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Archive for the ‘discharge order’ tag

Writing Off Debts with Bankruptcy

February 11th, 2019 at 8:00 am

Bankruptcy is about writing off or “discharging” debts. The timing of discharge is quite different in Chapter 7 and 13; both are permanent.  


The main goal of most consumer bankruptcy cases is to get a fresh financial start through writing off debts.  In bankruptcy the legal term for write-off is “discharge.”

In virtually all successful Chapter 7 “straight bankruptcy” and Chapter 13 “adjustment of debts” cases there will be a discharge of some or all of your debt.

In Chapter 7

People file Chapter 7 cases mostly to get a quick discharge of their debts. That is, the discharge of those debts that can be discharged, and that they want discharged.

Most debts qualify for discharge. We’ll dig into those that don’t next week.  In the meantime Section 523 of the U.S. Bankruptcy Code covers “Exceptions to discharge.”

You may not want to discharge certain select debts that are secured by something you want to keep. Possible examples are your vehicle loan and home mortgage. You may want to formally “reaffirm” such debts—agree to continue to be liable in return for keeping the collateral. See Section 524(c) of the Bankruptcy Code. You definitely want to discuss thoroughly whether you should reaffirm any of your debts with your bankruptcy lawyer.

The big benefit of Chapter 7 is speed. Most cases finish within 4 months of filing, and do so with a court order discharging your debts. Rarely, the debtor has to give up some asset(s) to get the discharge. Here is an official Chapter 7 Order of Discharge that would come at the end of the case.

In Chapter 13

The road to discharge is much longer under Chapter 13. Plus most, though not all, cases require paying something to your creditors before discharge.

Whether and how much you pay depends on a bunch of circumstances. Chapter 13 involves proposing and getting bankruptcy court approval of an official plan of payments. That plan usually gives you 3 to 5 years to do what you need to do. Often that includes paying special debts such as “secured” and “priority” ones that handles for you much better than under Chapter 7. The “general unsecured” debts usually only get paid any money that’s left over. (See our last blog post for descriptions of these 3 main categories of debt.)

Only after your successful completion of this payment plan do you get a discharge of all or most of your remaining debts. Here is an official Chapter 13 Order of Discharge that would come at the end of the case.

What Is the Exact Legal Effect of the Discharge of Debts?

If you look at either the Chapter 7 or Chapter 13 Order of Discharge linked to above you’ll notice in both the pertinent language is extremely short and sweet:

IT IS ORDERED: A discharge under [the pertinent section of the Bankruptcy Code] is granted to [the debtor].

The legal effect of this discharge is described in Section 524(a)(2) of the Bankruptcy Code as follows:

“A discharge… operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor…  .”

What does this mean? There’s a short Explanation of Bankruptcy Discharge in the two Orders of Discharge linked to above, with both containing the following language:

Creditors cannot collect discharged debts

This order means that no one may make any attempt to collect a discharged debt from the debtors personally. For example, creditors cannot sue, garnish wages, assert a deficiency, or otherwise try to collect from the debtors personally on discharged debts. Creditors cannot contact the debtors by mail, phone, or otherwise in any attempt to collect the debt personally. Creditors who violate this order can be required to pay debtors damages and attorney’s fees.

The discharge court order is permanent, and the injunction that flows from it is permanent. Because of the penalties, most creditors are careful to comply. If you have any indication that any of your creditors is not complying, tell your bankruptcy lawyer.

 

Our next blog post will get into the special kinds of debts that may not get discharged.

Suing a Creditor in Bankruptcy

March 10th, 2017 at 8:00 am

Sue a creditor to confirm that a debt will be discharged, or to punish the creditor for violating the automatic stay or the discharge order. 

 

Last time we got into the advantages of using bankruptcy court to sue your creditor. Some of the advantages are:

  • The issues that can be raised by a debtor in bankruptcy court are narrow. This makes for simpler litigation, and a less expense way to resolve a dispute. That’s crucial when money’s tight.
  • Bankruptcy court is usually much faster and more efficient than state courts. This saves you both aggravation and money.
  • You already have your bankruptcy attorney in your corner, familiar with you and your circumstances, and likely very experienced in the narrow legal issue in dispute.

So what are the specific issues that you can sue a creditor for in bankruptcy court? We introduce three of the main ones today.

1) Discharging a Questionable Debt

Most debts are clearly either discharged—legally written off in bankruptcy—or they are not. A medical debt is virtually always dischargeable. A criminal fine is never.

But sometimes it’s not so clear, for one of two sets of reasons.

First, sometimes it’s not clear whether the debt in question fits that category of not dischargeable debts.

In our last blog post we gave an example of a dispute about spousal support. Genuine spousal support is never discharged in bankruptcy. Neither is a debt that the divorce court may not call spousal support but might be considered “in the nature of support.” (See Section 101(14A)(B) of the U.S. Bankruptcy Code.) But property settlement debts can be discharged under Chapter 13. Our recent example referred to a debtor’s obligation in a divorce to sign over a vehicle to the ex-spouse in return for a reduction in support payments for one year. Would that obligation to sign over the vehicle be “in the nature of support” or not? It may be worth getting your bankruptcy court to decide that it is not, so that the obligation can be discharged and you can keep the vehicle.

Second, and much more common, there are certain kinds of debts that may or may not be discharged depending on the circumstances. Income taxes are a good example. An income tax debt can be discharge just like any straightforward debt under certain circumstances. Most of those circumstances are relatively easy to determine if they apply, dealing with fixed events like how long ago the pertinent tax return was filed. But they can involve more ambiguous considerations such as whether the taxpayer “willfully attempted in any manner to evade or defeat such tax.” (Section 523(a)(1)(C).) It may be worth litigating that to discharge a large tax debt.

2) Punishing a Creditor for Violating the Automatic Stay

The automatic stay is one of the most immediate and important benefits of filing bankruptcy. It’s the law that stops creditors from pursuing you and your assets the moment you file. (See Section 362.) It lets you catch your breath, and protects you throughout your case. The automatic stay enables the bankruptcy process to work by making everyone play by the same rules.

Creditors generally respect the automatic stay and comply with it. That’s in part because they can be punished quite strongly if they don’t. (Section 362(k).) Every once in a while a creditor keeps garnishing wages or takes some other action in spite of knowing about your bankruptcy case.

If you get harmed by such illegal behavior you can sue the creditor for violating the automatic stay. Your overly aggressive creditor may not only have to pay back your damages. It would likely have to pay your lawyer’s fees in this “adversary proceeding.” It may have to pay you significant “punitive damages” to punish it for its illegal action. The bankruptcy system relies on creditors’ compliance with the law and sometimes has to slap them into playing fair.

If a creditor takes any collection action against you after you file your case, immediately tell your bankruptcy lawyer. You may end up benefitting from your creditors misdeeds.

3) Punishing a Creditor for Violating the Discharge

Similarly, creditors usually, but not absolutely always, comply with the discharge of your debts. That is the court order at the end of your Chapter 7 or Chapter 13 case stating that your debts are discharged—forever legally gone. Among other things the discharge

operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor

(Section 524(a)(2).)

Naturally, it’s illegal for creditors to pursue you for a debt after it’s been discharged. Most never do. But there are some unscrupulous collection companies that do, often many years later. This is not something to lose sleep about because most people aren’t affected. But it’s something to keep in the back of your mind as you regularly monitor your credit reports in the years after you finish your bankruptcy case.

 

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210-342-3400

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