Texas Bankruptcy Blog : Texas Bankruptcy Lawyer & Attorney : Fears Nachawati law Firm : Chapter 7, Chapter 13, Consumer Bankrutpcy : Dallas, Fort Worth, Austin, Houston, San Antonio

The bankruptcy discharge is one of the most broad and powerful provisions in U.S. law. Discharged debts cannot ever be collected from the debtor. However, there are limits to the bankruptcy discharge and it is only meant to help honest debtors. The federal bankruptcy code excepts certain "bad actor" debts from discharge, like criminal fines, debts from willful and malicious conduct, debts from drunk driving, etc.

The case of Nicolai v. Larsen, decided recently by the 7th circuit Court of Appeals, is an excellent example of how the bankruptcy code may limit the discharge when the debtor is dishonest. In this case Larsen was awarded $3.4 million by a Wisconsin court as a result of injuries Nicolai caused while attempting to murder his wife. Nicolai tried to discharge this debt during bankruptcy. The 7th Circuit Court of Appeals found that the debt was based on Nicolai's bad acts of battery, false imprisonment and intentional infliction of emotional distress. Under section 523(a)(6)of the bankruptcy code, debts arising from “willful and malicious injury by the debtor to another entity or to the property of another entity” are not dischargeable, the 7th Circuit denied Nicolai his request to discharge the $3.4 million debt. The court said:

"We imagine that all courts would agree that a willful and malicious injury, precluding discharge in bankruptcy of the debt created by the injury, is one that the injurer inflicted knowing he had no legal justification and either desiring to inflict the injury or knowing it was highly likely to result from his act. To allow him to shirk liability by discharging his judgment debt in those circumstances would undermine the deterrent efficacy of tort law without serving any policy that might be thought to inform bankruptcy law property of another entity.”

The bankruptcy code does not automatically except a debt for "willful and malicious injury" from the order of discharge. Instead, a creditor has a duty to affirmatively object to the discharge of the debt. If the creditor fails to file a timely objection, the debt is included in the discharge and the creditor may not collect from the debtor.

If you have caused a willful injury to another person and need financial help, speak with an experienced bankruptcy attorney. Your attorney can explain your legal rights and discuss your bankruptcy options. The bankruptcy code is flexible to permit repayment, discharge, or time to restructure your finances.
 

When a company or celebrity files bankruptcy it is a news-worthy event. The media often states that the company or person has "filed for bankruptcy protection." But what exactly does this mean?

The federal bankruptcy laws are written to allow the debtor time to reorganize his or her finances. Reorganization would not be possible if creditors are allowed to continue collection actions like repossession, foreclosure, or lawsuits. Consequently, when a debtor files a bankruptcy case, the federal law immediately and automatically stops all collection activity. This provision, called the "automatic stay," gives the debtor "breathing space" to work with legal counsel, the bankruptcy trustee, creditors, and the court to propose a plan to either repay or discharge debts.

The automatic stay is technically a temporary injunction, issued by the federal bankruptcy judge, and directed at creditors that forbids collection action without prior permission from the court. The automatic stay prohibits creditor contact with the debtor in an effort to collect on a debt, which means collection letters, phone calls, emails, and other harassment must immediately cease. Lawsuits and garnishments must also stop once the bankruptcy case is filed. A violation of the automatic stay is punishable by contempt and enforced by the bankruptcy court.

The automatic stay continues until either the debtor receives a discharge, the case closes, or the stay order is modified. Once the debtor receives a discharge, a new injunction takes the place of the automatic stay, commonly called the "discharge injunction." The discharge injunction is permanent and does not expire. It prohibits the creditor from collecting from the debtor, which includes lawsuits, garnishments, collection letters, etc.

The automatic stay and the discharge injunction apply to original creditors and third party collectors like collection agencies and attorneys. However, while violation of these orders does not depend on knowledge of the bankruptcy, court punishment usually does. The first thing to do when a violation occurs is to notify the collector of the bankruptcy order and contact your attorney. Knowing violations of a court order will have serious consequences for the collector and any wrongful repossession, garnishment, or seizure will be undone by the court's authority.

Bankruptcy protection is very powerful. The automatic stay umbrella will immediately shield you from creditor harassment while you restructure your finances, and the discharge injunction will give you peace of mind to enjoy your fresh start. For more information on how you can benefit from bankruptcy protection, contact an experienced bankruptcy attorney.

During your Chapter 7 bankruptcy, you may hear the trustee or your own attorney say, "Secured property must be paid for or returned." If you have a debt that is secured by a lien on property, you must make arrangements to pay the creditor or surrender the property. That is the general rule, but its not always the case.

A lien is an interest given to a creditor that secures future payment of a debt. If you fail to make your payments as agreed, the collateral pledged as security for the loan can be repossessed (or foreclosed in the case of a home loan). A lien will generally survive a Chapter 7 bankruptcy case, hence the "pay or return" statement. For instance, you cannot discharge a loan secured by a car and keep the car. You have three options concerning secured debts on Chapter 7 bankruptcy:

Reaffirmation - if you want to keep the secured property and continue paying the loan, you can reaffirm the debt and continue the relationship with the creditor. The debt and lien survive the bankruptcy by mutual agreement between the debtor and creditor.

Redemption - secured property can be redeemed for its fair market value during Chapter 7 bankruptcy. Redemption does not apply to home mortgages.

Surrender - If you cannot afford to keep and continue paying on a secured item, you can surrender the property back to the creditor and "walk away" owing nothing.

A fourth option, called "ride through," may be available under certain circumstances. "Ride through" occurs when the debtor discharges the debt, but the creditor is unable to enforce its lien because of a lack of breach of contract or some other state law impediment. Finally, if you have pledged household property that you own to secure payment of a personal loan, you may be able to strip off the lien and keep your property.

Your bankruptcy attorney will evaluate your secured property and recommend a course of action. While each case is different, the Chapter 7 debtor generally keeps all of his or her property. The bankruptcy laws are flexible to discharge burdensome debt and allow you to keep your home and family vehicles. Speak with an experienced attorney concerning the specifics of your case.
 

A Chapter 7 bankruptcy case can discharge many financial obligations, including credit card debts. A Chapter 7 discharge means that the credit card company is permanently prohibited from trying to collect from you. The debt is unenforceable against you, and you are not required to pay income taxes on the discharged debt.

Credit cards are classified as "unsecured debts," the lowest category of debts during bankruptcy. Other common unsecured debts are medical bills and signature loans. The payment of an unsecured debt is not guaranteed by a pledge of property (e.g. a car loan). Consequently, when an unsecured debt is discharged in a Chapter 7 bankruptcy, the creditor typically receives nothing.

Discharging a credit card debt in a Chapter 7 bankruptcy case comes down to one simple rule: was the debt incurred honestly? The Chapter 7 bankruptcy laws favor discharging credit card debt and giving the honest debtor a fresh start. However, the law balances the scale by withholding the discharge when the debtor is less than honest.

First, a credit card that is not listed in your Chapter 7 bankruptcy case is often excluded from your discharge. This is especially true if you continue to use the card during or after filing bankruptcy. The additional charges made after filing bankruptcy cannot be discharged, and becomes good evidence of an intent to conceal the credit card from the court and the bankruptcy filing from the creditor.

Second, if you go on a spending spree with our credit card immediately before filing bankruptcy, those charges are presumed non-dischargeable. This rule includes "luxury purchases" of more than $600 made within 90 days of the bankruptcy, as well as charges made on your card that you have no intention of repaying. The best advice is to stop using your credit card before you file bankruptcy.

Third, if you take cash advances totalling $875 within 70 days prior to filing bankruptcy, the debt is presumed non-dischargeable.

Fourth, a false statement to the credit card company on your application could be used to deny discharge of the debt. While credit card companies seldom use this tactic, if there is plain evidence of fraud (e.g. your yearly income was $20,000, but you claimed it was $200,000), the credit card company may file an adversarial action during your case and seek to deny your discharge.

Discharging credit card debt is usually a simple matter in a Chapter 7 bankruptcy case. It is very important to answer your attorney's questions honestly and fully in order to receive the best advice. Your attorney can often avoid problems when they are revealed in advance, and can get you the relief you need.

Many bankruptcy questions are complicated and the right answer depends on the facts of the individual's case. One challenging issue that frequently arises is how a debtor's bankruptcy filing will impact a co-signer. Below is some general information on bankruptcy and co-signers:

Basics
A co-signed debt generally makes each signer 100% responsible. If a default occurs, the creditor can legally collect from one or all of the co-signers until the debt is paid.

The Automatic Stay
When a debtor files bankruptcy, the bankruptcy court automatically issues an injunction against all creditors prohibiting any collection attempts. This stay only applies to the debtor, personally, and does not stop the creditor from collecting from property or from other people. However, if the debtor has filed a Chapter 13 bankruptcy case, the automatic stay extends to co-signers and stops collection action (e.g. lawsuits, telephone harassment, repossession, etc.) against them as well. This protection does not apply to Chapter 7 cases.

The Bankruptcy Discharge
A bankruptcy discharge does not "erase" a debt, it makes the debt legally unenforceable against the debtor. The creditor is unable to collect from the discharged debtor, but can proceed to collect 100% of the debt from the remaining non-discharged signers. Co-signers are prohibited from suing the debtor on a discharged debt.

Secured Property
When a co-signed debt is secured by collateral, whether the property is protected by the bankruptcy court depends on whether the property is "owned" by the debtor and whether he or she intends to keep it. If the property is in the hands of the non-bankrupt co-signer, like a vehicle, the property is not protected by a Chapter 7 or Chapter 13 bankruptcy. Additionally, if the debtor abandons and surrenders interest in the property, the bankruptcy protection is extinguished and the creditor may legally repossess.

Other Issues
* A creditor could consider a bankruptcy filing a breach of contract on a co-signed debt and place the debt in default status. Whether this is permitted depends on state law.
* Some co-signed debts may not be discharged during the debtor's bankruptcy. Common examples are student loans and taxes. Consult your attorney for more information on non-dischargeable debts.
* The debtor's bankruptcy could affect the co-signer's credit rating, especially if payments are not made.

Protecting the co-signer's interests during a bankruptcy case can be tricky business. If your co-signer has filed bankruptcy, speak with an experienced bankruptcy attorney and discuss your legal rights. Your bankruptcy attorney can help you understand the bankruptcy process and how it will affect you.
 

Financial difficulty crosses all socio-economic lines. Its not just "poor" people that file for bankruptcy relief, sometimes "rich" people file also. Recently former NFL player Warren Sapp filed Chapter 7 bankruptcy in South Florida. Despite earning an estimated $40 million during his career, and a monthly income in excess of $100,000, he now seeks protection from more than $6 million in debts.

Each year celebrities and athletes file bankruptcy, but rarely does a federal judge need the protection of the federal bankruptcy laws. The Wall Street Journal has reported that Judge Otis Wright II of California’s Central District has filed for Chapter 7 bankruptcy. Chapter 7 is an "erase-your-debts-and-start-fresh" bankruptcy. Creditors during a Chapter 7 bankruptcy generally receive little or nothing through the liquidation of the debtor's assets.

Judge Wright's bankruptcy petition and schedules show that he has assets of $833,426 and liabilities of $895,292, including more than $70,000 in credit card debt. Federal judges make about $174,000 per year. The Chapter 7 bankruptcy trustee plans to put Wright’s California home in Los Angeles County on the market to pay his creditors. The asking price is about $1.2 million with a debt of about $800,000.

Prior to filing bankruptcy Judge Wright and his wife drained his retirement funds to creditors. While his efforts to try and pay creditors were admirable, retirement funds are generally protected during bankruptcy. Your bankruptcy attorney will often advise against cashing out retirement funds to pay debts that may be paid or discharged during the bankruptcy case.

Bankruptcy is a federal legal process to reorganize your finances and free you from oppressive debt. The bankruptcy laws are flexible to help those who need a fresh start - despite fame or fortune. If you need this type of help, speak with an experienced bankruptcy attorney.

A debt you cannot afford to repay can make your life miserable. Fortunately, there are legal solutions to an overwhelming debt problem. One remedy is the statute of limitations. This law discourages unreasonable delay by limiting the time a creditor has to bring a lawsuit against you. The creditor cannot simply harass you forever and must file a lawsuit within a number of years or be forever legally barred. A time-barred debt cannot be legally enforced by the creditor or a subsequent collector.

Whether an old debt is time-barred depends on a number of factors. First, different time limitations can apply to written contracts, oral contracts, or even to credit cards. Consult with your attorney to determine whether your debt is time-barred. Second, the time when the limitation clock starts, or tolls, can sometimes be difficult to ascertain. Generally, the clock starts on the day you last made a payment on the debt. For instance, if the statute of limitations is five years, the debt would be time-barred if the creditor does not file its lawsuit within five years after your last payment. If you make a payment within the tolling period, the clock resets for another five year period.

A debt collector is allowed to contact you concerning a time-barred debt. The collector does not have to volunteer that the debt is time-barred, but is required by law to answer truthfully if you ask if the debt is beyond the statute of limitations. You can also dispute a debt that you believe is time-barred by sending the collector a letter within 30 days of receiving a written notice of the debt. Tell the collector that you dispute the debt, that you believe that it is time-barred, and ask for verification of the debt. A collector must stop trying to collect until you receive verification.

The statute of limitations is a defense to be used by a defendant in a lawsuit. On the other hand, discharging the debt in bankruptcy will stop a lawsuit on the debt from ever being filed. A bankruptcy discharge is a permanent legal injunction directed at the creditor and all subsequent collectors prohibiting any attempt at collecting the debt. That includes telephone contacts, letters, lawsuits, or garnishments.

If you have an old debt that has recently reappeared, speak with an experienced bankruptcy attorney and discuss your legal rights. The debt may be time-barred, or another legal defense may exist. You may also consider bankruptcy to stop any further harassment or collection.
 

A Kansas Bankruptrcy Court has upheld the constitutionality of a Kansas law protecting a Chapter 7 debtor's Earned Income Tax Credit (EITC) during bankruptcy. This law was challenged by the bankruptcy trustee who argued that the Kansas legislature could not write a law that only applied to bankruptcy proceedings. Bankruptcy is a federal process and its laws are written by the U.S. Congress.

The Kansas law created a new bankruptcy exemption for Kansas debtors. It allows bankruptcy debtors to protect their EITC money, a tax credit designed to assist low- and moderate-income families. However, the this exemption only protects EITC money during bankruptcy and does not apply outside of bankruptcy.

The Chapter 7 bankruptcy trustee challenged the constitutionality of the law by stating that it violates the Uniformity Clause. See In re Westby, No. 11-40986, 2012 Bankr. LEXIS 1428, (Bankr. Kan. April 4, 2012). There is currently a split of opinion in the federal courts whether state exemptions that only apply to bankruptcy proceedings are constitutional. The Kansas Bankruptcy Court in Westby found that Kansas’ EITC bankruptcy exemption did not violate the Uniformity Clause or any other constitutional provision. These cases could open the door for more debtor bankruptcy protections at the state level.

The full opinion can be found on the Kansas Bankruptcy Court website: http://www.ksb.uscourts.gov/images/ksb_opinions/JMK_11-40986-45.pdf

The federal bankruptcy process is a complex combination of federal and state laws. Navigating this process alone is like walking through a minefield while blindfolded. An experienced bankruptcy attorney can guide you through this complicated process, protect your rights and property, and get you a fresh financial start.
 

A bankruptcy case is a public record and all documents filed in the case are kept at the bankruptcy court. The documents are maintained digitally and are available via a federal court database called PACER (which stands for Public Access to Court Electronic Records). Through PACER you can access your complete case file and review documents, pleadings, and court orders filed in the case, including your bankruptcy petition and schedules.

The general public can access the PACER website at pacer.gov and view and print documents. The government charges 10 cents per page with a cap of $3 per document. If you accrue less than $15 in fees during a quarter on your PACER account, you are not charged anything. This is especially useful to a bankruptcy debtor who may need a copy of his or her discharge order.

You can obtain immediate PACER access by registering your account and providing credit card information. If you do not have a credit card, your PACER login and password will be mailed to you.

A second option for immediate PACER access without a credit card is through Inforuptcy.com, a third party site that allows users to search for a case or a document through its portal. Registered users can search the Inforuptcy database for free, and if the document is available, the HTML text can be viewed free. PDFs are offered for 50% off PACER’s 10 cents per page. If the document is not in the Inforuptcy database, you can download it from PACER through the site. Inforuptcy gives new users a $5 credit before they are asked for credit-card information.

While your bankruptcy attorney will keep you informed on developments in your bankruptcy case, some debtor like to be more "hands on." PACER access is simple and can provide you with immediate information on your bankruptcy case. PACER is also useful to find discharge information and documents after your case closes. If you need information regarding your case or accessing PACER, speak with your bankruptcy attorney.