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When Are Chapter 7 Cases Subject to a Presumption of Abuse?
Not everyone qualifies for Chapter 7 bankruptcy. Only individuals and married couples who do not earn much income are eligible for this kind of debt relief. Meeting the income limits for Chapter 7 bankruptcy is also known as “passing the Chapter 7 means test.” If someone files for Chapter 7 bankruptcy but does not pass this means test, their case will likely be dismissed due to the court’s presumption of abuse. This is why it is important to have a Texas bankruptcy lawyer assist you with your case.
How Can a Filer Abuse the Chapter 7 Process?
Unlike Chapter 13 bankruptcy – which requires filers to stick to a repayment plan for three to five years – Chapter 7 bankruptcy filers do not have to repay their creditors before their qualifying unsecured debts can be discharged. Because creditors have rights too, the courts reserve the extreme benefits of Chapter 7 bankruptcy for low-wage earners who are unlikely to be able to repay their debts anytime soon.
What Bankruptcy Filers Can Learn from the Navient Settlement
Most of the time, when consumers confront Big Business and Big Finance, courageous consumers may benefit from being featured in informative news coverage – which can help to highlight their struggles and allow similarly-situated individuals to understand that they are not alone – but they do not tend to come out on top. Yet, there are times when "the little guy" triumphs, and these wins should not be understated. For example, abuses against numerous bankruptcy filers – who are ordinarily protected by the automatic stay and the discharge of their qualifying debts – were recently addressed in a big way when Navient settled with a number of filers for $198 million.
The Settlement
Navient Corp. is a private student loan provider. When many of its borrowers were confused as to why Navient Corp. kept collecting on their debt, despite the fact that their debt with the company was discharged in bankruptcy, the borrowers sought legal assistance. Ultimately, they realized that Navient was falsely claiming that the debt had not been discharged and that the company was unlawfully collecting on debts that were no longer the borrowers' responsibility.
How a Chapter 13 Bankruptcy Can Help Save Your Home
For homeowners facing the possibility of foreclosure, Chapter 13 bankruptcy is a potential lifeline. This debt reorganization plan offers a fresh chance to regain control of your financial situation and safeguard your home from repossession. If you are in danger of losing your home, exploring Chapter 13 bankruptcy could be the solution you have been seeking.
Understanding Chapter 13 Bankruptcy
Chapter 13 bankruptcy presents a structured strategy for debt repayment. Spanning a period of three to five years, this plan enables you to create a practical repayment schedule, encompassing all your creditors, including your mortgage lender. As an advantage, your monthly payments are determined based on your income and expenses, making them more manageable.
After completing your Chapter 13 bankruptcy plan, outstanding balances for certain debts may be discharged as long as certain criteria have been met, including meeting all domestic support obligations and the completion of an approved financial management course. There are some debts that cannot be discharged, including home mortgages, child support and alimony debt, certain taxes, student loans, and more.
Is Filing for Bankruptcy a Worthwhile Effort?
When an individual or a family is facing a truly overwhelming debt load, every effort at addressing the issue can feel a bit like a band-aid on a bullet hole. Negotiating better loan terms with a single creditor, for example, can take an extraordinary amount of effort and can ultimately yield very little benefit aside from temporary relief of an overdue payment or two and the knowledge that one’s repayment date has been moved to a more convenient time of the month, or what have you. One of the primary benefits of bankruptcy, by contrast, is that it tends to serve as a more comprehensive solution to complex debt challenges that span more than one account.
How Does Bankruptcy Work?
Whether you opt to file for Chapter 7 or Chapter 13 bankruptcy, you will need to work with an attorney to prepare detailed information about your income, debt, and assets for the court to review. You will be required to participate in two educational experiences – one as a pre-filing requirement and one before your case is closed – and you will attend a meeting with the trustee assigned to your case.
How Long Does a Bankruptcy Automatic Stay Remain in Effect?
One of the primary reasons that individuals choose to file for bankruptcy is that filing a case in bankruptcy court initiates an automatic stay. Once the automatic stay is in place, most collection activity – including wage garnishment, creditor lawsuits, repossessions, and foreclosure actions – must cease until a filer’s bankruptcy case is resolved or the court grants a creditor-specific allowance to bypass the restrictions of the automatic stay. As a result, while the benefits of the automatic stay are undeniable, filers cannot count on them to last forever.
Taking Advantage of the Stay: Chapter 7
Most successful Chapter 7 bankruptcy cases are resolved in a matter of months. As a result, the automatic stay only tends to function as a short “pause” button on creditor action for Chapter 7 filers. Meaning, once a filer’s eligible debt has been discharged at the conclusion of their case, the automatic stay will lift and any collection action that has not been resolved via discharge will resume.
Life After Bankruptcy: Learning from Detroit
When an individual files for bankruptcy, their focus naturally tends to remain on the urgent financial needs that prompted them to file for debt relief in the first place. They may have concerns about life after bankruptcy, yet, the very act of filing for Chapter 7 or Chapter 13 protection indicates that one’s financial situation is so dire that thinking ahead has become a luxury.
When the dust settles, a bankruptcy filer may start to focus more on both the temporary, negative consequences that their filing has inspired and on rebuilding their credit. It is at this phase of the bankruptcy process that learning from Detroit can come in handy.
Eating an Elephant
Ten years ago, Detroit, Michigan became the largest-ever city in the U.S. to file for bankruptcy. The city is now experiencing new growth and new opportunity but getting to this point was not an easy journey and that journey is not yet over. One building inspector described the experience of rebuilding and revitalizing the city as “We’re eating an elephant here,” when interviewed by the New York Times.
Preparing for Your Chapter 7 Bankruptcy 341 Meeting of Creditors
Filing for Chapter 7 bankruptcy primarily involves filing detailed paperwork after ensuring the accuracy and completeness of all required documents. However, there are also a few unique requirements that involve filer participation in an experience. For example, there is both a pre-filing educational course requirement and a post-filing educational requirement. Additionally, each Chapter 7 filer is required to attend an interview referred to as a 341 Meeting of Creditors.
Setting Expectations
During your meeting, you will be asked questions about the information contained in your bankruptcy filing, your income, debts, property, and overall financial situation. Although it is rare that creditors choose to attend Chapter 7 341 meetings, you should be prepared to have one or more representatives of your creditors attend this conversation, as doing so is their prerogative. The meeting will likely only last about 15 or so minutes and will likely not last longer than a half hour. It will not occur in a courtroom but will instead, very likely, take place in a conference room.
Stay Off Social Media Until Your Bankruptcy Case Is Resolved
Filing for bankruptcy can be a stressful process, but it can also lead to a much-needed emotional and practical unburdening. You may ultimately feel so grateful that your interests are finally safeguarded by the automatic stay and that your case is moving forward that you feel inspired to post about your experience on social media. Yet, as difficult as it can be to refrain from connecting with others about this turning point in your financial journey, it is important to resist that urge until your case is fully resolved.
Your Social Media Activity Is Not Private
Social media platforms are public. Unlike email and text communications, which government investigators and actors can only generally access in the event that they have secured a warrant, anyone can search someone’s social media activity. If the trustee assigned to your bankruptcy case, a creditor, or a creditor’s legal representation chooses to review your social media activity, do not assume that strong privacy settings will safeguard your activity. You will want to assume that these interested parties both can and will get around your settings to view your activity.
Are Medical Bills Wrecking Your Finances?
The most common reason that Americans file for personal bankruptcy is not reckless spending, insurmountable credit card balances, or even safeguarding against the risk of foreclosure. The most common reason that hard-working adults in the U.S. file for bankruptcy is overwhelming medical debt. If you or a loved one has experienced an illness or injury that has devastated your family’s budget and made it difficult to get by, it may be time to consider filing for bankruptcy too.
Chapter 7 Relief
If you do not earn much income, chances are that you qualify for Chapter 7 bankruptcy relief. If so, you can have your outstanding medical debt balances discharged – after only a few months – without any obligation to repay your creditors first.
If all of your bills are owed to a single creditor, it may be to your advantage to speak with our firm about whether you are a strong candidate for an alternative debt relief or debt management approach. But, if you have other debts that are weighing you down, and you are eligible for Chapter 7 relief, it may provide you with the fresh start that you are looking for.
Is Debt Settlement a Scam or a Good Option?
When an individual is struggling mightily with debt, they often need assistance with resolving one or more accounts immediately. Waiting even a week to find a solution can result, under some circumstances, in repossession of a vehicle, the initiation of a creditor lawsuit, or so much stress when creditors call again and again that an individual’s mental health begins to break down. Because debt resolution issues tend to be particularly urgent in nature, bankruptcy alternatives – including debt settlement services – that promise quick results can be very attractive. It is simply important to understand the true ins and outs of any debt management or resolution opportunity before committing to an approach.
The Benefits and Limitations of Debt Settlement
Some debt settlement opportunities are legitimate. For example, if the Internal Revenue Service will allow you to submit payment for an offer in compromise, you will be able to settle your overdue tax balance for a fraction of what you owe. This can be a beneficial approach to debt resolution for debt that is not dischargeable in bankruptcy. However, for-profit debt settlement services – which often focus on debt that is dischargeable in bankruptcy – are often either scams or scam-like.
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