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Which Type of Bankruptcy Is Best for My Financial Situation?

August 26th, 2020 at 2:29 pm

Texas chapter 7 lawyer, Texas chapter 13 attorney Bankruptcy is often seen as a last-ditch effort to overcome the financial burden that you may be experiencing. While this is typically the case, the level of debt that one may be in can vary greatly depending on their circumstances. Some may have no income and are struggling to pay basic bills, while others may have a steady income but have found themselves buried by exponential medical or credit card expenses. There are two common ways that Texans can file for bankruptcy: Chapter 7 and Chapter 13 bankruptcy. By looking at your unique circumstances, you can determine what type of bankruptcy filing is appropriate.

Chapter 7

When imagining what filing for bankruptcy looks like, people often imagine something along the lines of Chapter 7 bankruptcy. Also known as “liquidation bankruptcy”, this form of bankruptcy has the trustee sell the debtor’s property and use the money collected to pay off their debts, as close to the total amount as possible – all remaining debts will be forgotten. This form of bankruptcy may seem preferable to some, since the process only takes about six months and some debts may be forgotten, but it is not available to all debtors. If the debtor’s income falls below the state’s median household income, which in Texas is $59,570, he or she is eligible to file for Chapter 7 bankruptcy. The debtor will not lose all of his or her assets during the bankruptcy process, since some personal property can be claimed exempt from the process.

Chapter 13

For those who have a steady, dependable income, Chapter 7 bankruptcy is not an option. These debtors will file for Chapter 13 bankruptcy, which involves formulating a payment plan over a three- to five-year period. In other words, none of their debts are forgotten and they are expected to pay it off in time. However, Chapter 13 filers will not be required to give up any of their property or assets to pay off their debts as long as they follow the terms of their payment plan. A portion of their paycheck will go towards these unpaid debts once their basic needs are met.

So, Is Bankruptcy Really Best for Me?

You may still be wondering if filing for bankruptcy is your best course of action. You should consult a bankruptcy attorney for advice on whether your financial difficulties warrant filing for bankruptcy. Even before speaking with an attorney, you can take your own financial inventory to really see where you are at. Take a look at the following financial areas to gauge your need to file for bankruptcy:

  1. Debts. Take account of all of the debts looming over you. This includes any unpaid credit card bills, overdue loans, or other outstanding balances. List these debts in one area to give yourself a general estimate of your financial burdens.
  2. Monthly Costs. Next, list out your monthly expenses below your total debts. This should include any monthly bills, such as rent, utilities, food, and more. You can estimate some of your monthly costs but should include anything that you purchase on a regular basis.
  3. Income. Look at your income from the past six months, excluding social security. If you have a spouse, include their income in your calculations. By looking at your current debts and monthly expenses, you may be able to re-budget your income to begin paying off these debts.
  4. Assets or Property. Do you have an extra car that you rarely use? Or perhaps you have a vacation home that you are willing to part with. Before filing for bankruptcy, consider your other options to obtain the money you need to pay off your debts. If you do not have any additional assets or any that you are willing to part with, you may need to seriously consider filing for bankruptcy.

Contact a New Braunfels Bankruptcy Lawyer

Making the executive decision to file for bankruptcy can be one of the most difficult, and humbling, decisions you have to make. The stigma that surrounds bankruptcy often leaves people putting off the inevitable and continuing to build up debt in the meantime. If you are struggling financially, turn to the Law Offices of Chance M. McGhee for advice. Our compassionate legal team provides free consultations to allow potential clients to discuss their case before making a decision. Rather than allowing things to stack up and become even more burdensome, contact our San Antonio bankruptcy attorney for help at 210-342-3400.

 

Sources:

https://www.consumeraffairs.com/finance/bankruptcy_02.html

https://www.census.gov/quickfacts/TX?

Timing Chapter 13 to Discharge Income Taxes

August 3rd, 2020 at 7:00 am

Usually you can discharge income taxes (write them off forever) by waiting long enough to file bankruptcy. Here’s how it works with Chapter 13.


Our blog post of three weeks ago introduced the importance of timing your bankruptcy filing right. We gave a list of 15 examples where timing can make a huge difference. Two weeks we covered the first one, timing bankruptcy to cover as many debts as possible. Last week was about discharging/writing off income taxes, specifically under a Chapter 7 “straight bankruptcy.” This week is about doing so under Chapter 13 “adjustment of debts.”

How to Time a Chapter 13 Filing to Discharge a Tax?

See our last blog post about the timing rules under Chapter 7. That’s because whether you can discharge an income tax is the same under Chapter 7 and 13. Very briefly, you can discharge an income tax as long as you file your Chapter 13 case both:

  1. at least 3 years after the tax return for that tax was due, and
  2. at least 2 years after that tax return was actually submitted to the IRS or state tax authority.  

See Sections 507(a)(8)(A)(i) and 523(a)(1)(B) of the U.S. Bankruptcy Code for these two timing rules.

You and your bankruptcy lawyer will carefully review and apply these rules to see if you can meet them. Your situation may be too urgent to wait long enough. There may be creditor pressures, by the IRS/state tax agency or other unrelated creditors, so you can’t wait. Or there may be other good reasons to file before enough time has passed.

But let’s assume that you find out that you can meet the two timing rules. Also assume that you meet other conditions for discharging the tax. (See last week’s blog post for some other conditions beyond the two timing ones.) You file the Chapter 13 case and the income tax debt qualifies for discharge.

Then what happens? How is the tax dealt with under Chapter 13?

Using Chapter 13 Instead of Chapter 7 to Discharge a Tax

Chapter 7 usually discharges a dischargeable income tax very fast. The moment you file your bankruptcy case the “automatic stay” would protect you from all collection of that tax. Then you would very likely no longer legally owe the tax about 4 months after filing a Chapter 7 case.

Chapter 13 is just as fast at protecting you from tax collection: the “automatic stay” goes immediately into effect. But the discharge of the tax happens only at the end of the case, usually 3 to 5 years later.

Furthermore, often you need to pay some portion of that tax before you can discharge the rest. Not always, but if you have money to spare in your payment plan some will go towards the tax.

Why in the world would you file a Chapter 13 case when it’s so much slower? Why would you when under Chapter 13 you risk paying something on the tax instead of nothing?

Why Discharge Tax through Chapter 13?

The straightforward reason is that Chapter 13 could be much better for you for other reasons. Those other reasons may outweigh the benefit of discharging your dischargeable tax debt quickly and completely.

Chapter 7 and 13 each has tons of potential advantages and disadvantages. Your bankruptcy lawyer’s job is to help you determine whether the other advantages of Chapter 13 outweigh these disadvantages.

What might be some of those advantages?

One example: you may owe some other income tax debt(s) which do not meet the timing conditions for discharge. So these other taxes would not be discharged under either Chapter 7 or 13. In a Chapter 7 case, you’d owe that tax in full immediately upon finishing the case, about 4 months after filing. Interest and penalties would continue accruing. Those tax/interest/penalties may be too large to pay off reasonably through a monthly payment plan with the IRS/state.  It may not qualify for an Offer in Compromise or other settlement. Chapter 13 would enable you to pay it more flexibly, usually without accruing interest and penalties. So, you could well save money and avoid significant risks by handling all of your taxes in a Chapter 13 case.

There are many, many other reasons unrelated to income taxes that Chapter 13 could be worthwhile for you. It could potentially prevent a home foreclosure or vehicle repossession, and then give you a workable way to save the home or vehicle. Chapter 13 can often solve child or spousal support problems much better than Chapter 7. There are many other situations where Chapter 13 gives you extraordinary powers over your debts. So those advantages can make this longer procedure very worthwhile overall.

How Does Chapter 13 Discharge an Income Tax?

Assume again that your tax debt qualifies for discharge, timing-wise and by meeting all the legal conditions. So it can get discharged in your Chapter 13 case.

However, Chapter 13 treats a dischargeable tax differently than under Chapter 7. As mentioned above, the discharge happens at the end of the case usually years later. And you may have to pay something on it before then.

What determines how much, if any, you pay on this tax?

Under Chapter 13 a dischargeable income tax debt is treated like the rest of your “general unsecured” debts. Under your payment plan all such debts receive the same percentage of their total amounts. That percentage may be any amount from 0% to 100% of the debt amount, depending on your budget and other factors.

That’s right: it’s theoretically possible that you’d have to pay 100% of your tax and other debts. But that’s highly unlikely. That only happens if you have enough money in your budget that you can reasonably afford to do so. That’s very rare.

More likely your budget is barely enough for living expenses and to pay special higher-priority debts during your case. That could result in your dischargeable tax debt (and all your “general unsecured” debts) receiving 0%—absolutely nothing.

To make better practical sense of this, let’s look at two situations: First, this “0% plan,” and second, where your tax debt does not increase what you pay to your creditors.

The 0% Payment Plan

As just mentioned, in this kind of Chapter 13 case all your available money goes to living expenses plus special debts. Those special debts are either secured or “priority” ones. These could include home mortgages, vehicle loans, nondischargeable taxes, child and spousal support, and such. The law usually requires you to pay them in full before paying anything to the “general unsecured” debts.  As a result it’s possible that during your 3-to-5-year payment plan there’s no money at all for your “general unsecured” debts. That means that one of those debts, the dischargeable income tax, also receives nothing. That’s called a 0% Chapter 13 plan. (The percentage means the extent to which you’re paying the general unsecured debts.) These 0%cases are not unusual (although there are regional variations).

If you successfully complete a Chapter 13 case, when you do your bankruptcy judge discharges the entire tax. Under a 0% plan, you didn’t pay any of the tax debt during the case. And then after the discharge you don’t have to pay any of it either, foreever.  

Fixed Total Amount Chapter 13 Plans

There are other Chapter 13 payment plans in which your tax debt does not increase the amount you pay. You pay a fixed total amount to your creditors based on the amount you can afford to pay beyond your living expenses.

Often the practical effect of this is that there is some money for your “general unsecured” debts. So it’s not a 0% plan.

But because the amount you pay over the life of the case is a fixed amount, the amount left over for the pool of general unsecured debts, after paying certain secured and priority debts, is a fixed amount as well. That in turn means that all the general unsecured debts have to split up that left over amount. (This is true as long as the total amount of those debts is greater than the amount you can afford to pay. That’s almost always the situation. Otherwise you likely don’t need Chapter 13 help.)

With all the general unsecured debts being paid out of that fixed amount, this means that the total amount of this debt doesn’t matter. If the total debt amount is higher, this just means that you pay each debt a lower percentage.

This means that having a dischargeable tax debt often does not increase the amount you pay.

An Example

Here’s a simple example. Assume that during the life of a 3-year payment plan you expect to have money to pay a total of $3,000 into the pool of general unsecured debts. That’s based on what you can reasonably pay to all your debts, minus what goes to secured and priority debts. Assume also that you have $60,000 in unsecured credit cards and medical debts. This means that the $3,000 you pay would amount to paying 5% of these general unsecured debts. ($3,000 divided by $60,000 equals 5%.) 

Now assume that you also have a $10,000 of dischargeable income tax debt. You add this to the $60,000, making a total of $70,000 of general unsecured debts. Now the $3,000 gets divided among the $70,000 in debts, meaning that now you are only paying 4.3% of those debts ($3,000 divided by $70,000 equals 4.3%.) 

This situation—where you’re paying a fixed amount to the general unsecured debts—is very common. So it’s common that having a dischargeable tax debt actually does not add anything to the amount you pay. That tax debt just reduces the percentage that all the general unsecured debts receive.

 

If I Have Overdue Medical Bills, Can I File for Bankruptcy?

July 27th, 2020 at 11:42 am

TX bankrutpcy attorney, TX chapter 7 lawyerThe U.S. has some of the highest medical costs in the world, leaving many patients who visit the emergency room or go to the hospital financially destitute. Even those who have health insurance may find that their coverage is not enough to fully cover their necessary medical treatments. No one can predict the manifestation of serious illnesses or accidental injuries, but you rarely have a valid choice, leaving you to choose between unwanted debt or suffer the possibly fatal consequences. If you find yourself overwhelmed with medical debt, you do have legal options to help you payback the costs overtime or relieve yourself of the costs altogether. Filing for bankruptcy may be your last resort, but it may also be your only chance of moving forward.

“Medical Bankruptcy”

Those whose debt is solely made up of pastdue medical bills may believe that they can file for “medical bankruptcy” and avoid their other assets getting involved in the process. There is no type of bankruptcy known as medical bankruptcy; however, medical bills are a common reason that people file for bankruptcy. Medical debt falls under the same category, known as unsecured debt, as credit card debt, personal loans, old utility bills, and borrowed money from family or friends. Since bankruptcy cases must be equally fair for both the debtor and creditor, you must list all of your debts, personal property, and real estate within your bankruptcy case. There are two ways that most people file for bankruptcy: Chapter 7 and Chapter 13 bankruptcy, both of which have a large impact on your credit score.

Chapter 7 Bankruptcy

Filing for Chapter 7 bankruptcy is often the more desired option since it discharges or forgives all of your debts, not requiring you to pay them back. Any medical debt that you have accumulated can be included in a Chapter 7 bankruptcy claim. The process typically only takes four to six months to complete and grants immediate relief to those filing for this type of bankruptcy. There are a few types of debt that cannot be discharged, such as income taxes and past-due child support or alimony payments. While Chapter 7 is often the most desirable option, since you will not need to pay the debt back, there are strict eligibility requirements. If your household income is lower than the state median income, you are eligible to file Chapter 7 bankruptcy.

Chapter 13 Bankruptcy

This type of bankruptcy extends your timeline for paying back your debts, creating a three to five year payment plan for debtors. Chapter 13 bankruptcy is the common option for those who have a steady income, allowing them to pay off their debts while still having disposable income. The amount owed is dependent upon your debt amount and your income. Depending on your situation, your amount owed could be reduced and you may have your remaining debt discharged at the end of your payment plan. Any missed payments can lead to the seizing of your assets.

Contact a New Braunfels Bankruptcy Attorney

As you can see, there are a number of factors that can contribute to your ability to file for bankruptcy and which type of bankruptcy is best for your situation. It is always advised to speak with a well-seasoned attorney who understands your state’s policies regarding filing for bankruptcy. The Law Offices of Chance M. McGhee has over 20 years of experience assisting Texans overcome their debt difficulties, including those that consist of significant medical costs. Contact our Boerne bankruptcy lawyer at 210-342-3400 to discuss the details of your case during your free consultation.

 

Sources:

https://www.thebalance.com/what-to-know-about-filing-medical-bankruptcy-4159606

https://www.creditkarma.com/advice/i/medical-debt-in-bankruptcies

https://upsolve.org/learn/get-rid-of-medical-bills-in-bankruptcy/

 

Paying Unpaid Child/Spousal Support before Bankruptcy

July 6th, 2020 at 7:00 am

Before filing bankruptcy, should you pay child/spousal support debt in the meantime? This may depend on whether you file Chapter 7 or 13.


Our last three blog posts have been about what you should and should not do before filing bankruptcy. Three weeks ago we focused on keeping your assets, especially any retirement funds, and collateral, such as home or vehicle. Two weeks we discussed whether to take on more debt, maybe to buy time and not need to file bankruptcy. And last week we looked at whether you should file any unfiled income tax returns, and pay income taxes.

Today the question is whether to pay unpaid child/spousal support before filing bankruptcy. As with all of these issues, there are some general principles worth getting to understand. But everybody’s situation is truly unique. So you really do need the help of an experience bankruptcy lawyer to apply these principles to your personal situation. This blog post can be the first step towards becoming well-informed about your options. It’ll help you ask the right questions so that you can make the best decisions.

Child/Spousal Support Collection

If you haven’t already learned the hard way, the collection of child and spousal support can be extremely aggressive. If you are behind on support, your ex-spouse and the support enforcement agency have tremendous tools to use against you to make you catch up.

In virtually all states an ex-spouse—or the local support enforcement agency—has extraordinary ways to collect unpaid support.  

These include ways of grabbing your money directly. We’re talking garnishing your wages and bank accounts, and grabbing income tax refunds.

But the collection tools also include ways to hurt you so that you’ll be forced to pay. Your ex-spouse and support enforcement can often put liens on your possessions and your real estate. Your ex-spouse/support enforcement might then take these assets to sell and pay the support debt. They can often suspend your driver’s license. This includes a commercial driver’s license, so you can’t work if have a job requiring the license. They can even suspend your professional or occupational license. That could prevent you from legally working in your profession or business as a nurse, doctor, physical therapist, lawyer, realtor, insurance agent, mortgage broker, etc.

On top of all this, you could lose your hunting, fishing, boating and other recreational licenses. You could even be ineligible to receive a U.S. passport.

Bankruptcy Doesn’t Discharge Unpaid Child/Spousal Support

No form of bankruptcy can discharge (legally write off) unpaid child/spousal support. So you might as well prioritize paying the support, right? Maybe.

Stopping Support Collection

Also, Chapter 7 “straight bankruptcy” does not directly stop, or even pause, any of the above forms of support collections. Even more reason to put every dime into catching up on the support, right?

Maybe. But first be aware that Chapter 13 “adjustment of debts” CAN stop the collection of unpaid support. Furthermore, a Chapter 13 official payment plan can give you 3 years, or often as much as 5 years to catch up on any child/spousal support. Under the right circumstances you can be protected from support collection throughout those years of catching up.

So when on the brink of bankruptcy, it might make practical sense to not pay a support payment. It may make sense to pay that unpaid support over time instead. You might need to use your precious money for some other extremely urgent purpose.

This may be sensible if you are currently not being hit with ongoing support collection efforts. It would also be important that you don’t have reason to believe such efforts are imminent. Given how aggressive those efforts can be, this is a delicate calculation.

Determining Whether Chapter 13 Is Right for You

Be aware this particular scenario of not paying support only makes sense if you end up filing under Chapter 13.

As stated above, only Chapter 13 stops the collection of unpaid support arrearage. The more common Chapter 7 type of bankruptcy does not.

(Note that your obligation to pay ongoing monthly support after filing the Chapter 13 case continues. So collection of the ongoing monthly support can continue.)

Only Chapter 13 gives you a protected and extended method of catching up on your unpaid support. Chapter 7 leaves you at the mercy of your ex-spouse/the support enforcement agency, and their collection tools listed above.

The decision whether to file a Chapter 7 vs. Chapter 13 one is always a multi-faceted one. The Chapter 7 procedure itself is usually less expensive and takes much less time. But Chapter 13 gives you much stronger tools, not just with unpaid child/spousal support. If you’re behind on a mortgage, are in a difficult vehicle loan, owe income or property taxes, and many other challenging situations, Chapter 13 can work legal miracles.

Whether these powerful tools are worth the extra money and time is a multi-faceted decision. It’s one that definitely requires legal advice.

An Urgent Decision

By its very nature, whether or not to pay a child/spousal support payment is a very urgent decision. If you are in the midst of support collection efforts, those efforts are likely causing you significant financial pain. If that’s not happening yet, they can occur at virtually any time. You have to make some big decisions quickly.

The initial meeting with a bankruptcy lawyer is usually free. The sooner you get that initial legal advice the sooner you’ll know whether you should pay the child/spousal support. The sooner you will feel the relief of knowing where you’re heading. The sooner you will be turning the corner to a calmer financial life.

 

How Do I Know if I Should File for Bankruptcy?

July 1st, 2020 at 7:46 pm

Texas bankruptcy attorney, file for bankruptcy in TexasFor many people, the thought of filing for bankruptcy is a scary one. However, for many people, filing for bankruptcy is the best thing they could do for their finances. Filing for bankruptcy allows you to wipe your slate clean and discharge most of your unsecured debts, but it does come with some consequences. Filing for bankruptcy might make your life more difficult in the future, by making it harder to borrow money, lowering your credit score or even affecting your insurance rates. It can be difficult for some people to gauge whether or not bankruptcy is in their best interests, which is where a skilled Texas bankruptcy lawyer can help.

Your Debts Far Exceed Your Income

Think about all of your different types of debt: your mortgage or rent, car payment, all of your different credit cards, and personal loans. How much total debt do you have? Now, think of your income. How much money do you bring in each month? If your monthly debt obligations are much higher than the amount of money you bring in, you may want to consider filing for bankruptcy.

You Face Foreclosure or Repossession of Your Home or Car

Another big reason why people file for bankruptcy is that they are currently experiencing or being threatened with a foreclosure or repossession. When you purchase an expensive object, such as a home or vehicle, it is unlikely that you will buy it outright. Rather, you borrow the money from a lender and repay it over time. If you fail to repay your loan, your property could be taken back. Filing for bankruptcy puts a temporary halt to any foreclosure or repossession actions, giving you time to readjust your finances.

You Have Tried Negotiating with Your Creditors

If you are considering bankruptcy, you have likely already looked at other options for debt relief. One of the easiest things you can do to help lessen the burden is contacting your debtors and seeing if they are willing to work something out with you. Many lenders do not get anything if you file for bankruptcy and will want to work with you, but this is not always the case. If your creditors are unwilling to negotiate or you are still having trouble, bankruptcy might be your best option.

Discuss Your Situation with a San Antonio, TX Bankruptcy Lawyer

Bankruptcy is not for everyone, but for many people, it can give them a second chance with their finances. If you are in debt and are wondering if bankruptcy is right for you, you should speak with a knowledgeable Boerne, TX bankruptcy attorney. At the Law Offices of Chance M. McGhee, we will look over your financial situation with you and determine whether or not bankruptcy would be in your best interests. To schedule a free consultation, call us today at 210-342-3400.

 

Sources:

https://www.investopedia.com/articles/pf/08/bankruptcy-filing.asp

https://www.thebalance.com/should-you-file-bankruptcy-960627

https://www.moneyunder30.com/when-you-need-to-file-bankruptcy

 

The Best Bankruptcy Advice: Get Legal Advice

June 8th, 2020 at 7:00 am

Businesses considering bankruptcy get intense legal advice before filing. You would also be smart to get solid advice to make a good decision. 


What Businesses Do Before Filing Bankruptcy

The following are just a few of the companies which have filed business bankruptcy in the last couple months:

  • Pier 1 Imports
  • CMX Cinemas
  • J. Crew
  • Gold’s Gym
  • Neiman Marcus
  • JC Penney
  • Hertz
  • Tuesday Morning

Some of these companies will completely go out of business, some will continue on after a financial restructuring.

What they all have in common is that they got lots of legal advice before deciding to file bankruptcy. They likely got that advice over the course of many months. They likely used that advice to try to avoid entering into bankruptcy, take steps to position themselves for filing, and then to time the filing as well as possible.

If Bankruptcy Is Even a Possibility, Get Immediate Legal Advice

That likely applies to you if you are reading this. If there is even just a chance you need to file bankruptcy, you should get legal advice for similar reasons. You would be wise to get legal advice to find out:

  1. if bankruptcy is the best option for you, and how to pursue other alternatives
  2. how Chapter 7, 11, 12, and 13 work, and whether either are right for you
  3. what actions you should take to position yourself for either a possible or definite filing
  4. what you should avoid doing
  5. the best timing for your bankruptcy filing

1. Bankruptcy or Other Alternatives?

Bankruptcy may feel like an option of absolutely last resort. Sure, it’s something to avoid when possible. But that doesn’t mean you should avoid finding out about it.

Bankruptcy is a tool. It’s a legal tool provided for in the U.S. Constitution (Article I, Section 8, Clause 4) and federal law to provide you financial relief.

It may be right for you, either now or at some point in the near future. Or it may not be. You would feel better knowing one way or the other.

2. The Different Chapters of Bankruptcy

Chapters 7, 11, 12, and 13 are each very different. They are designed for very different circumstances.

If you own a business, generally Chapter 7 is for closing down your business, Chapter 11 is for reorganizing it. Chapter 12 is essentially a Chapter 11 for farmers and fishermen.

If you are instead of consumer debtor your two options are usually either Chapter 7 or Chapter 13.

Chapter 7 is sometimes called “straight bankruptcy.” It takes only 3-4 months, usually you keep what you own and can “discharge” (legally write off) most debts. But Chapter 7 is very limited in how it deals with certain important debts. With secured debts (home mortgage and vehicle loans) you either keep current or lose the house/vehicle. Also, Chapter 7 doesn’t help much with debts that you can’t discharge, like recent income taxes, child/spousal support, and such.

Chapter 13 “adjustment of debts” is much more flexible, especially with secured and other special debts. But it takes much longer—usually 3 to 5 years. That extra time is what provides much of the flexibility. You and your bankruptcy lawyer put together a payment plan, mostly for dealing with the secured and special debts. There’s a plan approval process and then you pay according to the plan for as long as it lasts. Chapter 13 can often give you tremendous power over your secured and special debts.

In relatively straightforward situations, Chapter 7 provides immediate and lasting financial relief. In situations with more diverse debts, Chapter 13 also provides immediate, and more flexible and powerful relief with those debts especially.

Interim Conclusion

More on what to do, what not to do, and the timing of bankruptcy coming up in our next blog posts. In the meantime…

As bankruptcy lawyers we are genuinely in this to help people. We love it when we can provide real solutions for our clients’ serious financial dilemmas. So it’s sad when people come in to see us who would have significantly benefitted from coming in earlier.

Please get in touch with your bankruptcy lawyer as soon as bankruptcy becomes a possibility. Doing so will give you the peace of mind that comes from

  • knowing that you have some really helpful options, often better than you thought
  • learning how to either avoid bankruptcy or position yourself in the best way for it
  • establishing a trusting relationship with your bankruptcy lawyer
  • knowing that you are avoiding taking seemingly sensible but actually unwise actions
  • taking charge of your life instead of living in fear

There is no downside for getting legal advice when you’re hurting financially. The initial consultations are almost always free. It may well be the single best decision you could make now.

 

How Are Monthly Payments Calculated in a Chapter 13 Repayment Plan?

May 29th, 2020 at 6:05 pm

TX bankrutpcy attorney, Texas chapter 13 lawyer, Being unable to meet your monthly debt obligations can be a serious source of stress. Many people in this situation turn to bankruptcy as a possible solution. For some people who have a steady income, a Chapter 13 repayment plan may be the best option. Often referred to as the “wage earner’s plan,” this type of bankruptcy allows individuals to repay all or a portion of their debts over a period of three or five years. Each month, a single payment is made to the bankruptcy trustee, who then distributes the appropriate amount to each creditor.

Chapter 13 bankruptcies are popular with individuals who have secured debt attached to certain items that they want to keep, like a house or a car. This is because a Chapter 13 bankruptcy allows individuals to distribute any past due payments into the repayment plan so they can get caught up. While the draw of a Chapter 13 bankruptcy is present, most peoples’ first question is, “How much will my payments be?”

Factors Affecting Your Payment

When you enter into a Chapter 13 repayment plan, you agree to pay a specified monthly amount to your trustee who will then pay your creditors. Your monthly payment amount depends on a variety of factors including your income, expenses, the amount of debt you owe, the types of debt you have, and the value of your property.

  • Income and expenses: Two of the biggest factors that affect the amount of your monthly payment are your income and your expenses. You must have a steady and reliable income to qualify for a Chapter 13 plan and provide the bankruptcy court with a record of your income from the past six months. You must also supply the court with your actual monthly expenses.
  • Amount of disposable income: Once you have your income and your expenses, your expenses will be subtracted from your income. The amount that remains is considered to be your disposable income. For many people, the amount of their disposable income is usually the amount that their payments are based on.
  • Value of Non-Exempt Assets: If you have assets that you want to keep, rather than liquidate, you have to factor in that cost as well. For example, a mortgage or a car payment would be added to your monthly payment amount. You also must factor in the amount of any other non-exempt assets that creditors would have received if you had filed for a Chapter 7 bankruptcy.

A San Antonio, TX Chapter 13 Bankruptcy Lawyer Can Walk You Through the Calculations

Bankruptcy can be confusing, no matter which process you choose. During a Chapter 13 bankruptcy, your monthly calculations will likely be calculated using a computer, but a skilled Boerne, TX Chapter 13 bankruptcy attorney can guide you through the process. At the Law Offices of Chance M. McGhee, we have been helping clients file for bankruptcy for more than 18 years. To schedule your free consultation, call our office today at 210-342-3400.

 

Sources:

https://www.thebalance.com/how-much-will-my-chapter-13-plan-payment-be-316209

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

 

Consumer Bankruptcies Not Increasing–Yet

May 18th, 2020 at 7:00 am

After declining significantly since 2010, consumer bankruptcies edged up in 2019, increased in March, then oddly sharply declined in April. 

 

In the last two weeks three major retailers filed Chapter 11 bankruptcy: J. Crew, Neiman Marcus, and J.C. Penny. Total business Chapter 11 reorganizations were up 26% in April 2020 compared to the same month last year. (560 compared to 444.)

What about consumer bankruptcy filings? What has happened so far, and what’s to come?

Consumer Bankruptcy Filings So Far

Since the Great Recession, consumer bankruptcy filings had been declining. They’d topped out at more than 1.5 million filings in 2010, then came down steadily for almost the full decade. Only half as many consumer bankruptcies were filed in 2018, about 751,000. Then in 2019 the number nudged up for the first time since the Great Recession, although just barely. Annual Business and Non­-business Filings by Year (1980­-2019).

So what about the first few months of 2020? The last couple monthly totals are very unusual. After holding steady during January and February, there was a significant uptick in filing in March. Consumer filings increased 12% that month from the prior month (from 53,087 to 59,668). But then in April filings plummeted, dropping 39% (down to 36,161 for the month).

What’s going on? Common sense says that as the reality of the pandemic set it, people who had been on the brink, and/or started getting hit economically, and rushed to file. That accounts for the March increase.

Then when states started shutting down in late March and early April, connecting with a bankruptcy lawyer to start the bankruptcy process became more difficult. Plus the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) passed in late March. People have been waiting to see if the one-time relief payments, and its enhanced unemployment benefits, would help enough. These account for the sharp decrease in April filings.

What’s Happening Soon

In the last 8 weeks 36.5 million Americans filed unemployment claims. Countless others are working less hours and/or for lower pay.

According to one recent poll 77% of laid off workers believe they’ll get their jobs back “after stay-at-home orders are lifted.” That may well be overly optimistic. Millions of businesses face deep financial stress because of the pandemic. Many will not reopen. The health safety changes required by the virus will add costs and reduce income for entire industries. Restaurants, transportation, and retail are obvious examples. Businesses with thin financial margins will either not reopen or will try but won’t succeed. As part of a recent Time magazine article title says, A Flood of Small Business Bankruptcies Likely in Coming Months.

On top of all that, states and local governments are sharply losing tax revenue so job cuts are inevitable.

Even among those who do get back their jobs, those without enough savings will be left with an income hole. Many will need bankruptcy relief.

According to Amy Quackenboss of the American Bankruptcy Institute, “We think business filings will see an uptick in April with consumer filings to surge in May and June.” She said this in early April. She was accurate about the April business filings. She’s likely right about the consumer filing surge as well.

Household Debt Burden

One very reliable indicator of future consumer bankruptcy filings are the amount of household debt and its delinquency rate. Here’s a comparison of these two just before the 2008-09 Great Recession vs. just before the COVID-19 pandemic.

While mortgage and credit card debt is only modestly higher now, vehicle loan debts are up 63% and student loan debt has nearly tripled.

The delinquency rate overall was recently virtually as high as it was just before the Great Recession. Back then that resulted in a doubling and then nearly tripling of consumer bankruptcy filings between 2006 and 2010. The even worse household debt burden and delinquency rate pre-pandemic foretell a similar new surge in bankruptcy filings.

 

New Modified 7-Year Chapter 13 Plans

May 11th, 2020 at 7:00 am

The coronavirus CARES Act temporarily allows ongoing Chapter 13 plans to be amended or “modified” to last a total of 7 years (instead of 5). 

 

Last month we described the changes to bankruptcy law made by the coronavirus CARES Act enacted on March 27, 2020. One of those changes is the ability to extend the length of ongoing Chapter 13 payment plans. Until now these previously-approved plans could last from a usual minimum of 3 years to a maximum of 5 years. That maximum has now been extended to 7 years.

Longer Plans Can Be Very Helpful

Overall, longer Chapter 13 payment plans give you more flexibility. And greater flexibility is one of the main advantages of the Chapter 13 bankruptcy option.

Usually you want to finish your bankruptcy case as soon as possible to get on with life. But often having more time within Chapter 13 can be a huge benefit.

You choose Chapter 13 over Chapter 7 “straight bankruptcy” to meet a specific goal (or two). You’re saving your home from foreclosure, or cramming down a vehicle loan, or paying nondischargeable income taxes. You’re keeping an asset you’d otherwise lose, catching up on child or spousal support, or saving a sole proprietorship business.  

To accomplish these goals you have to pay a certain amount into your Chapter 13 plan over time. Having more time to do so means being able to pay less per month during the plan. This can make the difference between a plan payment that you can’t afford and one that you can. So, having the option of two more years to finish off a payment plan can make the difference between an impossible plan and a feasible one. It’s the difference between an unsuccessful Chapter 13 case and a successful one.

Longer Plans during the Pandemic

This is especially true during this time of the COVID-19 pandemic. If you lost your job or have taken a pay cut while you’re in a Chapter 13 case, you may not be able to make your plan payment at all. Or you may only be able to pay a lower amount.

More time to pay means that you would likely be able to skip some payments if your unemployment is temporary. You would likely be able to reduce the plan payments—either temporarily or from now on—and still finish successfully.

This greater flexibility could well become especially important going forward. That’s because for most of us the pandemic’s financial consequences will likely be playing out for many months. So having this extra two-year cushion to finish your case successfully may become invaluable.

Only Court-Approved Plans Included

However, these new 7-year Chapter 13 payment plans have two strict timing considerations.

First, this 7-year change applies “to any case for which a plan has been confirmed… before the date of enactment of this Act.” Coronavirus Aid, Relief, and Economic Security Act (“CARES”), Section 1113(b)(1)(D(ii). CARES was enacted on March 27, 2020. The “confirming” of a plan is the bankruptcy judge’s formal approval of a plan that you and your bankruptcy lawyer proposed. Confirmation usually occurs at or around the time of your “confirmation hearing.” That’s usually happens about two months after you file your Chapter 13 case.

So to be able to extend your plan up to 7 years you must have had a court-confirmed plan by March 27. Even if you’d filed your case but your plan wasn’t confirmed by that date, you’re limited to the 5-year maximum.

Second, this 7-year provision has a “sunset” clause. It’s deleted from the Bankruptcy Code effective “on the date that is 1 year after the date of enactment.” CARES, Section 1113(b)(2). So assuming you had a confirmed plan before March 27, 2020, you must successfully modify your payment plan by March 26, 2021. Otherwise you’d lose out on this temporary 7-year plan modification option.

The Primary Condition to Meet

The new law says that you can modify a plan if you are “experiencing or [have] experienced a material financial hardship due, directly or indirectly, to the coronavirus disease 2019 (COVID–19) pandemic.” CARES, Section 1113(b)(1)(C). What a “material financial hardship” is, especially one “due… indirectly… to the… pandemic,” isn’t clear. Presumably a job or income loss related in any way to the pandemic should count. Beyond that bankruptcy judges will be making case by case decisions about what circumstances qualify.  

The Usual Other Conditions for Modification Still Apply

The modified plan also must meet the normal set of conditions laid out in Chapter 13 of the Bankruptcy Code. (“Sections 1322(a), 1322(b), 1323(c), and the requirements of section 1325(a) [of the Bankruptcy Code] shall apply to any [such plan] modification… .” CARES, Section 1113(b)(1)(C).) Generally these are the same conditions that you had to meet to get your original plan—or a previous modified plan—approved. Contact with your bankruptcy lawyer about qualifying.

Other Changes May Be Coming

There will very likely be more legislation coming from Congress regarding the pandemic. Some may tweak the Bankruptcy Code further. The 7-year provision may be extended more, such as to new Chapter 13 cases. We will report on any such future changes affecting bankruptcy.

 

Top Things You Should Know About Declaring Bankruptcy

March 12th, 2020 at 3:11 am

TX bankrupcty lawyers, TX chapter 7 lawyersBeing in debt can feel like you are drowning, especially if you are so far into debt that you do not see a way out. Whatever the reason for the extreme amount of debt, there are options that you can consider to help with the debt. For many people, bankruptcy can be the right option to relieve them of most, or even all of their debt. However, filing for bankruptcy is not easy and can actually be quite complicated and confusing. Each bankruptcy case is different, so it is not always simple for you to know what to expect after you declare bankruptcy. Here are a few things you should know if you are considering filing for bankruptcy.

Bankruptcy Does Not Happen Overnight

Some people think of bankruptcy as being similar to small claims court where you usually receive your disposition the same day you attend court. This is not the case. The bankruptcy process is complex and typically lasts at least a few months if you file for a Chapter 7 bankruptcy. If you file for a Chapter 13 bankruptcy, the case is open and ongoing for three to five years, the duration of your repayment plan.

Not Everyone Qualifies for Bankruptcy

Not just anyone can get a bankruptcy. Especially for a Chapter 7 bankruptcy, there are certain requirements that you must meet, such as being below a certain income level and passing the means test. The means test is a way of determining your monthly income and expenses to figure out how much disposable income you have each month.

If You Do Qualify, Not All Debts Are Eligible to Be Discharged

Another misconception that people have is that they will be completely free of debt once they have filed for bankruptcy. This depends on a couple of things. First, it depends on the type of bankruptcy you file and second, it depends on the type of debt you have. Most unsecured debt will be discharged in a Chapter 7 bankruptcy, such as credit card debt. However, student loan debt, federal, state and local taxes, alimony and child support debt cannot be discharged or forgiven in bankruptcy.

Your Bankruptcy Will Affect Your Credit

Though bankruptcy can have a huge effect on your life, perhaps one of the most prominent effects is what bankruptcy does to your credit. After a Chapter 7 bankruptcy is finished, it will be reported on your credit report and will stay there for up to 10 years. Most creditors will shy away from loaning money to someone with bankruptcy, so it may be hard for you to open a credit card, take out a mortgage or buy a car.

A New Braunfels, TX Bankruptcy Attorney Can Help

If you are unsure of whether or not bankruptcy is right for you, you should talk with a skilled San Antonio, TX bankruptcy lawyer. At the Law Offices of Chance M. McGhee, we can help you understand all of your options available to you to manage your debts. We can also help you make the right decision about what is best for you and your family’s situation. To schedule a free consultation, call our office today at 210-342-3400.

 

Sources:

https://www.thebalance.com/top-things-to-know-about-bankruptcy-316198

https://www.thesimpledollar.com/credit/bankruptcy/what-to-expect-when-filing-for-bankruptcy/

 

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210-342-3400

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