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Commissions Owed to Independent Contractor

February 17th, 2020 at 8:00 am

If you owe sales commissions to an independent contractor when you file bankruptcy, it may be a priority debt. Here’s what determines this

 

Our last blog post was about conditions in which wages, commissions, or benefits owed to an employee are “priority” debt.

But what if your debt was not to an employee but an independent contractor? Especially in today’s “gig economy,” small businesses (and large ones, too) often have independent contractors instead of employees.

Why “Priority” Matters

As discussed last week, whether a debt qualifies as a priority debt can make a huge difference.

This most often matters in a Chapter 13 “adjustment of debts” case. You have to pay all priority debts in full during the 3-to-5-year court-approved payment plan. In huge contrast, usually you only pay the non-priority “general unsecured” debts to the extent you can afford to pay. The common result is that you pay priority debts 100%, while those that don’t qualify as priority little or nothing.

The distinction between priority and general unsecured also matters in an “asset” Chapter 7 case. That’s the relatively uncommon situation in which a debtor needs to surrender an unprotected asset to the Chapter 7 trustee. In that situation the trustee liquidates the asset and pays priority debts in full before paying any general unsecured debts. The result: priority debts often get paid in full or in part, while there’s nothing for any general unsecured debts.

The distinction between priority and general unsecured does not directly matter in a simple, “no-asset” Chapter 7 “straight bankruptcy” case. That’s the common situation when everything you own is “exempt”—protected from the Chapter 7 trustee. Many Chapter 7 cases are “no-asset” ones. (However, note that most priority debts can’t be discharged in a Chapter 7 bankruptcy. So while such debts won’t receive anything from the trustee, you’ll likely still have to pay the debt afterwards yourself.)

The Basic Amount/Timing Rule

Whether you owe an employee or an independent contractor, some of the conditions to make the debt priority are the same.

First is the maximum dollar amount. The maximum amount of a debt that would qualify as priority is $13,650. See the discussion in our last blog post about this amount. (Also see the original statute’s $10,000 amount in Section 507(a)(4) of the U.S. Bankruptcy Code, the cost-of-living provision in Section 104 of the Bankruptcy Code, and the current $13,650 amount since April 1, 2019 in this notice in the Federal Register.)

The second condition is the timing. The debt owed must be

earned within 180 days before the date of the filing of the [bankruptcy] petition or the date of the cessation of the debtor’s business, whichever occurs first

Section 507(a)(4) of the Bankruptcy Code.

So, any amount owed to an employee/contractor beyond $13,650 would be a general unsecured debt, not a priority one. Same with any amounts earned outside the specified 180-day period.

The Special Independent Contractor Rule

Beyond the above amount/timing conditions, there’s another significant condition especially for independent contractors. The debt is a priority debt ONLY if

during the 12 months preceding that date [of bankruptcy filing or cessation of business], at least 75 percent of the amount that the individual or corporation earned by acting as an independent contractor in the sale of goods or services was earned from the debtor.

Section 507(a)(4)(B) of the Bankruptcy Code.

So if your independent contractor earned less than 75% of its overall income during that one-year period from you, then none of what you owe it is priority.

Presumably the purpose of this condition is so that it applies only to independent contractors who are more like employees. It includes only those independent contractors who work mostly for you. It is not meant to apply to debts owed to suppliers of goods and services that serve many customers. Those are more like conventional payables, which are general unsecured debts, not entitled to priority.

 

What Does the Texas Bankruptcy Process Look Like?

February 14th, 2020 at 4:33 pm

BankruptcyTexas bankruptcy attorney, TX chapter 7 attorney, TX bankruptcy process, is the legal process of determining whether or not a person or business is actually unable to pay their debts and if their debts should be discharged. For individuals, there are two main types of bankruptcies — Chapter 7 and Chapter 13. In a Chapter 7 bankruptcy, typically the filer has their debts discharged or forgiven at the end of the process. In a Chapter 13 bankruptcy, the filer’s debts are reorganized and a repayment plan is entered for three to five years to pay off as much of the debt as possible.

According to statistics from the Judiciary Data and Analysis Office, the most common type of bankruptcy that is filed is Chapter 7 bankruptcy, which made up around 60 percent of all bankruptcy filings in 2017. If you are thinking about filing for a Chapter 7 bankruptcy, it is important that you understand the process.

Before You File

The first step in the bankruptcy process is to get a firm grasp on your financial situation. You should gather all of your documents that are needed for bankruptcy now so that you can look at the whole financial picture and because you will also need them as proof when you go to file. You will need documents such as:

  • A copy of your credit report
  • Tax returns from the past two years
  • Proof of income from the past six months
  • Bank, retirement and brokerage account statements
  • Valuations of any real estate you own
  • Title and loan information on your vehicles, if you own any

Preparing and Filing Your Documents

The most time-consuming portion of the bankruptcy process is just filling out the forms needed to actually file. This is where an attorney would come in handy. There are around 70 pages of information that you must fill out, much of it requiring a lot of calculations and writing down repetitive information. Your attorney would be able to do most of this legwork for you, making sure that calculations and information are correct and preventing any delays in filing. If you file the forms yourself, you must go to the courthouse in person, file the forms with the clerk and pay the $335 filing fee. If you hire an attorney, he or she will do this for you.

Credit Counseling Requirements

As a requirement of filing for bankruptcy, you will also have to complete two counseling courses. The first one is a credit counseling course and should be completed before you file. The second course is centered around debt education and must be completed after you file, but before your creditors’ meeting.

Meeting of Creditors

The final step in the process is attending your 341 Meeting or your Meeting of Creditors. The point of this meeting is to ensure that all of your information on your forms is correct and that you are not hiding any assets or income that could be used to repay your debts. A majority of the time, creditors’ meetings only last about five minutes and end with your debts being discharged and your bankruptcy complete.

Our Knowledgeable San Antonio, TX Bankruptcy Attorneys Can Help

Though it is not required to have an attorney when you file for bankruptcy, it can greatly help your case by preventing mistakes you might not even know you are making. At the Law Offices of Chance M. McGhee, we can help you get your life back on track and file for bankruptcy. Call our Boerne, TX bankruptcy lawyers today at 210-342-3400 to set up a free consultation.

 

Sources:

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

https://upsolve.org/learn/how-to-file-bankruptcy-2019/

https://www.uscourts.gov/news/2018/03/07/just-facts-consumer-bankruptcy-filings-2006-2017

 

Wages Owed to an Employee

February 10th, 2020 at 8:00 am

If you owe wages to an employee when you file bankruptcy, that may or not be a priority debt. Here’s what determines this and why it matters.  

 

Our last dozen blog posts have been about “priority” debts. These are special unsecured debts that bankruptcy law treats better than the rest, called “general unsecured” debts.

(Secured debts are a third main category of debts, distinctive because they are attached to your assets as security. We’ve covered those before and will again later. But now we’re addressing priority debts, which are not secured by any of your assets.)

The most common priority debts in consumer bankruptcy cases are income taxes and child/spousal support. So our recent blog posts have focused on these two. But if you have been operating a business with employees or independent contractors there are other important potential priority debts. These involve unpaid wages, salaries, commissions and benefits owed at the time of bankruptcy filing. Our next few blog posts will focus on these.

The Conditions of Priority

If you owe a wage, salary, commission, or employee benefit when filing bankruptcy, that may or not be a priority debt. It depends on timing and the amount owed. The pertinent statute says that priority debts include those:

only to the extent of $13,650 for each individual or corporation, as the case may be, earned within 180 days before the date of the filing of the petition or the date of the cessation of the debtor’s business, whichever occurs first, for… wages, salaries, or commissions, including vacation, severance, and sick leave pay earned by an individual

Section 507(a)(4) of the U.S. Bankruptcy Code.

The $13,650 Dollar Limit

This dollar limit is mostly self-explanatory. Any amount owed to an employee up to $13,650 is a priority debt. Any amount beyond that is just a general unsecured debt.

This amount may seem odd. That’s because it’s been adjusted for inflation every 3 years as mandated by law. Section 104 of the Bankruptcy Code. It was originally $10,000. It’s been $13,650 for bankruptcy cases filed since April 1, 2019 (and will likely increase on April 1, 2022). See this notice in the Federal Register of February 12, 2019.

Timing

The wage, commission, etc. must have been earned within a very strict time period of 180 days. This is 180 days before your bankruptcy filing date or before you stopped operating your business, whichever happens first. So for example if you stop operating your business on January 1 and then file bankruptcy on the following March 1, the pertinent period would be the 180 day period before January 1. Wages, etc. earned during that period would count as priority. Earnings outside that period would be general unsecured debt.

Why Priority Matters

Whether a debt is a priority or general unsecured one sometimes doesn’t matter. But often it matters a lot.

This distinction of itself does not matter in a simple, “no-asset” Chapter 7 “straight bankruptcy” case. That’s one in which everything you own is “exempt”—protected from collection by the Chapter 7 trustee. Most straightforward consumer Chapter 7 cases are “no-asset.” If you operated a business you may also have a “no-asset” Chapter 7 case although that’s less likely.

The priority-general unsecured distinction matters a lot in an “asset” Chapter 7 case. That’s because the trustee pays debts out of the collected and liquidated non-exempt assets. The trustee pays priority debts in full before paying anything to general unsecured debts. Often that means that priority debts are the only ones that receive any funds from the trustee. Or priority debts may be paid in full while general unsecured debts only receive a few pennies on the dollar.

The priority-general unsecured distinction also matters a lot in all Chapter 13 “adjustment of debts” cases. A 3-to-5-year court-approved Chapter 13 payment plan must pay all priority debts in full. In contrast, the plan usually pays general unsecured debts only if and only to the extent there’s any money left over after paying all priority (and often secured) debts first. The result is that priority debts stand a much better chance of getting paid. In contrast, general unsecured debts often receive only a small portion of the amount owed, and sometimes absolutely nothing. (This also largely applies to Chapter 11 business reorganizations and Chapter 12 farm reorganizations.)

So under “asset” Chapter 7s and all Chapter 13s, whether a wage, etc. meets the priority conditions or not usually makes a tremendous difference about whether and the extent to which it is paid.

Order of Priority

There’s one more important consideration in whether a wage, etc. gets paid and to what extent. The law doesn’t just make a distinction between priority and general unsecured debts. Some priority debts have higher priority than others. The higher priority debts receive payment in full before the lower priority ones receive anything.

This doesn’t matter so much under Chapter 13 in which you must pay all priority debts in full. Nor does it matter in an asset Chapter 7 case in which there’s plenty of money to pay all priority debts. But it does matter in an asset Chapter 7 case in which there are more than one type of priority debts and there’s only enough money to pay some of them.

The order of priority for wages and such is fourth out of the ten listed priority debts. Some of these ten are obscure ones that seldom apply. Focusing on the most common ones, the wage priority is lower than child and spousal support debts but higher than income taxes.

 

A Chapter 13 Plan to Catch up on Past-Due Support

February 3rd, 2020 at 8:00 am

Here’s an example of a Chapter 13 payment plan to pay past-due child and/or spousal support, showing how you can catch up safely and sanely

 

Today we put what we explained in the last three weeks of blog post into a sample Chapter 13 plan. It shows how powerfully Chapter 13 helps you if you owe past due child and/or spousal support. A Chapter 13 filing protects you from the aggressive collection of overdue support, immediately and as long as needed. And through the Chapter 13 payment plan you get a reasonable and even peaceful way to catch up on support.

The Example

Assume you’ve fallen behind on both child and spousal support because your income was interrupted. You owe $6,000 in past-due support. You’re back at work so you can now pay your ongoing monthly support but have no way to catch up. You have too many other debts.

Your ex-spouse’s support enforcement agency is poised to garnish your wages for the past-due support. If they did so you wouldn’t be able to pay your vehicle loan payment and you’d lose your vehicle.

Assume that the divorce decree requires you to pay $900 in monthly child support and $600 in monthly spousal support, $1,500 total, for 5 more years. So the $6,000 in past-due support represents 4 months of missed payments.

You got a good deal on the vehicle loan. So the vehicle is worth about as much as you owe on it—$10,000. Your monthly payments are $425 per month, with 25 more payments to go.

Besides the $5,000 in past-due support and the vehicle loan, you owe $95,000 in other debts. These other debts are all unsecured credit cards and medical bills—“general unsecured debts” under bankruptcy law. If you pay the monthly payments on the credit cards you have no money left for the medical debts, much less the $1,500 in ongoing support payments. You are in a very tight financial box.

Chapter 13 gets you out of that box fast, and solves these problems permanently.

Your Chapter 13 Budget and “Disposable Income”

Filing a Chapter 13 case stops the collection of past due support immediately. See our blog posts of 2 and 3 weeks ago about this works and the conditions you must meet. See the blog post of last week about how the Chapter 13 plan gives you a safe and flexible way to catch up on the support. Today’s example brings all this together.

In a Chapter 13 case you and your bankruptcy lawyer put together a monthly budget of your income and expenses. That budget gives you money to pay your ongoing monthly support as well as you own reasonable expenses. See Subsection 1325(b)(2)(A)(i) of the U.S. Bankruptcy Code.

The amount left over is your monthly “projected disposable income.” See Section 1325(b)(1)(B)  of the Bankruptcy Code.

The way this works is your monthly expenses exclude any debt payments. Your expenses DO include the $1,500 in child and support payments since that’s a required ongoing expense. But your expenses don’t include any money for the past-due support since that part is a debt.

Your expenses for determining your disposable income also don’t include the $425 vehicle loan payment. That is of course a debt as well.

Assume that after subtracting all of your monthly expenses (including the $1,500 in support) your monthly “projected disposable income” is $500. You commit to paying that amount to all of your creditors for the following 3 years in your Chapter 13 payment plan.  

The Chapter 13 Plan

Paying $500 per month for 3 years would in most situations be enough to take care of all your debts. This includes the $6,000 in past-due support. At the end of 3 years you would have paid off the vehicle loan, caught up on the support, and be free and clear on all your other debts.

How could this be when you owe $425 per month on just your vehicle loan? And what about the $95,000 in credit card and medical debts? How could just $500 per month over 3 years cover ALL of these debts?

This is possible for the following main reasons. Chapter 13 usually allows you to:

  1. Delay paying the past-due support until your plan pays certain other debts first—here the vehicle loan.
  2. Pay the general unsecured debts only as much as you have disposable income to pay them. The rest is forever written off (“discharged”).

In this present example $525 per month for 36 months provides a total of $18,900 to pay on all the debts. About $10,665 of that would go to the $10,000 vehicle loan (the extra amount being interest). $6,000 would go to pay the past-due support.

That leaves $2,235. The Chapter 13 trustee (who receives and distributes your $525 payments) gets a fee. In this case assume 5% of every dollar that flows through the plan, or $945 here.

That now leaves $1,290. Your bankruptcy lawyer gets paid out of your plan to the extent you didn’t pay him or her in advance. Most or all of that $1,290 would like go to your lawyer.

This leaves nothing for the $95,000 in general unsecured debts. In many circumstances that’s allowed. It’s called a 0% Chapter 13 plan—paying the general unsecured debts 0% of the debt amounts.

The Result Here

In this example you could stop paying all your debts when you filed your Chapter 13 case. Support enforcement would immediately stop as to the past-due support. All other collection of debts would stop as well. You would have a budget enabling you to take care of all your reasonable and necessary expenses. That would include your ongoing monthly support obligations. You would protect your vehicle loan and your vehicle.

After 3 years you’d have paid off your vehicle loan, caught up on support, paid all expenses of the Chapter 13 case, and paid nothing on the general unsecured debts and yet no longer owe anything on them. This is an incredibly good result.

Other Possibilities

In many circumstances Chapter 13 gives you results this good as to your past-due support and otherwise. But in other circumstances Chapter 13 is extremely helpful yet not as perfect results. For example, your case may take longer than 3 years—it can be as long as 5 years. You may have to pay general unsecured debts something instead of nothing, sometimes even a significant percentage. This blog post has been long enough so we’ll look at such other scenarios next week.

 

Lowering Payments on a Chapter 13 Repayment Plan

January 31st, 2020 at 10:56 am

chapter 13 bankruptcy attorney, TX chapter 13 lawyerFor many people, filing for bankruptcy is a fresh start in life. If you have filed for a Chapter 13 bankruptcy, you are still technically paying off your debts, just in a manner that is more manageable for you. A Chapter 13 bankruptcy consolidates all of your debt and creates a repayment plan that lasts for three to five years, depending on your situation. Your monthly payment amount is more than just taking the amount of debt to be repaid and dividing by the number of months you are required to pay. The amount that you are ordered to pay each month is the result of a formula that takes into account your income, assets, debts, and expenses. For some people, this number is a manageable payment. For others, it can be a burden or become one because of a variety of situations.

Qualifying for a Modification

Not everyone can qualify to get their Chapter 13 repayment plan modified. The courts will not entertain a request to modify your plan just because — you have to have a legitimate reason/need for the modification. The most common reason modifications are granted to Chapter 13 repayment plans is because of changed circumstances. These circumstances must be significant enough to severely limit your ability to meet the terms of your current repayment plan. Examples of a significant change in circumstances include:

  • A loss of income
  • A decrease in income
  • An increase in expenses
  • Medical issues
  • Unexpected emergencies

Modification Process

If you want to try to get your Chapter 13 payments lowered, you should first get in touch with your bankruptcy attorney as soon as possible. Your attorney can help you fill out the appropriate forms and guide you throughout the process. Your attorney will prepare a motion to modify after confirmation and file it with the court. The court will then review the motion and schedule a hearing that you must attend. At the hearing, you will present your reasons why you need to modify the terms of your repayment plan and return a verdict.

Contact a San Antonio, TX Chapter 13 Bankruptcy Modification Attorney Today

At the Law Offices of Chance M. McGhee, we can help you throughout your bankruptcy process, from start to finish. We understand how beneficial a bankruptcy can be for many people and how it can provide you with a fresh start to life. Our skilled Kerrville, TX Chapter 13 bankruptcy lawyers can help you modify your bankruptcy terms if need be. The bankruptcy process can be confusing and you do not have to go it alone — call our office today at 210-342-3400 to schedule a free consultation.

 

Source:

https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics

 

Catching up on Support through Chapter 13

January 27th, 2020 at 8:00 am

Chapter 13 gives you a powerful, reasonable, flexible, and even calm procedure for catching up on your past-due child or spousal support. 

 

The last two weeks we’ve shown how Chapter 13 can stop the collection of unpaid child and spousal support. First we talked about how this benefit is much better than Chapter 7 can provide. Then we focused on the ongoing conditions you must meet to keep up this protection.

But there’s a second benefit of Chapter 13 that deserves attention. It doesn’t just stop the collection of unpaid support. Chapter 13 provides a powerfully flexible way to catch up on that support debt.

Why This Is a Huge Benefit

Whatever child or spousal support you owe at the time of your bankruptcy filing, you can’t write off (“discharge”). It’s among the relatively few kinds of debts that bankruptcy does not discharge under any circumstances. See U.S. Bankruptcy Code Sections 523(a)(5) and 101(14A). So you have to pay it, whether you file bankruptcy or not. Whether you file Chapter 7 or 13 or any other kind of bankruptcy.

So this is a debt you have to pay. The issue is what is the easiest, most financially sensible and low-stress way to do so. 

As we discussed in our blog post 3 weeks ago, Chapter 7 doesn’t help much. It doesn’t stop the collection of unpaid support at all. You’re on your own catching up on any unpaid support.

Chapter 13 does stop the collection of unpaid support immediately, and continues to protect you as long as you meet some ongoing conditions.  What Chapter 13 also does is provide you the tool to pay off the support debt. That tool is a court-approved payment plan for all your debts, based on what you can actually afford to pay. That payment plan enables you to catch up on your support debt over time. The plan works into your budget all your other debts—especially other debts very important to you. So you can catch up on your support at a sensible pace without being hounded about it.

How the Chapter 13 Payment Plan Works

How could this possibly work in real life? Consider the following:

  1. The Chapter 13 payment plan is based on your actual income and reasonable expenses.
  2. The plan prioritizes debts in a way that’s generally in your favor.
  3. Other debts sometimes get your money ahead of the support debt, usually to your benefit.
  4. You have 3-to-5-years to catch up on all your unpaid support debt.

We’ll take these four one at a time.

1. Based on Actual Income and Expenses

The Chapter 13 payment plan usually involves a single monthly payment to all of your creditors. (Although sometimes a special debt is paid separately, like a home mortgage.) That single monthly payment is based on what you can actually afford to pay. It’s based on your actual income and reasonable expenses. The income is a projection based on your very best estimate of how much you’ll make each month. The expenses try to cover all your expenses, including ones that don’t happen every month. (For example, vehicle maintenance and repairs, and medical expenses.)

The point is to determine how much you can truly and reasonably afford to pay monthly in a sustainable way. It should not cause you anxiety. You should feel confident that you can fulfill your payment plan.

2. Prioritizing Debts

A Chapter 13 plan basically divides debts into those you must pay in full and those you pay only as much as you can afford to pay. 

The unpaid support debt is in the first category. This category may also include other such must-pay debts like recent income taxes. It can also include secured debts like vehicle or mortgage obligations.

The second category usually includes all other debts—your “general unsecured” debts. These you usually pay only as much as you can, if there’s any money left over for them at all.

So Chapter 13 lets you focus your limited financial resources on those debts that you need to pay. And it gives you an extended time to pay them, so that you can afford to do so.

3. Paying Other Debts Ahead of Support

Outside the protection of Chapter 13, arguably no debts come ahead of unpaid support. That’s because the law makes the support enforcement collection tools so powerful.

But within the protection of a Chapter 13 case and plan, those aggressive collection tools are tamed. So you don’t necessarily pay an unpaid support debt first in the plan. You may have other debts—especially a secured debt or two—that you can pay first. So if you are behind on your mortgage, or doing a cram-down on your vehicle loan, you can often pay these ahead of your support debt.   If you owe other “priority” debts like recent income taxes, your plan usually pays your support debt along with such other important debts.

With Chapter 13 you’re not at the mercy of these important creditors. Your court-approved payment plan gives you a great way to deal with them all, including the support.  

4. Pay Off Unpaid Support by Case Completion

As mentioned, you have as long as 5 years to catch up on your unpaid support. Your official plan does need to include enough money to accomplish that (and everything else that must get paid). And you do need to fulfill the terms of that plan successfully to the end. Of course if you have an ongoing support obligation you have to keep paying that. (It will be included in your monthly expenses.)

Then by the end of your payment plan you will be current on your support. You’ll have paid off or gotten current on all your other special debts. Whatever you haven’t paid on your general unsecured debts will get discharged. And you’ll be free and clear of all debts.

 

Conditions for Stopping Support Collections in Chapter 13

January 19th, 2020 at 8:00 am

Chapter 13 immediately stops the collection of past-due child or spousal support. But to keep that protection you must meet some conditions.  


Last week we showed how Chapter 13 stops the collection of unpaid child and spousal support, while Chapter 7 doesn’t. But we ended by emphasizing that anyone can quickly lose this huge benefit of Chapter 13 “adjustment of debts”. Avoiding this requires strictly complying with some conditions. These conditions are arguably sensible ones. But you need to know and understand them so you don’t lose this crucial Chapter 13 benefit. Because these conditions are so important we focus today’s entire blog post on them.

Ongoing Child and Spousal Support

But before we get to these conditions we need to make a strong point. We’re talking here about child and/or spousal support that is unpaid, past-due, at the time of the bankruptcy filing. This past-due support is different from ongoing support. 

Ongoing support is the support you need to keep paying, usually on a monthly basis, after your bankruptcy lawyer files your bankruptcy case. Past-due support is any amount of support that you’re behind on as of that filing date.  Ongoing support is the support due after that filing date.

Filing bankruptcy does NOT stop the collection of any ongoing support, under either Chapter 7 or Chapter 13. The “automatic stay” that protects you from creditor collections does not apply. (See Section 362(b)(2)(B) of the U.S. Bankruptcy Code—where ongoing support is called “domestic support obligation.”) So, if you are paying support by direct payments, you need to keep paying those after filing bankruptcy.  If you are paying through a payroll deduction or by garnishment, those should continue. You can only change those forward-looking payments through the divorce court which ordered them.

Chapter 13 only stops the collection of past-due support—which, again, Chapter 7 does not. (Past-due support is also sometimes called support arrears or support arrearage.) So the conditions we discuss now are ones you need to meet to stop the collection of past-due support.

Inform Your Collector of Support

Your bankruptcy lawyer’s Chapter 13 filing will immediately stop the collection of past-due support.  This does assume that either you or your lawyer informs your ex-spouse or the support enforcement agency about your Chapter 13 filing. The automatic stay applies at the moment of filing, but the creditor needs to know about it to be able to comply. Coordinate this with your lawyer.

Most support enforcement agencies understand this special power of Chapter 13 and will comply immediately. Although sometimes it may take some lawyerly persuasion.

Ex-spouses are more likely under the misimpression that your Chapter 13 filing has no effect whatsoever on your support obligation. He or she probably has never heard about this special benefit of Chapter 13 for past-due support. If so, your lawyer will likely contact him or her, or his or her lawyer if there is one, to inform him or her about the law.  

The Conditions to Avoid Collection of Past-Due Support

Once the automatic stay stops collection of past-due support, you’ll lose this benefit if you don’t maintain the following conditions:

1) keep current on your ongoing support

2) show in your Chapter 13 payment plan how you will pay off all the support arrearage during the 3–to-5-year life of the plan

3) consistently make your Chapter 13 plan payments so that you are in fact making continued progress towards paying off the past-due support

4) finish your Chapter 13 case successfully, which includes paying off the entire past-due support

Let’s look at these one by one.

1) Keep Current on Ongoing Support

Assuming you continue to owe ongoing support, you absolutely must keep paying it as long as you are obligated to. Otherwise you’d be going financially backwards instead of forwards. You’d be called on it by the support enforcement agency or your ex-spouse. The very likely result would be that you’d lose the automatic stay protection against collection of the past-due support.

Plus you need to be very strict on the timing. You have to pay the monthly payments precisely by the due dates. Otherwise there’s a good chance that your ex-spouse/support enforcement will inform the bankruptcy court and ask permission to resume collection.

In particular be fully aware of the first support payment due after your Chapter 13 case filing date. For example, if your case is filed on January 25 and your monthly support payments are due on the first of every month, you need to make that first after-filing support payment by February 1. Talk with your bankruptcy lawyer about the timing of your Chapter 13 filing so that you have the funds to pay that first support payment.            

2) Payment Plan Includes Planned Pay-off

Bankruptcy law requires you to pay off all your past-due support during the 3–to-5-year life of the plan. Your Chapter 13 lawyer will make the necessary calculations to show how you will so so. Your monthly plan payments will be based on what you can afford to pay to all of your creditors. Incorporated into those monthly payments is money that will go to pay off the past -due support. You and your lawyer have to show that these plan payments are enough to accomplish this.

Otherwise your ex-spouse/support enforcement agency can object to the plan. He/she/it could also ask for permission to resume collections because the plan would not catch up on the past-due support.

3) Make ALL Chapter 13 Plan Payments 

Your Chapter 13 plan not only has to pencil out correctly, but you also must pay the plan payments timely. Otherwise you’re not doing what you agreed to do in the court-approved plan.  Paying the plan payments on time shows that you are actually making continued progress towards paying off the past-due support.

If you got late on the plan payments, your Chapter 13 trustee could ask that your case get thrown out. (The trustee is the person you pay your plan payments to, and who then pays your creditors.) Or any creditor—including your ex-spouse/support enforcement agency—could do the same. Or could just ask for permission to resume collection.

4) Finish Your Chapter 13 Case

So if you have a good payment plan, and you make all the payments, you’ll eventually complete it successfully. (Your plan very likely has some other requirements and this assumes you comply with them as well.) When you complete your plan, you will have paid off the entire past-due support. So it’s really important that you get all the way to the end of your Chapter 13 case successfully.

 

Purchasing a House after Bankruptcy

January 17th, 2020 at 4:07 pm

Texas bankruptcy attorney, TX chapter 17 lawyer,The American Dream is the belief that anyone can succeed in life as long as they work hard and persevere. For many, success includes purchasing and owning their own home. The process of buying a home can be a confusing process and includes many financial and legal procedures. For those who have gone through bankruptcy at some point in their lives, purchasing a home can be even more difficult and confusing. There may be limitations to how much you can borrow from a lender or how soon you can buy a home, but it is not impossible.

Check Your Credit Report

Before you begin to apply for mortgages, you should pull a copy of your credit report. Your credit report will contain detailed information about your credit history, including your borrowing history and information about your bankruptcy. You should carefully look over this report to make sure that everything is correct on the report and that there are no mistakes that could make your report look more unfavorable than it really is.

FHA Home Loans

If you have filed for bankruptcy, one popular option that prospective homeowners consider is what is called a FHA home loan. A Federal Housing Administration (FHA) loan is an attractive option for many people who have gone through bankruptcy because they require low down payments and you do not have to have a high credit score to qualify. The minimum down payment for a FHA loan is 3.5 percent of the price of the home and you only need a credit score of 580 to qualify.

If you filed for a Chapter 7 bankruptcy, you will have to wait at least two years after the discharge before you can apply for a FHA loan. If you filed for a Chapter 13 bankruptcy, you can apply for a FHA loan as long as you have made one year of on-time payments.

Questions About Your Bankruptcy? A San Antonio, TX Bankruptcy Attorney Can Answer Them

Buying a home can be a stressful process for anyone, but for those who have recently gone through a Chapter 7 or Chapter 13 bankruptcy, it can be even more difficult. At the Law Offices of Chance M. McGhee, we understand how significant owning a home is for many families. Our skilled Boerne, TX bankruptcy lawyers can help you understand the home-buying process after you have filed for bankruptcy. To schedule a free consultation, call our office today at 210-342-3400.

 

Sources:

https://www.thebalance.com/how-soon-you-can-qualify-for-a-mortgage-after-bankruptcy-4160973

https://www.investopedia.com/articles/investing/072515/buying-house-after-bankruptcy-it-possible.asp

https://www.credit.com/blog/2014/10/how-soon-can-i-buy-a-house-after-bankruptcy-or-foreclosure-98939/

Unpaid Child and Spousal Support in Chapter 13

January 13th, 2020 at 8:00 am

Chapter 13 DOES stop the collection of unpaid child or spousal support from your after-filing income and other assets. Chapter 7 does NOT.    

Last week we discussed situations in which Chapter 7 would help if you’re behind on child or spousal support payments. We made clear that Chapter 7 “straight bankruptcy” provides only limited help. Mostly it gives you relief from your other debts so that you can concentrate on catching up on support.  Chapter 13 “adjustment of debts” is a much more powerful option when Chapter 7 is not enough.

The Main Benefits of Chapter 13 When Behind on Support

Chapter 13 takes much, much longer than Chapter 7, and is generally more expensive. But it provides some remarkable benefits compared to Chapter 7. These benefits can make the longer time and greater expense of Chapter 13 more than worthwhile. The main benefits of Chapter 13 are that:

1) Filing Chapter 13 immediately stops the collection of unpaid child or spousal support. Chapter 7 does not.

2) Chapter 13 gives you a relatively flexible and protected way to catch up on the support. With Chapter 7 you have to make your own payment arrangements, without any protection or much leverage.

Basically, have a serious conversation with your bankruptcy lawyer about Chapter 13 if you need these significant benefits.

How Does Chapter 13 Stop the Collection of Unpaid Support?

Chapter 7 is a very straightforward kind of bankruptcy. It focuses on a point in time: the moment your bankruptcy lawyer files your Chapter 7 case. Your case essentially imagines your financial life frozen in time at that moment, including your debts and assets, income and expenses, and such.

Chapter 13 also cares a lot about your financial life at the moment of filing. But it also takes a longer view—the next 3 to 5 years of your court-approved payment plan. In particular, Chapter 13 is designed to protect you during that period of time from your ongoing creditors.

Chapter 7 mostly just writes off (“discharges”) certain debts and does not discharge others. It leaves you on your own to deal with those debts you still owe, such as support.

In contrast, in Chapter 13 the protection from creditors—the “automatic stay”—can last the full 3-to-5 years.  Specifically regarding spousal and child support owed at the time of filing, the automatic stay protects your employment income earned after the filing. This means that as of your filing date your paycheck is protected from wage garnishment or other kinds of forced payment.

Why Doesn’t This Happen under Chapter 13 But Not 7?

Here’s the legal answer. (You can skip this section if you don’t need this level of detail.)

The pertinent federal bankruptcy statute states that the automatic stay does not stop the collection of support out of “property that is not property of the [bankruptcy] estate.” See Subsection 362(b)(2)(B) of the U.S. Bankruptcy Code.  This means that a bankruptcy filing does stop the collection from property that is “property of the bankruptcy estate.”

In a Chapter 7 case the bankruptcy estate is essentially everything you own at the moment of filing the case. See Subsection 541 of the Bankruptcy Code on “Property of the estate” generally. This does not include what you earn and assets you acquire after that moment. Since those after-filing earnings and assets are not “property of the estate,” they can be targeted for support collection.

Chapter 13 is different for a simple reason: “the estate” does include after-filing earnings and assets. Only under Chapter 13 the estate includes “earnings from services performed by the debtor after the commencement of the case.” See Subsection 1306(a)(2).

This means that the automatic stay legally prevents your ex-spouse or support enforcement agency from continuing or starting to collect on your unpaid child or spousal support you’re your after-filing earnings the moment your bankruptcy lawyer files your Chapter 13 case. This is true even though a Chapter 7 filing would have absolutely no such effect.

This Chapter 13 Protection Comes with Important Conditions

We said that the automatic stay can last the entire 3-to-5-year period of your Chapter 13 payment plan. But especially when it comes to unpaid support that protection comes with some conditions.

Why are there conditions? Imagine the example of a vehicle loan. You want to keep the vehicle and prevent your lender from repossessing it. The automatic stay can protect your vehicle under Chapter 13 during the entire length of the case. But you have to meet some reasonable conditions like making payments and keeping the vehicle insured. If you don’t, the creditor can get the court to exclude the debt from being covered by the automatic stay. It can get permission to repossess your vehicle after all.

It’s similar with child and spousal support debt. Here the conditions are very time sensitive and are often enforced very strictly. Being able to stop support collection is a huge benefit of Chapter 13. It may even be a major reason for choosing this more time-consuming option. You don’t want to lose this benefit because you didn’t clearly understand and comply with the conditions.

Because of how important these conditions are, we’ll dedicate all of next week’s blog post to them.

 

Unpaid Child and Spousal Support in Chapter 7

January 6th, 2020 at 8:00 am

Chapter 7 does not stop the collection of child or spousal support, nor provide any procedure to pay the support. It may still help enough.  


If you are behind on child or spousal support payments Chapter 7 may or may not be a good solution.

Chapter 7 “straight bankruptcy” is the most common type of consumer bankruptcy case.  It is more likely to be a sensible solution if 1) the support isn’t being collected aggressively and 2) you don’t owe terribly much. Why? Because:

1) Filing Chapter 7 does not stop collection of unpaid child or spousal support. Chapter 13 can.

2) Chapter 7 does not give you a procedure for catching up on the support. Chapter 13 “adjustment of debts” does so.

So why would you file a Chapter 7 bankruptcy if you were behind on support?

Filing Chapter 7 When Owing Support

Chapter 7 is usually the most straightforward type of bankruptcy. A case lasts only about 4 months from when your bankruptcy lawyer files it to when it’s completed. A Chapter 13 case involves a formal payment plan that almost always takes 3 to 5 years to finish.

As mentioned above Chapter 13 can stop the immediate collection of unpaid support, and give you time to catch up.

The much quicker Chapter 7 makes sense if you don’t need these kinds of help.

If you stopped paying the debts that Chapter 7 would discharge, could you quickly catch up on support? Would your ex-spouse be willing to accept monthly catch-up payments at an amount you could afford? Or if the debt is being collected by a support enforcement agency, would it accept such voluntary payments? Could you reliably make such payments, while presumably keeping current on the ongoing monthly support?

If you have a feasible way along these lines to catch up on your support obligation during and after your Chapter 7 case, then it may well be your best option.

Other Advantages and Disadvantages of Chapter 13

But you and your bankruptcy lawyer will discuss two other considerations revolving around your other debts.  Chapter 7 and Chapter 13 deal with debts quite differently.

The first consideration is about debts secured by your assets or other ones that you must pay. Secured debts include home mortgages, vehicle loans, and any others with a lien on anything you own. Debts you must pay—besides support—include recent income tax debts. Chapter 13 often handles these kinds of debts much better than Chapter 7. Without getting into the details here, Chapter 13 protects you while you pay such special debts as your budget allows. If you have such debts, how Chapter 13 helps with those may be reason enough to choose that option. Or this, along with the benefits it gives you with unpaid support, may swing you in that direction.

The second consideration is about the rest of your debts—those that are neither secured nor ones you must pay.  These are your “general unsecured” debts. Usually you can discharge (legally write off) all or most of such debts in either Chapter 7 or 13. In most Chapter 7 cases you pay nothing on your general unsecured debts. However, In a Chapter 13 case you often pay a portion of these debts. Whether and how much you pay on your general unsecured debts depend on lots of factors. The biggest factors are your income and expenses and the amount of your special debts (secured and otherwise) that you are paying in full. So you need to weigh the benefits of Chapter 13 regarding your unpaid support and other special debts against the likelihood that you would be paying something instead of nothing on your general unsecured debts.

What Happens to Your Unpaid Child/Spousal Support Debts in a No-Asset Chapter 7 Case?

A “no-asset” Chapter 7 case is one in which everything you own is covered by property exemptions. Exemptions usually allow you to keep certain dollar values of assets in various categories. Most Chapter 7 cases are “no assets” ones. If yours is, you’re able to keep everything (with the exception of collateral you decide to surrender).

In a no-asset Chapter 7 case your bankruptcy trustee does not get any of your assets to liquidate and pay to any of your creditors. (That’s why it’s called “no asset.”) Your bankruptcy lawyer will tell you if yours is expected to be.

Since the trustee doesn’t collect any money to pay your creditors anything, your support debts also receive nothing. So, a support debt gets no money directly from a no-asset Chapter 7 case. You have to deal with the support debt yourself (perhaps with the help of your lawyer), and be prepared to do so right away.

 

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