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

Harvard law professor and bankruptcy expert Elizabeth Warren has stated that the economic fallout from divorce is a leading cause of bankruptcy. The divorce process assigns debt, awards assets, and can significantly deplete marital assets. In many cases, one or both spouses are in a difficult financial position after the divorce. If the fall-out from your marital debt is pushing you and your spouse into divorce court, consider how a bankruptcy can alleviate the stress and simplify your finances. Filing bankruptcy before starting a divorce proceeding can be advantageous to both parties, and, in some cases, can even save a marriage.

A common problem after a divorce is the family court’s order concerning joint debt. The order will typically direct one party to pay or refinance a joint debt. Many are surprised to learn that this order does not relieve a parties’ obligation to pay the debt. The simple explanation is that the family court judge does not have the authority to rewrite a contract between you, your spouse, and a creditor who is not a party to your divorce. If your spouse does not pay the joint debt, your credit may be harmed.

On the other hand, by filing a bankruptcy prior to the divorce, most joint debts can be legally and finally terminated either by payment or discharge. Additionally, by resolving many of your outstanding debts, it is easier to negotiate the remaining obligations between you and your spouse.

Married couples also enjoy protections in bankruptcy that single debtors do not receive. For instance, married couples often receive increased legal exemptions that protect property from creditor attachment. These exemptions may be lessened or no longer available once the divorce is finalized. In other words, what you could protect in bankruptcy while married may not be protected after a divorce.

To say that the interplay between the state family laws and the federal bankruptcy laws is complex is a gross understatement. However, many of these complexities can be avoided by filing a bankruptcy ahead of a divorce. In some cases, the couple decides to stay together after the financial strain is removed by the bankruptcy.

If you and your spouse are considering divorce, consult with an experienced bankruptcy attorney and have your finances examined. If bankruptcy is a possibility, it is generally better to proceed with the bankruptcy case prior to the divorce.

Student loans are extremely difficult to discharge in bankruptcy. The bankruptcy code states that a debtor may obtain a discharge of a government-sponsored student loan only if repaying the debt would impose an “undue hardship” on the debtor and his dependents.

Proving undue hardship is more difficult than it sounds. The bankruptcy code requires the debtor to file an adversary action and have a hearing to determine whether repayment of the debt would constitute an undue hardship. At that hearing the bankruptcy court may require proof that: 1) the debtor cannot maintain a minimal standard of living and also repay the loan; 2) the debtor’s financial inability to repay the loan is likely to continue for a significant portion of the loan’s repayment period; and 3) the debtor has made a good faith effort to repay the loan. If the debtor is successful in proving undue hardship, the student loan debt will be discharged by the bankruptcy court.

Even though the bar for discharging student loans is set extremely high, it is often equally challenging for a creditor to “prove” its debt during a Chapter 13 bankruptcy case. The Chapter 13 claims process may be used by the debtor to obtain a judicial determination of what is owed. A student loan is a contract and the debtor may ask the creditor to produce the contract, to prove that the current creditor has standing to collect on the loan, and prove the current amount owed. During the claims process the burden is on the creditor to prove both that you owe the debt as well as the amount. This may be difficult for a creditor if the loan has changed hands multiple times.

While discharging your student loans may be difficult, the bankruptcy laws offer several benefits including temporary relief from the bankruptcy automatic stay and a chance to make payments through a court supervised Chapter 13 plan. Additionally, non-bankruptcy options are available including deferment, forbearance, loan forgiveness, and income contingent repayment plans. If you are experiencing financial difficulty and have student loans, consult with an experienced bankruptcy attorney and discover your options.

In an episode of television’s “The Office,” the main character Michael Scott makes a misguided attempt to resolve his debt problems by publically stating, “I. . . declare. . . bankruptcy!” Video clips of this funny episode can be found on YouTube.

Back in the real world, declaring bankruptcy is not nearly as public, or as simple, as shouting out “I declare bankruptcy!” The bankruptcy process begins with an accounting of your income, expenses, assets, and debts. The debtor is required to use approved forms for this financial accounting. A copy of these forms can be found on the U.S. Courts website, and a general description of each form that must be filed in all consumer debtor Chapter 7 and 13 cases is provided below.

The Voluntary Petition is three pages long and is the formal declaration of bankruptcy. Filing the Voluntary Petition begins the bankruptcy process and imposes the automatic stay which will generally stop action by creditors to collect debts.

Schedule A is a list of real property.

Schedule B is a list of personal property.

Schedule C is a list of property the debtor claims as exempt.

Schedule D is a list of creditors holding secured claims.

Schedule E is a list of creditors holding unsecured priority claims.

Schedule F is a list of creditors holding unsecured nonpriority claims.

Schedule G is a list of the debtor’s executory contracts and unexpired leases.

Schedule H is a list of codebtors in the bankruptcy.

Schedule I lists the debtor’s monthly income.

Schedule J lists the debtor’s monthly expenses.

The debtor must sign a Declaration that the above schedules are accurate to the best of his or her knowledge, information, and belief.

The debtor must file a Statement of Financial Affairs. This form provides a summary of the debtor's financial history, transactions, and operations over certain time periods before the case is filed. There are 18 separate items on this form:
1. Income from Employment or Operation of Business
2. Income Other than from Employment or Operation of Business
3. Payments to Creditors
4. Suits, Administrative Proceedings, Executions, Garnishments, and Attachments
5. Repossessions, Foreclosures, and Returns
6. Assignments and Receiverships
7. Gifts
8. Losses
9. Payments Related to Debt Counseling or Bankruptcy
10. Other Transfers
11. Closed Financial Accounts
12. Safe Deposit Boxes
13. Setoffs
14. Property Held for Another Person
15. Prior Address of Debtor
16. Spouses and Former Spouses
17. Environmental Information
18. Nature, Location, and Name of Business

Finally, the debtor must file either a Statement of Current Monthly Income and Means Test Calculation in a Chapter 7 case, or a Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income in a Chapter 13 case.

The success of your bankruptcy largely depends on the accuracy of these forms and the skill that your bankruptcy attorney applies in crafting these financial reports. Don’t leave your financial future to chance! Seek out an experienced bankruptcy attorney to complete these forms and advise you on the best course of action to resolve your financial problems.
 

A bank account debt can offer many challenges to an individual in bankruptcy. Usually a bank account debt originates from fees associated with an overdrawn account. These fees can quickly accumulate and result in a debt of hundreds of dollars. A bankruptcy will generally discharge this debt, assuming the debt was not incurred by fraud or criminal activity. However, the issue is often should you discharge your bank account debt rather than can it be discharged.

In deciding whether to discharge a bank account debt, you must determine if repayment is feasible. In cases where the debt is small, the account is still open, and you have the resources to pay the debt, repaying the debt is generally the best option. Remember to consult with your attorney before repaying any debt prior to filing bankruptcy. In many cases it is advantageous to wait until after the case is filed before repaying a debt.

If paying the bank account debt is not feasible, you may face several negative consequences. First, the bank will close your bank account. Second, over eighty percent of all banks use Chexsystems, a consumer reporting agency that provides information regarding accounts at banking institutions. Negative information may remain on your Chexsystems file for five years. To view your Chexsystems report for free, visit: https://www.consumerdebit.com/consumerinfo/us/en/chexsystems/report/index.htm

While a bankruptcy will discharge a bank account debt, factual information concerning the debt will remain on your Chexsystems report after the bankruptcy. This information is available to financial institutions and may prevent you from opening another bank account.

Fortunately, there are programs available to an individual with a derogatory Chexsystems report offered by banks, universities, and not for profit groups. One of the most popular is the “Get Checking” program offered by several groups around the country. The University of Missouri Extension offers a typical “Get Checking” program, which requires a debtor to pay all outstanding bank fees on the prior bank account and take a six-hour checking education class. The debtor then receives a certificate of completion which can be used to open a new account at a participating financial institution. If Chexsystems reports suspicion of fraud on a prior account, a certificate will not be issued and institutions are not required to open an account.

If you have an overdrawn bank account and are considering bankruptcy, discuss your financial situation with an experienced bankruptcy attorney. There are many options to deal with bank account debt, but the situation can only grow worse from procrastination. Quick action is the best cure for this type of debt.

Many clients are intimidated when meeting a bankruptcy attorney for the first time. They fear that they will be asked judgmental questions and have to justify their financial distress. They fear that they will not be able to answer the attorney’s questions and somehow not qualify for bankruptcy and the relief they desperately need.

Nothing could be further from the truth.

The first thing you will discover when meeting your bankruptcy attorney is that your attorney is a good listener. You are the world’s foremost expert concerning your own finances, and your attorney is there to learn about your case from you.

The second thing you will discover is your attorney’s compassion. Bankruptcy attorneys really do care about their clients. Bankruptcy is one of the few areas of the law where the legal process is designed to have a positive result for the client. The goal of your bankruptcy attorney is to ensure that you are in a better financial position at the end of the case than you were at the beginning. Bankruptcy lawyers are caring individuals that have an active interest in your future success.

The third thing you will notice is how your attorney is able to quickly summarize what seems like an overwhelming problem into simple concepts. Your attorney will break down your finances into four categories: assets, debts, income, and expenses. From there you and your attorney can discuss what must be done to improve your financial situation.

Finally, you will be impressed with the clarity your attorney has for repairing your financial problem. A skilled bankruptcy attorney spends years studying, training, and gaining practical experience just so your case can be resolved quickly and efficiently. Bankruptcy law is all about paths to recovery and your attorney will guide you along a path that is best for you.

When you first meet your bankruptcy attorney, discuss your case openly and honestly. You will find that your attorney is dedicated to helping you attain a financial fresh start and improve your family’s finances.

The bankruptcy means test is a calculation designed to identify debtors who can afford to pay some of their unsecured debts (for instance, credit card debt) and encourage repayment of these debts through a Chapter 13 repayment plan. The first part of the means test determines whether your current monthly income is less than your state’s median income for a household of your size.

If your family’s income is less than your state’s median income for a family of your size, you PASS the means test. There is no other testing and you can proceed with a Chapter 7 bankruptcy. The current state median income figures can be found at the U.S. Trustee’s website: http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm.

If your family’s income is more than your state’s median income, you must complete the means test worksheet to calculate if you have (or should have) money to repay unsecured creditors. In the end if you are able to pay a significant portion of your unsecured debt, you will FAIL the means test and cannot file a Chapter 7 bankruptcy.

The truth is that most debtors pass the means test without any difficulty based upon their income. Others pass the means test after a skilled bankruptcy attorney has examined your income sources and made certain elections in completing the calculation. That is not to say that the test can be manipulated! On the contrary, the skilled bankruptcy attorney will work within the bankruptcy statutes, rules, case law, and local interpretations (which can vary a great deal among jurisdictions!) to obtain the best result from the means test.

If you would like to “test-drive” the means test, Nolo Publishing has a free on-line calculator. The Nolo calculator uses the language and formatting of Official Form B 22A, the means test form required in Chapter 7 bankruptcy cases. Be warned: passing the means test can be complex and is more than simply crunching numbers!

If you have questions or concerns about passing the means test, seek out competent legal advice. An experienced bankruptcy attorney can guide you through the means test to reach the best possible result for your circumstances.
 

Chapter 7 bankruptcy is generally a numbers game between the bankruptcy trustee and the debtor. The trustee seeks to liquidate the debtor's non-exempt assets to pay creditors, and the debtor tries to avoid liquidation of any property. When property is identified by the trustee as non-exempt, the trustee may ask the debtor to turn over the property (or its cash equivalent). The trustee will then liquidate the property and distribute the proceeds to creditors.

The United States Trustee Program reports only around four percent of all Chapter 7 bankruptcy cases are “asset cases.” In other words, statistically only one case in twenty-five has an asset that can be converted to cash and distributed to creditors. Some common types of non-exempt assets include:

• Cash money
• Tax refund
• Vehicle equity
• Home equity
• Misidentified financial account
• Unlisted property

Whenever a non-exempt asset is found by the bankruptcy trustee, the debtor’s case comes under greater scrutiny, the case is generally prolonged while the asset is administered, and creditors are invited to file proof of claims to participate in the distribution of the asset.

The key to keeping property during a Chapter 7 bankruptcy is early identification and full disclosure with your bankruptcy attorney. Poor communication between the client and attorney is usually the cause of “at risk” property. Every bankruptcy attorney has a story about a client who informs the trustee at the 341 meeting of creditors, “I didn’t tell my attorney about this property, but. . .” This story seldom has a happy ending for the client and usually results in the loss of that property.

There are many ways to protect property during a Chapter 7 bankruptcy. Be sure to discuss all of your assets with your attorney. If you have doubts whether you have an ownership interest in property, discuss it with your attorney. Your attorney can provide you legal options to protect your assets and avoid “at risk” property. 

A bankruptcy discharge is a permanent court injunction prohibiting creditors from enforcing certain obligations against the debtor. While the bankruptcy discharge does not actually “erase” a debt, it prohibits any collection against the debtor personally. In plain terms, the debt is no longer legally enforceable against the debtor and the creditor can no longer engage in any type of collection activity such as; letters, phone calls, threats of criminal proceedings or other adverse actions brought about with the purpose of debt repayment.

The purpose of the discharge injunction is to provide the debtor with a fresh financial start, free of the pressures of former debt. Violation of the bankruptcy discharge is a serious matter. A willful violation of the discharge injunction constitutes contempt of court. The violator (often called the “contemnor”) may be penalized for this conduct, including a hefty fine and payment of attorney fees.

Recently United States Bankruptcy Court Judge Enrique S. Lamoutte discussed the liability of a creditor that sold a discharged debt and the subsequent purchaser attempted collection action. This is practice is often referred to as “zombie” debt collection. The debt is legally “dead,” and the collector attempts to “bring it back to life” through direct collection efforts.

In the case of Laboy v. FirstBank Puerto Rico, Judge Lomoutte reminds creditors that they "are obligated to maintain procedures to ensure that they do not violate [the discharge injunction], and may be held liable for damages and attorney's fees if they do not.” He concluded that FirstBank had knowledge of the bankruptcy filing and discharge and that its actions in selling the debt to a debt collector some 15 years after the bankruptcy discharge violated the discharge injunction.

If you receive contact from a debt collector concerning a discharged debt, notify your bankruptcy attorney immediately. This may be an innocent error, or it may be a zombie debt collector on the prowl. Either way, you should contact your bankruptcy attorney and chase these zombies debts back to the grave!
 

In response to many criticisms of its Home Affordable Modification Program (HAMP), the Obama Administration recently announced significant changes intended to speed the modification process and clarify eligibility. Under the new guidelines, mortgage lenders must pursue early intervention to determine borrower eligibility under HAMP, and may not refer any loan to foreclosure until the borrower has been determined ineligible for the program. New timeframes have also been implemented and homeowners can expect a modification decision within 30 days.

The new HAMP guidelines require participating lenders to use principal reduction as a primary means of reducing borrowers’ payments where loans are more than 115 percent of the current home value. Borrowers that are current on their mortgages may qualify for refinancing at a low interest, fixed rate loan insured by the FHA, provided that the lender agrees to reduce the principal for the total combined debt to no more than 115 percent of the home’s value. This provision is meant to encourage lenders to reduce principle for those property owners with negative home equity.

Another important change is a clarification that debtors in bankruptcy must be considered for HAMP. A request for consideration for a modification while in bankruptcy may be made by the debtor, the debtor’s attorney, or by the bankruptcy trustee. This provides a yet another tool for the bankruptcy attorney to save a home mortgage from foreclosure and negotiate terms that the debtor can afford.

To qualify for a loan modification under HAMP, the borrower must:
• Be the owner-occupant of a one- to four-unit home;
• Have an unpaid principal balance that is equal to or less than $729,750 for a single-unit home (other limits apply for multi-unit homes);
• Have a first lien mortgage that was originated on or before January 1, 2009;
• Have a monthly mortgage payment (including taxes, insurance, and home owners association dues) greater than 31% of your monthly gross (pre-tax) income; and
• Have a mortgage payment that is not affordable due to a financial hardship that can be documented.

The combination of a bankruptcy and a HAMP loan modification may help some borrowers save their homes and stabilize their family finances. If you are in financial trouble, consult with an experienced bankruptcy attorney and discuss your options. Don’t be a victim of debt! Take control today.

Many homeowners participating in the federal “Making Home Affordable” program, a federal mortgage assistance program, have found that the program benefits have not lived up to the political promises.  Homeowners have discovered that this refinance process is not only difficult, but in some cases can be destructive to their credit.

The Making Home Affordable program is a $75 billion dollar loan modification program aimed at helping homeowners refinance their mortgages to terms they can afford.  The program is actually two refinance processes: first, a refinance program for homeowners with Fannie Mae and Freddie Mac loans; and second, a modification program for everyone else.  The “everyone else” program is the “Home Affordable Modification Program” (HAMP).  Under HAMP, homeowners who have experienced financial difficultly (e.g. a job loss or high medical bills) and are struggling with their current mortgage payments can reduce their mortgage payment by lowering their interest rate up to two percent and extending the repayment period up to 40 years. 

While the promise of refinance sounds like a blessing, the process can be both slow-moving and full of unexpected surprises.  For instance, to qualify under HAMP the homeowner must, among other requirements, make all mortgage payments on time for a three-month trial period.  In essence, the program requires timely payments that you can’t afford before the loan can be modified to a payment you can afford! 

Homeowners who seek assistance under HAMP are also surprised by an immediate reduction of their credit score during the three month repayment period.  By applying for a home loan modification, you are announcing to the credit industry that you are experiencing financial difficulty.  This can lower your credit score by up to a staggering 150 points, making it difficult to obtain other types of credit including auto loans.  This initial drop can only be rectified over time.

If you are experiencing financial difficulty, educate yourself to all your legal options.  Only an attorney can advise you regarding your legal options including bankruptcy, debt settlement options, and government assistance programs.  An experienced bankruptcy attorney can help you evaluate your financial position and choose the right option for your family.

Student loans are extremely difficult to discharge in bankruptcy. The bankruptcy code states that a debtor may obtain a discharge of a government-sponsored student loan only if repaying the debt would impose an “undue hardship” on the debtor and his dependents.

Proving undue hardship is more difficult than it sounds. The bankruptcy code requires the debtor to file an adversary action and have a hearing to determine whether repayment of the debt would constitute an undue hardship. At that hearing the bankruptcy court may require proof that: 1) the debtor cannot maintain a minimal standard of living and also repay the loan; 2) the debtor’s financial inability to repay the loan is likely to continue for a significant portion of the loan’s repayment period; and 3) the debtor has made a good faith effort to repay the loan. If the debtor is successful in proving undue hardship, the student loan debt will be discharged by the bankruptcy court.

Even though the bar for discharging student loans is set extremely high, it is often equally challenging for a creditor to “prove” its debt during a Chapter 13 bankruptcy case. The Chapter 13 claims process may be used by the debtor to obtain a judicial determination of what is owed. A student loan is a contract and the debtor may ask the creditor to produce the contract, to prove that the current creditor has standing to collect on the loan, and prove the current amount owed. During the claims process the burden is on the creditor to prove both that you owe the debt as well as the amount. This may be difficult for a creditor if the loan has changed hands multiple times.

While discharging your student loans may be difficult, the bankruptcy laws offer several benefits including temporary relief from the bankruptcy automatic stay and a chance to make payments through a court supervised Chapter 13 plan. Additionally, non-bankruptcy options are available including deferment, forbearance, loan forgiveness, and income contingent repayment plans. If you are experiencing financial difficulty and have student loans, consult with an experienced bankruptcy attorney and discover your options.

When a consumer bankruptcy case is filed, a trustee is appointed to oversee and administer the case. The trustee does not represent the interests of the debtor and cannot give legal advice, which is the role of your bankruptcy attorney. However, it is important to cooperate with the trustee and any request for information.

The issue of a debtor’s duty to cooperate with the trustee was recently litigated in the case of In re Royce Homes, LP. 2009 WL 3052439 (Bkrtcy. S.D.Tex.). In that Chapter 7 case the trustee requested financial documents and information from a corporate debtor. In response to the request the debtor provided access to “storage facilities containing stacks of documents and old computer servers, most of which are wholly unresponsive to the Trustee's request.” The trustee filed a motion asking the bankruptcy court to compel the debtor’s cooperation.

In deciding the matter the court cited several sections of the bankruptcy code and rules which require debtors to cooperate with the trustee. Notably section 521(a)(3) requires the Debtor to “cooperate with the trustee as necessary to enable the trustee to perform the trustee's duties under this title.” The court ordered the debtor to provide the specific information that the trustee had requested, rather than simply dumping documents or permitting access to records. The court emphasized the debtor’s duty to cooperate by stating, “It is well settled that a [trustee] should not be required to drag information from a reluctant and uncooperative debtor. Because of the extraordinary relief offered under the Bankruptcy Code delay and avoidance tactics are inconsistent with, and offensive to, its purpose and spirit.”

Cooperation with the trustee is an important part of the bankruptcy process. Failure to cooperate or to testify truthfully could result in a discharge, or worse. Your bankruptcy attorney can help guide you through this process of disclosure with the trustee and protect your interests.
 

Effective April 1, 2010, certain dollar limits contained in the Bankruptcy Code will be increased. A full comparison of the current and changed amounts can be found by following this link. These most meaningful changes to consumer bankruptcy cases are:

• An increase of the eligibility limit for Chapter 13 from $336, 900 to $360,475 in unsecured debt, and from $1,010,650 to $1,081,400 in secured debt;

• The federal homestead exemption increases from $136,875 to $146,450; and

• The presumption of fraud for luxury items purchased with a credit card within 90 days of a bankruptcy filing increases from $550 to $600; and the presumption of fraud for credit card cash advances within 70 days of filing increases from $825 to $875.

Many other dollar amount increases will take effect on April 1, 2010, including increases to protected educational accounts, increasing restrictions to the bankruptcy trustee’s powers under certain circumstances, and increased protection for retirement accounts. In all, these increases will make the bankruptcy attorney’s job of protecting the consumer debtor a little easier, and make the bankruptcy process more accessible. Please note that these changes will only affect bankruptcy cases filed on or after April 1, 2010.

If you and your family struggle each month to pay bills, consult with an experienced bankruptcy attorney and discuss your financial options. There are many repayment and “walk-away” options available under the Bankruptcy Code. Get the facts and don’t let debt ruin your life.