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Archive for the ‘Discharge Of Debts’ Category

Will Bankruptcy Wipe Out All of My Personal Debts?

December 15th, 2020 at 1:25 pm

debtThe United States is a notoriously consumeristic society. Having good credit is a necessity to buy a home and a reliable vehicle. Credit must be built, often through the usage of credit cards and the ability to repay the credit card debt. Sometimes, however, we accumulate debt and get in too far over our heads. Other times, a major unforeseen life event occurs—one which we are unprepared to handle financially. When this happens, filing for bankruptcy may help struggling individuals and families. When considering bankruptcy, the first question on many minds is, “Will it get rid of all of my personal debts”?

Understanding Bankruptcy

Bankruptcy is a federally approved process through which an individual or a company can reduce their debt. Those who are authorized for the process may have debts written off or repaid under a new agreement. The method used depends directly on the type of bankruptcy approved. The most typical forms of the process are Chapter 11 for businesses or Chapter 7 or Chapter 13 for private consumers, although others are available under appropriate circumstances. These chapters refer to the specific section of the United States Bankruptcy Code that will apply in a given case. Meanwhile, while the process is underway, all collection activities related to your debts—including lawsuits and foreclosure proceedings must stop.

Will All Debts Be Cleared?

If you are wondering whether bankruptcy resets your credit, enabling you to begin as though the debt never occurred, the answer is “no.” Filing for bankruptcy allows those who meet eligibility requirements to rid themselves of some but not all debt. Financial obligations that do not typically qualify to be wiped clean are child support, alimony, taxes, student loans, and secured debt. Although they may not be totally discharged, some may be eligible for a restructured payment plan. Some of the most common discharged liabilities include:

  • Unsecured debt
  • Credit card balances
  • Income tax debt
  • Medical bills

Why Might You Choose Not to File Bankruptcy?

What prevents consumers from racking up unrepayable amounts on credit cards, filing for bankruptcy, and doing it again? It is illegal for employers to discriminate against those filing for bankruptcy, and many things, such as your house, could be exempt from being seized as you progress. However, possible disadvantages do exist, which may give cause you to look for bankruptcy alternatives. These potential drawbacks include:

  • Not all debts are eligible for discharge through bankruptcy.
  • Your circumstances will determine if your home or car must be sold to pay off your debts.
  • Depending on the type of bankruptcy, it can remain on your credit reports for up to ten years, preventing you from obtaining loans and causing increased interest rates.

A Texas Bankruptcy Attorney Can Help

You may know a relative or a friend who told you that filing for bankruptcy wiped away all of their stress and was the best decision they ever made. That is excellent news. However, it is not the right solution for every case. Your financial situation is as unique as your thumbprint, and it requires the assistance of a trained professional to analyze each detail and weigh the options. If you would like help determining if bankruptcy is the best solution for you and your family, contact an experienced San Antonio bankruptcy lawyer at the Law Offices of Chance M. McGhee. Call 210-342-6400 for a free consultation.

 

Source:

https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics

Settling Debt with Your Creditors After a Hardship

November 30th, 2020 at 12:01 pm

bankruptcyLife can be unpredictable. Life can be messy and complicated. And, sometimes, the worst things that can happen to us are completely out of our control. But what do you do when the messy, unpredictable, and complicated lead to financial problems? How do you turn things around and regain control of your financial future? The answer really depends on where you are in the debt collection process. While some may be able to find a viable bankruptcy alternative, others may need more aggressive action. The following information may be able to help you in determining your best course of action for settling debt with creditors.

Creditor Harassment with No Negative Actions

If you have only just started being hounded by your creditors and have not yet received any notice of wage garnishment, tax or property liens, bank seizures, home foreclosure, or any other negative actions against you, you may be able to negotiate a repayment plan with your creditors. But, because not all creditors are willing to work with consumers, and because they have no incentive to actually help you, it may take the assistance of a skilled attorney to resolve the matter before things escalate.

Liens, Levies, Wage Garnishment, Foreclosure, and Other Negative Actions

If matters have already started to spiral out of control and you are facing negative actions, such as a tax lien or levy, wage garnishment, home foreclosure, vehicle repossession, or bank account seizure, resolving the issue can be a little more complicated. In some situations, a lawyer may be able to assist you with a negotiation that can keep you from further actions. If, however, the process has already begun, your only option may be to file bankruptcy.

Stopping Negative Actions and Creditor Harassment Through Bankruptcy

Deciding to file for bankruptcy is not an easy decision. Moreover, it is not an option that works for everyone. However, if you have recently faced a hardship and are experiencing excessive stress and anxiety over the constant harassment from creditors or are about to lose your home, vehicle, or wages, it may be the solution that can help you turn things around. There are several types of bankruptcy, and your attorney can help you determine which one is the best fit for your unique circumstances.

Contact a Texas Bankruptcy Lawyer

At the Law Offices of Chance M. McGhee, we have been helping clients resolve their debt problems for over 20 years. A skilled and experienced San Antonio bankruptcy law firm, we can examine your current financial situation to help you determine the debt solution that may be most appropriate for you. If bankruptcy is the appropriate step, we can represent you in your case and take immediate action to stop creditor harassment and other negative actions against you. Take control of your financial future today. Call us at 210-342-3400 to schedule your free initial consultation.

 

Sources:

https://www.thebalance.com/six-ways-to-avoid-bankruptcy-960626

http://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/discharge-bankruptcy-bankruptcy-basics

Prevent Fraud Challenges on a Credit Card Debt

October 12th, 2020 at 7:00 am

  

Very recent credit card purchases and cash advances can be a problem when filing bankruptcy. Smart timing can mostly solve this problem.


Last week’s blog post introduced the so-called “presumptions of fraud” in bankruptcy. Today we get into dealing with this issue through smart bankruptcy timing.

Bankruptcy Timing to Avoid the Presumption of Fraud

Here’s the key point: you greatly increase the risk that you’ll still have to pay a credit card debt if you file bankruptcy too soon after incurring that debt. You risk still having to pay the purchase(s) and/or cash advance(s) recently incurred. You may still have to pay that part of that credit card debt in spite of bankruptcy.

But you can avoid much of that risk by timing your bankruptcy right. The presumptions of fraud are in effect for only a relatively short period of time after you make the purchase or cash advance. You avoid the presumption of fraud simply by filing bankruptcy after that short period of time has passed.

The Presumption Period for Credit Card Purchases

The presumption period of time for purchases is 90 days from the time of each purchase. It only applies if the purchase(s) made within that 90-day period exceed(s) $725. (U.S Bankruptcy Code Section 523(a)(2)(C)(i)(I), with that $725 dollar amount valid from 4/1/19 through 3/31/21.)

So what happens if you file bankruptcy within 90 day after making a large enough credit card purchase(s)?

Maybe nothing bad would happen. The creditor may not challenge the discharge (legal write-off) of the debt on that purchase. Then bankruptcy would discharge that debt regardless when you made that purchase.

Or the creditor could challenge the discharge of that recently incurred portion of the debt. It could assert that you made the purchase within the 90-day presumption period before filing. The creditor could make this challenge in one of two ways.

First, it could contact your bankruptcy lawyer about its intent to raise this challenge. Or second, the credit card creditor could make the challenge directly in bankruptcy court. It would have its lawyer file a narrowly-focused legal proceeding asking that the debt not be discharged.

Your Response with Contrary Evidence

Either way, then you’d have a chance to push back. Just because your purchase(s) fall within the 90-day presumption period does not necessarily mean you’ll have to pay the debt. Remember that the whole debt is usually not at issue, only the purchase(s) made during the 90-day presumption period.

Beyond that, the presumption is just that and no more. It’s an initial presumption that you did not intend to pay the debt when you made the purchase. When you incur a debt you are promising to pay it. If you incur that debt without intending to pay it, the law treats that as a fraudulent misrepresentation. The law presumes that if you made a purchase within the presumption period you didn’t intend to pay it. The creditor can and likely will win on that presumption if you don’t push back.

But you can push back. You can respond, with your bankruptcy lawyer’s assistance, that you actually did intend to pay the debt on the purchase(s). First, you can simply testify that your honest intention at that time was to pay that debt. Then you can back that up perhaps by saying you were not intending to file bankruptcy at that time. You didn’t decide to file and write off the debt until after you made those purchases. You can even bring up what event(s) pushed you into deciding to file bankruptcy after making the purchases. (This all of course assumes that these facts are true.)

In other words, you can defeat the presumption of fraud with evidence of no fraud.

Then the creditor may be convinced and could back down completely, and withdraw its challenge. Or it can negotiate a settlement, with both parties agreeing that you pay something, less than the amount the creditor wanted. Or, both sides could stand fast and have the bankruptcy judge decide whether and/or how much you would pay.

The Presumption Period for Cash Advances

The presumption of fraud for recent cash advances works the same way as with recent credit card purchases. There’s just a tweaking of the details. The presumption period of time for cash advances is 70 days from the time of each cash advance. (Not 90 days.) It only applies if the cash advance(s) made within that 70-day period exceed(s) $1,000. (Not $725.) (Bankruptcy Code Section 523(a)(2)(C)(i)(II), with the dollar amount valid from 4/1/19 through 3/31/21.)

Everything stated above about how the credit card presumption of fraud for purchases works applies to cash advances too. Most importantly, the creditor has to raise the presumption or else it has no effect. And if the creditor does so, you still have the opportunity to refute and defeat the presumption. That is, you and your bankruptcy lawyer can present evidence that you had intended to pay the debt at the time you made the cash advance(s).

Bankruptcy Timing and These Presumptions of Fraud

Besides being able to defeat these two presumptions of fraud, you can usually avoid them altogether. You do so by waiting to file bankruptcy past the 70- and 90-day presumption periods.

Sometimes waiting is easy. But in many circumstances time is not on your side. You are   with pressure from creditors. You may have received a summons and complaint from a creditor. You may have your paycheck being garnished. Or you may have a vehicle at the risk of repossession or a home at risk of eviction or foreclosure.

Also, while you’re waiting to file bankruptcy bad things can happen that you don’t expect. The IRS or state tax authority may record a tax lien. A creditor lawsuit you don’t even know about could turn into a judgment against you. A creditor may try to take some other unexpected action against you or your possessions.

Deciding whether to delay filing bankruptcy to get past a presumption period is a balancing act requiring legal advance. It usually involves balancing several considerations and then making an informed choice about your best timing. You really cannot make the best judgment call on this without a bankruptcy lawyer’s thorough knowledge and experience.  

Beyond the Presumptions to Regular Fraud

Another reason that legal advice is necessary is that the presumptions of fraud are not the end of the story. The presumptions are a tool that gives credit card creditors a modest advantage. But creditors can certainly raise fraud and misrepresentation-based challenges without that advantage. This applies to credit card creditors and essentially all creditors. If a creditor believes that the facts bear this out, it can try to argue that you incurred its debt with bad intentions of various sorts. This can happen regardless that the debt was incurred longer than 70 or 90 days before your bankruptcy filing.

Without getting into this more here, the point is that avoiding the presumption periods doesn’t necessarily mean you’re safe. A person could certainly make a credit card purchase or cash advance 6 months before filing bankruptcy with no intent to pay that debt. Or whenever. If a creditor believes that you incurred a debt under fraudulent circumstances, whenever that happened, the creditor could raise a challenge.

Rest assured that these challenges—with or without the presumptions—do not happen in most bankruptcy cases. Your lawyer will help you anticipate any such challenges. Then he or she will give you advice to prevent and, if necessary, defeat any such challenges.

 

Smart Timing with the Presumptions of Fraud

October 5th, 2020 at 7:00 am

You can avoid the presumptions of fraud, and so discharge more of your credit card debts, by timing your bankruptcy filing right.   

 

This blog post continues a series about the smart timing of your bankruptcy filing started back in July. (It’s been interrupted by urgent blog posts related to the pandemic—about unemployment benefits and the federal eviction moratorium.) The last in this timing series was about how bankruptcy timing helps with income tax liens.

Important Examples of Good (and Bad) Timing

Since it’s been so long since we introduced this, here is a list of some of the main consequences of good and bad bankruptcy timing. 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 and or penalties 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 possibly years more
  11. you qualify for a Chapter 7 case under the “means test,” or instead must 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” and must be returned
  15. you can keep all of your assets if you’ve moved from one state to another in the past several years

We give you this list again here to give you an idea how important the timing of your bankruptcy can be. There’s a good chance that one or more apply to you. If they do, to learn more, please call a bankruptcy lawyer to see how these apply to you.

We covered #3 about income tax liens in a number of blog posts. Today we start into #4: how bankruptcy timing affects the discharge of credit card debts.

Avoiding a “Presumption of Fraud” through Good Timing of Bankruptcy

A main goal of bankruptcy is to forever discharge your debts. Under limited circumstances a creditor can challenge your ability to discharge a debt. One of those circumstances involves the length of time between when you incurred the debt and when you file bankruptcy. If you file bankruptcy too soon after incurring the debt its creditor may more easily be able to challenge your ability to discharge that debt. There’s a “presumption of fraud” regarding that debt, or the portion that was incurred shortly before the bankruptcy filing.

What “Fraud”?

There’s a basic principle in bankruptcy law about honest debtors. People should generally be able to discharge their honestly-acquired debts. But debts acquired by being dishonest with creditors should not be discharged.

The dishonesty at issue here involves lying to qualify for or to use credit. Examples are giving false information when applying for credit or writing a check that you know will not be good. Or using a credit card for a cash advance or purchase that you never intend to pay. The creditor who you owe on a debt incurred like this could try to prevent you from discharging its debt. Its grounds for challenging the debt discharge would be that you incurred the debt through dishonesty or fraud.

(Note that most people acquire their debts honestly. So their creditors don’t have grounds for objecting to the discharge of the debts. This includes credit card creditors. So creditor challenges to the discharge of debts are relatively unusual. The point is that you can act appropriately to minimize such challenges by your creditors.)

What’s a “Presumption of Fraud”?

Dishonesty and fraud are hard for a creditor to prove. That’s because they requires evidence of a debtor’s bad intentions. The creditor has to show evidence that a person got or used credit through dishonest intention.

Because banks have a lot of influence over the laws, the Bankruptcy Code contains “presumptions of fraud.”  These acknowledge that it’s difficult to get into the minds of debts to know their good or bad intent. These “presumptions” presume bad intent under certain factual circumstances. When these factual circumstances are met, the law presumes that the debt at issue is fraudulent. That is, that the debt will not get discharged in bankruptcy.

However, the debtor can then present other evidence that the debt was in fact honestly incurred. That evidence may convince the creditor to drop the challenge. Otherwise a bankruptcy judge weighs the evidence. He or she determines whether the debtor incurred the debt honestly and thus whether to discharge the debt.

So, a “presumption of fraud” makes it easier for a creditor to establish that a debt is fraudulent. The creditor needs less evidence. It will win unless the debtor responds and convinces the creditor and/or the judge that it was an honest debt.

The Factual Circumstances for the “Presumptions of Fraud”

There are two sets of facts in which a creditor doesn’t need to provide evidence of a debtor’s dishonest intention. Fraud is presumed to have occurred.  A creditor just needs to show that the set of fact are met—that certain facts are true.              

These facts involve the timing and amount of a credit card purchase or cash advance.

The first set of facts: buying more than $725 in “luxury goods or services” from any single creditor during the 90-day period before you file your bankruptcy case. “Luxury goods and services” applies to just about anything which isn’t a necessity. A debt of more than $725 incurred in the 90 days before filing bankruptcy is presumably fraudulent. That means bankruptcy will not discharge that debt. (Again, this assumes the debtor does not challenge and prevail against this presumption.) See U.S Bankruptcy Code Section 523(a)(2)(C)(i)(I), with the dollar amount adjusted and valid from 4/1/19 through 3/31/21.

The second set of facts: making a cash advance of more than $1,000 from any single creditor during the 70-day period before you file your bankruptcy case. Such a cash advance would be presumably fraudulent, and bankruptcy would potentially not discharge that debt. Bankruptcy Code Section 523(a)(2)(C)(i)(II), with the dollar amount adjusted and valid from 4/1/19 through 3/31/21.

The rational basis for these presumptions is that filing bankruptcy so soon after incurring such debts likely means you didn’t intent to pay them. Again, that assumes you don’t give convincing evidence to the contrary.

Bankruptcy Timing and These “Presumptions of Fraud”

Notice how precise the timing is in these two presumptions. They apply only if you file bankruptcy within the applicable 90-day and 70-day periods after incurring the debts. So you can altogether avoid these presumptions of fraud by simply waiting to file bankruptcy until after those periods of time have passed.

This blog post is already way too long. So next week we’ll look at some practical aspects of timing your bankruptcy in light of these presumptions of fraud.

 

Is Student Loan Debt Dischargeable in a Texas Bankruptcy?

June 1st, 2020 at 7:51 pm

TX bankruptcy attorney, Texas student loan debt attorney Student loan debt is something that is becoming an issue in the United States. According to the latest statistics from Forbes, there are currently an estimated 45 million borrows who collectively owe about $1.56 trillion in debt for student loans. Of those, around 11 percent are delinquent on their loans, which means they are 90 days or more late on a payment. For many borrowers, student loan payments are expensive and they are struggling to make ends meet. Many have inquired as to whether or not student loan debt is dischargeable in bankruptcy, but the answer is not quite as simple as a “yes” or “no.”

Is it Even Possible?

Many people believe that student loans are ineligible to be included in a bankruptcy and they would be correct — but only in most situations. It is not impossible to discharge your student loan debt in a bankruptcy case, but it will make your bankruptcy more difficult because you will have to file an adversary proceeding to determine whether or not you are eligible to have your student loans discharged.

Determining “Undue Hardship”

During the adversary proceeding, the court will determine whether or not you have demonstrated that paying your student loans has caused you “undue hardship.” The difficulty with this determination is that it was never actually defined and was therefore left up to individual courts and judges to determine. The most commonly used test to determine eligibility for student loan discharge is called the Brunner Test and consists of proving three simple points:

  • You cannot maintain a minimal standard of living in addition to supporting your dependents if you continue to pay the debt
  • Your financial distress is likely to exist for a majority of the repayment period of the loan
  • You have made good faith efforts to repay the loan thus far

Contact a San Antonio, TX Bankruptcy Attorney

If you are having difficulties making your monthly student loan payments because you also have other types of debt, such as credit card or auto loan debt, you still may have options. At the Law Offices of Chance M. McGhee, we can help you determine whether or not you should pursue bankruptcy and include your student loans in your discharge, or if your best option would be to take another route. Our skilled New Braunfels, TX bankruptcy lawyer can help you through the bankruptcy process from beginning to end. Call our office today at 210-342-3400 to schedule a free consultation.

 

Sources:

https://www.studentloanborrowerassistance.org/bankruptcy/#:~:text=Home%20%C2%BB%20Bankruptcy-,Bankruptcy,has%20shown%20an%20undue%20hardship.

https://studentaid.gov/manage-loans/forgiveness-cancellation/bankruptcy

https://www.forbes.com/sites/zackfriedman/2020/02/03/student-loan-debt-statistics/#f9cfa89281fe

Forgotten Debts

April 22nd, 2019 at 7:00 am

What do you need to do, what efforts is worth taking, if there are debts you don’t have any records on or you’ve forgotten about?  

 

Several blog posts ago we introduced the law that debts “neither listed nor scheduled” risk not being forgiven in bankruptcy. Section 523(a)(3) of the Bankruptcy Code. This follows the bankruptcy principle that debts are forgiven—“discharged”—unless a debt fits within a specific exception. Debts “neither listed nor scheduled” is one of the exceptions.

Related to this exception to discharge we’ve recently looked at:

  • how to add a debt after filing your case that you didn’t originally list, and your timing for doing so
  • an exception to this discharge exception, that is, your unlisted creditor’s debt still being discharged if it still finds out about your case, and does so on time
  • debts sold or assigned to collection agencies

This leaves one last question for today about unlisted debts:

What do you do if you don’t know all of your debts because you’ve moved or lost track of them for any other reason?

This practical question gives us the opportunity to apply the principles we’ve been digging into these last few blog posts.

The Potential Consequences of Not Listing Debts

Start with the assumption that you will continue to owe any debt you don’t include in your bankruptcy debt schedules. Obviously, filing any kind of bankruptcy is a big deal. The discharge of debts is a legal right, but one that you can exercise very seldom. Hopefully it’s something you’ll only need once in your life. You want to do it right.

Chapter 7 “straight bankruptcy” generally takes about 4 months from start to finish. It costs pretty much the same in fees and damage to your credit whether you include all your creditors or miss one or two. You vastly increase its effective cost if afterwards you continue owing a debt or two that you could have discharged. Plus, instead of getting the peace of mind of a full fresh start, you’d be saddled with potentially avoidable debt.

Chapter 13 “adjustment of debts” involves a payment plan lumping together all your debts. Most unsecured creditors have to share out of a pool of money based on what you can afford to pay. That is often a small percent of what you owe, perhaps even 0%.  If you neglect to list a debt in your schedules, it can’t participate in your plan. So, instead of paying that debt the same percentage that you’re paying others, you’d have to pay it in full. Since all your money is earmarked for your other creditors, you’d have nothing to pay the unlisted creditor. So when it forced you to pay—such as by garnishing your paychecks—that would disable your Chapter 13 plan. Frankly, that would be a mess.

So, of Course, Do All You Can to Know and List All Your Debts

We don’t want to scare but rather to motivate you. It’s worth the effort to figure out who you owe and to find their accurate addresses.

One obvious place to start is with a credit report. Talk with your bankruptcy lawyer about getting free ones from all three of the major consumer credit agencies.

But it’s very important to know that a credit report is NOT necessarily a complete list of your debts. For some people it might be. But for others their credit reports would be woefully incomplete. Financial institutions and major consumer creditors will quite reliably be on your credit reports. But medical providers and various other kinds of creditors—not so much.

It IS worth sifting through ALL of your paper and computer files (and piles!) to find any other debts. Scour through your memory about possible obligations you haven’t thought about lately. Think about old unpaid landlords and utilities, possible bounced checks, or unpaid personal loans from friends or family.

Possible Claims, Ambiguous Amounts

Consider situations where you may or may not owe anything. Are there any old or more recent unresolved vehicle accidents? Might you have caused personal or property damages to some person or business? Are there any unusual possible claims against you, for defamation, embezzlement or other misuse of funds or of trust? Could there be any claims come out of an old or not so old divorce, non-marital relationship, any family fight, or the closing of a business? Are there any almost forgotten threats against you to pay for anything whatsoever?

Bring any of this stuff up with your bankruptcy lawyer, preferably at your first meeting. Some situations may genuinely not warrant including as a possible debt. Your lawyer is the person who knows how to protect you, and to guide you through the tough judgment calls. You need to ask the questions so that he or she can give you the right advice.

Debt Amounts

 It’s generally not that important to know how much you owe—a sensible estimate is often good enough. But again talk with your lawyer, because sometimes—depending on the type of debt—the amount is important.

Collection Agencies

If you know the original creditor but not a subsequent collection agency, start by listing the original creditor. It may well pass on your bankruptcy filing information to the collector (although you can’t count on this). Also, the original creditor may actually still owe the debt. The collector may have only a temporary collection agreement.

You still do want to list any and all collectors on an account. That’s because it’s hard to know who owns the debt. That may take not just looking through all your papers but also doing internet research and making phone calls. Your bankruptcy lawyer and his or her staff will be your guide.  

Very Old Debts

Most debts can get old enough that the creditors can no longer collect on them. Most states have statutes of limitations on the collection of debts.

But those laws are often complicated, with different lengths of time for different kinds of debts. There are different triggers that start the time running, and other events that can suspend (“toll”) the time from running. The time limit can sometimes be extended simply by you being out of state or hiding from collection.

Even if a statute of limitation arguably applies you’d rather not have to defend a collections lawsuit on this basis.

Talk with your bankruptcy lawyer about what to do to best protect your from old and very old debts.

 

Debts Sold or Assigned to Collection Agencies

April 15th, 2019 at 7:00 am

What happens if you list a creditor in your bankruptcy case but, unknown to you, it sold the debt to a collection agency that you don’t list? 

 

Our blog post two weeks ago was about needing to list all your debts in a bankruptcy case in order to write them off. This is part of a series of blog posts about debts that may not get discharged (written off) in bankruptcy. The law says that bankruptcy does not discharge debts that are “neither listed nor scheduled” in the bankruptcy documents. Section 523(a)(3) of the Bankruptcy Code.

Special Scenarios

This raises some practical questions, including the following:

  1. Is a debt covered if you don’t list it but the creditor still learns about your bankruptcy case?
  2. What happens if you list the creditor but it had previously sold the debt to a collection agency?
  3. What do you do if you don’t know all of your debts because you’ve moved or lost track of them for some other reason?

We addressed the first of these last week, and discuss the second one today.

Debts Listed but Sold to Collection Agency

So you list the creditor on your bankruptcy schedules but after filing learn it sold the debt to another entity. Let’s assume you know the name and address of the new creditor or collection agency.

Debts Sold Before Your Bankruptcy Filing

Let’s start with the situation that the debt was sold to the new entity before you filed the bankruptcy case. You only find out about it after your filing. You either receive a new notice about it or dig up an older one you hadn’t found earlier.  What should you do?

There’s a decent chance that when the creditor you listed gets the bankruptcy notice it will forward it to the new owner of the debt. That would seem to be the sensible and business-like thing for it to do. Then the new owner would learn about your case even without being listed on your bankruptcy schedules. It would be covered by your bankruptcy case and the debt would likely get discharged. (See our last blog post about the creditor’s “actual knowledge” exception.)

Three Problems

There are three problems with this.

First, the listed creditor may simply not bother to pass on your bankruptcy notice to the new debt holder. The creditor no longer has any interest in the debt. It doesn’t owe you any favors. Why shouldn’t it just throw away the bankruptcy notice, and not inform the new debt holder? Then this new debt holder—the creditor you actually owe—may well never find out about your bankruptcy. You could easily continue owing the debt. It’s not safe to rely on the listed creditor to tell the new debt holder. It’s way too risky.

Second, even if the listed creditor does pass on the bankruptcy notice the new debt holder may not receive it. Or that debt holder may simply say it never received it. Good luck getting proof that it did. Collection agencies sometimes attempt to collect debts (purposely or inadvertently) that a bankruptcy has legally discharged. Without proof that the collection agency received notice of your bankruptcy filing you may still owe the debt. At the very least you’d have a much harder time getting them to stop trying to collect on the debt.

Third, even if the new debt holder does receive notice about your bankruptcy filing, it may not happen fast enough. You have no control when your listed creditor would get around to passing on information about your filing. There would be some delay between the time the creditor receives the bankruptcy notice and when it forwards it. In some situations the timing when the new debt holder receives the bankruptcy information is crucial. See our last blog post for a discussion about this timing issue.

Formally Adding Creditors to Your Schedules After Filing

So instead of relying on your listed creditor to inform the new debt holder it’s better to take the initiative.

First, you can formally add the new debt holder to your bankruptcy schedules, after your original filing. Your lawyer does this through an “amended schedule.” This is generally the safest option. Here’s one local bankruptcy court’s information about this procedure.

You do have to pay a modest additional filing fee (currently $31—see item #4 in the court fee schedule).  Plus your lawyer might charge you for the extra service (although not necessarily).  

Another option may be to contact the debt holder—either yourself or your lawyer—without using an “amended schedule.” This contact may fulfil the requirements of the “actual knowledge” exception. What’s critical is to have appropriate evidence of this contact in case you need proof of it later. There may be timing considerations. Also, you may be required to use an “amended schedule” based on local bankruptcy rules.

 Don’t decide this on your own. Talk with your bankruptcy lawyer for advice about resolving the situation the safest and most cost-effective way.

Debts Sold After Your Bankruptcy Filing

Creditors should not sell or assign your debt after they get notice of your bankruptcy case. At least they shouldn’t without informing the new debt holder about your bankruptcy case.

But sometimes they do sell the debt after getting notice about your bankruptcy case, whether intentionally or out of carelessness. Then the discussion above applies. If your bankruptcy case is still active, your lawyer should probably file an “amended schedule” adding the new debt holder.

The creditor’s sale or assignment of the debt can also occur between the time you file bankruptcy and the time the creditor receives notice of it. It may sell or assign the debt after you file bankruptcy but before it knows about your filing.

Again, the discussion above applies. You could hope that when this creditor gets notice of your bankruptcy filing it will inform the new debt owner. There’s a decent chance that it would do so, since the sale had just happened. Its file on you may still be open or would have just been closed a short time earlier. But again, your listed creditor may still not bother to inform the new debt holder. So, talk with your bankruptcy lawyer as soon as you find out about new debt holder. Remember that timing can be extremely important. In most situations filing an “amended schedule to add the new debt holder is the appropriate solution.

 

Creditor Not Listed But Knows about Your Case

April 8th, 2019 at 7:00 am

Usually if you don’t list a debt, it doesn’t get discharged.  An exception is if the creditor still learns about your case, on time. 

 

Last week’s blog post was about the importance of listing all debts in a bankruptcy case to write them off. Debts “neither listed nor scheduled” in the bankruptcy documents are not discharged (legally written off). Section 523(a)(3) of the Bankruptcy Code.

Special Scenarios

This rule raises a number of practical questions. Here are some common situations:

  1. You don’t list a debt but the creditor finds out about your bankruptcy some other way.
  2. Your debt has been sold or assigned to a collection agency without your knowledge
  3. You don’t have good records of your debts and you may not know some of their names and addresses.

Today we address the first of these.

Creditor Knows About Your Bankruptcy Case

If you don’t list a debt it’s still covered by your bankruptcy case if that creditor knows about the case. The Bankruptcy Code says a debt is not discharged “unless such creditor had notice or actual knowledge of the case.”  Section 523(a)(3)(A) and (B)

This doesn’t mean that you can avoid listing a creditor on your debt schedules because you know it will find out about your case some other way.

First, what if the creditor doesn’t actually find out or claims that it didn’t? You could end up owing the debt. It’s much safer to list the debt in your bankruptcy documents.

Second, you are required to list all your debts. Bankruptcy is not just about you and that one creditor.  If you want the benefits of bankruptcy you must play by the rules, which include listing all your debts.

If you have any reason for not wanting to list a debt, talk with your bankruptcy lawyer. There is usually a workable solution to your concerns.

Must Know about Your Case “In Time”

There’s an important condition to this “notice or actual knowledge” exception. Your creditor needs to learn about your case in time to participate in it.

So what’s the deadline for your creditor to learn about your case if you don’t list its debt?

There are 3 possible different deadlines for 3 different kinds of cases.

1. Proof of Claim Deadline

First, some bankruptcy cases give creditors the opportunity to file a “proof of claim.” That’s a document a creditor files at bankruptcy court documenting what it believes you owe. In Chapter 13 “adjustment of debts” cases creditors file proofs of claim to receive any money through your payment plan. In “straight bankruptcy” Chapter 7 “asset” cases creditors file proofs of claim to possibly share in the liquidation of any non-exempt (unprotected) assets. In these cases the bankruptcy court mails out a formal notice giving a strict deadline to file proofs of claim. 

In these cases your unlisted creditor must learn about your case in time to be able to file a proof of claim. Section 523(a)(3)(A).

2.  Creditor Objection Deadline

Second, sometimes a creditor has grounds to object to the discharge of its debt on the basis of your fraud or similar bad action in the incurring of the debt. This can happen in either a Chapter 7 or Chapter 13 case.  In all cases the bankruptcy court mails creditors a notice of the strict deadline to file an objection. 

In these cases your creditor must learn about your case in time to be able to file such an objection. Section 523(a)(3)(B).

3. Possibly No Deadline

Third, in other bankruptcy cases neither of the two situations above applies. In fact that covers most Chapter 7 cases. Most have no assets to distribute because everything the debtor owns is exempt, or protected. The case is a “no asset” case. With nothing to distribute, the court does not ask creditors to file proofs of claim. So there’s no deadline to do so. Also, most creditors have no grounds based on fraud or similar bad actions to object to the discharge of its debt. So any deadline to file such an objection doesn’t apply. So what’s the deadline for an unlisted creditor to learn about your case so that its debt is discharged?

In some parts of the country there is essentially no deadline in these kinds of cases. If you find out at any time about a debt you didn’t list in a “no asset” Chapter 7 case, you or your lawyer may be able to simply inform the creditor and the debt is covered in your case. The debt is then included in the discharge of debts that you received in your case. That may be true even if your case is already completed.

But because the statute does not directly address this situation, your local court may interpret it differently. You might still owe the debt because you didn’t give the creditor notice about your bankruptcy. Again, talk with your bankruptcy lawyer as soon as you learn about a debt that you forgot to include for advice about your specific options.

 

Debts You Don’t List in Your Bankruptcy Case

April 1st, 2019 at 7:00 am

If you don’t list a debt in your bankruptcy case, and don’t add it in on time, it may not be written off.  So carefully include all debts. 

 

Supposed to List All Creditors 

You can’t pick and choose which debts to include in your bankruptcy case. The U.S. Bankruptcy Code says that the first duty of a bankruptcy debtor is to provide “a list of creditors.” Section 521(a)(1) of Bankruptcy Code. That list includes secured, priority, and unsecured debts, which you put on Schedules D, E and F, respectively. As these Official Forms state clearly, you must

  • “List All Secured Claims”
  • “List All of Your Priority Unsecured Claims”
  • “List All of Your Nonpriority Unsecured Claims”

In the Declarations page you declare “Under penalty of perjury” that the “schedules filed with this declaration… are true and correct.” That page includes the very stern warning that “Making a false statement … can result in fines up to $250,000, in imprisonment for up to 20 years, or both.”

Truthfully, that is an overly stern warning because penalties like that simply don’t happen in the consumer bankruptcy context. Not for not including a debt!

The point is that it’s a federal crime to intentionally lie on your bankruptcy documents. So you need to list all your debts. Talk with you bankruptcy lawyer if you believe you have a reason for not listing a debt. There’s usually a practical solution to your concerns.

Unlisted Debts Not Written Off

Today’s blog post is not so much about intentionally not listing a debt but doing so inadvertently. If somehow you don’t include a debt in your bankruptcy schedules you risk owing that debt after your case is over.

In the last 5 weeks we’ve covered the following categories of debts not written off in bankruptcy:

  • Criminal fines and restitution
  • Income taxes
  • Child and spousal support
  • Student loans
  • Damages arising from driving intoxicated

Debts “neither listed nor scheduled” in a debtor’s bankruptcy documents are another category of debts not written off. Section 523(a)(3) of the Bankruptcy Code.

If You Forgot a Debt

If you didn’t include a debt in the schedules filed by your bankruptcy lawyer, you can often add it later. But you may need to act quickly.

Figuring out your deadline to add a missing creditor is somewhat tricky. It depends on the nature of the debt and the nature of your case.

The Deadline(s) to Add a Debt

First, if the debt is of the kind that the creditor could object to the writing off of the debt based on certain bad actions by you (for example, lying about your financial situation to acquire the debt), then there is a short, strict deadline. You have to add the debt to the case in time for the creditor to have time to object.  The objection deadline is usually about 3 months after you file your case. So you’d have to add the debt a bit before that. Section 523(a)(3)(B) of the Bankruptcy Code.

Second, if your case gives the creditors the opportunity to get paid something through your bankruptcy case, you have a different deadline to add a debt. Most Chapter 7 “straight bankruptcy” cases don’t give most creditors the right to receive anything from the case. There are no assets to distribute to creditors (when all a debtor’s assets are “exempt,” or protected). If there ARE assets to distribute (because some asset(s) are not exempt), the bankruptcy clerk sends out a notice providing a deadline for creditors to ask for a share of the assets. Creditors do so by filing a “proof of claim” documenting their debt. So in this situation you have to add a debt a bit before that deadline. Section 523(a)(3)(A) of the Bankruptcy Code.

In Chapter 13 “adjustment of debts” cases usually the debtor pays some portion of most or debts. Within a couple of weeks after you file a Chapter 13 case the clerk sends out a notice giving creditors a deadline to file proofs of claim. You have to add a debt a bit before that deadline.

Other Scenarios

What if you may owe a debt but don’t know that you may? For example, someone thinks you’ve caused them some injury or damages but hasn’t told you yet.

Or what if you’ve lost track of a debt or debts because you’ve moved and lost your records? If the debt is not on your credit report, you may have no way to recall and list the debt. Can you write off this debt?

Also, does it matter if a creditor has somehow found out about your case even though you neglected to list the debt?

Finally, what if the debt has been sold from one debt collector to another without your knowledge? How can you list a debt in order to successfully write if off if you don’t know who you owe?

We’ll cover these other scenarios next week.

 

Bankruptcy Writes Off Vehicle Accident Claims, Unless Intoxicated

March 25th, 2019 at 7:00 am

Bankruptcy writes off claims against you from a vehicle accident for personal injuries and property damage, IF you weren’t intoxicated. 

 

Vehicle Accident Claims

If you had a vehicle accident, you could owe many kinds of debts from it.  You could be liable for any injured party’s current and future medical bills, loss of wages, pain and suffering, and other forms of damages. You could owe for property damage to vehicles and also to any building or traffic barriers or signs.

Your insurance may cover all of these obligations. Of course if you have no insurance, it’s all on you. More likely you have insurance but not enough. Especially if you have only the legal minimum coverage, a major accident and/or one with multiple vehicles could easily result in damages more than your insurance limits.  Then you’d be on the hook for everything insurance doesn’t cover. That could amount to tens or even hundreds of thousands of dollars.  

Bankruptcy would usually write off (“discharge”) whatever you’d owe.

Accident Claims of Unknown Amounts

It doesn’t matter if you don’t know how much you’ll owe. Often you don’t until many months or sometimes even years after the accident. As long as you file bankruptcy after the accident, all claims from the accident are covered by your bankruptcy case.  

Bankruptcy law makes that clear.

Bankruptcy discharges most debts. The U.S. Bankruptcy Code defines a “debt” as a “liability on a claim.”  In other words, you have some legal obligation to somebody.

But that legal obligation does not need to be reduced to a fixed dollar amount. A “claim” is defined as a “right to payment, whether or not… liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed… 

“Unliquidated” means that the amount of the claim is unknown. For example, medical expenses are still accruing. “Contingent” means that the event that triggers whether or not you are liable has not yet happened. For example, a dispute about whether somebody else’s insurance covers the claim has not yet been resolved. “Disputed” means that a question remains whether the claim against you is legally valid. For example, the cause of the accident is still being litigated.

In all these non-fixed-debt situations, bankruptcy would still usually discharge any debts related to claims arising out of the accident.

The Intoxication Exception

However, bankruptcy does not write off accident claims if you were driving intoxicated.

Specifically, regular Chapter 7 bankruptcy “does not discharge an individual debtor from any debt… for death or personal injury caused by the debtor’s operation of a motor vehicle… if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.” Section 523(a)(9) of the U.S. Bankruptcy Code.

This applies just as much to Chapter 13 “adjustment of debts” because it incorporates the same language. Section 1328(a)(2) of Bankruptcy Code.

3 Practical Twists

1) Only Applies to Unlawful Operation

Notice that this exception only applies if your alleged intoxication made your “operation of a motor vehicle… unlawful.” So this raises some questions if you were arguably intoxicated but weren’t so charged. Your bankruptcy lawyer could argue your operation of your vehicle was not “unlawful.” So the resulting accident claims should be written off in bankruptcy.

On the other hand, there may be circumstances in which a person isn’t charged but was still intoxicated under the law. The accident may have happened in an isolated place and the police didn’t arrive until hours later. Even if you weren’t cited, the injured party could still try to bring evidence that you were driving unlawfully. For example, there could be convincing evidence based on how much you drank and when.

2) Property Damage

The Bankruptcy Code language that creates this exception to discharge refers only to debts “for death or personal injury.” This language does not cover property damage. So can you discharge property damage debts from an intoxicated accident?

Maybe. But there is another exception to discharge that does apply to property damages. Bankruptcy law excludes from discharge any debt “for willful and malicious injury by the debtor to another entity or to the property of another entity.” Section 523(a)(6) of the Bankruptcy Code.

But if you have an accident while intoxicated the injuries caused weren’t intentional. So they weren’t willful, right?

It may depend on your specific facts, and especially on how the bankruptcy courts interpret the law locally. Bankruptcy is federal law but on close questions could be applied differently in different regions of the country. If you have any debts from any accident make sure you have a particularly experienced bankruptcy lawyer representing you. He or she will advise you about the law in your bankruptcy court.

3) Boating and Flying Accidents

We’ve been discussing driving while intoxicated but the discharge exception also applies to intoxicated boating and flying.

Bankruptcy does not “discharge an individual debtor from any debt. .. for death or personal injury caused by the debtor’s operation of a… vessel, or aircraft… if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.”

Boating and flying are covered by completely different laws, so what’s unlawful is completely different. In state boating laws the blood alcohol concentration amounts may be different, as well of the effect of the operator’s age. Under federal aviation law it is illegal to operate an aircraft:

  • “within 8 hours after the consumption of any alcoholic beverage”
  • with “an alcohol concentration of 0.04% or or greater in a blood or breath specimen”
  • “while using any drug that affects the person’s faculties in any way contrary to safety”

Code of Federal Regulations, Title 14, Section 91.17

 

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