What is a Chapter 7?

A chapter 7 is a liquidation chapter. This means that a chapter 7 Trustee can sell or liquidate property to pay off your creditors. A chapter 7 Trustee can only sell property that is non-exempt. Most Debtors will find that all of their property is exempt.  Each state has its own exemption laws and some states opt into the federal exemptions. You should contact an attorney to discuss the exemptions that will apply in your case.  Generally, the debtor’s house, car, household furniture, electronics and pets will all be exempt. 
If there are no assets then a chapter 7 Trustee will issue a report to the court stating that they did not liquidate any property.  Then the case will proceed to discharge and be closed. If a Trustee does determine that there are assets to sell he will file a notice with the court and the creditors and proceed to sell the assets. The Debtor will receive a discharge but the case will not close until the assets have been sold and creditors have been paid in whole or in part.
In order to initiate a chapter 7 case a debtor files a petition with the bankruptcy court for the area the debtor lives.  In addition to the petition, the debtor must also file schedules of assets and liabilities; a schedule of current income and expenses and a statement of financial affairs
 After the case is filed the debtor must also provide a copy of the tax return for the most recent tax year to the chapter 7 Trustee assigned to the case. These must be sent 7 days prior to the 341 meeting or the case may be dismissed.  Debtors whose debts are primarily consumer debt have additional requirements. They must file: a certificate of credit counseling and all pay stubs if any received in the 60 days before filing. 
If you have any questions about Chapter 7 or Chapter 13 Bankruptcy, contact the attorneys at Fears Nachawati today. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com for a free consultation.

Credit Scores (Part 1)

In this series on Credit Scores, I will discuss the various types of credit reports and the factors which influence your credit score.  Credit reports consist of detailed information regarding an individual’s current and past financial obligations.  Credit scores are essentially a numerical grade of the information contained within the credit report.  These scores are used by credit card issuers, auto lenders, mortgage companies, and other lenders to judge the applicants financial responsibility prior to issuing credit. Remember you can obtain your free credit report from each agency one time per year at www.annualcreditreport.com.  Contact the attorneys at Fears Nachawati with any questions. 

  1. FICO Scores - FICO (otherwise known as the Fair Isaac Corporation), created the first credit scores in the 1950s. Since their creation, FICO scores remain the most widely used scoring model by lenders with over an estimated 90 percent of the market share in 2010 of scores sold to firm for use in credit related decisions.  Although there are different FICO scoring models, the scores generally range from 300 to 850.
  1. Credit Reporting Agency Scores - Credit Reporting Agencies (Equifax, Experian and TransUnion) each utilize their own scoring model, which causes scores to vary among the three main agencies.  These scores were originally created to predict performance on credit obligations.  However, today these scores are primarily used as educational scores for consumers.  Each agency uses differing ranges of scores.  For example:
    • Equifax’s Credit Score ranges from 280 to 850.

    • Experian Plus Score ranges from 330-830.

    • TransUnion TransRisk New Account Score ranges from 300-850.

  1. VantageScore - VantageScore is produced by VantageScore LLC, which is a joint venture of the three credit reporting agencies.  It was developed as a competitor to FICO. VantageScore results range on a scale from 501-990.
While there are multiple credit scores, as noted above, the credit score of primary concern is the FICO score.  The FICO score is generally based on five categories, each of which are weighted to have a varying impact on the overall score.  These categories, sorted by overall importance, are:
  • -Payment History (35%)
Credit payment history is one of the most important factors in a FICO score.  Lenders, who want to know whether you’ve paid past credit accounts on time, place a heavy reliance on payment history.  While a few late payments may not have a major impact on the credit score, numerous late payments, or a history of routinely late payments, will significantly drop the credit score.  FICO specifically looks at how late the payments were made, how much was owed, how recently the late payments occurred, and how many late payments are on the account.  Typically, late payments are reported as either 30 days late, 60 days late, 90 days late, 120 days late, 150 days late, or a charge off.  It is important to note that when a debt is “charged off,” it does not mean that debt is no longer owed.
Account types considered for payment history include credit cards, retail accounts (i.e. department store credit cards), installment loans, finance company accounts, and mortgage loans.  Public records and collection items also fall under the payment history category, which include the filing of bankruptcy.  Paying accounts on time, or a good track record on most of your accounts, will have a positive influence and increase your credit score.
  • Amounts Owed (30%)
The second leading influence on credit scores is the amount of debt owed on specific accounts.  Credit scores are affected by the number of accounts you have with balances.  In addition, the proportion of credit limits utilized will affect the credit score as well.  For example, when someone is approaching their credit limit on a card, this may indicated that they are overextended and more likely to make late or missed payments.
  • Length of Credit History (15%)
As the category suggests, the length of time your credit account has been open influences your credit score.  Having numerous recently opened accounts will negatively impact your score.  In addition, the length of time from your last activity on an account may also lower your score.
  • Types of Credit in Use (10%)
Credit scores are effected by total number of open accounts you have and the overall makeup of that mix of credit.  It is not necessary to have each type of credit account considered to establish good credit.  However, it is also important not to open a lot of accounts you do not intend to use.  
  • New Credit (10%)
The number of recently opened accounts will effect the credit score.  Opening multiple credit cards in a short period of time may negatively effect your score.  In addition, running up high balances on recently opened cards will also have a negative impact.  
Credit inquires also fall into the New Credit category when determining the credit score.  Checking your credit report will not effect your credit score as long as the report is obtained directly from the credit reporting agency.  Reports from all three may be obtained for free from www.annualcreditreport.com.  Multiple credit inquires from creditors may negatively impact your score.  However, numerous inquires in a short period of time, such as when shopping for a car, are typically treated as a single inquiry and will have little impact on the overall credit score.

The Typical Chapter 7 Timeline

 A lot of my clients have not previously filed for bankruptcy.  One of the most common questions is gaining an understanding of the general timeline and process of your typical Chapter 7 Bankruptcy.  In general, Chapter 7 is the quickest bankruptcy to complete.  The typical Chapter 7 case is completed within three to six months of the filing date.  Keep in mind, before you can file a Chapter 7 bankruptcy, you need to complete your pre-filing Credit Counseling Course from a certified credit counseling agency.  You must also qualify for Chapter 7 by passing the Means Test, which will be completed by your attorney and filed as part of your petition and schedules.

After your case is filed, the Court will assign a Trustee to your case and schedule the Section 341 Meeting, otherwise known as the Meeting of Creditors.  This meeting generally takes place around 30 days after the case was filed.  It will be held by the Trustee assigned to your case.  All of your creditors are invited to attend the meeting, however, creditors rarely attend.  At the meeting, you will discuss the schedules filed in your case and provide a brief explanation on what caused you to file for bankruptcy.  These meetings typically last 10 minutes.
Creditors have 60 days from the completion of the Meeting of Creditors to file an objection to discharge.  Assuming there are no objections, you should receive your Discharge Order roughly 60 days after your Meeting of Creditors.  Once the Discharge is entered by the Court, your case will be closed and your Bankruptcy will be completed.  Please see our series on rebuilding credit after your bankruptcy for further discussion of how bankruptcy affects your credit. If you have any questions about Chapter 7 or Chapter 13 Bankruptcy, contact the attorneys at Fears Nachawati today. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com for a free consultation.

What If I Don't Qualify for Chapter 7 Bankruptcy

In order to file Chapter 7 Bankruptcy, you will need to complete and pass a Means Test, which is filed as part of your bankruptcy paperwork with the Court.  In general, the Means Test takes a six month look at your income and compares that with the median income for a similar family in your state.  If you earn more than the median income, minus allowable expenses, and show enough disposable income to pay back your creditors while maintaining a minimal standard of living, you may not qualify for a Chapter 7 bankruptcy.  However, this does not mean you cannot utilize the protection of the bankruptcy court to help you resolve your financial difficulty.

In the event you do not qualify for a Chapter 7 Bankruptcy, you may still qualify for a Chapter 13 Bankruptcy.  Under Chapter 13, your attorney will calculate a payment plan, which generally ranges from 36-60 months, to provide payments to your creditors in line with your budget.  At the completion of your bankruptcy plan, you are entitled to a discharge of the remaining debt, subject to certain restrictions.  Your bankruptcy plan may only provide for a return of a certain percentage of your unsecured debt, such as medical bills and credit cards.  In the event there is a portion of this debt remaining, it is subject to discharge at the end of the case.  While Chapter 13 takes longer to complete than a Chapter 7, you are still protected from collection efforts, foreclosure, repossession, and lawsuits while you are in an active bankruptcy.  Although you will be placed on a budget, you will have peace of mind by being protected from your creditors while maintaining a manageable payment plan to help get you on the right financial path.

If you have any questions about Chapter 7 or Chapter 13 Bankruptcy, contact the attorneys at Fears Nachawati today. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com for a free consultation.


File Bankruptcy and Buy a New Car!

It may sound funny, but a new car purchase and a bankruptcy filing often go hand-in-hand. Bankruptcy reorganizes personal finances, and sometimes purchasing a new car is part of that reorganization. 

Chapter 7
In some Chapter 7 cases it may be advantageous for an individual to purchase a new car before filing bankruptcy. If the individual has a good enough credit score, it may make sense to purchase a new car since credit rates and terms may change after the bankruptcy is filed. 
In other cases it makes sense to purchase a new vehicle after a Chapter 7 bankruptcy filing. Individuals with very bad credit and outstanding debts may find that they are unable to finance a vehicle before filing bankruptcy. However, after the bankruptcy is filed, financing may be available. Why?
  • •The individual has resolved the outstanding debts;
  • •The individual’s debt –to-income ratio is usually low;
  • •The Chapter 7 debtor can only receive one Chapter 7 discharge every 8 years;
Some lenders will approve a new car loan immediately after the debtor files bankruptcy with the assistance of an attorney; others require that the debtor first attend the 341 meeting; and still others require that the debtor receive a discharge before approving a loan.
Chapter 13
Like a Chapter 7 debtor, an individual contemplating Chapter 13 bankruptcy may find that purchasing a new car before filing bankruptcy is in his or her best interest. A unique feature of Chapter 13 is the ability to “cram-down” many vehicle loans. In 2005, Congress (at the behest of big banks) stopped debtors from cramming-down vehicle loans to value unless the loan is older than 910 days (approximately two and a half years). However, many bankruptcy courts will allow a Chapter 13 debtor to cram-down the interest rate, and sometimes any negative equity from a trade-in that was rolled into the loan.
What this means is that if you purchase a new car before Chapter 13 bankruptcy, you may be able to use the bankruptcy laws to reduce the interest rate, the term (and pay up to five years), and in some cases strip off negative equity. Since success in Chapter 13 depends on predictable finances, controlling auto expenses and repairs in critical. As a side note, a new car purchase may also be attractive in situations where there is excess disposable income. The individual may be faced with an option of paying on a new car or paying unsecured creditors (like credit cards or medical bills).
A debtor may also purchase a new car during after filing Chapter 13 bankruptcy. A Chapter 13 bankruptcy is a three to five year repayment plan under the supervision of the federal bankruptcy court. Consequently, the debtor must have the approval of the bankruptcy court before incurring a new car debt. Obtaining Court approval can be difficult to navigate and always depends on the debtor’s financial situation.
Auto loans are often a large part of an individual’s finances. The individual’s automobile situation should be discussed and all options reviewed before filing bankruptcy. In many cases a purchasing a new car is a sound financial management.
If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Will Filing Bankruptcy Effect my Job?

The stress of filing for bankruptcy is extremely hard on individuals and families. Most individuals going through the bankruptcy process are stressed, tired of creditors calling and just want to get their financial situation in order. The last thing that you want to worry about the effects that bankruptcy has on your job and employment opportunities.  

If you file for a Chapter 7, then most employers will not find out about the case.  While Court documents are typically public information, the only way an employer will generally find out is if you tell them, or if a creditor has began the process to garnish your wages.  Although there is no wage garnishment in Texas for consumer debt, filing for bankruptcy will stop withholding your wages. If you file for a Chapter 13, then there is a possibility that the judge will order your Chapter 13 payments to be deducted from your earned income. In that case, your employer will be notified.

Filing for bankruptcy has no impact on your employment.  According to 11 U.S.C. § 525(b), no private employer may terminate employment, or discriminate, against an employee for filing bankruptcy. You cannot get fired nor will you be refused a position due to filing for bankruptcy. However, it may be wise to speak to your employer about your financial situation. Some people who have a lot of debt or are considering bankruptcy have a lot of weight on their shoulders. Being open and honest with your employer will allow them to create an environment that is comfortable for you to resolve your personal matters. 

Can I Keep My Anticipated Tax Refund if I File Chapter 7?

A Chapter 7 bankruptcy is an erase-your debts-start-fresh bankruptcy. It is meant to give an individual a chance to begin anew on a financial path without the burden of overwhelming debts dragging him or her down. On the other hand, Chapter 7 bankruptcy is not intended as a way to legally hide from debts the person can afford to pay.

That tension that felt most keenly when dealing with an individual’s income tax refund during Chapter 7 bankruptcy. On the one hand, the debtor is excited about his Chapter 7 “fresh start” and is eager to use his after-bankruptcy tax refund to help him along with his new financial future. On the other hand, his creditors are eyeing his income tax refund as a pre-bankruptcy asset that should be used to repay his debts.

Both creditors and debtors have a claim on the debtor’s anticipated income tax refund. The debtor is entitled to the refund, even though it is not yet received. Consequently, the debtor’s interest in receiving this refund must be included in the debtor’s bankruptcy estate. Because it is property of the estate, the debtor is able to use legal exemptions to protect all or a part of the tax refund.  The remaining non-exempt portion must be paid over to the bankruptcy trustee for distribution to creditors.  Often debtors are able to exempt enough of an expected income tax refund that it will make the remaining sum de minimis, or so little that it is not worth the trustee’s time or effort to take and distribute the funds.

The debtor must turn over non-exempt tax money even if the refund is not received until after the debtor receives a discharge. The only timing that matters is whether the debtor had a legal interest in the income tax refund at the time he filed the case. When the refund is actually received by the debtor is of no consequence. In many cases a trustee will leave a debtor’s case open until the debtor has both filed and received his income tax refund. This may mean remaining in bankruptcy for many months longer than expected.

The best way to avoid income tax refund problems during bankruptcy is to file the case after the tax refund is both received and spent. Your attorney can direct you on how to spend your tax money and avoid further bankruptcy complications.

Another way to protect non-exempt money from an income tax refund is to apply the non-exempt portion of the expected income tax refund to next year's taxes. The IRS will keep the tax overpayment and use it for taxes owed in the future. The Tenth Circuit case of Weinman v. Graves, 609 F.3d 1153 (10th Cir. 2010) holds that the bankruptcy trustee cannot force the IRS to turnover a tax refund that is held to pay future taxes. The election to apply the refund to a future tax liability is irrevocable under section 6513(d) of the Internal Revenue Code. Consequently, the debtor’s interest in the refund when he files bankruptcy is limited to what is left after the IRS applies the money to next year's tax liability.

If you are considering filing bankruptcy and expect a large income tax refund, speak with an experienced bankruptcy attorney. Your attorney can discuss your options and help you choose the right course of action for the maximum financial benefit using the federal bankruptcy laws.

VA Benefits and Bankruptcy

With malice toward none, with charity for all, with firmness in the right as

God gives us to see the right, let us strive on to finish the work we are in,

to bind up the nation’s wounds, to care for him who shall have borne the

battle and for his widow, and his orphan, to do all which may achieve and

cherish a just and lasting peace among ourselves and with all nations.

- Abraham Lincoln, Second Inaugural Address, March 4, 1865


Abraham Lincoln is considered the father of the Veteran’s Administration, which arose out of the national desire to care for civil war veterans. From 2000 to 2013, the number of veterans who were receiving disability payments rose by almost 55 percent, from 2.3 million to 3.5 million. Some of these veterans are permanently and totally disabled, and unable to work. Some struggle with debts that they cannot pay with their monthly VA check.

It is important to have an experienced attorney working on your side if you file bankruptcy when in receipt of VA disability compensation benefits. Many debtors (and some attorneys!) believe that VA disability benefits are entirely excluded from the bankruptcy process. This is not true. Whether VA disability benefits are protected during bankruptcy can depend on the circumstances of the case.

Means Testing

VA disability compensation is included in the debtor’s Chapter 7 Means Test calculation. However, many veterans in receipt of VA disability can avoid the Means Test altogether if the individual is (1) a veteran who is entitled to compensation under laws administered by the Secretary for a disability rated at 30 percent or more, or (2) a veteran whose discharge or release from active duty was for a disability incurred or aggravated in line of duty. Additionally, the debts in the veteran’s bankruptcy case must have been “primarily” incurred while on active duty, or while performing a homeland defense activity. “Primarily” is generally interpreted by the bankruptcy courts as greater than 50%.

The Bankruptcy Estate

Even though VA disability compensation is used to determine the veteran’s eligibility to file Chapter 7 bankruptcy, these benefits are not part of the debtor’s bankruptcy estate. In other words, the VA disability compensation is protected from creditor garnishment and is also protected from the trustee during bankruptcy (although there are exceptions including federal offsets and child support debts). Generally, the debtor cannot be forced to use this money to pay creditors during bankruptcy. 

If you are receiving VA benefits and need bankruptcy relief, consult with an experienced attorney who can protect your money and discharge your debts. Your attorney can review your situation and advise you on the right way to avoid trouble during your bankruptcy case.

Do Bankruptcy Laws Vary from State to State?

Everyone knows that attorneys are masters at avoiding direct answers to simple questions. What is not commonly known is that what may seem like a simple question can actually be many compound questions in disguise. Take, for example, the question, “Do bankruptcy laws vary from state to state?” The simple answer to this question is “no and yes.” Here’s why:

 The “no” part:

The Bankruptcy Code is a uniform law enacted by Congress that applies to all bankruptcies throughout the United States. See Article 1, Section 8, Clause 4 of the U.S. Constitution. Federal bankruptcy courts have exclusive jurisdiction over bankruptcy cases, so state courts have no authority to decide bankruptcy cases. As a result, bankruptcy laws to not vary from state to state.

 The “yes” part:

The federal law allows states to decide what real and personal property is exempt (and therefore legally protected) during a bankruptcy case. In some states you may choose either from a list of federal legal exemptions or state exemptions, and in other states you may only use state exemptions. Consequently, a Chapter 7 bankruptcy debtor in Florida may be able to keep his home and protect its equity, while a Missouri debtor in the same situation may lose the house to the Chapter 7 trustee.

Additionally, how the bankruptcy laws are interpreted and applied can vary from jurisdiction to jurisdiction. For instance, currently Chapter 7 bankruptcy debtors in the Eleventh Circuit (Alabama, Florida, and Georgia) are allowed to strip off and discharge an entirely unsecured junior mortgage (i.e. the first mortgage entirely secures the value of the property meaning the junior mortgage is not secured by any value). No other jurisdiction allows this in Chapter 7 cases. Sometimes the United States Supreme Court is asked to resolve differences between the federal circuits, and, in fact, this issue is currently on appeal to the high court.

As you can see, “simple” questions on the law are often the toughest to answer. The best way to obtain legal advice for your financial situation is to sit down with an experienced bankruptcy attorney. Your attorney can explain how state and federal laws apply and how to use those laws to get the best result in your case.


Supreme Court to Hear Chapter 7 Lien Stripping Case

On November 17, 2014, the U.S. Supreme Court recently agreed to hear two cases that could have a major impact on debtors across the country. The cases are Bank of America v. David B. Caulkett and Bank of America v. Edelmiro Toledo-Cardona, two Chapter 7 cases on appeal from the Eleventh Circuit Court of Appeals (Alabama, Georgia, and Florida). In each case, the appellate court allowed the bankruptcy debtor to strip off an entirely unsecured junior mortgage held by Bank of America. While lien stripping second and third unsecured mortgages is common across the country in Chapter 13 cases, only the Eleventh Circuit has allowed Chapter 7 debtors to rid themselves of junior liens on their underwater homes.

Bank of America argues that the Eleventh Circuit holding is contrary to the Supreme Court case of Dewsnup v. Timm, which found that “liens pass through bankruptcy unaffected.” However, most courts limit the holding of Dewsnup in Chapter 13 cases to liens secured by equity. The question boils down to whether the Bankruptcy Code prevents a Chapter 7 debtor from stripping off a secured lien that is not secured by any equity in the property. Once the mortgage lien is extinguished and the debt is discharged, the lender has no recourse against the debtor or the property.

If the high court agrees with the Eleventh Circuit, that ruling may pave the way for debtors across the country to extinguish junior mortgages in Chapter 7 without payment. Supreme Court decisions are binding on all federal courts. 

"At-Risk" Property during Bankruptcy

Imagine that you sit down with your bankruptcy attorney for an initial consultation. You have worked hard all of your life and have acquired some personal property and real estate. You are scared and have important questions to ask. You start with the most pressing: “What will the trustee take if I file bankruptcy?” 

The lawyer on the other side of the table leans back and smugly relies, “It depends.”

That weasel-answer is, of course, technically correct, but it doesn’t even begin to answer your question. Let’s take a few minutes and begin to actually start answering your question.

Chapter 13 Trustee

A debtor does not generally lose property to a bankruptcy Chapter 13 trustee. A Chapter 13 bankruptcy is a repayment rather than liquidation bankruptcy. Consequently, the trustee may not seize or compel the sale of the debtor’s property, although in some cases a debtor may choose to voluntarily sell or surrender an asset for liquidation.

Chapter 7 Trustee

Unlike a Chapter 13 bankruptcy case, a Chapter 7 is a liquidation proceeding. The bankruptcy trustee is appointed to sell assets and pay unsecured creditors with the debtor’s property. Every debtor is able to protect certain property using legal exemptions – in many cases the debtor loses nothing. Legal exemptions are simply laws that protect a debtor’s equity in property, such as household furniture, clothing, and limited equity in a house.

A Chapter 7 trustee may compel the sale or turnover of property to reach “non-exempt” equity. The determination of non-exempt equity can be complex, but it always starts with a valuation of the property. Next, secured debts are subtracted. Finally, legal exemptions are applied to protect the unsecured equity. Anything remaining is the non-exempt equity that the Chapter 7 trustee can reach.

To illustrate, suppose you have a car worth $10,000, you owe $2,000 to a secured creditor (e.g. Ford Credit), and you have $3,000 in available legal exemptions. The calculation to determine any non-exempt equity is the fair market value of the car minus the amount you owe minus the legal exemption, or

$10,000 - $2,000 - $3,000 = $5,000 in non-exempt equity

The Chapter 7 bankruptcy trustee can demand turn-over of the car or payment of $5,000. The trustee may take and sell the car, pay the lender, pay you the $3,000 exemption amount, and pay the costs of the sale. The trustee keeps a percentage as his fee and divides the remaining amount among your unsecured creditors.

While it is unusual to disagree over the amount of exemptions, the debtor and trustee often have disagreements regarding the fair market value of property. In some cases the bankruptcy judge is asked to decide the value of an asset.

Non-exempt assets can be found in many sources. However, some assets are less attractive to the trustee because of the difficulties of selling the asset (e.g. a horse). Additionally, the non-exempt equity in an asset may be too little to bother. Here are a few of the easiest non-exempt targets for the trustee:

  • Cash money or bank deposit
  • Commissions earned but not paid
  • Lawsuit settlement or judgment
  • Income tax refund
  • Property transferred fraudulently, especially to a family member
  • High dollar unsecured property, like a house or vehicle

It is important to determine an accurate value of all property and to calculate all legal exemptions before filing bankruptcy. Then you and your attorney can discuss strategies for protecting your property.

Bibles are Often Exempt in Bankruptcy

When an individual files for Chapter 7 bankruptcy protection, the federal law requires an accounting of all property and assets. In most Chapter 7 cases, the bankruptcy debtor is allowed to keep all of this property through the application of legal exemptions. Common legal exemptions will protect equity in a car or house; clothing; household items; and some jewelry, including a wedding set.

Another common bankruptcy protection pertains to exempting a family bible from creditor collection. In the recent Illinois bankruptcy case of Robinson v. Hagan, a Chapter 7 bankruptcy trustee sought to take and sell a rare Mormon bible to pay the debtor’s creditors.

The debtor, Anna Robinson, worked at a local library and she saved a rare First Edition Mormon Bible from destruction. Robinson is a member of The Church of Jesus Christ of Latter-Day Saints, so the bible has great significance to her. Ultimately, the library gave her the bible and proof of ownership.

The bible was published in 1830 and is valued at over $10,000. Robinson keeps it sealed in a Ziploc bag due to its fragile condition. While she does not use the bible regularly, she has removed it from the Ziploc bag to show it to her family and fellow church members.

When Robinson filed for bankruptcy protection, her attorney listed the bible as “old Mormon bible,” and stated that “debtor has been told that there is a 100% exemption for bibles but valuable bibles may or may not be covered under such exemption.” The Chapter 7 bankruptcy trustee took this as an invitation to challenge the debtor’s exemption and claimed that Illinois exemption did not apply to a “valuable bible.”

The bankruptcy court agreed with the trustee, but the District Court for the Southern District of Illinois reversed. The District Court noted that the word “necessary” in the statute modified only the first listed item (“wearing apparel”) and not other items claimed exempt (“bible, school books, and family pictures”). Consequently, there was no need to examine whether the bible was “necessary” or to consider its value (although the Court did ask an interesting rhetorical question: What is a necessary bible?). The state legislature intended bibles to be exempt, no matter the monetary value.

There are several lessons to be learned from this case. The most important lesson is to not poke a Chapter 7 trustee with a stick. Another valuable lesson is to discuss the value of your property and the applicable legal exemptions with your attorney prior to filing your case. Your attorney is aware of cases interpreting legal exemptions and can help you identify property that may be at-risk.

What the Bankruptcy Trustee Will Not Tell You

While the bankruptcy process expects a debtor to “spill the beans” about his finances, there is no reciprocal obligation to help a debtor reorganize before, during or after bankruptcy. The bankruptcy trustee is ethically (and legally) forbidden from giving legal advice to a debtor. The trustee effectively acts as an advocate on behalf of creditors during bankruptcy. Let’s look at what the bankruptcy trustee cannot or will not divulge to a debtor:

The debtor can keep assets that are of no value to the bankruptcy estate. The Chapter 7 bankruptcy trustee is charged with finding assets that can be taken and sold to pay creditors. However, certain assets have little or no practical value (called de minimis, Latin for “very little value”). For example, a prized Beanie Baby collection that is worth $500 on eBay is of no interest to the trustee. Even if a buyer was ready and able to pay $500 for the collection, the trustee must make an accounting, open a bankruptcy estate, collect assets, send notices, and finally distribute money to creditors. The trustee expects to be compensated for his time, but with only $500 available, there is a good chance that the trustee will consider working at far below his hourly rate not worth the effort.

Legal advice. While the trustee is (usually) a licensed and experienced bankruptcy attorney (or CPA), the trustee is prohibited from giving the debtor legal advice. That is the case even if the debtor is acting pro se and has made a very serious and obvious mistake, and even if the debtor has hired a putz of an attorney who is inexperienced or incompetent.

The trustee’s office is understaffed and overworked. Whether it is the Chapter 13 standing trustee’s office or a Chapter 7 interim trustee, there is more work than hours in the day. Many bankruptcy errors, lies, and omissions are ignored for the sake of expediency. To illustrate, pretend that the debtor’s mother has loaned the debtor $300. The debtor received a tax refund of $300, paid her back, and then immediately filed bankruptcy. This repaid debt is a fraudulent transfer to an insider creditor. The trustee can avoid the transfer and demand the money from the debtor or his mother, but is that likely? Probably not. The costs involved for the trustee are too great and the benefit to creditors is too small. Suppose the debtor failed to account for this transfer in the Statement of Financial Affairs? Will the trustee seek to deny a bankruptcy discharge because of this perjury? Again, probably not. Now consider how the response might change if the amount at issue was $3,000? Or $30,000? Or $300,000?

File Bankruptcy and Live Longer?

Consumer bankruptcy attorneys have long known that filing bankruptcy can relieve personal stress. Clients burdened with overwhelming debt are able to “start fresh” after bankruptcy without the stress of debt collectors chasing them. Now there is evidence that filing bankruptcy may actually lead to a longer and more prosperous life.

Recently, a paper published by the National Bureau of Economic Research (NBER) examined 500,000 bankruptcy filings in the United States to measure the effect of bankruptcy laws on consumers. The authors, economists Will Dobbie and Jae Song, found that filing Chapter 13 “increases annual earnings by $5,562, decreases five-year mortality by 1.2 percentage points, and decreases five-year foreclosure rates by 19.1 percentage points.” The authors postulate that filing bankruptcy can also eliminate the disincentive to work after a paycheck garnishment. Once a paycheck is garnished, some individuals may stop working because the benefits of receiving a reduced paycheck are outweighed by the costs of working. Bankruptcy can stop a paycheck garnishment cold, and in some cases return garnished money to the worker.

The study theorizes that bankruptcy can help people live longer due to decreased daily stress in their lives. Chapter 7 bankruptcy can quickly eliminate unpayable debts, usually within 4 or 5 months. Chapter 13 bankruptcy can help protect a car from repossession and a home from foreclosure while the individual reorganizes personal debts over three to five years.

While the many financial advantages of bankruptcy are well-documented, the NBER study highlights some benefits of bankruptcy that may be overlooked. Now the bankruptcy debtor can not only look forward to a fresh financial start after bankruptcy, but also a wealthier and longer life.

Filing Chapter 7 after a Chapter 7 Discharge

Bankruptcy is meant to provide debt relief to honest, but unfortunate individuals. For some, bad luck seems to hang around a while. For others, bad luck seems to have moved in permanently. Unfortunate individuals with continuing or reoccurring debts may find relief through the federal bankruptcy laws which can provide a third, or even fourth opportunity to start fresh.

Eligibility for Chapter 7 discharge

There are a few wrinkles in the law for repeat Chapter 7 filers. First, the federal law limits the availability of a Chapter 7 discharge if an individual has received a Chapter 7 discharge in a previous case. Specifically, Section 727 of the Bankruptcy Code states that a court may not grant a Chapter 7 discharge if:

the debtor has been granted a [Chapter 7 discharge] in a case commenced within 8 years before the date of the filing of the petition.

This section confuses many debtors and some bankruptcy attorneys. The time period is measured between filing dates, not discharge dates. To illustrate, suppose a debtor files her first Chapter 7 case on January 3, 2010, and she receives a Chapter 7 discharge. She is eligible to file a second Chapter 7 case and receive a discharge on January 3, 2018.

It does not matter under what chapter the original case was filed. For instance, if a case was filed as a Chapter 13 on January 3, 2010, converted to Chapter 7, and discharged, the debtor is still eligible to receive a second discharge on January 3, 2018 (8 years after the filing date). This is because the original case commencement date did not change, even though the debtor converted to another bankruptcy chapter.

Eligibility to be a Chapter 7 debtor

The time limit contained in Section 727 is not a statute of limitations and does not disqualify the individual from filing Chapter 7 bankruptcy. There is no general limit to the number of times or frequency an individual may file Chapter 7 bankruptcy. That said, a debtor is ineligible to be a bankruptcy debtor for 180 days after the Chapter 7 case closes if it was dismissed:

  • by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case; or
  • after the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay.

See 11 U.S.C. § 109(g).

Applicability of the Automatic Stay

The Bankruptcy Code also limits the reach of the automatic stay in a case filed after a Chapter 7 discharge. The automatic stay is effective for only 30 days if you had a bankruptcy case pending within 365 days of the case filing. See 11 U.S.C. §§ 362(c)(3) and (4). The bankruptcy court may extend the automatic stay if your case is filed “in good faith” and you are not abusing the bankruptcy system. Even if the automatic stay is terminated, most courts find that the property of the bankruptcy estate is still protected from creditors. That may include your house or your vehicles. It would not protect you from garnishments of post-bankruptcy wages in a Chapter 7 case.

If lady luck seems to have lost your address, you may need to schedule another consultation with your bankruptcy attorney. A second Chapter 7 case may provide the means for another chance at a fresh start. 

The Most Important Document in Chapter 7 Bankruptcy

A Chapter 7 bankruptcy case is also called a “straight” bankruptcy. The idea is that the debtor does not have enough income to pay creditors over a reasonable period of time, so all unsecured creditors can recover is any money from the liquidation of the debtor’s non-exempt property. In most cases that means unsecured creditors receive (drum roll please). . . a big fat nothing.

At the end of your Chapter 7 bankruptcy case, the court will enter a discharge order. This order is a permanent injunction prohibiting the discharged creditor from taking any type of collection action against you, including:

  • Placing telephone calls to collect;
  • Sending collection letters;
  • Contacting third parties (e.g. friends, family) regarding a discharged debt;
  • Filing a collection lawsuit in state court; or
  • Taking state law collection actions, such as garnishing wages or seizing bank accounts.

The discharge order is not the only consumer protection you have, but it’s the only protection you need. The discharge order is the most important document in your Chapter 7 bankruptcy case and provides permanent peace of mind. Congress has commented that

The injunction is to give complete effect to the discharge and to eliminate any doubt concerning the effect of the discharge as a total prohibition on debt collection efforts. . . and is intended to insure that once a debt is discharged, the debtor will not be pressured in any way to repay it. In effect, the discharge extinguishes the debt, and creditors may not attempt to avoid that.

Senate report no. 95–989.

A creditor who knowingly violates the bankruptcy discharge order may be held in contempt of court. A court may impose civil contempt sanctions where there is clear and convincing evidence that (1) a valid order of the court existed; (2) the defendant had knowledge of the order; and (3) the defendant disobeyed the order. See e.g. Robin v. Woods, 28 F.3d 396 (3d Cir. 1994).

Keep your discharge order in a safe place after your case closes. It is your shield against future collection activity.

If you are considering filing for bankruptcy please contact the experienced attorneys at Fears | Nachawati for a free consultation. Call us at 1-866-705-7584 or send an email to fears@fnlawfirm.com .

Passing the Means Test isn't the End of the Story. . .

Good news! You passed the Means Test!

Bad news! You underreported your expenses on Schedule J and the trustee has filed a Motion to Dismiss your Chapter 7 case!

Many debtors and their attorneys work hard to pass the Means Test, only to run into trouble with Schedules I and J: the debtor’s monthly income and expenses. This problem arises when Schedule I shows more income that Schedule J shows expenses, leaving a significant amount of excess monthly income. This is evidence of the debtor’s ability to fund a repayment case, and can form the basis of a motion to dismiss in a Chapter 7 case, even when the debtor passes the Means Test. See 11 U.S.C. 707(b)(3).

Avoiding an excess income issue is usually as simple as honestly reporting expenses. The first question is: “do you have money left over at the end of the month?” If the answer is “No,” then the mission is to accurately account for the debtor’s spending. Note that Schedule J is not constrained by the same IRS rules as the Means Test, and neither the Means Test nor the categories identified on the Schedule J represent an exclusive list of expenses. There are many categories of household, dependent, and personal expenses that are omitted or under-represented.

Likewise, the debtor’s Schedule J in a Chapter 13 case should show “just enough” available income to fund the proposed repayment plan. Showing too little leftover income will invoke a motion to deny confirmation due to an infeasible plan. See 11 U.S.C. § 1325(a)(6). Showing too much leftover income and the bankruptcy court may find that the debtor is not devoting enough money to repay creditors in the plan. See 11 U.S.C. § 1325(b)(1)(B).

Schedule J should tell the full story of your monthly expenses, and avoid an attempt to “tighten the belt” for the sake of looking good to the bankruptcy trustee. Showing how you are willing to sacrifice for the sake of your bankruptcy case usually works against you.

If you are considering filing for bankruptcy please contact the experienced attorneys at Fears | Nachawati for a free consultation. Call us at 1-866-705-7584 or send an email to fears@fnlawfirm.com .

Passing the Means Test isn't the End of the Story. . .

Good news! You passed the Means Test!

Bad news! You underreported your expenses on Schedule J and the trustee has filed a Motion to Dismiss your Chapter 7 case!

Many debtors and their attorneys work hard to pass the Means Test, only to run into trouble with Schedules I and J: the debtor’s monthly income and expenses. This problem arises when Schedule I shows more income that Schedule J shows expenses, leaving a significant amount of excess monthly income. This is evidence of the debtor’s ability to fund a repayment case, and can form the basis of a motion to dismiss in a Chapter 7 case, even when the debtor passes the Means Test. See 11 U.S.C. 707(b)(3).

Avoiding an excess income issue is usually as simple as honestly reporting expenses. The first question is: “do you have money left over at the end of the month?” If the answer is “No,” then the mission is to accurately account for the debtor’s spending. Note that Schedule J is not constrained by the same IRS rules as the Means Test, and neither the Means Test nor the categories identified on the Schedule J represent an exclusive list of expenses. There are many categories of household, dependent, and personal expenses that are omitted or under-represented.

Likewise, the debtor’s Schedule J in a Chapter 13 case should show “just enough” available income to fund the proposed repayment plan. Showing too little leftover income will invoke a motion to deny confirmation due to an infeasible plan. See 11 U.S.C. § 1325(a)(6). Showing too much leftover income and the bankruptcy court may find that the debtor is not devoting enough money to repay creditors in the plan. See 11 U.S.C. § 1325(b)(1)(B).

Schedule J should tell the full story of your monthly expenses, and avoid an attempt to “tighten the belt” for the sake of looking good to the bankruptcy trustee. Showing how you are willing to sacrifice for the sake of your bankruptcy case usually works against you.

If you are considering filing for bankruptcy please contact the experienced attorneys at Fears | Nachawati for a free consultation. Call us at 1-866-705-7584 or send an email to fears@fnlawfirm.com .

Non-priority, non-dischargeable tax debt

For most bankruptcy debtors, dealing with an income tax debt in Chapter 13 comes down to whether the debt will be paid ahead of other creditors (and in full under the plan confirmation requirements of Section 1322(a)), or paid along with other unsecured creditors with the remaining tax debt discharged at the end of the case. In bankruptcy jargon, the debtor’s income tax debt is either a priority, non-dischargeable claim; or it is a non-priority, dischargeable claim.

However, there is a special circle of inferno reserved for a Chapter 13 debtor with a tax debt that is not classified as a priority claim, and therefore cannot be paid ahead of general unsecured creditors, but is also non-dischargeable. This special ring of hell bears the inscription “non-priority, non-dischargeable claim” at its gate (which is Latin for “Abandon all hope, ye who enter here”).

A debtor with a non-priority, non-dischargeable income tax claim cannot use Chapter 13 to pay the tax debt in full during the plan without also repaying all other unsecured creditors 100%. It also means that any portion of the tax obligation not paid during the bankruptcy case will survive, and any tax lien on the debtor’s property will continue after bankruptcy. [Unpaid non-priority, non-dischargeable tax debts used to be discharged upon completion of a Chapter 13 payment plan, but the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 repealed this portion of the Chapter 13 “superdischarge.”]

Deciphering whether a tax debt is a priority, non-dischargeable claim; a non-priority, dischargeable claim; or a non-priority, non-dischargeable claim is best discovered using a Venn Diagram. But short of drawing pictures, let’s look at the Bankruptcy Code for what makes a tax debt non-dischargeable, and then the conditions that make the debt a priority debt. At the end we can see how a non-priority, non-dischargeable claim might occur.

Non-Dischargeable Tax
Section 523(a) of the Bankruptcy Code states that a discharge under Chapter 7, 11, 12, or 13 does not discharge a debtor from any individual income tax debt

  1. That is a secured tax debt (11 USC § 507(a)(3))
  2. That is a pre-petition tax debt that was
    1. last due, including extensions, within three years of the bankruptcy filing (11 USC § 507(a)(8)(A)(i); or
    2. assessed within 240 days of the bankruptcy filing (11 USC § 507(a)(8)(A)(ii))
  3. When a return was not filed (11 USC § 523(a)(1)(B)(1))
  4. When the return was filed within two years of the bankruptcy filing (11 USC § 523(a)(1)(B)(2))
  5. When a return is fraudulent or the debtor attempts to willfully “evade or defeat such tax.” (11 USC § 523(a)(1)(C))

Priority Tax
Special priority status is given to certain income tax debts, and distribution of assets in Chapter 7 or regular payments under Chapter 13 pay these tax debts before FDIC claims, DUI/DWI personal injury claims, and general unsecured claims. Section 507(a)(8) sets out the criteria for a priority income tax claim:

  1. The pre-petition tax debt is
    1. last due, including extensions, within three years of the bankruptcy filing (11 USC § 507(a)(8)(A)(i); or
    2. assessed within 240 days of the bankruptcy filing (11 USC § 507(a)(8)(A)(ii))

Non-priority, non-dischargeable tax debt
The most common way a Chapter 13 debtor can fall through the cracks of the Bankruptcy Code and get stuck with a non-priority, non-dischargeable tax debt is by filing a late tax return. In fact, some bankruptcy courts dispute that a late filed return is eligible for discharge because a “return” is defined by many state laws as being timely filed. This is an important distinction that is currently in litigation. See McCoy v. Miss. State Tax Comm., 666 F.3 924 (5th Cir., 2012)(a late-filed tax return is, by definition, not a return and hence the taxes can never be discharged); but see Gonzalez v. Massachusetts Dept. of Revenue, BAP No. MW 13-026 (B.A.P. 1st Cir. March 6, 2014)(Massachusetts state tax liabilities of the debtor were dischargeable even though his tax returns were filed late after applying Massachusetts law defining a “return”).

Most bankruptcy courts will not allow a Chapter 13 debtor to pay a non-priority, non-dischargeable tax debt ahead of other general unsecured creditors by establishing a “special class” for the debt. While 11 U.S.C. Section 1322(b)(1) permits a plan to designate a class of unsecured claims, it may not “discriminate unfairly.” Nondischargeability, by itself, does not justify special classification. See Copeland v. Fink (In re Copeland), 2014 BL 27501 (8th Cir., No. 12-4018, 1/31/14).

A non-priority, non-dischargeable tax debt places the debtor in a difficult position. Since the debt is not dischargeable, the debtor may elect to eliminate other burdensome unsecured debts through Chapter 7 and deal with the tax debt outside of bankruptcy. The debtor may also pay a portion of the tax debt during Chapter 13 at the same rate as other unsecured, non-priority creditors, while enjoying the protection of the automatic stay. Finally, the debtor may elect to file “Chapter 20,” that is, file a Chapter 7 to discharge unsecured debts, then file a Chapter 13 case immediately after. The debtor would then be able to pay 100% of the non-priority, non-dischargeable tax debt during Chapter 13 without also paying other general unsecured creditors (which were discharged in the prior Chapter 7 case).

For further questions or for a free consultation, contact the experienced attorneys at Fears | Nachawati Law Firm. Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

How Chapter 7 Bankruptcy Affects Child Support Arrears

Experiencing money troubles can touch every aspect of your personal life. When there is not enough cash to go around, the typical person starts prioritizing financial obligations. A person might cut back on food and clothing expenses, cut out recreational or entertainment spending, or may pay some bills late. When there is little or no money due to a loss of income, the situation may become dire.

Bankruptcy is the answer for many debtors facing financial difficulties. Chapter 7 can completely and forever discharge debts, but Congress has identified some debts that will survive a Chapter 7 bankruptcy discharge. One debt category that is especially difficult to discharge is child support arrears. It is important to seek experienced counsel before filing a bankruptcy case with a child support arrears.

Child support arrears are not discharged
A Chapter 7 bankruptcy case does not discharge a child support debt. Specifically, Section 523(a)(5) of the Bankruptcy Code excepts from a Chapter 7 discharge a debt “for a domestic support obligation.” Section 101(14a) includes a child support arrearage in the definition of a “domestic support obligation” when the debt is:

  1. owed to or recoverable by (A) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or (B) a governmental unit;
  2. in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit);
  3. established by a (A) a separation agreement, divorce decree, or property settlement agreement; (B) an order of a court of record; or (C) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and
  4. not assigned to a nongovernmental entity, unless that obligation is voluntarily assigned for the purpose of collecting the debt.

Bankruptcy does not stop collection of child support arrears
When a person files a Chapter 7 bankruptcy case, collection actions against the debtor must stop, but Congress has carved out another exception for collecting child support arrears. Section 362(b)(2)(A) states that the bankruptcy automatic stay does not apply to:

  1. the establishment of a child support obligation;
  2. the collection of child support from property that is not property of the estate; or
  3. the withholding of income that is property of the estate for payment of a child support obligation under a judicial or administrative order or statute.

In a Chapter 7 case, the debtor’s post-filing income is not property of the bankruptcy estate. Consequently, a wage garnishment or income tax refund intercept to collect a child support arrearage may continue during a Chapter 7 bankruptcy case without running afoul of the court’s automatic stay order.

Bankruptcy exemptions do not protect your property
Section 522 of the Bankruptcy Code allows a debtor to exempt property from the claims of creditors, but not against a debt for child support. The creditor must first seek permission from the bankruptcy court to proceed against property of the bankruptcy estate through a Motion to Lift Automatic Stay. Several bankruptcy courts have ruled that the Bankruptcy Code does not allow a Chapter 7 trustee to liquidate exempt property to satisfy a domestic support obligation. See In re Duggan, 2007 Bankr. LEXIS 2750 (Bankr. M.D. Fl. 2007). However, these same cases suggest, or explicitly hold, that a domestic support creditor could do so. See In re Quezada, 368 B.R. 44 (Bankr. S.D. Fl. 2007). To date the process for such an action remains in question.

If you are considering filing for bankruptcy or have questions about what is dischargeable in a chapter 7, contact the experienced attorneys at Fears | Nachawati for a free consultation. Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

What to Expect at My Trustee's Meeting

As part of every bankruptcy case, each debtor will have a meeting with the Trustee. This meeting, which is commonly referred to as the 341 Meeting, or Meeting of Creditors, is required to take place within a reasonable time of filing according to Section 341 of the bankruptcy code. Generally, the meeting occurs within 30 days of filing the case.

It is common for debtors to feel nervous prior to their Trustee’s meeting. Although all of the creditors listed in the bankruptcy schedules are invited to attend the meeting, generally no creditors show up. In fact, most 341 meetings typically only take between 10-15 minutes to complete. Your attorney will attend the meeting with you and, depending on the trustee, will generally ask most of the questions.

Common questions asked at the meeting are:

  • Do you understand the differences between a Chapter 7 and Chapter 13 bankruptcy
  • Do the schedules list all of your assets?
  • Do the schedules list all of your liabilities?
  • Is everything contained in your schedules true and correct?
  • Is there a claim you can file against another party?
  • Will you be entitled to a windfall of money, such as an inheritance or insurance proceeds, within 6 months of filing the case?
  • Have you filed bankruptcy before?

At the 341 meeting, you will also have the opportunity to provide a brief explanation of what caused you to file the bankruptcy. Keep in mind you will be required to present two forms of identification at the meeting. Typically, debtors bring their driver’s license and social security card. You will need originals of both forms of ID. In addition, attendance of the meeting is mandatory and your case may be dismissed if you do not show up. Contact a bankruptcy attorney if you have questions about your upcoming 341 meeting.

If you are considering filing for bankruptcy, contact the experienced bankruptcy attorneys at Fears | Nachawati to set up a free consultation. Contact us today at 1.866.705.7584 or send an email to fears@fnlawfirm.com

Will the bankruptcy Trustee take my dogs or cats?

When you file for bankruptcy you need to list all assets, while a pet may seem more like a liability then an asset, you still need to list them on your petition. Your pets typically don’t have a value beyond the sentimental value, but it is possible if it is a prize breed that it may hold more significant value. In Texas you can exempt a house hold pet using the Texas exemption Tex. Prop. Code secs. 42.001(a); 42.002(a)(11) or the federal exemption 11 U.S.C. sec. 522(d)(3). As long as your pet is exempt it is not subject to seizure by the Trustee. In the vast majority of cases a Trustee will not want to attempt to sell a pet to pay off creditors, therefore there is nothing to worry about.

In a chapter 13 case you will need to list your pet but you may also have a budget item for pet care. While most Trustee’s will not take issue with your pet care budget item, it is important to note that they will look at the reasonableness. If you have a large pet care cost the Trustee can object to the confirmation of your plan. This is especially true if your other budget items for food and household items are also high. The court will not make you give up your pet but they may find that it is not reasonable to budget a large amount of money to keep a pet if your creditors are not being properly paid.

Also, note that if you have a budget item for pet care but failed to list any pets then the Trustee may make you amend your schedule to list your pets. This is because the bankruptcy petition is signed under perjury and it does request that you list EVERYTHING that you own.

Additionally if you have livestock, horses or other animals these animals will typically carry a value more than sentimental value. They will need to be listed with a value provided. Again, Texas is good at allowing you to exempt live stock; specifically you can exempt: “2 horses, mules or donkeys plus a saddle, a blanket and bridle for each, 12 head of cattle, 60 head of other livestock, 120 fowl, forage on hand for each animal.”

If you have animals or pets and are considering filing for bankruptcy, contact the experienced attorneys at Fears | Nachawati for a free consultation. Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com

Avoiding Statutory Liens in Bankruptcy

The Bankruptcy Code separates judicial liens (liens often created by a judgment) from statutory liens (liens often created by a statute). Judicial liens are generally avoidable by a debtor in Chapter 7 bankruptcy, but statutory liens are not. See Section 522(f) and Section 545. However, it is not always clear when a lien is a statutory lien and when it may be a judicial lien. Below are some common statutory liens:

Tax liens attach to property for unpaid taxes by federal or state law. These include liens by the IRS, and state or local taxing authorities.

Landlord’s lien. About half the states grant a landlord a statutory lien on personal property located in the renter’s home for unpaid rents. But see In Re MacLure, 50 B.R. 134 (Bankr. D.R.I. 1985)(finding a landlord’s lien under Rhode Island law a judicial lien and not a statutory lien).

Artisan’s lien. Most states allow mechanics a lien for repairs made to personal property (such as an automobile).

Mechanic’s lien. Laborers, contractors, or suppliers can attach a statutory lien to real property to secure payment of construction or materials used to improve the property.

Vendor’s lien. Some states allow a statutory lien to the seller of real property until the full purchase price of the property is received.

Warehouseman’s lien. Warehouses and other storage facilities may have a statutory lien on the property contained in the storage facility for unpaid storage fees.

Certain statutory liens may be set aside by a bankruptcy trustee under Section 545. This Section allows a trustee to avoid a statutory lien under three circumstances: First, if the lien only took effect because the debtor became insolvent or filed bankruptcy; second, the lien may be avoided if the lien could not have been enforced against a bona fide purchaser outside of bankruptcy (an unrecorded/unperfected tax lien fits this description); and finally, the trustee may avoid a landlord's lien for unpaid rent.

This statutory lien avoidance power is also extended to debtors through Section 522(g)-(h) of the Bankruptcy Code when:

(1) the debtor’s transfer of property was involuntary;
(2) the debtor did not conceal the property;
(3) the trustee did not attempt to avoid the transfer;
(4) the debtor seeks to exercise an avoidance power enumerated under § 522(h); and
(5) the transferred property could have been exempted if the trustee had avoided the transfer under the provisions of § 522(g).

See McCarthy v. Brevik Law (In re McCarthy), 501 B.R. 89 (B.A.P. 8th Cir. 2013); DeMarah v. United States (In re DeMarah), 62 F.3d 1248 (9th Cir. 1995). If the above conditions are met, the debtor has standing to avoid a statutory lien under Section 545.

Avoiding nonconsensual liens in bankruptcy can be highly complex and full of traps for the unwary. If you have a statutory lien against your property and need debt relief, discuss your situation with an experienced bankruptcy attorney at Fears | Nachawati Law Firm. Contact us at 1.866.705.7584 or send an email to fears@fnlawfirm.com to set up a free consultation.

Using Student Loans to Qualify for Chapter 7 Bankruptcy

In 2005, Congress changed the bankruptcy laws to include a new “means test” for consumer debtors. The purpose of the means test is to ensure that debtors are not “abusing” the bankruptcy system by unfairly discharging debts they can afford to repay. The means test is a gatekeeper for Chapter 7 bankruptcy and disqualifies certain high income debtors from Chapter 7 who can afford a repayment plan in Chapter 13. Congress also created a business exception to the means test. If the individual debts are “primarily” business debts, the debtor can avoid taking the means test, and can avoid being presumptively disqualified from filing a Chapter 7.

Most courts have stated that “primarily” means that more than half of the individual debts are business debts. Separating a consumer debt from a business debt has proven a more challenging question for bankruptcy courts. The starting point is Section 101(8) of the Bankruptcy Code, which defines a consumer debt as a “debt incurred by an individual primarily for a personal, family, or household purpose.” Many courts have distinguished a business debt as one that was incurred with a “profit motive,” that it was created for the purpose of trying to turn a profit. Non-consumer debts are generally business-related debts, such as:

  • Investment real estate
  • Business vehicle loan
  • Business utilities
  • Business credit
  • Business insurance

Some debtors have argued that a student loan debt is a business debt when it is incurred with a profit motive. These cases are examined on a case-by-case basis. The primary inquiry is whether the debt was incurred primarily for a personal, family, or household purpose, which necessitates a trial. When the lion’s share of student loans are used to pay living expenses, rather than funding a professional education, the student loan debt is often characterized as a consumer debt. See In re Stewart, 175 F.3d 796 (10th Cir. 1999).

Recently, a south Texas bankruptcy court found that $220,931.04 of a debtor’s $251,058.00 student debt for dental school was spent on tuition, books and fees. The court applied the “profit motive” test, and found that the majority of the debtor’s student loans were incurred with a business purpose (obtaining a professional degree), and not spent on the debtor’s household expenses. When added to the debtor’s other obligations, the court found that the debts were not primarily consumer debts and that the means test did not apply. See In re De Cunae, No. 12-37424 (Bky.S.D.Tex. Dec. 6, 2013).

Debtors with primarily non-consumer debts are not required to complete the means test, however the bankruptcy trustee may still argue that the debtor has the ability to pay creditors and should be forced into Chapter 13 by the bankruptcy court after looking at the “totality of the circumstances.” See 11 U.S.C. §707(b)(3)(B). The Bankruptcy Code imposes a good faith requirement on Chapter 7 debtors, and some courts have found that the lack of good faith may constitute “cause” for dismissal under §707(a). See 11 U.S.C. §707(b)(3)(A). In other words, if the debtor can reasonably adjust his budget to pay creditors—consumer or business creditors—the bankruptcy court may disqualify the debtor from Chapter 7.

There are many roads to Chapter 7 bankruptcy, and an experienced bankruptcy attorney at Fears | Nachawati can help you identify the right path for you. If you need debt relief, discuss your situation with experienced and knowledgeable counsel. Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Are Car Accident Debts Dischargeable in Bankruptcy

Bankruptcy attorneys understand that disaster can strike at any moment. Individuals rarely make appointments at a bankruptcy law firm when life is going well. Bankruptcy relief is for when things have gone very wrong, sometimes unexpectedly, like in the case of a car accident. Fortunately, bankruptcy law can provide you with options to discharge debts arising from a car accident.

Property Damages
The Bankruptcy Code generally allows a debtor to discharge debts for property damage caused by an auto accident. The lone exception to this rule is Section 523(a)(6) which excepts debts from discharge “caused by willful and malicious injury by the debtor to another entity or to the property of another entity.”

The U.S. Supreme Court pointed out in Kawaauhau v. Geiger that a willful and malicious act is not the same as a negligent or even reckless act:

only acts done with the actual intent to cause injury fall within [Section 523(a)(6)’s] scope. The section's word “willful” modifies the word “injury,” indicating that the nondischargeability takes a deliberate or intentional injury, not merely . . . a deliberate or intentional act that leads to injury. 

Kawaauhau v. Geiger, 523 U.S. 57, 61–62 (1998). Most auto accidents are the result of negligence and are outside the scope of Section 523(a)(6). Even in drunk driving cases, the defendant is usually found to have exhibited actions of “reckless disregard” and not “willful and malicious.” Consequently, Section 523(a)(6) is often a losing argument in drunk driving cases involving property damage.

The exception found in Section 523(a)(6) only applies in a Chapter 7 case. There is no property damage exception in a Chapter 13 case, so any property damage caused by an auto accident is discharged in a Chapter 13 bankruptcy.

Personal injuries
The Bankruptcy Code is less forgiving of personal injuries and contains more restrictions when discharging these debts. The most restrictive of these exceptions is found in Section 523(a)(9) which excepts from discharge any personal injuries caused by operating a vehicle while intoxicated. This exception applies to bankruptcy cases filed under Chapter 7 or Chapter 13.

A bankruptcy court may find that a state court judgment satisfies all of the necessary elements to meet the exception found in Section 523(a)(9). On the other hand, the bankruptcy court is not bound by an acquittal in a state court DUI case, since the standard of proof is different in state court criminal proceedings. A bankruptcy court may find that personal injuries are not dischargeable under Section 523(a)(9) even after the debtor was acquitted of criminal DUI (or never charged at all).

When the personal injury is not caused by intoxication, Section 523(a)(6) excepts from discharge personal injuries (and property damages, see above) willfully and maliciously caused by the debtor. This section does not apply to Chapter 13 cases, which has its own provision. Section 1328(a)(4) disallows discharge of a debt for “damages, awarded in a civil action against the debtor as a result of willful or malicious injury by the debtor that caused personal injury to an individual or the death of an individual.” Note that in Chapter 7 cases, Section 523(a)(6) excepts personal or property injuries, but only if the debtor acted willfully and maliciously. In Chapter 13 cases, a debt is excepted if it is (1) to a person; (2) an award was made in a civil case; and (3) the injury caused by the debtor was willful or malicious. For further information or a free consultation contact the experienced attorneys at Fears | Nachawati today. Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Can I file a Medical Bankruptcy?

Medical debt is often a major influence in the decision to file bankruptcy. Although some only want to file bankruptcy on their medical debt, there is no such thing as a "Medical Bankruptcy." Under the bankruptcy code, debtors are required to list all of their creditors in their schedules. This includes all secured creditors, unsecured creditors, and even personal loans from family and friends. It is important to keep in mind that the schedules are signed under penalty of perjury and intentionally leaving off a creditor is a violation of the bankruptcy code.

With the increasing cost of medical care, even people with health insurance may be left with significant medical debt after suffering serious aliment. An extended hospital stay or serious injury may leave someone with a large amount of medical bills which remain their responsibility after the insurance has covered a portion of the expenses. In addition, medical issues often lead to a decrease or loss of income.

Fortunately, for those faced with overwhelming medical debt, bankruptcy provides an avenue for relief. Medical debt, like general unsecured debt and secured debts which are not reaffirmed, are dischargeable through Chapter 7 and Chapter 13 bankruptcies. If you find yourself drawing in medical debt, consult a bankruptcy attorney about your financial situation. Although you will have to include all of your debt, a bankruptcy is designed to provide filers with a "fresh start" and in many cases, helps people rebuild credit quicker than slowly paying down a significant amount of debt. Contact us today for a free consultation at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Filing a fee waiver in a chapter 7 case

In some instances the bankruptcy court can waive the filing fee required in a chapter 7 bankruptcy case. This can be done in a chapter 7 case where the debtor’s income is below 150% of the poverty line. See chart below for the 2013 guideline amounts.

150% Federal Poverty Level (FPL) Guidelines for 2013

Household Size Monthly Income


2 1,938.75
3 2,441.25
4 2,943.75
5 3,446.25

In addition to being below the guideline mount you must also demonstrate that the debtor is unable to pay the filing fee in installments.

In order to request the waiver a motion is filed at the commencement of the case, or when the petition is filed with the court or after the case is converted from chapter 13 to chapter 7. The motion is available through the bankruptcy court and is the official form B3B.

If the court rejects the motion to waive the pay order an alternative motion is to pay the filing fee in installments. The court will allow the debtor to pay the filing fee in upwards of 4 installment payments. The first payment being due the date the case is filed and the final payment being due 90 days after the case was filed. If the debtor fails to make these payments the case can be dismissed and the debtor will not receive a discharge.

For more information about bankruptcy contact the experienced attorney’s at Fears | Nachawati. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Dance Mom Digs Out of Debt with Bankruptcy Help

When you’re at the end of your financial rope, bankruptcy can be a safety net. In the case of Grogan v. Garner, 111 S.Ct. 654 (1991), the U.S. Supreme Court said,

The central purpose of the [Bankruptcy] Code is to provide a procedure by which certain insolvent debtors can reorder their affairs, make peace with their creditors, and enjoy a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.

The federal bankruptcy laws provide different relief for different situations. Sometimes a person needs to start over. A Chapter 7 bankruptcy will discharge financial obligations and give the debtor a needed fresh start. Sometimes a person needs time to reorganize his or her finances, so a Chapter 13 can provide a repayment plan over three to five years. Chapter 13 is a way to dig out of debt under the protection and supervision of the federal bankruptcy court.

Recently, TMZ reported that dance instructor and television reality star Abbey Lee Miller emerged from Chapter 13 bankruptcy on New Years Eve, 2013. Miller is the star of Dance Moms, a popular dance reality television series on Lifetime network. According to TMZ, Miller filed bankruptcy in 2010 owing more than $400,000 and was at risk of losing her home and dance studio.

Chapter 13 provided Miller with protection from her creditors and time to increase her business and personal income, largely due to the success of Dance Moms which premiered in 2011. Lifetime began airing season four of Dance Moms in January, and Miller is also hosting a second show on Lifetime, Abby's Ultimate Dance Competition. Of course, her dance studio and business is thriving due to her celebrity. TMZ reports that Miller has paid all of her creditors in full.

During Chapter 13, the debtor pays creditors whatever she can afford over three to five years (or sooner under some circumstances). Sometimes, as in Abbey Lee Miller’s case, things get a lot better after a person files bankruptcy. Miller was able to increase her income substantially and rescue her business, she just needed some time. Time provided courtesy of the federal bankruptcy laws.

Chapter 7 and the Means Test

In 2005, when the bankruptcy laws were reformed and “BAPCPA” was enacted, the Means Test was created to determine whether a potential debtor would qualify for a Chapter 7 discharge. Generally speaking, the Means Test takes a look at a debtor’s income to determine whether they either fall below median income or have enough disposable monthly income to afford to pay back their unsecured creditors. Although it is typically thought that those who are above median income do not qualify for a Chapter 7 bankruptcy, which is not always the case.

The Means Test takes into calculation the previous six months of income and compares that to the median income of similar households in the state in which you live. Generally, all income from every source is accounted for in the Means Test (i.e. wages and regular contributions from family members). However, income derived from Social Security does not count as part of the calculation. If the potential debtor’s average six month income falls below the median income for similar households in the state, they would pass the first prong of the Means Test and qualify for a Chapter 7 discharge.

Although many debtors may find themselves above median income, they may still qualify for a Chapter 7. If the debtor’s income rises above the median income, the Means Test allows deductions for certain expenses to determine the debtors monthly disposable income, or, in other words, how much money the debtor has left over at the end of the month to pay creditors. These expenses are typically based upon the IRS standards. Debtors may also deduct ongoing expenses for their secured creditors (i.e. mortgage and car payments). If the debtor does not have disposable income for the unsecured creditors after certain allowable expenses are deducted, then they probably pass the second prong of the Means Test and qualify for a Chapter 7 discharge.

While most debtors must typically complete the Means Test calculations, certain debtors are exempt from the Means Test and may qualify for a Chapter 7 regardless of their income. For example, debtors who have primarily non-consumer debt do not need to complete the Means Test to qualify for a Chapter 7. If you have questions about the Means Test or whether you qualify for a Chapter 7, consult a Bankruptcy Attorney.

If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Upside Down Property During Chapter 7

There are many bankruptcy strategies to assist honest debtors obtain a fresh start. One of the best tactics for Chapter 7 debtors is found in section 722 of the Bankruptcy Code: redemption. Redemption is only available to Chapter 7 filers. It allows the debtor to redeem secured collateral for an amount equal to the secured portion of the loan. In other words, if you have a car worth $7,500, and owe $17,000, the secured portion of the loan is $7,500 and the unsecured portion is $9,500. You can redeem the car for $7,500 and the remaining $9,500 is subject to discharge at the end of your case.

The secured portion of property is determined by its “replacement value” - the price a retail merchant would charge for property of that kind, considering the age and condition of the property at the time you redeem it. If you and the creditor disagree on the replacement value of the property, the court may hold a hearing to decide the vehicle’s value. The typical starting point is a retail value from one of the major consumer guides, such as Kelly Blue Book, NADA, or Edmunds. A court may also receive evidence on the condition of the vehicle, including any repair estimates.

Once the value is settled, the court will order the redemption. The debtor must pay the creditor in a lump sum. Once paid, the creditor no longer has a secured claim against the property. Since a lump sum payment is often beyond the debtor’s financial abilities during bankruptcy, lending sources have sprung up to offer redemption financing, such as 722 Redemption Funding, Leap Financial, and Fresh Start Loan Corporation. The process for obtaining a redemption auto loan is very similar to qualifying for a traditional loan. Finance companies require a loan application and assurances that you will be able to repay the loan (e.g. steady employment, reasonable debt to income ratio, good payment history, etc).

The interest rate can be high for a redemption loan, however, the resulting monthly payment is often lower than the original payment. It is important to carefully consider all of the advantages and disadvantages before making a decision to redeem a vehicle:

Advantages of a redemption loan:

  • Retention of the vehicle;
  • Vehicle is no longer “upside down;”
  • The creditor cannot repossess the vehicle;
  • Usually results in a lower monthly payment.

Disadvantages of a redemption loan:

  • High interest rate.

Only property that meets the following qualifications can be redeemed in a Chapter 7 bankruptcy:

  1. The debt is a consumer debt, meaning the item is used for personal or household purposes. Vehicles, household furniture and household appliances generally qualify. Business property cannot be redeemed.
  2. The debt is secured by personal property, not real estate.
  3. The property is tangible, not investments, stocks and bonds, and intellectual property rights.
  4. The property is fully exempt or the trustee has abandoned it because it has little or no equity.

If you have “upside down” property, speak with an experienced bankruptcy attorney about the options available under the federal Bankruptcy Code. Bankruptcy can discharge debt, restructure loans and payments, and help a family get a fresh financial start.

For more information or a free consultation please contact the experience attorneys at Fears | Nachawati Law Firm. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Revoking Debtor's Discharge

A primary goal in nearly every Chapter 7 case is the bankruptcy court’s discharge order which forever and completely eliminates many of the debtor’s financial burdens. The discharge order is a powerful injunction that stops collection and harassment over the discharged debt. But not every Chapter 7 debtor receives a discharge; a bankruptcy discharge is reserved for the honest debtor. See Grogan v. Garner, 498 U.S. 279 (1991).

Sometimes the dishonest debtor “sneaks through” the system and receives an undeserved discharge. The Bankruptcy Code allows the court to revoke a debtor’s discharge under certain circumstances.

Revoking a Chapter 7 Discharge
Section §727(d) permits a bankruptcy court to revoke a debtor’s discharge after a motion and a hearing. The motion to revoke may be made by either a creditor, the trustee, or the United States Trustee, and must be filed within one year of the discharge being granted (727(d)(1))—or before the case is closed—whichever is later (727(d)(2) and (3)). See 11 USC 727(e). There is no time limit identified in statute or rule for revoking a discharge under Section 727(d)(4). A discharge can be revoked if:

  1. Section 727(d)(1): the discharge was obtained through fraud, and the requesting party was unaware of the fraud prior to the granting of the discharge;
  2. Section 727(d)(2): after the discharge the debtor acquires property of the estate that is not reported or turned over to the trustee;
  3. Section 727(d)(3): if the debtor refuses to obey any lawful order of the court or refuses to testify other than on self-incrimination grounds unless given immunity; or
  4. Section 727(d)(4): the debtor failed to comply with an audit authorized under §586(f), or failed to satisfactorily explain a material misstatement during an audit.

The Ninth Circuit Court of Appeals recently discussed revoking a Chapter 7 debtor’s discharge under Section 727. The debtor, Jerry Jones, failed to list assets in his bankruptcy schedules, then omitted or undervalued assets during his 341 meeting. After Jones’s discharge, the United States Trustee discovered his lies and brought an adversary action to revoke the discharge order. The bankruptcy court found that the omissions were fraudulent, and that the fraud was “sufficient to cause the discharge to be refused if it were known at the time of discharge” under Section 727(a)(4). The bankruptcy court revoked the discharge and the Ninth Circuit Court of Appeals affirmed the decision. See Jones v. U.S. Trustee, NO. 12-35665 (9th Cir., Dec. 2, 2013).

Revoking a Chapter 13 Discharge
The grounds for revocation of a Chapter 13 discharge under Section 1328(e) are narrower than under Section 727(d). A Chapter 13 discharge may be revoked upon request of a party in interest within one year after the discharge is granted if, after a notice and hearing, it is shown that the discharge was obtained by the debtor through fraud, and the requesting party was unaware of the fraud prior to granting the discharge. See 11 U.S.C. 1328(e). Note: any party of interest can request revocation of a Chapter 13 discharge, while only a creditor, trustee or the United States Trustee can request revocation of a Chapter 7 discharge.

The benefits of a bankruptcy discharge are great, but the risks to the dishonest debtor are perilous. A debtor who lies to the bankruptcy court may lose the benefits of bankruptcy and possibly face federal criminal charges. Your bankruptcy attorney can keep you out of trouble and offer you many options and opportunities found in the Bankruptcy Code.

If you are considering filing for bankruptcy, contact the experienced attorneys at Fears | Nachawati for a free consultation. Contact us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

How Long do I Have to Wait Before I Can File Bankruptcy Again?

If you have filed bankruptcy in the past and find yourself in need to file bankruptcy again, there are certain time limits between bankruptcy filings. The time limits will depend on which chapter you filed previously, as well as if you received a discharge and when you received it.

Previous Chapter 7
If your previous case was a chapter 7, you cannot receive a discharge in a subsequent chapter 7 case for eight (8) years.

If your previous case was a chapter 7, you also cannot receive a discharge under chapter 13 until four (4) years have passed from the date you filed chapter 7.

Previous Chapter 13
If you filed for chapter 13 previously, you cannot receive a discharge under chapter 7 within six (6) years of filing the chapter 13. There are however, exceptions to this 6 year rule. In your previous chapter 13 if you paid all your unsecured claims at 100% or if you paid at least 70% and the plan was proposed in good faith and it was your best effort, the rule does not apply.

If your previous case was a chapter 13 you cannot receive a second discharge in a subsequent chapter 13 for two (2) years from the date the first case was filed.

Previous Case Current Case Time Limit
Chapter 7 Chapter 7 8 years from date previous case was filed
Chapter 13  Chapter 7  6 years from date previous case was filed*
Chapter 7  Chapter 13  4 years from date previous case was filed
Chapter 13  Chapter 13 2 years from date previous case was filed

* With the exceptions for cases that paid 100% or at least 70% to unsecured creditors and the plan was proposed in good faith and was the Debtor’s best effort.

Filing for chapter 13 even though not eligible for a discharge
Even though you may not be entitled to a discharge sometimes a Debtor will file for chapter 7 and then turn around to file chapter 13. This is often referred to as a “Chapter 20”. The advantage here is that any unsecured debt would have been wiped out in the previous chapter 7 case, and now the Debtor can use the chapter 13 plan payment to pay off a mortgage arrearage or tax debt.

If you are considering refilling for bankruptcy, contact the experienced attorneys at Fears | Nachawati with any questions or to set up a free consultation. Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.


Chapter 7 Bankruptcy for Business

When business is poor and creditors bang loudly at the door, it may be time to consider a Chapter 7 business bankruptcy. Unlike Chapter 13 which is only available for individuals, a business may file under Chapter 7 which holds some distinct advantages and disadvantages for the business and its shareholders.

Automatic Stay
For many failing businesses, the main advantage to a Chapter 7 bankruptcy is the automatic stay. This protection will temporarily halt any collection process or legal action, including a repossession, lawsuit, eviction, or foreclosure. The bankruptcy case stops a “money grab” at business assets and allows the company to liquidate assets and pay creditors in an orderly and often beneficial manner.

One Forum
Because the automatic stay stops any lawsuits, company officers are no longer required to participate in the suit, including appearing at hearings or depositions. Should a creditor desire to continue a lawsuit, it must first seek permission from the bankruptcy court. Continued litigation is often restricted to the forum of the bankruptcy court.

“Winding Up”
The main reason to file a Chapter 7 bankruptcy for a business is to allow a Chapter 7 bankruptcy trustee to take control over the company and formally dissolve it. When the company files Chapter 7 bankruptcy, the officers and shareholders are no longer in control over the business, and there is no longer an opportunity to continue the business or sell it in whole or part to someone else. The responsibility of “winding up” the company falls squarely on the trustee’s shoulders. This can relieve shareholders from personal liability during the liquidation of company assets.

Being relieved of command does not release responsibility or liability. Officers and shareholders must cooperate with the bankruptcy trustee and provide records and information, along with access to company assets. The trustees may be able to recover monies from creditors who were paid shortly before the bankruptcy case and received more than their fair share. Collecting and redistributing money paid to creditors before bankruptcy can sometimes be beneficial to the shareholders. For instance, it may be beneficial when a preference payment is avoided and the proceeds are used to pay an unpaid “trust fund tax debt.”

Liquidating Assets
The trustee will (generally) stop business activities, liquidate assets, and pay creditors according to the priority set out in the Bankruptcy Code. For instance, tax debts and employee wages are paid ahead of unsecured creditors. Before entering a business bankruptcy, it is important to recognize that the trustee will usually sell business assets for less than fair market value (usually at auction), so it may be advantageous to sell business assets at a fair price before filing bankruptcy. The trustee can then distribute the cash proceeds from the sale during the bankruptcy case.

Ownership Liability
A Chapter 7 discharge is only available to individual debtors, not to partnerships or corporations. See 11 USC § 727(a)(1). Business debts in Chapter 7 are not discharged, so the winding up and dissolution of the company in bankruptcy does nothing to relieve the potential liability of owners. Any personal guarantee of a business debt will survive the Chapter 7 business bankruptcy. Likewise, the bankruptcy does not release the liability of an individual identified by the IRS as a “responsible person” (someone with the duty to collect, accounting for, or pay over trust fund taxes).

The bankruptcy trustee may seek to recover money from an officer or shareholder if there was mismanagement or failure to follow the corporate rules. This is especially the case for small business owners who may have co-mingled business and personal assets, or where personal expenses were paid with company funds. Consequently, a considered evaluation of the business and ownership liability must be performed before the decision is made to file bankruptcy.

If you or your business is considering filing for bankruptcy, contact the experienced attorneys at Fears | Nachawati for a free consultation. Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Credit During Bankruptcy

There are many situations when a person needs credit during an open bankruptcy case. Refinancing a home mortgage, redeeming an automobile, or simply applying for a new credit card are circumstances when a debtor needs to obtain credit during bankruptcy. Fortunately, the bankruptcy process allows the debtor to obtain the credit he or she needs while concurrently pursuing a bankruptcy discharge.

When a debtor applies for credit during an open bankruptcy case, the application not only affects the debtor and the creditor, but also concerns the trustee and the bankruptcy court judge. The creditor is concerned that the bankruptcy will interfere with the extension of credit, and the bankruptcy trustee and judge are concerned how the extension of credit will affect the bankruptcy case.

Chapter 7
For Chapter 7 cases, the reach of the bankruptcy court is limited to those assets you owned and debts you owed on the date you filed bankruptcy. The judge does not have jurisdiction on financial matters after the bankruptcy (called “post-petition”). While the bankruptcy court does have jurisdiction to approve or reject a reaffirmation agreement for a pre-petition debt, the court cannot forbid a post-petition extension of credit.

Chapter 13
For Chapter 13 cases, the court has continuing jurisdiction over your finances during the bankruptcy case. A Chapter 13 debtor is required to commit all of his or her disposable income to repay creditors. Any new credit must be approved by the bankruptcy judge since a new payment obligation may impact the Chapter 13 repayment plan.

Vehicle loan
There are no prohibitions to purchasing a vehicle after filing Chapter 7 bankruptcy. Nevertheless, most lenders require the debtor to receive a Chapter 7 discharge prior to extending financing for the vehicle. The main reason for this is the potential for the vehicle and the loan to become involved in litigation. For instance, prior to receiving a discharge, the debtor may convert the case to Chapter 13, or dismiss and re-file, and attempt to modify some terms of the vehicle note (for instance, the change the interest rate or stretch the payment terms).

Obtaining a vehicle during Chapter 13 bankruptcy requires the debtor to show that the vehicle purchase is “necessary to the completion of the Chapter 13 bankruptcy plan.” In plain language, you need the car to get to work to make the money to pay the creditors in the plan. When a vehicle purchase is reasonable and necessary, the courts are generally willing to approve the purchase on credit.

Home loan
Purchasing a home during an open Chapter 13 bankruptcy is difficult, but not impossible. While individual lenders will have different approval guidelines, the debtor must first qualify for an FHA or VA guaranteed home loan, which requires:
1. written approval from the trustee and bankruptcy court for the new credit;
2. a 12 month history of perfect payments on a confirmed bankruptcy plan; and
3. no further derogatory credit entries after the bankruptcy was filed.

Home loan modification under the federal Home Affordable Refinance Program (HAMP) is specifically authorized during Chapter 13 bankruptcy. This modification of a secured debt in bankruptcy requires the permission of the bankruptcy court and trustee, and will require the debtor to amend the Chapter 13 repayment plan. One recent trend is for local courts to require mortgage mediation sessions or other court supervised processes between the debtor and lender before a loan modification may be approved.

Purchasing a home after filing a Chapter 7 bankruptcy requires re-establishing your financial profile by showing a responsible use of credit. Generally, that means two to four years of rebuilding, but in some cases the wait may be shortened. If you are considering filing for bankruptcy, contact the experienced attorneys at Fears | Nachawati with any questions. Call us at 1.866.705.7584 to set up a free consultation.

Sales Tax, Trust Fund Tax, and Bankruptcy

Contrary to popular myth, bankruptcy does not discharge every financial obligation. Congress has identified a few debts that, in fairness, should not be discharged in a bankruptcy case. Some of these debts are enumerated in Section 523 of the Bankruptcy Code, including debts for fraud or embezzlement, domestic support obligations, and student loans. Some of these debts are never dischargeable, and some may be discharged under certain conditions.

One type of debt excepted from discharge by the Bankruptcy Code is when the debtor is liable for “a tax required to be collected or withheld and for which the debtor is liable in whatever capacity.” 11 U.S.C. §507(a)(8)(C). This type of tax is commonly called a “trust fund tax,” which is a tax either paid to or withheld by a person or business and kept “in trust” to be paid over to the government. Examples of a trust fund tax include income taxes and Social Security (FICA) taxes withheld from the paychecks of employees, and sales taxes collected by vendors from their customers. Trust fund taxes do not include the employer’s matching Social Security (FICA) taxes, employment, or sales taxes not actually collected, but are due as the result of an audit, or related penalties and interest.

Even when a company or corporation protects its officers and shareholders with limited liability from business debts, a taxing authority (such as the IRS) can still “pierce the corporate veil” to determine which individual (or individuals) was responsible for collecting, keeping, and paying over taxes—this person (or persons) is called a “responsible party.” A trust fund recovery penalty may be assessed against a responsible party, which is also not dischargeable in bankruptcy. The only way for a responsible party to resolve a trust fund tax debt without payment is to wait for the ten year statute of limitations to expire.

Because trust fund tax debts are not dischargeable in bankruptcy, a responsible party unable to pay the tax debt should consider a Chapter 13 bankruptcy filing. During a Chapter 13 case, the individual submits a plan to repay the tax debt in full over three to five years. A benefit of bankruptcy is that the trust fund tax does not continue to accrue interest or penalties during the repayment period. After the debtor has paid the taxes according to the bankruptcy plan, the debt to the taxing authority is forever and completely extinguished. If you are considering filing for bankruptcy, call the experienced attorneys at Fears | Nachawati with any questions or to set up a free consultation. Call our office at 1.866.705.7584 and let us help you start over.

If your vehicle has been repossessed, you may be able to get it back by filing bankruptcy, if you move quickly.

Section 542 of the Bankruptcy Code requires that entities in possession of “property of the bankruptcy estate” are generally required to turn the property over to either the trustee (in Chapter 7) or the debtor (in Chapter 13). Section 541 of the Bankruptcy Code defines property of the estate as “all legal or equitable interests of the debtor in possession as of the commencement of the case.” The debtor’s continuing rights to and interests in a repossessed vehicle are determined by state law. In many states, these rights are only available to the debtor for a few days or weeks after the repossession (although sometimes continuing until the creditor sells the vehicle or otherwise transfers title).

If your vehicle is property of the bankruptcy estate, most courts say the creditor must return the vehicle to the estate immediately upon learning of the bankruptcy filing:
“[S]ection 362 requires a creditor in possession of property seized as security–but subject to a state-law-based residual equitable interest in the debtor–to deliver that property to the trustee or debtor-in-possession promptly after the debtor has filed a petition in bankruptcy under Chapter 13.”
Weber v. SEFCU (In re Weber), 719 F.3d 72 (2d Cir. 2013). The few exceptions to this majority rule are Bell-Tel Fed. Credit Union v. Kalter (In re Kalter), 292 F.3d 1350 (11th Cir. 2002) (applying Florida law to find no exercise of control) and Charles R. Hall Motors, Inc. v. Lewis (In re Lewis), 137 F.3d 1280 (11th Cir. 1998) (applying Alabama law).

If the creditor refuses to return the vehicle, or does not return the vehicle “immediately” upon learning of the bankruptcy filing, a bankruptcy court may sanction the creditor. The creditor is prohibited from selling or transferring estate property after the bankruptcy is filed.

Chapter 13
In a Chapter 13 bankruptcy case, a repossessed vehicle that is estate property is immediately returned to the debtor’s possession. The debtor is required to provide “adequate protection” to the creditor to assure that the property will be safeguarded (usually that means insured) and that the creditor will be adequately compensated. This usually takes place by submitting a Chapter 13 plan of repayment to the bankruptcy court. Repayment of the vehicle loan terms can be modified to alter the length of payments, interest rate, and sometimes the principal amount owed.

Chapter 7
In a Chapter 7 case, a repossessed vehicle that is property of the bankruptcy estate is turned over to the bankruptcy trustee. The Bankruptcy Code gives the Chapter 7 debtor the option to seek an order of redemption to keep the vehicle. In a redemption, the debtor pays the fair market value of the vehicle to the creditor (usually in one lump sum) and the title transfers to the debtor free and clear of all liens. If the lump sum payment is beyond the debtor’s financial ability, there are lenders available who specialize in bankruptcy redemption loans.

If you are considering filing for bankruptcy, contact the experienced attorneys at Fears | Nachawati for more information and a free consultation. Call our office at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Child Support Issues in Bankruptcy

If a debtor has a court order to pay child support, the bankruptcy code defines child support as a domestic support obligation and is non-dischargeable. This means after a successful case has been completed, and the discharge order has been granted, any remaining balance owed on the child support will continue after the bankruptcy. For this reason the debtor must list the child support creditor on the bankruptcy; the trustee in the case may request to review the child support order.

Child support is also considered a priority debt. In a chapter 13 case secured creditors (mortgage, cars, etc.) and priority creditors (domestic support, taxes, etc.) are typically paid before other creditors. Additionally, in order for a chapter 13 plan to be feasible all priority creditors must be paid in full. This means if you have a child support arrears you will need to pay the arrears off in 5 years. Typically, this can be an advantage to most debtors because child support can be paid out over 5 years as opposed to the original terms; however, this may also make the chapter 13 plan more difficult if there is a very large amount of arrears.

If a debtor is current on child support, the debtor will continue to make the payments directly or will have it withdrawn from the debtors pay check. If the child support pays off during the case the plan payment may need to be increased to adjust for the additional disposable income.

If a debtor receives child support income it is included in the bankruptcy. In a chapter 7 case this means the child support income would be included on the means test. In a chapter 13 case the child support income would be included as part of the debtor’s disposable income and can go towards the debtors plan payment. In both chapters an important distinction is the debtor will actually receive child support and is not just entitled to it.

If you pay or receive child support and are considering filing for bankruptcy, the attorney’s at Fears | Nachawati can answer your questions. Please Call us for a free consultation 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Celebrities Who Filed Bankruptcy in 2013

With 2013 drawing to a close, it is time to reflect on the past year and look forward to a brighter future in 2014. For many celebrities with money problems, 2014 means a fresh financial start courtesy of the federal bankruptcy system. Let’s take a look at a few celebrities who have discharged debts using Chapter 7 of the Bankruptcy Code during 2013:

Joes Canseco
Once a fearsome slugger and part of baseball’s infamous “Bash Brothers” with Mark McGwire in the late 1980’s, Canseco is a six time All Star, a two time World Champion, was named the American League Rookie of the Year in 1986, and the 1988 Most Valuable Player. During his career, Canseco was one of baseball’s highest paid players, and reportedly made over $45 million. However, extravagant spending and a fast-living lifestyle (including several arrests and jail time) led to his declaring bankruptcy in 2013. He received a discharge in May, 2013, and his case is closed. However, some of Canseco’s tax debt was not discharged, so his financial troubles may continue.

Kelly Rutherford
Television star Kelly Rutherford (Gossip Girl, Melrose Place) filed Chapter 7 bankruptcy in May, 2013, claiming more than $1.6 million in general unsecured debt (mostly legal bills from her divorce and custody battles) and over $300,000 in tax debt. Recently, Rutherford received a discharge, but her case remains open to distribute assets to creditors. Included in claims against Rutherford and her estate is a $1.5 million claim made by her ex-husband for domestic support. Domestic support obligations are generally not dischargeable. Her well-publicized and heated custody battle will likely play out in bankruptcy court and keep her case open for a while.

Comedian Sinbad, whose real name is David Adkins, starred in the hit movies Necessary Roughness, Houseguest, and Jingle All the Way. Unfortunately, in April, 2013 Sinbad filed Chapter 7 bankruptcy and listed over $11 million in debt – most owing to taxes. In July he received a discharge and by August his case was closed without payment to creditors. Adkins had filed previous Chapter 7 cases in 2009 and 2010, both dismissed without discharge.

Bankruptcy is a legal status when a person or company is unable to pay financial obligations. If that sounds like you, call an experienced bankruptcy attorney at Fears | Nachawati and discuss your options. You don’t have to be a celebrity or a million dollars in debt to qualify for Chapter 7 bankruptcy relief. In most cases, individuals keep all of their personal property while discharging thousands of dollars in cumbersome debts. Contact us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

High Income Chapter 13 Debtors Stay in Bankruptcy Five Years (Maybe)

When Congress amended the Bankruptcy Code in 2005, it introduced a means test to compel high income debtors to repay a greater portion of debts. Debtors with average incomes higher than their state’s median income were disqualified from filing Chapter 7 bankruptcy, and any Chapter 13 case filed by these high income debtors must repay creditors over a full five years

But what if an above-median debtor files a Chapter 13 bankruptcy, but there is no disposable income to pay unsecured creditors?

This issue has been debated by various courts with different results. Most recently, the Ninth Circuit Court of Appeals in the case of In Re Flores (9th Cir. Aug. 29, 2013) decided that above-median debtors must remain in Chapter 13 repayment for a full five years, despite not paying anything to unsecured creditors. In other words, the debtor pays any secured creditors, priority debts, administrative claims, etc., and pays nothing to unsecured creditors over five years – even if that means making a payment of zero to the bankruptcy trustee. The rationale for this strange ruling was grounded in a U.S. Supreme Court case, Lanning v. Hamilton, 130 S. Ct. 2464 (2010). In Lanning, the Court rejected a mechanical approach when calculating a debtor’s projected disposable income, and instead adopted a forward-looking approach to account for changes in the debtor’s income or expenses that are known or virtually certain at the time of confirmation. The Supreme Court decided that forward-looking approach was a common sense way to calculate a debtor’s payments to unsecured creditors in Chapter 13 bankruptcy.

The Flores court struggled with whether an above-median debtor, who was not obligated to pay anything to unsecured creditors during a Chapter 13 bankruptcy case, was still obligated under the Bankruptcy Code to remain in bankruptcy for a full 60 months. In its initial ruling in 2012, the Ninth Circuit Court held that a debtor in this position was only obligated to remain in bankruptcy for 36 months. Then, after the case was re-examined by the court of appeals judges sitting en banc, the Ninth Circuit reversed itself and joined the Sixth, Eighth, and Eleventh circuits in finding that the Bankruptcy Code requires that an above-median bankruptcy debtor must remain in Chapter 13 bankruptcy for a full 60 months. The Flores court reasoned that under the forward-looking, non-mechanical approach dictated by Lanning, the debtor must remain in bankruptcy for five years because there could be an increase in income, which would increase the amount recoverable by creditors.

The Flores decision rests on the dynamic tension between the debtor’s income at the time of confirmation and what may happen in the future. And a lot may happen. In some cases the debtor’s income increases, which means that unsecured creditors may be paid something. But other times the debtor’s income decreases. Interestingly, many courts around the country are now permitting debtors, who were above-median at the time of the case filing and placed into 60 month plans, to modify their bankruptcy cases to reduce the time of repayment to a minimum 36 months when the debtor’s income drops below the state median income level. So stay tuned, this debate isn’t over yet!

If you need bankruptcy relief, but earn a high income, speak with an experience bankruptcy attorney and discuss your options. The federal bankruptcy laws are constantly changing and you need an experienced guide to help you navigate your case to a successful conclusion. Call the experienced bankruptcy attorneys at Fears | Nachawati Law Firm for more information and a free consultation. Contact us by calling 1.866.705.7584 or sending an email to fears@fnlawfirm.com.

Purchasing a Home after Bankruptcy

Various government programs are available to assist individuals in purchasing real estate. Naturally, wherever there is government, there are rules—many rules. But on a positive note, a history of bankruptcy is not a death blow to home ownership. Below are general guidelines for purchasing a home after bankruptcy.


2013 FHA Guidelines –You may apply for a FHA insured loan as early as one (1) year after bankruptcy if you experienced an economic hardship that caused more than a 20% drop in household income. Otherwise, you must wait two (2) years after a Chapter 7 bankruptcy discharge and one (1) year after a Chapter 13 bankruptcy has been discharged or dismissed. The minimum down payment is 3.5% and credit must be re-established with a 640 minimum credit score.


A Chapter 13 debtor who has made twelve (12) timely payments on a confirmed plan can qualify for a FHA loan if there are no other credit delinquencies and if they receive bankruptcy court permission.


2013 VA Guidelines – The VA Lender Handbook spells out guidelines for a veteran to qualify between one (1) and two (2) years after a bankruptcy discharge:

  1. The borrower and/or co-borrower must reestablish satisfactory credit, and
  2. The bankruptcy must have been caused by circumstances beyond the borrower or co-borrower’s control (such as unemployment, medical bills, etc.)


If you have finished making all payments in a Chapter 13 bankruptcy case, the lender may conclude that you have reestablished satisfactory credit. If you have satisfactorily made at least 12 months worth of the payments and the Trustee or the Bankruptcy Judge approves of the new credit, the lender may give favorable consideration. In this situation 100% financing is available and credit must be re-established with a minimum 620 credit score


2013 USDA Guidelines - You may apply for a USDA rural loan three (3) years after the discharge of a Chapter 7, or one (1) year after a Chapter 13 bankruptcy (with evidence of twelve months of timely plan payments). In this case 100% financing is available. The USDA does not enforce a credit score minimum, but generally at least a 640-660 score is required.


2013 Conventional (Fannie Mae) - You may apply for a Conventional Fannie Mae loan after your Chapter 7 bankruptcy has been discharged or dismissed for four (4) years, two (2) years from the discharge of a Chapter 13.  A two (2) year waiting period for Chapter 7 debtors is allowed if certain “extenuating circumstances” can be documented.  The time is extended to sixty (60) months if there are multiple bankruptcies within the last seven (7) yrs. There is a minimum down payment is 5% and credit must be re-established with a minimum 680 credit score.


2013 Conventional (Fannie Mac) – This loan guarantee generally requires a borrower to wait eighty-four (84) months (that’s 7 years!) after bankruptcy unless either “extenuating circumstances” are met (then the waiting period is 24 months) or when “financial mismanagement” is present (then the waiting period is 48 months). The minimum down payment is 5% and a 680 credit score with a perfect rental history are required.


2013 Jumbo Mortgage Guidelines - You may apply for a Jumbo mortgage loan once any chapter of bankruptcy has been discharged for four (4) years. That waiting period is extended to five (5) years if multiple bankruptcies are present on the credit profile.

Negative Aspects of Bankruptcy

Bankruptcy attorneys are in the business of representing bankruptcy clients. Consequently, asking a bankruptcy attorney whether you should file bankruptcy is a lot like asking the salesman at the Ford dealership whether you should buy a new Chevy Camaro. You will likely get a very biased and self-serving answer. So today, instead of extolling the virtues of bankruptcy, let’s take a hard look at the down-side of filing bankruptcy.


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Are Traffic Tickets Dischargeable in Bankruptcy?

The general rule is a bankruptcy does not discharge any fine or penalty payable to a governmental unit. Specifically in Chapter 7 section 523(a)(7) it forbids the discharge of civil penalties or criminal fines. This means that in a Chapter 7 bankruptcy government fines are not wiped out. However in a Chapter 13 case they may be dischargeable.

Bankruptcy Code 1328(a)(3) allows a Chapter 13 debtor to discharge non-criminal government fines if he completes all the court approved plan payments. This can sometimes include minor offenses such as parking tickets, speeding, or failing to stop at a stop sign. Even if the debt would not be dischargeable, some or all of the debt may be paid during the Chapter 13 plan. Furthermore the automatic stay does stop the creditor, in this case the government, from collecting from the debtor during the 3-5 year plan payment. This means that the Debtor can reorganize their other debts and then pay the traffic debt after the bankruptcy has completed if it has not been paid or discharged.

Another exception is a fee might be dischargeable when it is meant to reimburse a governmental entity for money it has actually spent or financial loss it has actually incurred, separate and apart from any related fines and penalties. A good example is when a city bills you for demolishing an illegal structure or clearing derby from your property. The costs of removal would be dischargeable, while any penalties or fines from having the illegal structure on the property would not be. These fees might be dischargeable in bankruptcy because they were an attempt to recover the actual costs involved in clearing, replacing, or demolishing rather than the penalty.

For more information and a free consultation, contact the experienced attorneys at Fears | Nachawati by calling 1.866.705.7584 or sending an email to fears@fnlawfirm.com.

Proof of Claim

A proof of claim in bankruptcy is a document filed with the bankruptcy court that registers a claim against the debtor’s bankruptcy estate. A proof of claim may always be filed in a Chapter 13 case, but is only allowed in a Chapter 7 when there are available assets to distribute to creditors.

The proof of claim sets out the amount owed to the creditor as of the date of the bankruptcy filing and, if relevant, any claimed priority status. The proof of claim can be filed by a creditor, or the trustee or debtor if the creditor does not file one first. Upon receipt of a claim, the Chapter 13 trustee, debtor, or creditor may object to the proof of claim. Some of the reasons for filing an objection are:

  • the claim is unliquidated, meaning the exact amount hasn’t been determined (such as in a lawsuit without a final judgment);
  • the claim does not account for set-offs that benefit the debtor;
  • the amount of the claim is in dispute; or
  • the creditor claims a higher priority than it is entitled to.

An objection to a proof of claim must be made in writing and filed with the bankruptcy court. A copy of the objection and the notice of court hearing date are mailed to the creditor, the trustee, and the debtor. If the creditor fails to respond to the objection by the time set forth by the court, the objection will be upheld. If the creditor responds to the objection, the issue is tried before a bankruptcy judge who will either uphold the objection and disallow the claim or overrule the objection and allow the claim.

If creditors are entitled to file claims in your bankruptcy case, it is important to monitor these claims closely for errors. Because the trustee may only pay creditors who file claims, debtor’s counsel should file secured claims for creditors the debtor wants to pay, such as a home loan or car payment. Failure to file a proof of claim could result in losing the asset. For more information or a free consultation, please contact the experienced bankruptcy attorney’s at Fears | Nachawati Law Firm by calling 1.866.705.7584 or sending an email to fears@fnlawfirm.com.

How to Afford Chapter 7 Bankruptcy

When you come to the end of your financial rope, bankruptcy is a safety net. Bankruptcy can discharge bills you cannot pay, force secured creditors to accept payments over time, save your home, your car, and even your marriage!

But how can you afford to pay all of the bankruptcy fees if you are broke? Paying attorney fees, court fees, and the required credit counseling fees are often beyond the ability of a family struggling with debt. Desperate clients frequently bemoan the same conundrum, “If I had that much money, I wouldn’t pay you; I’d pay my bills!”

While attorneys often get bad rap, this time it’s not deserved. First, consumer bankruptcy fees are very competitive and are cheap compared to other legal services. Additionally, the rate of Chapter 7 success is extremely high, so the client almost always gets what he/she expects—a discharge of debts and a financial fresh start. Finally, all Chapter 7 attorney fees are paid up–front, as a flat fee. There are no hidden fees or surprises, unlike in a divorce or criminal case.

So how are individuals able to afford a quality bankruptcy attorney?

First, the costs may be spread out over time. While your attorney must be paid before filing your Chapter 7 bankruptcy case, you may make payments before your case is filed. When you first retain a bankruptcy attorney, you receive federal consumer protections from the Fair Debt Collections Practices Act. Under that law, once you retain an attorney, a debt collector may no longer contact you directly. This temporarily stops creditor harassment. Also, because you intend to file bankruptcy in the near future, debt collectors usually delay filing lawsuits or attempting garnishments. This also gives you time to pay your attorney.

Most courts permit the bankruptcy filing fee (currently $306) to be paid in installments. A court may allow a debtor to make up to four payments with the final installment paid no later than 120 days after filing the bankruptcy petition (which may be extended up to 180 days for good cause).

Second, you can let Uncle Sam help you file. Many debtors receive an income tax refund in the spring. You may use tax refund money to pay your attorney or bankruptcy fees without penalty.

Third, you may borrow the money from a friend or family member. You can repay this loan after you file bankruptcy without penalty.

Fourth, in some cases it makes sense to withdraw or cash out a retirement fund in order to restructure your finances. Speak with your attorney on the feasibility of this action.

Finally, you can sell property. Sometimes the best way to protect an expensive item from turnover during bankruptcy is to sell it before you file. You are able to use this money to pay your attorney and your bankruptcy fees, as long the property was sold at fair market value.

Financing a Chapter 7 bankruptcy is often a challenge to debtors, but can be accomplished with a little ingenuity. Your attorney has helped many clients afford bankruptcy fees and has suggestions for your circumstances. For more information or a free consultation, please contact the experienced bankruptcy attorney’s at Fears | Nachawati Law Firm by calling 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Mortgage Tax Break Set to Expire

As a general rule, any debt cancelled or forgiven by a creditor must be added to the individual’s income for tax purposes. At the end of the year, a creditor who cancels of forgives a debt must send an IRS Form 1099-c to the Internal Revenue Service and to the taxpayer. Called “cancellation of debt” by the IRS, a cancelled or forgiven debt is no longer borrowed money that will be repaid; it is income that the taxpayer must claim on his or her tax return.

For example, say you borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which is generally taxable income to you. Cancelled debts can arise from charged off loans, debt repayment plans, foreclosures, and short sales.

After the housing bubble burst and many Americans lost their homes, Congress enacted the Mortgage Debt Relief Act of 2007. The Act generally allowed taxpayers to exclude income from a cancelled or forgiven debt after they lost their homes. In other words, the Act meant that taxpayers did not have to pay taxes on any loan deficiency if the home was lost to foreclosure or sold in a short sale.

The Act was intended as short-term relief to help taxpayers avoid high tax debt. It was initially set to run until the end of 2009, but was extended for another three years, then extended again to the end of 2013. It will now expire on December 31, 2013. The Washington Post reports that it is unlikely that Congress will extend this relief again.

This is very troubling news to homeowners still struggling to pay or modify underwater homes. Without this relief, many individuals who lose their homes to foreclosure may be charged huge tax bills many months or even years after foreclosure. Since new tax debts are not dischargeable in bankruptcy, individuals will now suffer the injury of tax debt on top of the insult of losing a home. A large non-dischargeable tax debt can make it impossible to financially recover for many years.

Some states avoid this imputed income problem by prohibiting the lender from assessing a deficiency against a foreclosed home. However, most states do not have this provision, and some only protect certain home deficiencies (such as from a primary home mortgage) and not others (such as a deficiency from a home equity line of credit).

If you are facing a foreclosure sale on your property, discuss your options with an experienced bankruptcy attorney. Filing bankruptcy before foreclosure can avoid the nightmare of cancellation of debt income. Your bankruptcy attorney can review your case and offer a legal solution to your financial problems. For more information and a free consultation contact the experienced attorneys at Fears | Nachawati by calling 1.866.705.7584 or sending an email to fears@fnlawfirm.com.

Bankruptcy Statements

As a part of your bankruptcy petition you will also attach certain statements. This article will describe the various statements that are common in a consumer bankruptcy case.

The Statement of Financial Affairs
This statement is the big picture the debtor’s finances over the last couple years leading up to the bankruptcy. This document will list your previous year’s income—payments to creditors and family members—and will list information about other transfers or business transactions. This document is extremely detailed and an experienced attorney should help you fill it out. The Trustee in your bankruptcy case will want to make sure that the information is correct and will look for certain transfers that may be an issue in your case.

The Chapter 7 Statement of Intention
The statement of intention, like the name suggests, provides the Debtor’s intentions towards certain debts and contracts in the case. Typically, in a consumer case, only the Debtor’s secured debt and leases are listed. This statement is where the Debtor will inform the court and creditors if they intend to keep and reaffirm a debt or if they intend to surrender the debt.

The Chapter 7 Statement of Current Monthly Income and Means-Test Calculation
Usually, this statement is called the means test; this statement is used to determine if you qualify for a chapter 7 case. The first part of the test averages your previous six months income and compares it to the median income for your household size. If you are below the median the test stops there; being below median means that the bankruptcy code has determined that you have no disposable or extra income that should pay your unsecured creditors. If you are above median you move on to the second part of the text that deducts your expenses from your average income to see how much, if any, disposable income you have remaining. The expenses are tied to the IRS standard expenses but in some areas the bankruptcy code allows you to depart from the standard expenses. If after all the deductions are removed and you have no additional disposable income, you will qualify for a chapter 7 case.

The Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income
This statement looks nearly identical to the chapter 7 means test but has a few differences. The chapter 13 statement calculates if you qualify for a 3 year plan or a 5 year plan, by comparing your average income to the median income as in chapter 7. If you are below the median income you qualify for a 3 year plan, and if you are above it you qualify for a 5 year plan. The second part of the test as in chapter 7 deducts your expenses from your average income to see how much, if any, disposable income you have remaining. After the test is complete if there is disposable income remaining this amount would be multiplied by 60 (60 Months in a 5 year plan) and is used to determine how much should be paid to your unsecured creditors. The chapter 13 statement is a very complicated statement and is usually reviewed with a great deal of scrutiny. Your attorney will need to go over all of your income and expenses with you to ensure that it is filed correctly.

As with all bankruptcy paperwork, the statements you make are crucial to the success of your case. They are signed under penalty of perjury and must be filled out accurately. For more information and a free consultation, contact the experienced attorneys at Fears | Nachawati by calling 1.866.705.7584 or sending an email to fears@fnlawfirm.com.

Buying a Car During Chapter 13 Bankruptcy

Being in Chapter 13 also means that you must play by the bankruptcy court’s rules. One rule is that you may not use credit during the bankruptcy case. So what happens if you need to replace your vehicle during your bankruptcy case?

Buying with cash
A bankruptcy debtor may buy a car with cash during an open Chapter 13 case without permission from the trustee or bankruptcy court. There is one caveat: if your bankruptcy plan requires you to pay all disposable income to the trustee for the benefit of creditors, you may not use a bonus check, tax refund, or other irregular income unless you have permission from the trustee. As always, it is advisable to speak with your attorney before making a large cash purchase during Chapter 13 bankruptcy.

Getting a loan during Chapter 13 bankruptcy
Financing a car loan during bankruptcy requires a few steps. Since the monthly payment must be approved by the trustee and bankruptcy court, the first step is to ask your attorney what the trustee will ordinarily sanction. First, your attorney will contact the trustee to receive consent. After that, you and your attorney should start the process of obtaining court approval by filing a written motion. Your motion will include the following information:

1. Why you need to purchase a vehicle
2. Are you trading in a vehicle
3. How much you plan to spend
4. How much you will put down and amount financed
5. The approximate amount on monthly payments, term, and interest rate
6. How the new payment will affect your Chapter 13 plan.

The motion will request the court to issue an order allowing you to proceed with the purchase and financing of the vehicle based on the terms outlined in the motion. You may also need to modify your Chapter 13 Plan. In some cases you may be able to reduce the amount paid to unsecured creditors in order to afford the new car payment. Your attorney may also need to amend your bankruptcy schedules.

Once you receive the court’s permission, you can go car shopping! Unless you have already obtained financing, you will need to seek a loan from one of the car dealer’s lending sources. This often requires substantial leverage and influence, so generally dealing with a large dealer is preferable over a smaller dealership. Larger dealerships are often better at overcoming difficult credit issues, such as an open bankruptcy case. It may also be worth a telephone call to the dealership to discuss your situation before actually visiting the lot. If you or a loved one have questions about these issues or are considering filing bankruptcy, please contact the experienced attorneys at Fears | Nachawati for information or a free consultation. Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Justice Department Announces New Means Testing Figures

The United States Trustee Program, a component of the Department of Justice, recently released new median income information to be used in determining bankruptcy eligibility. The bankruptcy means test is meant to identify individuals and families with higher incomes and encourage repayment of debts. Debtors with a family income above their state’s median income for that family size must complete additional testing to qualify for Chapter 7 bankruptcy or to calculate monthly disposable income paid during Chapter 13. Those below the state median income are immediately eligible for Chapter 7 bankruptcy.

In many states the median income levels have dropped, making it easier to avoid payment to unsecured creditors in either Chapter 7 or Chapter 13 bankruptcy. The new state median incomes per family size are listed below which is found at the UST website. If you or a loved one is considering filing bankruptcy please contact the experienced attorneys at Fears | Nachawati for a free consultations or further questions. You can contact us by calling 1.866.705.7584 or sending an email to fears@fnlawfirm.com.












































































































































































































































































* Add $8,100 for each individual in excess of 4.


Bankruptcy Schedules

The bankruptcy schedules are designed to list all of your assets, debts, income, and expenses. This article will outline the different schedules and the information you should disclose in a common consumer bankruptcy case.

Schedules A and B

Schedules A and B list all of the assets the debtor owns. Specifically, schedule A lists all the real property the debtor owns. This means all land, houses, oil and gas interests, time shares, future interests in real property, and any other real-estate. The debtor will also list the value of such property and the amount of any secured claim on the property. Schedule B lists all personal property—essentially everything else. This list would contain all monies in cash or bank accounts, all security deposits, all household items, art, pictures or prints, jewelry, sporting equipment, clothing, cars, boats and pets. Some commonly missed items include: stocks, bonds, or other investments; life insurance policies (especially those with a cash value); an interest in a business or partnership; an entitlement to an inheritance from a deceased person;  property held for you in trust; or entitlement to sue someone for money damages (car accident, personal loan, etc.).


Schedule C

Schedule C lists all your exemptions. Generally exemptions are the particular code that protects your property. In Texas you can use either the Texas exemptions or Federal exemptions. Both exemptions have their advantages and disadvantages and it is important that you speak to attorney about which set you should use. Any non-exempt property can be sold to pay creditors in a chapter 7 case and can cause your plan payment to increase in a chapter 13.

Schedules D, E and F

On schedules D, E and F you list all of your creditors. Specifically, schedule D lists all of your secured creditors. A secured creditor is a creditor who holds an interest in collateral you are purchasing. The most common examples are a mortgage, a car note, and a purchase money agreement (typically for furniture or other household items). In order to keep the collateral the debts must be satisfied (paid). Schedule E lists all of your priority debt. The typical priority debts in a consumer case are income taxes and/or a domestic support obligation (such as child support or alimony). Priority debts are generally non-dischargeable debts that congress has decided are entitled to special treatment. In a chapter 7 case these debts will pass through the bankruptcy and in a chapter 13 case these debts must be paid during the life of the plan. Schedule F lists all of your general unsecured debts. This is essentially all other debts, including: credit cards, medical debt, student loans, pay day loans, deficiencies on surrendered or repossessed collateral, and personal loans. These debts, with the exception of student loan debt, will be discharged or wiped out at the end of the bankruptcy case.

Schedule G

Schedule G lists any leases or executory contracts you are a party to. An executory contract is one where both parties have the ability to breach, or break the contract.  In a typical consumer case you will list any residential leases or car leases on schedule G. These leases are either assumed or rejected—meaning you either keep the lease or you don’t. If you reject the lease then any remaining default is discharged in the bankruptcy.

Schedule H

Schedule H lists any co-debtors. This is where you list any co-signers on any of your debts. If a married couple is filing they do not need to list each other on the petition, but if one spouse is filing individually they need to be listed.

Schedule I and J

On Schedule I you list all the sources of income you have in the household. In Texas, under the 5th circuit opinion, all income—with the exception of social security income—must be listed on the schedule I. In addition to wage income, types of income include: family contributions, unemployment, retirement, child support, disability (non-social security); real-estate or rental income, interest and dividends, pension, and any other sources. On schedule J you list your budget or your expenses. While everyone’s budget is unique the Trustee will compare your budget to the IRS standard expenses for your household size. If your budget item is higher than the IRS standard amount your budget may be under scrutiny and you may need to provide supporting documentation to explain why your budget is higher.

In conclusion, bankruptcy schedules are a highly detailed and important part of your bankruptcy case. They are signed under penalty of perjury and must be filled out accurately. For more information and a free consultation, contact the experienced bankruptcy attorneys at Fears | Nachawati by calling 1.866.705.7584 or by sending an email to fears@fnlawfirm.com

The Affects Bankruptcy can have on a Co-signer

On Schedule G of any bankruptcy petition you will find a list any co-debtors or co-signers that you may have on any of your debts. In a chapter 7 case your co-signer is not affected by the bankruptcy filing, for better or for worse. The co-signer’s credit is not impacted by the filing and they do not take any hits on their credit report. However, the co-signer is also not stayed from collections and is not discharged at the end of the case. This may or may not be a problem depending on the type of debt and the Debtor’s intentions. If the debt is a secured debt like a mortgage or a car payment then the Debtor has an option to reaffirm the debt and continue making payments. Therefore the co-signer is not harmed by the filing since the Debtor will continue to perform on the contract. As it is, outside of bankruptcy if the Debtor defaults the co-signer becomes responsible. Similarly if the debt is student loan debt, the debt will not be discharged at the end of the case and the Debtor will still need to make payments. If the Debt is a general unsecured debt the debt will most likely be discharged and the co-signer will remain obligated.

In a chapter 13 case the co-signer is impacted by the bankruptcy filing. The co-signer is afforded a co-debtor automatic stay. Because the bankruptcy code anticipates that in order to propose a successful plan of reorganization, the Debtor and co-debtor should be stayed so the plan can be confirmed. Like the automatic stay for the Debtor, the co-debtor stay, prevents any collecting proceedings to be brought against the co-debtor. The co-debtor stay can be lifted for the same reasons the debtor’s stay can be lifted.

In many cases the Debtor is the co-signer and the no filing Debtor is the primary on the note. In this situation any dischargeable debt can be surrendered and discharged by the filing Debtor and the co-debtor will stay responsible. If you have any further questions about what affects bankruptcy may have on a co-signer, call the experienced bankruptcy attorneys at Fears | Nachawati. If you are considering filing bankruptcy call us for a free consultation at 1.866.705.7584, or send an email to fears@fnlawfirm.com.

Emergency Bankruptcy Petition

An emergency bankruptcy petition is a three page petition with a “mailing matrix”—a list of creditor names and addresses. The naked petition and creditor list are filed with the bankruptcy court along with the necessary filing fee and evidence of completion of consumer credit counseling. The chief benefit of an emergency bankruptcy filing is that the automatic stay goes into effect immediately and stops all creditor collections. This is especially useful if the debtor arrives at his attorney’s office on the eve of a foreclosure sale.


To effectively stop a foreclosure sale, the creditor must have notice of the bankruptcy filing. The best way to do this is to fax a copy to the creditor (and/or foreclosure firm, attorney, foreclosure trustee, etc.) and call to confirm receipt. The reason that notice is so important is the distinction courts draw between actions that are “void” and those that are merely “voidable.” Some courts hold that creditor actions in violation of the automatic stay are void, period. Others find some actions voidable. Those later courts sometimes allow a foreclosure sale to stand in a Chapter 7 case. This may occur when the creditor did not have prior knowledge of the bankruptcy case (and is therefore not culpable for an intentional violation of the stay order) and the debtor intends to surrender the property. Obviously, if the foreclosure takes place, the debtor no longer owns the property and must vacate immediately.


 After the emergency bankruptcy petition is filed with the bankruptcy court, the debtor has 14 days to file the completed bankruptcy paperwork, including all schedules. See Bankruptcy Rule 1007(c). If the completed bankruptcy petition is not filed with the bankruptcy court within 14 days after the emergency bankruptcy filing, the bankruptcy case could be dismissed.


One common problem with emergency petitions is gathering a complete list of creditors. While the debtor has 14 days after filing to identify assets, income, and expenses, the bankruptcy rules require that the debtor list all creditors (as well as collection agencies, co-debtors, interested parties, etc.) at the time the bankruptcy case is initially filed. Debtors filing emergency petitions are under duress and frequently forget creditors. Some legal commentators, including Judge Alan Jaroslovsky, a California bankruptcy court, have pointed out that the debtor’s bankruptcy papers are filed under oath and must contain the whole truth. In his open letter posted on the website for the US Bankruptcy Court for the Northern District of California, Jaroslovsky writes:


Whatever your attitude is toward the schedules, you should know that as far as I am concerned they are the sacred text of any bankruptcy filing. There is no excuse for them not being 100% accurate and complete. Disclosure must be made to a fault. The filing of false schedules is a federal felony, and I do not hesitate to recommend prosecution of anyone who knowingly files a false schedule.


Filing an emergency bankruptcy petition can stop creditors in their tracks, but it can also present potential problems for the debtor. If you are considering a bankruptcy filing to protect your property, consult with an experienced attorney at Fears | Nachawati as early in the process as possible. As bankruptcy attorneys we can explain how the federal bankruptcy laws can help your family and identify any areas of concern. For more information and a free consultation, contact us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

If I file bankruptcy will I ever get credit again?

Bankruptcy is no longer the credit “death sentence” that it used to be. While it is true that most people’s credit score takes a hit initially after filing bankruptcy, we find that for most of our clients, about a year or so after filing bankruptcy, their credit scores have improved markedly. The real truth is if you’re at the point of considering bankruptcy, your credit history has probably already hit a rough patch. If you’re already behind on a ton of credit cards, medical bills, and have a repossession or foreclosure, bankruptcy won’t hurt your credit score all that much and can be an invaluable tool to get you back on the right track.

Something to keep in mind is that a large portion of determining credit worthiness depends on outstanding liabilities. After you complete a Chapter 7, a large portion of your liabilities are taken off the books—meaning you have money to spend and not a whole lot of active debt obligations. A good deal of our clients are shocked when they begin to receive credit card and vehicle offers soon after filing bankruptcy, but this is typical. Another reason credit companies will view you as a good risk is because they know that once you file for a Chapter 7 bankruptcy, you can’t do so again for another 8 years.

Yet another way to help quickly rebuild your credit after bankruptcy is by completing a “reaffirmation agreement” on your secured debts after your bankruptcy is filed. This will allow your creditors to continue reporting the status of your secured debts, like a home mortgage or car note. While credit reporting is not the only consideration in reaffirming a debt, it can be a big one and can help rebuild credit.

If you are looking into bankruptcy and want to know more about what bankruptcy can do to get you back on the right track, contact the helpful attorneys at Fears | Nachawati today. Call us at 1.866.705.7584, or send an email to fears@fnlawfirm.com

What is the Section 341 Meeting of Creditors?

Many debtors are surprised to learn that when they file bankruptcy they typically do not have to go in front of a judge. The one time that debtors typically have to attend “court-like” proceedings is the Section 341 Meeting of Creditors, often also referred to as the “Trustee Meeting”.

Many people get nervous when they hear talk of a “creditor’s meeting” and they picture a bunch of people in suits yelling at them. That is not typically what happens at the 341 meeting. At the Trustee meeting creditors do not typically show up. It is typically just a debtor, their attorney, and the Trustee. The Trustee is appointed by the Department of Justice to oversee bankruptcy cases. The Trustee’s role is to represent the creditors. It is an important distinction to note that while the Trustee represents the creditors, he/she does not work for the creditors.

The Trustee’s job is essentially to review a debtor’s bankruptcy petition and see if there are any assets to distribute to creditors.  Once the Trustee reviews a debtor’s petition, he will typically ask the debtor questions about the petition. For instance, the Trustee will commonly ask debtors how they have valued their property, where they are currently working, etc. This meeting can last from 10 – 15 minutes.

The only things clients are typically responsible for bringing to this meeting are a social security card and drivers license to prove their identity. Sixty days after the Trustee meeting, a debtor will typically receive their discharge which legally erases most unsecured debts. If you, a family member, or a friend are considering bankruptcy and have questions, contact the attorneys at Fears | Nachawati today and they will be happy to help! Call us at 1.866.705.7584, or send an email to fears@fnlawfirm.com.   

Be Careful When Filing a Second Bankruptcy

Even though the bankruptcy rules are very flexible, sometimes it makes sense to dismiss a bankruptcy case and refile later. This is especially true when circumstances change, such as a temporary loss of income.

In order to combat the appearance of “bankruptcy abuse,” Congress enacted new restrictions for repeat filers in 2005. One of those restrictions is found in section 362(c)(3)(A) of the Bankruptcy Code, which limits the automatic stay to thirty days after filing for a debtor who files a second bankruptcy case within one year of a prior dismissal. Specifically, the law states:

(3) if a single or joint case is filed by or against a debtor who is an individual in a case under chapter 7, 11, or 13, and if a single or joint case of the debtor was pending within the preceding 1-year period but was dismissed, other than a case refiled under a chapter other than chapter 7 after dismissal under section 707(b)--


(A) the stay under subsection (a) with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case[.]

The Bankruptcy Code also provides that a debtor may ask the court to extend the automatic stay, but only if a motion is filed and the matter is heard before the expiration of the thirty day period. Most courts agree that the automatic stay cannot be extended once the thirty day period has expired. After filing the second bankruptcy case, the debtor must quickly file a motion to extend the automatic stay and request a hearing. Otherwise, the period may run and the debtor may lose automatic stay protection.

But some clever attorneys have asked, “what exactly is at risk?”

Like many of the new provisions of the Bankruptcy Code added in 2005, this new law is full of holes and ambiguities. The most glaring in this case is what stay protection terminates “respect to the debtor.” A minority of courts, including the Ninth Circuit Bankruptcy Appellate Panel, interpret what Congress means. These courts say that Congress meant to say that all automatic stay protections are lost at the end of the thirty days. See In re Reswick, 446 B.R. 362 (9th Cir. BAP 2011)

The majority of bankruptcy courts, including a recent decision out of the Northern District of Texas (In re Williford, Bankr. Court, ND Texas, 2013), interpret what Congress actually says. What the statute says is that the stay terminates with respect to the debtor, meaning the debtor and the debtor’s exempt property. Under this interpretation, the automatic stay is not terminated as to the debtor’s property that is part of the bankruptcy estate.

Bankruptcy law can be very convoluted. You need the assistance of an experienced bankruptcy attorney to guide you through the law, rules, caselaw, and political leanings of the judge. For more information or a free consultation please contact us at Fears | Nachawati Law Firm by calling 1.866.705.7584

Income Tax Issues in Bankruptcy

Bankruptcy law and tax law are two separate areas of law but the two often intersect.  In order to successfully complete a bankruptcy case you must often be in compliance with tax code provisions and tax issues can be resolved with the bankruptcy process. Find some examples below of common tax issues in a chapter 7 and chapter 13 bankruptcy cases.

Is Tax Debt Dischargeable in Bankruptcy

As a general rule tax debt is not dischargeable in bankruptcy. Sometimes old tax debt can be discharged.  The analysis for discharging tax debt is complicated and usually requires an attorney to review.  There are five rules for discharging tax debt. The debt must meet all five of the rules to be dischargeable. Those rules are:

1.    The due date for filing a tax return is at least three years ago.

2.    The tax return was filed at least two years ago.

3.    The tax assessment is at least 240 days old.

4.    The tax return was not fraudulent.

5.    The taxpayer is not guilty of tax evasion.

 If you believe that your debt may qualify it’s a good idea to provide your attorney your tax transcript for the year you owe. It will usually contain the information you need.

Tax Debt in Chapter 13

In order to get your chapter 13 case confirmed the past 4 years tax returns must be filed with the IRS.  While the bankruptcy code requires the past 4 years it is usually a good idea to file all necessary returns. If you have not filed the IRS may show that you owe money. If that is the case you would want to make sure that the debt is paid in the chapter 13 plan.

Any tax debt that you owe can be classified three different ways. Normally tax debt is entitled to a priority. This means that the debt is not dischargeable and needs to be paid out over the life of the chapter 13 plan. This is true for most IRS debt and thus a chapter 13 case can be a good way to pay off your taxes. If there is a tax lien in place then the IRS Debt is secured. This means that the IRS has a security interest in all of your property.  You will then have to pay the IRS up to the value of all your property, which you will have listed on schedule B of your petition. Lastly IRS debt can be general unsecured debt.  This means that the IRS collects only a pro rata share along with all your other unsecured debt. Then, at the end of the case some or all of the IRS debt may be discharged.


If you have mounting tax issues contact the experienced attorney’s at Fears | Nachawati 1.866.705.7584

Inheritance During Chapter 13 Bankruptcy

Just as debts incurred after a case is filed are not subject to the bankruptcy discharge, so is property acquired after bankruptcy not at risk of turnover in a Chapter 7 case. Essentially, whatever you own is used to pay whatever you owe, and the rest is discharged at the end of the Chapter 7 case.

One exception to this general rule is an inheritance. Since bankruptcy attempts to balance the rights of the debtor with the rights of creditors, it would not be fair to allow a debtor who is expecting an inheritance to file bankruptcy, discharge all of his debts, and then collect a fat inheritance. Consequently, Congress enacted section 541(A)(5)(a) of the Bankruptcy Code which states that an inheritance can be used to pay creditors (i.e. included in “property of the debtor’s estate”) if the debtor acquires or becomes entitled to acquire the inheritance within 180 days after filing bankruptcy. In other words, if your aunt Bessie dies within 6 months of your bankruptcy filing, the trustee could take the inheritance to pay your creditors, even after your case is closed.

While the above is the rule for Chapter 7 cases, it is different for Chapter 13 debtors. In a Chapter 13 case, the debtor is expected to contribute whatever he reasonably can to pay his creditors. In the case of an unexpected inheritance during a Chapter 13 case, the debtor must pay the inheritance into the plan, minus any exemptions. Yes, even if the right to the inheritance arises more than 180 days after the bankruptcy filing date.

The Fourth Circuit Court of Appeals recently made this issue clear when it decided the case of Carroll v Logan. In Carroll, the debtors filed bankruptcy; then received an inheritance of $100,000 three years later during the repayment period of their Chapter 13 case. The bankruptcy Trustee moved to modify their plan and pay the $100,000.00 to creditors. The debtors objected, arguing that section 541 states that inheritance property is “property of the estate” only when the right to acquire it occurs within 180 days of the bankruptcy filing date. In this case the right to the inheritance was well outside that 180 day limit.

The trustee countered that section 1306 of the Bankruptcy Code expands section 541 to include property acquires after commencement of the case but before the case is closed, dismissed, or converted to a case under a different chapter. The bankruptcy court and the appellate courts agreed with the trustee, and approved the order to pay the $100,000.00 inheritance into the plan.

Interpreting the Bankruptcy Code is challenging work, even for skilled professionals. That is why it is critical to hire counsel for your bankruptcy case who is committed to staying informed of trends and changes in the bankruptcy world. If you are considering bankruptcy, contact the experienced bankruptcy attorneys at the Fears | Nachawati Law Firm for a free consultation by calling our office at 1.866.705.7584.


Bankruptcy Can Help Avoid Foreclosure

Bankruptcy attorneys often advertise that filing bankruptcy can stop foreclosure. However, because of the self-serving interest bankruptcy attorneys have in the matter, it is understandable that consumers have difficulty trusting mere advertising. Now, a new paper from researchers at the University of North Carolina concludes that filing bankruptcy is, in fact, effective in avoiding a foreclosure sale.

The researchers analyzed 4,280 lower-income homeowners who were more than 90 days late on their 30-year fixed-rate mortgages. They found that when a homeowner in the midst of foreclosure filed for bankruptcy, a future foreclosure auction was 70% less likely to occur. While both Chapter 7 and Chapter 13 reduced the chances of a subsequent foreclosure auction, a homeowner who filed Chapter 13 was five times more likely to retain his home.

A copy of the paper can be found at www.ssrn.com

Filing bankruptcy immediately stops the foreclosure process by virtue of the automatic stay injunction. Bankruptcy debtors are given time to reorganize their finances and negotiate with their mortgage company for a resolution. If there is no agreement reached with the creditor, the homeowner has options, including:

• walking away from the home and surrendering the property back to the bank;
• stripping off an entirely unsecured junior mortgage;
• forcing the bank to accept payments over three to six years for any mortgage arrears; or
• entering a home modification program to reduce principal and/or interest.

Filing for federal bankruptcy protection shifts the balance of power away from the foreclosing creditor and places it into the hands of the consumer debtor. Throughout the bankruptcy process, the creditor must answer to the federal bankruptcy court and negotiate directly with the debtor’s attorney.

Bankruptcy can be a very effective option when the bank is unwilling to work with you.
If you own a home that is in danger of foreclosure, speak with an experienced bankruptcy attorney at the Fears | Nachawati Law Firm and discuss your options. For a free consultation, contact our office at 1.866.705.7584.

Answering Chapter 7 Trustee Questions at the 341 Meeting

Your Chapter 7 bankruptcy meeting of creditors (also called the “341 meeting” or “Trustee’s meeting”) can be intimidating. Fortunately, you have selected experienced counsel and have cooperated to provide honest and accurate financial information. At this point, your attorney has a good handle on the case, but one wildcard still remains:
your nervousness.

When people get nervous they often either clam up or they talk too much. Neither case is beneficial when answering the Trustee’s questions. Below are some general guidelines that will help you answer the Trustee’s questions without complicating your case.

Tip #1: Breathe
Remember that the 341 meeting is not “court” and the Trustee is not a judge. However, the Trustee should be shown professional respect and always address him or her courteously. Your attorney will be by your side to assist you, but cannot answer questions for you. Consequently, you should relax and remember that the bankruptcy process is designed to help honest but unfortunate people get a fresh start.

Tip #2: Listen to the Question
The Trustee asks the same general questions to all debtors, but will have additional questions specific to your case. It is important to listen and make certain that you understand the Trustee’s question before answering. Sometimes the question itself will tell you the right answer. You may also ask the Trustee to repeat the question. Your attorney will be fully engaged at this time and can advise you if you become confused or do not understand a question.

Tip # 3: Answer the Question
The second worst thing a debtor can do during the 341 meeting is to volunteer information to the Trustee. For instance: discussing the value of your car when the Trustee asked about your income is just asking for trouble. Your nervousness may come across as evasive or demonstrate a guilty conscious.

Answer the questions asked in as few words as possible: be brief! Don’t explain yourself or justify your situation. Don’t guess at the Trustee’s next question; let the Trustee do his or her job. In many cases the Trustee becomes interested in an issue only because the debtor continues to ramble on nervously about it.

Tip #4: Be Honest
Your testimony at the 341 meeting is made under oath and is recorded. Intentionally providing false or incomplete information may constitute the federal crime of perjury, or bankruptcy fraud. Dishonesty is the worst thing a debtor can do at this meeting. If you need to refer to your schedules or other documents for clarification, do so. If you do not know the answer to a question, don’t guess! Guessing can only complicate your case. If you do not know, say so.

It is crucial to have an experienced attorney by your side when conducting the 341 meeting. If you are considering bankruptcy, contact the experienced bankruptcy attorneys at the Fears | Nachawati Law Firm today to begin the process to a fresh financial start. For a free consultation, contact our office by dialing 1.866.705.7584.

Surrender Property During Bankruptcy

If you need to walk away from real estate, a boat, a car, or other expensive personal property, it is a good idea to speak with a bankruptcy attorney. The federal bankruptcy laws may allow you to walk away from the debt without owing additional money on the property.

Deficiency Balance
Surrendering property before bankruptcy can create a new debt, called a deficiency balance. Essentially, a deficiency balance is the amount owed on a loan after the property is sold. Returned property is often sold at auction, which commonly brings less than the property’s real value; so you are left owing the remaining balance.

In many cases, a deficiency balance can be avoided by surrendering the property during bankruptcy. Most courts will allow you to surrender certain property back to your creditor in full satisfaction of the outstanding debt. That means that the creditor takes the property back, but has no further claim against you. This has little value during a Chapter 7 bankruptcy, but can mean a great deal you file a Chapter 13. By waiting to surrender the property during the Chapter 13 case, the creditor has no unsecured claim to add to your monthly plan payment.

Surrendering property in full satisfaction of a debt is a complicated bankruptcy issue and there is disagreement among the circuit courts as to its applicability. If you are considering walking away from property, speak with a knowledgeable bankruptcy attorney in your area to discuss your options.

Tax Liability
When a creditor “forgives” a debt, the creditor is required to issue an IRS Cancellation of Debt Form 1099-C. This form is sent to the IRS and to the debtor. The IRS includes the amount of the cancelled or forgiven debt as income, unless the debt is protected by the Mortgage Debt Relief Act of 2007, the debtor is insolvent at the time of the cancellation, or some other exception applies. If the debt is not accepted, the tax debt owed to the IRS can be very difficult, if not impossible, to discharge. While the Tax Code provides several exceptions to a tax levied by a cancelled or forgiven debt, it is never good to be on the radar screen at the IRS.

A debt that is surrendered during bankruptcy is not taxed as income. The federal law specifically excludes all debts discharged during bankruptcy from income. As a result, it is always better to file bankruptcy before a creditor forgives or cancels a debt and issues a 1099-C.

If you are considering bankruptcy, the experienced bankruptcy attorneys at the Fears | Nachawati Law Firm can navigate you through the sometimes confusing process bankruptcy entails; and can help you re-establish financial freedom from overwhelming debt. For a free consultation, contact our office at 1.866.705.7584.



Bankruptcy is Lasting Protection

If you are struggling with overwhelming debts that you cannot pay, bankruptcy can shield you from creditors and legally restructure your personal finances. The federal law contains many consumer protections that can give you “breathing room” to account for and reorganize your financial affairs. These protections are available to a debtor before, during, and after bankruptcy.


Before Bankruptcy

There are several powerful consumer protections available to all consumer debtors, including:

• The Telephone Consumer Protection Act, which limits when and how a debt collection call can be placed.
• The Fair Credit Reporting Act, which regulates how consumer credit information is collected and reported.

Perhaps the most useful federal protection for a pre-bankruptcy debtor is the Fair Debt Collections Practices Act, or FDCPA. This law states that a third party debt collector (collection agency or attorney) must stop all communications with the consumer after an attorney is hired. Consequently, after hiring a bankruptcy attorney to prepare a bankruptcy case the debtor gains the added benefit of obtaining relief from collection harassment under the FDCPA.


During Bankruptcy

Once the bankruptcy case is filed, the debtor receives the protection of a court injunction, commonly called the “automatic stay.” The automatic stay is a temporary injunction that prohibits all collection activity during the bankruptcy case. All telephone calls, mail harassment, lawsuits, garnishments, repossessions, and foreclosure activities must stop immediately once the bankruptcy case is filed. The automatic stay continues throughout the bankruptcy case, until either the court orders the stay lifted, the debtor receives a discharge, or the case is dismissed. Co-debtors are also protected by the automatic stay if the debtor files a Chapter 13 case, but not if the case is a Chapter 7 bankruptcy.


After Bankruptcy

After the debtor receives a discharge, the automatic stay temporary injunction is replaced by a permanent injunction contained in the discharge order. A creditor or subsequent collector is forever barred from collecting on a debt that is discharged in bankruptcy. Specifically, the creditor may not contact or collect from the debtor personally. However, the creditor may have other collection rights available, including collecting from a co-debtor who did not file bankruptcy.

If you are struggling with debts you cannot afford to pay, speak with an experienced bankruptcy attorney and discuss your options. Bankruptcy is powerful and lasting relief that can permanently discharge your debts and help you start on a new and better financial path. For a free consultation with an experienced bankruptcy attorney at the Fears | Nachawati Law firm, contact us by calling our office at 1.866.705.7584.

Bad Bankruptcy Advice Can Spell Disaster

The Miller case out of the Northern District of California is a good example of how important it is to receive sound legal advice during a bankruptcy case. Debtor Carla Miller filed her Chapter 7 petition on August 8, 2013. Her schedules, made under oath and written in her own hand, disclosed that she was self-employed in the jewelry business, had no inventory, and between $6,000 and $7,000 in personal jewelry. Miller valued her home at $1,550,000, which meant there was no equity in the home.

Miller’s case was a classic “no asset case,” but at the 341 meeting the Chapter 7 trustee discovered that the bankruptcy schedules were not accurate. Miller failed to disclose business inventory in her jewelry business that amounted to $50,000 at wholesale values. Additionally, her home was estimated to be worth $2,300,000, which meant that there was equity available to pay her creditors.

Miller asked the bankruptcy court to dismiss her case and claimed that she received bankruptcy advice from a business that was practicing law without a license. In the alternative, she asked to convert her case to a Chapter 11, should the court deny her request to dismiss.

The bankruptcy court pointed out that there is no statutory right to dismiss a Chapter 7 case, therefore the debtor has a heavy burden to persuade a court to dismiss her case on account of “fairness.” In addition, even when there is a statutory right to dismiss, that right may be forfeited if the debtor has engaged in bad faith conduct.

In this case the court found that Miller had filed false schedules in bad faith. The court stated:

"Nothing in Miller’s pleadings or her declaration or her address to the court convinces the court that there are equitable considerations militating in favor if dismissal. To the contrary, the court found her intelligent, calculating and undeserving of sympathy. She underestimated the seriousness of a bankruptcy filing and the diligence of a bankruptcy Trustee. There is no equity in allowing her to escape the consequences of her actions."

The court pointed out that the Trustee, creditors and the real estate agent stood ready for payment from the proceeds of selling Miller’s non-exempt jewelry and real estate. Dismissing the case would not be fair to these individuals.

Finally, the bankruptcy court denied Miller’s request to convert her case to Chapter 11 (and thereby have a better opportunity to protect her assets). The court said that bad faith conduct is a bar to conversion as well as dismissal.

The Miller case is a prime example of how quickly a bankruptcy case can turn bad without the leadership of a seasoned bankruptcy attorney. Reliance on bad advice is generally not a valid excuse, so it is important to get your advice from someone who knows bankruptcy law and who can protect your legal rights. If you are considering bankruptcy  the experienced bankruptcy attorneys at the Fears | Nachawati Law Firm can provide you with thorough, sound legal advice that is necessary to complete the bankruptcy process both legally and efficiently. For a free consultation, contact us by dialing our office at 1.866705.7584.

The Foreclosure Law of Texas

Texas is a non-judicial foreclosure state. This means that the foreclosure process can be quite quick. A non-judicial foreclosure as the name would suggest, is not a court proceeding; but rather, a foreclosure that is accomplished via a series of notices.

The first notice is a default notice, which is mailed to the Debtor. The default notice/demand letter provides that the Debtor has twenty days to cure the mortgage, or the mortgage or servicer will go forward with a foreclosure sale.

The second notice is the notice of the foreclosure sale. This notice must allow at least 21 days for the sale date. The notice will be mailed certified to the Debtor and is then posted on the courthouse door and filed with the county clerk. In Texas, foreclosure will take place on the first Tuesday of the month starting at 10:00 am.

After all the proper notices are given, the sale will take place on the county court house steps. The sale is an auction, and the home will go to the highest bidder. Whoever buys the property will pay off the mortgage. Typically, the lender will buy back their mortgage.

After the mortgage is paid, any remaining deficiency balance is an unsecured debt. A mortgage company can then sue the lender for the difference between the sale and the amount of the debt. They will also usually get attorney fees and other expenses.

At the fastest, a foreclosure can take place within 41 days; however, since the date for foreclosure sale is always the first Tuesday of every month, the amount of time will vary from case to case.

There are several ways to stop a foreclosure. The first and most obvious is to pay off the default and get current on the mortgage. This is usually not an option for most debtors, since they do not have the funds to become current.

A Debtor can also file for a loan modification with their lender. The loan modification process can be a frustrating one, and will usually involve the Debtor sending documents repeatedly to the mortgage company. The final result, however, can be rewarding. If the modification is approved the Debtor can have payments reduced and have the arrearage put into the back of the note.

Be careful with mortgage rescue companies. There are a lot of companies that offer mortgage assistance to people who have fallen behind on their mortgage. It is always a good idea to research any company you would work with. While many companies are legitimate, there are still plenty that are not.

Be wary of any company that has you transferring the property from your name into someone else’s name or a company that wants you to place your home in a trust or LLC. This can confuse the title, but will ultimately not stop a foreclosure. It can also have damaging effects on your ability to keep your home in the future.

Also, be careful of filing a lawsuit on the basis that the deed of trust was not signed by the original lender or signed by MERS. MERS is the mortgage electronic systems and there was a trend whereby people would sue the lender based on the fact that the lender was not the mortgagee listed on the original note. Since Texas is a title theory state, the holder of the note is the owner of the house until the lender is paid in full. A lawsuit to try a title will usually not be successful. Courts are not in the practice of denying the mortgage company the right to collect under the debts.

Another option is to file for chapter 13 bankruptcy. Chapter 13 is a 3-5 year plan payment that allows Debtors to get current on their mortgage through the chapter 13 process. The automatic stay in bankruptcy will stop the foreclosure sale and allow the Debtor to reorganize their debts. Furthermore, a Debtor may file chapter 13 and still pursue a loan modification.

For more information about saving your home or for filing for bankruptcy, contact the experienced attorneys at the Fears | Nachawati Law Firm at 1.866.705.7584.

Bankruptcy Courts Open During Government Shutdown

The federal court system, including the United States Bankruptcy Courts, will remain open during the government shutdown as a result of congressional infighting. Bankruptcy dates, including 341 meetings, bankruptcy deadlines, and court hearings will proceed without interruption or alteration.

In a memorandum sent from the Administrative Office of the U.S. Courts, the federal courts will keep their doors open for two weeks by using revenue from filing fees and long-term appropriations that are not part of the annual budget. This money will be used to pay staffers as normal. If the shutdown continues longer than two weeks, some staff may be furloughed while others may be forced to work without pay until the shutdown ends.

Federal courts are considered “essential” services that fall under the Anti-Deficiency Act, a federal law that keeps the government running in the event that federal funding is frozen. All federal courts are encouraged to conserve as much as possible by deferring non-crucial expenses. The Justice Department, which oversees the United States Trustee’s Program, said that its attorneys would postpone many non-critical civil matters.

Most experts do not expect the shutdown to last longer than a couple weeks. If the shutdown continues, there may be delay in some cases. If you have specific questions regarding how the government shutdown may affect your bankruptcy case, the experienced attorneys at the Fears | Nachawati Law Firm can assist you, and clarify the process. For a free consultation, contact our office at 1.866.705.7584.

Consumer Bankruptcy Takes a Plunge in 2013

The First quarter of 2013 saw a plunge in the number of bankruptcy cases that were filed. The overall number of consumer cases has fallen by 30%; with the biggest drops coming in states hit hardest by the recession.

The reasons for the decline include the fact that interest rates are lower and people are able to refinance their mortgage or credit. Additionally, a large number of people have already filed; therefore there are less people who have a short-term need to file.
While overall bankruptcies are declining, experts believe the factors that have caused bankruptcy to decrease may soon reverse.

For instance, Henry Hildebrand III, a Chapter 13 Bankruptcy Trustee based in Nashville expects chapter 13 bankruptcy filings will start to climb up again as homes continue to gain value and the employment rate gradually improves. This is because people will be filing to keep large secured debts, such as mortgages and vehicles. Unlike a Chapter 7 filing where someone's property is sold and the proceeds are used to eliminate most debts, consumers file under Chapter 13 in order keep their assets; like their homes and cars, by establishing a plan payment for 3 to 5 years.

Another reason for the current decline is most likely the result of the decrease in consumer borrowing. Many consumers may be staving off filling by living on credit. The extension of the successive discharge bar date from 6 to 8 years in 2005 could also be causing a few re-filers to wait until they are eligible for another discharge.

If you are considering bankruptcy, the experienced attorneys at the Fears | Nachawati Law Firm can help you navigate through the sometimes confusing process of filing a bankruptcy and get you back on track to financial stability. For a free consultation, contact our office at 1.866.705.7584.

Filing a Bankruptcy Pro se

Pro se is a Latin phrase meaning "for oneself" or "on one's own behalf.” A bankruptcy is a complicated procedure but a debtor has the option to file a case on their own without an attorney. Sure the Debtor can download forms from online or get them from the library, and there are also books and websites that can walk a Debtor through the process. However, bankruptcy law is very complex, incredibly precise and the many forms to be filed can be exceptionally complicated. The forms require a large amount of detail, and if certain things are missed the case can be dismissed. If your case is thrown out (dismissed) creditors can come after you again.

The success rate will depend on the type of case. Some jurisdictions require debtors who own a business to hire an attorney to file the bankruptcy case. Also, the success rate for a chapter 13 case that is filed pro se is extremely low. This is because there are added complications and local rules that determine when and how the pleadings are to be filed, and in what manner.

Even in a simple chapter 7 case, pro se filers run the risk of losing an asset like a house or car if the documentation is not filed correctly, or they could misinterpret a request and you could be charged with bankruptcy fraud.

If you are thinking about filing for bankruptcy and have questions, contact the experienced attorneys at the Fears | Nachawati Law Firm, who can guide you through the process and get you back on stable ground financially. For a free consultation, call our office at 1.866.705.7584.

Collision of Tax Return and Bankruptcy Forms

Bankruptcy attorneys use many tools to uncover the debtor’s finances. Actual bills from collectors, a tri-merge credit report, bank statements, pay stubs, deeds, and promissory notes are all commonly requested documents to assist the attorney in drafting the bankruptcy petition and schedules.

Many debtors (and some attorneys) overlook the wealth of information contained in the 1040 tax return. This information is especially useful for completing the Statement of Financial Affairs (SOFA), which is a declaration, under oath, of the debtor’s financial transactions. Since recent tax returns are sent to the bankruptcy Trustee’s office for review, it is prudent to review these documents to ensure that the information provided in the bankruptcy paperwork is truthful and consistent with the Form 1040.

Here are a few gold nuggets that may be discovered when examining the debtor’s 1040:

- Income: Does it match the income disclosed on Line 1 of the SOFA?
- Distributions from retirement accounts: Open retirement accounts must be listed on Schedule B. Closed accounts are listed in the SOFA.
- Gains or losses from sales of stock
- Investment real estate: Does the debtor make the appropriate disclosures regarding real property in his bankruptcy schedules?
- Charitable contributions: This can provide good evidence for means test purposes or SOFA disclosures.
- Business interests including partnerships and estates: Where there is a business, there are usually business assets.
- Form 1099 Cancellation of Debt: The SOFA asks about debt settlement or foreclosures.
- Dividend income
- Student loan interest

Taking the extra time to inspect the debtor’s 1040 can save time scrambling to explain to the bankruptcy Trustee why the information contained in the tax return does not match the information in the bankruptcy schedules. The tax return can also help uncover issues that may be confusing to the debtor when answering questions on the bankruptcy forms. If you are considering bankruptcy, the experienced bankruptcy attorneys at the Fears | Nachawati Law Firm are here to assist you, and are eager to help you make a fresh start financially. To set up a free consultation, call our office at 1.866.705.7584.


Three Reasons to Consider Bankruptcy in Early Fall

 It is always a good time to consider solving your financial problems, but the fall season is an especially good time to seek professional help. Below are three reasons to consider bankruptcy in the early fall:

Reason Number One: Tax Refunds
When you file Chapter 7 bankruptcy, an accounting is made of all of your property and it is all “placed” into an estate under the control of a bankruptcy trustee. The Bankruptcy Code gives long definitions of what property is included and excluded from the debtor’s estate, but the simple answer is “all legal or equitable interests” you have in property as of the filing date of the bankruptcy petition.

An income tax refund is an entitlement that increases during the year. Since Chapter 7 property is determined by the filing date, filing your bankruptcy before December 31 means that only a portion of your refund is property of the bankruptcy estate. The earlier you file, the less the trustee can get at. For debtors who generally receive large income tax refunds, filing early can exclude thousands from the bankruptcy estate and eliminate the need to use personal bankruptcy exemptions to protect income tax refund money.

Reason Number Two: End of the Year Bonuses
The means test provision of the Bankruptcy Code starts with a six month “look-back” at your income. An employment bonus received at the end of the year will inflate your monthly income, and can either make you ineligible to file Chapter 7 bankruptcy or increase your monthly Chapter 13 plan payment. By filing before the end of the year, your yearly bonus is not included in the initial means test income calculation.

Reason Number Three: A Fresh Start Next Year
The typical no-asset Chapter 7 bankruptcy is over in about four months. By filing your bankruptcy in early fall, you will receive a discharge of your debts and a new plan of financial reorganization around the beginning of the year. If you are struggling financially and are ready to make a fresh start, the experienced bankruptcy attorneys at the Fears | Nachawati Law Firm can provide you with the legal guidance needed to alleviate debt issues and start over financially with a clean slate. To set up a free consultation, click here, or dial 1.866.705.7584.

Honest Fees for Honest Work

Most individuals are in a very serious financial state when they first consult with a bankruptcy attorney. Many bills may be unpaid and money is often extremely scarce. Fortunately, experienced bankruptcy attorneys are able to assess a potential client’s financial situation, and quote a reasonable fee for obtaining needed relief. In a Chapter 7 case, fees are paid up front. In a Chapter 13 case, the majority of attorney fees are included in the monthly plan payments.

A less experienced (or less scrupulous) attorney may sometimes be evasive when estimating fees in a bankruptcy case. While every case is different and poses unique challenges, an experienced attorney will identify issues, know the probable outcomes, and is able to place the case on a track that will quickly and efficiently speed it to a successful conclusion. In other words, an experienced and honest attorney should be able to give you a very good idea of the fees involved in your case before it is filed. In most cases, your attorney will charge a flat fee for his work. If your attorney seems unsure, hedges on his fees, or charges an unreasonable sum, it’s probably time to find another attorney.

Case in point: attorney Jason J. Mazzei is in hot water with a Pennsylvania bankruptcy court over attorney fees. Mazzei charged a client $8,200 and recommended that she file Chapter 7 bankruptcy. Upon review of the case by the bankruptcy trustee it was discovered that the debtor only had $6,371 in debts.

Mazzei, who operates 23 offices around the state of Pennsylvania, agreed to refund the $8,200 to the client and pay an additional $14,582 to cover other costs in the case. The bankruptcy court has also appointed an expert “for the purpose of investigating the operations of Mazzei, and of his firm Mazzei and Associates, with respect to various matters of concern,” according to court records. Mazzei has agreed to pay the expert's fees, which can go up to $40,000.

The moral of this story is simple: avoid a bad situation by employing a bankruptcy attorney who is both experienced and honest. Most bankruptcy attorneys are able to successfully represent you for a reasonable fee. If you sense that your attorney is either inexperienced or dishonest, find another attorney ASAP. If you are contemplating filing for bankruptcy, ethical and tenured bankruptcy attorneys at the Fears | Nachawati Law Firm can give you the legal guidance and counseling needed to make a fresh start. Begin financial recovery today by clicking here, or contacting our office at 1.866.705.7584.

Positives and Negatives of Reaffirmation Agreements

Whether or not it is a good idea to do a reaffirmation agreement is a question that can be quite difficult for Chapter 7 debtors to answer; it is also a question that there is not really a “right” answer to. Attorneys are often asked “what should I do!?” All an attorney can do is really inform the debtors of the pros and cons of entering into a reaffirmation agreement; not if it’s a good idea for the client. Below is a discussion of the pros and cons of entering into a reaffirmation agreement and a basic explanation of the process:

For starters, what is a reaffirmation agreement? A reaffirmation agreement is an agreement between a debtor and creditor that the debt owed to the creditor will not be affected by the bankruptcy. Anytime a debtor files for Chapter 7 bankruptcy protection, their personal liability on secured debts like a mortgage or car note is automatically erased. It is important to emphasize that it is only their personal liability that goes away. What this means, is that the debtor can no longer be sued for not paying for their house, car, etc. However, the creditor (the mortgage company or car note company) can still repossess or foreclose on property that is not being paid for. Here’s a common example to make this concept a little easier: Dave is in the process of buying a truck. The truck is worth $10,000 and Dave owes $15,000 on it. Dave files for bankruptcy. At this point, if Dave stops paying on the truck, all the creditor can do is repossess it, they can’t sue Dave for the $5,000 difference between what the car is worth and what is owed on it. But they CAN pick it up. It’s always important to remember that there’s no such thing as a free lunch.

So what does a reaffirmation agreement actually do? A reaffirmation is a contract that is filed with the bankruptcy court that makes a debtor personally liable on the contract again, meaning they can get sued if they default on the agreement, in addition to repossession/foreclosure. So why on earth would someone want to reaffirm a debt? For a few reasons: The first reason is the most obvious, the creditor is going to require it in order for the debtor to keep the collateral. This happens most frequently with cars and consumer electronics because they are two types of collateral whose value depreciates rapidly (under Texas law it is not necessary to reaffirm a mortgage to keep your house).
The next reason is so that a debtor can continue to have their monthly payments reported to the credit bureau to have those payments help rebuild a debtor’s credit score. If a reaffirmation agreement is not entered into, the debt will no longer be able to be reported to the credit bureaus.
The third reason is that very recently, banks have started making it more difficult for people to refinance their loans if the debtor did not sign a reaffirmation agreement in their bankruptcy. This has nothing to do with law; this is just something banks are starting to enforce.

If you are confused about bankruptcy and/or the reaffirmation process, contact the experienced bankruptcy attorneys at the Fears | Nachawati Law Firm by clicking here, or dialing our office at 1.866.705.7584 for a free consultation. 

What Happens to a Personal Business in a Chapter 7 Bankruptcy?

When an individual files for Chapter 7 bankruptcy protection, all of the debtor’s assets become part of a bankruptcy estate that is overseen by a bankruptcy Trustee. The Trustee is tasked, among other things, with liquidating any non-exempt asset for the benefit of creditors. But what happens when an individual has a privately owned business?

If the business is incorporated, the individual’s bankruptcy will have no immediate effect on the company. An incorporated business is considered a legal entity that is separate from the individual. The company may continue to operate despite the bankruptcy filing.

On the other hand, if the business is unincorporated, the Trustee is effectively the new owner of the business. The Trustee will want the business shut down immediately to safeguard assets and avoid any potential legal or financial complications. The Trustee will examine the business inventory, its receipts, and determine whether the business has any value to creditors. That may mean selling equipment, fixtures, tools, contracts, or even the entire business.

In most Chapter 7 sole proprietor businesses, the individual is the asset. In a case where there are no non-exempt assets, the Trustee will eventually abandon his interest in the business. At that time the debtor may resume operations. The debtor may also seek an order from the bankruptcy court to compel the Trustee to abandon the business. However, this process is expensive and can be lengthy.

In rare situations the Trustee may continue to operate the debtor’s business for a limited period, if in the best interest of the estate. This usually happens only when there is a sale pending and continued operations will enhance the value of the business.

A sole proprietor in bankruptcy is not required to cease business activity when the case is filed under Chapter 13. In fact, the Bankruptcy Code specifically authorizes the debtor to continue operating his business during bankruptcy.

After reading the above, I hope that the following is clear to a sole proprietor contemplating Chapter 7 bankruptcy: incorporate a business before filing a Chapter 7 bankruptcy. Simply put, if the business is unincorporated, the trustee will shut it down. If it is incorporated, the company can continue doing business. If you are contemplating filing for bankruptcy, the experienced bankruptcy attorneys at the Fears | Nachawati Law Firm can give you the guidance and education needed for a fresh financial start. For a free consultation, click here, or contact our firm at 1.866.705.7584.


The Automatic Stay

The automatic stay is the shield that protects a debtor while in bankruptcy. This means that when a debtor files for bankruptcy, a creditor is prevented from taking any action against the debtor, the property of the debtor, or the property of the bankruptcy estate. In other words a creditor cannot call, they cannot send a demand for payment, they cannot repossess a car, and they cannot foreclose on a house. The automatic stay goes into effect when the debtor files bankruptcy; not when the creditor gets the notice.

The reason for the automatic stay is that it allows the debtor relief from their creditors, so that the trustee can administer the bankruptcy estate. In a chapter 7 case the trustee can determine the assets to be liquidated and can allow them to liquidate the assets. In a chapter 13 case it allows the plan of re-organization to run its course.

There are a few exceptions to the automatic stay. For example, a suit for domestic support obligations (i.e., alimony or child support) are not stayed. Some other examples include: criminal cases, divorce proceedings, assessment of taxes.
In a chapter 13 case, a cosigner will be protected by the automatic stay. In all other chapters, the automatic stay will only protect the debtor and the debtor’s property. The stay typically ends when the case is dismissed or closed.

If a second bankruptcy case is filed within one year of a previous case, the automatic stay only lasts 30 days. This means that in a chapter 13 case the debtor will usually have to ask for the stay to be extended. In any additional cases filed after the second case within 12 months, there is no automatic stay. A motion to impose stay must be filed to create the automatic stay. For either of these motions, the debtor must show by a preponderance of evidence that the current case was filed in good faith.

The stay can also be lifted. A party in interest, usually a creditor, can request relief from the automatic stay. They will typically do this if the debtor is not making payments, or if they are failing to provide adequate protection to the creditor.

The automatic stay is a powerful tool; which can help many debtors get the fresh start that a bankruptcy offers. For more information about bankruptcy, contact the experienced attorneys at the Fears I Nachawati Law Firm by clicking here or calling our office at 1.866.705.7584.

What Liability Remains if I Surrender my House or Car in a Bankruptcy?

Filing a Chapter 7 can be a great tool for consumers, which potentially allows them to walk away from a debt that they can no longer afford; such as large house or car payments. Anytime a consumer files for bankruptcy, their obligation on their secured debts is automatically extinguished. It is up to the debtor whether or not they want to continue with those obligations through the “reaffirmation” process which has been discussed in previous posts.

So how does it work? Once you file a bankruptcy, your secured creditors can no longer sue you in your personal capacity; their only recourse is either repossessing or foreclosing on their collateral, but you could walk away unscathed. This means that if you are in the middle of a foreclosure proceeding, once you file a Chapter 7, you are no longer on the hook for what is owed on any possible deficiency.

 An example of this would be: Dave owes the bank $100,000 on his mortgage, but his house is only worth $50,000.The bank had started foreclosure proceedings against Dave, but had not actually foreclosed. Dave decided to file a Chapter 7 bankruptcy. Once the creditor files a motion to lift stay, the creditor can continue with the foreclosure, but Dave would no longer be responsible for a deficiency balance (i.e., the $50,000 he would have owed had the bank foreclosed without the bankruptcy). However, the title to the property will remain with the debtor until the bank actually forecloses on the property and a new owner is established.

This sometimes comes as a shock to people, but sometimes the bank won’t foreclose right away. In fact, sometimes it can take years for a bank to foreclose. The bankruptcy has discharged all of the balance on the mortgage owed by the debtor, but sometimes there can be additional post-petition expenses associated with the property that won’t actually be covered by the bankruptcy, most commonly these are property taxes, expenses for upkeep, and homeowner’s association dues. Remember, you are the owner of the property until the bank actually forecloses and sells the property to someone else.

In many states, including Texas, property taxes are assessed and due on the first of the year. Whoever owns that property on January 1st is responsible for the taxes for that year. Typically, homeowners’ fees and upkeep for the property are owed by the owner of the property, despite the bankruptcy. So if you are surrendering property in a bankruptcy, it is greatly in your interest to get a property out of your name as soon as possible. This can be done in several ways; typically deed-in-lieu of foreclosure and short sales are good options. The main idea is to get the property out of your name as fast as you can to cease any ongoing liability on a property that you no longer occupy.

If you have questions about how surrendering property in a bankruptcy works, contact the knowledgeable attorneys at the Fears Nachawati Law Firm for a free consultation here, or call our office at 1.866.705.7584. We are willing and obliged to assist you, and answer any and all questions you have.

Many Home Loan Modifications are in Default, Again

 The U.S. Treasury Department reports that approximately 46% of homeowners who received loan modifications in 2009 under the Troubled Asset Relief Program (TARP) are once again in default. According to a TARP special inspector report, one-third of homeowners who received TARP loan modifications have stopped paying their loans. The inspector finds that many of these “modified” loans under TARP only reduced the monthly payments by a mere 10% or less. However, loan servicers are paid $400-$1,600 for permanent loan modifications.

The special inspector reports that over 10% of the 865,000 homeowners who received loan modifications are currently 1 or 2 payments behind. More than 306,000 homeowners have re-defaulted as of the end of April. The report finds that the small reduction in monthly payment coupled with the existence of overall personal debt contributed to this new round of defaults. Additionally, as many as 9.7 million out of 75 million households are “upside-down” in home value; meaning the home is worth less than what is owed on its mortgages.

Bankruptcy may provide an answer to this troubling news. In Chapter 13 bankruptcy, an entirely unsecured second mortgage may be stripped away and discharged. New home loan modification programs are also available during bankruptcy to further reduce principal and get your home “right-side up.” Bankruptcy under Chapter 7 or 13 can permanently discharge pesky credit cards and medical bills, and restructure secured debts like car or home payments.

Bankruptcy can help you permanently solve your debt problem. In many cases, reducing or discharging personal debt makes it possible for a family to afford a home mortgage payment without living in constant fear of default. If you are contemplating filing for bankruptcy, the experienced attorneys at the Fears | Nachawati Law Firm can give you the legal guidance you need to get back on your feet. For a free consultation, contact us here or call our office at 1.866.705.7584.

Will Filing Bankruptcy Affect my Job?

One of the most common questions that new clients asked their bankruptcy attorneys is whether bankruptcy will affect their job. In almost every case, especially in regards to your current job, bankruptcy does not affect your employment. Section 525 of the bankruptcy code specifically prohibits discriminatory treatment of persons who are in or who have been in bankruptcy, but there are some limits. The primary limitations are based on whether the bankruptcy is related to a CURRENT or FUTURE employee and whether the employer is a GOVERNMENTAL AGENCY or a PRIVATE ORGANIZATION.

Governmental employees are protected from bankruptcy discrimination much more thoroughly than those working for private employers. Bankruptcy law prevents governmental agencies from discriminating against both CURRENT employees and applicants for FUTURE employment. They cannot deny employment, terminate employment, or discriminate with respect to employment individuals who are either currently in a bankruptcy or have been in bankruptcy. The law even protects someone whose spouse or family member was in bankruptcy. Governmental agencies cannot deny, revoke, suspend or even refuse to renew a license, permit, charter or franchise to a person, or against a person who was or is in bankruptcy.

Additionally, governmental agencies that operate student loan or grant programs may not deny loans or discriminate against those in bankruptcy. Private agencies who offer loans guaranteed, or insured pursuant to a student loan program are also prohibited from denial or discrimination.

Current employees of private companies are protected from termination and discrimination due to bankruptcy in the same manner as governmental employees.  However, private employers may use credit checks and background checks to find out about any financial problems (including bankruptcy) that a potential employee may have, and they may use this information as a hiring factor. Employers must obtain permission from the job applicant to perform such credit or background checks, but failure to give consent can be a reason to refuse employment as well.

Some chapter 13 Trustees require Trustee payments to be withheld directly from Debtors’ pay. In these instances, the employer’s payroll department will be aware that an employee has a bankruptcy case pending. However, strict privacy protections generally prevent employers from making such personal financial information available to an employee’s immediate supervisor without a valid reason.

In general, discriminatory treatment against persons in bankruptcy is rare, but any such concerns should be discussed with a bankruptcy professional prior to filing. If you are considering filing for bankruptcy and have questions about the process, contact the experienced bankruptcy attorneys at Fears | Nachawati Law Firm here, or call our office at 1.866.705.7584 for a free consultation.

Who is the Trustee in My Bankruptcy Case?

In order to better administer bankruptcy cases, the Bankruptcy Reform Act of 1978 created the US Trustee program. The US Trustee program is under the Department of Justice and the US Trustee in charge of the program is appointed by the Attorney General. There are 48 states that use the US Trustee program to administer their bankruptcy cases. (Alabama and North Carolina do not participate in the program). 

In chapters 7 or 13 cases, an Interim Trustee is appointed to administer the bankruptcy case.  In the different chapters, the Trustees serve slightly different roles:

In a chapter 7 case, the Trustee is primarily charged with insuring that all non-exempt assets are liquidated and that the proceeds are used to pay creditors. The chapter 7 Trustee will step into the shoes of the debtor and is able to sell the non-exempt assets in place of the debtor. It is important to note that in most consumer cases, there are rarely any assets to liquidate; therefore, the Trustee reviews the petition and conducts the meeting of creditors to insure that all property has been listed and has been properly exempted.

In a chapter 13 case, the Trustee is primarily charged with receiving the debtor’s monthly plan payment and then distributing the payment to the debtor’s creditors. The chapter 13 Trustee reviews the debtor’s petition and conducts the 341 meeting of creditors. The Trustee wants to ensure that the debtor is pledging all of their disposable income to their chapter 13 plan.

It is important to understand the role of the Trustee in your case. The Trustee is an attorney who is opposing counsel, which means that they are not on the side of the debtor. They are also not on the creditor’s side, either. The Trustee usually acts as a referee and makes sure that both sides play fair, under the rules in the bankruptcy code. For more information about bankruptcy Trustees, or about filing a case, contact the successful attorneys at Fears | Nachawati Law Firm here or call our office at 1.866.705.7584 for a free consultation. 

Bankruptcy and Education Expenses

The main purpose of the bankruptcy means test is to prevent wealthy debtors from filing for Chapter 7 Bankruptcy. Debtors who earn more than their state’s median income for their family size must complete the means test to determine eligibility. The means test deducts reasonable and necessary expenses from average income. If there is sufficient “disposable income” after these expenses are deducted, then the debtor is ineligible for Chapter 7 bankruptcy.

One of the expense items available on the current means test (Form B22A) is Line 38, which allows an “education expense for dependent children less than 18 years old.” This item is a source of confusion to many debtors (and to some bankruptcy attorneys!). The total allowed monthly expense is capped at $156.25 per child ($1,875 per year) for attendance at a private or public elementary or secondary school.

For school-age parents, this seems like a welcome deduction. However, the Bankruptcy Code is not very generous with this deduction. Section 707(b)(2)(A)(ii)(IV) of the Bankruptcy Code states:

In addition, the debtor’s monthly expenses may include the actual expenses for each dependent child less than 18 years of age, not to exceed $1,875 per year per child, to attend a private or public elementary or secondary school if the debtor provides documentation of such expenses and a detailed explanation of why such expenses are reasonable and necessary, and why such expenses are not already accounted for in the National Standards, Local Standards, or Other Necessary Expenses referred to in subclause (I).

First, this deduction is only for elementary and secondary school children under the age of 18 at the time of filing. Preschool or child care expense should be listed on Line 30 as “Other Necessary Expenses: childcare.” Tuition and expenses for college age children are not an allowable expense on the means test.

Some additional expenses not allowed on Line 30:

  • School lunches, which are included in National Standards on line 24.
  • Any educational program or service (including tutoring) that is not offered through a public or private elementary or secondary school. On the other hand, the official Department of Justice position is that home school expenses can qualify.

Any claimed educational expense must be documented and you must explain why the amount claimed is reasonable and necessary, and not already accounted for in the IRS Standards. Courts that have examined this issue have looked to the Internal Revenue Manual and held that educational expenses are deemed “necessary” only if the education producing the expenses is required for a physically or mentally challenged child and no public education providing similar services is available. It is therefore incumbent on the debtor to be able to explain why the expense is “necessary.” Most bankruptcy Trustees (and courts) will consider private school education a “luxury” when public school is available.

Passing the Chapter 7 bankruptcy means test is challenging. The experienced bankruptcy attorneys at Fears | Nachawati Law Firm can help you navigate through this formidable test and produce the best result for you and your family. For a free consultation, click here or call our office at 1.866.705.7584.

Who is a Good Candidate for Chapter 7 Bankruptcy?

 A person or family whose primary financial difficulty stems from excessive, unsecured debt (i.e., credit cards, medical bills, civil judgments, signature loans, etc. ) is a usually a good candidate for chapter 7.  Unlike a chapter 13, a chapter 7 has no provision to pay back any debt for which you are delinquent. Therefore, if you are delinquent on house payments or car payments a chapter 7 is not going to provide a solution to help you retain those assets in the face of foreclosure or repossession. For those who are either not delinquent on their house and vehicle payments, OR who wish to surrender their house or vehicle, a chapter 7 can provide an effective solution for eliminating unsecured debts. There are primarily three issues that must be evaluated to determine whether a person can achieve financial relief with a chapter 7: 

First, a candidate must qualify for chapter 7 by proving that their annual household income is below certain amount based on their family size and the county in which they live. These amounts are based on the median income levels of all families living within that county. Generally, a family’s household income must fall below these amounts to qualify. These median income amounts are derived from IRS data each year and are published annually by the U.S. Trustee’s office on their website. There are some exceptions to these median income limits, but those involve a detailed analysis of a family’s specific debt burden, which is beyond the scope of this writing. The primary tool used for this detailed analysis is known as the “Means Test”. Candidates for chapter 7 MUST meet the income qualifications for chapter 7 or they will not be allowed to receive a discharge under chapter 7. Those who do not meet the income qualifications for chapter 7 are generally given the opportunity to file bankruptcy pursuant to chapter 13 instead.

Second, a candidate will need to determine if they own any property that is going to be “non-exempt” under the bankruptcy rules. This is important because usually, any non-exempt property must be surrendered to the Trustee shortly after chapter 7 is filed.  Ultimately, the determination of whether property is non-exempt or not is made by the Trustee and/or the bankruptcy Judge. However, prior to filing, bankruptcy attorneys routinely spend time helping their clients determine if they own any property that a Trustee will likely consider to be non-exempt. Determining whether a specific piece of property is non-exempt in EVERY situation is very difficult and beyond the scope of this writing, but some typical examples of non-exempt property are listed below:

-Rental houses, vacation homes, time share property

-RVs, boats, campers, motorcycles (unless used as primary transportation)

-Extra motor vehicles, (typically any vehicle beyond the number of licensed drivers living in the household)

-Savings accounts, investments and securities (unless its part of a 401k, 403b, IRA, KEOGH or other special retirement account)

-Luxury items, such as high-value jewelry, collectibles, or art work

It is important to remember that non-exempt property does not prevent one from filing chapter 7.  Rather, it becomes a factor in considering whether surrendering the property is worth the benefit of obtaining a discharge of all other unsecured debts.

Lastly, having the types of debts that can be successfully discharged (eliminated) in chapter 7 is essential to being a good candidate for chapter 7.  Again, it is impossible to determine which specific debts can be eliminated in every situation without the help of an expert bankruptcy attorney.  But for purposes of this writing, readers can consider this:

Debts that are almost always dischargeable:  Credit cards, pay day loans, signature loans, medical bills, civil court judgments (unless fraud is involved), and property taxes for property you no longer own.

Debts that are sometimes dischargeable, depending on circumstances:  Older income taxes, overpayments by social security or unemployment providers, monetary penalties in criminal matters, state taxes, and sales and use taxes.

Debts that are almost never dischargeable:  Recent income taxes, student loans, child support, spousal support, and non-monetary criminal penalties.

If you are contemplating filing for bankruptcy, the experienced attorneys at

Fears | Nachawati will be happy to discuss your options with you. For a free consultation, contact us here or call our office at 1.866.705.7584.

What is "Cross-Collateralization," and How Might it Affect My Bankruptcy?

Cross-collateralization is a process where a bank or credit union will contractually turn an unsecured debt (such as a credit card) into secured debt (like a mortgage) by tying it to another loan. The easiest way to explain this is by looking at the most common example, a credit card and a subsequent car loan from a credit union:

Joe has a credit card with Federal Credit Union. Joe carries a balance of around $5,000 on his Federal Credit Union credit card. At some point, Joe decides that he wants to purchase a vehicle. Federal Credit Union offers him a better interest rate than other lenders so he decides to finance his vehicle with Federal Credit Union. Joe decides to buy a $20,000.00 car. He pays $2,000 down, so he only needs to finance $18,000.00 of it. Federal Credit Union agrees to lend Joe this money, but only if he will agree to “cross-collateralize” his credit card debt and attach a security interest onto his new vehicle. What this essentially means is that Joe will now owe Federal Credit Union $23,000.00 ($18,000.00 on the car loan plus the $5,000.00 credit card debt) to pay off his car in full instead of just the $18,000.00.

Cross-collateralization clauses can often come as surprises to consumers who expect the title to their car after they have paid off their car note. It can also complicate decisions when looking into filing a bankruptcy. In a Chapter 7 most “unsecured” debts can be discharged; meaning that the consumer won’t have to pay back those debts. The most common types of unsecured debts are medical bills, payday loans, and credit card debts. However, in order to keep secured debts in a Chapter 7, you have to continue to pay on these debts if you want to keep the collateral (like a mortgage or car note).

Using the example above, what would happen to Joe’s car debt if he decided to file for bankruptcy? For purposes of this example, let’s say that Joe’s car was now worth $15,000.00, he owed $10,000.00 on the car, and owed Federal Credit Union $8,000.00 in credit card debt. Typically, unsecured debts like credit cards are discharged in a Chapter 7; however, because Federal Credit Union put a cross-collateralization clause in his car loan contract, the $8,000.00 credit card debt Joe owes is no longer “unsecured”. Instead the loan is “secured” because it attaches to Joe’s vehicle worth $15,000.00. What this means for Joe is that instead of discharging the debt, Joe is now going to have to pay Federal Credit Union $18,000.00 to keep his vehicle that is only worth $15,000.00; thus taking away any equity that Joe had in the vehicle.

If you are interested in filing bankruptcy and have a cross-collateralized loan (or if you’re not sure whether or not you have one), it would be well worth your time to consult with an experienced bankruptcy attorney who can walk you through your options. For a free consultation, call the experienced attorneys at Fears | Nachawati Law Firm today.



Educational Debts that are Dischargeable in Bankruptcy

The general rule in bankruptcy is that a debtor is not able to discharge student loans absent a showing of undue hardship (a very difficult standard to meet in most courts). However, not every debt to a college or university is accepted from discharge. Some debts, like unpaid tuition, may qualify for discharge during bankruptcy.

The bankruptcy discharge is very broad; ts interpretation favors discharging debts and providing the debtor with a fresh start. Consequently, and exception to discharge is treated very narrowly. Congress has carved out the student loan exception and identified the following debts as non-dischargeable (except for undue hardship) under bankruptcy chapters 7, 11, 12, or 13:

(A)(i) an educational benefit over payment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or

(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or

(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual. 

Consequently, non-dischargeable education debts are qualifying loans (generally requiring evidence of a promissory note), or educational payments made by the school to the student, as in an advance of cash or exchange of money. Owed college tuition does not fit into the non-dischargeable category. For instance, if you attend classes without paying or signing a promissory note (an agreement signed on or about the same time providing for a definitive amount to be repaid, in specified installments, by a certain time, and at a certain interest rate), you likely can discharge this debt in bankruptcy. The same principle applies to debts at the student union, gym, bookstore, and room and board debts.

The determination whether a debt is dischargeable in bankruptcy is usually a complicated matter. Your bankruptcy attorney can explain how the local bankruptcy court will analyze the debt and the likely conclusion. For a free consultation with one of our experienced bankruptcy attorneys, contact us here or call the office at 1.866.705.7584. 


If I file a Chapter 7 Bankruptcy will my Business Interests be Protected?

 Like so many other legal answers, the answer to whether your business will be protected when you file a Chapter 7 is “it depends.” The idea behind Chapter 7 is that by law you are able to protect a certain amount of property; any amount of property over what you can protect goes to the Trustee to satisfy your debts. So the question is really whether you will be able to “exempt,” or in other words, protect your business assets.

The first question in addressing whether a business will be protected, oddly enough, has nothing to do with your business. The first question is really how much equity you have in your “big ticket” items, like your homestead and vehicles. The reason the amount of equity matters is because it determines what set of property exemptions you will be using. There are two sets of property exemptions available to Texas residents: the Texas exemptions and the Federal exemptions (you can read about the different exemptions further here: http://www.txbankruptcyblog.com/2013/07/articles/bankruptcy-news/property-exemptions-available-to-texas-residents-in-bankruptcy/).
Under Texas law, as an individual, you are allowed to protect up to $30,000.00 worth of business equipment under the Texas “Tools of the Trade” property exemption. This will include things like tools and equipment (including motor vehicles). However, the value of this exemption is reduced by the equity in other property you have; including vehicles, household goods, guns, jewelry, etc.
Under the Federal exemptions, you are able to protect up to $2,300.00 in tools of the trade.
However, under Federal law you also have access to what is called the “Wild Card” exemption, which can provide up to an additional $12,000.00 in property protection for an individual. This is a flexible exemption; which can protect bank accounts, business equipment, furniture, etc.
The set of property exemptions you choose is largely going to depend on the amount of equity in your homestead and vehicles. If you have a large amount of equity in your homestead and vehicles, most of the time the Texas property exemptions will be your best bet. If you have limited equity, usually the Federal exemptions will serve you best.

Once you determine what set of exemptions is best for you based on the valuation of your homestead and vehicles, the next question is, what is the value of your business interest? The value of a business interest is usually analyzed based on several factors, including: your ownership percentage, the business’ income versus expenses, and business assets. For most Chapter 7 debtors, the value of the business is primarily determined by the business’ assets. Typical assets of businesses include: accounts receivable, bank balances, inventory, intellectual property, customer lists, equipment, and machinery. This numerical valuation will be the principal determination of whether your business interests would be protected in a Chapter 7. For most of our clients, we are able to walk them through the bankruptcy process without them having to  surrender any interest in their businesses.  

Determining whether your business interests are exempt under the law can be very complicated and every business is different, with different needs. If you are operating a business and considering bankruptcy for yourself or the business entity, you would be well served to consult with an attorney regarding your options. The attorneys at Fears | Nachawati would be happy to guide you and advise you what your best course of action is. 


Keeping or Surrendering your Home or Car in Bankruptcy

 When you file for bankruptcy you can choose to keep or surrender secured collateral, such as your house or car. Depending on what chapter you file, you can also use a bankruptcy to become current on any payments that you may have missed.


Keeping your Secured Collateral:

All secured debts, such as mortgages and car loans that the debtor intends to keep must continue to be paid; or if the debtor rents their home or leases their car they must continue to make all of their rent or lease payments. Chapter 13 debtors should make sure that any direct payments are paid after the date the bankruptcy is filed (post-petition). This is excluding any creditors which are paid through the bankruptcy plan. Home owners insurance and automobile insurance must be maintained on any home or vehicle that the debtors intend to keep after the bankruptcy. All Home Owners Association fees must continue to be paid after the bankruptcy is filed.  The debtor must also make all utility bill payments on any utilities that they intend to maintain during the bankruptcy and thereafter.

In a Chapter 7 Bankruptcy, a debtor can elect to file a reaffirmation agreement to keep their secured collateral. A reaffirmation agreement is a voluntary promise to continue to pay for your house or car. A reaffirmation agreement means that you will remain liable for the debt; meaning that if you fail to pay, the creditor can come after you for the delinquency.  In a Chapter 13 Bankruptcy you can pay your secured debt through the Chapter 13 Plan. Sometimes you will continue to make your payments directly to the lender; usually a mortgage.

Surrendering your Secured Collateral

Sometimes a debtor realizes that they can no longer afford to make payments on their home or car and decide to surrender it during the bankruptcy.

While the bankruptcy will discharge the underlying obligation to pay for the debtor’s mortgage or car loan, it is still ultimately up to the bank on when to retake possession of the debtor’s home or car.  Therefore, the debtor will still be responsible for maintaining the insurance on the property and is responsible for its up keep (mowing the lawn, trimming the hedges, etc.).

Often times, it may take the creditor a while to repossess or foreclose on a car or home.  A debtor may continue to enjoy the property even after the bankruptcy, but must be cautious because the creditor will foreclose and evict the debtors at some point.

Making the decision to keep or surrender secured property in bankruptcy is extremely important in the bankruptcy process. The attorneys at Fears Nachawati will be able to walk you through this important process. To get started with a free consultation, call us today.

Property Exemptions Available to Texas Residents in Bankruptcy

As a resident of Texas (residing in the state for more than two years), certain property you own will automatically be protected from seizure by your creditors. This protected property is commonly known as “exempt property”. Most notably, any equity in your homestead and/or vehicles (as much as $30,000 for vehicles per household member) will be protected from your creditors. The only exception to this is if your creditor has been granted a security interest in the property like a mortgage or car note. Under Texas law, creditors typically have to get a judgment before they can try and collect any “non-exempt” or unprotected property from you to satisfy a debt. The most common types of property that are non-exempt under Texas law are bank accounts and ownership interests in businesses.

Upon filing bankruptcy, a Texan has two sets of property exemptions they get to choose from: 1)the property exemptions provided by the Federal Government, or 2) the Texas property exemptions. The set of property exemptions that will be best for you will largely depend on the type of property you need to protect and the amount of equity in that property. If you have a large amount of equity in your house and vehicles, the Texas exemptions might be best for you. In addition to protecting your house and vehicles, you can also protect home furnishings, tools of the trade, jewelry, firearms, and livestock. The major things that are not going to be protected under the Texas exemptions are business interests  (like ownership interests in companies or LLCs) or money in bank accounts.

The Federal property exemptions are only available to those who file bankruptcy. Like the Texas exemptions, the Federal exemptions allow you to protect equity in your homestead and vehicles, but not as much dollar-wise as the Texas exemptions. However, the Federal exemptions are more flexible than the Texas exemptions and allow you to protect things like bank accounts, business interests, and other miscellaneous property with the “wild card exemption.” The wild card exemption can be used to protect any sort of property you want; if you don’t have equity in any real estate, you can protect up to almost $12,000 in property! Certain property like social security proceeds, life insurance values, and retirement accounts (401K, IRA, etc.), are typically protected under both Federal and State exemptions.

Choosing the right set of property exemptions and applying them properly to your assets is extremely important in bankruptcy. If you claim the wrong exemptions, you can lose property that would otherwise be protected. The attorneys at Fears Nachawati will be able to walk you through this important process and make sure that you are able to keep all of the property you are entitled to keep by law. To get started with a free consultation, call us today.

What Does the Supreme Court's Ruling on DOMA Mean for Gay and Lesbian Couples Looking to File Bankruptcy in Texas?

Recently, in US v. Windsor, the United States Supreme Court struck down the Federal Defense of Marriage Act as unconstitutional. What this ruling essentially means is that the Federal Government can no longer deny federal benefits and protections to gay and lesbian couples who have married. This will include bankruptcy, seeing as how bankruptcy is Federal law. Prior to the decision by the Supreme Court, gay and lesbian couples could not file bankruptcy together as one household; the Windsor decision will change that. However, there is an important caveat to Windsor in that the Supreme Court did not rule that banning gay marriage is unconstitutional or should be legally recognized by the states.

Texas is currently a state that does not recognize gay marriage. So, in order to file bankruptcy as a married couple in Texas, a gay or lesbian couple would have to get married in a state that DOES recognize gay marriage. Currently California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and Washington all recognize gay marriage. Since, the Federal Government can no longer discriminate against gay and lesbian couples who have married, the Federal Bankruptcy Court would be required to recognize the Debtors’ out of state marriage, and grant the couple a discharge despite Texas not recognizing gay marriage as a matter of Federal law.

Can I Discharge My Personal Property Taxes in Chapter 7 Bankruptcy?

Discharging a personal property tax during bankruptcy is like reading a flow chart with a number of “if this, then that” directions. The first question to ask is whether the personal property tax debt was an obligation which was assessed, or otherwise incurred, before the date of the bankruptcy filing. This is called a “pre-petition” tax debt and falls under the jurisdiction of the bankruptcy court. Tax obligations that arise after the filing of the bankruptcy case are generally outside the federal bankruptcy court’s jurisdiction, but taxes that arise during a bankruptcy case are treated as administrative claims. Confused? Read on!

The second question to answer is when the debt was incurred. Section §507(a)(8)(B) of the Bankruptcy Code grants priority status to a tax debt that is (1) a tax on property; (2) incurred prior to the commencement of the case; and (3) is last payable without penalty less than one year before the case filing. Priority tax debts are not discharged through Chapter 7 bankruptcy (see 11 U.S.C.§§523(a)(1) and 727(b)). A tax debt failing to meet these criteria is treated as a general unsecured claim (unless otherwise secured by operation of state law) as is generally dischargeable.

To illustrate this confusing Bankruptcy Code requirement, assume that the law of the state where a debtor resides states that personal property taxes are incurred on whatever taxable personal property the debtor owns on January 1 of each year. Also, assume that the debtor’s taxes are due on January 1 the following year and must be paid by January 31 or penalties are imposed.

Suppose our debtor files for Chapter 7 bankruptcy protection on January 30, 2013. Any personal property taxes owed for 2012 is obviously a priority debt and is not discharged. Additionally, any personal property tax owed for 2011 is not discharged, because the 2011 tax debt was (1) a tax on property; (2) incurred prior to the commencement of the bankruptcy case; and (3) last payable without penalty on January 31, 2012, less than one year before the case began. If the debtor had waited until February 1, 2013 to file his case, the 2011 property tax would be dischargeable.

Confused? You should be! Many experienced bankruptcy attorneys struggle with discharging tax debt. If you owe taxes to the state or federal government, discuss your situation with an experienced bankruptcy attorney. Your attorney will examine your situation and determine which of your tax debts are dischargeable and whether Chapter 7 or Chapter 13 of the Bankruptcy Code is more advantageous to your circumstances.


Timeline Chapter 7

Chapter 7 Bankruptcy Timeline

A no-asset Chapter 7 bankruptcy case is streamlined to take as little time as possible. The typical case is over in about three to four months. To keep the case moving along, the federal law has imposed certain deadlines on a Chapter 7 case for the debtor, the trustee, and the bankruptcy court to follow:

Day of Filing - The bankruptcy court issues a case number. Use this case number when notifying creditors with pending legal or collection action of your bankruptcy filing. If you have not filed all of the required bankruptcy schedules, the court will issue a show cause order to dismiss your case. You are required to file the necessary schedules by the court’s deadline, usually 14 days from the date of filing. 11U.S.C. §521

Seven Days Prior to the 341 Meeting - Tax returns for the most recent tax year must be sent to the bankruptcy trustee. These documents are usually sent to the trustee on the date that you file your case. 11U.S.C. §521(e)(2)(A)

21 to 60 Days After Filing - Your 341 meeting of creditors will be held. You are required to attend this meeting and all of your creditors will receive notice of this meeting and may attend (although it is rare that any actually show up). 11U.S.C. §341, 11 U.S.C. §343, Fed. Rule 2003.

45 Days after the First Setting of the 341 Meeting - You must file your Financial Management Course certificate with the court. Fed. Rule 1007(b)(7)(c)

60 Days after the First Setting of the 341 Meeting – Reaffirmation agreements between you and your creditor(s) must be filed with the bankruptcy court. 11U.S.C. §524(c)

60 Days after the First Setting of the 341 Meeting – The Court enters an order discharging individual Debtors after all requirements are met, but no sooner than the last day to object to the Debtor’s Discharge. This is usually 60 days after the 1st setting of the 341 Meeting of Creditors unless a motion is filed with the court to extend that time. The actual date to file objections to the discharge will be stated on the 341 Meeting of Creditors Notice. 11 U.S.C. §727, Fed. Rule 4004.

What Are the Tax Effects of Your Bankruptcy?

Have you filed for personal Chapter 7 bankruptcy? If the answer is yes, you may have a lot of questions about how the bankruptcy process works and whether you’ve done all that you should to make sure that your filings are complete.


It’s often said that there are two certainties in life: death and taxes. While bankruptcy can be a kind of financial death, in some cases the taxes from your estate may live on after your bankruptcy filing. If you’re trying to re-build your financial life, you should be certain whether you’ve paid all of the taxes associated with your income.


For instance, did you know that the bankruptcy estate of an individual Chapter 7 estate is a separate taxable entity that must file its own tax return? In some cases, in fact, an individual Chapter 7 debtor may ultimately file two tax returns in the year in which he declares personal bankruptcy. In these situations, the first tax return is for pre-petition income and liabilities; the second return is for the debtor’s post-petition tax obligations.


Likewise, it’s important for you to understand where tax obligations fall within the hierarchy of liens against the estate. While administrative expenses and certain other claims take a higher precedence than tax obligations, other monies – such as payments to certain creditors or to the residuary –  are susceptible to taxation. Before you think you’re trip through bankruptcy is complete, make sure that you’re all square with the Internal Revenue Service (IRS). Failure to do so may cause more headache than you’d like!


Do you have questions about the tax effects of your bankruptcy? The attorneys at the Dallas firm of Fears Nachawati are prepared to help you sort through this nuanced and challenging area of bankruptcy. With years of experience in this important area of the law, we’re ready to advise you. For your free consultation, call or email us today.

Do You Qualify under the Chapter 7 Means Test?

If you or your family are struggling under the weight of insupportable financial obligations, you may need to consider your options under the Bankruptcy Code. While the Code offers consumer debtors two options for bankruptcy – known as Chapter 7 and Chapter 13 – only certain debtors qualify for Chapter 7.


Which is better: Chapter 7 or Chapter 13? In many ways, Chapter 7, also known as a straight bankruptcy, is easier to manage. In general, your non-exempt assets are liquidated, used to pay off your outstanding debts, and your remaining obligations discharged. While the initial shock of losing some cherished possessions is disquieting for some debtors, many appreciate the cut-and-dried cleanliness of a straight bankruptcy.


Chapter 13, also known as a wage earner plan, lets you pay off a portion of your debts in a court-approved, trustee-supervised process that frequently protects your assets, even non-exempt possessions. However, a Chapter 13 restructuring of your debts can extend not only your debt payments, but your financial and personal stress for up to 5 years.


How do you determine whether a Chapter 7 or Chapter 13 bankruptcy is right for you? The first question is whether you qualify for Chapter 7. Your qualifications are determined by a process known as the means test, a standard articulated under the Bankruptcy Code. In general, a bankruptcy court will compare your income to the average income in your county. If you income is less than the average, you may declare Chapter 7. If not, Chapter 13 may be your only option.


Ready to find out the answer to all of your bankruptcy and financial restructuring questions? The attorneys at Fears Nachawati are prepared to give you the advice and perspective you need. Contact our professionals today.

How May Your State Rights Impact Your Bankruptcy Filing?

Bankruptcy law is the product of federal statutory law and of interpretive decisions by federal bankruptcy courts. First mentioned in the U.S. Constitution, a citizen’s right to shed his debts through bankruptcy is an important federal remedy to financial hardship.


Perhaps confusingly, however, state law plays an important role in bankruptcy, too. Federal bankruptcy law gives debtors the option of claiming a state’s statutory scheme for exempt property rather than the federal scheme. In a debtor-friendly state like Texas, the difference in value between state and federal exemptions can be significant.


Why is the scope of “exempt property” meaningful? In general, exempt property refers to those assets the law bars creditors from accessing because they are important to the debtor’s future economic life. For instance, in Texas a debtor living in a city may retain an unlimited amount of equity in his homestead (up to 10 acres in land), so long as the creditor at issue does not have a claim secured by the homestead property. For some debtors, the difference between the generosity of the Texas exemptions and the paucity of other states or federal exemptions can be measured in the thousands of dollars.


Unfortunately for many debtors, an important recent change to federal bankruptcy law now requires that a debtor live in Texas for at least 40 months before receiving the benefits of the Texas exemptions. If you’ve recently moved to Texas and are planning to declare bankruptcy, you may need to seriously consider how when you file will impact your financial future. Make sure you understand the right timing for your petition!


Do you have questions about your bankruptcy rights? Worried about how your time in Texas might impact your ability to find debt relief? Talk to the lawyers at the Dallas firm of Fears Nachawati for the answers you need. We’re prepared to help you.

Bankruptcy Petition Preparers Can Cause Big Trouble

 Some unscrupulous non-attorneys take advantage of the poorest and most vulnerable by offering bankruptcy petition preparation services at a discount rate. Maybe you have seen their ads in free community newspapers. These services offer to prepare your bankruptcy petition and avoid the “high cost” of an attorney.

Sounds great, right?
Petition preparers are restricted by federal law to the level of a typing service. Preparers cannot represent you in bankruptcy court and are expressly forbidden from providing any legal advice regarding your bankruptcy case. That means a petition preparer cannot: discuss the benefits of the different bankruptcy chapters and how they apply to your case; explain certain legal exemption rights you may be entitled to in order to protect your property; or tell you what debts or assets must be included or may be omitted from your bankruptcy petition.
When you hire a petition preparer you must file your bankruptcy case yourself. Some petition preparers may try to entice you with promises of waiving the bankruptcy filing fee. The truth is that if you were able to pay a petition preparer, the court is unlikely to waive the filing fee.
While there are no special educational requirements for petition preparers, the federal law requires that they:
• Make a written disclosure of services and fees
• Charge a reasonable fee for services, usually limited by local bankruptcy law
• Not collect or process court filing fees
• File a written disclosure with the bankruptcy court regarding fees and services, including name and tax identification number
While the federal law allows preparers to type petitions, bankruptcy professionals, including judges and attorneys, despise this activity. A main objective of the bankruptcy process is to provide a deserving debtor with relief from crushing debt. In many cases, petition preparers only make matters worse. Debtors need legal counsel to receive the protections and benefits of the bankruptcy laws. Petition preparers are not attorneys and any legal advice they provide, while illegal, may also be devastatingly wrong. Many debtors relying on the assistance of petition preparers have had their cases dismissed, have lost property to creditors, or have experienced other unnecessary complication in their cases.
If you are hurting financially, discuss your situation with a bankruptcy attorney at a free consultation. Your attorney can advise you on your legal options and discuss how you can afford the different fees in bankruptcy.

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Converting Your Bankruptcy Case

When a bankruptcy case is filed the individual debtor announces his or her intent to proceed under Chapter 7, 11, or 13 of the federal Bankruptcy Code. Each bankruptcy chapter has its own advantages and challenges. During some cases, the debtor’s circumstances may change and another bankruptcy chapter becomes more beneficial. In these cases the debtor may be able to convert the bankruptcy case to a different chapter.

Converting a bankruptcy case to another chapter is a very simple process. There is a filing fee and a notice that must be filed with the bankruptcy court. The debtor is required to update the bankruptcy schedules to include any changes or new information. Conversion can be beneficial to the debtor in that any debt incurred after the original bankruptcy filing date can be included in the converted case.

A converted case retains its original case number (so there are not two bankruptcy cases on your record). A different trustee is assigned to your bankruptcy case, and you are required to attend a (second) meeting of creditors. If you are converting from a Chapter 11 or 13 case to a Chapter 7, you may be entitled to a refund of plan payments, if the Chapter 13 trustee is holding money.

A case may be involuntarily converted when a Chapter 7 debtor is found to be ineligible. When the debtor has sufficient disposable income to make payments on debt through a Chapter 13 case, the trustee may ask the court to order the case dismissed or converted to a Chapter 13.

If you believe that you need to convert your case to a different bankruptcy chapter, consult with your experience attorney regarding the benefits of conversion. In many cases there are options to continue your case under its current chapter. In other cases conversion may be the best option.

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How EBay Can Help Your Bankruptcy

EBay is an online auction website where people and businesses buy and sell goods. You probably already know that. What you may not know is how EBay can help you during your bankruptcy.

First, EBay can help you adequately value your household property. The bankruptcy laws require that the debtor account for all personal property and make a good faith effort to accurately provide a fair market value. EBay can help you determine a fair market value for a unique item. In the bankruptcy world, a fair market value means liquidation value, or the price you may receive at an auction. Whatever you own, no matter how unique, you can probably find someone selling it through an auction on EBay.

Second, after determining a value for your property, you need to discuss how state and federal exemption laws can protect your property during bankruptcy. Most debtors do not have difficulty retaining all of their personal property during bankruptcy. However, in some rare cases a debtor may own property that far exceeds the available personal exemptions. The bankruptcy trustee may ask you to turnover any unprotected equity.

There is nothing wrong or illegal about pre-bankruptcy financial planning, so speak with your attorney before selling or transferring any property. If your attorney advises you to sell property, EBay can help you sell an item at a fair market value prior to your bankruptcy filing. Generally, your attorney will advise you to sell your property at a public auction, and use the proceeds for necessary family expenses. Again, speak with your attorney before selling any property.

Finally, even if are able to exempt all of your personal property, you may need fast cash. Bankruptcy debtors are often cash strapped during bankruptcy, and EBay is a good way to sell personal items that are no longer wanted or needed.

If you are considering restructuring your personal finances through bankruptcy, consult with an experienced bankruptcy attorney before selling or transferring any property. Your attorney can provide legal and practical advice to help you make the best possible decisions for your financial future.


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Are Your Family Finances Sustainable?

Corporate Knights, a Canada-based sustainability-focused media firm, publishes a unique list every year that predicts the world's most sustainable large corporations. Started in 2005, the Global 100 Most Sustainable Corporations in the World is a list of publicly traded companies that, based on research and analysis, are best equipped to manage the environmental, social and governance (ESG) risks and opportunities they face. The idea is to look at the company today and predict the company's future ability to thrive.


Predicting the financial future of a company is tricky business. Of the original 100 announced in 2005, ten companies on that list are now inactive. Another good example is Eastman Kodak, which appeared on the Global 100 list in 2005, 2006, 2007, 2008, and 2009. Kodak is synonymous with photography, and has a long and proud history. Kodak practically invented the amateur photography market back in 1888. Kodak is also responsible for the first digital camera in 1975 and developed cell phone photo technology. Unfortunately, in recent years Kodak has not changed fast enough to keep up with the changing marketplace. Kodak's shares once soared to an all-time high of $95 in 1997 and was a mainstay member of the Dow Jones industrial average for 74 years. In September 2011 its stock plummeted to close at $.69 a share.


Eastman Kodak is a lesson of how quickly the financial outlook of a company can change. Individuals, like companies, sometimes make bad decisions that can lead to financial trouble. Other times, circumstances happen that simply cannot be predicted. Fortunately, what looks bleak today can be better tomorrow. That is a hope that bankruptcy offers to individuals who are struggling with overwhelming debt. Bankruptcy offers the individual the "do over" opportunity to discharge or restructure debts.


If you need help reshaping your financial future, consult with an experienced attorney and discuss how the federal bankruptcy laws can help. Your attorney can offer you options for eliminating debt and making your finances sustainable for years to come.

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U.S. Bankruptcy Courts Increase Cost of Going Broke

 The U.S. Bankruptcy Courts have increased the fee for filing bankruptcy by $7. Effective November 1, 2011, the filing fee for Chapter 7 will increase from $299 to $306; the Chapter 13 bankruptcy filing fee will increase from $274 to $281; and the Chapter 11 filing fee will increase from $1,039 to $1,046. As part of the judiciary branch of federal government of the United States, this filing fee increase effects each one of the 90 bankruptcy districts across the country.

Filing fees are generally paid to the bankruptcy court at the time the case is filed. The filing fee may be waived under extreme circumstances, and may be paid in installments. A waiver or installment agreement must be approved by the bankruptcy court.

In addition to the basic filing fee increases, the Judicial Conference of the United States increased other fees that may apply to certain bankruptcy cases:

Certification: Formerly $9, now $11;
Exemplification: Formerly $18, now $21;
Audio Recording: Formerly $26, now $30;
Amended Bankruptcy Schedules: Formerly $26, now $30;
Record Search: Formerly $26, now $30;
Adversary Proceeding Fee: Formerly $250, now $293;
Document Filing/Indexing: Formerly $39, now $46;
Record Retrieval Fee: Formerly $45, now $53;
Returned Check Fee: Formerly $45, now $53;
Notice of Appeal Fee: Formerly $250, now $293; and
Lift/Stay Fee: Formerly $150, now $176.

Be sure to consult with your attorney to determine whether any of these additional fees apply to your individual bankruptcy case.

Filing fees are one of four different fees that a debtor must pay during the bankruptcy process. The other fees are: a credit counseling fee, paid before filing bankruptcy and is typically less than $50; attorney fees, which largely depend upon the bankruptcy chapter and the complexity of the case; and a personal financial management fee, paid after filing and is typically less than $50. The credit counseling and personal financial management requirements were instituted by Congress in 2005 as part of widespread changes to the Bankruptcy Code. Prior to the 2005 changes, the Chapter 7 filing fee was $209.

Despite the fee increase, bankruptcy remains an effective means to permanently rid yourself of burdensome debt. Many people are able to discharge all of their debts through bankruptcy. Others discharge unsecured debts, like medical bills and credit cards, while keeping their homes and vehicles. If you need debt relief, discuss your situation with an experienced attorney and learn how the federal bankruptcy laws can help.

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Are You A Bankruptcy Phoenix?

 The ancient world has many stories of the firebird, or phoenix. The phoenix is mythical bird of great beauty that lives a very long time. At the end of its life the phoenix builds a nest and then self-combusts, burning until it and the nest are reduced to ashes. Then, from the ashes arises a new, young phoenix, ready for a fresh start.

Bankruptcy can reduce your overwhelming debts to ashes and give you a new, fresh start.

Bankruptcy is a legal process that is presided over by a federal bankruptcy court judge. When you file a bankruptcy case all collection activity must cease while you restructure your finances. Any debt that you cannot afford to pay is legally discharged and that creditor can no longer collect from you. Bankruptcy is one of the most powerful legal protections available and can provide you with a bright new financial future.

Some people worry that by filing bankruptcy they have destroyed their future. No true! In fact, bankruptcy destroys the debt that is holding you back. In 1934 the U.S. Supreme Court made it clear that bankruptcy “gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”

So, what can you do with a new opportunity in life? Many debtors report that bankruptcy is the best decision they ever made. These “phoenixes” have legally eliminated or restructured their financial obligations and emerge from bankruptcy armed with a second chance. They are wiser, more experienced and determined to not repeat past mistakes. They go on to purchase homes and cars, obtain loans and credit cards, and responsibly manage their financial affairs.

Are you ready to be a bankruptcy phoenix? If so, consult with an experienced bankruptcy attorney and discuss how the federal bankruptcy laws can help you. Your attorney can show you the path to a fresh start and a new opportunity in life.

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Bankruptcy's Means Test

 In 2005, Congress changed the Bankruptcy Code and added a means test to prevent wealthy debtors from filing Chapter 7 Bankruptcy. The 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 test is composed of two parts: first, the debtor’s household income is compared to his state’s median income for a household of the same size. If the debtor’s income is less than his state’s median income, there is no other testing required. The debtor may file a Chapter 7 bankruptcy case or a Chapter 13 case that may last between three to five years of repayment.

On the other hand, if the debtor’s household income is more than his state’s median income, the debtor is required to supply more information to complete the means test. The debtor must list expenses and financial obligations to determine whether there is money to repay unsecured creditors. In the end if there is enough money to pay a significant portion of the debtor’s unsecured debt, the debtor is ineligible to file a Chapter 7 case and a Chapter 13 case must last five years. Means test information and the current median income figures for each state can be obtained from the U.S. Trustee’s website.

Most bankruptcy debtors are below their state’s median income level for their household size. Many others are able to qualify for Chapter 7 after a skilled bankruptcy attorney has examined income information and made legal and allowed adjustments to the means test calculations. A skilled bankruptcy attorney can discuss options and strategies for qualifying for Chapter 7 bankruptcy under the means test, including timing aspects, income issues, and household number.

The means test is quite complex. Anyone considering bankruptcy with a significant income should consult with an experienced bankruptcy attorney. You attorney can guide you through the means test to reach the best possible result.

The Banking Empire Strikes Back

 Every time you use your debit card to pay for purchases, the merchant must pay a "swipe fee" to the card issuing bank. The old formula averaged about 1.14 percent of the purchase price, and netted U.S. banks billions in fees. As of October 1, 2011, these fees have been dramatically cut by a new law contained in the Dodd-Frank Act. Now swipe fees are capped five percent of the transaction and a maximum of 21 cents. Some analysts predict that this will cost the biggest U.S. banks annual revenue of $8 billion.

So when was the last time big banks lost money without a fight?

Bloomberg and other news agencies are reporting that Bank of America is planning a $5 monthly fee for debit card use. Instead of getting their money from merchants, Bank of America will get it from its customers. The fee will apply any month in which the debit card is used for a purchase, and will not apply to withdrawals from a cash machine. The fee will be assessed whether the customer makes one purchase or ten. In other words, that $10 purchase could now cost you $15.

The $5 monthly usage charge would take effect early next year, and customers would be notified at least 30 days in advance of the change, said Betty Reiss, a spokeswoman for Bank of America. "If they don't use the debit card during the month to make a purchase, they won't incur the fee," Reiss said.

Bloomberg reports that Wells Fargo is also testing a $3 monthly debit card fee in some markets. "We will continue to see more debit card fees in the months ahead," said Greg McBride, senior financial analyst at Bankrate.com.

Predictably, the Bank of America debit card fee will not apply to wealthy accountholders with premium accounts. There are many bank fees that are directed at lower income families, including monthly or annual checking account fees, overdraft fees, overdrawn account penalties, and checking account advance fees. These fees account for billions each year in revenue and take money from the pockets of lower income people.

If you are struggling with debt and have too much month left at the end of your money, speak with an experienced bankruptcy attorney and discuss your options. Don’t continue to have your income drained by bank fees! Take control over your finances and build a better financial future today.

Chapter 20 Bankruptcy Makes Its Return

 In “the old days” (before 2005) a bankruptcy debtor with a mortgage problem could file a Chapter 7 bankruptcy and discharge all of his unsecured debts, then immediately turn around and file a Chapter 13 to deal with real estate debt. Bankruptcy attorneys referred to this as a “Chapter 20” (Chapter 7 plus Chapter 13). The 2005 amendments to the Bankruptcy Code sought to kill this practice; however one recent case may bring Chapter 20 back to life.

The Bankruptcy Appellate Panel for the federal Eighth Circuit Court of Appeals has ruled in favor of a debtor who filed a Chapter 13 bankruptcy to strip away a wholly unsecured second mortgage, even though he was not eligible for a discharge in the Chapter 13 case. In this case, In re Fisette, No. 11-6012 (8th Cir. BAP Aug. 29, 2011), the debtor filed his Chapter 13 case soon after receiving a discharge in a previous Chapter 7 case. The Bankruptcy Code requires that a debtor wait six years after a Chapter 7 case to be eligible for a Chapter 13 discharge, so the debtor was not eligible for a Chapter 13 discharge. After filing Chapter 7, Fisette continued to make payments on his home without formally reaffirming his personal obligation on any of his three mortgages. By 2010 he was behind on his mortgage payments. Since the total amount owed on his first mortgage was more that his house was worth, Fisette decided to ask the bankruptcy court to strip away the second and third mortgages.

The Eighth Circuit BAP allowed Fisette to strip away the junior mortgages. Since Fisette had previously been discharged of his personal obligation on the junior mortgages during his Chapter 7 case, the bank had no recourse against Fisette or his property. This is the first time a federal appellate court has allowed lien stripping in a “Chapter 20” case since 2005.

Bankruptcy law can be extremely complex and is constantly changing. If you need the help and protection of the federal bankruptcy courts, get assistance from an experienced bankruptcy attorney. Your attorney can explain your rights and your options, and help you decide on the right course for you and your family.

Clients Must Pay Chapter 7 Attorney Fees Up Front

 Attorneys have many obligations to their clients. Chiefly, an attorney is expected to represent a client honestly, zealously, and independently. Conflicts do not occur very often for attorneys who represent debtors in consumer bankruptcy cases. However, a conflict between an attorney and bankruptcy client can arise when the attorney is owed attorney fees.

Individual Chapter 7 bankruptcy debtors are typically required to pay three different fees before or at the time the bankruptcy case is filed: a fee for the pre-bankruptcy credit counseling class; the bankruptcy court filing fee, and attorney fees. Unlike Chapter 13 cases where attorney fees may be paid over time after the case is filed, an attorney representing a Chapter 7 debtor must receive any attorney fees before the case is filed. This is because any debt incurred before the case is filed is subject to the bankruptcy discharge. This means that any fees that you may owe your attorney can be discharged. Additionally, your bankruptcy filing prohibits all creditors from attempting to collect on a pre-bankruptcy debt. Your attorney cannot even send you a bill without violating the bankruptcy court’s orders!

While every bankruptcy attorney knows these rules, some less-scrupulous attorneys try to get around the rules through inventive strategies. One such scheme was recently exposed in a lawsuit against Clark & Washington, a large Atlanta law firm that advertises itself as “Georgia’s Largest Bankruptcy Filer.” A class action lawsuit filed by former clients alleges that the firm cashed postdated client checks written for pre-bankruptcy attorney fees after the clients’ Chapter 7 cases were filed. The petition also states that Clark & Washington attorneys did not inform their clients that the post-dated checks were dischargeable through their bankruptcy cases, and cashed the checks after the cases were filed or discharged. Even more egregiously, the class claims that Clark & Washington attorneys did this after a federal bankruptcy judge told them to stop.

The suit makes reference to a July 12 order in which U.S. Bankruptcy Judge Michael Williamson enjoined Clark & Washington from accepting postdated checks as payment of its attorney's fees for bankruptcy cases filed in Tampa, Florida. Judge Williamson said that the practice of depositing postdated checks after the filing of a bankruptcy case violates the Bankruptcy Code and creates a conflict of interest between an attorney and client.

Don’t fall prey to short-cut law firms advertising low fees and big promises. Your serious legal problem deserves serious representation from an experienced bankruptcy attorney. Call today and get the facts you need to make the right decision from an attorney who will represent you honestly, zealously, and independently.

When Does My Bankruptcy Case End?

 “When does my bankruptcy case end?” may sound like a simple question, but the answer can be very confusing. There are several different milestones that affect your bankruptcy case and cause this confusion. The most common of these events are: (1) an order of bankruptcy discharge; (2) an order to close the case; and (3) an order of dismissal.

The bankruptcy discharge generally occurs near the end of the debtor’s case. Once the discharge is entered, the automatic stay is no longer in place. The discharge injunction, which is narrower in scope, replaces the automatic stay injunction. That means you’re your creditors may collect in any way that is not prohibited by the discharge injunction. An example of this is a non-dischargeable income tax debt. Once the Chapter 7 discharge is entered, the tax collector is no longer prohibited from garnishing wages or seizing property.

The discharge order does not close the bankruptcy case. Typically an order to close a bankruptcy case follows shortly after an order of discharge, but sometimes the case will continue after the discharge order is entered. This happens when a Chapter 7 trustee keeps a bankruptcy case open to administer assets to creditors. The case closes once the estate is fully administered, the trustee files a statement that all trustee duties are completed, and all issues in the bankruptcy case are resolved.

Dismissal of the case ordinarily means that the court stopped all proceedings in the main bankruptcy case and any pending adversary proceeding. When a dismissal is entered, the debtor does not receive a discharge. A debtor can request a voluntary dismissal, or the trustee or creditor can request an involuntary dismissal. A hearing is typically required for dismissal, and the case terminates when the court enters the dismissal order.

Dismissal can have serious consequences! In some cases the debtor may be prohibited from filing another bankruptcy case for 180 days. In other cases the debtor may lose the protection of the automatic stay in a future bankruptcy case, unless permitted by the court. It is important to investigate all options with your attorney before allowing your case to be dismissed.

The Bankruptcy Code is very complex and requires the guidance of an experienced attorney. Simple questions like, "When does my bankruptcy case end?" has many "it depends" answers that are determined by the unique facts of your case. Experienced bankruptcy counsel can answer these questions for you and get you the debt relief you need.

IRS Tax Amnesty Programs Collects Billions

The Wall Street Journal reports that 15,000 individuals took advantage of a recent Internal Revenue program offering limited amnesty for taxpayers with undeclared offshore accounts. The deadline for the Offshore Voluntary Disclosure Initiative (OVDI) was September 9, 2011, and far exceeded the anticipated 2,000 applicants. A similar program offered in 2009 collected $2.2 billion in taxes, interest and penalties.

Overseas accounts over $10,000 held by U.S. taxpayers must be reported to the Treasury Department. Significant penalties can be assessed against individuals who fail to report and "hide" their offshore assets. The 2009 and 2011 amnesty programs allowed qualified taxpayers to declare their accounts and escape criminal prosecution. Using figures from IRS Commissioner Doug Shulman, the WSJ article estimates the average revenue per amnesty case at more than $180,000.

Tax debt is not particular to the upper income classes. Small business owners, independent contractors, and employees can also owe the IRS through either mistake or carelessness. Fortunately, there are legal solutions for a tax debt problem. In some cases, dealing with the IRS directly can resolve a tax liability issue. Examples of this are the
an offer in compromise or an installment agreement. In other cases the IRS will simply pursue the tax debtor through garnishment of wages or future tax refunds. A federal tax debt can also result in seizure of personal assets or even jail for tax fraud. The tax man does not have a sense of humor.

Bankruptcy is a powerful shield in resolving a tax debt. The bankruptcy automatic stay will stop the IRS collection processes and allow you time to either propose a repayment plan, or discharge some or all of the tax debt. The rules for discharging personal taxes through bankruptcy are complex and require an experienced attorney's assistance.

If you owe taxes to the IRS that you cannot pay, or need time reorganize your finances and repay your debts, consult with an experienced bankruptcy attorney and learn how the federal bankruptcy laws can shield you from the powerful IRS. The Bankruptcy Code contains several provisions that can provide the honest, but unfortunate taxpayer with needed debt relief.