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What Not to Do Before Filing for a Texas Bankruptcy

April 26th, 2019 at 2:38 pm

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

Lying or Withholding Information from Your Attorney

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

Acquiring New Debt After You Have Started the Process

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

Giving Money or Property to Your Friends or Family

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

Not Hiring a Skilled New Braunfels, TX Bankruptcy Lawyer

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

 

Sources:

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

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

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

Frequently Asked Questions About Texas Bankruptcy

April 12th, 2019 at 10:11 pm

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

When Should I File For Bankruptcy?

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

Which Type of Bankruptcy Is Right For Me?

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

How Will a Bankruptcy Affect My Credit Score?

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

A New Braunfels, TX Bankruptcy Attorney Can Help

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

 

Sources:

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

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

Creditor Not Listed But Knows about Your Case

April 8th, 2019 at 7:00 am

Usually if you don’t list a debt, it doesn’t get discharged.  An exception is if the creditor still learns about your case, on time. 

 

Last week’s blog post was about the importance of listing all debts in a bankruptcy case to write them off. Debts “neither listed nor scheduled” in the bankruptcy documents are not discharged (legally written off). Section 523(a)(3) of the Bankruptcy Code.

Special Scenarios

This rule raises a number of practical questions. Here are some common situations:

  1. You don’t list a debt but the creditor finds out about your bankruptcy some other way.
  2. Your debt has been sold or assigned to a collection agency without your knowledge
  3. You don’t have good records of your debts and you may not know some of their names and addresses.

Today we address the first of these.

Creditor Knows About Your Bankruptcy Case

If you don’t list a debt it’s still covered by your bankruptcy case if that creditor knows about the case. The Bankruptcy Code says a debt is not discharged “unless such creditor had notice or actual knowledge of the case.”  Section 523(a)(3)(A) and (B)

This doesn’t mean that you can avoid listing a creditor on your debt schedules because you know it will find out about your case some other way.

First, what if the creditor doesn’t actually find out or claims that it didn’t? You could end up owing the debt. It’s much safer to list the debt in your bankruptcy documents.

Second, you are required to list all your debts. Bankruptcy is not just about you and that one creditor.  If you want the benefits of bankruptcy you must play by the rules, which include listing all your debts.

If you have any reason for not wanting to list a debt, talk with your bankruptcy lawyer. There is usually a workable solution to your concerns.

Must Know about Your Case “In Time”

There’s an important condition to this “notice or actual knowledge” exception. Your creditor needs to learn about your case in time to participate in it.

So what’s the deadline for your creditor to learn about your case if you don’t list its debt?

There are 3 possible different deadlines for 3 different kinds of cases.

1. Proof of Claim Deadline

First, some bankruptcy cases give creditors the opportunity to file a “proof of claim.” That’s a document a creditor files at bankruptcy court documenting what it believes you owe. In Chapter 13 “adjustment of debts” cases creditors file proofs of claim to receive any money through your payment plan. In “straight bankruptcy” Chapter 7 “asset” cases creditors file proofs of claim to possibly share in the liquidation of any non-exempt (unprotected) assets. In these cases the bankruptcy court mails out a formal notice giving a strict deadline to file proofs of claim. 

In these cases your unlisted creditor must learn about your case in time to be able to file a proof of claim. Section 523(a)(3)(A).

2.  Creditor Objection Deadline

Second, sometimes a creditor has grounds to object to the discharge of its debt on the basis of your fraud or similar bad action in the incurring of the debt. This can happen in either a Chapter 7 or Chapter 13 case.  In all cases the bankruptcy court mails creditors a notice of the strict deadline to file an objection. 

In these cases your creditor must learn about your case in time to be able to file such an objection. Section 523(a)(3)(B).

3. Possibly No Deadline

Third, in other bankruptcy cases neither of the two situations above applies. In fact that covers most Chapter 7 cases. Most have no assets to distribute because everything the debtor owns is exempt, or protected. The case is a “no asset” case. With nothing to distribute, the court does not ask creditors to file proofs of claim. So there’s no deadline to do so. Also, most creditors have no grounds based on fraud or similar bad actions to object to the discharge of its debt. So any deadline to file such an objection doesn’t apply. So what’s the deadline for an unlisted creditor to learn about your case so that its debt is discharged?

In some parts of the country there is essentially no deadline in these kinds of cases. If you find out at any time about a debt you didn’t list in a “no asset” Chapter 7 case, you or your lawyer may be able to simply inform the creditor and the debt is covered in your case. The debt is then included in the discharge of debts that you received in your case. That may be true even if your case is already completed.

But because the statute does not directly address this situation, your local court may interpret it differently. You might still owe the debt because you didn’t give the creditor notice about your bankruptcy. Again, talk with your bankruptcy lawyer as soon as you learn about a debt that you forgot to include for advice about your specific options.

 

Things You Should Know Before You File for Bankruptcy

March 29th, 2019 at 4:18 pm

bankruptcy-filingMost Americans have some form of debt — mortgages, credit card debt, student loans, auto loans, and personal loans are all part of consumer debt and most Americans have a combination of them. For many people, the debt can be handled through smart budgeting and curbed spending, but some people need to use other measures. Bankruptcy is used when people can no longer pay their debt and offers a way for those in debt to get a fresh start. The decision to file for bankruptcy is a difficult one, especially since bankruptcy laws are so complex. Here are a few things you should know before you file for bankruptcy:

There Is More Than One Kind of Bankruptcy

For individuals, there are two different types of bankruptcies — Chapter 7 and Chapter 13. A Chapter 7 bankruptcy is the type that most people associate the word bankruptcy with. In Chapter 7 bankruptcy, most of your unsecured debts can be discharged, meaning you will no longer be responsible for paying them back. In a Chapter 13 bankruptcy, you set up a repayment plan that allows you to repay your debts over three to five years. The kind you choose largely depends on your specific circumstances.

Bankruptcy Is Not Free

Though it may seem counterintuitive, filing for bankruptcy is not free. It can actually become quite expensive. Filing for bankruptcy can cost between a couple of hundred to a couple of thousands of dollars, depending on whether or not you hire an attorney and how much the filing fees end up costing.

Your Credit Will Be Affected

 

Once you have filed for bankruptcy and your case is finished, you will have to begin the process of rebuilding your credit. Getting a bankruptcy does make your credit score drop, but it does not really matter whether or not you go into the bankruptcy with a high or a low credit score. Most people end up around the same score range after they are done with bankruptcies.

A Kerrville, TX Bankruptcy Attorney Can Help

It can be difficult to make the decision to file for bankruptcy. Some people feel like bankruptcy is a failure, but in reality, it can be the best decision some people make. If you are thinking that bankruptcy may be right for you, you need to talk to an experienced New Braunfels, TX bankruptcy lawyer. Understanding what you are getting yourself into before you file for bankruptcy is crucial, which is why the Law Offices of Chance M. McGhee are here. We can help you figure out which type of bankruptcy is right for you and the most strategic plan to benefit you. Call our office today at 210-342-3400 to schedule a free consultation.

 

Sources:

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

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

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

https://www.forbes.com/sites/larrymyler/2017/10/03/filing-for-bankruptcy-3-most-important-things-you-need-to-know/#611876127fe6

Exploring Federal and Texas Bankruptcy Exemptions

March 15th, 2019 at 4:27 pm

TX bankruptcy attorneyFor some people, filing for bankruptcy can be a scary thing. In the beginning, you may not know what the future has in store for you and you may wonder which of your possessions you are allowed to keep and which possessions you must give up. Exemptions are an important part of the bankruptcy process. In a bankruptcy case, exemptions are the possessions that you get to keep after you have liquidated your luxury assets to help pay back a portion of your debts. Each state has its own guidelines for what property is exempt during a bankruptcy. In 17 states, including the state of Texas, you are able to choose between state exemption guidelines or federal guidelines, but you must choose one or the other. It is important to understand bankruptcy exemptions because they do differ.

Federal Exemptions

The exemptions that are listed here are the exemption amounts for each individual bankruptcy filer. That means if both you and your spouse are filing for bankruptcy, you can double the amounts. Here is a list of the current federal exemption amounts for each individual filer:

  • Homestead Exemption: Up to $22,675 in equity for a primary residence;
  • Motor Vehicle: $3,775 for one vehicle per filer;
  • Jewelry: Up to $1,600 in jewelry, not including wedding rings;
  • Household Goods: A total of $12,625, but with no item valued more than $600 can be exempted. Household goods include clothing, furniture, appliances, linens, kitchenware, and personal effects;
  • Tools of the Trade: Up to $2,375 for items you use for work;
  • Domestic Maintenance: An amount reasonably necessary for support
  • Social Security, Unemployment, Veteran’s Benefits, Public Assistance, Disability: Exempt without regard to the value;
  • Personal Injury Awards: Up to $23,675, not including pain and suffering or actual pecuniary damages or loss of future earning capacity;
  • Retirement Accounts: Tax exempt retirement accounts are exempt, but IRAs and Roth IRAs are capped at $1,283,025; and
  • Wildcard Exemption: You may also exempt up to $1,250 of any property, plus $11,850 of any unused homestead exemption.

Texas Exemptions

The state exemptions in Texas are slightly different than the federal exemptions. Here is a list of exemptions you receive if you choose to follow state bankruptcy exemptions, rather than federal exemptions:

  • Homestead Exemption: You are permitted to exempt equity in your primary residence as long as that residence does not span more than 10 acres in a city, town or village, or 100 acres elsewhere;
  • Personal Property: If you are single, you can exempt personal property up to $50,000 in value. If you have a spouse, you are permitted to exempt up to $100,000 in personal property;
  • Motor Vehicle: You are allowed to exempt one motor vehicle per household member who has a driver’s license;
  • Pensions and Retirement Accounts: Most tax-exempt pensions and retirement accounts are exempt under Texas law. These can include government employee pensions and retirement accounts, IRAs and Roth IRAs, teacher’s retirement and pension benefits and law enforcement pension and retirement benefits.

Contact a New Braunfels, TX Bankruptcy Attorney Today

Many people who decide to file for bankruptcy do so because it is their last option for debt relief. While filing for bankruptcy can cause you to have to liquidate some of your non-necessary assets, you will not lose everything. At the Law Offices of Chance M. McGhee, we understand that filing for bankruptcy can be a hard decision, but we can help you throughout the entire process. Our skilled Boerne bankruptcy lawyers can help you understand the difference between federal and Texas state exemptions and choose the exemptions that would best benefit you. Call our office today at 210-342-3400 to schedule a free consultation.

 

Sources:

https://www.law.cornell.edu/uscode/text/11/522

https://statutes.capitol.texas.gov/Docs/PR/pdf/PR.41.pdf

https://statutes.capitol.texas.gov/Docs/PR/pdf/PR.42.pdf

What Life Is Really Like After a Texas Bankruptcy

December 21st, 2018 at 6:36 pm

TX bankruptcy lawyer, TX chapter 7 attorney, Coming to the decision that a bankruptcy is your best option was probably not an easy journey. Bankruptcies still tend to have a negative stigma in today’s world, but for some people, it’s the best thing they could have done for themselves. Most people know what goes on when you are filing for bankruptcy and what that means, but what happens after a bankruptcy is often lost in the shuffle. Many people have their ideas of what life after bankruptcy is like, but those ideas are often muddled with unrealistic expectations. What really happens after a bankruptcy can change depending on your situation, but ultimately, your actions have a lot to do with it.

You Might Have to Change Your Lifestyle

The type of bankruptcy that you file for will have a lot of bearing on your lifestyle after you have completed your bankruptcy. In a Chapter 13 bankruptcy, you will be required to pay some or all of your debts with a repayment plan over three or five years. This means that you will have less expendable income and will have to devote more of your money to pay off debt. If you filed for a Chapter 7 bankruptcy, the majority of your debts will be forgiven, but that does not mean you can take up a frivolous lifestyle. You should be wary of spending too much money on unneeded items at your bankruptcy, no matter the kind.

You Will Probably Have a Hard Time Getting Credit or Loans

To lenders, a bankruptcy signals that they might not get their money back if they lend it to you. After you have gone through a bankruptcy, you will most likely be seen as a high-risk borrower, meaning that many banks and lenders will not even consider loaning money to you. The lenders who do consider allowing you to borrow money will often charge you very high-interest rates in order to make up for the high-risk factor.

You Should Start to Build a Savings Account

Opening and maintaining a savings account is an easy way to begin making your financial picture a healthier one. Even just putting away $5 or $10 a week can make a difference, especially if you have not had a savings account before. Having a little bit of money set aside for emergencies is always a good idea.

Our Boerne Bankruptcy Attorney Can Help Set You Up for Success

Many people come into bankruptcy expecting things to be a certain way after everything is said and done. Like many things, life after bankruptcy is not always what it seems. At the Law Offices of Chance M. McGhee, we can help guide you throughout your bankruptcy process. Our experienced New Braunfels bankruptcy lawyers will make sure the decisions you are making are in your best interest and beneficial fpr you. To schedule a free consultation, call our office today at 210-342-3400.

 

Sources:

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

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

An Example Why Passing the Means Test May Be Easier in 2018

November 19th, 2018 at 8:00 am

Filing bankruptcy before the end of December may help you qualify for Chapter 7 bankruptcy. Here’s an example showing how this could work.  

 

The month of December is the month that people receive more income than any other month of the year. According to the federal Bureau of Economic Analysis (part of the U.S. Department of Commerce), for at least the past 9 years (2009 through 2017) U.S. personal income was the highest in December than in any other calendar month.

This may well be true for you personally. You may work a part-time seasonal job this time of year to help make ends meet. You may be getting a few larger paychecks because of more work hours or overtime. Or you may be fortunate enough to get a holiday or year-end bonus.

Last week’s blog post explained how filing bankruptcy during December can be smart if you receive extra income that month. It can help you qualify for Chapter 7, and avoid being forced into a 3-to-5-year Chapter 13 case. Today we lay out an example to show how this would work.

The Example

Let’s assume that the median income amount for your family size in your state is $64,577.

(That’s the current amount for a family of 3 in Kentucky. You can find the median income amount applicable to you on this chart. It’s from the means testing webpage of the U.S. Trustee Program. The chart is current for bankruptcies filed starting November 1, 2018, and is updated about three times a year.)

Assume that your regular family monthly gross income is $5,000, which would give you an annual income of $60,000. That’s less the median income amount of $64,577 provided above. So you’d think that you’d easily pass the means test.

But let’s also assume that you and/or your spouse were to receive an extra $2,500 during December. This money could be from a seasonal job, overtime, a bonus, or just about any other source.

Filing Bankruptcy During December

What would happen here if you filed a Chapter 7 bankruptcy case during December? The income that would count for the means test would be what you received during the six full calendar months before the date of filing. You don’t count anything received in December; only income during June through November counts.  That would be 6 months of $5,000, or $30,000; multiply that by two for an annual income of $60,000.  

Since $60,000 is less than the $64,577 applicable median family income amount, you’d handily pass the means test. You’d qualify to file a Chapter 7 case.

Waiting to File Bankruptcy After December

If instead you tried to file a Chapter 7 case in January, your income under the means test would be higher. The pertinent 6-month full calendar month period would now be from last July through December.  On top of the usual $5,000 income for 6 months—$30,000—you’d add the extra $2,500 money received in December. So the 6-month total would be $32,500. Multiply that by two for an annual income of $65,000.

Since $65,000 is more than the $64,577 applicable median family income amount you’d not immediately pass the means test. You may not qualify for filing a Chapter 7 case. Instead of likely being able to discharge (legally write off) many or possibly all of your debts within about 4 months you may be forced to pay on them for 3 to 5 years in a Chapter 13 case.

Having Income More Than Median Family Income

Even in this scenario of too much income, there’s a chance you could still pass the means test and qualify for Chapter 7. You’d complete the very complicated 9-page Chapter 7 Means Test Calculation form. Then if your “allowed expense deductions” leave you with too low of “monthly disposable income” you’d still pass the means test. (Whether your “monthly disposable income” is low enough turns on a formula comparing that amount to the amount of your “total nonpriority unsecured debt.”) Or you might also qualify for Chapter 7 by having expenses that qualify under “special circumstances.”

But these alternative ways of trying to qualify for Chapter 7 are much riskier than simply having less income than your applicable median family income amount. Our example above shows how to accomplish this with smart timing. You may be able to do the same by simply filing your case in December, or in whatever month would be most favorable for you.

 

What Is a “Means Test” and How Does It Affect Bankruptcy?

November 15th, 2018 at 9:01 pm

Texas bankrutpcy lawyerThere are not very many requirements when it comes to filing for bankruptcy in the United States. The requirements differ depending on what kind of bankruptcy you are filing for: Chapter 7 or Chapter 13. Both types of bankruptcies will affect your finances, but a Chapter 7 bankruptcy forgives all of your debt, while a Chapter 13 bankruptcy creates a repayment plan for three or five years. Because of this, it can be harder to obtain a Chapter 7 bankruptcy because the requirements are a bit more strict. One of the ways it is determined if you are eligible for a Chapter 7 bankruptcy is by using a “means test,” which basically determines whether or not you can afford to pay back your debts.

Part One: Calculating Your Income

This part of the means test is basically looking at your income to determine whether or not your household’s income is below your state’s median level. This is accomplished by filling out all of the required forms. The court will look at your total household income and compare it to the median household income for the size of your family. For bankruptcy cases filed in Texas after November 1, 2018, the median income for a family of four people is $81,958. The means test is based on the past six months, but it also takes into consideration recent or upcoming changes, like a job loss.

Part Two: Calculating Your Debt

Next, you will be required to disclose your allowable expenses, which can be things such as rent, groceries, clothing, medical costs, car payments, and other things. The court will look at your income versus your allowable expenses and determine whether or not there is anything left over at the end of the month that could be put toward paying off your debt. You must disclose all of your expenses and the amounts for them, or your case could be dismissed.

What Now?

If you pass the means test, you qualify to file a Chapter 7 bankruptcy. If you fail the means test, you still may be allowed to proceed with a Chapter 7 bankruptcy, but your best option might be a Chapter 13 bankruptcy, which helps you develop a repayment plan to pay back your debts over three to five years.. If you still want to proceed with a Chapter 7 bankruptcy, you can wait another six months to see if your financial situation will pass the test.

Get in Touch With a New Braunfels Bankruptcy Attorney

Though DIY is all the rage these days, a bankruptcy is not something that you want to attempt to do yourself. If you are thinking of filing for bankruptcy, you need to contact a skilled Kerrville bankruptcy lawyer. Bankruptcy can be confusing, but the Law Offices of Chance M. McGhee is here to help. Contact us to get help with your entire bankruptcy process. Do not go it alone – call the office today at 210-342-3400 to set up a consultation.

 

Sources:

https://www.nerdwallet.com/blog/finance/bankruptcy-means-test/

https://www.thebalance.com/the-means-test-overcoming-the-presumption-of-abuse-316358

Which Bankruptcy Option Eliminates All Debt?

September 30th, 2018 at 5:39 pm

debtOne enticing benefit to filing for bankruptcy is the ability to discharge debts, enabling a fresh financial start. The United States bankruptcy code was created to allow honest debtors to free themselves from insurmountable debt; however there are various limitations. Unfortunately, these limitations restrict which debts become eliminated, reduced, or remain the same. Therefore, regardless of whether you file for Chapter 7 or Chapter 13 bankruptcy, some outstanding debts are untouchable.

Which Debts Are Eliminated?

Which debts discharge relies heavily on the type of bankruptcy filed by the consumer. Chapter 13 bankruptcy does not eliminate any debt initially, yet restructures the current sums into an affordable repayment plan. This repayment plan typically lasts three to five years, at the end of which any eligible debts are discharged. When you file for Chapter 7 bankruptcy, any unsecured loans become eliminated immediately. In some instances, unsecured debts make up all of the financial burdens. These debts include:

  • Credit card debt;
  • Personal loans;
  • Medical bills;
  • Payday loans;
  • Older tax debts;
  • Utility bills; and
  • Second mortgages.

Secured Debts Are Non-dischargeable

Chapter 7 bankruptcy does provide significant relief regarding secured, non-dischargeable debts, aside from freeing up a portion of the budget to make regular payments. Alternatively, Chapter 13 includes all financial liabilities in the repayment plan, including secured loans. Non-dischargeable debts include:

  • Taxes within the last three years;
  • Child support payments;
  • Alimony or spousal support obligations;
  • Student loans;
  • Traffic ticket fines;
  • Criminal restitution; and
  • Secured debt on a home or car you plan to keep.

Contact an Attorney

These guidelines are general statements intended to help you determine if bankruptcy may help your situation. Each consumer bankruptcy case depends on a variety of individual factors. Therefore, if you think bankruptcy is right for you, you should discuss your unique circumstances with a proven Boerne bankruptcy attorney. Contact the Law Offices of Chance M. McGhee for a free case review today by calling 210-342-3400. Our experienced team will assess the details of your case and provide honest feedback about the best course of action for your financial future.

 

Sources:

http://www.uscourts.gov/services-forms/bankruptcy

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

 

The Surprising Benefits: Saving Your Vehicle through Bankruptcy

September 17th, 2018 at 7:00 am

Bankruptcy can get you out of the dilemma that a vehicle loan can put you in. Chapter 7 works if you can afford the loan payments afterwards.  


Here’s the Problem

You’re paying on a car or truck. You absolutely need this vehicle for getting to work, and to keep your life going. You can’t do without it.

But you’re having trouble keeping up on the loan payments. You owe lots of other debts, so keeping current on the vehicle loan is a big challenge. It’s a big stressor every month.

On top of that there’s a good chance that you owe more on your vehicle than it is worth. You know that if you somehow found other reliable transportation and surrendered your present vehicle—or if it was repossessed—you could easily still owe thousands of dollars of “deficiency balance.” That’s the amount you would owe on the loan after the surrender or repossession.

The amount you’d owe would very likely be much more than you expect. That’s because repossessed vehicles are usually sold at auto auctions, resulting in less credit to your account than you’d expect. Plus the costs of repossession/surrender and sale, and late charges and such would all be added to the balance. So giving up the vehicle doesn’t seem to make any sense.

As a result you feel stuck. You really need the vehicle but you can’t afford pay for it. And even if you could somehow do without it, you’d likely still owe thousands of dollars from letting it go.

Chapter 7 Regular Bankruptcy Gives Limited Help

Chapter 7 bankruptcy accomplishes two things regarding your vehicle loan. First, if you want to keep the vehicle, Chapter 7 would likely get rid of most of your other debts. Maybe then you could afford the vehicle payments. Or second, if you surrendered the vehicle, Chapter 7 would likely discharge (legally write off) the deficiency balance. If you had a way to get another reliable vehicle, or could do without, this might solve your problem.

What Chapter 7 doesn’t do is give you the power to change the terms of your vehicle loan. It’s “take it or leave it.” If you want to keep your vehicle, you’re virtually always stuck with the contract terms. That includes the monthly payment amount, the interest rate, etc.

Plus, you’re almost always required to “reaffirm” the debt. This legally excludes the vehicle loan from the discharge of your debts. You continue to owe it in full in exchange for keeping the vehicle.

This is economically risky. You’re paying for something that isn’t worth what you’re paying. And if you later surrender the vehicle or it’s repossessed, you would owe a deficiency balance. You’d owe it in spite of your prior Chapter 7 case because you reaffirmed the debt.

If You’re Behind on Your Vehicle Loan, or on Insurance

It’s worse if you aren’t current on your loan payments at the time of your Chapter 7 bankruptcy filing. Almost always your vehicle lender would require you to quickly catch up—within a month or two of filing. This would be on top of keeping current on the ongoing monthly payments. Or else you’d lose the vehicle in spite of filing bankruptcy.

If you’ve also let your insurance lapse, it’s even more problematic.  Your lender knows how dangerous lack of insurance is for itself, so it would “force-place” insurance on your vehicle. Your contract almost certainly allows it to do this. Force-placed insurance tends to be very expensive while at the same time provides you very little coverage. Under Chapter 7 you would likely have to pay for any such insurance, plus reinstate your own insurance. And you’d likely have to do this very quickly, not long after filing your Chapter 7 case.  

Chapter 13 Can Solve These Problems

Chapter 13 “adjustment of debts” can solve these problems that Chapter 7 can’t.

First, Chapter 13 can buy you much more time. A Chapter 13 payment plan would likely give you much more time to catch up on any missed loan payments. It would also likely give you lots more time to pay for any force-placed insurance.

Second, if you qualify for “cramdown” you would likely pay less on the vehicle loan—possibly much less. Cramdown is an informal term for the Chapter 13 procedure for legally re-writing the loan in situations in which the vehicle is worth less than you owe. With cramdown you could both pay less monthly and pay less overall before the vehicle became yours free and clear. And if you’re behind on loan payments, you would not need to catch up at all on any of those missed payments.

Next week we’ll tell you how Chapter 13 could both buy you time and save you money on your vehicle loan(s).

 

Call today for a FREE Consultation

210-342-3400

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