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Archive for the ‘Bankruptcy Procedure’ Category

Fraudulent Transfers Around the Holidays

November 26th, 2018 at 8:00 am

Giving a gift, including selling for much less than an asset is worth, may be a fraudulent transfer—treated as hiding assets from creditors.

 

Most people filing bankruptcy have neither a need nor the desire to hide anything from their creditors. There’s no need because most people’s assets are already protected through state and federal laws. There’s no desire because most people are honest and want to follow the law.

Yet anybody considering bankruptcy should still have some understanding of the law of “fraudulent transfers.” That’s because it could cause you problems even if you thought you were being honest and fair. As you’ll see this may more likely happen during the gift-giving holiday season.

“Fraudulent Transfers” Explained

A “fraudulent transfer” is essentially a debtor giving away—transferring—an asset to avoiding giving creditors that asset’s value. This can be done with bad intentions, but also without any such intentions.

If you give away something (for example, as a holiday gift), or sell something for much less than it’s worth, then under certain circumstances your creditors could require the recipient to surrender it to the creditors. That would usually not be a good result because you’d prefer that the person be able to keep your gift.

The gift or sale in a “fraudulent transfer” can be challenged in either state courts or bankruptcy court. In a bankruptcy case the bankruptcy trustee would act on behalf of the creditors to “avoid” (undo) the transfer.

The Two Kinds of “Fraudulent Transfers”

There are two kinds of fraudulent transfers.

The one based on “actual fraud” requires the actual intent to harm a creditor or creditors. It occurs when a debtor gives a gift or makes a transfer “with actual intent to hinder, delay, or defraud” one or more creditors. Section 548(a)(1)(A) of the U.S. Bankruptcy Code.

The one based on “constructive fraud” does not require the actual intent to harm a creditor. It occurs when a debtor gives a gift or makes a transfer receiving “less than a reasonably equivalent value in exchange, in which the debtor “was insolvent on the date that such transfer was made.  . .  , or became insolvent as a result of such transfer.” Section 548(a)(1)(B) of the Bankruptcy Code. Although the debtor does not intend to defraud anybody, the transfer can be undone under certain circumstances.

Legal and Practical Considerations

Most people filing bankruptcy will not be accused of a fraudulent transfer for a number of reasons:

1) Most people simply don’t give away their assets leading up to filing bankruptcy.

2) Gifts to charities are largely exempt.

3) The bankruptcy system doesn’t care about minor gifts or transfers.

4) Even in circumstances that a transfer could be challenged, the trustee has to consider the cost and practicality of undoing the transfer.

1) Debtors Don’t Generally Give Away Assets

Most people considering bankruptcy usually need pretty much everything they own. So they aren’t going to be giving it away or selling it for less than it’s worth.

Furthermore, the assets that people own when filing bankruptcy are usually fully protected. So there’s no motivation to transfer them away.  These protections are usually through property “exemptions,” or through the special advantages of the Chapter 13 “adjustment of debts.”

2) Gifts to Charities Are Essentially Exempt

The Bankruptcy Code creates a big exception for transfers made “to a qualified religious or charitable entity or organization.” Charitable contributions are exempt if they do “not exceed 15 percent of the gross annual income of the debtor.” The amount of contributions can total an even higher percentage “if the transfer was consistent with the practices of the debtor.” Section 548(a)(2).  

3) Minor Gifts Are Not a Problem

The bankruptcy system doesn’t worry about relatively minor gifts or transfers. This effectively means a gift or gifts given over the course of two years to any particular person valued at $600 or less. The Bankruptcy Code itself does not refer to that threshold amount. But the Statement of Financial Affairs for Individuals, which is one of the official documents you and your bankruptcy lawyer prepare and file at court does so.

This document includes the following question #13:

Within 2 years before you filed for bankruptcy, did you give any gifts with a total value of more than $600 per person?

The next question (#14) is very similar:                                            

Within 2 years before you filed for bankruptcy, did you give any gifts or contributions with a total value of more than $600 to any charity?

4) Cost and Practicality of Avoiding the Transfer

Even when a gift or other transfer arguably qualifies as a “fraudulent transfer,” the trustee has to seriously consider the costs in attorney fees and other expenses to try to undo that gift or transfer. At the very least the costs have to be weighed against the amount likely to be gained for the creditors.

This is particularly true when there’s a meaningful risk that the transfer would not qualify as a “fraudulent transfer.” Or the transfer may qualify but the transferee has disappeared or a judgment against him or her is uncollectable.

 

Can You File Bankruptcy Without Your Spouse?

June 15th, 2018 at 6:02 pm

bankruptcyMany people mistakenly believe that if you are married and filing for bankruptcy, you must do so jointly. You have several options after determining that bankruptcy is the right choice. If you are unmarried, you will file independently. If you are married, you may file jointly or as an individual. Both spouses may also choose to file bankruptcy separately, at the same time. Strategically, one option may suit your situation better than the others, depending mainly on location, debts, and assets.

Texas and the Other Community Property States

Texas, along with nine other states, is a community property state. Meaning, any assets or property acquired during marriage belongs equally to both spouses, even if only one spouse’s name is on the contract. The assumption is that all decisions are made together, rather than individually, and both parties are contributing their fair share. Any items owned before the marriage are excluded from the community property, as are any items inherited or given only to one spouse after the union began; this is separate property.

More Property Is at Risk

If you choose to file bankruptcy without your spouse, more property is at risk in community property states than in common law states. In a common law state, only the separate property owned by the filing spouse becomes a part of the bankruptcy estate. In Texas, any community property not covered by exemptions is at risk for seizure. In some cases, filing for bankruptcy together doubles the amount of the exemptions, allowing spouses to keep more items.

The Affected Debts

In a community property state, there, fortunately, is no such thing as community debt. Each spouse has separate obligations for accounts solely in their name, as well as any held jointly. If one spouse files independently, their individual accounts, as well as their joint accounts, are dischargeable. The non-filing spouse experiences what is known as a “phantom discharge” or “community discharge.” Any community property co-owned by both parties becomes off-limits to discharged creditors, including wages. However, because the non-filing spouse did not file, their separate property is unprotected and at risk of seizure to satisfy the debt for joint accounts.

What Is Right for You?

Navigating the avenues of bankruptcy is often confusing and stressful for filers. Attorney Chance M. McGhee has over 20 years of experience assisting clients just like you begin their journey to a better financial future. If you have questions about how to file or wonder about the best option for your situation, a New Braunfels bankruptcy attorney is here to give you the answers you need. At the Law Offices of Chance M. McGhee, we are dedicated to helping you through the process. Call us today at 210-342-3400 for your free consultation.

The Surprising Benefits: Reinstating Your Driver’s License Suspended for Unpaid Tickets

May 24th, 2018 at 7:00 am

You may be able to reinstate your license in spite of one or more unpaid traffic tickets. It mostly depends on the traffic laws violated. 

 

We’re deep into a series of blog posts about powerful, less familiar benefits of bankruptcy. One important one is getting your suspended driver’s license reinstated. Whether you can get your license reinstated through bankruptcy depends a lot on the reason for the suspension. Last week we covered suspensions for not paying a judgment from a motor vehicle accident while driving uninsured or underinsured. Today we cover suspensions for not paying one or more traffic tickets.

License Reinstatement Depends on Discharge of the Traffic Ticket(s)

Our last blog post showed how bankruptcy reinstates a license suspended because of an unpaid debt from an accident. These suspensions usually come from not paying a court judgment or debt from an uninsured motor vehicle accident. Usually such a debt can be legally written off (“discharged”) through bankruptcy. After bankruptcy takes away the reason for the suspension, the driver’s license can be reinstated.

It works about the same way with traffic tickets. If your license was suspended for not paying traffic tickets, a bankruptcy can sometimes discharge what you owe on those tickets. That could enable you to reinstate your license.

Not Available Under Chapter 7

Chapter 7 (“straight bankruptcy”) doesn’t work with traffic ticket suspensions. Chapter 7 doesn’t discharge “a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit.” See Section 523(a)(7) of the U.S. Bankruptcy Code.  A debt owed for a traffic ticket is a “fine” or “penalty” that you owe to the state, city or other local “governmental unit” whose police issued it to you. Because Chapter 7 doesn’t discharge traffic tickets, it cannot reinstate a driver’s license suspended for nonpayment of those tickets.

Need to File Under Chapter 13

However, Chapter 13 is different. It may be able to discharge the debt from your tickets. That’s because Chapter 13 does NOT exclude “a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit” from discharge. See Section 1328(a)(2) of the Bankruptcy Code. That Subsection lists the kinds of debts that Chapter 13 does not discharge. It refers to some but not all of the kinds of debts that Chapter 7 cannot discharge. The kinds of debts listed do NOT include the “fine” and “penalty” one referred to above—Section 523(a)(7). This means that Chapter 13 CAN discharge such “fines” and “penalties,” including certain traffic ticket debts. Since Chapter 13 can discharge traffic tickets, it may enable you to reinstate your license suspended for that reason.

Traffic Crimes vs. Violations or Infractions

Whether Chapter 13 can discharge the ticket debt depends on the nature of the law(s) you violated. Neither Chapter 7 nor Chapter 13 can discharge criminal fines or restitution. So the traffic ticket(s) must not be for a crime, but rather for a traffic violation or infraction. It can’t be for a misdemeanor or felony.

Chapter 13 specifically excludes from discharge “any debt… for restitution, or a criminal fine, included in a sentence on the debtor’s conviction of a crime.” See Section 1328(a)(3). So did your license suspension came from breaking a traffic law requiring you to pay restitution or a criminal fine? If so that restitution or fine could not be discharged in bankruptcy, thereby not enabling your license to be reinstated. But if your ticket(s) are from traffic violation(s) or infraction(s), those could be discharged and your license reinstated.

This Can Be Unclear and Feel Arbitrary

What’s the difference between a dischargeable non-criminal traffic violation or infraction and a nondischargeable criminal fine?  This is often not clear.  None of these words are defined in the Bankruptcy Code. Whether breaking a traffic law is considered non-criminal or criminal can be quite arbitrary. It can turn on the coincidence of the words used in your state’s statutes or your local jurisdiction’s ordinances.

Generally, the more serious a violation of the traffic laws, the more likely that violation would be considered criminal. On one extreme, parking tickets are most likely not criminal. On the other extreme are serious violations that would likely be considered criminal, such as reckless driving, hit and run, and evading arrest. Your bankruptcy lawyer has experience with your local and state jurisdictions’ laws to advise you in making this crucial distinction.

License Reinstatement Procedure

Assume that Chapter 13 would discharge your particular traffic ticket debts. Under Chapter 13 the discharge of your debts does not happen until the end of the 3-to-5 year case. You may or may not have to wait that long to reinstate your license. It depends on local procedures.

Those procedures involve a number of authorities—the state or local court imposing the traffic fine, the state motor vehicles department reinstating your license, and the bankruptcy court discharging the traffic fine debt.

Conclusion

So, no question, this is complicated. Your bankruptcy lawyer will help in two huge ways. First, he or she will advise you whether you will be able to reinstate your license. If so, second, your lawyer will be aware of policies and practices of each of the authorities (or can research this), and guide your case through them efficiently. Then your license will be reinstated as quickly as possible.

 

Surprising Bankruptcy Benefits: Make Creditors Return Your Money

March 26th, 2018 at 7:00 am

Bankruptcy doesn’t just stop garnishments and other collections. Sometimes you can make a creditor return money it recently took from you.

 

Bankruptcy’s “automatic stay” is one of the most immediate and powerful benefits of bankruptcy. It immediately stops almost all creditor collection actions against you, your income, and your assets. See Section 362 of the U.S. Bankruptcy Code.  

But it does not go into effect until the moment you file your bankruptcy case. What if a creditor garnishes or otherwise gets your money right BEFORE you file bankruptcy?

Sometimes the creditor can be forced to give up such recently received money as well.

The Law of Preferences

This happens through the surprising and easily misunderstood law of “preferences.”

This law says that if a creditor takes money (or some other asset) from you within the 90 days before you file your bankruptcy case, the creditor may need to pay it back. It has to do so if keeping that money results in that creditor receiving a greater share of its debt than the rest of your creditors would get out of your bankruptcy case. See Section 547(b) of the Bankruptcy Code.

That second condition would often be met, especially in a consumer Chapter 7 “straight bankruptcy case.” So, most money grabbed by an unsecured creditor within 90 days before your bankruptcy filing can be “avoided.” The creditor can be forced to return it.

For example, let’s say an aggressive unsecured medical debt collector garnishes your checking account. You’ve just deposited your paycheck and the creditor grabs $2,000. You owed $5,000 so this creditor just got paid 40% of its debt. Then you file your Chapter 7 case a day after the creditor garnished your money. Assume you owe a total of $75,000 in general unsecured debts. If in that Chapter 7 case—as in most—all your assets were “exempt” (protected), those debts would receive nothing. So, the garnished $2,000 would be a preferential payment that could be reversed. That’s because it happened within 90 days before filing and resulted in the creditor getting 40% instead of nothing.

(There are a number of other conditions and exceptions to a preference, but they often don’t apply to consumer cases. However, preference law can sometimes get quite complicated. You need to talk with your bankruptcy lawyer to find out if you really have an avoidable “preferential payment.”)

The Principles behind Preference Law

Preference law serves two principles important to bankruptcy.

First, bankruptcy law tries to discourage overaggressive creditors. The risk that a creditor would have to return money grabbed just before the debtor files bankruptcy is supposed to be a disincentive for such a money grab.

Second, a lot of bankruptcy law focuses on maintaining fairness among creditors. Similarly situated creditors should be treated the same. No playing favorites unless there is a legally appropriate reason to do so.  (On such reason would be if the debt is secured by collateral).

This fairness means that legally similar creditors need to be treated the same not just during your bankruptcy case but also shortly before the filing of your case. The period of fairness extends a bit before the bankruptcy filing so that overly aggressive creditors aren’t favored. Any available money or assets are spread among all the creditors more evenly and thus more fairly.

A Preference Benefitting You

It’s all well and good to punish a creditor for grabbing money from you shortly before you file bankruptcy. But what good does it do you if that money just goes to your Chapter 7 trustee?  The trustee would just distribute that money among your other creditors, right?

Generally, yes. But in many circumstances this preference money helps you very directly. Next time we’ll show you how.

 

A Dozen Surprising Benefits of Bankruptcy

March 19th, 2018 at 7:00 am

Bankruptcy can go beyond giving you immediate and long-term relief from your debts. It comes with many other surprising benefits. 

 

The next 12 blog posts will be about some of the most powerful and surprising benefits of bankruptcy.

You’re likely considering bankruptcy because you’re financially overwhelmed and need relief. You need immediate relief from debt collection pressures. You need long-term relief from having to pay debts you can’t handle. Bankruptcy provides that immediate and long-term relief.

But bankruptcy can often also give you some other rather amazing benefits, beyond the basic relief you expect. The next dozen weekly blog posts will give you details about the following benefits:

1. Get Back Money Recently Paid to a Creditor

Through “preference” law you could get back money you’ve recently paid to a creditor—paid either voluntarily or not.  

2. Undo Judgment Liens on Your Home

Through judgment lien “avoidance” you can often permanently remove a judgment lien, a tremendous practical benefit.   

3. Get Back Your Driver’s License after an Unpaid Judgment

Reinstate your license if you lost it by not paying a debt from an uninsured or underinsured motor vehicle accident.

4. Reinstate Your Driver’s License from Failing to Pay Tickets

Reinstate your license if it had been suspended for unpaid traffic infractions.

5. Get Back Your Just-Repossessed Vehicle

Filing bankruptcy not only prevents vehicle repossession; it may be able to get your vehicle back to you after it’s already been repossessed.

6. Get Out of an Unaffordable Payment Plan with the IRS/State

Bankruptcy comes with a surprising array of tools to use against your tax debts, allowing you to prevent or get you out of an onerous monthly payment plan.

7. Prevent Debt Collections from Re-Starting after Being “Stayed”

Bankruptcy doesn’t stop or only temporarily stops certain select debts from being collected—such as child/spousal support arrearage, recent income taxes, student loans, and debts incurred through fraud. But there are tools bankruptcy provides for resolving special debts like these permanently.

8. Prevent an Income Tax Lien Recording and Its Potentially Huge Damage

An income tax lien can turn a debt that could be discharged—permanently written off—into a debt that you must pay in full. A timely bankruptcy filing can prevent this financial hit.            

9. Bankruptcy Can Often Reduce Some or All of a Tax Lien’s Financial Impact

In some situations a tax lien can be made either wholly or partially ineffective. Besides saving you lots of money you get the peace of mind that your home is not at risk.

10. Avoid Paying Your Ex-Spouse Most of Your Property Settlement Debts

Chapter 13 allows you to discharge—write-off—some or all non-support obligations of your divorce.

11. “Cram down” and Change the Payment Terms of Your Vehicle Loan

If your vehicle loan is more than two and a half years old, you can usually reduce your monthly payments and the total amount you pay on the loan.

12. Get Out of Your Vehicle Lease through Bankruptcy

Leasing is often the cheapest way to have a vehicle short term, but is actually usually the most expensive long-term. Bankruptcy can be the best way to get out of this expensive obligation.

 

Prevent Losing the Automatic Stay Because of a Prior Bankruptcy Filing

February 2nd, 2018 at 8:00 am

Either 1) wait one year to file your bankruptcy case after getting a prior bankruptcy case dismissed or 2) justify why the dismissal happened. 


The last few blog posts have been about situations in which the automatic stay is temporary, but still very effective. These situations have involved individual debts or sets of debts—such as income taxes or student loans. The automatic stay’s protection from debt collection in a Chapter 7 case is temporary for debts which survive the bankruptcy case because the automatic stay expires once the case is completed—usually just 3-4 months after filing. But that may be fine with income taxes and student loans for reasons explained in the last two blog posts.

Today we get into a situation much more dangerous. Here the automatic stay protection from debt collection could be lost as to ALL your debts.

The Automatic Stay

We start first with a bit of background. One of the most important and immediate benefits of filing bankruptcy is the automatic stay. This is the federal law that stops creditors from collecting your debts immediately when you file your bankruptcy case. It protects you, your income, and your assets. The automatic stay usually provides this protection as long as your case is open. (See Section 362 of the U.S. Bankruptcy Code.)

This is a crucial to bankruptcy relief. You certainly don’t want to lose this tremendously important benefit of bankruptcy. You especially don’t want to lose it unexpectedly, just when you are most counting on it. Yet there is a situation this could happen, so you want to know about and prevent it.

Losing the Automatic Stay

You could file a bankruptcy case and lose his protection essentially without warning 30 days later. The situation at issue is if you are now considering filing a bankruptcy case and you filed one prior bankruptcy within the last 365 days, which was subsequently dismissed. (See Section 362(c)(3) of the Bankruptcy Code.)

Don’t immediately assume this does not apply to you. IF you didn’t even think about and take ANY action to file a case in the last 365 days then in fact this problem likely doesn’t apply to you. But be very careful. We have seen circumstances when a prior bankruptcy was filed and dismissed without the debtor being fully aware of it then and so without remembering it later when filing another case later.

Avoid Losing the Automatic Stay 30 Days After Filing

Assume that about 10 months ago you had filed a bankruptcy case. But immediately after filing you settled the debt that had pushed you into bankruptcy. So you didn’t take any further action on your bankruptcy case, and it got dismissed (thrown out and closed).

Now, many months later, your other creditors are causing you big trouble so you again file a bankruptcy case. You don’t consider the prior case to have been a real bankruptcy filing because you didn’t follow through on it. You consider the new case to really be your first bankruptcy filing. You may even tell your bankruptcy lawyer about the prior filing.

But that would be a mistake. As a result, the automatic stay would immediately go into effect with the current bankruptcy filing as usual. However, the automatic stay would automatically expire 30 days later. That is, it would expire unless by then you and your attorney would show the court that you meet certain conditions. 

Those conditions involve justifying why the previous case was dismissed and why the present case is being filed. Depending on the exact circumstances, you may be able to justify filing a second case within a year. These circumstances involve the reasons for the prior case dismissal, and financial changes from the prior filing until the present one. (Again, see Section 362(c)(3).)

However, if you are not be able to convince the court, you’d be subject to ongoing debt collection from 30 days after filing until the debts were discharged 2-3 months later. That would make for an unexpected mess, and likely quite an expensive one.

Conclusion

So, make sure there was no prior filed and dismissed bankruptcy case within the last 365 days before the filing of your current case. If there was one, consider waiting for a full year to pass before filing the new case. If that’s not feasible, discuss with your lawyer whether your circumstances would result in your bankruptcy judge preserving the automatic stay because your prior filing/dismissal and new filing were justified.

 

Preventing Wage Garnishment through Bankruptcy

January 26th, 2018 at 8:00 am

Filing bankruptcy protects your paycheck. It does so because federal bankruptcy prevents a state court wage garnishment order.

 

Last time we got into how hiring a lawyer can stop a creditor from suing you. Sometimes it can also stop a creditor which has already sued from getting a judgment against you.

But these work mostly for practical reasons, not legal ones. A creditor may not sue when you are about to file bankruptcy because it’s often a waste of time and effort to do so. It may hold off on taking a lawsuit to judgment when your lawyer is on the scene to oppose it. However, there is usually no legal reason stopping a creditor from proceeding.

So a creditor can, and sometimes will, sue you even if you’ve hired a bankruptcy lawyer. It can try to proceed with its lawsuit and get a judgment against you. One of the main reasons it would do so it that it wants to start garnishing your paycheck.

Filing bankruptcy virtually always prevents a garnishment from happening. That’s because your bankruptcy filing does make it illegal for your creditor to keep collecting the debt. 

Bankruptcy Prevents Wage Garnishments

Filing either a Chapter 7 “straight bankruptcy” or Chapter 13 “adjustment of debts” imposes the “automatic stay” on your creditors. The “automatic stay” forbids further collection of almost all your debts. (Some rare exceptions are criminal fines and restitution, and most child and spousal support.) This stopping of debt collection goes into effect the moment you file bankruptcy.

In particular, the automatic stay stops “the commencement or continuation” of a lawsuit against you on a debt. Section 362(a)(1) of the U.S. Bankruptcy Code. That means that once you file bankruptcy, creditors can’t start a lawsuit against you. A lawsuit that a creditor already filed can’t continue. 

Almost always creditors can’t garnish your paycheck until after first finishing and winning a lawsuit against you, getting a judgment in its favor, and then getting a wage garnishment court order for the purpose of collecting the judgment. So the bankruptcy prevents the lawsuit from turning into a judgment. And without a judgment the creditor can’t garnish your wages.

Bankruptcy Prevents Most Wage Garnishments Permanently

In preventing upcoming wage garnishments, bankruptcy does so permanently with the vast majority of debts. This happens when a debt is discharged (legally written off) in the bankruptcy case, as most debts are. Once a debt is discharged, an injunction is imposed against the collection of that debt ever again. That includes collection by any means, including garnishment. Section 524(a)(2) of the Bankruptcy Code. So the bankruptcy filing prevents wage garnishment on most debts, forever.

There are relatively rare situations when wage garnishment is only prevented temporarily. There are also some very limited situations when a wage garnishment is not prevented at all. We’ll get into these in the next couple blog posts.

 

Your Voluntary Dismissal of a Chapter 13 Case

August 25th, 2017 at 7:00 am

The Bankruptcy Code explicitly says that, at the request of the person in a Chapter 13 case, the bankruptcy “court shall dismiss” the case. 

 

The last three blog posts have been about amending, or “modifying,” your Chapter 13 payment plan. But what if you don’t want to be in the Chapter 13 case at all? Can you just end it altogether?

Yes, almost always you can end a Chapter 13 case, by getting it “dismissed.”.

A Clearly Stated, Special Right

You can dismiss a Chapter 13 case easily because the Bankruptcy Code says you can, and says so very clearly:

On request of the debtor at any time… the [bankruptcy] court shall dismiss a case under this chapter [13].

(Section 1307(b) of the Bankruptcy Code.)

Two parts of this deserve to be highlighted:

  1. You can ask for a dismissal “at any time”—at any point in the life of a Chapter 13 case. So you can dismiss it soon after filing, if you realize you’ve made a mistake and change your mind. And you can dismiss your case after your payment plan has been approved by the court, for example, if your circumstances change and you don’t want to be in it any more.  
  2. The law says that “the court shall” dismiss the case whenever you ask. This seems to mean that the bankruptcy court doesn’t have any choice about it. The wording isn’t that the court “may” but rather that it “shall” dismiss your Chapter 13 case.

As a result if you ever want your Chapter 13 case dismissed, usually within a day or so of your bankruptcy lawyer filing a motion to dismiss your case will be dismissed.

Be aware that there isn’t a similar statute enabling the easy dismissal of a Chapter 7 “straight bankruptcy” case. So this is a powerful right special to Chapter 13.

Why Is This Reserved for Chapter 13?

Most likely Congress included this right to provide an incentive for people to file under Chapter 13. Naturally you’ll be more inclined to try a particular legal solution if you can always get out of it. The idea is to encourage people to pay part of their debts instead of writing them off under Chapter 7.

In fact Congress thought this right to dismiss so important that you can’t be forced to give it up. The statute finishes by saying: “Any waiver of [this] right to dismiss… is unenforceable.” (Section 1307(b)) You can‘t be forced to sign away this right by contract or otherwise.

The Importance of the Dismissal Option

A Chapter 13 case lasts a long time compared to a Chapter 7 case—usually 3 to 5 years. A lot can happen during that time. So it can be important to be able to get out.

The major reason you filed your case may no longer apply. For example, you may have filed to catch up on home mortgage payments but you get a job out of state. So now you decide to surrender or sell the home instead, and don’t need the Chapter 13 case.

Or your financial circumstances change so that you don’t need Chapter 13 help, or else it doesn’t help you enough. In the example of being behind on your mortgage, if you came into some money you might be able to quickly catch up and no longer need the time that Chapter 13 buys you. Or your income goes down significantly so that you can’t catch up even within the extended time Chapter 13 provides.

In these and countless other circumstances, it’s good to be able to get out if that’s your best option.

But IS Dismissal Your Best Option?

As easy as it is to do, simply dismissing the case is often not your best option. That’s because most likely you have debts which you would continue to owe. Chapter 13 does not result in a “discharge”—legal write-off—of your debts until its successful completion. So if you dismiss before then you will continue to owe those debts. It may be better to instead “convert” into a Chapter 7 case. But there are situations when dismissal is the best. We’ll address these issues in the next few blog posts.

Can You Definitely Dismiss Your Case If You Want To?

In spite of what we said about the clear language in the statute, there may be some extreme situations when a debtor could not dismiss a Chapter 13 case.

There has been debate among bankruptcy judges about this. Some have decided that in situations of serious debtor abuse or fraud, the debtor can’t escape the jurisdiction of the court by simply getting his or her case dismissed. There may be other statutes or legal principles that can defeat even the clearly stated right of dismissal.  So in limited situations a judge might prevent a Chapter 13 case from being dismissed. 

However, in the vast majority of situations, just about as soon as you ask your Chapter 13 case will be dismissed.

 

The Chapter 13 Plan

July 24th, 2017 at 7:00 am

Chapter 13 revolves around your payment plan, which you propose based on your budget, and possibly negotiate with creditors and the trustee. 

 

In our last two blog posts we introduced Chapter 13 “adjustment of debts” bankruptcy. We explained how to qualify for it and how it can buy you extremely valuable time. Today we get to the heart of this option: the Chapter 13 payment plan.

The Length of the Plan

A Chapter 13 case almost always requires a 3-to-5-year payment plan. That may sound like a long time, but the length itself is often an advantage. That’s because your Chapter 13 plan often has you paying special debts that you want or need to pay, and the more time you have the less you have to pay each month. That makes achieving your plan goals easier and more realistic.

Whether a plan has to be at least 3 years long vs. 5 years depends on two main factors. First, your income plays a major role. Without explaining this in detail here, relatively lower income results in a minimum 3-year plan. Higher income results in a 5-year plan. 

Second, even if your minimum plan length is 3 years, you may want to stretch it out longer. You’d do that to reduce how much you pay each month into the plan. 

Your Chapter 13 Plan

Your plan is a blueprint for how you will deal with your debts for the 3 to 5 years of your Chapter 13 case. It must meet a list of requirements. See Section 1322, “Contents of plan,” of the U.S. Bankruptcy Code.

The core of the plan states how much you will pay to ALL of your creditors each month, and who gets paid from that amount. There are other provisions in the plan that don’t directly involve money. We’ll cover these in more detail in upcoming blog posts.

The Plan Approval Procedure

You and your bankruptcy lawyer prepare and then present your Chapter 13 plan to the bankruptcy court. This is usually done at the same time as your lawyer electronically files your case. But sometimes the plan is filed a week or two later, especially if your case was filed in a hurry.

Your creditors receive a copy of your plan and are allowed limited kinds of objections to it. If your plan follows the legal requirements the creditors usually don’t have much room for objection.

The Chapter 13 trustee also has a role in determining whether the plan meets the appropriate rules. The trustee suggests changes, usually in the form of objections. Usually these are resolved informally between the trustee and your lawyer. They often involve only minor tweaks in the plan terms, so that it’s still meeting your intended goals.

The bankruptcy judge resolves any disagreements about the plan between you and your creditors, or between you and the trustee, as needed. This usually happen quite quickly, although can delay the approval of your plan for several weeks.

The approval of a plan is called its confirmation, and usually takes place at a confirmation hearing. Your lawyer usually attends, but you almost never need to. The confirmation hearing usually happens about two months after your lawyer files your case. But it can be postponed (“adjourned”) once or even more often if there are objections which take time to resolve.

The judge approves your plan by signing a confirmation order. Your confirmed plan plus the confirmation order together largely govern your relationships with your creditors throughout the rest of your Chapter 13 case.

Next…

In our next blog post we’ll cover how a Chapter 13 plan deals with the different categories of your debts.

 

The Trustee in a Consumer Chapter 7 Case

May 8th, 2017 at 7:00 am

Besides your creditors, the main person you need to be careful about in a “straight bankruptcy Chapter 7 case is the trustee. Who’s that? 

 

The Trustee Is a Liquidator, Sometimes

Chapter 7 is sometimes called the “liquidation” kind of bankruptcy. But in most consumer cases no liquidation—the selling of assets—happens. That’s because usually everything the debtor owns is “exempt”—protected from liquidation.

The Chapter 7 trustee is the official who determines if a debtor has any assets that are not exempt. If so, the trustee takes possession of them, sells them, and distributes the proceeds to the creditors.

Information for the Trustee

The main source of information for the trustee about your assets is the paperwork you provide him or her. Most of that is in contained in the documents you and your lawyer prepare and file at the bankruptcy court. You also provide some verifying documents to the trustee directly.

The bankruptcy documents consist of dozens of pages of “schedules” or lists of your creditors and your assets, and answers to many financial questions. You review these carefully with your lawyer, sign them under penalty of perjury, and they’re filed at court.

These documents include a list of the “exemptions” you’re claiming. Those usually show that everything (just about everything) you own is protected from liquidation by the trustee.

The “Meeting of Creditors”

The trustee is in charge of the so-called “meeting with creditors.” It’s called a “meeting of creditors” but in consumer cases often only the trustee, you, and your lawyer attend. It happens about a month after filing your Chapter 7 case. The trustee asks you and your lawyer questions based on the information in the documents filed and otherwise provided. The questions mostly focus on your assets and exemptions you’ve claimed.

This is an important but usually rather informal meeting. It usually lasts about 10 minutes, sometimes shorter. Usually the bankruptcy documents point clearly to the fact that all your assets are exempt. If so, the trustee may (depending on local custom) “declare the case to be a no-asset case.” This means that everything you own is exempt; you have nothing for the trustee to liquidate. You get to keep everything.

Other Trustee Responsibilities

It’s not unusual for the trustee to ask debtors or their attorneys to provide additional information or documents. These are usually to clarify or verify what is in the bankruptcy paperwork. He or she can also investigate independently or through the help of others. For example, if you own something potentially valuable the trustee could have an appropriate expert appraise it to see your valuation is reasonable.

Also, if the trustee sees something suspicious he or she could pursue the matter. At some point the trustee could refer it to the United States Trustee. The U.S. Trustee is the enforcer of the bankruptcy system, and essentially the trustee’s boss. This office usually stays in the background in consumer bankruptcy cases. Part of its job is to oversee compliance with the bankruptcy laws. The U.S. Trustee mostly tends to get involved if a debtor has tried to hide significant assets.

These kinds of problems almost never happen as long as you are honest with your lawyer. Be candid and thorough with him or her so that potential problems can be avoided. There are usually workable solutions.

Is the Trustee Your Adversary?

Yes, it’s the Chapter 7 trustee’s job to represent your creditors. Mostly he or she does that by finding non-exempt assets to liquidate and distribute to the creditors. And the trustee can refer you to the U.S. Trustee if he or she encounters any serious bad behavior. So the trustee is legally your adversary.

But most of the time nothing bad happens. Your only contact with the trustee is often nothing more than a reasonably friendly “meeting of creditors” that’s over before you know it.

 

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