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Bankruptcy Timing for Vehicle Cramdown

November 9th, 2020 at 8:00 am

Cramdown usually lowers your monthly vehicle loan payment and the total amount you must pay. To qualify the loan must be more than 910 days old.


We’re in the midst of a series on filing your bankruptcy case with the best timing. Today we get into the right timing to be able to cram down your vehicle loan. Cramdown is a potentially huge benefit, so it’s important to know how to take advantage of it.  One key consideration in this is the timing of your bankruptcy filing.

Advantages of Vehicle Loan Cramdown

In a Chapter 7 “straight bankruptcy” case, if you have a vehicle loan you must “take it or leave it.” To keep the vehicle, you have to “reaffirm” the vehicle loan. That means you agree to remain fully liable on the debt. It usually means you are stuck with the regular monthly payment, even if you can’t afford it. You can’t change the interest rate, even if it’s high and jacking up how much you must pay. You are stuck with the full balance on the loan, even if the vehicle is worth much less. This includes late fees and any other contractual charges. If you’re behind almost always you have to quickly catch up. Usually the only other choice is to “leave” it—surrender the vehicle and discharge (write-off) the vehicle’s debt. If you need and want to keep your vehicle, that’s not an option.

In contrast, a Chapter 13 vehicle cramdown can be much better in all these respects. Cramdown can reduce your monthly vehicle loan payment. It can reduce the total amount you pay on that debt. You can often reduce the interest rate. You may well not need to pay any accrued late fees and other contractual costs. And you generally don’t need to catch up on late payments. You get all these benefits, IF you qualify for cramdown.

Qualifying for Cramdown

We’ll get to the crucial timing qualification in a moment. But let’s first quickly cover a couple other ones.

First, as implied above, a vehicle loan cramdown is only available under Chapter 13 “adjustment of debts.” Not in a Chapter 7 case.

Second, cramdown is only available for personal vehicles, not business ones. The vehicle must be one “acquired for the personal use of the debtor.” U.S. Bankruptcy Code, Section 1325(a)(hanging paragraph after (9)).

Third, cramdown works best when your vehicle is worth less than you owe on it. The term comes from the power to “cram” the balance on the loan “down” to value of the vehicle. This ability comes from the fact that the law treats secured debts differently than unsecured ones. It favors secured debts because a creditor has property of some sort backing up the debt. This gives the creditor property rights that do not come with an unsecured debt.  Then, very importantly, Chapter 13 allows you to separate the secured part of vehicle loan debt from the unsecured part. The amount of the secured part equals the value of the vehicle. The unsecured part is the remaining part, that which is beyond the vehicle value. Cramdown essentially allows you to rewrite your loan to pay the secured part only. The unsecured part gets thrown in with the rest of your unsecured debts. You pay those only if and to the extent there’s money left over for them.

To make this clearer, let’s say your vehicle is worth $10,000 but you owe $15,000. In this example the secured part of the debt is the amount covered by the vehicle’s value: $10,000. The remaining $5,000 is the unsecured part of the debt. Essentially cramdown allows you and your bankruptcy lawyer re-write the loan at a balance of $10,000. It will likely be at a lower interest rate. You may well be able to stretch the payments out over a longer term. The effect will often be a significant lower monthly payment and total amount you pay. Then at the end of your successful Chapter 13 case you own your vehicle free and clear.

The Timing Qualification

So you’re filing a Chapter 13 case, with a personal vehicle loan with a balance higher than the vehicle value. Now you must meet one more timing consideration.  Your vehicle loan must be more than 910 days old when you file your Chapter 13 case. (910 days is essentially two and a half years.)

What happens if you file your Chapter 13 case at any time before your loan is 910 days old?  You can’t do a cramdown on that vehicle loan. You’re stuck with the regular payments, interest rate, and full balance to pay. You may not be able to afford to keep your vehicle. In any event you’ll miss out on saving lots of money on the debt. So you definitely want to qualify for cramdown if and when you can.

What if your vehicle loan is not yet two and a half years old? What if you h

ave other pressures to file your case before enough time has passed? This is where the knowledge and experience of your bankruptcy lawyer comes in. He or she will determine whether cramdown would help you and, if so, calculate how much it would help. You will receive counsel about ways to possibly ease the other time pressures. Your lawyer will help you figure out whether it’s worth waiting to file in order to qualify. And if so will help you buy time to get there. In other words, you’ll get specific advice on the best course of action for you.

Bankruptcy Timing for Vehicle Cramdown

Chapter 13 Timing to Discharge Student Loans

November 2nd, 2020 at 8:00 am

  

Discharging a student loan requires meeting the difficult condition called undue hardship. Chapter 13 can help through more flexible timing.

 

We’re in a series on the best timing for filing your bankruptcy case. Two weeks ago we introduced the special condition you have to meet to discharge (write off) student loans: undue hardship. Last week we focused on how to better meet that condition with smart timing of a Chapter 7 “straight bankruptcy” case. Today we get into doing that with a Chapter 13 “adjustment of debts case.

Undue Hardship Requirements

We’re focusing on the phrase “undue hardship” because the law clearly establishes that as a condition for discharging student loans. The U.S. Bankruptcy Code says you can’t discharge a student loan unless paying it “would impose an undue hardship on the debtor [you] and the debtor’s dependents.” Section 523(a)(8). Generally bankruptcy courts have interpreted “undue hardship” to include three requirements. Each has a timing consideration. We’ll look at these three, showing how the timing benefits of Chapter 13 case can help you meet them.

Crucial Benefit of Chapter 13: the Long Automatic Stay

But first we need to introduce a crucial benefit of Chapter 13. It’s actually a benefit of all bankruptcy cases, but is especially strong in Chapter 13. And it provides you major advantages with student loans.

We’re talking about the “automatic stay.” This is the federal law that immediately stops almost all collection actions against you. It goes into effect the moment you and your bankruptcy lawyer file your case.

What’s crucial for our purposes here is that this protection usually lasts the length of your case. That’s not very long in a Chapter 7 case: only 3 or 4 months most of the time. In contrast, a Chapter 13 case generally lasts 3 to 5 years. So its automatic stay protection lasts that long. Meaning that your student loan creditors would be stopped from collecting throughout those 3 to 5 years of your Chapter 13 case. This is a huge benefit on its face; it can be even more so for meeting the undue hardship requirements.

1. Presently Inability to Pay

This long period of protection from collection allows you to delay establishing the required present inability to pay the student loan. You have to be experiencing “undue hardship” at the time your bankruptcy lawyer asks the bankruptcy court for the discharge of your student loan. With Chapter 13 you can file the case, imposing immediate automatic stay protection against your creditors, before qualifying for undue hardship.  In particular you can file when anticipating that you would be able to qualify within the following 3-to-5-years.  In the meantime your student loan creditor(s) is (are) prevented from requiring payment and taking other collection actions.

For example, assume you have a worsening chronic medical condition. But that condition doesn’t currently prevent you from maintaining a minimal standard of living if you paid the student loan. Filing Chapter 13 now would protect you from the student loan(s) and the rest of your creditors. Then you could wait as long as 5 years for your condition to worsen until you did meet this requirement.   

2. Extended Inability to Pay

The second requirement of undue hardship looks into the future. Your inability to maintain even a minimal standard of living must be predicted to last throughout most of the student loan repayment period. The advantage in Chapter 13 here is similar to the first requirement just discussed. Being able to wait to file the request for an “undue hardship” discharge as much as years after filing the Chapter 13 case increases your ability to meet this second requirement.

For example, assume you were in a serious vehicle accident a few months before filing the Chapter 13 case. You are receiving short-term disability payments. You need bankruptcy protection from all your other creditors now. But you do not yet know your long-term medical prospects, and thus your financial prospects. Specifically you don’t know whether you will be able to maintain a minimal standard of living throughout the student loan repayment period. Filing Chapter 13 now would protect you from all your creditors, including the student loan one(s). And it would keep you protected as your medical condition stabilized and your financial prospects got clearer. If you qualified for long term undue hardship then, your bankruptcy lawyer could file the request then. You’d more likely qualify because the future would be clearer then.

3. Prior Effort to Pay or Make Other Arrangements

The third requirement is that you must have taken certain action in the past before requesting a student loan discharge. You must have made a meaningful effort to repay the loan. Or else you must have applied for appropriate administrative programs for deferring or reducing payments on it.

In the midst of a Chapter 13 case you may or may not make any direct payments to the student loan creditor. This depends on the rules of your local bankruptcy court. Same with your ability to apply for the administrative fixes. Talk with your local bankruptcy lawyer about this.

If there isn’t great urgency to file the case, your lawyer may well counsel you to apply immediately for the administrative payment-delaying or reducing programs. That way you can better position yourself to meet this part of the test before filing the Chapter 13 case.

Even Without an “Undue Hardship” Discharge, Get Collection Protection

In these Chapter 13 scenarios, at the time of filing you’ll likely not know whether you’ll eventually qualify for hardship discharge. Time will pass while you’re in your case, and your medical/financial circumstances may deteriorate. Or they may improve, so that you don’t qualify for undue hardship. But the automatic stay would protect you from your student loan creditor(s) in the meantime. At some point during the case you may qualify for undue hardship.  But if eventually you don’t, you still would have gotten relief from your student loan creditor(s) during that time. 

 

Bankruptcy and Debt Solutions: How Can I Find a Reputable Credit Counselor?

October 28th, 2020 at 9:03 pm

TX bankrupcy attorney, Texas debt lawyer, Whether you are planning on filing for bankruptcy or simply need assistance in developing a budget, credit counselors can provide you with the tools and resources you need. Unfortunately, not all credit counselors are created equal. In fact, some can leave you worse off than when you started, which makes finding an experienced, reputable credit counselor absolutely essential for your financial future. The following tips can help you find the one most suited for your needs and preferences and improve your chances of finding the financial empowerment you are looking for.

Know Why You Need a Credit Counselor

Each credit counseling agency and provider has an area in which they are best equipped to help their clients. With this in mind, it is critical that you first know why you need credit counseling. To find the answer, consider your goals and examine your current financial situation. If you are filing for bankruptcy, then you will also want to ensure you find a credit counselor that is approved by the United States Department of Justice since those who are not accredited will not be accepted by the courts.

Check and Verify Credentials and Qualifications

While credit counselors that are listed on the Department of Justice’s website most likely carry some of the highest levels of certification and meet some of the most stringent government standards, it is necessary that you check and verify the credentials and qualifications of all other credit counselors. The National Foundation for Credit Counseling and the Financial Counseling Association of America are both renowned agencies that ensure the quality of certified professionals, but the Council of Accreditation is also a reliable accreditation held by qualified credit counselors. You may also wish to check the agency’s rating with the Better Business Bureau to determine if they have any major complaints from other consumers.

Exercise Patience and Due Diligence

When you are dealing with debt issues, it can be easy to get in a rush. You want to finally be free, to feel like you are making some sort of progress, but this is not the time for impatience or hurried decisions. Many consumers spend weeks, months, or even years working with a credit counselor to fully resolve their debt. If you are not working with someone who has your best interests in mind, that can mean a significant amount of wasted time and money, and it could even hurt you in the long run. Take your time, be patient, and practice due diligence so that you can find a credit counselor that best suits your needs.

A Bexar County, TX Debt Management and Bankruptcy Lawyer Can Help

Whether you are looking to file for bankruptcy or need help finding an alternative path, the Law Offices of Chance M. McGhee can help. As a skilled consumer bankruptcy attorney, Attorney Chance McGhee has more than 25 years of experience in assisting consumers and small businesses with their debt and bankruptcy issues. Put your debt problems behind you. Call 210-342-3400 to schedule your free initial consultation with our knowledgeable San Antonio bankruptcy attorney today.

 

Sources:

https://www.nfcc.org/what-we-offer/bankruptcy-counseling/

https://fcaa.org/bankruptcy-counseling/

https://www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111

Chapter 7 Timing to Discharge Student Loans

October 26th, 2020 at 7:00 am

Discharging a student loan requires showing undue hardship. The timing of your Chapter 7 filing can determine whether you succeed in this.   

 

We’re in a series on the smart timing of your bankruptcy case. Last week we introduced the special condition you must meet to discharge (write off) student loans: “undue hardship.”

Bankruptcy discharges other special forms of debt—such as income taxes—after the passage of a certain amount of time. But student loans are different in that there is no explicit time period laid out in bankruptcy law. Rather “undue hardship,” the condition you must meet to discharge a student loan, often has timing considerations within it. That is, qualifying for “undue hardship” may require timing your bankruptcy case right.  You may not be in “undue hardship” at one point but could be earlier or later.

Today we show that can play out under Chapter 7 “straight bankruptcy.”(Next week we’ll do the same under Chapter 13 “adjustment of debts.”)

Undue Hardship Requirements

The U.S. Bankruptcy Code says you can discharge a student loan if it “would impose an undue hardship on the debtor [you] and the debtor’s dependents.” Section 523(a)(8). Generally bankruptcy courts have interpreted “undue hardship” to require meeting the following three conditions. Each has a timing consideration. We’ll look at each of these three, showing how they can affect the timing of your Chapter 7 case.

1. Presently Inability to Pay

You first need to show that if you had to repay the student loan under your current income and expenses, you would be unable to maintain even a minimal standard of living.

This focuses on the present. It asks whether, as of the time you are asking for the “undue hardship” discharge, you meet this condition.

The timing issue here should be obvious. You might be able to meet a minimal standard of living while paying your student loans at one point. But then you can’t after your life circumstances change. Or maybe it’s the other way around. You can’t meet that condition now but you may be able to do so in a few months after your circumstances improve.

For example, a person may have a chronically worsening medical condition. For the moment he or she may be able to work and pay the student loan. (This may be after discharging all of his or her other debts through a Chapter 7 case.) But the person may be able to realistically anticipate being unable to work in the future.

Here it likely makes sense to wait to file a Chapter 7 case until her or she can no longer work. That’s especially true if that transition is happening reasonably soon.

2. Extended Inability to Pay

Then you need to show that you expect that your present inability to pay is going to last for an extended period.

This second condition focuses on the future. It asks whether any present “undue hardship” is expected to last through a significant part of the loan repayment period.

This is a more challenging condition because it involves predicting the future and convincing a bankruptcy judge about it.

Here’s an example. Imagine if someone was in an extremely serious vehicle accident a couple of months ago. He or she is presently medically incapacitated and unable to work. Assume that for now the person absolutely can’t afford to pay anything towards his or her student loan(s). But it’ll take a while until the doctors can reliably predict the person’s long-term health prospects. Also, if another driver allegedly caused the accident there may be litigation to determine fault and the amount of damages. So currently this person’s future financial prospects are very unsettled. It’s an open question how long he or she will continue to be unable to pay the student loan(s). In particular it’s unknown whether this inability will persist for much of the remaining term of the student loan(s).

Here it could make sense to wait to file a Chapter 7 case until knowing better whether the physical disability and financial incapacity are expected to continue for that length of time.

3. Prior Effort to Pay or Make Arrangements

And third, you need to show that you previously made a meaningful effort to repay the loan. Some other available arrangements may also qualify.

This last condition focuses on the past. It asks whether you’ve reasonably addressed your student loan debt(s), by making payments when you could and/or trying to get some kind of administrative relief before asking for the “undue hardship” discharge.

Here we’re looking backwards instead of forward. You can’t change the past. But you may be able to take appropriate steps now so that in the future the past will be different. Then you could more likely meet this condition when filing a Chapter 7 case in the future.

 For example, consider a person who has recently started being obligated to pay a student loan and can’t do so. He or she likely needs to first try to defer and/or reduce payments before qualifying for “undue hardship.” Or, consider another person who’s been in repayment mode but has not looked into the administrative possibilities lately. It will likely be necessary to do so to show this effort and then file a Chapter 7 case afterwards.

Timing Choices Can Be Tough

Almost always the timing of a bankruptcy case involves the weighing of different pressures. Does it make sense to delay filing to improve your likelihood of qualifying for “undue hardship”? Or are there other immediate and looming creditor problems that press for an earlier bankruptcy filing?

This is one of the most important benefits of having a bankruptcy lawyer. He or she will enable you to understand the timing options, and the advantages and disadvantages of each. The options will likely be impossible to weigh realistically otherwise.

 

Bankruptcy Timing to Discharge Student Loans

October 19th, 2020 at 7:00 am

  

Discharging—permanently writing off—student loans can be difficult. You may be able to make it easier to do with good bankruptcy timing.   

Discharging Student Loans in Bankruptcy

It takes certain circumstances to discharge student loans. Those circumstances can involve the right timing of your bankruptcy case.

Bankruptcy discharges most debts. But it “does not discharge” you from a student loan unless not discharging that debt “would impose an undue hardship.” “[I]mpose an undue hardship” on whom? “[O]n the debtor [you] and the debtor’s dependents.” Section 523(a)(8) of the U.S. Bankruptcy Code.

What does that mean and how is it affected by the timing of your bankruptcy case?

“Impose an Undue Hardship”?

What does it take for you and your dependents to suffer an “undue hardship”? The Bankruptcy Code defines many terms (See Section 101, Definitions), but not this one.

Often when Congress deliberates and passes a statute there is discussion about the meaning of a term within the statute. That’s its “legislative history.” But there is no such helpful written explanation here. “The legislative history…  also fails to precisely specify how courts should determine whether a debtor qualifies for a discharge based on an undue hardship.” Ashley M. Bykerk, Student Loan Discharge: Reevaluating Undue Hardship… , 35 Emory Bankr. Developments J., 509, 512-513 (2019).

So the bankruptcy courts have been left to figure out, case by case, what qualifies as “undue hardship.”

The courts start with those two words. Congress added “undue” apparently to create a standard that is beyond or more than a simple hardship. “Undue” means “exceeding what is appropriate or normal; excessive.” So Congress seemed to say that to discharge a student loan it’s not enough if it’s causing you a hardship. It must be causing you a more-than-normal, excessive hardship.

But how is such a level of hardship determined in practice?

The 3-Part Test

As bankruptcy courts throughout the country have interpretted “undue hardship,” over time they’ve settled on a 3-part test. There are some differences among the courts but generally you need to meet the following three conditions:

1. If you had to repay the student loan under your current income and expenses, you would be unable to maintain even a minimal standard of living.

2. This inability is expected to last for a significant part of the loan repayment period.

3. You previously made a meaningful effort to repay the loan, or to qualify for appropriate forbearances, consolidations, and payment-reduction programs.

The Timing Considerations of the 3-Part Test

When you look at these three conditions you can see that each has a timing component:

1. The first condition focuses on the present. It asks whether, under your income and expenses as of the time you are asking for the “undue hardship” discharge, you’d be unable to maintain even a minimal standard of living if you had to repay the student loan.

2. The second condition focuses on the future. It asks whether any present “undue hardship” is expected to last through a significant part of the loan repayment period.

3. The third condition focuses on the past. It asks whether you had made a meaningful effort to repay the loan or to qualify for appropriate administrative relief before asking for the “undue hardship” discharge.

Whether or not you qualify under these conditions can shift over time. For example, you may be expecting worsening health which will reduce your income and increase expenses. So you may be currently able to maintain a minimal standard of living but won’t when your health worsens.  So you may not meet the first condition today but expect to later. Thus, whether you qualify for an “undue hardship” discharge can turn on when you file your bankruptcy case.

Next

The next two blog posts will show how you and your bankruptcy lawyer can use these principles to your benefit. We’ll look at pertinent timing issues when filing a Chapter 7 “straight bankruptcy” or a Chapter 13 “adjustment of debts.” Feel free to call us, your bankruptcy lawyers, in the meantime.

 

How Should I Handle Creditor Harassment After a Bankruptcy Filing?

October 15th, 2020 at 8:39 pm

TX bankrutpcy attorney, Texas bankruptcy lawyerWhen you file for bankruptcy, you are granted an automatic stay on most of your debts. Essentially, this means your creditors cannot contact you or attempt to collect the debt. What happens, though, if the creditor keeps calling and harassing you through the mail, at your work, or at your home? Rest assured: you can enforce the protections that bankruptcy offers.

When Contact Is a Genuine Oversight

All creditors know (or should know) that a bankruptcy filing means they must cease all contact with you, as the debtor. As such, most who violate this rule have simply done so due to an oversight. Perhaps they did not remove your name from the system properly, or they have not received the paperwork yet that notifies them of your filing. In any case, it is important that you not overreact or panic during the initial contact from a creditor. Instead, simply inform them that you have filed for bankruptcy and politely refer them to your attorney.

If the contact was made by phone, document the date and time of the call, the agent’s name and extension number (if applicable), and the creditor’s name and phone number. If the contact was by mail, copy or scan the mailing (after you have written a response that indicates your bankruptcy filing and your attorney’s number). This information gives you proof of contact and ensures you can take action if the contact continues or escalates.

When Your Notice Is Ignored

If you have already notified a creditor of your bankruptcy filing and have referred them to your attorney, and they still call or otherwise attempt to contact you, it is time to take the next step. Again, you should document the contact, but this time, forward the information to your attorney. Let your lawyer know that you have already notified the creditor of your filing and that you have provided them with the attorney’s number. From there, your attorney will likely contact the creditor and let them know they are in violation of the stay order.

If the creditor continues to contact you, even after you have spoken with your attorney, do not lose your temper. Instead, let your lawyer know the dates and times of the phone calls or letters. If necessary, he or she can summon the creditor to court. At the very least, the creditor may be reprimanded and instructed by the judge not to contact you. Some may also be subject to fines and/or punitive damages. Your attorney can walk you through the process and your options.

Contact a Texas Bankruptcy Lawyer

Filing for bankruptcy is not an easy decision. Creditor harassment after you file does not make it any easier. Thankfully, you can have the Law Offices of Chance M. McGhee on your side. Dedicated to protecting your best interest, our experienced San Antonio bankruptcy attorney can take quick and effective action to stop creditor harassment. Because we care about your future, we even provide guidance on how to make the most of your new start. Get the quality representation you deserve. Call 210-342-3400 and schedule your free consultation with us today.

 

Sources:

https://www.forbes.com/sites/christopherelliott/2018/07/18/how-to-protect-yourself-from-debt-collectors-and-debt-collection-scams/

https://www.thebalance.com/when-creditors-do-not-stop-calling-after-bankruptcy-4156787

Prevent Fraud Challenges on a Credit Card Debt

October 12th, 2020 at 7:00 am

  

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


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

Bankruptcy Timing to Avoid the Presumption of Fraud

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

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

The Presumption Period for Credit Card Purchases

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

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

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

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

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

Your Response with Contrary Evidence

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

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

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

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

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

The Presumption Period for Cash Advances

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

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

Bankruptcy Timing and These Presumptions of Fraud

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

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

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

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

Beyond the Presumptions to Regular Fraud

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

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

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

 

Smart Timing with the Presumptions of Fraud

October 5th, 2020 at 7:00 am

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

 

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

Important Examples of Good (and Bad) Timing

Since it’s been so long since we introduced this, here is a list of some of the main consequences of good and bad bankruptcy timing. Whether:

  1. the bankruptcy case includes recent or ongoing debts or not
  2. you have to pay an income tax in full, in part, or not at all
  3. you must pay interest and or penalties on an income tax because of a tax lien
  4. you can discharge (legally write off) a credit card debt, or a portion of it
  5. you can discharge a student loan debt
  6. you qualify for a vehicle loan cramdown—reducing monthly payments, interest rate, and total debt—and still keep the vehicle
  7. you qualify for a personal property collateral cramdown—paying less—and still keep the collateral
  8. you stop the repossession of your vehicle in time, or lose it to the vehicle loan creditor
  9. you prevent the foreclosure of your home in time, enabling you to catch up over time
  10. you get more time to sell your home, including possibly years more
  11. you qualify for a Chapter 7 case under the “means test,” or instead must file under Chapter 13
  12. you qualify for a 3-year Chapter 13 payment plan or instead must pay for 5 years
  13. your sale or gifting an asset is a “fraudulent transfer
  14. your payment to a friendly creditor is a “preference” and must be returned
  15. you can keep all of your assets if you’ve moved from one state to another in the past several years

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

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

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

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

What “Fraud”?

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

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

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

What’s a “Presumption of Fraud”?

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

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

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

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

The Factual Circumstances for the “Presumptions of Fraud”

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

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

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

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

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

Bankruptcy Timing and These “Presumptions of Fraud”

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

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

 

Common Myths About Bankruptcy in Texas

September 29th, 2020 at 9:52 am

Texas bankruptcy lawyer, TX chapter 7 attorneyAt our firm, we help clients every day with questions and concerns about the bankruptcy process under the U.S. Bankruptcy Code. Our experience has shown us that bankruptcy proceedings are often misunderstood, and unfortunately, misinformation abounds among those considering filing for bankruptcy. If you are thinking about bankruptcy as an option for your situation, it is very important for you to fully understand the potential advantages and disadvantages, as well as what might happen after the proceedings are complete. With this in mind, here are three of the most common myths about bankruptcy, along with the truth about each one.

Myth # 1: My Employer Will Be Notified That I Filed for Bankruptcy

Financial struggles are embarrassing for many people, and the reasons are understandable. As a result, it might be humiliating for you if your employer were to be notified of your bankruptcy filing. The good news is that this myth—albeit common—is just that: a myth. The bankruptcy process does not involve any employer notification whatsoever unless you happen to owe a formal debt to your employer somehow—in which case your employer would be notified, but as a creditor. Bankruptcy filings are public record, which means they could technically be published by the press, but it is unlikely that your employer would have much interest in searching through such publications.

Myth # 2: I Will Never Get Credit for a for a Major Purchase Again

Filing for bankruptcy can certainly have a negative effect on your credit rating, but the effects are temporary. Your bankruptcy will not bar you from ever having the ability to secure credit for major purchases like a home or automobile. For most bankruptcy filers, the credit approval needed to secure a home loan would be possible in about two to three years from the date of their bankruptcy filing. Obtaining approval for car loans and credit cards generally take less than two years. What is most important in re-qualifying for credit is making sure that you are rebuilding your credit properly in the period following your bankruptcy filing.

Myth # 3: I Do Not Have Enough Debt to Qualify for Bankruptcy

The bankruptcy process does not require any minimum amount of debt for a party to be able to file a petition for bankruptcy. While it is not prudent to initiate the process of bankruptcy without a reasonable amount of debt, what constitutes a “reasonable amount of debt” can vary widely from one situation to another. If you can demonstrate that your ability to manage your debt is severely diminished, it is likely that your bankruptcy petition will be accepted by the court. Keep in mind that if you are filing for Chapter 7 bankruptcy protection, you will need to undergo a means test to determine your ability to pay your debts.

Speak with a New Braunfels Bankruptcy Lawyer

The finances of many hardworking individuals have been severely impacted by the COVID-19 lockdown of the last few months. If you are in an unmanageable financial situation due to debt, filing for bankruptcy may be an option. Contact a knowledgeable San Antonio bankruptcy attorney to learn more about the different types of bankruptcy protection that might be available to you. Call 210-342-3400 for a free consultation with the Law Offices of Chance M. McGhee today.

 

Sources:

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

https://www.nerdwallet.com/article/finance/rebuild-credit-after-bankruptcy

Federal Eviction Moratorium Update

September 28th, 2020 at 7:00 am

The current federal eviction moratorium comes with a number of qualifications and conditions. Be aware of them. It’s a limited but helpful tool.

 

Our last three weekly blog posts have been about the new Agency Order temporarily stopping many residential evictions. This Order by the Centers for Disease Control and Prevention (“CDC”) went into effect on September 4, 2020. It expires on December 31, 2020, when all unpaid rent will be due and evictions can resume.

Three weeks ago we described this eviction moratorium. Two weeks ago we discussed how renters could get more benefit from the moratorium with a Chapter 7 “straight bankruptcy.” Last week we got into how Chapter 13 could help significantly more. This week we provide additional important practical information.

Exceptions to the Eviction Moratorium

The CDC’s evictions ban did not cover all possible evictions. As a renter you need to make sure that you qualify and take the right steps to avoid being disqualified.

First, as emphasized last week, you must complete and give your landlord a Declaration form to trigger the eviction ban. Otherwise you do not qualify for the moratorium.

Second, you sign that Declaration under penalty of perjury. If you are not truthful, you’d expose yourself both to criminal liability and to eviction. So make sure you meet the stated income and other qualifications.

Third, the Declaration requires you to make “timely partial payments” as much as you can afford. You can’t necessarily just stop monthly payments altogether. In fact “timely” indicates that you should try to make partial payments when the regular rent payments are due each month. But what determines whether and how much you can afford to pay? The CDC’s Agency Order says you must use your “best efforts.” The “partial payments [are to be] as close to the full payment as the individual’s circumstances may permit, taking into account other nondiscretionary expenses.” This is all quite vague. But if you can afford to pay something and you don’t, your landlord has potential grounds to evict regardless of the moratorium.

Fourth, the Declaration makes you liable not just for rental payments, but also for “other obligations that I may have under my… lease agreement… .” This includes “fees, penalties, or interest for not paying rent…  on time… .”  These “may still be charged or collected.” Presumably this means landlords can collect these additional charges only after the moratorium expires, so starting January 1, 2021. But don’t lose sight of these add-ons—they can really add up.

Evictions for Other Reasons

The Agency Order states clearly that even if you otherwise qualify and deliver a truthful Declaration, your landlord could still try to evict you “for reasons other than not paying rent….”

Some but not necessarily all such reasons include:

(1) Engaging in criminal activity while on the premises; (2) threatening the health or safety of other residents; (3) damaging or posing an immediate and significant risk of damage to property; (4) violating any applicable building code, health ordinance, or similar regulation relating to health and safety; or (5) violating any other contractual obligation, other than the timely payment of rent or similar housing-related payment (including non-payment or late payment of fees, penalties, or interest).

85 Fed. Reg. 55,294 (Sept. 4, 2020).

You need to be mindful of these other reasons for eviction that defeat the moratorium. However, also note that landlords face a significant risk if they violate the Agency Order by trying to wrongfully evict you. These include significant fines ranging from $100,000 to $500,000 per event, and even possible imprisonment. These penalties should discourage frivolous attempts by landlord to evict with invalid justification.

Expired or Lack of Lease Agreement, Subtenants

Three common situations are not addressed directly by the Agency Order.

First, you may have signed a month-to-month lease agreement with a one-year term, but continued on after that one year. The landlord and you essentially assume that you both continue to be bound by the lease agreement. But legally it’s clearly expired. Assume you’re not paying rent because of the moratorium, but the landlord has somebody else who can afford the rent. Can the landlord evict you without violating the moratorium because you have no valid lease agreement? It’s certainly plausible.

Similarly, what if your lease agreement expires at the end of this month? Presumably the landlord is under no obligation to renew or extend the agreement. So he or she may be able to evict you in spite of the moratorium.

What about verbal lease agreements? Or month-to-month ones in which both parties can legally end that lease at any point. Seems like the landlord could have the right to end the agreement and evict in spite of the moratorium.

Finally, many people are subtenants who are not on the original lease agreement. So they don’t have a direct relationship with the property’s landlord. Similarly, a number of residents may live under a lease signed only by one of the housemates. If you don’t have renter’s rights because you are not the legal renter, the moratorium does not apply to you. If the renter on the agreement does something allowing the landlord to evict him or her, the moratorium will not likely help you.

Conclusion

The federal eviction moratorium gives you a potentially helpful additional tool during these intensely challenging times. But you have to act to qualify for it. And there are various conditions and exceptions you’ve got to be aware of.

In addition, the eviction moratorium is just one tool of many. It may best be used in conjunction with a range of bankruptcy tools. See a bankruptcy lawyer to find out how to use all the available legal tools to help you meet your goals.

 

Call today for a FREE Consultation

210-342-3400

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