume also that your former partner has no grounds to challenge your separate obligation to him.

If you succeed in persuading the bankruptcy court that you made no misrepresentation in incurring the business loan, your obligation to the bank will be discharged, as will your separate obligation to your former partner. You will owe nothing to either the bank or your ex-partner.

If you do not succeed, the loan debt will not be discharged. You will continue owing the bank. If your former partner does not file bankruptcy or otherwise discharge the debt, you will both owe it. But assume also that you succeed in discharging your obligation to your former partner, since there made no misrepresentations to him or her. So your former partner cannot pursue you to pay the underlying debt. So if the bank forces him or her to pay the debt first, you won’t have to pay anything to the bank.

Conclusion

As you can see from these examples, protecting yourself when you owe co-signed debts can get complicated. Be sure to tell your bankruptcy lawyer about any possible joint obligations at your first meeting. It’s crucial to know what legal obligations you owe or do not owe to your co-signer(s). Then your bankruptcy lawyer can advise you how to best deal with them, together with your whole financial situation.

 

Concerns about Co-Signed Debts

November 4th, 2019 at 8:00 am

If you have a co-signed debt, you have two separate sets of concerns. Those having to do with your common creditor, and those with co-debtor. 


If you have a co-signed debt you tend to be more concerned about one of two sets of problems. You’re either mostly worried about the other co-signer, or about the creditor you’re both owe on the debt. It’s likely smart to be aware of both. Let’s start with concerns about the creditor.

Concerns about Your Joint Creditor

There’s a good chance you’re worried about the creditor you both owe because you’re having trouble paying the debt. This assumes that you are the one who is supposed to be paying the debt. The point of having a co-signer was to give you more incentive to pay the debt. The creditor has the right to make your co-signer pay the debt if you don’t. We’ll get into your options shortly.

What if you are not the one supposed to pay the debt? What the other co-signer is supposed to but is not doing so? You are obligated to pay a debt that you didn’t expect to pay. Especially if you were already financially challenged, this could push you over the edge. What can you do?

Protecting Yourself from Your Joint Creditor

Assume that the debt you owe is not legally secured by anything. The creditor does not have a right to take any personal property or real estate if you don’t pay the debt.

Assume also that it is not a special debt like income taxes, a student loan, a criminal debt or anything else that bankruptcy does not write off (“discharge”).

The first step in dealing with a co-signed debt is to find out your actual legal obligations on the debt. You may think you are completely liable on the debt when you really aren’t. Bring your bankruptcy lawyer any documents you may have on the debt (if any).

Even if you signed something related to the debt, your obligations may be different than you thought. For example, you might have signed something between you and the co-signer that didn’t in fact make you liable directly to the creditor itself.  The two of you may have assumed that there was joint liability when there actually isn’t. Or your liability may kick in only under certain circumstances. You don’t want to act without knowing these crucial details.

If you find out that you definitely owe the debt one option is to discharge that debt in bankruptcy. In a Chapter 7 “straight bankruptcy” you would likely not have to pay the debt at all. In a Chapter 13 “adjustment of debts” you would pay only as much as you could afford over usually a 3-year period of time. Often that would be only after paying other more important debts first. Either way, in the end you would likely no longer owe anything on the co-signed debt.

Concerns about Your Co-Signer

Concerns about your co-signer can get complicated.

Assume you learn that you are both fully legally liable on the debt. Again, is this a debt that you are supposed to pay or is your co-signer supposed to?

If your co-signer was supposed to pay it, do you have any way of enforcing this? In other words is there any documentation to back this up? Will he or she at least admit that it is his or her obligation? Assume you do have written and/or oral evidence that the co-signer was supposed to pay the debt. It’s still very difficult to enforce this obligation.

You need to discuss these facts with your bankruptcy lawyer to find out your legal AND practical options.

If instead you understand you were the one supposed to pay the debt, again you need to find out whether that’s legally true. Assuming it’s true, then you have two separate legal liabilities on the debt. The first is to the joint creditor. It can sue you to make you pay. We discussed how to deal with that above.

But you have a second separate legal obligation to your co-signer. He or she can also sue you if you do not pay the co-signed debt. How do you deal with him or her?

Protecting Yourself from Your Co-Signer

Assume again that the debt is neither legally secured by anything nor is it one bankruptcy does not discharge.

If you’re both liable on the debt the creditor is likely going to pursue both of you.  Your co-signer will likely demand that you pay. Then especially if your co-signer pays anything on the debt—voluntarily or not—he or she could sue you to repay him or her. To protect yourself from this separate liability to your co-signer, it may be worthwhile to discharge this separate legal obligation in bankruptcy. Chapter 7 and 13 would resolve with the debt as discussed above (about the debt to the joint creditor itself).

There’s a very important practical point about discharging your obligation to your co-signer. List both the creditor and your co-signer on your schedule of creditors in your bankruptcy case. Otherwise you could remain liable to your co-signer once your bankruptcy case is completed. That could happen even if you discharge the underlying joint debt. That does not erase your co-signer’s separate obligation to pay the debt to the creditor. So if you don’t list the co-signer and discharge your obligation to him or her, you could discharge the debt to the creditor and still be forced to pay the debt in full to your co-signer.

 

Bankruptcy Helps Delay Your Home Sale

October 7th, 2019 at 7:00 am

When you need a rather quick solution, Chapter 7 can deal with your creditors and buy you time to sell your home, in the right circumstances. 


Our last several blog posts have been about using bankruptcy to either prevent various kinds of liens hitting your home or deal with those liens if they happen. For example, in the last few weeks we’ve addressed, in reverse order:

  • Protecting your  home from homeowners’ association dues and assessment liens
  • Addressing child  and spousal support liens
  • Preventing income tax liens through Chapter 7 and Chapter 13
  • Dealing with already-recorded income tax liens
  • Preventing judgment liens, and removing them if they’ve already attached to your home

So clearly bankruptcy gives you a multitude of tools to help you preserve your home and its equity.

It can do even more. In the midst of dealing with all your debts, bankruptcy can buy you time to sell your home. Let’s show you how, starting with Chapter 7 today, and Chapter 13 next week.

Chapter 7 Advantage—It’s Quick

Chapter 7 “straight bankruptcy” is quick.

Its quickness helps a number of ways. Chapter 7s are less complicated to prepare and almost always cost you less. So, practically speaking, you can usually go from your initial meeting with your bankruptcy lawyer to filing bankruptcy, faster.

This can be crucial in at least two sets of circumstances.

First, you’re up against some kind of debt-collection or possession-losing event that bankruptcy needs to stop. This can be related to your home, such as the start or the beginning of a mortgage foreclosure. Or it can be unrelated, such as a collection lawsuit against you, a paycheck garnishment, or vehicle repossession. You need to quickly file bankruptcy to stop a creditor from hurting you.

Second, you need to prevent some kind of lien from hitting your home. Preventing an income tax lien or judgment lien, for example, can, under some circumstances, mean the difference between not paying the underlying debt at all and paying it in part or in full.

Chapter 7 Advantage—It Focuses on the Present

The other big Chapter 7 advantage is that it focuses on your situation at the moment of filing. This is important as it applies to your assets and income.

Regarding your assets, Chapter 7 fixates—for most purposes—on your assets and their value at the moment of filing. It generally does not care about future assets (again, with rare exceptions).

This can be crucial when dealing a home that’s increasing in value. You may be getting close to having the maximum allowed equity for your applicable homestead exemption. Assume, for example, that your home is worth $250,000, you owe $230,000, and your state has a $25,000 homestead exemption. So you’d currently have $20,000 in equity ($250,000 minus $230,000). That equity amount can go up quickly if your property’s value is increasing, plus you’re paying down your mortgage (and maybe other liens against the home). Next year you may have too much equity to file a Chapter 7 case. Filing now lets you protect your equity now, and then it can grow freely after you’ve gotten your fresh start.

Regarding your income, Chapter 7 fixates—again for most purposes—on your income at the time of your filing. Future income, including increases in income, is generally outside of the reach of your creditors and the Chapter 7 trustee.

Buying Time to Sell Your Home

With all this in mind, how does Chapter 7 buy you time in selling your home?

Consider two scenarios. One, you’re current on your mortgage, and second, you’re far behind.

Buying Time When Current on Your Mortgage

First, assume you are current or close to current on your home’s mortgage. The amount of your equity is less than your homestead exemption amount. You are being battered by creditors, and if you don’t act quickly bad stuff will happen. So you’re tempted to sell your home to reduce your cost of living or to get at its equity. But you either don’t want to sell, or for personal or family reasons you’d rather wait to do so.

A Chapter 7 filing would prevent or stop virtually all lawsuits and garnishments. It could prevent judgment liens and income tax liens and support liens against your home. Judgment liens that are already on your home likely could be removed. Previously recorded income and support liens could be better resolved with your greater cash flow. You’d likely be better able to afford your mortgage and other home-related costs. All that would happen either immediately or within about 4 months after your bankruptcy lawyer filed your Chapter 7 case.

Buying Time When Behind on Your Mortgage

Second, assume instead that you are not current on your mortgage but rather you’re far behind and facing foreclosure. You definitely want to sell your home but you’ve run out of time. You’re about to lose your home to foreclosure.

Chapter 7 buys you some time. Instead of losing your home—and any equity you may have in it—to foreclosure, you stop the foreclosure. You gain a few precious months to either close a pending sale or to make a sale.

Or if you are not that close to foreclosure, filing bankruptcy may improve your monthly cash flow enough so that you and your lawyer can negotiate a “forbearance agreement” with your mortgage lender. This is a payment plan for catching up on the mortgage arrearage (and maybe any late property taxes). Then, anytime either during that payment plan or afterwards, you could sell your home.

You may even be able to work that into the forbearance agreement. You could agree to relatively smaller monthly catch-up payments, and then pay off of the remaining arrearage and the entire mortgage balance from proceeds of the house sale.

 

What Not to Do Before Filing for a Texas Bankruptcy

April 26th, 2019 at 2:38 pm

Texas bankruptcy attorneyFor many people who have quite a bit of debt, bankruptcy is the best option. There are two types of bankruptcies that individuals can file for in the United States — Chapter 7 and Chapter 13 bankruptcies. A Chapter 7 bankruptcy is one that discharges most of your debt and leaves you with a blank slate so you can rebuild your finances. A Chapter 13 bankruptcy is basically a reorganization of your debts — you work with your debtors to come up with a repayment plan that works for you. In either of these scenarios, there are certain things that are big no-no’s. It is important that you avoid these common mistakes when filing for a Texas bankruptcy:

Lying or Withholding Information from Your Attorney

Though it may seem beneficial to lie or hide certain assets from your attorney, it is quite the opposite. It is against the law to attempt to hide assets or omit them from your list of assets that you submit to the bankruptcy court. Not only could your bankruptcy case be rejected, but you can also face criminal charges related to bankruptcy fraud.

Acquiring New Debt After You Have Started the Process

In a Chapter 7 bankruptcy, most if not all of your debts are discharged. It may be tempting to take your credit card and go on a shopping spree before you file for bankruptcy, but that is the last thing you should do. Incurring new debt within 90 days of filing for bankruptcy is highly frowned upon and will most likely not be dischargeable in your bankruptcy, meaning you will be responsible for repaying that debt.

Giving Money or Property to Your Friends or Family

Similar to lying about your assets, it is also not a good idea to try to give money or other property to your friends or family before you file for bankruptcy. This is also illegal and can put your bankruptcy case in jeopardy, along with possible criminal charges and repercussions.

Not Hiring a Skilled New Braunfels, TX Bankruptcy Lawyer

The bankruptcy process can be overwhelming for many people — there is a lot of paperwork that must be filed and there are many legalities that must be followed. At the Law Offices of Chance M. McGhee, we take the confusion out of bankruptcy and help you avoid making these costly mistakes. Let our knowledgeable Kerrville, TX bankruptcy attorneys guide you throughout the bankruptcy process and lead you on a path to financial wellbeing. Call our office today at 210-342-3400 to set up a free consultation.

 

Sources:

https://www.allbusiness.com/13-mistakes-avoid-filing-chapter-13-bankruptcy-12340-1.html

https://www.myhorizontoday.com/bankruptcy101/five-common-mistakes-debtors-make-when-filing-bankruptcy/

https://www.debt.org/blog/what-not-to-do-before-filing-bankruptcy/

Does Hiring a Bankruptcy Lawyer Stop Collection Actions?

January 24th, 2018 at 8:00 am

Hiring a bankruptcy lawyer can stop creditor phone calls and some other potentially very important collection actions against you.


What relief can you get when you get a bankruptcy lawyer?

Relief After vs. Before Filing Bankruptcy

The moment you file a bankruptcy case, all or most of your creditors must legally stop collecting their debts. The law that accomplishes this is called the “automatic stay.” This is what prevents a home foreclosure or vehicle repossession from going through. It also stops a lawsuit from turning into a wage garnishment, and ends an ongoing garnishment. See Section 362 of the U.S. Bankruptcy Code.

However, if you are just now looking into bankruptcy as an option you may be several weeks, or more, from actually filing your case. In very urgent situations you may be able to file a bankruptcy case quite quickly. But to be practical, it can take some time for you to understand and choose among your options. You may need some time to gather information or documents. It’s sometimes much better tactically to delay filing for a few days or weeks. In all these situations it can be really helpful if you could get some relief sooner than the bankruptcy filing itself.

The Immediate Benefits of Being Represented by a Lawyer

You can often get some immediate relief right after (or sometimes even during) your first meeting with your lawyer. That’s because the lawyer can stop certain things from happening before you actually file your bankruptcy case.

When you become represented by a lawyer and your creditors are informed of this:

  • Creditors and debt collectors can usually no longer call you.
  • Their collection letters have to be sent to your lawyer.
  • They are not legally prevented from starting a lawsuit against you. But they often don’t do so (for at least a certain amount of time). Why not? Because:
    • When creditors sue, they are hoping to get a “default judgment” against you. That’s a quick judgment that happens when you don’t respond to a lawsuit on time. Creditors know that getting an easy judgment is much less likely if you have a lawyer.
    • When a creditor has good reason to think that you are about to file a bankruptcy case, they will be less willing to pay the court filing fee and other costs of suing you.
  • If a creditor has already sued you, your lawyer can likely buy some time before a judgment is entered. That gives you more time to file your bankruptcy case and stop that judgment from being entered.

Why This Kind of Immediate Lawyer Help Can Be Very Important

When we talk about immediate relief, partly we’re talking about emotional relief. In our experience THAT kind of relief almost always happens even at your first meeting with your lawyer. You find out that there ARE practical solutions, that there IS a light at the end of the tunnel.

But we’re also talking about even more tangible relief. Getting a lawyer on your side can make an immediate and huge difference in the outcome. Here’s an example.

Example: Preventing a Judgment Lien from Creating a Non-dischargeable Debt

A creditor’s judgment usually turns into a judgment lien against your home. Sometimes a judgment lien can be “voided”—undone—in your bankruptcy case. But depending on factors such as the value of your home, the amount of debt(s) against it, and the amount of your homestead exemption, that judgment lien may NOT be voidable.  That could turn a debt that would have been able to discharge (legally write off) into one that you would have to pay in full. That could cost you thousands of dollars.

Had you instead met with and retained a lawyer before that judgment was entered, the judgment could likely have been prevented.

Conclusion

See a lawyer as soon as possible. Your situation may or may not be that urgent. But the lawyer will be able to tell you what bad events he or she may be able to stop from happening. From that you can decide whether it’s worthwhile retain the lawyer quickly. If so, then you’ll avoid having bad things happen to you that could have been prevented. 

 

Get a New Financial Start with this New Year

January 1st, 2018 at 8:00 am

Get a new financial start for 2018. Stop creditor pressures immediately, write off all or most debts, and responsibly deal with the rest.

 

An Overall New Financial Start

Get a new start by discharging (permanently, legally writing off) all or most of your debts. If you have mostly consumer or small business debts you have two main choices about how to make this happen.

A New Start with Chapter 7

With Chapter 7 “straight bankruptcy” you get a new start very fast. As soon as your case is filed most of your creditors can’t collect their debts against you. They can’t go after your money or your property. Then usually about 3-4 months later the bankruptcy court enters an order discharging your debts. As quick as that you become debt-free. The only exceptions would possibly be debts you want to keep and special debts you can’t discharge. Debts you might want to keep could include a vehicle loan or home mortgage. Debts you can’t discharge include recent income taxes, unpaid child and spousal support, and criminal fines.

Imagine if you filed a Chapter 7 case this month. Immediately your creditors could no longer chase you or anything of yours. All or most of your debts would forever be gone by April or May. The remaining critical debt or two you’d be able to handle sensibly. That quickly you’d have a new financial start.

A New Start with Chapter 13

With Chapter 13 “adjustment of debts” the new start is more nuanced, but sometimes much better.

Just as with Chapter 7 your creditors can’t take any action to collect their debts as of the moment you file your case. But under Chapter 13 that protection from creditors lasts not just a few months but for years. The final discharge of debts happens much later but in the meantime you can get many benefits unavailable under Chapter 7. You can deal in creative ways with special debts. You often have much more flexibility with secured debts like home mortgages and car loans. Same thing with income taxes and child support arrearages, among others, that can’t be discharged. Plus you get protection from collection actions against any co-signers that you don’t get under Chapter 7.

You finish your Chapter 13 payment plan in usually 3 to 5 years. Whatever debts you have not paid off get discharged. You are debt-free with limited exceptions like a home mortgage you want to still pay.

Under Chapter 13 you get immediate relief and a new start through a reasonable payment plan based on your budget. Then when that plan is done it’s followed by a full new start with (virtually) no remaining debts.

So, if you filed a Chapter 13 case this month, immediately your creditors could not chase you or any co-signers. You’d enter into a doable payment plan to handle your special debts in ways much better than Chapter 7. And when that plan is paid off you’ll have a full new financial start.

 

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210-342-3400

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