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

Occasionally a client is under a misconception that a Chapter 7 bankruptcy discharge will erase all creditor interests in secured property.  In other words, after the bankruptcy there is no house loan or car loan, and the debtor is able to keep the house or car.  

A Chapter 7 discharge acts as a permanent court injunction prohibiting the collection of debts incurred prior to filing the bankruptcy case.  The discharge order stops creditor action against the debtor personally - no more lawsuits, phone calls, or collection letters.  However, the creditor may pursue any legal claim against a debtor's property. 

To understand a collection action against a debtor's property (called an "in rem" action), let's examine a typical auto loan.  The creditor and the debtor enter into a contract wherein the debtor personally promises to make payments on the loan and the creditor promises to not repossess the car as long as these payments are made. The loan is secured by the auto and a lien is recorded with the state.  When a debtor receives a bankruptcy discharge, the creditor is prohibited from collecting on the contract, but the discharge does not (generally) extinguish the lien.  Consequently, the creditor can repossess the auto at the end of the bankruptcy case when done in accordance with state law.  The creditor may not sue the debtor to recover money on the contract. 

The general rule is that secured property must be paid for or returned to the creditor.  For this reason a reaffirmation agreement is often used during a Chapter 7 bankruptcy case.  A reaffirmation agreement is a new contract in which the debtor agrees to continue personal liability on a secured loan and the creditor agrees to not repossess the property.  The reaffirmation agreement continues the personal liability of the debtor, despite the bankruptcy discharge.  Reaffirmation agreements are only available to Chapter 7 debtors and the agreement must be executed before the bankruptcy discharge is entered.  The debtor can revoke the agreement with 60 days after the agreement is signed. 

Failure to timely execute a reaffirmation agreement causes the automatic stay to be lifted and the property is longer a part of the bankruptcy case.  The property then be repossessed by the creditor, even though you are current on the loan.  This situation recently was discussed last year in the Ninth Circuit Court of Appeals case Dumont v. Ford Motor Credit Company 

If you have an auto loan, home loan, or other secured property you want to keep after your Chapter 7 bankruptcy, discuss your options with an experienced attorney.  The federal bankruptcy laws offer many options for protecting property and your attorney can help you select the right decision for you and your family.

While the Bankruptcy Code does not permit a bankruptcy court to modify the terms of a home mortgage, a second mortgage that is entirely unsecured may be stripped away during a Chapter 13 bankruptcy.  For example, if you own a home that is presently worth $200,000 and the first mortgage balance is 200,001, any additional mortgage lien may be stripped away since that debt is not secured by any value in the home.  The debt is reclassified as unsecured, is treated as unsecured during the bankruptcy, and is subject to discharge at the end of the case.  However, if the debtor does not successfully complete the Chapter 13 case, the lien stripping benefit is lost. 

The most important part of the lien stripping process is obtaining an accurate valuation of the property.  Most courts agree that the appropriate time for valuing the property is at the time of the Chapter 13 confirmation hearing, not at the time the bankruptcy case was filed.  This may be several months after you file your Chapter 13 case.  A professional appraisal and other evidence of the value of the property are necessary for successful lien stripping. 

Lien stripping may not require both debtors to file bankruptcy.  In a recently decided case in Michigan, a married couple owned property, but only the wife filed bankruptcy.  She then filed an adversary case against a lien holder to strip away an entirely unsecure second mortgage.  The lien holder attempted to join the husband to the lawsuit, but the bankruptcy court refused.  The court granted the wife's lien stripping motion saying that, since there was no equity,  the bankruptcy estate had no interest in that property.  Under Michigan law (and in many other states) a married couple holds a home jointly as tenants by the entirety.  This is a special legal ownership status where each party owns an undivided whole of the property, as a single legal entity.  The bankruptcy court found that both spouses do not have to be included in the lawsuit even though both spouses receive the benefit of the stripped lien.  This case is currently on appeal. 

In today's economy where many homes have lost value, lien stripping second mortgages in bankruptcy is becoming commonplace.  If you have a second mortgage and need bankruptcy relief, consult with an experienced bankruptcy attorney and discuss your options.  There are many ways to save your family home using the powerful federal bankruptcy laws.

The word bankruptcy is derived from two Latin words, bancus, meaning “bench,” and ruptus, meaning “broken.”  The term was used to describe the breakup of a tradesman’s business (often resulting in physically breaking the tradesman’s table or bench, signifying the end of the business).  Early bankruptcy laws were concerned with protecting creditors from insolvent businesses.  Usually this meant total liquidation of the business.  In some cases a creditor could have the tradesman imprisoned for non-payment of a debt. 

Modern bankruptcy law in the United States is more forgiving and promises the individual creditor a fresh start.  The United States Bankruptcy Code is enacted by Congress via authority granted by Article I, Section 8 of the United States Constitution.  United States bankruptcy laws have evolved to protect the honest, but unfortunate debtor and provide a discharge of overwhelming debts.  Debtor’s prisons were abolished in the United States. 

The cornerstone of the bankruptcy fresh start is the bankruptcy discharge, a permanent court injunction that prohibits creditor collection against the debtor.  The bankruptcy discharge is available to individual debtors and is generally ordered at the end of the bankruptcy case.  A discharge is not available to a non-individual, like a businesses or corporation.  The discharge order forbids creditors from contacting the debtor to collect on a debt, or taking legal action against the debtor personally.  The bankruptcy discharge is very broad and is enforced through a contempt action with the bankruptcy court. 

Certain debts are not affected by the bankruptcy discharge including child support obligations, debts obtained by fraud, criminal fines or restitution, most student loans, and certain taxes.  While these debts are non-dischargeable for policy reasons, other common debts like medical bills and credit card debts are discharged by the bankruptcy.  The Bankruptcy Code offers certain protections to the debtor to repay non-dischargeable debts during a bankruptcy case. 

If you are struggling with debts and need a fresh start, discuss your options with an experienced bankruptcy attorney.  The modern bankruptcy law offers many legal options for paying or discharging personal debt.  Learn how a bankruptcy discharge can start you on a path to a fresh financial start.

There is an old saying in the bankruptcy world, “Pigs get fat, hogs get slaughtered.”  It means the honest, but unfortunate bankruptcy debtor will keep enough property to live comfortably and then some.  On the other hand, when the debtor conceals assets, hides income, or attempts to keep more than legally entitled, the bankruptcy process may serve up the hoggish debtor on a silver platter. 

We may be witnessing a good old fashioned hog roast in the media.  Teresa Giudice, star of the Bravo television show The Real Housewives of New Jersey, is embroiled in a fight with a New Jersey bankruptcy trustee.  Teresa and her husband Joe filed for Chapter 7 protection in late October, 2009, but have yet to receive a discharge from the bankruptcy court.   

On June 30, trustee John W. Sywilok filed an adversary complaint seeking to deny the Giudice’s bankruptcy discharge.  The trustee alleges that the Guidices “concealed documents, records and papers from which the Defendant's financial condition or business transactions could be ascertained.”  The trustee also complains that the Guidices failed to disclose financial or ownership interests in several businesses, including a pizza parlor and a Laundromat, as well as a book written prior to the bankruptcy.   

Recently the trustee produced documents showing that the Giudices when on a $60,000 shopping spree before and after filing bankruptcy.  During court testimony reported by the New York Post, Sywilok claimed that over $45,000 worth of furniture was purchased, and $11,000 of that just two days before filing bankruptcy.  

The trouble the Giudices face with the bankruptcy court is very real and very serious.  If the court determines that assets or income were intentionally concealed, the debtors may be denied a discharge.  An auction of assets has been ordered by the bankruptcy court, so a denial of discharge will mean that the Giudices lose their property, creditors will receive the proceeds of the auction (including a substantial payment to the trustee as compensation), and any remaining debt will survive the Chapter 7 case.  Consequently, the Giudices may face additional state court litigation on their debts and garnishment of future earnings.  If the case is egregious enough, the bankruptcy court may refer the case to the Department of Justice to investigate possible bankruptcy fraud, a federal criminal act.   

Regardless of the outcome, the Giudice case is an excellent example of how not to act before and during your bankruptcy case.  If you need relief from your debts and are willing to deal honestly and fairly with the trustee and your creditors, bankruptcy can discharge your debts and give you a fresh financial start.  Consult with an experienced bankruptcy attorney today and discover how the federal bankruptcy laws can help you and your family.

Individuals buried in debt need fast relief.  The required relief may vary from case to case, like relief from creditor harassment, from a lawsuit, or from a pending foreclosure.  Fortunately, the bankruptcy process provides you with immediate legal relief from the time you hire an attorney.  As your case progresses, the legal protections grow broader in scope and more powerful in effect. 

The first legal protection starts when you hire an attorney to represent you during your bankruptcy case.  This protection is derived from the federal Fair Debt Collection Practices Act (FDCPA).  Under the FDCPA a debt collector is prohibited from direct contact with a debtor who is represented by an attorney.  When you hire counsel you are able to forward all communication from a debt collector to your attorney, and the debt collector may no longer contact you directly.  This protection stops harassing phone calls and threatening letters from third party debt collectors while you and your attorney are preparing to file your bankruptcy. 

The second powerful protection commences the moment you file your bankruptcy case.  The bankruptcy automatic stay stops all creditor collection action immediately and automatically.  This legal protection applies to all creditors whether or not the creditor is aware of the bankruptcy filing.  The automatic stay is a legal protection that immediately stops any pending lawsuit, foreclosure, garnishment, or other legal proceeding.  The automatic stay is effective during the duration of your bankruptcy case. 

The final protection is the order of discharge that occurs at or near the end of your case.  The discharge order is a court injunction that prohibits discharged creditors from taking any kind of collection action against you personally.  The discharge injunction forbids a discharged creditor from sending bills, making collection phone calls, or filing a lawsuit to collect on a debt.  This protection is final and permanent.  Violation of this court injunction has serious consequences, and may result in a federal contempt of court charge. 

If you are experiencing a debt problem and need immediate relief, consult with an experienced bankruptcy attorney and find out how the bankruptcy process can help you.  Whether you need to stop harassing phone calls, or end a legal proceeding, bankruptcy’s powerful protections can eliminate your debt and give you peace of mind.

The worst thing about filing bankruptcy is agonizing over the decision to file.  Many people worry about under-going a grueling investigation concerning their finances, losing everything they own, and having to deal with a very public court proceeding.  The truth is that bankruptcy can be the best decision for someone drowning in debt. 

Once you decide to file bankruptcy, you will discover that the procedure is very simple and straight-forward.  The bankruptcy process essentially breaks down to an accounting to determine whether you have sufficient assets or income to pay something to creditors.  If you do, then your creditors will receive some payment and the rest of your debts are discharged.  If you don’t, then creditors receive nothing and are discharged.  There are a few narrow exceptions to discharging debts, like student loans, child support, and recent taxes, but most debts are dischargeable. 

Nearly all those who file bankruptcy are able to keep all of their property.  The United States Trustee Program reports that nationwide only around four percent of all Chapter 7 bankruptcy cases have assets that are turned over to the bankruptcy trustee.  That means one case in twenty-five may have non-exempt property that is taken and sold to pay creditors.  An experienced bankruptcy attorney is able to identify assets that may be at-risk and will advise the client regarding options for protecting the asset from turn-over. 

Many people are unaware that the bankruptcy process is quite private.  The press reports on celebrities who file bankruptcy, but unless you are famous or infamous, you will likely not receive any attention.  Newspapers no longer publish the names of individuals who file bankruptcy.  Notice of your bankruptcy is sent to your creditors, but not to your friends, family, bank, or your employer (unless you owe money to them). 

The typical debtor never sees the bankruptcy judge, and there is generally one meeting with a bankruptcy trustee.  This meeting will take place with other debtors and, while it is open to the public, it is rare that anyone other than debtors, attorneys, and an occasional creditor attends this meeting.  Most clients report being very nervous about meeting with the bankruptcy trustee, and are surprised at how fast and easy the meeting actually is. 

Many clients confess that bankruptcy was the best decision to discharge overwhelming debt.  Once the burden of debt has been lifted, you feel better and your financial condition can begin to improve.  If you are struggling with debt, speak to an experienced bankruptcy attorney and learn how the federal bankruptcy law can provide you with a fresh start.

When a large corporate bankruptcy hits the news chances are the company has filed for Chapter 11 bankruptcy protection.  The title of Chapter 11 of the Bankruptcy Code is “Reorganization” and while companies like General Motors or Washington Mutual make headlines, individuals are also eligible to file under Chapter 11. 

In some cases, Chapter 11 may be the only option for an individual to file bankruptcy.  Eligibility for Chapter 7 is dictated by a “means test” that determines the debtor’s ability to repay debts.  Those who are able to repay their creditors may consider Chapter 13, but debt limits may disqualify the debtor from Chapter 13.  The debt limits for Chapter 13 are currently $360,475 for unsecured debt and $1,081,400 for secured debt. 

An individual debtor who files for Chapter 11 bankruptcy protection will follow many of the same (or similar) procedures that apply to Chapter 13 cases.  The debtor must file a petition and schedules of assets, liabilities, income and expenses; a plan to pay creditors; and attend a meeting with a bankruptcy trustee.  The debtor is required to commit all disposable income to repaying debts for five years.  Disposable income in Chapter 11 is determined differently than in a Chapter 13 case.  The bankruptcy court compares the Chapter 11 debtor’s monthly income against the reasonable monthly expenses. The result may be different than the disposable income amount determined in a Chapter 13 case. 

Creditors are classified as secured creditors, unsecured creditors entitled to priority, and general unsecured creditors.  The debtor’s plan is submitted to creditors for approval and the creditors are entitled to vote to accept or reject the plan.  If the creditors reject the proposed treatment by the plan, the bankruptcy judge can still approve the plan, provided that creditors receive as much during the plan as they would receive if the debtor’s assets were liquidated.  Ordinarily a Chapter 11 debtor will receive a discharge after completing all plan payments. 

A Chapter 11 bankruptcy case is a complex legal proceeding requiring the leadership of a skilled and experienced bankruptcy attorney.  If you are considering a bankruptcy filing, consult with an experienced attorney and discover your legal options.
 

Usually by the time a person visits a bankruptcy attorney he has been struggling with overwhelming debt for months if not years.  Often the person’s creditors have not been paid for a considerable time.  It is not surprising that occasionally a person will forget to list a creditor in the bankruptcy paperwork.   

If an omitted creditor is discovered during the bankruptcy case, the law requires the debtor to file amended schedules and identify the creditor.  The debtor has an obligation to ensure all creditors are identified and receive notice of the bankruptcy case.  Intentionally failing to list a creditor can cause that debt to be declared non-dischargeable and survive the bankruptcy. In extreme cases the bankruptcy court may deny a discharge altogether. 

Sometimes even the most diligent debtor will forget a creditor.  Things get trickier if the omission is discovered after the bankruptcy case has closed.  How the debtor proceeds will depend on the court and the circumstances.  In many cases an omitted creditor is considered discharged as a matter of law.  If an unsecured creditor did not receive notice of the bankruptcy, but none of the debtor’s assets were distributed to creditors, many bankruptcy courts say the omission did not have any practical effect.  In these cases it didn’t matter that the creditor did not receive notice, the debt is discharged anyway. 

Conversely, if an omitted creditor loses the opportunity to receive money through the bankruptcy, the omission matters a great deal.  Under these circumstances the failure to include the creditor means the debt cannot be discharged and the debtor is stuck with paying the debt. 

A person who files a bankruptcy case without an attorney is called a pro se debtor.  “Pro se” is Latin meaning “for oneself;” in other words, you are on your own.  Being on your own during your bankruptcy may save a few upfront dollars, but can cost you plenty in the long run.  There are many negative consequences that are often unexpected and sometimes disastrous. 

The savings pro se debtors receive is minimal and the risk is great.  Attorney fees during bankruptcy are supervised by the United States Bankruptcy Court.  The federal bankruptcy law allows an attorney to collect reasonable compensation for services rendered during a bankruptcy case.  Consequently, bankruptcy attorneys charge similar fees in order to stay competitive, and attorneys must disclose their fee to the bankruptcy court.   

When you are represented by an experienced bankruptcy attorney you receive several benefits.  Your attorney brings years of experience and knowledge in areas including the Federal Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, the bankruptcy court’s local rules, federal bankruptcy case law, and state and federal exemption and collection laws.  Your attorney is also familiar with the bankruptcy judge, the bankruptcy trustee, and local creditor practices. 

When you are represented, you will have counsel at the Meeting of Creditors with the bankruptcy trustee.  The trustee assumes that a pro se debtor has made errors in the bankruptcy, and will grill the pro se debtor and scrutinize the bankruptcy case.  When you are represented, your attorney helps you answer any trustee questions, and can file motions and responses via the court’s electronic filing system.  When you are on your own you must mail or personally file documents with the court and must appear before the bankruptcy judge to reaffirm a debt. 

There are many misconceptions about the possibility of obtaining credit after bankruptcy.  The truth is that improving your credit score takes time and vigilance.  If you are willing to commit your attention to rebuilding your credit, your score will improve dramatically and quickly by following three easy steps. 

First, immediately after your case closes (usually soon after you receive your discharge), obtain your credit reports from the three largest credit bureaus: Experian, Equifax, and TransUnion.  You can obtain an absolutely free credit report from each of these companies by visiting this site: https://www.annualcreditreport.com 

Review your credit reports for errors.  All debts discharged by your bankruptcy should be listed as “Discharged in Bankruptcy” with a “Zero Balance.” There should be no activity reported on these accounts after the date you file bankruptcy.  Each credit bureau is required to provide assistance in correcting errors on your credit report.  Once the credit bureau has corrected the erroneous information it will send you an updated report. 

Second, obtain new credit.  Many debtors are reluctant to take this step either out of fear of rejection or fear of abusing available credit.  The only way to improve your credit score is to demonstrate a responsible use of credit over time.  Approximately 1/3 of your score is based on your payment history; 1/3 is your available credit; and 1/3 is various items like types of credit and length of credit history. Obtaining new credit is necessary to improve your credit score after a bankruptcy.   

Many debtors are amazed at receiving credit card offers in the mail just after they receive the bankruptcy discharge order.  Some of these offers carry very high interest and fees, so select your new credit card account wisely.  If you do not already have an installment loan, like a car loan or home loan, you should consider obtaining a secured loan from your local bank.  This loan is secured by a deposit held by the lender.  For instance, you deposit $500 in a savings account or CD, and the bank loans you $500.  If you decide to arrange a secured loan, make sure that the bank will report your monthly payments to the credit bureaus. 

Third, make your payments on time!  Bankruptcy is a serious negative mark on your credit report, but it stops all other negative reports.  Lenders place considerable weight on how you have handled your credit accounts since your bankruptcy.  One 30 day late entry on your credit report can significantly harm your credit score when coupled with a bankruptcy.  Safeguard your credit by ensuring your bills are paid on time. 

Rebuilding your credit is not difficult, but it takes time and vigilance.  Fixing errors on your credit report, obtaining new credit, and dealing with your creditors in a responsible manner are the three steps on the path to improving your credit score.  Make the most of your fresh start by taking these steps to improve your credit score.

The Federal Trade Commission has recently announced new rules that will prevent debt collection firms from charging customers up-front fees.  The FTC's new rules take effect October 27, 2010, and apply to telemarketing by for-profit debt settlement services, credit counseling services and debt negotiation companies.  These for-profit companies may not charge customer fees until a debt is successfully renegotiated, settled, or reduced.  The FTC rules do not apply to in-person or internet-only sales.  Nonprofit credit counseling services are also not covered by the new rules. 

Other new FTC rules set to take effect earlier, on September 27, 2010, forbid debt settlements from misrepresenting their services; require specific disclosures about costs and services; and mandate disclosures and fee protections available to customers who call in response to advertising.  These new rules are the FTC's response to thousands of consumer complaints to the Better Business Bureau and federal and state agencies. 

While under certain circumstances debt settlement can be a viable alternative to bankruptcy, debt settlement only benefits a small percentage of borrowers.  For most consumers, the remedy of debt settlement is worse than the illness of debt.  Debt settlement generally boils down to outlasting the creditor to the point that the creditor believes that bankruptcy is inevitable.  The creditor finally decides that some money is better than no money, but by that time the consumer has suffered serious harm. 

The debt settlement process contains many dangers including significant damage to your credit report, increased balances from fees and interest, creditor harassment, and possible litigation.  Many consumers are unaware that a settled debt is a taxable event.  Any forgiven balance that exceeds $600 is taxable income.  Debt settlement customers are often surprised by a bill from Uncle Sam after their debt is settled. 

Bankruptcy is generally a better choice for families struggling with overwhelming debt.  A bankruptcy can discharge your legal obligation to pay certain debts, or provide time to pay what you can afford through a court-supervised repayment plan.  There is no creditor harassment, increased fees, or litigation.  Any debt discharged in bankruptcy does not create a tax debt. 

One of the most beneficial aspects of a Chapter 13 bankruptcy is the Co-Debtor Stay.  This protection is designed to insulate the debtor from indirect creditor pressure through friends or relatives.  The Co-Debtor Stay prohibits collection actions against an individual who has a joint consumer obligated with the debtor in bankruptcy.  The Co-Debtor Stay starts automatically when the Chapter 13 bankruptcy case is filed and continues until the case is closed, dismissed, or converted to Chapter 7 or 11. Free Consultation 

The Co-Debtor Stay is intended to protect the bankruptcy debtor, not the co-debtor.  The Co-Debtor Stay does not eliminate the co-debtor’s legal obligation to pay the debt.  However, the Co-Debtor Stay prevents collection action by the creditor against the co-debtor during the pendency of the Chapter 13 case.  Free Consultation 

There are some limitations to the Co-Debtor Stay.  The Co-Debtor Stay is only available in a Chapter 13 case, and does not apply in Chapter 7 or 11 cases.  The Co-Debtor Stay does not prohibit collection action on business debts.  Finally, a joint obligation on a tax debt is generally not considered a consumer debt.

The Co-Debtor Stay can also be modified or terminated by the bankruptcy court.  A creditor may be successful in terminating the Co-Debtor Stay if your bankruptcy plan proposes to not pay the debt, if the creditor's interests would be irreparably harmed by continuation of the Co-Debtor Stay, or if the co-debtor received "consideration" for the debt (e.g. you cosigned a car loan for a relative, who actually owns the car). Free Consultation 

If a creditor knowingly violated the Co-Debtor Stay, the bankruptcy court may find the creditor in contempt of court and impose a fine and award damages, including attorney's fees. Any collection action taken by a creditor in violation of the Co-Debtor Stay is void. Free Consultation 

If you have joint debts and are considering bankruptcy, speak to an experienced attorney and discover the benefits and protections of a Chapter 13 bankruptcy.  A Chapter 13 bankruptcy case can stop collection action against you and your co-debtors, and give you time to repay or eliminate your debts.  An experienced bankruptcy attorney can help you analyze your financial situation and choose the best strategy for resolving your debt problems. Free Consultation