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Criminal Fines and Restitution Not Written Off in Bankruptcy
Bankruptcy does not write off criminal fines or restitution. But it can help by writing off other debts so you can pay crucial expenses.
If you owe criminal fines, penalties, forfeiture, or restitution, bankruptcy does not help you directly with those debts. But bankruptcy can still provide you essential help in paying for essential expenses, including criminal related ones.
The Criminal Fines and Restitution Exception
Neither Chapter 7 "straight bankruptcy" nor Chapter 13 "adjustment of debts" writes off criminal fines, penalties, forfeiture, or restitution.
Under Chapter 7 any "fine, penalty, or forfeiture" owed to "a governmental unit" is excluded from discharge (bankruptcy write-off). Section 523(a)(7) of the U.S. Bankruptcy Code.
(The only exceptions are if the debt is "compensation for actual pecuniary loss" or certain tax penalties. These are narrow exceptions that are beyond what this blog post covers.)
How Will a Bankruptcy Affect My Credit Score?
One of the biggest worries people have when they go to file for bankruptcy is what that will mean for their credit score. There is a lot of confusion surrounding bankruptcies and how they affect your credit. While it is true that they do negatively impact your credit score, it is not nearly as bad as some have let people believe. There is no one answer to how your bankruptcy will affect your credit score. It is a combination of what your credit score was before your bankruptcy and what appears on your credit report. Each situation is different and it is nearly impossible to say how a bankruptcy will affect your credit score.
Effects on Your Credit Score
While there is no simple way to tell how a bankruptcy will affect your credit score, FICO, one of the nation’s leading credit reporting bureaus, has released information on how bankruptcy and other credit mistakes could affect your score. According to FICO, those with higher credit scores before bankruptcy typically lose more points after a bankruptcy, while those with lower credit scores lose fewer points. Despite the difference in the number of points that the score drops, both people with high and low credit scores will have credit scores that end up in the same vicinity.
Debts Not Written Off in Bankruptcy
Most debts get written off—discharged—in bankruptcy. The only ones that aren’t are specifically listed in the Bankruptcy Code.
Debts Covered by the Discharge
The basic rule is that all your debts get discharged in bankruptcy unless a particular debt fits a listed exception.
Focusing on Chapter 7 “straight bankruptcy,” you will likely receive an Order of Discharge within about 4 months of filing the case. The heart of this court order simply states that “A discharge... is granted to [the debtor].”
So what are the listed exceptions—what debts are NOT discharged through the Order of Discharge?
Exceptions to Discharge
Section 523 of the Bankruptcy Code covers “Exceptions to discharge.” There are two categories of exceptions:
Scenario: Filing Chapter 13 Now Shortens a Case by Two Years
Here’s a scenario showing how the timing of your Chapter 13 filing can shorten your payment plan from 5 years to only 3.
In our last blog post we explained how your last 6 calendar months of income can determine whether your Chapter 13 payment plan lasts 3 years or instead 5 years. We showed how even relatively small shifts in the money you receive can cause this huge difference.
How this can happen will make more sense after reading through the following scenario.
Our Facts about “Income”
Remember from last time that your “income” includes money from just about all sources, except Social Security. Also, the only money that counts is that which you received during the 6 FULL CALENDAR months before filing. This means that money received DURING the calendar month of filing DOESN’T count. For example, if you file your Chapter 13 case on January 31 you count the income from the previous July 1 through December 31. You don’t count any income received in January.
The Surprising Benefits: Keeping Your Vehicle Lease under Chapter 13
You can keep your leased vehicle under Chapter 7 if you’re current. If not, or have other reasons to do a Chapter 13 case, that’s works too.
Lease Assumption under Chapter 7
Our last blog post showed how to keep a leased vehicle by “assuming” the lease in a Chapter 7 case. This means you keep making the lease payments. You also continue being legally bound by all the other terms of the lease contract.
Problems under Chapter 7
But what if you’re behind on your lease payments, and can’t catch up right away? Very likely the lessor would not allow you to assume the lease. And even if you could you’d be in default on the lease immediately and subject to repossession. You could easily end up owing a substantial amount of damages, and still be without a vehicle.
The Solution under Chapter 13
Filing a Chapter 13 “adjustment of debts” case solves this problem by giving much you more time to catch up on late payments.
The Surprising Benefits: Keeping Your Vehicle Lease under Chapter 7
If you file a Chapter 7 case and write off your other debts, will you want to keep your vehicle lease? You can if you’re current on it now.
Our last three blog posts have been about rejecting a vehicle lease and giving the vehicle back to the lessor. You can do this either through Chapter 7 or 13. The result is the same in the end. Assuming you successfully finish the bankruptcy case, you’ll forever discharge (legally write off) any debt you’d owe afterwards.
But you can also usually keep a leased vehicle. Depending on your circumstances, you can “assume” the lease in either a Chapter 7 or 13 case. Today’s blog post is about how this works in a Chapter 7 case. Next week we get into keeping a leased vehicle in a Chapter 13 one.
“Assuming” Vehicle Lease
When you file bankruptcy you make a formal choice about whether or not you want to “assume” the lease. Assuming an unexpired lease generally allows you to keep the vehicle while continuing to be legally bound by the lease contract. You give up the option to reject the lease and discharge—forever write off—any financial obligations on that contract. (Section 365(a) of the U.S. Bankruptcy Code.)
The Surprising Benefits: Rejecting Your Vehicle Lease under Chapter 7
Getting out of a vehicle lease in a Chapter 7 case requires simply that you formally state that you “reject” it. Then you owe nothing more.
Last week we showed how a vehicle lease can be unexpectedly expensive, and that you can escape through Chapter 7. Today we show you how.
The Option of “Rejecting” the Lease
When you file bankruptcy you get to choose whether or not to keep your leased vehicle. Specifically you choose to either “assume” or “reject” the lease. Assuming the lease means keeping the vehicle and continuing to be legally bound by all the terms of the lease. Rejecting the lease means letting the vehicle go. This allows you to “discharge”—forever write off—all of your financial obligations on the lease. (See Section 365 of the Bankruptcy Code generally about the assumption and rejection of unexpired leases. Warning: it’s very complicated and confusing!)
Which Bankruptcy Option Eliminates All Debt?
One 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:
Can You File Bankruptcy Without Your Spouse?
Many people mistakenly believe that if you are married and filing for bankruptcy, you must do so jointly. You have several options after determining that bankruptcy is the right choice. If you are unmarried, you will file independently. If you are married, you may file jointly or as an individual. Both spouses may also choose to file bankruptcy separately, at the same time. Strategically, one option may suit your situation better than the others, depending mainly on location, debts, and assets.
Texas and the Other Community Property States
Texas, along with nine other states, is a community property state. Meaning, any assets or property acquired during marriage belongs equally to both spouses, even if only one spouse’s name is on the contract. The assumption is that all decisions are made together, rather than individually, and both parties are contributing their fair share. Any items owned before the marriage are excluded from the community property, as are any items inherited or given only to one spouse after the union began; this is separate property.
How to Get Back a Repossessed Vehicle
In the United States, 170 million consumers depend on a vehicle for daily activities. From trips to the grocery store to a daily commute to work, Americans rely heavily on having independent transportation. Unfortunately, when financial hardship strikes, lenders are quick to repossess their vehicles, even if payments are only one month behind, in some cases. The next part of ur “Surprising Benefits” series explains how filing for bankruptcy can stop a repossession from occurring or even return a repossessed car back to your possession.
If It Is Still in Your Possession
In the state of Texas, repo agents do not need to notify you before taking your vehicle. Realistically, if your payment is in default, even just by a short time, a repossession agency may already be looking for your car, truck, motorcycle, RV, or any other vehicle burdened with a loan. Filing for bankruptcy may be a viable solution to your situation. Bankruptcy places an “automatic stay” is on all collection attempts for all loans, including your vehicle. For many Americans, this stay is enough to catch up on payments, without including it in the bankruptcy process.
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