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Qualifying for a Vehicle Loan Cramdown

May 20th, 2019 at 7:00 am

To qualify for a Chapter 13 vehicle loan cramdown, mostly your loan must be at least two and a half years old. There are exceptions to this. 

 

Last week’s blog post was about lowering monthly vehicle loan payments through Chapter 13 cramdown. This also often reduces how much you end up paying on the loan, and often even reduces its interest rate. Cramdown usually saves you money both immediately and long term. And you end up owning your vehicle free and clear at the end of your Chapter 13 case.  

Today we get into how to qualify for cramdown.

Qualifying for Cramdown—Timing

You can only do a cramdown if your vehicle loan is more than 910 days old when you file your Chapter 13 case. 910 day is about two and a half years. If you entered into the vehicle loan less than 910 days earlier, you can’t do a cramdown. You can’t reduce the monthly payments or the total amount paid on the loan.

The Bankruptcy Code says that you can’t do a cramdown if “the debt was incurred within the 910-day [period] preceding the date of the filing of the [Chapter 13] petition.” See the “hanging paragraph” following Section 506(a)(9) of the U.S. Bankruptcy Code.

What’s the reason for this 910-day timing condition? It’s a benefit to vehicle lenders. New cars and trucks depreciate fast. You can’t buy a vehicle, have it depreciate quickly for a year or two, and then take advantage of the fact that the vehicle isn’t worth as much as you owe on it. You have to wait two and a half years before you can do this.

Qualifying for Cramdown—910-day Rule Doesn’t Apply

The 910-day rule applies only to vehicle loans that are for the purchase of the vehicle. Under the language of the Bankruptcy Code, the 910-day waiting period only applies when “the creditor has a purchase money security interest securing the debt.” See the same paragraph” following Section 506(a)(9) referred to above.

So a loan used to refinance a vehicle CAN be crammed down without waiting the 910 days. Also, if you borrowed money for some purpose and gave your vehicle as collateral for the loan, you can do a cramdown without waiting.  

This same 910-day waiting period also does not apply to vehicles purchased for business use. The Bankruptcy Code says the 910-day rule only applies if “the collateral for that debt consists of a motor vehicle… acquired for the personal use of the debtor.” See the same paragraph in the Bankruptcy we keep referring to.

There are open questions about both these “purchase money” and “personal use” conditions. For example, “personal use of the debtor” is not defined in the Bankruptcy Code. What about a pickup truck mostly used for operating a business but also used for personal transportation? Or how about a vehicle bought by a parent for the exclusive personal us of an adult child? Is that not the “personal use of the debtor” so that the 910-day rule does not apply?

The answers to these questions may turn on interpretations of the Code language by your local bankruptcy court. Talk with your bankruptcy lawyer about your own particular situation.

Qualifying for Cramdown—Undersecured Vehicle Loan

In case it’s not obvious, cramdown only works if your vehicle is worth less than the balance on your loan. You’re “cramming” the loan amount down to the secured amount of the debt. The more your loan is upside down the more cramdown can help.

If your vehicle is worth the same or more than you owe, there is no opportunity for cramdown. You might gain some other benefits on your vehicle loan from filing a Chapter 13 case, but no cramdown.

And how do you determine what your vehicle is worth for this purpose? For example, do you use “retail value” or “wholesale” or “trade-in” values? Should you use the Kelley or NADA Blue Book values or some other source? Again, these are questions for your bankruptcy lawyer, based on local law and practice.

Qualifying for Cramdown—Only in Chapter 13

Cramdown is not available under Chapter 7 “straight bankruptcy.” You must file a Chapter 13 “adjustment of debts” case. The payment and payoff terms of your cramdown are part of your 3-to-5-year Chapter 13 payment plan. In it you present the value of your vehicle, which indicates the secured part of your loan balance and the remaining unsecured part, and how much you intend to pay on each part.

(Cramdown is also available under Chapter 11 “reorganization,” which is generally used for corporate and other business bankruptcies. Section 1129(b)(2)(A). This blog post focuses instead on consumer oriented Chapter 13. But if you are operating a business or have unusually large debts, Chapter 11 may be an option to consider.)

 

The Role of a Bankruptcy Trustee

May 17th, 2019 at 2:45 pm

Texas bankruptcy attorneyComing to the decision that your best option is to file for bankruptcy is not easy. You may have taken weeks, if not months to realize that your best option is bankruptcy. The bankruptcy process can be confusing because of all of the legalities and people involved with the process. When you file for bankruptcy, the United States Trustee Program will assign you a bankruptcy trustee who will be responsible for overseeing your case. The trustee is one of the most important people in your case, so it is crucial that you understand the role of the trustee and the impact the trustee can have on your case.

What Is a Bankruptcy Trustee?

The role of a trustee was created to prevent the creditors and courts from having to be the ones responsible for collecting and distributing the property of those who file for bankruptcy. Trustees are independent contractors who are not employees of the bankruptcy court, but they must answer to the court and cannot take any kind of action until the court approves it. The trustee will evaluate and make recommendations pertaining to the demands of different debtors involved in the specific bankruptcy case they are assigned to.

Role of the Bankruptcy Trustee

The role of a trustee differs based on the type of case they are assigned to. Most bankruptcy cases will be assigned a trustee, except for Chapter 11 reorganization plans and Chapter 9 municipality cases.

Chapter 7 Bankruptcy Trustees

In Chapter 7 bankruptcy, your trustee is responsible for a couple of different things. First, it is the trustee’s job to make sure your bankruptcy claim is legitimate and not fraudulent. Your trustee will also be the person who determines whether or not you have any non-exempt assets. If you do, the trustee will also manage the sale of your assets and oversee the distribution of the proceeds to your creditors.

Chapter 13 Bankruptcy Trustees

The role of a trustee in a Chapter 13 bankruptcy is slightly different because the types of bankruptcies differ from each other. A Chapter 13 bankruptcy deals with a repayment plan, which your trustee will be responsible for overseeing. Your trustee will be your liaison between you and your debtors, making sure you have an affordable repayment plan, collecting your payments and distributing them to your debtors.

Contact a Texas Bankruptcy Attorney Today

One of the many aspects of a bankruptcy is the trustee, which is a crucial piece to the puzzle. Your trustee will make sure you have a reasonable bankruptcy plan, but sometimes you also need extra help. If you are thinking about filing for bankruptcy, you should talk with an experienced Kerrville, TX bankruptcy attorney. At the Law Offices of Chance M. McGhee, we will help you determine whether or not bankruptcy is appropriate for your situation. Call our office today at 210-342-3400 to schedule a free consultation.

 

Sources:

https://www.creditkarma.com/advice/i/bankruptcy-trustee/

https://www.thebalance.com/who-is-a-bankruptcy-trustee-316199

https://www.investopedia.com/terms/b/bankruptcy-trustee.asp

Keep Your Vehicle through Cramdown

May 13th, 2019 at 7:00 am

If you can’t afford to pay your vehicle payments even after writing off your other debts under Chapter 7, consider a Chapter 13 loan cramdown. 

 

The last two blog posts have been about keeping your vehicle in a Chapter 7 case. Two weeks ago was about the benefits of reaffirming the vehicle’s loan. Last week was about possible ways of keeping the vehicle by making the loan payments but not reaffirming. These all assumed that you would keep on making the full monthly payments in order to keep the vehicle.

But what if you can’t afford the full monthly payments? Are there any other options if, even after getting rid of your other debt, you can’t pay the vehicle payments?

The answer: you may be able to reduce the vehicle payments through Chapter 13 cramdown. In fact, you may be able to significantly reduce the payments. And cramdown may give you some other huge financial benefits.

Reducing Monthly Payments through Cramdown

Chapter 13 “adjustment of debts” is very different from Chapter 7 “straight bankruptcy.” It takes much longer but Chapter 13 comes with some significant advantages. This includes the possible cramdown of your vehicle loan.

Under Chapter 13 you and your bankruptcy lawyer come up with a court-approved payment plan. That plan just about always significantly reduces what you pay monthly towards your debts. And if you successfully complete the plan you usually pay significantly less overall towards your debts.

Similarly, under cramdown you can often reduce both your monthly payment and the total you pay on your vehicle loan.

How Does Cramdown Work?

Your Chapter 13 payment plan treats secured debts and unsecured debts very differently. In general, secured debts need to be paid in full if you want to keep whatever the debt is securing. Unsecured debts usually only need to be paid as much as there’s money available to pay them.

So what if a secured debt—such as a vehicle loan—is only partially secured? That happens if the vehicle is worth less than the balance owed on the loan. The secured part of the loan is the amount equal to the value of the vehicle. The unsecured part is the rest of the loan balance—the part that effectively has nothing securing it.

Here’s a simple example. Let’s say you’d been paying for 3 years on a vehicle loan, you now still owe $15,000 but the vehicle is worth only $9,000. The secured portion of that vehicle loan is $9,000 and the unsecured portion is $6,000.

Recalculating the Payment Amount

Cramdown re-writes your vehicle loan so that your monthly payment gets calculated on only the secured part of the loan. In our example, your monthly payment now pays down only the $9,000 secured debt instead of the full $15,000 balance. Since the secured amount is less than the full loan balance, the new monthly payments are usually less.

The monthly payment is also reduced when those payments are stretched out over a longer period. They can extend as long as your Chapter 13 payment plan lasts, which is usually 3 to 5 years.

In addition, cramdown sometimes lowers the vehicle loan’s interest rate. That helps if your contract interest rate is high.

Combining all this, cramdown reduces your monthly payment by reducing the total amount it is paying off (the secured part of the loan), sometimes stretching the payment term out over a longer period, and often reducing the interest rate.

As a result, it’s not unusual for monthly payments to be chopped in half, or even better. It all depends on the details of your vehicle loan and on your finances going forward.  

What Happens to the Unsecured Part?

In our example, what happens under Chapter 13 cramdown to the remaining $6,000 unsecured part of the vehicle loan?

It’s lumped in with and treated just like your other “general unsecured” debts. Most of the time a Chapter 13 payment plan pays these low-priority debts only as much as you can pay them, if anything. That is, you pay “general unsecured” debts only AFTER paying the “priority” and secured debts.

There are exceptions, but this usually means you pay the unsecured part of your vehicle loan only if and to the extent you have money left over after paying other debts during the course of your payment plan. At your case’s completion any remaining amount gets “discharged,” permanently written off, along with your other “general unsecured” debts.

Qualifying for Cramdown, Other Considerations

Next week we’ll get into timing and other considerations in qualifying for a Chapter 13 vehicle loan cramdown.

 

Keep Your Vehicle without Reaffirmation

May 6th, 2019 at 7:00 am

Can you keep your vehicle without reaffirming its loan? Can you make the payments without reaffirming?  What if you can’t afford the payments? 

 

Last week we discussed keeping your vehicle in Chapter 7 by entering into a reaffirmation agreement with your vehicle lender. Through this agreement you exclude your vehicle loan from the discharge of debts. In return you get to keep your vehicle. You also get an early start on rebuilding your credit by making payments on and eventually paying off this loan.

We ended last week with two unanswered questions:

  • Would you be able to keep your vehicle in a Chapter 7 case if you DIDN’T sign a reaffirmation agreement but just kept current on your payments and insurance?
  • Are there any other options if you couldn’t afford the vehicle payments even after discharging your other debts?

We cover the first question today, the second one next time.

Risks to Avoid If You Can

Think long and hard before entering into a reaffirmation agreement. If you sign the agreement you’re passing up on this one-time opportunity to get out from under the debt. Be sure you understand the risk that you might not be able to make the loan payments at some point. Then you’d have to surrender the vehicle. At that point you would likely be left owing the lender a “deficiency balance.” This is the amount remaining on your debt after applying the lender’s proceeds from selling your vehicle after repossession.  The “deficiency balance” you’d owe would likely be much more than you expect because of the costs the lender is allowed to add to the debt, and the relatively small amount it would likely get from auctioning off your vehicle.

A “Ride-Through” Option?

One possible way to avoid this risk of a deficiency balance debt is to make the payments without reaffirming the debt.

The idea is that your lender shouldn’t be able to repossess your vehicle if you’re complying with all your contractual obligations. This mostly includes being perfect on your monthly payments and keeping the vehicle insurance current.

And if you don’t sign a reaffirmation agreement you won’t be liable for any remaining debt on the loan. The vehicle loan debt would be discharged along with your other debts.

So you’re trying to keep the vehicle without the risk of owing a big balance if you ever have to surrender it.

“Ride-Through” Problems

There’s one huge problem with this attractive-sounding option. In most (if not all) of the country, a vehicle lender DOES have the right to repossess a vehicle once the Chapter 7 case is over if there’s no signed reaffirmation agreement. This is true even if the loan payments and the vehicle insurance are current.

So, most lenders insist on a reaffirmation agreement if you want to keep the vehicle. They have good reason to do so. They want you to pay off the entire loan. You’ll more likely do that if you have the risk of owing a deficiency balance hanging over you throughout the remaining life of the loan.  The lender doesn’t want to leave you with the option of surrendering the vehicle whenever you want without financial penalty.

Your Remaining Options

You may nevertheless have some options.

  • Some vehicle lenders may still allow you to just keep current without reaffirming, and keep the vehicle. These would more likely be smaller lenders. This may work especially with a vehicle that’s already worth less than what you owe. In this situation the lender may prefer getting your monthly payments instead of having to take a loss on the loan. This may be better on their books now and the lender has a good chance of getting more money in the long run. So ask your bankruptcy lawyer if your lender may be amenable to this.        
  • In some situations the bankruptcy court may not approve a reaffirmation agreement.                                                                                                                                                                    This can happen if your lawyer will (strategically or otherwise) not sign off on the agreement. This then triggers the court’s review and necessary approval (which is not needed if your lawyer signs off). The court would likely not approve the agreement if your budget shows that you can’t afford the loan payments. If the court doesn’t approve the agreement, you may be able to keep the vehicle by just keeping current on the payments (by scrimping on the rest of your expenses). This option is tricky and should only be done with the advice and close assistance of your lawyer.
  • Some lenders might let you adjust the contract terms in your reaffirmation agreement, such as by lowering the monthly payments. Since then you’ll more likely be able to make the payments, it’s less likely the vehicle will get repossessed. So reaffirming in this situation is less risky. Frankly, most vehicle lenders aren’t this flexible, but talk with your lawyer about whether yours might be.
  • Chapter 13 “cram down” could force your lender to accept lower monthly payments, and even money overall. This is an important option if you must keep your car and can’t afford to do so without lower payments. This is the topic of next week’s blog post.

 

Keep Your Vehicle by Reaffirming its Loan

April 29th, 2019 at 7:00 am

If you want to keep your vehicle and still pay on its loan, file a Chapter 7 case to write off other debts and reaffirm the vehicle loan.  

A Vehicle Loan is a Secured Debts

We started this series of blog posts on debts by introducing secured debts as follows:

Each of your debts is either secured by something you own or it is not. A secured debt is backed up by a lien, a legal interest of the creditor in some kind of property of yours. See Section 101(37) of the U.S. Bankruptcy Code.

Usually you know whether a debt is secured. For example, in the case of a vehicle loan the vehicle’s title states that your lender is the lienholder. That lien on the title makes the loan secured by the vehicle. That, together with the security agreement you signed, gives the lender certain rights over your vehicle.

Let’s assume that you have a vehicle that you are paying for through a vehicle loan. If you look at your vehicle’s title, your lender is listed as the lienholder on your vehicle. The loan documents include a security agreement that gives the lender the right to repossess the vehicle if you don’t make the loan payments.

Also let’s assume that you really want to keep your vehicle. One of the main reasons you are considering filing bankruptcy is to write off all or most of your other debts so you can afford to pay your vehicle loan.

Reaffirming the Vehicle Loan

Filing a Chapter 7 “straight bankruptcy” case could well accomplish this. It could permanently forgive (“discharge”) all or most of your other debts. That could free up enough of your monthly cash flow so you’d have money to pay your vehicle loan payments.

Talk with a bankruptcy lawyer to find out which of your own debts would be discharged. Bankruptcy discharges most debts, but there are quite a few exceptions. (See our last 10 blog posts about those exceptions.)  Your lawyer will help you put together your after–bankruptcy budget. From that you’ll see whether you’d be able to pay on your vehicle loan after discharging your other debts.

If so, filing a Chapter 7 case and signing a vehicle loan reaffirmation agreement may be your best option.

Reaffirmation Is a Voluntary Discharge Exception

A reaffirmation agreement excludes the vehicle loan from the discharge of debts Chapter 7 bankruptcy otherwise entitles you to. You enter into it voluntarily in return for getting to keep your vehicle.

It’s voluntary because you recognize that your lender has the right to take your vehicle if don’t make your payments. That doesn’t change when you file bankruptcy. The point of the reaffirmation agreement is to allow you to keep your vehicle.

Voluntarily Deciding Not to Reaffirm

You can file a bankruptcy case and choose NOT to reaffirm your vehicle loan. In a Chapter 7 case that would generally mean that you’d surrender the vehicle to your lender. The bankruptcy discharge would then virtually always write off any remaining debt you’d owe on the vehicle loan.

Think very seriously and open-mindedly about this option before you reaffirm the loan. Bankruptcy gives you a one-time opportunity to get out of the vehicle loan. Consider whether you would definitely be able to afford its monthly payments, insurance, maintenance and other costs. Find out what the vehicle is now worth compared to what you owe. Think creatively about other transportation options. Don’t just reaffirm the loan because you figure you have no other choice. Make it an informed choice, whichever way you choose.

The Risks of Reaffirming

A reaffirmation agreement excludes the vehicle loan from the bankruptcy discharge. So it returns to the lender all of the rights it had over you that it had before your bankruptcy.

That of course includes the right to repossess your vehicle if you don’t make payments on time. But likely also included is the right to repossess if you let the insurance lapse. Or the lender may impose its own insurance and charge you an exorbitant amount for it. The lender may even be quicker about force-placing insurance or repossessing after bankruptcy than before.

So do not enter into a reaffirmation agreement lightly. It would certainly be unfortunate for somebody to go through the efforts of a Chapter 7 case, get a fresh financial start, only to have a vehicle repossession and its resulting debt a year or two later.

Other Options?

Are there any other options if you couldn’t afford the vehicle payments even after discharging your other debts?

Also, would you be able to keep your vehicle in a Chapter 7 case if you DIDN’T sign a reaffirmation agreement but just kept current on your payments and insurance?

We’ll cover these practical questions in the next blog post or two.

In the meantime, reaffirmation agreements are covered by the Bankruptcy Code at Section 524(c).

 

What Not to Do Before Filing for a Texas Bankruptcy

April 26th, 2019 at 2:38 pm

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

Lying or Withholding Information from Your Attorney

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

Acquiring New Debt After You Have Started the Process

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

Giving Money or Property to Your Friends or Family

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

Not Hiring a Skilled New Braunfels, TX Bankruptcy Lawyer

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

 

Sources:

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

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

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

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.

 

Frequently Asked Questions About Texas Bankruptcy

April 12th, 2019 at 10:11 pm

TX bankruptcy attorneyBeing in debt can often feel like being in quicksand — the more you try to climb your way out, the quicker you sink further. Making the decision to file for bankruptcy is a very serious one and should only be made as a last resort. Because of this, most people who file for bankruptcy are in an overwhelming amount of debt. This can cause much uncertainty and may have you wondering how you should file, which type of bankruptcy is right for you and what your life will look like after your bankruptcy is done. Here are a few frequently asked questions about bankruptcy and their answers:

When Should I File For Bankruptcy?

This is a very personal question and because of that, the answer will never be the same for all people. There is a general rule of thumb when it comes to deciding when you should file for bankruptcy — it should be your last resort. Before you file for bankruptcy, you should try other ways of relieving debt, such as budgeting and consolidating your debt. If you feel that you are drowning in debt, it may be time to consider bankruptcy.

Which Type of Bankruptcy Is Right For Me?

For private consumers, there are two types of bankruptcies that you can apply for: Chapter 7 and Chapter 13 bankruptcies. A Chapter 7 bankruptcy is the most common type of bankruptcy where most of your debt is discharged and you are given a clean slate. A Chapter 13 bankruptcy utilizes a repayment plan to help you pay off your debts, rather than discharging them. The kind of bankruptcy that is best for you depends on a variety of factors — which you should talk to your attorney about.

How Will a Bankruptcy Affect My Credit Score?

It is never known for sure how exactly a bankruptcy will affect your credit score because beginning scores can range. If you have a higher beginning credit score, you will usually lose more points than a person with a lower credit score. Regardless, most people’s credit scores will fall within the same range after a bankruptcy — usually, somewhere within the mid- to high-500 range.

A New Braunfels, TX Bankruptcy Attorney Can Help

Filing for bankruptcy can be a long and confusing process. There are many things you must consider before you file for bankruptcy and there are many questions that come along with the process. This is where a skilled Kerrville bankruptcy lawyer can be extremely helpful. At the Law Offices of Chance M. McGhee, we can help answer all of your bankruptcy questions and we can also help you make the best decisions for your situation. Call our office today at 210-342-3400 to schedule a free consultation.

 

Sources:

https://www.bankrate.com/finance/debt/life-after-bankruptcy-1.aspx

https://www.investopedia.com/articles/pf/07/after-bankruptcy.asp

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.

 

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