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Archive for the ‘Effect Of Bankruptcy’ Category

Priority Debts in a No-Asset Chapter 7 Case

November 25th, 2019 at 8:00 am

Priority debts are largely unaffected by a Chapter 7 case—it does not discharge them, so you need to pay them after finishing your case.

 

Most Chapter 7 Cases Are No-Asset Cases

Chapter 7—“straight bankruptcy”—is the most common type of consumer bankruptcy case. They are generally the most straightforward, lasting about 4 months start to finish. Usually everything you own is protected by property exemptions. You discharge, or legally write off all or most of your debts. Secured debts like a home mortgage or vehicle loan are either retained or discharged. You either keep the collateral and pay for it, or surrender it and discharge any remaining debt. Bankruptcy does not discharge certain special debts like child/spousal support and recent income taxes.

A “no-asset” Chapter 7 case is one, as described above, in which everything you own is covered by property exemptions. So you keep everything you own (with the exception of collateral you decide to surrender). It’s called a no-asset case because your Chapter 7 trustee does not get any assets to liquidate and distribute to any of your creditors. The trustee just verifies that you have no unprotected assets. He or she does this mostly by reviewing your bankruptcy documents and asking you some simple questions at your hearing. A large majority of Chapter 7 cases are no-asset ones. Your bankruptcy lawyer will tell you if yours is expected to be.

Although Chapter 7 is theoretically a liquidation form of bankruptcy, in a no-asset case there is nothing to liquidate. You lose no assets, and you lose all or most of your debts.

What Happens to Your Special, Priority Debts in a No-Asset Chapter 7 Case?

Yes, what about debts that do not qualify for discharge? There are various types of such debts, although most cases have either only one or two not-discharged debts, or none at all.

Most debts that Chapter 7 does not discharge are what are called priority debts. These are simply categories of debts that Congress has decided should be treated with higher priority than other debts. In consumer cases the most common priority debts are child/spousal support and recent income taxes. See the U.S. Bankruptcy Code subsections 507(a)(1) and (8). (Not to go into the rules here, but many older income taxes are not a priority debt and can be discharged.)

Priority debts generally get paid ahead of other debts in bankruptcy. This is true in an asset Chapter 7 case—where the trustee is liquidating a debtor’s assets.  In fact the trustee must pay a priority debt in full before paying regular (“general unsecured”) debts a penny!

But in a no-asset Chapter 7 case the trustee has no assets to liquidate. So he or she cannot pay any creditors anything, including any priority debts. So, essentially nothing happens to a not-dischargeable priority debt in a no-asset Chapter 7 case.

Dealing with Priority Debts During and After a Chapter 7 Case

However, one benefit you receive with some priority debts is the “automatic stay.” This stops (“stays”) the collection of debts immediately when you file a bankruptcy case. This “stay” generally lasts the approximately 4 months that a no-asset case is usually open. This no-collection period gives you time to make arrangements to pay a debt that is not going to get discharged. So you can start making payments either towards the end of your case or as soon as it’s closed. The hope is that you’ve discharged all or most of your other debts so that you can now afford to pay the not-discharged one(s).

The automatic stay applies to most debts, but there are exceptions. Child/spousal support is a major exception. Filing a Chapter 7 case does not stop the collection of support, either unpaid prior support or monthly ongoing support. (Note that Chapter 13 “adjustment of debts” can stop the collection of unpaid prior support under most circumstances.)

So, with nondischargeable priority debts that the automatic stay applies to, during your case you and/or your bankruptcy lawyer make arrangements to begin paying the debt. With ones that the automatic stay does not apply to, you need to be prepared to deal with immediately.

If neither of these make sense in your situation, consider filing a Chapter 13 case instead. Talk with your bankruptcy lawyer about the advantages and disadvantages of each option. Chapter 13 takes a lot longer—from 3 to 5 years usually. But if you have a lot of priority debt (or secured or any other nondischarged debts), it can really help.

 

Frequently Asked Questions About Texas Bankruptcy

April 12th, 2019 at 10:11 pm

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

When Should I File For Bankruptcy?

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

Which Type of Bankruptcy Is Right For Me?

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

How Will a Bankruptcy Affect My Credit Score?

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

A New Braunfels, TX Bankruptcy Attorney Can Help

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

 

Sources:

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

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

Managing Your Finances after Bankruptcy

June 29th, 2018 at 8:03 pm

Texas bankruptcy attorneyThink about it: you have already made the mistakes; therefore, you know what to avoid. Bankruptcy tends to make filers better money managers both through experience, as well as through the required courses. Most new clients ask how long it will take to rebuild their credit, followed shortly by the firm statement that they will only ever pay for anything in cash ever again. Bankruptcy is one experience that will help you better manage your finances and empower you to to make better decisions in the future.

Education Requirements

In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) due to their belief that the system was too lenient on those filing for bankruptcy. At that point, they instituted a two-part education program as a requirement to file for bankruptcy. These sessions include:

  • Pre-petition credit counseling which explores all financial relief options to determine if bankruptcy is, in fact, the best option; and
  • Post-petition financial management which occurs before the discharge is finalized and educates clients about how to move forward, budget, manage money, and rebuild credit successfully.

Beyond the Sessions

Most families attending these courses gain essential insights into bankruptcy alternatives, if they qualify, as well as best practices in money management to avoid a recurrence. A few of the most helpful pieces of advice include:

  • Get budget help through financial tracking apps;
  • Start an emergency savings fund instead of an emergency credit card;
  • Live within your means (appropriate house and car size);
  • Eat at home more often than you eat out (this includes coffee and sodas);
  • Cut cable and other unnecessary expenses;
  • Unsubscribe from tempting advertisement emails;
  • Teach kids to be thrifty in spending; and
  • Remember that less is more.

Ask Someone with Experience

Believe it or not, you will begin receiving offers from lenders offering you loans and credit lines shortly after finalizing your bankruptcy. Unfortunately, many people accept these offers for fear that there will be no other offers. Advice to consider is to avoid large loans in the beginning. If you work with small lines of credit and keep them paid on time, eventually better offers will come in. If you have questions about how bankruptcy can help your current situation and your future, a Boerne bankruptcy lawyer can help. At  Law Offices of Chance M. McGhee, we provide cost-efficient and compassionate counsel to individuals, families, and small business owners struggling with a financial crisis. Call us today at 210-342-3400 to schedule a free case review.

 

Sources:

http://www.txs.uscourts.gov/bankruptcy

 

The Surprising Benefits: Reinstating a Driver’s License

May 14th, 2018 at 7:00 am

Bankruptcy does more than stop creditors in their tracks and then write off their debts. It can get a suspended driver’s license reinstated.  

 

We’re continuing in this series of blog posts about the powerful but less obvious benefits of bankruptcy. Bankruptcy gives you immediate and long-term relief from your debts. But it can do other very important things you may not know about. Today we get into how bankruptcy can get a suspended driver’s license reinstated.

Reasons for Driver’s License Suspension

Whether your filing of a bankruptcy case can reinstate your suspended driver’s license depends on the reason for the suspension. Two of the most common kinds are suspensions are from:

1) not paying a judgment from a motor vehicle accident while driving uninsured; and

2) failing to pay traffic tickets.

This blog post focuses reinstating your license from the first one of these kinds of suspension. We’ll get to the second one next.

Judgment from a Vehicle Accident While Driving Uninsured

Let’s make clear how your license can get suspended in this situation. A person gets into a car accident while driving uninsured. The accident results in some property damage and/or personal injury for the other driver(s) or for passengers. The other driver or somebody else involved sues the person (usually through their insurance company). The person sued then gets a judgment against him or her from that lawsuit. That judgment legally establishes that the uninsured driver owes damages arising out of the accident. The judgment determines that the driver was at least partially at fault and must pay those damages.

If such a judgment was taken against you, your state’s laws likely gave you a very limited amount of time to pay that judgment. So what happens if you don’t pay it off within that time?

You guessed it:  your driver’s license gets suspended. The idea is that you failed to fulfill your financial responsibilities as a driver. You legally owe a debt from an accident that you were at least partially at fault for. And it’s a debt that you didn’t pay, probably because you didn’t have insurance.

Bankruptcy Wipes Out the Debt, No More Reason for the Suspension

The good news is that by filing bankruptcy you can discharge (legally write off) that debt. As soon as you no longer owe that debt, the reason that your license got suspended is gone. So the license can be reinstated.

State vs. Federal Laws

But wait a minute. Doesn’t your state have the right to make laws about this and have them be respected by federal bankruptcy laws?

Yes, the state has a legitimate interest in keeping its roads safe. It can help do that by requiring drivers to have liability insurance. That way, vehicle accident victims are more likely to be compensated for their property damages and personal injuries. So states can use license suspensions as part of its incentive for drivers to have insurance.

But what if a state’s law specifically says that it can suspend a person’s driver’s license even if the person has discharged that debt in bankruptcy? Doesn’t that conflict with federal bankruptcy law’s granting of a full discharge of that debt? Discharging a debt is of limited benefit if you still can’t get your license back for not paying the debt.

The Supreme Court Has Resolved this in Favor of Debtors

This particular conflict between state and federal law is one that the U.S. Supreme Court addressed and resolved decades ago.  In Perez v. Campbell the Court laid out the issue in one long sentence:  

What is at issue here is the power of a State to include as part of this comprehensive enactment designed to secure compensation for automobile accident victims a section providing that a discharge in bankruptcy of the automobile accident tort judgment shall have no effect on the judgment debtor’s obligation to repay the judgment creditor, at least insofar as such repayment may be enforced by the withholding of driving privileges by the State.

402 U.S. 637, 643 (1971). In other words, can a state require a person to pay a debt from a vehicle accident in order to reinstate the person’s driver’s license, even after that debt was discharged in bankruptcy?

The Court decided this in favor of the debtors. A state cannot require payment of a bankruptcy discharged debt to reinstate a license. The state statute was in conflict with one of the main purposes of bankruptcy: to give debtors “a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt” [quoting an earlier Supreme Court opinion]. The Court concluded: “There can be no doubt… that Congress intended this ‘new opportunity’ to include freedom from most kinds of pre-existing tort judgments.” (402 U.S. 637, 648.) “We think it clear that [the state statute] is constitutionally invalid.” (At 656.)

Conclusion

If your driver’s license was, or is about to be, suspended because of an unpaid debt arising from an uninsured motor vehicle accident, see a bankruptcy lawyer. There’s a good chance you can reinstate your license—or prevent it from being suspended—through bankruptcy.  

 

Call today for a FREE Consultation

210-342-3400

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