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When Should I Delay Filing for Bankruptcy?
Declaring bankruptcy can get you out of a less-than-favorable financial situation when you are in need, but your circumstances will dictate which type of bankruptcy you are eligible for and how much the bankruptcy will help you. Once you have figured out that you want to file for bankruptcy, you must then determine when your most opportune time to file is. In certain situations, you may want to delay filing for bankruptcy. Delaying your bankruptcy can sometimes allow you to keep more of your money, protect a friend or family member’s money or even increase your chances of qualifying for a Chapter 7 bankruptcy. Here are a few situations in which you may want to consider delaying filing for bankruptcy.
You Paid Money Owed to a Family Member Too Close to Filing
If you pay certain creditors $600 or more prior to receiving a discharge, your bankruptcy trustee could demand the money back from the creditor. This is called a preference because you have put that creditor in a better position than your other creditors. The preference period for most creditors is 90 days prior to filing for bankruptcy. For "insiders," such as friends or family members, the preference period is one year prior to filing for bankruptcy.
Additional Charges and Curing Your Mortgage Arrearage
Resolve disputes with your lender in Chapter 13 about 1) additional fees and charges, and 2) whether you’ve cured the mortgage arrearage.
Last week we described a Chapter 13 procedure to force mortgage lenders to resolve mortgage accounting disputes. This procedure focuses on changes to the monthly mortgage payment amount during the case. These are often just the normal contractually mandated changes arising from adjustments to the mortgage interest rate, and in property taxes and homeowners’ insurance. You and your lender need to be on the same page on the monthly amount so that you can stay current. Because of the importance of this, Rule 3002.1 of the Federal Rules of Bankruptcy Procedure provides an enforceable way within Chapter 13 for you to timely learn about mortgage payment changes and to efficiently resolve any related disputes.
This Rule also addresses two other practical problems about mortgage accounting:
Bankruptcy Stops a Property Tax Foreclosure
Bankruptcy can help if you’re behind on real estate taxes. Chapter 7 by getting rid of other debts, Chapter 13 by buying you lots more time.
Bankruptcy Stops a Property Tax Foreclosure
Filing either a Chapter 7 "straight bankruptcy" or a Chapter 13 "adjustment of debts" stops a foreclosure by your property tax authority.
Filing bankruptcy stops most forms of debt collection through the "automatic stay." In particular the automatic stay stops "any act to... enforce any lien against property of the [bankruptcy] estate" Section 362(a)(4) of the U.S. Bankruptcy Code. The bankruptcy "estate" includes all assets that you own when you file your bankruptcy case. It includes your home.
A tax authority’s foreclosure for property taxes is the enforcement of the property tax lien. That foreclosure becomes illegal as soon as your bankruptcy filing imposes the automatic stay.
Protecting Future Home Equity through Chapter 7
Protecting present home equity is a sensible focus when considering bankruptcy. Protecting future potential equity can be even more important.
Our last blog posts discussed how to protect the equity currently in your home through the homestead exemption. We discussed property exemptions in bankruptcy in general, and federal and state homestead exemptions in particular. Overall we showed how your homestead exemption can preserve the equity you presently have through a Chapter 7 case.
We mentioned that you can also protect your future home equity through these same tools, but we didn’t describe how. This is worth more attention.
Future Home Equity
Chapter 7 bankruptcy fixates on the present. It deals with debts you have at the moment your lawyer files the Chapter 7 case at the bankruptcy court. In particular, Chapter 7 usually is not interested in new assets you acquire after the date of filing, For example, the money you earn when you go to work the day after filing is outside bankruptcy jurisdiction. Again, for most purposes bankruptcy looks only at what you own on the date of filing.
Can My Texas Bankruptcy Discharge Be Denied?
One of the last things that happens in the bankruptcy process is having your debts officially discharged, or forgiven. In other words, a discharge is the official release that you get when you are no longer personally liable for specific debts after you file for bankruptcy. A discharge requires all creditors to permanently stop any collection action against discharged debts, including legal action and phone calls or letters sent to your home. Discharge is the main goal of most people who file for bankruptcy, but is there is a possibility that your discharge could be denied?
Reasons for a Discharge Denial
Most of the time, a person who files for a Chapter 7 or Chapter 13 bankruptcy will have his or her case end with a discharge. In some cases, however, you can receive a denial for your discharge, which can be both stressful and debilitating to some. Here are a few reasons why your discharge may be denied:
An Example of Money Saved through Vehicle Loan Cramdown
Here’s an example of vehicle loan cramdown that shows how you can reduce your vehicle payments and be free and clear after paying less.
Our last 3 blog posts have been about Chapter 13 cramdown of a vehicle loan. Cramdown can reduce your loan’s monthly payments, its interest rate, and the total you pay for your vehicle. Often you end up saving a lot both monthly and on the total paid.
The last three blog posts introduced how cramdown works, how to qualify for it, and how you don’t have to catch up on late payments. But like anything, explaining a bunch of rules only goes so far. Showing how the rules actually get applied can be the best way to make sense of a complicated concept like cramdown. A good example is like a picture: it’s worth a thousand words.
So today, how does cramdown work in real life?
The Facts of Our Example
Let’s say you are a payment behind on your vehicle loan. You’re about to miss a second payment, and you’re feeling desperate. You have made making your vehicle payments a priority but you have other debts that are putting intense pressure on you. Your vehicle is absolutely essential in your life so you know you have to do something.
Cramdown Your Vehicle Loan if Behind on Payments
Vehicle loan cramdown doesn’t just likely reduce your vehicle payments and the total you pay. You’d also not have to catch up on late payments.
Our last two blog posts have been about lowering monthly vehicle loan payments through Chapter 13 cramdown. This also often reduces the total that you pay on the loan until your vehicle is free and clear. Cramdown often even reduces the interest rate you pay. So it usually saves you money both every month and long term.
If you’re behind on your payments there’s an even more immediate benefit. If you qualify for cramdown, you don’t have to catch up on any late payments. This frees up the money immediately for other urgent needs. This is a huge monetary benefit at a time when your cash is likely extremely tight.
On top of this financial benefit, you get the peace of mind that your vehicle won’t be repossessed. Vehicle lenders can be quick to repossess when you fall behind, especially if your payment history has been spotty. It’s great to prevent a repossession, and then not have to scramble to catch up on the missed payments.
Qualifying for a Vehicle Loan Cramdown
To qualify for a Chapter 13 vehicle loan cramdown, mostly your loan must be at least two and a half years old. There are exceptions to this.
Last week’s blog post was about lowering monthly vehicle loan payments through Chapter 13 cramdown. This also often reduces how much you end up paying on the loan, and often even reduces its interest rate. Cramdown usually saves you money both immediately and long term. And you end up owning your vehicle free and clear at the end of your Chapter 13 case.
Today we get into how to qualify for cramdown.
Qualifying for Cramdown—Timing
You can only do a cramdown if your vehicle loan is more than 910 days old when you file your Chapter 13 case. 910 day is about two and a half years. If you entered into the vehicle loan less than 910 days earlier, you can’t do a cramdown. You can’t reduce the monthly payments or the total amount paid on the loan.
The Bankruptcy Code says that you can’t do a cramdown if “the debt was incurred within the 910-day [period] preceding the date of the filing of the [Chapter 13] petition.” See the “hanging paragraph” following Section 506(a)(9) of the U.S. Bankruptcy Code.
The Role of a Bankruptcy Trustee
Coming to the decision that your best option is to file for bankruptcy is not easy. You may have taken weeks, if not months to realize that your best option is bankruptcy. The bankruptcy process can be confusing because of all of the legalities and people involved with the process. When you file for bankruptcy, the United States Trustee Program will assign you a bankruptcy trustee who will be responsible for overseeing your case. The trustee is one of the most important people in your case, so it is crucial that you understand the role of the trustee and the impact the trustee can have on your case.
What Is a Bankruptcy Trustee?
The role of a trustee was created to prevent the creditors and courts from having to be the ones responsible for collecting and distributing the property of those who file for bankruptcy. Trustees are independent contractors who are not employees of the bankruptcy court, but they must answer to the court and cannot take any kind of action until the court approves it. The trustee will evaluate and make recommendations pertaining to the demands of different debtors involved in the specific bankruptcy case they are assigned to.
Keep Your Vehicle through Cramdown
If you can’t afford to pay your vehicle payments even after writing off your other debts under Chapter 7, consider a Chapter 13 loan cramdown.
The last two blog posts have been about keeping your vehicle in a Chapter 7 case. Two weeks ago was about the benefits of reaffirming the vehicle’s loan. Last week was about possible ways of keeping the vehicle by making the loan payments but not reaffirming. These all assumed that you would keep on making the full monthly payments in order to keep the vehicle.
But what if you can’t afford the full monthly payments? Are there any other options if, even after getting rid of your other debt, you can’t pay the vehicle payments?
The answer: you may be able to reduce the vehicle payments through Chapter 13 cramdown. In fact, you may be able to significantly reduce the payments. And cramdown may give you some other huge financial benefits.
Reducing Monthly Payments through Cramdown
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