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Recent Blog Posts
Keeping Your Leased Vehicle through Chapter 7
If current or able to get current on your vehicle lease payments, you’ll likely be able to keep that vehicle in a Chapter 7 case.
A week ago we told you about keeping your purchased vehicle in a Chapter 7 “straight bankruptcy” through a “reaffirmation agreement.” But if you’ve leased your vehicle instead of buying it on credit, then that “reaffirmation” option doesn’t apply to you.
But if you do want and need to keep your leased vehicle, you will likely be able to do so under either the Chapter 7 or Chapter 13 procedures. Today we tell you about how this works under Chapter 7. Tomorrow we’ll get into Chapter 13 “adjustment of debts.”
Offering to “Assume” the Vehicle Lease
When you file a Chapter 7 case, you formally inform your vehicle lease creditor (the “lessor”) that you want to keep the vehicle by completing a form called the “Statement of Intention.” On that form you check the box saying that you want to “assume” the unexpired personal property lease.
Getting Out of Your Vehicle Loan through Bankruptcy
Keeping a vehicle and its debt is sometimes not the best option. Chapter 7 and Chapter 13 can both give you a safe way out.
The last two blog posts have been about ways of dealing with your vehicle loan that enable you to keep the vehicle. Chapter 7 “straight bankruptcy” usually allows you to enter into a “reaffirmation agreement,” making you continue to be liable on your vehicle loan in return for being able to keep the vehicle. Chapter 13 “adjustment of debts” can give you more time to catch up if you’re behind and, if you qualify for “cramdown,” may reduce your monthly payments and reduce the total amount you would pay for your vehicle.
But it’s very important to recognize that bankruptcy also gives you an extraordinary opportunity to get out of your vehicle contract and its debt. Even if at first you really believe that you should keep your vehicle, it’s often worth reconsidering this.
Lowering Your Vehicle Loan Payments through Chapter 13 Bankruptcy
“Cramdown” of your vehicle loan can solve the problems of a reaffirmation agreement by lowering payments and protecting you much better.
Our last blog post a couple days ago was about keeping your vehicle by “reaffirming” the vehicle loan under a Chapter 7 “straight bankruptcy.” We ended by stating that reaffirming a vehicle loan can lead to problems. This is especially true if you owe more on the vehicle than it’s worth. We said that a Chapter 13 case “would likely give you more flexibility... . You may even be able to do a “cramdown,” reducing your monthly payment and potentially saving you thousands of dollars on the balance.”
That’s the topic of today’s blog post.
The Problems with Chapter 7 “Reaffirmation”
If you are current on your vehicle loan, and could comfortably afford to make the payments after you got rid of all or most of your other debts, reaffirming your vehicle loan in a Chapter 7 case may be the best way to go for you. But here are some very common problems that arise.
Reaffirming Your Vehicle Loan through Chapter 7 Bankruptcy
Earlier this month we wrote about the three kinds of debts—secured, priority, and general unsecured. Today we get into secured debts, ones in which something you own secures the debt for the creditor. We start with vehicle loans. Specifically, in a Chapter 7 “straight bankruptcy” case whether you should “reaffirm” your vehicle loan in order to keep the vehicle.
The Reaffirmation Agreement
If you have loan on your vehicle, the lender is almost certainly a lienholder on your vehicle’s title. If so, and you are considering bankruptcy and want to keep your vehicle, signing a reaffirmation agreement with the lender in a Chapter 7 case is one of your options.
A reaffirmation agreement is a document, usually prepared by your vehicle lender, which you sign and is then filed at the bankruptcy court. It excludes that loan from the legal write-off—the “discharge”—that bankruptcy gives you for all or most of your debts.
Debts Not Listed in Your Bankruptcy Documents
If one of your creditors is not included in your "schedules" you risk continuing to owe that debt after your bankruptcy is finished.
Legal Obligation to List All Creditors
Overall you are required by law to list all your debts and their creditors on your bankruptcy schedules. You can’t do a partial bankruptcy, listing most of your debts but hiding one or two that you don’t want to be affected. You must include every debt on which you are legally obligated.
Debts Not Included May Not Be “Discharged”—Legally Written Off
If you do not include a debt in your formal bankruptcy documents when you file your case you risk not discharging that debt at the time all your other debts are discharged. See Section 523(a)(3) of the Bankruptcy Code.
In a Chapter 7 “straight bankruptcy” case the discharge happens quite quickly—usually about 3 to 4 months after your case is filed. In a Chapter 13 “adjustment of debts” the discharge almost always doesn’t happen until you finish the payment plan, which is usually 3 to 5 years after your case is filed.
Accident Claims from Driving While Intoxicated
You can write off claims against you for others’ personal injuries and property damage from a vehicle accident. Unless you were intoxicated.
Writing Off Debts from Vehicle Accidents
When you think of debts you want to write off through bankruptcy, credit cards, medical bills, vehicle loans, and such come to mind. These are debts of specific amounts owed on obligations that you entered into voluntarily. But debts can also arise out of more ambiguous obligations, such as claims against you from a vehicle accident.
If you are in an accident, you could be responsible for paying an injured person’s accrued medical bills, future medical bills, loss of income, and maybe compensation for pain and suffering. You could be responsible for property damage to repair or replace vehicle(s) and any stationary object that was damaged like street signs and buildings.
If you didn’t have enough insurance or none at all, you’d have to personally pay the uninsured part of those claims for which you were found to be at fault. You could owe a tremendous amount of money.
How to Discharge a Student Loan in Bankruptcy
Writing off a student loan in bankruptcy requires showing “undue hardship.” What is that?
Student Loans CAN Sometimes Be Discharged
You may have heard that student loans can never be “discharged”—written off in bankruptcy. Untrue.
Some other kinds of debts can’t ever be discharged, such as child and spousal support. But student loans are more like income taxes. Both can be discharged under certain conditions. (See our blog post of last Friday about discharging income taxes.)
However, income taxes are usually easier to discharge than student loans. Most of the time you just have to file your tax return and wait a certain amount of time. The requirements for discharging a tax debt are quite clear. They are much less clear and more rigorous with student loans.
“Undue Hardship”
The Bankruptcy Code says that a student loan is not discharged unless making you pay it “would impose an undue hardship on [you or your] dependents.” See Section 523(a)(8).
Unpaid Child or Spousal Support Never Discharged in Bankruptcy
You can’t legally write off child support or spousal support.
Our last blog post was about the conditions under which bankruptcy can discharge—write off—all income tax debts that meet certain conditions. Those conditions are mostly met by the passage of time. In contrast, unpaid child and spousal support is simply not discharged through bankruptcy. Not now. Not ever.
Support is Not Discharged, IF It’s Really Support
There IS one possibility, although admittedly this doesn’t often come into play. The Section of the Bankruptcy Code that defines support refers to a debt “in the nature of” child or spousal support. (See Section 101(14A).)
This “in the nature of” language means that an obligation could be called support in a divorce decree or court order, and yet NOT actually be “in the nature of” support. The bankruptcy court is not bound by what your divorce court labeled as support. The bankruptcy court looks beyond the language used in your separation or divorce documents to the kind of debt it actually is under the specific facts of your divorce.
Income Taxes Discharged and Not Discharged in Bankruptcy
Bankruptcy DOES discharge--permanently write off--certain income taxes. It's mostly just a matter of time.
Taxes Can Be Discharged (Legally Written Off)
Some special kinds of debts can never be discharged through bankruptcy. Examples are child and spousal support, and criminal fines and restitution. A bankruptcy filing does not write off these kinds of debts.
Income taxes are not like these. Almost all income taxes can be discharged, once a few conditions have been met.
Once the tax you owe meets those conditions, it is discharged exactly like any other debt. The IRS and your state taxing authority are no different than your credit card creditor. Once a tax debt is discharged, they can never chase you for that debt again.
The Two Main Conditions to Discharge Income Taxes
For most people the conditions are not complicated. They require filing your tax returns and waiting out a certain amount of time.
Criminal Debts Not Discharged in Bankruptcy
Bankruptcy can’t discharge—permanently write off—criminal debts, but it can still help in indirect but potentially game-changing ways.
If filing a bankruptcy case does not discharge criminal debts, how could it possibly help?
In a number of practical ways, bankruptcy enables you to focus on your criminal defense and to deal with any potential fallout. If you’ve been charged with a significant crime you need to make that your highest priority, financially and emotionally. Here’s how filing bankruptcy can help you do that.
1) Discharge Your Other Debts
If you’ve been charged with a serious crime, you have to figure out how to pay for a good criminal attorney and for the other costs of your defense. Considering what’s at stake, you need to consider not paying all or most of your creditors. It may make sense to sell some of your assets and/or even get early access to any retirement funds.
Either in addition to or instead of these tactics, often the fastest way to reduce your debts and quickly improve your cash flow is by filing a Chapter 7 "straight bankruptcy." Then you can immediately stop paying the debts you intend to discharge. The discharge itself usually happens within only about 4 months after your case is filed, freeing you of your debts.
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