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Archive for the ‘chapter 7’ tag

The Surprising Benefits: Saving Your Vehicle through Bankruptcy

September 17th, 2018 at 7:00 am

Bankruptcy can get you out of the dilemma that a vehicle loan can put you in. Chapter 7 works if you can afford the loan payments afterwards.  


Here’s the Problem

You’re paying on a car or truck. You absolutely need this vehicle for getting to work, and to keep your life going. You can’t do without it.

But you’re having trouble keeping up on the loan payments. You owe lots of other debts, so keeping current on the vehicle loan is a big challenge. It’s a big stressor every month.

On top of that there’s a good chance that you owe more on your vehicle than it is worth. You know that if you somehow found other reliable transportation and surrendered your present vehicle—or if it was repossessed—you could easily still owe thousands of dollars of “deficiency balance.” That’s the amount you would owe on the loan after the surrender or repossession.

The amount you’d owe would very likely be much more than you expect. That’s because repossessed vehicles are usually sold at auto auctions, resulting in less credit to your account than you’d expect. Plus the costs of repossession/surrender and sale, and late charges and such would all be added to the balance. So giving up the vehicle doesn’t seem to make any sense.

As a result you feel stuck. You really need the vehicle but you can’t afford pay for it. And even if you could somehow do without it, you’d likely still owe thousands of dollars from letting it go.

Chapter 7 Regular Bankruptcy Gives Limited Help

Chapter 7 bankruptcy accomplishes two things regarding your vehicle loan. First, if you want to keep the vehicle, Chapter 7 would likely get rid of most of your other debts. Maybe then you could afford the vehicle payments. Or second, if you surrendered the vehicle, Chapter 7 would likely discharge (legally write off) the deficiency balance. If you had a way to get another reliable vehicle, or could do without, this might solve your problem.

What Chapter 7 doesn’t do is give you the power to change the terms of your vehicle loan. It’s “take it or leave it.” If you want to keep your vehicle, you’re virtually always stuck with the contract terms. That includes the monthly payment amount, the interest rate, etc.

Plus, you’re almost always required to “reaffirm” the debt. This legally excludes the vehicle loan from the discharge of your debts. You continue to owe it in full in exchange for keeping the vehicle.

This is economically risky. You’re paying for something that isn’t worth what you’re paying. And if you later surrender the vehicle or it’s repossessed, you would owe a deficiency balance. You’d owe it in spite of your prior Chapter 7 case because you reaffirmed the debt.

If You’re Behind on Your Vehicle Loan, or on Insurance

It’s worse if you aren’t current on your loan payments at the time of your Chapter 7 bankruptcy filing. Almost always your vehicle lender would require you to quickly catch up—within a month or two of filing. This would be on top of keeping current on the ongoing monthly payments. Or else you’d lose the vehicle in spite of filing bankruptcy.

If you’ve also let your insurance lapse, it’s even more problematic.  Your lender knows how dangerous lack of insurance is for itself, so it would “force-place” insurance on your vehicle. Your contract almost certainly allows it to do this. Force-placed insurance tends to be very expensive while at the same time provides you very little coverage. Under Chapter 7 you would likely have to pay for any such insurance, plus reinstate your own insurance. And you’d likely have to do this very quickly, not long after filing your Chapter 7 case.  

Chapter 13 Can Solve These Problems

Chapter 13 “adjustment of debts” can solve these problems that Chapter 7 can’t.

First, Chapter 13 can buy you much more time. A Chapter 13 payment plan would likely give you much more time to catch up on any missed loan payments. It would also likely give you lots more time to pay for any force-placed insurance.

Second, if you qualify for “cramdown” you would likely pay less on the vehicle loan—possibly much less. Cramdown is an informal term for the Chapter 13 procedure for legally re-writing the loan in situations in which the vehicle is worth less than you owe. With cramdown you could both pay less monthly and pay less overall before the vehicle became yours free and clear. And if you’re behind on loan payments, you would not need to catch up at all on any of those missed payments.

Next week we’ll tell you how Chapter 13 could both buy you time and save you money on your vehicle loan(s).

 

Lawsuit Highlights the Issues with Debt Settlement Services

August 27th, 2018 at 4:44 pm

Texas bankruptcy lawyerRecently, the Consumer Federal Protection Bureau (CFPB) initiated a lawsuit against the nation’s largest debt settlement services provider, Freedom Debt Relief. According to the claims, this formerly well-regarded company was not telling the truth as far as their fees and the reach of their capabilities. Unfortunately, this is not the first, nor the last debt settlement company openly deceiving clients to earn their trust and boost their profits. These are a few of the top complains that surfacing from the litigation.

Debt Settlement Promises Are Misleading

Clients complain that Freedom Debt Relief led them to believe that all of their debts were negotiable and would settle within months. Unfortunately, debt settlement services do not have the capabilities of stopping collection attempts. Therefore, many clients continued experiencing harassing phone calls, emails, and postal collection attempts, many of which went further into collections or resulted in judgments. Filing for bankruptcy is the only method that places an automatic stay on all collection attempts; meaning, foreclosure, repossession, and harassment all must come to an abrupt stop.

Clients Experienced Deceptive Practices

Many customers claim Freedom Debt Relief verbally agreed that they would negotiate all of their debts; yet, sources show the company had prior knowledge that several companies already refused to consult with their company, regardless of the client. In the debt settlement options, creditors examine each offer on a case-by-case basis and choose whether or not to negotiate. Bankruptcy does not give any creditor the authority to refuse, except on disallowable debts. If your debt is not allowed in the bankruptcy, your attorney will let you know before beginning the filing process.

Freedom Debt Relief Lied About Fees

All debt settlement companies receive payment based on the portion of any amount they convince a creditor to forgive or reduce. One of the significant complaints emerging from the lawsuit was customers realized the company assessed additional fees, including when a creditor voluntarily gave up collection attempts without Freedom’s involvement. Debt settlement services nickel and dime their payments, making it impossible for clients to know how much they should expect to pay the company. Attorney Chance M. McGhee lets each of his clients know how much they can expect to spend, leaving little room for surprises.

Get the Reliable Results You Need

A significant number of bankruptcy filers began by trying debt settlement first. Unfortunately, the complaints are consistent, regardless of their chosen company: the process takes too long and ultimately costs too much. If you decide to file for Chapter 7 or Chapter 13 bankruptcy, you will see results in months, not years. A Schertz, TX bankruptcy attorney will give you honest representation with no hidden surprises. Law Offices of Chance M. McGhee has decades of experience assisting clients through the bankruptcy process and earning them the financial freedom their families needed. Let us earn your trust today. Call us at 210-342-3400 to find out how bankruptcy can benefit your family in a free no-obligation consultation.

Source:

https://www.consumerfinance.gov/about-us/newsroom/cfpb-sues-freedom-debt-relief-misleading-consumers-about-its-debt-settlement-services/

Reversing Real Estate Judgment Liens with Bankruptcy

April 26th, 2018 at 11:40 pm

Texas bankruptcy attorneyCreditors know how to work the system to get the money owed to them. In some cases, creditors have the courts put a lien on debtor’s possessions without the owner’s consent or knowledge, granting the creditor a legal claim over the property. By placing a lien on real estate, a vehicle, or personal property, a creditor secures payment of the money owed, sooner or later.

Buyers will not purchase items without a clear title, and a lien makes any title unclear. Although a creditor has the option to sell the property, such as in foreclosure, most wait until the debtor chooses to sell the property. At that point, seller pays the debt out-of-pocket or uses part of the purchase price to repay the debt. Fortunately, in Chapter 7 bankruptcy, you may be able to avoid the whole ordeal by getting rid of the judgment lien altogether.

Consensual Versus Non-Consensual Liens

Liens are placed on property both with and without consent. If consent is given, it happens at the origination of the creditor-debtor relationship. For example, either the debtor is asking for money to purchase property, such as a home or a vehicle, where the bank would then own the property, and the purchaser makes payments to the financial institution; or the debtor is asking for a financial loan and offers property they already own as collateral.

Alternatively, if someone wins a judgment against another party in court and money is owed, a judge may grant a judgment lien, which frequently happens with unpaid debt. This is an example of a non-consensual lien.

Lien Avoidance

Through judgment lien avoidance, you can permanently remove a judgment lien. If this occurs during bankruptcy, you will own the property, free-and-clear with no other payments. Lien avoidance is recommended, if possible, even if you do not intend to keep the property long-term, as you can then sell the property to pay for other things. To qualify, the following must be true:

  • The lien is a court-issued money judgment;
  • There is exempt equity in part of the property; and
  • Property loss impairs the exemption.

Reduce Courtroom Surprises

Many filers do not realize they have any liens on their property. Others discover partial claims. Sometimes, debtors do not have equity during the bankruptcy filing, but that changes down the road. In all of these circumstances, a New Braunfels, TX bankruptcy attorney can help. If there is a lien on your property and you have little, no, or even negative equity, the Law Offices of Chance M. McGhee will explore all of your options. Call us today for your free, no-obligation consultation at 210-342-3400.

 

Sources:

https://study.com/academy/lesson/types-of-liens-equitable-possessable-statutory.html

http://www.landlordstation.com/blog/what-is-a-judgment-lien/

The Surprising Benefits: Solving an Uncomfortable “Preference” Problem

April 16th, 2018 at 7:00 am

A preferential payment to a relative or friend can turn very uncomfortable. But there are some good solutions. One should work for you.

 

Last week’s blog post introduced an uncomfortable problem: preference payments to a friendly creditor. (If you haven’t already please read that one before reading further here.)

The Solutions

We ended that blog post by listing and giving short descriptions of 4 likely practical solutions. We explain the first two of them today and the other two next week.

1. Wait to File Until after the 1-Year or 90-Day Preference Look-Back Period:

There’s one very simple way to avoid having money you paid to a favored creditor turn into a problematic preference.  Wait to file your bankruptcy case long enough so that enough time passes since that payment. Then it’s no longer a preferential payment that the trustee can cause you problems with.

The preference period is only 90 days with most creditors, but a full year with “insider” creditors. Without getting unnecessarily technical, there’s a good chance that anybody you’d have a personal reason for paying is an insider. See Section 101(31) of the U.S. Bankruptcy Code for the statutory definition of insider. But note that this is not a complete list. It says what the term “includes,” but courts have made clear that others not on the list could be insiders. For example, also included could be friends or others who’d you’d have a personal reason to favor over other creditors.

Whether the creditor is an insider or not, the payment you made is not a preference if more than 90 day/1 year has passed when your bankruptcy lawyer files your case. Then your bankruptcy trustee would have no power to require your payee to pay back your payment.

We are well aware that waiting is not a simple solution if you are in a big hurry to file your bankruptcy case.  Waiting even a few days may not be at all easy if your paychecks are being garnished or you’re under other similar collection pressure. Or waiting may even be totally inappropriate if your home would be foreclosed or your vehicle repossessed in the meantime.  

However, there are many situations where you would not be a huge hurry to file your case. Then waiting would be worthwhile. This may especially make sense if you are getting close to 90 day or 1-year mark since your preferential payment. So, at least look into whether you should just wait long enough to avoid the problem altogether.

2. Persuade Trustee Not to Pursue the Preferential Payment:

Just because there was a preferential payment within the look-back period, doesn’t mean it’s worth for the trustee to pursue. There are many circumstances in which you could help convince him or her to let it alone.

First, the simplest situation is if so little money is at issue that it’s not worth the bother. It takes some effort for a trustee to force a preferential payee to pay back the money. There is also a certain amount of paperwork and effort to divvy up the money among your creditors.  If the payment you made is no more than several hundred dollars most likely your trustee will shrug it off. (This is similar to trustees generally not chasing an unprotected (“nonexempt”) asset: if it’s only worth a few hundred dollars it’s usually not worth collecting and distributing.) Talk with your bankruptcy lawyer about what that unstated threshold dollar amount would  be in your area.

Caution: IF the trustee is already collecting assets in any form in your case, this threshold amount consideration likely goes out the window. If the trustee already has to liquidate anything and distribute money to creditors, he or she will usually be inclined to add to that amount by chasing down your preferential payee.

Second, there are many circumstances where forcing a preferential payee to repay the money would be difficult for the trustee. Your payee may have very little in assets or income reachable by the trustee, so it would likely take a very long time to collect it. Or the payee may have a valid defense. Especially if the amount at issue is relatively small (although above the above threshold), the trustee may decide such preferential payments are not worth chasing.

Third, there are other circumstances where the trustee simply could not collect from your payee at all. Your payee may have disappeared and can’t be located. Or your payee may be legally “judgment-proof”—have no assets or income reachable by the trustee. Helping the trustee learn the true facts along these lines could induce him or her make a sensible decision to abandon the preferential payment.

 

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.

 

Get a New Financial Start with this New Year

January 1st, 2018 at 8:00 am

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

 

An Overall New Financial Start

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

A New Start with Chapter 7

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

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

A New Start with Chapter 13

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

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

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

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

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

 

Debts Voluntarily Paid in Chapter 7

December 18th, 2017 at 8:00 am

Chapter 7 is usually much better if one of your high priorities is to favor a debt by paying it. You can do so more easily and flexibly. 

 

Our last blog post was about debts that you still pay after a Chapter 7 “straight bankruptcy” case. These included debts you might WANT to pay as well as those that you are legally REQUIRED to pay.

Today we focus on debts you might want to pay for no reason other than a sense of moral or personal obligation. That is, you’re not paying in order to be allowed to keep some collateral. You’re not “reaffirming” a mortgage or vehicle loan to keep the home or vehicle. (We’ll get into “reaffirmations” next time.)

One reason we’re looking at debts paid out of personal obligation is because how different this is in Chapter 7 vs. Chapter 13. For reasons we’ll show, it’s legally easy to favor such a debt in Chapter 7. But it’s not practical to do so in Chapter 13.

The Myth about Not Favoring a Debt after Bankruptcy

People have many fears about filing bankruptcy that are based on myths. One myth is that they think they won’t be allowed to pay a debt that they really want to pay.

Like most persistent myths this one is based on something that’s true only in certain limited circumstances. But then people assume it applies to them when it likely doesn’t.

It’s true that in certain circumstances in bankruptcy, debts within the same legal category must be treated the same. Similarly, in a Chapter 13 payment plan all unsecured debts that are not “priority” debts are paid the same percentage.

However, after a Chapter 7 case (by far the most common type) you are completely free to pay any debt that you feel like paying. The Bankruptcy Code is very direct about this: “[n]othing… prevents a debtor from voluntarily repaying any debt.” Section 524(f) of the U.S. Bankruptcy Code.

Don’t Avoid Filing Bankruptcy Because You Want to Pay a Debt

So being concerned about wanting to pay a debt for personal reasons is not a reason to not file bankruptcy.

And it’s certainly not a reason to put off seeing a competent bankruptcy lawyer about your options. The job of your lawyer is to listen to your concerns and help you solve them. If one of your priorities is to pay a debt for whatever personal reason, your lawyer will explain your options for meeting this priority. There are usually sensible ways to meet all of your concerns.

Scenarios for Wanting to Pay a Debt

In our experience there are three basic reasons people want to pay a debt they aren’t legally required to pay.

First, they think something bad will happen—legal or personal—if they don’t pay. For example, they want to pay a doctor bill because they think the doctor otherwise won’t be willing to see them anymore. (That is often not be true, so it’s worth asking the doctor’s staff.)

Second, they don’t want the creditor to know about their bankruptcy filing. For example, they’ve borrowed from their father and don’t want him to be disappointed in them.

Third, they simply feel some kind of deep personal obligation to make good on their promise to pay. For example, they want to repay a grandmother because she really needs the money.

If you filed a Chapter 7 case, in each of these types of situations you would likely be allowed to pay that debt while paying nothing on other debts.

Easier to Pay a Personal Debt after Chapter 7

If it isn’t obvious, paying such a personal debt should be much easier after filing a Chapter 7 bankruptcy case. You don’t have the financial pressure of your other debts, hopefully giving you more cash flow.  So, filing a Chapter 7 case actually helps you pay a debt or two that you really want to pay.

Discharge of the Personal Debt Gives You More Flexibility

Assume that the debt you want to pay is a legally enforceable debt. (It may be a gift or not legally enforceable on some other basis.) If it is a legal debt you’ll need to list it as a debt in your Chapter 7 case. And in all likelihood it will be discharged—you will no longer owe the debt, legally speaking. The choice whether or not to pay it then becomes completely yours. Your creditor cannot legally compel you to pay it.  

This means that you can pay it as slow or as fast as you want. You can pay for a while and then decide that it wasn’t such as good idea to pay it after all. You can pay only if the creditor treats you right—whatever. It’s up to you and whatever is motivating you to pay the debt.

Realize that your creditor should be doubly impressed if you do pay the debt. Not only are you going through bankruptcy in part to be able to pay this particular debt. You are also paying it in spite of no longer having any legal obligation to do so. You might want to tell these things to your creditor to get points for being so good!

Chapter 7 vs. 13 on a Voluntary Debt

We mentioned earlier that you have to pay all regular unsecured debts the same percentage of their debts in a Chapter 13 payment plan. You can’t favor one over the others except for very limited reasons. Feeling a greater moral or personal obligation toward one debt does not count.

AFTER your Chapter 13 case is over you CAN pay anybody as much as you want. If paid everyone 10% of what you owed them, you can arrange to pay one the remaining 90%.

But that’s not very practical in most situations because a Chapter 13 case usually lasts 3 to 5 years. Most creditors aren’t going to want to wait that long to be made whole. A commitment to begin finishing paying a debt so long from now is not going to impress most people. And who knows how you’ll feel that far down the line.

That’s why Chapter 7 makes more sense if one of your high priorities is to favor one of your debts.  Of course you have to weigh that against other reasons to file a Chapter 7 vs. Chapter 13. This is where you really need your bankruptcy lawyer to help you sort out your priorities so that you choose the best option.

 

Exceptions to the Discharge of Debts in Chapter 7

December 15th, 2017 at 8:00 am

Often all your debts are discharged—legally written off—in Chapter 7. But some you might want to pay, or might not be able to discharge. 

 

Two blog posts ago we ended by saying that most general unsecured debts get legally written off—“discharged”—in a Chapter 7 bankruptcy case, but that there are some exceptions. We’ll get into those exceptions now. These exceptions include all types of debts—general unsecured, secured, and priority debts.

Definitely Not Discharged vs. Might Not Get Discharged

When you file a Chapter 7 “straight bankruptcy” likely your main objective is to discharge your debts and move on.  The point is to get a fresh financial start. So when you’re considering your options you need to know whether you will still owe any of your debts after finishing bankruptcy.

Debts Definitely Not Discharged

You might still owe debts afterwards that you’ll know in advance you’ll owe. These include two types—those you’ll still owe voluntarily and those you’ll owe whether you want to or not.

Voluntarily Not Discharged

Why would you voluntarily agree to owe a debt after bankruptcy when the main point of Chapter 7 is to wipe out all the debts you can?  You’d do it to get something worthwhile in return.

What would you get in return? The debts most commonly retained are debts secured by collateral, such as a home, vehicle, or something else worth keeping. In return for continuing to make payments and owe the debt, you get to keep the collateral. And you get the sometimes important benefit of being able to quickly start rebuilding your credit record.

In these situations you’d usually formally “reaffirm” the debt. You’d sign a “reaffirmation agreement” to remain legally liable on the debt in return for keeping the collateral. See Section 524(c) of the U.S. Bankruptcy Code.

Or, rarely, you might just want to keep paying a debt, simply because you want to. This is usually done with special, usually more personal debts, such as one owed to a relative. It’s usually based on a moral or family obligation, not a binding legal one. As the Bankruptcy Code says, “[n]othing… prevents a debtor from voluntarily repaying any debt.” Section 522(f).

Not Discharged by Force of Law

There are also debts you simply can’t discharge in a Chapter 7 case because the law says you can’t. Here are the most common ones:

  • Child and spousal support can never be discharged, and most other divorce-related obligations can’t be under Chapter 7. Section 523(a)(5) and Section 523(a)(15).
  • Income tax debts can’t be discharged, unless they meet a list of conditions (mostly related to how old the tax is). Section 523(a)(1)
  • Most (but not all) student loans can’t be discharged unless imposing an “undue hardship” on the debtor. Section 523(a)(8)
  • You can never discharge criminal fines and restitution (except sometimes minor traffic infractions that are not considered “criminal.” Section 523(a)(7) and (13)

Debts that Might, or Might Not Get Discharged

There’s one more set of debts that WILL get discharged in a Chapter 7 case, UNLESS all three of these happens:

1. The creditor files a formal objection to the discharge at the bankruptcy court

2. That objection is filed on time—within 60 days after the “First Meeting of Creditors”

3. The court determines that the debt should not be discharged

As long as the creditor was included on your schedules of creditors and the creditor does not object in time, the debt is discharged just like any other debt.

The bankruptcy court determines whether the debt gets discharged based on whether the creditor convinces the court that the debt meets one of 3 sets of conditions. These conditions include whether you obtained the debt through:

1. Misrepresentation or fraud on the creditor (Section 523(a)(2))

2. Fraud while acting as a fiduciary (such as an executor of a decedent’s estate), embezzlement, or larceny (theft) (Section 523(a)(4))

3. “Willful and malicious injury” against someone or something (Section 523(a)(6))

Again, if the creditor does object on time but does not show that one of these conditions apply, the debt still gets discharged.

Because you don’t know for sure whether a creditor will object, and if one does how the judge will decide, this is a debt that you won’t know in advance whether it will get discharged. But of course you’d usually know if there is a risk that any of your creditors have a basis for raising such an objection. If you have any inkling that one does, talk with your bankruptcy lawyer about it. You’ll find out whether you or not you should be concerned. Often you’ll learn that your risk that the creditor would object is actually quite low. However, sometimes you’ll just have to wait to see if the creditor objects by the deadline.

 

This is just an outline of debts that don’t or may not get discharged. We’ll look more closely at these in the upcoming blog posts.

 

Your Home Mortgage in Chapter 7 and Chapter 13

November 27th, 2017 at 8:00 am

Here are 6 ways filing a Chapter 7 case can help you deal with your home lender and related debts, and 6 ways filing a Chapter 13 one can.

 

 If you’re buying a home your mortgage and other home-related debts are probably your most important ones. That’s especially true if you want to keep the home. So the choice between filing a Chapter 7 “straight bankruptcy” and a Chapter 13 “adjustment of debts” often turns on how each would handle these kinds of debts. We’ll get into more detail about these in upcoming blog posts, but here’s an introductory list.

Chapter 7

  1. Maintain current mortgage payments: If you want to keep your home and are current on your mortgage, just continue making the payments. Doing so should become much easier since you’re likely discharging (legally writing off) all or most other debts.
  2. Forbearance agreement: If you are no more than a few months behind on your mortgage, enter into a “forbearance agreement” with your mortgage lender. You agree to pay an extra amount each month to catch up on the mortgage. This assumes that your bankruptcy filing frees up enough money each month so that you can catch up fast enough
  3. Judgment lien avoidance: Chapter 7 can often “avoid” (remove from your home title) a creditor’s judgment lien against your home.
  4. Stop ongoing foreclosure to buy time to sell: If you are in the midst of selling your home, filing bankruptcy may buy enough time to close the sale. A Chapter 7 case buys you only a limited amount of time. Plus the Chapter 7 trustee may also have a say in what happens. So be sure to discuss this carefully with your bankruptcy lawyer.
  5. Buy time to save money and move: If you’re surrendering your home, Chapter 7 can stop a foreclosure and buy you more time.  You can be in your home without paying your mortgage longer, giving you more time to save money for your upcoming rent payments and moving costs.
  6. Discharge any “deficiency balance”: Surrendering your home without bankruptcy could result in a large “deficiency balance” owed from your mortgage debt. That’s the difference between the amount the home would sell for and the amount of the loan balances. Any such “deficiency balance” would be discharged in your Chapter 7 case.

Chapter 13

  1. Maintain current mortgage payments: As with Chapter 7, it’s usually much easier to keep current than before filing. That’s because Chapter 13 usually greatly reduces how much you pay on other debts.
  2. Much more time to catch up: Chapter 13 gives you as much as 5 years to catch up on a past-due mortgage and/or property taxes.  You enter into a court-approved payment plan based on your ability to pay. You are protected from your mortgage lender and all your creditors.
  3. “Strip” a second and/or third mortgage: If the value of your home is less than the balance on your first mortgage, you may be able to remove junior mortgages from your home’s title. You could stop paying these monthly payments. This would make keeping your “underwater” home more economically sensible.
  4. “Avoid” creditors’ judgment liens: This is the same as in Chapter 7 listed above.
  5. Dealing with other liens on your home: Chapter 13 usually provides more flexible and practical ways to deal with most other kinds of liens. These include liens for income taxes, child/spousal support, and home repairs/remodeling.
  6. Flexible timing for selling your home: You can often arrange to sell your home 2-3 years after filing. This is handy if you want to stay in your present home until a child graduates, you make a career move, or until your home’s property value increases.

 

Using Time to Your Advantage in Chapter 7 and 13

November 20th, 2017 at 8:00 am

Chapter 7’s big advantage is that it’s quick. Chapter 13’s big advantage is that it buys you more time to do what you want or need to do.


A Key Distinction-Treatment of Time

We’re starting a series of blog posts about the practical differences between Chapter 7 and Chapter 13 bankruptcy. Before getting down into the details let’s look at a difference that affects just about everything else—time. These two options deal with time very differently.

Sometimes getting something done quickly is to your advantage. Sometimes getting more time to get something done is to your advantage. Here’s how these play out with Chapter 7 and 13.

Chapter 7—In and Out Fast

If you’re like most people thinking about bankruptcy, you’ve been hurting financially for a long time. Understandably you want to get a fresh financial start fast.

With any kind of bankruptcy you get relief from almost all creditor collection actions the minute you file your case. Then with Chapter 7 “straight bankruptcy” your debts are discharged less than 4 months from the day you file the case. All or most of your creditors can never again attempt to collect on the debts.

So, you get immediate relief, your creditors are put on hold, and then just a few months later you’re done. You have your fresh start.

Chapter 7—One Point in Time

Chapter 7 bases just about everything on that moment in time when your case is filed. It particularly focuses in on your assets as of that moment. Generally your future assets are not relevant, unless they derive from assets owned as of the date of filing. (Rental income from property you own now would be an exception.)  Future income doesn’t count as present assets, unless it was for work done before filing.

Chapter 7—Short-Lived Automatic Stay

One problem with Chapter 7 is it can be TOO quick, when it comes to protecting you from certain creditors. The “automatic stay” is the name of the protection that kicks in the moment you file a bankruptcy case. That protection lasts only as long as the case is open. In a Chapter 7 case that means only 3-4 months, at the most.

Chapter 7 also gives you no enforceable mechanism for making payments on debts that you want or need to pay. For example, if you’re behind on a mortgage and want to catch up you have to bring it current by whatever terms and timetable the mortgage holder demands. There is nothing in Chapter 7 that compels the mortgage holder to give you more time. It’s the same if you’re behind on a vehicle loan, child or spousal support, or recent income taxes. You have little or no protection, and no power to compel these kinds of creditors to be more flexible.

(Chapter 7 does allow for “reaffirming” secured debts like vehicle loans. But “reaffirmation” doesn’t usually help if you’re behind on payments. It just makes you liable as if you hadn’t filed bankruptcy. And it doesn’t apply to other kinds of not-discharged debts like child/spousal support or income taxes.)

Chapter 13—Stretching Out Time in Your Favor

A quick bankruptcy procedure isn’t always in your favor. So getting in and out of bankruptcy quickly isn’t good if you’re left with ongoing special debts.

That’s not a problem if the surviving debt is one you can readily handle. You may have had trouble keeping up with payments on your vehicle loan. But after discharging all or most of your other debts under chapter 7 you may have no trouble making them. Same thing may be true if you still owe a relatively small amount of nondischarged income tax. You may well be able to pay it off conveniently through a negotiated monthly payment agreement.

Problems occur when the debt that would survive a Chapter 7 case is too large to handle on your own. It’s not at all unusual to have more than one such debt. Then you need the substantial additional time that Chapter 13 “adjustment of debts” gives you.

With Chapter 13 you’re not effectively being left on your own to deal with these special debts as under Chapter 7. Instead Chapter 13 can give you up to 5 years of time and protection. You have up to that much time to bring a debt current or to pay it off.

Chapter 13—Flexible Time

Chapter 13 doesn’t just buy you time to deal with those other problems. It buys you flexible time. It does so in three ways.

First, the amount of time it buys flexibly depends mostly on your budget. If your income qualifies you for a 3-year plan, you’re usually allowed to stretch it out longer. If you just need an extra 3 months, or the full 5 years, or anything in between, your personal budget is often the main determinant.

Second, if you have more than one important debt you need to pay, you often have flexibility about that. For example, let’s say you owe back home property taxes and child support, and recent income tax. All of them have to be paid in full before the end of your Chapter 13 case. But the property taxes accrue high interest. The child support you feel morally obligated to catch up fast. The income tax is not accruing interest. Your Chapter 13 payment plan could likely get the property tax and child support caught up before paying anything on the income taxes.

Third, Chapter 13 flexibly keeps your options open. For example, if you’re considering selling your home at some point, your payment plan could schedule that for 3 years into your case. You could keep your plan payments lower until paying a lump sum out of those later home sale proceeds. Or you may be able to leave that potential home sale open-ended, depending on what happens in the meantime.

Conclusion

As you can see, Chapter 7 and 13 each turn time in your favor, depending on what you need. If you don’t have a lot of debt that would not be discharged in a Chapter 7 case, then its quickness can be a big advantage. If you do have debt that would survive, Chapter 13’s length can be a great advantage. It not only buys you time but gives your protection and flexibility for dealing with these special debts.

 

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