Banks Agree to Report Debts as Discharged

There are many false beliefs when it comes to discharged debts.  Some believe that debts are “erased;” others believe that discharged debts are no longer legal obligations. Neither of these beliefs are accurate.

In simple terms, a discharged debt means that the creditor is enjoined from collecting on that debt from the debtor. The bankruptcy discharge is a court injunction that protects the debtor, personally. The debt is not erased and the creditor may still collect from anyone other than the debtor by any legal means that does not violate the bankruptcy injunction. That may mean repossessing or foreclosing on the debtor’s property (actions that are against the property, not against the person), making harassing collection calls to co-debtors, or even filing lawsuits that do not seek money from the discharged debtor.

Because the discharge order only prohibits a creditor’s conduct and does not “erase” a legal debt, many creditors sell these debts in bulk to third party collectors. Sometimes these debts end up with zombie collectors who harass debtors for payment of “dead” debts. The original creditors claim clean hands because they take no part in violating the bankruptcy court’s discharge injunction. Additionally, there is no order to update credit reports to reflect the bankruptcy discharge.

But the times they are a changin’.

Recently, The New York Times reported that Bank of America and JPMorgan Chase have agreed to update borrowers’ credit reports within the next three months to reflect the correct status of discharged debts. This comes in response to lawsuits filed against the megabanks accusing them of deliberately ignoring bankruptcy discharges in order to make more money when selling off pools of bad debts to third party debt buyers. The lawsuits accuse the banks of purposely holding individual credit reports hostage, refusing to update reports or fix mistakes unless money is paid for debts discharged in bankruptcy.

Typically, a credit report is updated by a creditor to correctly reflect that the debt is “discharged in bankruptcy” and that the balance is “zero.” This stops all negative reporting and allows the individual’s credit score to improve over time. Bank of America promised to go further, agreeing to remove any marks on consumers’ credit reports for all credit-card debts sold since May 2007.

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.

 

Problems with Payday Lenders

 

One of the most common causes of bankruptcy includes the accumulation of payday loans. Payday loans are extremely easy to obtain, most borrowers are unable to pay the lenders back in full, which creates an unlimited debt trap.   One major issue which causes payday loans to become difficult to repay is the extremely high interest rate built into the loan. This never-ending process can put many people in an immeasurable amount of debt.

It is commonly known that all you need to obtain a payday loan is a checking account and a job or source of income. This creates an environment for borrowers to easily take out loans if they are in a difficult financial situation. Many times, debtors are able to obtain multiple payday loans in the same month as it is a highly unregulated industry.

The majority of borrowers are unable to pay their loan back by the due date and tend to take out more than they can afford to pay back. This allows lenders to increase the interest amount and charge the borrower more for not paying their loan back on time, in addition to the inclusion of late fees and penalties. However, if a borrower is unable to pay their loan back in full by the due date, then the lender will extend the loan with a large fee attached. The borrower continues to create a financial hole and a boundless debt trap.

The Consumer Financial Protection Bureau is in the process of passing a proposal that would make it difficult for payday lenders to take advantage of borrowers through outrageous fees. The process will take a long time, but the outcome may be highly beneficial to consumers who are drawn to small-dollar loans.  

How are Debts Handled in Bankruptcy

Individuals who have been through the bankruptcy process are often happy to talk about their experiences. Usually this is not a bad thing, but sometimes it can lead to misinformation and unrealistic expectations. How your friend’s debts were treated in her case may be very different from how similar debts are treated in your case. For instance, a bankruptcy court may find that a $5,000 credit card debt must be paid in full in one case, partially paid in another, and not paid at all in a third.

A debt that is included in a bankruptcy case can take several different paths and be altered in several different ways. What “legally” happens to the debt depends on the type of debt and the laws that apply to it; the intent of the debtor; and the order of the bankruptcy court. In certain situations it even matters how and when the debt was created! Let’s take a look at common types of debts in bankruptcy cases and how they are often treated.

Priority Debts

The Bankruptcy Code instructs the bankruptcy trustee to pay creditors in accordance with a priority hierarchy. For example, recent tax debts are paid ahead of credit cards; owed child support obligations are paid ahead of medical bills.  Priority debts have little impact in most Chapter 7 cases, where there is no money to pay creditors from the bankruptcy estate. However, priority debts play a large part in Chapter 7 cases when assets are distributed or in Chapter 13 repayment cases. In Chapter 13 cases, some priority debts must be repaid in full before the bankruptcy court will grant a discharge. Note that priority debts may be discharged at the end of a bankruptcy case unless they are also non-dischargeable debts.

Non-Dischargeable Debts

Non-dischargeable debts are either excluded from a bankruptcy discharge by law, by a court, or by agreement between the debtor and creditor. The Bankruptcy Code identifies several kinds of debts that are not discharged during a Chapter 7 case, a Chapter 13 case, or in either case. When a debt is excepted or excluded from the bankruptcy discharge, it survives the bankruptcy case either in whole or in part.

Secured Debts

Secured debts, like car payments and house loans, are secured by collateral. Treatment of a secured debt during a bankruptcy case is complex. A secured debt may be discharged in whole and the collateral surrendered (called “surrender”); discharged and the property retained (called a “lien stripping”); or discharged in part (called a “cram-down”). In a Chapter 7 case a debtor has the choice of “reaffirming” the debt with the creditor at the same or changed terms. A reaffirmed debt survives a bankruptcy discharge.

Unsecured Debts

Unsecured debts commonly include medical bills, credit cards, unsecured personal loans, debts to family members, and old tax debts. Unsecured debts in a Chapter 7 no-asset case are discharged, unless excepted as a non-dischargeable debt. Unsecured debts in a Chapter 13 case are either discharged at the end of the case, paid in full, or paid at a “pennies-on-the-dollar” rate with the remaining amount discharged.

Your debts and financial situation will dictate how your debts are treated in bankruptcy. Don’t rely on general rules found on the internet or advice about how your friend’s debts were treated in her bankruptcy, call an experienced attorney and have your own case fully and professionally evaluated.

Ways to Prevent Debt

You are not alone if you have managed to create a substantial amount of debt for yourself over the years. Many Americans have trouble managing their money and it can be very easy to find yourself drowning in debt from student loans, over spending or medical bills. However, there are several ways to reorganize your spending habits to prevent debt from growing or becoming uncontrollable. 

The number one plan for managing money is to create a budget. A budget allows you to set limits on your spending. You can set a specific amount for groceries, gas, clothing, entertainment and miscellaneous activities; and you can manage your monthly bills. By creating a budget, you can easily see where all of your money is going and how much you spend on each category. Many smart phones have budget apps or you can create a personalized budget that caters to your needs on an excel spreadsheet. Another way to prevent debt is to use cash. Using cash is an easy way to not overspend and will allow you to keep up with how much you spend. Also, avoid using a credit card. Swiping a credit card is effortless and has the possibility to make you feel as if you have an unlimited amount of money. The credit card bill will come in and you will regret the impulse shopping spree that you went on with your credit card. Always stay on top of your spending and do not spend more money than you make.

Preventing debt for you and your family is not difficult. If you are willing to stick to a budget, use cash and avoid using your credit cards; then you will be able to manage your money and focus on rebuilding your financial freedom. 

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. 

Attorney Obligations during Bankruptcy

 

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 created new obligations for “debt relief agencies” engaging in bankruptcy related services. For a definition of a “debt relief agency,” see 11 U.S.C. §101(12A). The United States Supreme Court in Milavetz v. U.S., 130 S.Ct. 1324 (2010), held that “attorneys are debt relief agencies when they provide qualifying services to assisted persons.” As debt relief agencies, bankruptcy attorneys are instructed by the Bankruptcy Code to avoid certain conduct and are required to provide information and notices to clients (called “assisted persons”) found in Sections 526, 527, and 528.

 

Section 526 directs that a debt relief agency shall not (1) fail to perform any services promised to a client; (2) make any untrue or misleading statement, or counsel a client to make an untrue or misleading statement in connection with a bankruptcy case; (3) misrepresent any promised services or the benefits and risks of filing bankruptcy; or (4) advise a client or prospective client to incur more debt.

 

Section 527 mandates that the debt relief agency must give written notices to a client within three days of first offering to provide bankruptcy assistance, including:

1.      A written notice required by Section 342(b) which is filed with the clerk at the time of the bankruptcy filing (currently Official Form B201A, Notice to Consumer Debtor(s) under §342(b) of the Bankruptcy Code; and Official Form B201B, Certification of Notice to Consumer Debtor(s) Under § 342(b) of the Bankruptcy Code );

2.      A clear and conspicuous written notice advising the client of the necessity to be truthful in all statements and disclosures throughout the bankruptcy process; that assets and replacement value must be completely and accurately listed after reasonable inquiry; that Means Test information must be truthfully listed after reasonable inquiry; and that the client’s case may be subject to audit and sanctions. A copy of this notice must be retained by the debt relief agency for two years;

3.      A statutory form listed in Section 527 describing rights and debt relief agency duties; and

4.      A description of how to identify and schedule all the information the client is required to provide under Section 521, including a list of creditors, the schedule of assets and liabilities, the schedule of income and expenses, and the statement of financial affairs. Additionally, the debt relief agency is directed to instruct the client in writing how to determine replacement value and exempt property.

 

Section 528 requires that a contract between a debt relief agency and client must be in writing and “clearly and conspicuously” explain the scope of services that the agency will provide and the fees or charges for such services.

 

Violations. The penalties for violating these sections are harsh. “[A]ny contract for bankruptcy assistance between a debt relief agency and an assisted person that does not comply with [Sections 526-528] … shall be void” and may only be enforced by the assisted person. See 11 U.S.C. § 526(b). Additionally, Section 526(c)(2) states that a debt relief agency may be required to pay back all fees and charges received from the client, plus pay any actual damages and reasonable attorney fees and costs, under either of these circumstances:

  • if a material requirement of the Bankruptcy Code or the Federal Rules of Bankruptcy Procedure is intentionally or negligently disregarded; or
  • if the client’s case is dismissed or converted on account of intentionally or negligently failing to file a required document.

 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

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.

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

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.

What is a Regular Income in Chapter 13?

Section 109(e) of the Bankruptcy Code sets three basic eligibility requirements for a Chapter 13 debtor:

  1. The debtor must be an “individual.” For bankruptcy purposes, an individual is a subset of a person, and is distinct from a partnership or a corporation. See 11 U.S.C. §101(41). Only real live human beings (“individuals”) are allowed to file Chapter 13 bankruptcy.
  2. The debtor must not exceed the Chapter 13 debt limits. The last time these limits were adjusted was on April 1, 2013, and they are currently limited to: unsecured debts less than $383,175, and secured debts less than $1,149,525.
  3. The debtor must have a regular income.

Section 101(30) of the Bankruptcy Code defines “regular income” as “income sufficiently stable and regular . . . to make payments under a plan.” Courts have recognized that Congress intended a liberal interpretation of “regular income.” The test for regular income is not the type or source of income, but rather its regularity and stability. Debtors who do not have sufficient income to pay ordinary living expenses have been found to lack the regular income to be eligible to file a Chapter 13. Some examples held to qualify as regular income include:

  • Social Security income
  • Income from employment
  • Business income
  • Spousal support income
  • Child support income
  • Contributions from family members

Under the original Bankruptcy Act, Chapter 13 plans were restricted to wage earners, and sometimes a Chapter 13 case is still referred to as a “wage earner” bankruptcy. This limitation denied Chapter 13 relief to some individuals with regular income, such as small business owners or social welfare recipients, because their incomes did not come from wages, salary, or commissions. Congress modified the Bankruptcy Code so that individuals with “regular income” could qualify for Chapter 13 bankruptcy relief. Congress made it clear that “[e]ven individuals whose primary income is from investments, pensions, social security or welfare may use chapter 13 if their income is sufficiently stable and regular.” H.Rep. No. 95-595, 95th Cong., 1st Sess. 119, reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6080.

If you have a regular income and need debt relief, you may qualify for Chapter 13 bankruptcy. A Chapter 13 bankruptcy can give you an opportunity to pay whatever you can afford to creditors over three to five years, under the protection of the bankruptcy court. At the end of the case, many debts that remain are discharged forever. Speak with an experienced bankruptcy attorney at Fears | Nachawati for more information on how Chapter 13 and the federal bankruptcy laws can help you. Call our office at 1.866.705.7584 or send an email to fears@fnlawfirm.com to set up your free consultation.

How to Choose a Credit Card After Bankruptcy

Some individuals refuse to have credit after bankruptcy. Believe it or not, paying your monthly bills, using cash, saving money, and acting in a responsible manner does not make you a good credit risk. A great example is the person who has worked the same job for years, earns a good wage, pays his bills on time, and has not had a single negative item on his credit report since filing bankruptcy six years ago (which was caused by unforeseen medical bills). Without re-establishing his credit, this man cannot get financed for a new or used vehicle through any reputable bank or captive finance company such as Ford Motor Credit.

On the other hand, running up credit debt immediately after bankruptcy is an equally wrong approach. It is important to select the right type of credit and use it responsibly. Credit cards are a great way to re-establishing credit, and selecting the right kind of card is a good first step on the road to financial recovery.

Secured vs. Unsecured
One of the first questions to answer in selecting a credit card after bankruptcy is whether it is secured or unsecured. An unsecured card does not have collateral pledged to guarantee payment. A secured credit card requires a deposit of money that is held by the creditor. The creditor will then extend credit equal to the amount deposited (in some cases more). A secured credit card looks and acts just like an unsecured credit card. Both secured and unsecured cards charge interest on any outstanding balance and can incur fees for late payment, over the limit spending, etc. When a secured account is finally closed (or converted, see below), the cardholder’s deposit is returned.

Interest Bearing Account
Most secured credit cards have interest bearing accounts for secured credit card deposits (often required by law). Many of these accounts are insured by the FDIC, and some banks offer better rates of return on these deposits than others.

Secured Card Convert to Unsecured
If you choose a secured card to re-establish your credit, you may be interested in how the creditor will treat your account in the future. Some card companies will periodically review secured cardholder accounts, convert the secured account to an unsecured account, and return any money held. In some cases conversion is guaranteed, but may only be “available” from other lenders.

Report to Credit Bureaus
Perhaps the most beneficial feature for having a credit card after bankruptcy is the bank’s promise to report monthly payments to the three major credit reporting bureaus (Equifax, Experian, and Trans Union). Not every bank or credit card company reports to all three credit bureaus, especially if the cardholder has paid the card off in full each month before interest is charged.

Annual Fee
The annual fees charged by credit card companies can vary widely. Many offer no annual fee, at least for a time. Be aware that if you decide to close your credit card account at a later date because of high annual fees, your credit score may be adversely affected (since a credit score is adjusted by the length of the individual’s open credit accounts). So choose your credit card wisely!

Interest Rate
Interest from credit card companies are presented in different ways. The card may have a low introductory rate, which may jump substantially after a few months. Other rates may fluctuate with the economy (or at the creditor’s election), and still others are fixed. It pays to review the credit card terms and determine the rate of interest before agreeing to a card offer.

Application and Set-Up Fees
Most reputable credit cards do not have application fees or set-up fees. Some debtors report receiving unsecured credit card offers immediately after filing bankruptcy. These offers often extend low available credit, but contain high application and set-up fees. A debtor may be given a $250 credit line, but have $180 in fees! Essentially, you are taking a loan from the credit card issuer and not receiving anything in return.

For more information or a free consultation call the experienced bankruptcy attorneys at Fears | Nachawati at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

 

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The Business Debt Exception to Chapter 7 Means Testing

One of the most noteworthy changes to the bankruptcy code with the adoption of the 2005 BAPCPA amendments was the requirement that chapter 7 debtors have to under go means testing. The means test examines a debtor’s income to determine if they qualify for chapter 7 relief.

One exception to the means test is a non-consumer debtor. Generally this is a debtor whose debts are primarily business debt. In order to qualify for this exception the debtor’s business debt must exceed their consumer debt. (more then 50%).

A debt is usually considered a business debt or non-consumer if it was taken out in connection with the debtors business, typically a business credit card or loan taken out by the individual or guaranteed by the individual. Credit cards used to pay business expenses or to purchase items for the business would qualify as business debts. In many jurisdictions personal taxes are considered non-consumer debt and would go toward the exception, although other jurisdictions classify tax debt as consumer debt.

In order for the debt to qualify the individual debtor must be liable for it. This is an important issue because depending on the business structure, the debtor may not be liable. Most business structures have some kind of liability shield that protects the individual from the business’s debt. In most cases, if your business is organized as a sole proprietorship or general partnership, you will be on the hook for all of your company’s debts. But if you have a corporation or limited liability company (LLC), creditors typically can’t go after your personal assets to satisfy business debts unless you personally guaranteed or cosigned the obligation.

The largest debt that most consumers have is their mortgage. The mortgage debt is considered in the equation and the debtor must use the total amount of the debt. However, when it comes to mortgages, if the property was purchased for a business or to be used as an investment or rental property, most jurisdictions would consider this a non-consumer debt.

For more information about bankruptcy contact the experienced attorney’s at Fears | Nachawati. Call us at 1.866.7056 or send an email to fears@fnlawfirm.com.

 

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Can a Debt Collector Come to My House?

Bankruptcy attorneys have long known of the disgraceful collection tactics of debt collectors and subprime lenders. Fortunately, federal and state laws protect consumers from many nasty collection practices, such as telephone harassment in the middle of the night.

Recently, the Los Angeles Times reviewed Capital One’s new credit card contract. You know, that document that comes with your credit card printed in 8 point type that no one reads? The Times discovered that Capital One is claiming to have many collection rights under this contract with the card holder, such as the right to contact customers “in any manner we choose.” That includes calls, emails, texts, faxes or a “personal visit,” reports the Los Angeles Times. Capital One also claims the right to suppress its caller ID and identify itself however it wants, a tactic known as spoof calling.

Representative from Capital One attempted some damage control and told the Times that, despite the legal language, it doesn’t typically pay home visits to its customers. “Capital One does not visit our cardholders, nor do we send debt collectors to their homes or work,” the company spokeswoman said. However, in the next breath Capital One stated that it may visit a customer’s home to repossess costly goods purchased on credit – but only as a “last resort.”

Is a creditor entitled to come to your home to collect on a debt? Yes, at least until you have some legal protection. Once you retain an attorney to represent you on the debt, a third party debt collector cannot contact you directly in any way, including mail, phone, or in person. Once you file for bankruptcy relief, creditors cannot directly contact you or take legal action without permission from the bankruptcy court.

Many creditors and third party collectors engage in harassment and other collection practices to squeeze out more money from consumers. In 2012, Capital One was fined $210 million for deceptive practices including fudging details or outright lying to customers to get them to sign up for expensive, low-value products like payment protection insurance and credit monitoring.

If you are being hounded by creditors or collection agencies, speak with an experienced bankruptcy attorney at Fears | Nachawati to discuss your options. In many cases, bankruptcy can discharge your debts and end collection harassment for good. Please contact our office by calling 1.866.705.7584 or send an email to fears@fnlawfirm.com.

 

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Debt Settlement Risks

One of the riskiest propositions for getting out of debt is hiring a debt settlement company. While state, federal, and private consumer protection agencies continue to fight to regulate these companies, dangers still exist, even when the company is entirely legitimate and operating within the law.

A large tax bill is a consequence that often surprises individuals after a debt settlement. The IRS considers a settled debt essentially a gift from the creditor and taxes the forgiven amount as income to the taxpayer. The creditor is directed by law to send a Cancellation of Debt Form 1099-C to the taxpayer and to the IRS. The taxpayer must then account for the cancelled or forgiven amount to the IRS and pay taxes (unless otherwise exempt). Many debt-settlement companies do not adequately explain this risk when offering to settle a debt for “pennies on the dollar.”

Another risk is the extensive damage to the individual’s credit during the debt settlement process. Most creditors will not discuss debt settlement while the debt is being paid as agreed. Consequently, in order to settle the debt for less than 100%, the person must first stop making monthly payments. The effects of missed payments are devastating on a credit score and will continue for up to seven years. Additionally, the account may be sold or transferred to a collection agency, which further damages a credit report. Finally, even after the debt is settled, any final payment for less than 100% is a negative entry on a report.

Harassing phone calls and legal action may continue while the debt settlement company works to resolve your debt. There is no additional legal protection while a debt settlement company is attempting to settle a debt. The Fair Debt Collection Practices Act offers protection when an attorney is engaged to settle a debt, something most debt settlement companies cannot provide.

Many individuals find that the debt collection process can continue even after a debt is finally paid and settled. A settled debt can be erroneously reported as open and outstanding on a credit report, and the debt may be sold by the original creditor and pursued by a collection agency. In extreme cases, the individual may have to defend a wrongful lawsuit. Debt collectors rarely take the time to ensure the accuracy and legitimacy of a debt, and collection efforts may resume unexpectedly some months or years after the debt is settled and paid. In most cases, it takes some time and effort to ensure that a settled debt finally settled and is correctly reported to the credit reporting agencies.

Perhaps the most serious risk when engaging a debt settlement company is the company going out of business. Some companies ask their clients to deposit funds or make regular payments into a settlement account. If the company folds or files bankruptcy, it may be years before your money is returned – if ever.

Debts settlement companies are fraught with dangers. On the other hand, bankruptcy is a legal process, filed in the federal courts, and overseen by a judge. Your bankruptcy attorney is licensed and will represent your interest as you reorganize your finances. Discharged debts are not taxed as income, creditors may not contact you directly at all, and all negative credit reporting must stop after you file bankruptcy. If you are considering debt settlement to resolve your financial trouble, discuss your situation with an experienced bankruptcy attorney to get a different perspective. Call 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.

Life After Bankruptcy

Many people consider “bankruptcy” a bad word, and while it is true that it will have an initial negative affect on your credit, for many people it can improve their financial situation over the long term. Many people who consider filing for bankruptcy have found themselves in a situation where they are not able to continue to pay all their debts and still cover the normal expenses. This can mean that many bills have gone unpaid or have been paid late, and the debtors credit score has started to plummet.

The goal of a consumer bankruptcy case is to allow debtors to receive a discharge, which is a permanent injunction that prevents creditors for collecting on their debt. This discharge eliminates much of the debtor’s debt and the only negative reporting the debtor will receive is the bankruptcy filing itself.

While a bankruptcy can be reported on a credit report for up to 10 years, with much of the debt discharged the debt to income ratio will improve, helping repair a debtor’s credit. In many cases a debtor’s overall credit may even be better then where it was just prior to filing in as short of a year of filing.

Many debtors mistakenly think that it will be many years before they can purchase a home or refinance an existing home. In reality, many debtors become eligible in as little as one year.

A debtor can rebuild their credit after a bankruptcy, by maintaining or taking out one or two small secured credit cards and routinely using them and paying them off. Also, payments to reaffirmed debt like a car and mortgage made on time will also help improve the debtors credit score.

The attorneys at Fears | Nachawati will review your credit situation and can help you decide if filing for bankruptcy is right for you. In addition to offering a free consultation they will also provide you with a credit report that provides your credit score. For more information call today 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.

Keep Evidence When Creditors Harass You

Several federal consumer protection laws protect against creditor harassment. For instance, the Fair Debt Collection Practices Act forbids a third party collector from calling after you have retained an attorney to represent you (to file bankruptcy, for instance). The Telephone Consumer Protection Act prohibits auto-dialing telephone calls to a cell phone, unless you have previously given express consent. Of course, any creditor telephone contact to collect a debt violates the federal law after you file bankruptcy.

Regardless of what the law says, in many cases creditors and collectors continue to call. When a collector refuses to follow the law, it is time to begin building a case against the wrongdoer. Start by collecting evidence.

Start a File
Grab a file folder and start collecting evidence! It is your burden to prove that the collection agency has violated the law, and your word without any other evidence may not be sufficient to prevail at trial.

Mail or E-mail
Collection agencies are loath to send anything in writing that may be used against them. Even if the correspondence does not violate the law, it may be admissible during a harassment case to show a collection pattern or practice that will support your complaint. Print out any email and do not delete it from your account. Keep any mail correspondence along with the envelopes.

Telephone Records
Write down the telephone number from each collection call. At the end of the month, highlight all calls from the violating collector on your telephone bill. In most cases the collector will use an autodialing system and calls will come from different numbers – sometimes from different area codes!

Recordings
Voice recordings are outstanding evidence! Like written documents, collectors dislike leaving voice messages that may be incriminating. Keep and do not erase any voice message. Recording telephone calls may be a good choice, as long as you follow the law. In some states, notably California, Connecticut, Florida, Illinois, Maryland, Massachusetts, Montana, Nevada, New Hampshire, Pennsylvania and Washington, both parties to the phone call must consent to the recording.

In most bankruptcy cases, simply directing the collector to contact your attorney will be enough to stop future telephone calls. However, if the calls persist, inform your attorney and document the harassment. The federal law permits recovery of damages, including attorney fees, for violations of federal law. For more information or a free consultation contact the experienced attorneys at Fears | Nachawati. Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

When is Paying a Student Loan an Undue Hardship?

Section 523(a)(8) excepts federal and many private student loans from discharge in bankruptcy. The exception to the exception is when the debt will “impose an undue hardship on the debtor and the debtor’s dependents.” Unfortunately, Congress did not define “undue hardship” and left it to the federal courts to interpret its meaning.

The legislative history of Section 523(a)(8) implies that the purpose behind the statute was to set a high bar to discharge for educational loans in order to prevent abuse of bankruptcy and to protect the solvency of the educational loan program. In the case of Cazenovia College v. Renshaw (In re Renshaw), 222 F.3d 82, 87 (2d Cir. 2000), the Second Circuit Court of Appeals stated:

Congress enacted § 523(a)(8) because there was evidence of an increasing abuse of the bankruptcy process that threatened the viability of educational loan programs and harm to future students as well as taxpayers. Congress recognized that this is an instance where a creditor's interest in receiving full payment of the debt outweighs the debtor's interest in a fresh start.

Consequently, a student may not walk across the stage to receive his degree, then run to the bankruptcy court to discharge his student loans. On the other hand, Congress recognizes that there are some instances where a student loan debt should be discharged. The question is under what circumstances does “undue hardship” exist?

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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.

Debts Divided in Divorce

Typically in a divorce decree the state court will divide all the assets and debts of the couple. The divorce decree is a state order that does control who is responsible for the debt, but it unfortunately does not do much to the rights of a third party creditors. This means the creditor can continue to collect against a former spouse even if that debt was assigned to the other spouse.

If one spouse is making the regular payments on the debt the creditor shouldn’t contact the other spouse. If, however, no one is making payments or making late payments the creditor can, and often will, contact both former spouses.

A spouse may be able to sue their former spouse to enforce the divorce decree and attempt to recoup some of the payments made to the creditor. This lawsuit would only result in an award in money damages and may not be collectable if the former spouse has no assets or income that can be reached.

This typically leaves one spouse with the requirement to make payments or seek out other debt relief options such as bankruptcy. If one spouse files for bankruptcy and has their obligation discharged it will not discharge any of the obligations for the former spouse. An issue may also arise if a spouse files for chapter 13 bankruptcy debt that was divided by a divorce decree may be included in a the chapter 13 plan. If the debt is a secured debt the spouse can surrender the debt and have it discharged leaving their former spouse responsible and taking them off the note.

If you have found yourself being forced to pay for an ex-spouses debt that was assigned to him/her in a divorce decree you should contact the attorneys at Fears |Nachawati for a free consultation. Contact us 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
1

1,436.25

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.

How to Spend Tax Refund Money Before Bankruptcy

Without question, the biggest Chapter 7 bankruptcy trap at this time of year is losing part or all of a debtor’s income tax refund. The risk is fairly easy to describe: if you have received or are entitled to receive a tax refund, any amount not protected by legal exemptions is subject to turnover to the Chapter 7 trustee. Most bankruptcy trustees will keep your case open until you actually receive the tax refund. Every year there are Chapter 7 debtors who file bankruptcy before receiving their tax refund, and are surprised to receive more than expected after IRS adjustments to their tax returns.

The answer for many debtors is simply to postpone filing bankruptcy until after the tax refund is received and the money is safely spent. However, nothing in the bankruptcy process is simple or entirely safe. Even spending your tax refund before bankruptcy can cause you or others headaches. Spending tax money on luxury goods, repaying loans to friends or family, and even paying down creditors can create problems for you, the payee, or both!

The best advice is to spend your income tax refund under the supervision of your bankruptcy attorney. Your attorney may be able to exempt all or part of your tax refund, which will help you keep your finances under control after bankruptcy. Your attorney can also help guide you in spending the non-exempt portion of your refund. Below are three common ways income tax refunds are spent before bankruptcy:

Bankruptcy Fees
Sadly, many debtors need their income tax refunds before they can “afford to go broke.” Paying your Chapter 7 attorney fees, mandatory credit counseling fee, and bankruptcy court filing fee are all expected before you file bankruptcy. However, be aware that some jurisdictions consider money in your bank account on the day you file your case as property of the bankruptcy estate, even if there is an outstanding check written that has not yet cleared.

Play Catch Up
Paying utility payments and rent/mortgage arrears are other common use for tax money. Avoid the urge to “pay ahead” as the trustee may claim that an advance payment is an asset of the bankruptcy estate.

Necessary Expenses
Necessary living expenses such as food, clothing, medicines, or making needed repairs to your home or auto are often wise ways to spend your income tax refund before bankruptcy. If your family budget is already stretched, purchasing a set of tires for your car or replacing a failing appliance may save you financial grief in the future.
 

The Trustee Wants to Know: "What's in Your Wallet?"

The Ninth Circuit case of Shapiro v. Henson stands as a warning to all bankruptcy debtors: be sure to know what is actually in your bank account on the day your bankruptcy case is filed. The Chapter 7 trustee requires all bank account records and will compare that balance to the amount listed on your bankruptcy schedules. When the amount in your bank account is substantially higher than the scheduled amount, your simple Chapter 7 bankruptcy can quickly turn into a train wreck.

At the time a Chapter 7 bankruptcy case is filed, your property becomes part of a bankruptcy estate. Property not exempt under state or federal law may be collected by the bankruptcy trustee and used to pay creditors. See Section 542(a) of the Bankruptcy Code. Accurate accounting of property and skilled use of all legal exemptions is a critical part of the pre-filing process.

Your ledger balance will not save you. In Henson, the Ninth Circuit Court of Appeals considered a Chapter 7 bankruptcy case where a debtor had a bank balance of over $6,000 on the day she filed bankruptcy. Henson had written checks for almost all of this money before filing, including a check in the amount of $3,239.00 to her attorney, but none of these checks had cleared when the bankruptcy case was filed. The bankruptcy trustee sought turn-over of the entire non-exempt amount in the bank.

Prior case law in the Eighth Circuit held that where a motion for turnover was brought against an entity by summary proceeding, possession of the property by that entity was required at the time that the motion for turnover was filed. See Brown v. Pyatt (In re Pyatt), 486 F.3d 423 (8th Cir. 2007). The debtor argued that under Pyatt, the trustee had to file a motion to compel turnover of the money in the bank account before the bank honored the outstanding checks. Since he did not, the debtor was protected by the defense of “I ain’t got it.”

The Ninth Circuit declined to follow the prior case law, and claimed the Eighth Circuit had wrongly interpreted the law in Pyatt. The court of appeals said that outstanding checks written on a bank account had no bearing on bankruptcy estate property, and the trustee was able to recover bankruptcy estate property from whomever had custody and control over the property at any time during the bankruptcy case. Bottom line: the debtor owes the trustee over $6,000 (actually, the trustee decided to go after the debtor’s attorney for part of this money, $3,239.00 to be exact). See Shapiro v Henson, Case No. 11-16019 (9th Cir. Jan. 9, 2014).

It is always good practice to obtain the current balance for all of your bank accounts on the day you file bankruptcy. It is also critical for you and your attorney to agree on the day the bankruptcy case will be filed (usually the same day you sign the bankruptcy petition and schedules). A filing delay of just one day could cause painful non-exempt property issues in your case (from a direct deposit from work, for instance).

Direct Payments to Secured Creditors

In a chapter 13 plan, depending on the jurisdiction, you may propose a plan that requires you to make payments to your creditors directly. Typically the ongoing mortgage payment or even a car payment can be made directly. This may also be advantageous if your payment already has a low interest rate and if the terms of the note are favorable.

Your payment will resume with the next month’s payment after the case is filed. Payments to secured creditor must be made timely. Filing for bankruptcy gives you a lot of advantages that you normally would not have with your creditors. Therefore, some of the luxuries you had outside of bankruptcy do not extend to your bankruptcy case. Most importantly you cannot be late on ongoing payments. If you had a grace period on your mortgage or other secured debt you no longer have one while in bankruptcy. If you fail to make your payments the creditor can file a motion for relief from stay and then attempt to collect on their debt. This means the secured creditor may be able to foreclose or repossess the collateral.

If you are in the middle of a chapter 13 case and you are having difficulty making your payments to your secured creditor contact your bankruptcy attorney because they can provide you with options for dealing with this issue.

If you are considering filing for bankruptcy, contact the experienced attorneys at Fears | Nachawati to set up a free consultation. Contact us at 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.

Private School Tuition Payments Before Bankruptcy

The debtor may not “give away” money when he is insolvent, or prefer to pay one creditor at the expense of others. All creditors must be treated equally. Consequently, large payments made by a debtor before filing bankruptcy are often the subject of scrutiny by a Chapter 7 trustee.

Most pre-bankruptcy payments are protected. For instance, the trustee may not undo house or car payments because the debtor received something of reasonably equivalent value in return for the payment. On the other hand, paying a family member selling a car worth $5,000 to a close friend for $10 in order to protect it from the bankruptcy trustee is likely a fraudulent transfer that can be voided.

Sometimes trustees like to test the limits of their avoidance powers granted by the Bankruptcy Code. For example, in the recent case of Geltzer v. Our Lady of Mt. Carmel-St. Benedicta School and Geltzer v. Xaverian High School, No. 11-43773 (Bankr. E.D.NY., December 4, 2013), a Chapter 7 trustee sought turnover of pre-petition private school tuition payments totaling $46,562. The trustee claimed that because the parents were not “direct beneficiaries” of the tuition payments, and the private schooling was “not reasonably necessary,” the debtors did not receive reasonably equivalent value or fair consideration for the tuition payments as required under Sections 548(a)(1)(B) and 544(b) of the Bankruptcy Code, and portions of New York state law. The trustee asked the bankruptcy court to find that the payments were fraudulent conveyances and compel turnover of the money for fair distribution to creditors (along with a nice little payday for himself).

The bankruptcy court judge (who was appalled by the trustee’s motion) denied the request and stated that the trustee’s claims were “based on a fundamentally flawed legal theory that is . . . at odds with common sense.” The court ruled that “the Debtors and their minor children must be viewed as a single economic unit,” and noted that parents are legally obligated to provide their children with life’s necessities. The choices parents make while executing this obligation cannot be subjected to later review by bankruptcy trustees:

The fact that they chose [to send] their children to private or parochial school . . . does not render the payments subject to scrutiny by the Trustee for avoidance, any more than the Trustee would be entitled to second-guess other choices made by debtors pre-petition in providing clothing, food [or] shelter . . . to their minor children.

Common sense prevailed in this case, but there are many potential stumbling blocks along the road to a bankruptcy fresh start. A review of transfers and payments is part of the pre-bankruptcy process. You should inform your bankruptcy attorney of all transfers of property and money, large or small, so your legal and financial interests can be protected.

For further questions or for a free consultation contact the experienced Fears | Nachawati attorneys 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.

Can I Get Rid of Payday Loans in Bankruptcy?

Payday loan companies offer a short-term loan of a few hundred dollars which will be repaid on the borrower’s next payday. To obtain the loan the borrower usually writes a post-dated check to the lender. Often the payday loan lender will require a statement that the borrower is not considering bankruptcy, and, sometimes, that the borrower will not file bankruptcy in the future.

Promises to not file bankruptcy are not enforceable contract provisions and are considered void against public policy. However, if a person falsely represents that he or she is not contemplating bankruptcy to obtain a loan, the debt may be determined non-dischargeable in bankruptcy and the person may have committed a criminal act of stealing by obtaining the loan under false pretenses.

Many individuals worry that they will face a criminal bad check charge when they are unable to pay the post-dated check. With a few narrow exceptions, being unable to pay the payday loan check is not a criminal act. It is important to note that the post-dated check may still be presented for payment even after the bankruptcy has been filed, resulting in significant bank fees. Most courts addressing the issue have stated that the presentment of the post-dated check does not violate the automatic stay provisions of the Bankruptcy Bode. However, courts have said that the funds collected by the payday loan company may be an avoidable post-petition transfer under section 549 of the Bankruptcy Code, meaning that the debtor may get that money back.

A person who takes a payday loan after meeting with a bankruptcy attorney may be asking for trouble. Payday loan companies are usually locally owned and are notorious for pursuing their money. Of course, the lower the dollar amount, the less likely the company is to pursue legal action. Payday loan companies may file criminal charges when the loan was made within a few months of the bankruptcy or if there is evidence you took out the loan after you met with a bankruptcy attorney. Local prosecutors are usually very reluctant to get involved in payday loan cases because they consider these companies shady, the loan a civil matter, and generally do not understand the bankruptcy process and its effect on the loan.

The easiest action to stop the payday loan nightmare during bankruptcy is to work with your bank and stop payment on the post-dated check. An inability to pay a post-dated check is a civil matter, not criminal. The Electronic Funds Transfer Act (“ETFA”) also provides certain important consumer rights. You have the right to stop pre-authorized electronic transfers up to three days before the transfer is scheduled by notifying your bank. It is always best to notify the bank in writing. If the bank allows an electronic funds transfer despite your stop payment, you must then notify the bank within 60 days. The bank then has ten days to investigate and one more day to put the money back (including any overdraft fees). The ETFA prohibits lenders from conditioning the extension of credit on a requirement that periodic payment loans be repaid electronically, but some payday lenders exploit a loophole in the ETFA by issuing loans that are due in full in one payment.

It is important to note that some states make it a crime to close a bank account or stop payment on a payday loan check. If your state law prevents you from issuing a stop payment on the check, you may have no other option than to open an account at another bank and discharge the overdraft fees caused by the payday loan check.

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

Discharge a Judgment Lien in Bankruptcy

In many states a judgment can become a lien against your real property in the county of the judgment or any other county where the judgment has been transcribed into the official records. A “judgment lien” or “judicial lien” is often effective both with respect to property owned at the time of the judgment, as well as with property acquired after the judgment. A bankruptcy discharge will void the future application of a judgment, preventing it from attaching to property acquired after bankruptcy, but the discharge does not automatically get rid of an existing judgment lien. A creditor with a surviving judgment lien could seek to foreclose or repossess the property after bankruptcy.

The primary method used to attack a judgment lien is via a motion to avoid as a lien impairing exemptions, under section 522(f)(1)(A) of the Bankruptcy Code. A judgment lien may either be completely avoided or partially avoided, in which case the amount of the lien is reduced. It works this way: first add up the exemption amount, the judicial liens, and all other liens, like mortgages. This sum is then compared to the value of the property. If it is greater than the value, the judicial lien impairs the exemption and may be partially or completely avoided. If the sum is less than the value, there is no impairment of the exemption and section 522 does not provide a means to avoid the judgment lien. Below is an example:

Value of the property: $100,000
First mortgage: $50,000
Second mortgage: $30,000
Amount of exemptions: $20,000
Judicial lien: $10,000

The amount of all of the encumbrances against the property plus the available exemptions is $100,000, which is equal to the value of the real property. As a result the judicial lien is not actually secured by anything, and the bankruptcy court can order the lien to be avoided and the entire $10,000 judgment debt to be discharged with other unsecured debts.

A second example shows how a judicial lien can be reduced when it impairs a legal exemption:
Value of the property: $105,000
First mortgage: $50,000
Second mortgage: $30,000
Amount of exemptions: $20,000
Judicial lien: $10,000

The amount of all of the encumbrances against the property plus the available exemptions is $100,000, which is $5,000 less than the value of the real property. As a result the judicial lien can be reduced by $5,000 by the bankruptcy court and the remaining $5,000 discharged with other unsecured debt.

Lien avoidance under section 522(f)(1) can also apply to situations where there are multiple judgment liens. Lien avoidance can also work when the judgment lien is the only lien of any kind on the property, although the value of the property compared to the exemption becomes very important.

If you have any questions or are considering filing for bankruptcy please contact the experience bankruptcy attorneys at Fears | Nachawati Law Firm for a free consultation. Contact us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

 

 

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I Received a Motion for Relief from Stay. Now What?

When you file a bankruptcy case there is an automatic stay that goes into effect. This stay protects a debtor from their creditors trying to collect. Most importantly it protects a debtor from a foreclosure or a repossession of their home or car. A creditor can request relief from the stay or request that the stay be lifted. Normally they do this when you have missed payments under the plan or direct payments on your secured debt. If the stay is lifted the creditor can start to collect. This means they can start calling you and foreclose, or repossess the collateral.

You will usually be mailed the motion by the creditor. If you get the motion, contact your attorney to discuss your options. Many times the attorney can work with your creditor to resolve the motion without the stay lifting. Usually the best way to resolve the motion is to get caught up with the payments. Sometimes if you are only behind a few payments this can be done prior to the hearing or you can enter an agreement with the creditor to do it over the next few months. Otherwise you may need to change the terms of your plan to cure the delinquency amount through your chapter 13 plan. It’s important to contact your attorney because they know what options will work best to resolve the motion.

Motions to lift stay are much more common in a chapter 13 however they can also occur in a chapter 7 case as well. The reason they are less common in a chapter 7 case is because the case usually only lasts a few months and then the stay ends so it is not necessary to file a motion. If a creditor does file a motion it is usually to repossess collateral the debtor is surrendering. If you are in chapter 7 and you receive a motion to lift stay you should contact your bankruptcy attorney to know what to do next and to discuss your options.

If you have questions about bankruptcy contact the experienced attorney’s at Fears | Nachawati. Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com to set up a free consultation.

Stop Foreclosure with Bankruptcy

Filing a personal bankruptcy case will stop a judicial or nonjudicial foreclosure whether or not the foreclosure was begun before the bankruptcy. See 11 USC § 362 (a). The only notable exception to the automatic stay is for foreclosures which are brought by the Secretary of HUD on federally insured mortgages for real estate involving five or more units. See 11 USC § 362 (b)(8).

In order to stop the foreclosure, it must not yet be completed and finalized. In other words, you must still own the property at the time you file bankruptcy. Section 1322(c)(1) states that a debtor may cure and reinstate a home mortgage until the property is sold in a foreclosure sale.

Debtor’s Right of Redemption
After the sheriff’s sale, the debtor has no right to cure a default in a Chapter 13 plan. However, the debtor may have a state statutory right to redeem the property. The debtor’s state right of redemption is separate from an ability to cure a default under §1322. A cure leaves the underlying mortgage intact, allows a debtor to reverse acceleration caused by default, and allows a debtor to repay past due amounts over time while maintaining monthly payments. The right to redeem, on the other hand, does not allow the debtor to reverse acceleration and catch up payments. Rather, the debtor must pay the entire amount the purchaser paid at the foreclosure sale plus interest and costs within a statutory period of time.

Trustee’s Rights in Foreclosed Property
A bankruptcy trustee can undo a foreclosure as a fraudulent transfer if a creditor gets a windfall. See 11 USC § 547 and § 548 (up to 90 days before the bankruptcy filing, or within one year if an “insider” forecloses).

Foreclosure after Bankruptcy
Since the bankruptcy filing immediately triggers the automatic stay, the stay is effective whether or not a creditor is aware of the bankruptcy filing. This means that a foreclosure action must stop, even if the creditor has no knowledge of the court’s injunction! In order to proceed with a foreclosure sale after the bankruptcy case is filed, the creditor needs special permission from the bankruptcy court, called “lifting the stay” or “relief from the automatic stay.” This required notice and an opportunity for a hearing. See Rule 4001 FRBP. For more information on contesting a motion to lift stay.

If you are harmed by a foreclosure intentionally performed after your bankruptcy filing, you can “recover actual damages, including costs and attorneys’ fees, and in appropriate circumstances, [you] may recover punitive damages.” See Section 362(k). Bankruptcy judges are not happy with creditors who purposely violate the law. Fortunately enough of them have been slapped so most creditors know better, but from time to time some venture to get around the law. If you are considering filing for bankruptcy or fear foreclosure 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.

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.

Three Way Split of Opinion on Automatic Stay

It is axiomatic that when a state or federal court issues an order either requiring or prohibiting future conduct, the court expects compliance. In civil cases, non-compliance may be punished through the court’s use of contempt powers, which may include a fine or jail time until the individual complies. Since compliance isn’t always possible (e.g. an order to pay money when none is available), filing bankruptcy has traditionally been a refuge to temporarily stop civil contempt penalties and provides the debtor with an opportunity to either comply with the order or discharge the obligation. But the bankruptcy automatic stay protection is now under attack and may or may not be available to a contemnor, depending on where he lives.

Take for example, the case of Dominic’s Restaurant of Dayton, Inc. v. Mantia, 683 F.3d 757 (6th Cir. 2012). In 2007, the Mantia family closed their Dayton, Ohio restaurant but continued to use the restaurant name “Dominic’s” to sell food products. Christie Mantia sold her interest in the Dominic’s restaurant soon after it closed, and planned to open a restaurant with new partners Reece Powers and Harry Lee called (what else)”Dominic’s” and use old Dominic’s recipes. The original owners of Dominic’s filed a lawsuit for trademark infringement and trademark dilution.

The district court issued a temporary restraining order and then a preliminary injunction directing Mantia, Powers, and Reed to cease using the Dominic’s name and graphics. The plaintiffs then filed a series of contempt motions against the defendants for violation of the injunctions. The district court granted a default judgment and found the defendants in contempt. Powers then filed for personal bankruptcy.

Filing a personal bankruptcy triggers the bankruptcy automatic stay, a bankruptcy court federal injunction that protects the debtor from continuing litigation. The Bankruptcy Code lists several exceptions to the automatic stay, including criminal contempt actions, but not civil contempt actions. Nevertheless, the district court declined to stay the judgments against Powers.

The Sixth Circuit Court of Appeals considered the matter of whether the automatic stay protects a debtor during a civil contempt action. Other Circuit Courts had previously considered the issue and followed three different approaches:

  • The Third and Eleventh Circuits have determined that only criminal proceedings may continue despite the automatic stay and have refused to create an exception for civil contempt actions.
  • The Fifth Circuit and courts in the Second Circuit have determined that if a contempt order is issued to enforce an order of the court and not to enforce a money judgment, collect money, or harass a defendant, its continuance does not violate the automatic stay.
  • The Fourth and Tenth Circuits have invoked their equitable powers to allow civil contempt actions to proceed if such actions relate to compliance with a court order.

The Sixth Circuit found that the exceptions to the automatic stay cited in the Bankruptcy Code are not exhaustive and courts have recognized other exceptions. One of these exceptions is that a court has an inherent power to take action to ensure that parties comply with its orders. The Sixth Circuit adopted the approach by the Fourth and Tenth Circuits and allowed the civil contempt and injunctions to proceed, despite the automatic stay.

If a court has directed you to do or stop doing something and you cannot comply, speak with an experienced bankruptcy attorney to discuss your options. In many cases a bankruptcy filing will provide you with time to deal with the court order without being fined or incarcerated. Your bankruptcy attorney can discuss you options with you keep you out of further legal trouble.

Court of Appeals Avoids Charitable Contributions

‘Tis the season. . . to send a message to Congress?

The Bankruptcy Code allows a trustee to “avoid” any transfer of property by a debtor made within two years before the date of the filing of bankruptcy if the debtor (1) received less than a reasonably equivalent value in exchange for the transfer and (2) was insolvent on the date the transfer was made or became insolvent as a result of the transfer. Most (if not all) charitable contributions fall into this category of avoidable transfers. However, Congress carved out a “safe harbor” provision for debtors by exempting transfers of charitable contributions to qualified religious or charitable organizations so long as (1) “the amount of that contribution does not exceed 15 percent of the gross annual income [GAI] of the debtor for the year in which the transfer of the contribution is made” or (2) even if the contribution exceeds 15% of GAI, “the transfer was consistent with the practices of the debtor in making charitable contributions.” (See 11 U.S.C. § 548(a)(2).)

The 10th Circuit Court of Appeals case of Wadsworth v. The Word of Life Christian Center centered on a narrow question: if a bankruptcy debtor gave more than 15% of GAI to a qualified charity, does the charity have to return the entire annual transfer or only the portion exceeding 15%?

The lower courts in Wadsworth had said that the charity only had to give the amount that exceeded the 15%. But the Chapter 7 trustee in this case was not satisfied with this answer and wanted to reclaim more of the debtor’s pre-bankruptcy charitable contributions.

The Tenth Circuit agreed with the trustee. On December 16, 2013 (nine days before Christmas), the panel of three judges issued the opinion. The Court found that the plain language of § 548(a)(2) is unambiguous and clearly provides a safe harbor from the trustee’s avoidance power only if the “transfer” does not exceed 15% of GAI. The Court found that since the debtor’s transfer exceeded 15% of GAI, then the entire transfer is subject to avoidance, not merely the amount above the 15%. The Court said that had Congress intended for only the portion of the transfer exceeding 15% of GAI to be subject to avoidance, it would have added limiting language to that effect. It did not.

The Wadsworth decision is important to any individual who is giving to charity and contemplating bankruptcy. The Wadsworth decision took the aggregate amount of the charitable contributions for the year, and compared it to the debtor’s GAI (excluding the debtor’s Social Security income). Once the debtor’s total contribution was found to be over 15% of the GAI, the entire charitable contribution was subject to avoidance by the trustee. At least that’s the law in the Bah-Humbug Tenth Circuit.

If you are considering bankruptcy contact the experienced attorneys at Fears | Nachawati Law Firm for more information and a free consultation. Contact us at our office by calling 1.866.705.7584 or send an email to fears@fnlawfirm.com.

 

Bank Regulators Warn Against Unfair Collection Practices

The Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) have fired across the bow of financial institutions warning that they will soon face increased scrutiny regarding collection practices related to consumer debts. In July, the CFPB released two bulletins stating that financial institutions collecting their own debts are expected to adhere to many of the standards set forth in the Fair Debt Collections Practice Act, or FDCPA. This is because failure to do so may constitute an unfair, deceptive or abusive act or practice violation under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The FDCPA is a federal law which applies only to third parties (such as debt collectors and attorneys) during the collection process. The FDCPA makes it illegal for third parties to harass abuse, lie to, deceive, or mislead debtors when collecting a debt.

CFPB Bulletin 2013-07 cites examples of debt collection practices that may constitute violations under Dodd-Frank, such as collecting fees not expressly authorized by the debt agreement, seizing property without legal authority, misrepresenting the effect of a debt on a credit report, and threatening an action that is not intended or authorized (such as a lawsuit or criminal complaint). CFPB Bulletin 2013-08 gives specific examples of Dodd-Frank violations for misrepresentations regarding the effect of debt payments on credit reports, credit scores and creditworthiness. For example, it is a violation to tell a person that making a payment will result in a credit report correction when the debt is too old to be included on a credit report. The CFPB is developing proposed rules for debt collection, and is currently seeking comments from the public about debt collection practices.

The Office of the Comptroller of the Currency (OCC) also released a Statement in July entitled “Shining a Light on the Consumer Debt Industry” in which it encouraged national banks and federal savings banks to collect debts in a safe, responsible and fair manner. In this Statement, the OCC wrote, “The OCC expects all national banks and federal savings associations to have policies and procedures in place to manage their debt collection activities effectively.” Clearly the OCC and the CFPB are taking a closer look at how financial institutions treat consumers when collecting past due debts.

If you have any questions about bankruptcy or you are considering to file bankruptcy, contact the experienced bankruptcy attorneys at Fears | Nachawati Law Firm for more information and a free consultation. Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com

What is an Executory Contract?

Schedule G of the Official Bankruptcy Forms is entitled, “Executory Contracts and Unexpired Leases.” Schedule G confused the heck out of pro se debtors and newbie bankruptcy attorneys. An executory contract is simply a contract in which one or more parties have remaining obligations. A way of rephrasing an executory contract is “contract not completely performed.”

Most unfulfilled contracts are executory, and must be listed on the debtor’s Schedule G. Examples of executory contracts and unexpired leases include:

  • Auto lease
  • Apartment lease
  • Cell phone contract
  • Cable or satellite TV contract
  • Business contracts
  • Service contracts
  • Satellite radio contract
  • Business real estate or equipment lease
  • Contracts of sale for real estate, such as a contract for deed or lease-purchase agreement

The parties to an executory contract are listed on Schedule G, but are not sent notices during the bankruptcy case (because they are not creditors). If the debtor has taken money and not performed duties under the contract (such as an advance), the other party to the contract is treated as a creditor in the bankruptcy. Creditors are listed on Schedule F and the Creditor Matrix, and receive notices from the bankruptcy court.

Filing bankruptcy (by itself) does not terminate an executory contract, regardless of the contract terms. Section 365(e)(1) of the Bankruptcy Code expressly invalidates ipso facto clauses (Latin for “by the fact itself,” and means that filing a bankruptcy case triggers a default in the contract). The debtor is given the option of continuing or rejecting an executory contract during the bankruptcy case. Many debtors with burdensome cell phone contracts are able to walk away from the contract and discharge any debt, including termination fees.

Since executory contracts are so common, a blank Schedule G is a red flag to a bankruptcy trustee. The federal bankruptcy process demands honesty and accuracy from debtors, including a fair and honest accounting of debts.

If you are considering bankruptcy or have any further questions, please contact the experienced attorneys at Fears | Nachawati for a free consultation. Contact us by calling 1.866.705.7584 or send an email to fears@fnlawfirm.com

The filing of a bankruptcy petition is designed to result in a discharge of most of your debts. A discharge is an order from the court that says you do not have to repay most of your debts. The usual exceptions to the discharge include, most taxes, child support, alimony, and student loans; government fines and restitution; debts obtained through fraud or deception; and personal injury debts caused by driving while intoxicated or taking drugs. The credit reporting agency may report your bankruptcy filing for ten (10) years; as to other debts, information may be reported for seven (7) years. However any debts which have been discharged in bankruptcy should no longer be reported as having a balance owed and instead should be reported with a zero balance. Therefore, filing a bankruptcy petition can affect your creditworthiness in the future.

This does not mean you should ignore your creditor’s attempt to collect on your debts after the bankruptcy has been discharged. If any of your creditors try to collect a debt which you listed, you should contact your attorney so they can insure you have the full protection of your discharge. You should also check your credit report to make sure the debts discharged in your bankruptcy are being reported correctly.

The attorney’s at Fears | Nachawati assist debtors in obtaining a discharge as well as insuring the discharge is enforced. If you are interested in obtaining some debt relief contact our experienced attorneys by calling 1.866.705.7584 or by sending an email to fears@fnlawfirm.com. For more information check out our firm website at www.fnlawfirm.com or our Facebook page by clicking here

Two Reasons to File Bankruptcy in January

Ask a consumer bankruptcy attorney the question, “When is the best time to file my bankruptcy case?” and the most likely answer is “Today!” After all, delay in filing a bankruptcy case often causes complications such as lawsuits, garnishments, repossession, and foreclosure. But every case is different, so let’s look at why January may be a good time for some debtors to file bankruptcy.

Tax Debt
Income tax debt for 2013 is not owed until after December 31, 2013. Consequently, if you are expecting to owe a large tax debt for 2013 and want to pay it through a Chapter 13 bankruptcy case, you should wait to file until January 1 (or after. First, take the day off and watch the parades and football games). A Chapter 13 case filed before January 1, 2014 does not include 2013’s tax obligation as a pre-petition debt.

Discharge Holiday Spending Debt
Historically, Americans spend more in the month of December than any other month. According to Gallup.com, Americans spend almost $10 per day more in December for store and online purchases, and in restaurants than January through November averages. That’s an extra $300 that often ends up on a credit card.

Bankruptcy can eliminate credit card debt, but there are some rules. First, high use of credit immediately before filing bankruptcy may draw the attention of the credit card company. The Bankruptcy Code specifically addresses using credit before bankruptcy and it states that credit card purchases for “luxury goods or services” totaling more than $650.00 within 90 days prior to filing a bankruptcy case are presumed non-dischargeable debts and will survive the bankruptcy discharge. HOWEVER, the Bankruptcy Code goes on to state that “luxury goods or services do not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor.”

$50 on a credit card for gas to get to work is not a luxury purchase.
$3,000 for a holiday cruise is a luxury purchase.

If you charge over $650 on your credit card for food, gas, and other necessary items, there is no issue. However, if you do not charge more than $650 on one credit card within 90 days before the bankruptcy filing, there is not presumption of non-dischargeability, and you won’t have to worry about explaining your charges.

CAVEAT: If you have consulted with an attorney and have decided to file bankruptcy, you should stop using your credit cards. Using credit when you have no intention on repaying the debt is fraud and the charges may be excluded from your bankruptcy discharge. It could even lead to a criminal charge! For more information and a free consultation call the experienced attorneys at Fears | Nachawati by calling 1.866.705.7584 or by sending an email to fears@fnlawfirm.com.

What happens if a creditor gets a judgment against me?

After a creditor obtains a judgment for a suit on a debt they can use the judgment to start to collect. The judgment creditor can attempt to collect any non-exempt property. This usually means money in your bank account. The judgment creditor will still need to file the appropriate attachment writs to start to garnish the bank account. The time frame on this will depend on how quickly the creditor files the paperwork. The creditor will be able to collect any funds in the account. In other words if there is $10 in the account they can take the $10. Otherwise they will continue to hit the account until the judgment and post judgment interest is satisfied.

One short term solution to avoid your bank account from being garnished is to change bank accounts to a new bank. You would then need to change all direct deposits to the new account. The problem there is a judgment in Texas is good for 10 years and can be renewed after that. So the creditor will be able to request post-judgment discovery and can locate the new bank account.

The long term fix would be to work out a repayment schedule with the creditor or to file for bankruptcy relief to discharge the obligation. If a creditor has obtained a judgment against you contact the experienced attorneys at Fears | Nachawati. For more information and a free consultation call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Two Reasons to File Bankruptcy in December

In bankruptcy, as in life, timing is everything. Each bankruptcy case must be evaluated independently by an experienced bankruptcy attorney to determine the optimal time to file the case. That said, many people facing financial trouble can benefit by filing in December rather than January.

Bonus checks
Many employers give annual employee bonuses at Christmas or at the end of the year. This money becomes a part of a Means Test calculation if you file your case in January and may cause your average income to exceed the median income amount. A higher average income will presumptively disqualify you from Chapter 7 and means that there is more money available to pay creditors in a Chapter 13 case. While there are legal arguments available to your attorney to overcome these presumptions, it is generally better to file after you receive your bonus check, but before the income is used as part of your Means Test calculation.

Tax refund
If you owe federal taxes and expect an income tax refund, you can avoid a federal tax offset if your case is filed by December 31. The Bankruptcy Code allows a creditor to reduce what is owed to the debtor by the amount the debtor owes to the creditor. In other words, if the IRS owes you a tax refund, and you owe the IRS a tax debt for a previous year, the IRS can keep your income tax refund and apply it to your tax debt, despite the bankruptcy automatic stay.

However, the Bankruptcy Code sets some rules, the most important being “mutuality of the debts.” Most courts find that mutuality requires that (1) the debts are held by the same parties; (2) in the same capacity; and (3) the off-setting debts are both either pre-petition or post-petition. See In re Meyer Med. Physicians Group, Ltd., 385 F.3d 1039, 1041 (7th Cir.2004). If all three conditions are not met, there is no mutuality and, therefore, the debts may not offset.

Your tax debt is a pre-petition obligation owed by you to the IRS. By filing in December rather than January, the income tax refund is a post-petition debt owed by the IRS to you (because a refund for tax year 2013 isn’t owed by the IRS until after December 31, 2013.) The Bankruptcy Code does not allow the IRS to take and apply your post-petition income tax refund to offset a pre-petition income tax debt because there is no mutuality of the debts! Simply exempt and keep your tax refund and discharge your old tax debt during your bankruptcy case (if you qualify, which is another topic for another day).

For more information and a free consultation call the experienced bankruptcy attorneys at Fears | Nachawati Law Firm at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

What happens if I have a personal injury claim that happens before I file bankruptcy?

Often, people who have debt problems are very unlucky. Sometimes, they can be very, very unlucky. Sometimes, prior to filing a bankruptcy case, a debtor will sustain some sort of injury that is not their fault. Often times, these debtors have the right to sue to recover damages on those claims. So what happens to those claims when a debtor files a bankruptcy?

Whenever you file a bankruptcy, any asset you have becomes a part of your bankruptcy estate. An “asset” can be anything of value, from your house to your socks. A personal injury claim, where you could potentially recover money, is certainly an asset of your bankruptcy estate.

So how would this work? Let’s pretend that John is in a car accident. He was rear-ended in a car collision. John survived the accident, but was injured. John goes to the hospital and receives treatment. At the time of the accident, John was in the process of filing for bankruptcy. Without settling the claim, John goes ahead and decides to file a Chapter 7 bankruptcy.

John would be required to list his potential claim against the other driver as part of his bankruptcy estate; if he does not list it as part of his estate it would cause several issues. First off, it would be perjury. Second of all, it would prevent him from making the claim in the future. If he did decide to sue the driver at a later time, the driver could dig up John’s bankruptcy records and see that he never listed the claim. A court would probably prevent John from making his claim because of that.

So let’s assume John does the smart thing and lists the personal injury claim. So what happens next? The first thing John would have to do is assign a value to the claim. He can do this by consulting with a personal injury attorney. Whether John would be able to keep the proceeds of any personal injury claim would depend greatly on the value of the claim. In some states there are personal injury protection statutes that make proceeds from lawsuits exempt—which is not the case here in Texas. So the real question is whether you can exempt the proceeds of the lawsuit under the Federal “Wild Card” exemption. Whether you would be able to do this would depend on many factors, including the equity in your home and in your vehicles.

So what would happen if John is unable to protect the personal injury claim? The Chapter 7 Trustee would step into John’s shoes and have the right to pursue the personal injury claim against the driver for John’s damages. The Trustee would then turn around and use that money to pay off a portion of John’s creditors.

If you are considering bankruptcy, or have a personal injury claim, contact the attorneys at Fears | Nachawati who can guide you through these important issues. Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com for more information and a free consultation.

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.

What is a "priority debt" and how will it affect my Chapter 13 case?

When you file a Chapter 13 there are certain debts you are required to pay 100% while you are in the Chapter 13 plan. The two categories of debts that you typically absolutely have to pay in a Chapter 13 are: 1) “Secured debts” (debts secured by collateral on which you have fallen behind and want to keep) and 2) “priority debts”.

What are priority debts? A priority debt is a category of certain debts that Congress thought was so important to be paid that you have to pay them 100% in order to be in a Chapter 13. The two most common types of priority debts required to be paid in a Chapter 13 are taxes and domestic support obligations.

Outstanding tax obligations such as IRS and state taxes are also priority debts. These are typically taxes owed for recent tax years and taxes owed for late-filed returns. The most common examples are 1040 taxes. These debts must be paid 100% through a Chapter 13 plan.
Another common type of priority debt is domestic support obligations, such as past-due child support or alimony. If these are debts are not paid while in the Chapter 13, the Attorney General will most likely ask for dismissal of the case.

So how do these priority debts typically affect a Chapter 13 plan? Say, for example, you are filing a Chapter 13 to catch-up on your mortgage to prevent foreclosure. You are behind $5,000 on your mortgage. You are behind $5,000 on child support, and you owe $8,000 to the IRS. In this hypothetical situation what would your payment be? Since a Chapter 13 plan can last for 60 months, and you are required to pay 100% of the debts listed, the payment would be at least $18,000 divided out over the 60 months ($300/month).

If you have questions about how a Chapter 13 bankruptcy works, or you would like a free consultation contact the attorneys at Fears Nachawati today! Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

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.

Report: Many States Put Families at Mercy of Debt Collectors

No state adequately protects families from debt collectors, according to a new report from the National Consumer Law Center (NCLC). The report, entitled No Fresh Start: How States Let Debt Collectors Push Families into Poverty, examined state exemption laws which control what assets and income a judgment creditor can seize to satisfy its judgment. The authors concluded that no state offers basic creditor protections to allow debtors to continue to work productively to support themselves and their families. Without adequate protections for earnings, household goods, and a car to get to work, a family can be pushed into poverty or joblessness.

No state received an “A” grade from the NCLC for protecting working families from debt collectors. Alabama, Delaware, Kentucky and Michigan received grades of “F”. The report finds that not one state meets all five of their basic standards:

  • Preventing debt collectors from seizing so much of the debtor’s wages that the debtor is pushed below a living wage;
  • Allowing the debtor to keep a used car of at least average value;
  • Preserving the family’s home—at least a median-value home;
  • Preventing seizure and sale of the debtor’s necessary household goods; and
  • Preserving at least $1200 in a bank account so that the debtor has minimal funds to pay such essential costs as rent, utilities, and commuting expenses.

Massachusetts, which recently modernized its archaic exemption laws, and Iowa each rated highest among states with a B+ grade. States earning a solid B are Nevada, New York, North Carolina, Oklahoma, South Carolina, Texas, and Wisconsin. The worst states allow debt collectors to seize nearly everything a debtor owns, even the minimal items necessary for the debtor to continue working and providing for a family. The report found that many states cling to outdated exemptions, such as Vermont which protects a resident’s cow, two goats, and three swarms of bees, but not a car worth more than $2500. Or Delaware, which protects a seamstress’s sewing machine.

The National Consumer Law Center is an American nonprofit organization specializing in consumer issues on behalf of low-income people. 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.

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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.

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

Know Who You Owe Before You File

It seems obvious that an individual should collect all of his debts and creditor information before filing bankruptcy. However, many debtors arrive at their attorney’s office for an initial consultation with little or no information about their debts. Fortunately, obtaining debt information is not difficult, but it may take a little time and effort.

Credit Report

Your credit report is the best place to start when gathering information about your debts. Some debtors are surprised to learn that there is not one comprehensive credit report kept on an individual, but many reports collected by different agencies. Every consumer credit reporting agency is required by the Federal Fair Credit Reporting Act to provide you with one free copy of your credit report every twelve months. However, collecting a copy of your credit file from each of these agencies is time consuming and pointless for most debtors.

There are three “main” agencies in the consumer credit reporting world: Equifax, Trans Union, and Experian. In order to comply with the federal law, these three agencies have established a website for consumers to quickly obtain an entirely free, no-strings-attached credit report. There is now no need to subscribe to a credit monitoring service or pay money to obtain your credit score. These services are useful in rebuilding credit after bankruptcy, but useless until you receive your discharge.

Obtaining a copy of your credit report is a great step in making a good-faith effort to identify all of your creditors. However, it is important not to rely exclusively on the information contained in the credit reports. Not all creditors report to the credit reporting agencies. Additionally, the information contained in your reports may be inaccurate, outdated, or incomplete.

Mail

The US Postal Service is another excellent source for obtaining debt information. Creditors and collection agencies are very good at sending monthly bills when you owe them money. Collect your mail for a month and you will have a good start on listing your creditors.

Forgotten Debts

A creditor is sometimes forgotten or overlooked when preparing the debtor’s bankruptcy schedules. Even the most diligent individual can occasionally forget a past debt. When this happens, the bankruptcy law offers several remedies:

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

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

Conversely, if an omitted creditor loses the opportunity to receive money through the bankruptcy, the omission matters a great deal. Under these circumstances the failure to include the creditor means the debt cannot be discharged and the debtor is stuck with paying the debt. Intentionally omitting a creditor can also be grounds for a complete denial of bankruptcy discharge, so it is important to include all of your creditors in the bankruptcy process.

There are many myths circulating regarding bankruptcy. One of the most popular myths is that a bankruptcy debtor can pick and choose which debts are included in the bankruptcy discharge. This myth is simply the result of a misunderstanding of the discharge process. When you file bankruptcy you are required to honestly disclose all personal financial information to the best of your ability. That means listing all of your income, expenses, assets, and debts in your bankruptcy schedules. Intentionally failing to list a debt is a very serious matter and the bankruptcy court could deny your discharge if you are less than honest.

In many cases a bankruptcy debtor has a good reason for wanting to continue paying on a debt. The most common reason is to retain property used as security for a loan (e.g. a car or house loan). In bankruptcy, secured property must be paid for or returned. Fortunately, the bankruptcy code allows the debtor to continue paying the secured creditor and keep the property. If you are interested in keeping secured property, discuss your situation with your bankruptcy attorney.

In other cases a debtor may want to continue to pay an unsecured creditor. This is normally the case when the discharge of a debt in bankruptcy will cause financial harm to a co-debtor. For instance, you may owe money to a family member that you want to repay. The bankruptcy discharges the legal obligation to pay the debt, and enjoins the creditor from seeking collection. However, while the bankruptcy prevents your family member from asking for payment, it does not prevent you from making voluntarily payments after the bankruptcy.

The same voluntary payment principle applies to medical bills, credit cards, and any other financial obligation. Voluntary payments do not alter the bankruptcy court’s discharge injunction. A discharged creditor is forever prohibited from taking any action to collect on the discharged debt, including asking for payment, sending a bill or statement, or filing a lawsuit against you.

The Bankruptcy Code provides, “Nothing contained in. . . this section prevents a debtor from voluntarily repaying any debt.” 11 U.S.C. § 524(f). Any debt that is discharged during bankruptcy can be voluntarily repaid. Creditors are still under the court’s prohibition against taking action to collect, but are free to receive payments made voluntarily by the debtor. The term “voluntarily” means free from creditor influence or inducement. A creditor may not send a bill or take any collection action against you.

Voluntary payments do not invalidate the discharge order and do not create a new legal obligation. “Debtors who file under [Chapter 7] can dispose of their post-petition earnings as they choose, including voluntary repayment of debts otherwise dischargeable in bankruptcy.” In re Hellums, 772 F.2d 379, 381 (7th Cir. 1985). You can pay back whomever you wish. If you or a loved one is considering filing bankruptcy, contact the experienced attorneys at Fears | Nachawati Law Firm for a free consultation. Please call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.
 

Online Payday Loans

Online payday loans can seem like fast, easy money that consumers can take advantage of without leaving their homes. Many times consumers get lured in and find themselves spiraling downward into debt. There are some issues that all consumers should be wary of when borrowing money online.

When you go online and put in your information, the website you are using may not actually be the lender you are borrowing from. Oftentimes websites take the information that you put in and sell it to payday loan lenders. This means that your sensitive information, social security number, bank account number, and phone number, may be sold to a large number of lenders.  Those lenders in turn will call you to try and convince you to sign up for their loan.  Not only are you risking having sensitive information leaking out, but this may also led to a consumer taking out more loans then they can afford to pay back.

Payday loans make money by charging a lot of interest—which can be 115% or higher. The notes are small but the cost from interest and penalties can add up very quickly. Also, pay day loans will offer a consumer the opportunity to refinance and pay it back later, which allows them to charge more fees and interest. The collection companies will also send bogus emails that threaten consumers with criminal charges and lawsuits.

A payday loan is a dischargeable unsecured debt in bankruptcy, however some unscrupulous lenders will use tactics to try and collect the debt.  First of all, sending notice to an online payday loan is difficult; they often never provide you with a contract or a physical address. Since all bankruptcy pleadings work on mailed notice, if you can’t mail them notice they may not stop calling. Furthermore without an address your attorney can’t serve them with notice for violating the automatic stay.

If you are having issues with payday loans or unscrupulous collectors, contact the experienced attorney’s at Fears | Nachawati for a free consolation. You can reach us at 1.866.705.7584 or you can send an email to fears@fnlawfirm.com.

Northern District of Texas Judge Rules against Unfair Collection Practices of Ally Financial

U.S. Bankruptcy Judge Stacey G.C. Jernigan issued a recent opinion finding that automobile lender Ally Financial Inc. violated federal bankruptcy law collecting on discharged debts. Ally was sending letters to their debtors trying to get them to pay off debt that they no longer owe. Ally routinely sent letters to confuse debtors into making payments and in so doing collected extra monies from the Debtors.

After finding that these letters were improper the court ruled that Ally was prohibited from sending out this letters to anyone in the Northern District of Texas’ jurisdiction and that Ally was required to pay back $11,000 from their proceeds. Aside from paying damages, Ally was ordered by the judge to pay legal fees to the winning lawyer, John J. Grieger Jr. of Legal Aid of NorthWest Texas in Dallas.

The Judge’s ruling is good news for Debtors in the North Texas area, especially those who have come under prey by unscrupulous lenders. For more information about bankruptcy, or for a free consultation, contact the experienced attorney’s at Fears and Nachawati 1.866.705.7584. 

 

Easter Egg Hunt for Exceptions to Bankruptcy Discharge

 As if deciphering the Bankruptcy Code wasn’t hard enough, sometimes Congress hides little traps for bankruptcy attorneys in other laws. These laws deny discharge to debtors for certain debts to the federal government for educational or other benefits.

 

HEAL Loans

The Federal Health Education Assistance Loan (HEAL) Program was a student loan program for eligible graduate students in schools of medicine, osteopathy, dentistry, veterinary medicine, optometry, podiatry, public health, pharmacy or chiropractic and in programs in health administration and clinical psychology. New HEAL loans to student borrowers were discontinued in 1998, and HEAL refinancing terminated in 2004. Under 42 U.S.C. sec. 292f(g), a HEAL loan is only dischargeable if denying the discharge would be “unconscionable.”

 

Armed Services Debts

37 USC sec. 303a(e)(4) provides that special pay, incentive pay, or educational benefits paid to a service member may not be discharged in bankruptcy within five years after termination of service. A list of various military incentive and bonus programs is contained in Subchapter I, Chapter 5 of Title 37, and the repayment provisions must reference §303a for the discharge limitation to apply.

Section 303(a) includes benefits received while attending a military service academy. After the initial five years prohibition period, section 523(a)(8) prohibits discharge of a service academy debt under the same rules as civilian educational loans. Section 303(a) also excludes from discharge penalties for failure to participate in Select Reserve programs that had associated educational assistance. See 10 USC §16135.

 

Troops to Teachers

Financial assistance granted to a service member for participation in the troops-to-teachers program is not dischargeable under any circumstance. See 20 USC 6674(f)(3).

 

Government Fines

While Section 523 of the Bankruptcy Code makes a criminal fine nondischargeable, 18 USC 3613 makes any civil judgment obtained by the United States to enforce the fine non-dischargeable.

 

Indian Heath Scholarships

An American Indian scholarship grant to pursue a health profession career has bankruptcy discharge restrictions if the student leaves school or fails to fulfill the subsequent service obligations. The debt is not dischargeable for five years from the date repayment is first due. See 25 USC §1616a.

 

Veterans Benefits

Benefits that are owed under the Veteran’s Benefits Educational Assistance are not dischargeable for five years. See 38 USC §7634.

Awareness of all the details and exceptions that accompany bankruptcy can overwhelming and daunting when trying to file without the guidance of an attorney. If you are considering bankruptcy, the experienced and reputable bankruptcy attorneys at the Fears | Nachawati Law Firm can offer you the expertise needed to successfully file for bankruptcy and ensure that you are aware of all of the complex details of your case. To get started on the path of financial recovery, contact our office for a free consultation by calling 1.866.705.7584.

 

 

Discharging an SBA Loan in Bankruptcy

 Defaulting on a Small Business Administration (SBA) Loan has serious consequences. An SBA loan is a private loan for small business owners, made by a bank that is guaranteed by the federal government. Usually SBA loans require the business owner to personally guarantee payment and may also include a lien on real property. When an SBA loan is defaulted, the lender will attempt to collect from the borrower. Any amount the lender is unable to collect is paid by the SBA as an insurance claim.

The collection process may include seizing income tax refunds, off-setting against government entitlements (such as Social Security), a legal judgment, wage garnishment, or other asset seizure. Fortunately, the SBA has an offer in compromise program to negotiate debt forgiveness. Unfortunately, participation in this program may result in a taxable event when the debt is compromised. For instance, you may offer to pay $10,000 on a $30,000 debt, but the $20,000 that the SBA forgives is taxed as income.

SBA loans are eligible for discharge during bankruptcy. Unlike federally guaranteed student loans, there is no “undue hardship” test to pass before discharging the debt. There is no tax consequence if the SBA loan is discharged, and neither the original lender nor the SBA can collect from the debtor personally (including benefit off-sets, lawsuits, wage garnishments, or other asset seizures). Note that if the SBA loan is guaranteed by real property, the property lien will survive a personal bankruptcy discharge. Property pledged as collateral to the SBA must be paid or surrendered.

If you have defaulted on an SBA loan, speak with an experienced bankruptcy attorney at Fears | NachawatiLaw Firm to discuss your options. A skilled insolvency attorney can help you weigh the pros and cons of your options and carve a path to financial health. For a free consultation, contact us here or call our office at 1.866.705.7584.

 

A Dangerous Combination: Rising Health Care Costs & High Unemployment

Unemployment in Texas remains above 7 percent, according to the Bureau of Labor Statistics. While Texas’s unemployment picture is better than most states, the reality is Texas unemployment remains almost twice as high as unemployment prior to the 2008 financial crisis.

 

To make matters more distressing, certain population subsets, such as African-American men, younger workers, and non-college educated workers, are significantly underrepresented in the overall Texas unemployment figure. For instance, 13.4 percent of African-American men and 16.2 percent of younger-than-25 workers are unemployed in the Lone Star State, down only slightly from national peaks in 2011.  

 

Meanwhile, health care costs continue to rise, notwithstanding recent changes in federal health care. In 2012, average annual health care costs for the American family of four exceeded $20,000, up from 7 percent over last year. To make matters particularly shocking, this cost estimate is up from less than $10,000 ten years ago.

 

What’s the result of high unemployment and rising health care costs? For many families, the first step is to secure debt-based liquidity like a home equity loan. When available home equity debt runs out, families next turn to more easily accessible, higher interest debt like credit cards. Finally, as interest payments begin to consume a larger and larger portion of monthly earnings, families begin to make tough choices about spending.

 

Are there better ways to deal with declining prosperity and rising debt? For most families, the answer is yes. Are you ready to learn what’s possible for you? Find out about your legal rights and available credit options through the attorneys and dedicated professionals at the law firm of Fears Nachawati. With years of experience crafting credit solutions for consumers like you, we know how to protect your interests. Call us today.

Remember Your Pre-Bankruptcy Options

If you’re a homeowner struggling to make your debt payments, you should remember several important rules before you engage in a strategic default, submit to foreclosure, or declare bankruptcy.

 

Rule No. 1: Your home loan may be as much a millstone around your bank’s neck as it is around yours. In recent years, thousands of homeowners have surrendered their homes to the bank or defaulted on their residential mortgage. As a result, the balance sheets of many banks remain clogged with an excessive amount of residential real estate and bad debt. Consequently, many banks are willing to negotiate with their debtors in order to keep the loan and the asset in the debtor’s hands – and off theirs.

 

Rule No. 2: A home loan is a contract with a financial institution. And as with any deal, the parties can voluntarily change the terms even after they sign the contract. Whether you and your bank agree to a forbearance, a loan modification, a sale, a short sale, or a deed in lieu of foreclosure, these kinds of ameliorative efforts can give you the breathing space you need to avoid a more drastic and permanent decision.

 

Rule No. 3: An attorney can often help you sort through these and many other challenging financial and legal decisions. Renegotiating your lending agreement carries with it the possibility of altering your legal rights. And many distressed debtors ultimately need a bankruptcy or foreclosure option, despite successfully changing the terms of their loan. As you consider how you should proceed, an attorney can help you understand your choices and help you make the right one.

 

The attorneys at the Dallas law firm of Fears Nachawati have years of experiencing advising distressed debtors. Whether you need a loan modification, a strategic default, or outright bankruptcy, we can guide you through those important decisions. Talk to our professionals today to learn about your next steps.

Your Options for Relief from Debt

You may have heard the expression, “There’s no one way to skin a cat.” For most Americans struggling to make ends meet, that expression is true for debt relief, too.

 

For most debtors, the truth is that you’ve got options. To ease the stress on your family’s balance sheet, credit counseling might be all that you need. Alternatively, depending on the amount of debt you owe and the willingness of your lender, you may be able to negotiate a debt settlement. In a debt settlement, you may wind up making a large one-time payment and, in exchange, receive debt forgiveness for the remainder of your indebtedness. Finally, you can take the nuclear option: declaring bankruptcy.

 

Personal bankruptcy has drawbacks. It can severely damage your credit score for a prolonged period of time and reduce your access to future credit. On the other hand, it’s not all bad news. Bankruptcy can also relieve you of potentially all of your unsecured debt. Moreover, while you’re in bankruptcy, the automatic stay will protect you from annoying phone calls, letters, and emails from your creditors.

 

Which course of action is right for you and your family? The attorneys at the Dallas law firm of Fears Nachawati are prepared to help you sort through these tough decisions. Thanks to our experience, we’re able to help debtors determine the right course of action for their families. Contact our professionals today to get started on your road to financial freedom. We’re ready to help.

We Wish You a Debt-Free Christmas

Before starting your holiday shopping, take a moment and view some sage advice from a “consumer expert:”

http://www.nbc.com/saturday-night-live/video/dont-buy-stuff/27169/

Sure, it’s a funny video, but only because we are laughing at ourselves! Of course you shouldn’t buy stuff you can’t afford. Bad things can happen when you abuse credit, especially if you have over-extended your finances.

This holiday season layaway is making a comeback as a financing option. Layaway was very popular with holiday shoppers years ago, but its popularity diminished as credit became easier to obtain during the 1990’s. The basic idea is that you set aside an item at the store, hold it with a deposit, and make payments over time. Once you have fully paid for the item, you can take it home.

Recently New York Sen. Chuck Schumer issued a public warning that the fees that retailers are charging for layaway purchases can add up to a higher interest rate than any credit card would be allowed to charge.

"These layaway programs are nothing more than hideaways for sky-high interest rates that consumers would never tolerate with a credit card," Schumer told the AP. "The holiday season is supposed to be about giving and not taking, but these layaway programs are taking advantage of people and charging them outrageous interest rates, under the guise of making it easier and more affordable to shop."

A good example of how the typical layaway program works is at Kmart. The retailer offers an 8 week layaway plan that charges an initial $5.00 “Service Fee” for all new layaway contracts. The customer is required to put down a minimum of $15.00 to hold the item, and must make four “easy” payments over the next eight weeks. There is a $10.00 “Cancellation Fee” if you change your mind. If you can’t pay for the item or change your mind, kmart keeps $15.00 and you get nothing.

Bankruptcy debtors are especially susceptible to high interest credit schemes since credit cards are generally not available. However you decide to pay for your holiday purchases, make sure you make a wise choice. If you decide to use layaway or some other form of credit, be sure that you understand the details of the deal. That way you can make an informed decision.

“We wish you a debt-free Christmas and a fresh start New Year!”


 

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Banks Are Not Playing Fair During Home Loan Modification

National banks that took federal bail-out money also agreed to participate in government home modification programs. These banks have created in-house loan negotiators to assist in home-loan modifications, which may reduce loan principle or interest to adjust the loan to an affordable rate. Many American homeowners have applied for these programs, but few have been approved. In many cases the empty promise of home loan modification leaves the homeowner in a worse position than when he started.


It has become clear that these banks are simply not playing fair. Several lawsuits have been filed against national banks alleging fraud. A federal lawsuit was recently filed by the State of Nevada Attorney General against Bank of America, the nation's largest home loan servicer, alleging deceptive practices. Additionally, a class-action lawsuit against Bank of America is pending in Massachusetts federal court. These suits claim that Bank of America deceived consumers into depleting their savings by making mortgage payments based on false hopes they'd be eligible to modify their home mortgages. The lawsuits allege that BOA accepted $25 billion from the U.S. government in 2008 as part of the Troubled Asset Relief Program (TARP), but has failed to participate in programs such as the Home Affordable Modification Program (HAMP) aimed to minimize foreclosures.

 

If you are in need of a home modification, review your options with an experienced bankruptcy attorney. Many bankruptcy debtors are able to strip away a second or third mortgage, or pay past-due payment over three to five years. Bankruptcy debtors can also apply for government programs such as HAMP during the bankruptcy case, while under the protection and supervision of a federal bankruptcy court judge.
 

Homeowners Have Options for Underwater Mortgages

If you are a homeowner who owes more money on your mortgage than your home is worth, there are a several options for saving your home. One of the latest is an $11 billion program through theFederal Housing Administration called "Short Refi." Under this program a non-FHA borrower may be able to obtain a new FHA-insured mortgage. 

To qualify for the Short Refi program, the homeowner must be current on the monthly mortgage payments. The new primary FHA-backed loan cannot exceed 97.75 percent of the value of the property; and the second mortgage cannot exceed 15 percent of the property value. Additionally, the lender must agree to write off at least 10 percent of the loan’s principal balance.

Fannie Mae and Freddie Mac loans do not qualify for the Short Refi program. The New York Times reports that 23 lenders have signed on to the Short Refi program and are offering refinancings. Notable non-participants are Bank of America, Citibank, and JP Morgan Chase.

There are several programs available to save an underwater mortgage, so the homeowner is not stuck with a “one-size-fits-all” refinancing dilemma. One federal refinance program that has seen some recent success is the Home Affordable Refinance Program (HAMP). Refinancing a mortgage under HAMP during bankruptcy is specifically authorized and can save the homeowner significant money when combined with a bankruptcy discharge. Additionally, debtors in Chapter 13 bankruptcy may be able to strip off a second or third mortgage if the loan is entirely unsecured. For instance, if the value of the home is $200,000, and the first mortgage is $200,000 or more, then any additional mortgage or lien on the property would be entirely unsecured and could be stripped off during Chapter 13 bankruptcy.

If your home is underwater and you are struggling with debt, speak with an experience bankruptcy attorney and discuss your options. In many cases you can discharge your unsecured debt through bankruptcy and refinance or modify your underwater home loan to new, affordable terms. Get the facts about rescuing your underwater mortgage today.

Can An Illegal Immigrant File Bankruptcy?

There is no requirement of citizenship in the Bankruptcy Code. Section 109(a) of the Bankruptcy Code states that "...only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor" in bankruptcy. Your legal status does not determine eligibility to file bankruptcy; however there may be complications if you are not a U.S. citizen.

First, you must be able to prove a physical residence or ownership of property within the bankruptcy court's jurisdiction. A permanent physical address is required for the bankruptcy forms. Residency is also important to qualify for state exemptions used to protect your property. Generally, a debtor must show residency within a state for at least 90 days preceding the bankruptcy filing in order to qualify for that state's exemption laws.

Second, you must prove your identity. Most bankruptcy debtors use a social security number (SSN), but an individual tax identification number (ITIN) may also be used. An ITIN is issued by the IRS to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for SSNs. Whether a SSN or ITIN is used, physical verification of the number must be shown to the bankruptcy trustee.

While there is no requirement in the Bankruptcy Code that you must have either a social security number or ITIN, the bankruptcy petition requires you to sign a Statement of Social Security Number. The options on this Statement are (1) you have a social security number; (2) you have an ITIN; or (3) you don't have either. If you select option three, you may be able to use a valid passport or some other official government issued identification as proof of identity. There are bound to be consequences for the debtor that does not have a SSN or ITIN including the red flags it sends to the Department of Justice, the IRS, and INS.

Crimes of "moral turpitude" that are be disclosed within a bankruptcy filing may affect your immigration status or application for citizenship. These acts include the fraudulent use of credit cards, bad check offenses, tax evasion, fraudulent transfer of an asset, or falsifying government documents (including your bankruptcy petition.

If you have immigration issues and need to file bankruptcy, discuss your situation with an experienced attorney. The United States bankruptcy laws are very liberal and can help you get out of debt. Your attorney can work with you to resolve your debts while avoiding deportation.
 

"Let the Borrower Beware" When Dealing With Credit Unions

Most credit unions and some banks use “Loanliner” documents. These agreements are standard loan documents developed by CUNA Mutual Group and sold to financial institutions. Over 70% of all credit unions use Loanliner documents for their lending transactions. Included in standard Loanliner lending agreements is a provision in which the borrower agrees that all other loans with the lender are cross-collateralized.

Cross-what?

Cross-collateralization is basically the use of collateral from one loan to secure other loans. The cross-collateralization clause from a recent Loanliner agreement reads: “the security interest also secures any other loans, including any credit card loan, you have now or receive in the future from us and any other amounts you owe us for any reason now or in the future.” Credit unions are fond of using this clause in vehicle loan agreements to secure all other credit union debts with the vehicle. This often causes surprises (and anger) when an unsuspecting credit union member tries to trade-in his car and discovers that the debt on the vehicle includes a personal loan, a line of credit, and credit card balances.

There are a few options if you are faced with a cross-collateralized auto loan. First, you can file a Chapter 13 and cram-down the loan to match your vehicle's value. Any remaining debt is discharged at the end of the Chapter 13 case. During a Chapter 13 case, you can pay a cram-down over three to five years.

During a Chapter 7 case, your attorney can simply ask the credit union to draft a reaffirmation agreement for the vehicle without regard to other debts. You are basically asking the credit union to voluntarily strip off the cross-collateralized loans. If the credit union refuses your request, you have two options: (1) surrender the vehicle and discharge all debts to the credit union; or (2) redeem the vehicle. Redemption is a process exclusive to a Chapter 7 bankruptcy case where the debtor keeps a vehicle by paying the value of the vehicle, not the total debt that is owed. While similar to a Chapter 13 cram-down, redemption differs in that the payment to the secured creditor must be a lump sum. Payments are not permitted.

If you have an auto loan through your local credit union, review the loan paperwork with your attorney for a cross-collateralization clause. Your bankruptcy attorney can discuss your options with you and help arrive at the best financial decision for your family.
 

Debt Collection After Bankruptcy

Your bankruptcy discharge prohibits certain creditors from collecting from you personally after your bankruptcy case. So what happens when a creditor contacts you after your discharge? The answer depends on the situation and first involves answering three questions: (1) “Was the debt discharged in bankruptcy?” (2) “Is the collection directed at the discharged debtor?” and (3) Was the creditor notified of the discharge?”

Discharged debts are no longer legally enforceable against the debtor. The discharge injunction is a court order from a federal bankruptcy judge prohibiting creditors from filing lawsuits, sending collection notices, or making collection phone calls. Substantial sanctions may be imposed on a creditor that violates this order. However, some debts are not discharged. It is important to discuss your discharge with your bankruptcy attorney and understand which debts are included in the discharge and which are not. For instance, taxes, student loans, and family support obligations  may not be subject to the discharge. In other cases a debt may be excepted from discharge by the court.

Your discharge only protects you from collection efforts. It does not protect a co-debtor who did not also file bankruptcy, and, as a general rule, it does not protect property that is subject to a lien. Therefore, it is important to understand how your property is affected by the bankruptcy discharge and whether a creditor can seize, repossess, or foreclose on the property after your bankruptcy.

As a practical matter, if a collector does not know about your bankruptcy discharge, the bankruptcy court is not likely to impose sanctions against it. Often a collection attempt can be resolved by informing the collector of the discharge and either providing a copy of the discharge or referring the collector to your attorney. Buying and selling debt is big business, and debts often get passed from collector to collector – even uncollectible debts like those discharged in bankruptcy!

Your bankruptcy discharge injunction applies to the original creditor, collection agencies, attorneys, and any other subsequent collector. Don’t let creditor harassment disturb your peace of mind. If the answer to the above three questions is “Yes, Yes, Yes,” the collector has violated the bankruptcy court’s discharge order. Contact your attorney and discuss the best course of action to stop the harassment.
 

Fears & Nachawati Bankruptcy Law Office

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How to Walk Away From a Mortgage

Realizing that you can no longer pay for your home means that you have difficult decisions to make.  While modification and even lien stripping in bankruptcy may be options for some, if you truly cannot afford to keep your home, you must decide on the best way to walk away.

Do Nothing

If you do not pay your mortgage payment, the lien holder will foreclose on your property.  Although not paying your mortgage payment and the resulting foreclosure will significantly harm your credit rating, the home finance industry is presently in such turmoil that it may be months to more than a year before the lien holder forecloses on your property.  During this time you live rent free and can save for the future.  Note that if you do not maintain insurance and do not pay real estate taxes, the foreclosure timeline will likely accelerate.  Also note that under the Mortgage Forgiveness Debt Relief Act, which extends through 2012, income normally attributable by the IRS in connection with a foreclosure is not taxable, although you may be liable for a deficiency balance when the home is sold for less than you owe.  A foreclosure is listed as a public record on your credit report and the late payments are also reported.

Deed in Lieu of Foreclosure

Some financial “experts” have advised distressed homeowners to “just walk away.”  Walking away from a home is easier said than done, since you still own the home and are legally responsible for the property in a variety of ways.  One way to legally “walk away” is to transfer title of the property via a Deed in Lieu of Foreclosure.  Now the lien holder owns the property, which may sound pretty good until the property is sold for less than you owe, triggering a deficiency balance.  You may also end up owing taxes on the difference. 

Short Sale

A Short Sale is a sale for less than what is owed by the seller.  A lender will sometimes agree to allow the property to be sold for less than you owe if it is clear that you are unable to continue paying for the property and the home is upside-down.  In many cases the Short Sale deficiency is forgiven by the lien holder, but that will depend on the lender and on state law.  A Short Sale is identified as a settlement on your credit report and will hurt your score, although not as much as foreclosure or bankruptcy.

Bankruptcy

A bankruptcy is a legal discharge of your debt.  It is the cleanest and most powerful option to “walk away” from the home with no contract or tax obligation.  A bankruptcy uses the power of federal law to stop further negative credit reporting and collection attempts.  In the end your credit report identifies the loan as “Discharged in Bankruptcy” with a “Zero Balance.”  The bankruptcy record will stay on your credit report for up to ten years, but by surrendering the property you will avoid a foreclosure on your record.

If you need to walk away from your home and are weighing your options, consult with an experienced bankruptcy attorney and learn how the federal bankruptcy laws can help.  Bankruptcy can provide you time to move without foreclosure and without owing money in connection with the home.

Fears & Nachawati Bankruptcy Law Offices

4925 Greenville Ave Suite 715, Dallas, TX 75206 (214) 890-0711
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Six Reasons to Choose Bankruptcy Over a Debt Settlement Program

For a person in financial trouble, examining options can mean the difference between a fresh start and a false start. Before you decide to use a debt settlement program to resolve your debt problem, arm yourself with information and make a wise decision. Below are six reasons that the federal bankruptcy laws may be a better choice than a debt settlement program:

First, the debt settlement process can take many months or even years, and your credit is harmed each month until the debt is settled. On the other hand, negative reporting of debts discharged in bankruptcy ends on the date you filed your bankruptcy case. Discharged debts are reported as “discharged in bankruptcy” with a “zero balance.”

 

Second, debt settlement programs typically settle your debt for 20% to 80. Creditors in most bankruptcy cases are paid nothing.

 

Third, any settled debt will have tax consequences and you may have to pay the IRS. A discharged debt has a special tax exemption and there is no tax liability.

 

Fourth, during the debt settlement process you may be sued, even while you or your representative attempts to settle your debt.  During bankruptcy all lawsuits are prohibited without the express permission of the bankruptcy court.

 

Fifth, many debt settlement companies are disreputable and lack a solid financial basis. You may lose your money and get nothing in return. The bankruptcy process is authorized by the United States Constitution and its laws are written by Congress. Only licensed attorneys admitted to practice in the federal courts are able to represent bankruptcy debtors.

 

Finally, the debt settlement process can take more than a year. The general rule is: the longer you don’t pay, the sweeter the settlement. Creditors are reluctant to accept less than full payment unless they believe that you may file bankruptcy. The typical chapter 7 bankruptcy case takes less than six months.

 

If you are considering a debt settlement program, you owe it to yourself to investigate your options and speak with an experienced bankruptcy attorney. The federal bankruptcy law is a powerful tool to eliminate your debt problem and put you on the road to financial recovery.

 

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Bankruptcy Versus Bad Debt Judgments

Bankruptcy attorneys know that owing a debt that you cannot repay causes the debtor many headaches.  First, there are the collection calls and letters.  These collection actions are meant to harass you into paying something on the debt.  Since the creditor only has a certain number of years to collect before the statute of limitations runs, after a few years the creditor will file a lawsuit against you.  After the creditor obtains a judgment, the statute of limitations clock is reset and the creditor has more time to collect by garnishing wages, or seizing bank accounts or property.  In some cases, the creditor may have twenty years or more to collect on a debt!  During this time fees and interest can increase the balance of the debt many times over.

 

An unpaid debt has serious consequences to your credit report.  Any debt that is more than 90 days delinquent indicates that the individual is experiencing serious financial problems.  A debt stays on your credit report for seven years after the date of the last payment.  Even after the debt drops off your credit report, if the creditor sues you the judgment will be reported for an additional seven years.

 

One of the chief benefits of a bankruptcy discharge is it provides a final resolution of your unpaid financial obligations.  The bankruptcy discharge is a permanent injunction ordered by the bankruptcy court against your creditors forbidding any collection action against you, forever.  The discharge order is extremely powerful and the penalties for a creditor who violates this federal court order can be severe.

 

A report of your bankruptcy case will stay on your consumer credit report for ten years after the date you file bankruptcy (not from the date of your bankruptcy discharge as many believe).  While on the surface a bankruptcy stays on your credit report longer than a bad debt (ten versus seven years), the truth is that a bad debt can linger and significantly harm your credit score for much longer than ten years.  After a bankruptcy your debts are reported as “discharged in bankruptcy” with a balance of “zero.”

 

If you are struggling with debts you cannot afford to pay, consider filing bankruptcy sooner rather than later.  The sooner you discharge your debts, the sooner you can begin your financial recovery.  Delay in filing usually results in further harassment, lawsuits, and difficulties.  Contact an experienced attorney today and discuss your legal options for discharging your debts.

Fears & Nachawati Law Offices

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Know Who You Owe

Bankruptcy attorneys see people from all cross-sections of our population.  Most people have a good understanding of their financial obligations and know who they owe.  Others bring in grocery store bags and boxes full of bills they have collected for months and, in some cases, years.

 

It is very important to identify all of your creditors when you file a bankruptcy.  The Bankruptcy Code requires that you list all of your creditors, even those you want to pay in the future.  You must also make a good-faith effort to list the amount owed to the creditor.

 

There are two excellent sources for discovering who you owe.  The first is the US Postal Service.  Creditors and collection agencies are very good at sending monthly bills when you owe them money.  Collect your mail for a month and you will have a good start on listing your creditors.

 

The second excellent source for creditor information is your credit report.  There are three main consumer credit reporting agencies:

 

Equifax

http://www.equifax.com/

800-685-1111

P.O. Box 740241

Atlanta, GA 30374-0241

 

Experian

http://www.experian.com/

888-397-3742

P.O. Box 2104

Allen, TX 75013

 

Trans Union

http://www.tuc.com/

800-916-8800

P.O. Box 2000

Chester, PA 19022 

 

Each of the above consumer credit reporting agencies are required by federal law to provide one free credit report to you every 12 months.  You can obtain an absolutely free credit report from Equifax, Trans Union, and/or Experian by visiting the following website: https://www.annualcreditreport.com/cra/index.jsp

 

Obtaining a copy of your credit report is a very good step in making a good-faith effort to identify all of your creditors.  However, it is important not to rely exclusively on the information contained in the credit reports.  Not all creditors report to the credit reporting agencies.  Additionally, the information contained in your reports may be inaccurate, outdated, or incomplete. 

 

If you are considering a bankruptcy filing, get a free copy of your credit report and seek legal assistance.  You and your bankruptcy attorney can review your credit report and assess you financial situation.  While bankruptcy isn’t the answer to all financial problems, it can provide powerful relief to people who are buried in debt.

 

Fears & Nachawati Law Offices

4925 Greenville Ave Suite 715, Office 1, Dallas, TX 75206 (214) 890-0711  Google Reviews   |  fnlawfirm.com  |  Directions

 

Is Bankruptcy A Wise Decision?

The decision to file a personal bankruptcy can be emotionally difficult for many individuals.  Sometimes these emotions can make it difficult to accurately assess your financial picture.  If you are facing a financial dilemma, it is a good idea to consult with someone skilled in evaluating your finances and obtain advice.  The answer to a financial problem can vary from reducing spending, to increasing income, to selling assets, and finally to reorganizing or liquidating in bankruptcy. 

 

Filing bankruptcy should always be your last good option.  Unfortunately, good people will make bad decisions when trying to avoid this last good option.  Bankruptcy attorneys see people regularly who have made bad decisions regarding their finances in the hope of avoiding bankruptcy.  These bad decisions always make matters worse.  Some of these bad decisions include:

 

* Borrowing from retirement funds

* Borrowing money from a business, family, or friends

* Misappropriating money, kiting checks, or other illegal activities

* Borrowing from payday loan companies, taking cash advances from credit

* Selling assets that may be protected from creditors

 

It is true that desperate people do desperate things.  When things get desperate, it is time to consult with an experienced bankruptcy attorney and discover how the bankruptcy process can help you and your family.  Bankruptcy is a legal process that is authorized by the Constitution of the United States.  Its laws are drafted by Congress and a federal bankruptcy judge oversees your case along with a trustee appointed by the Department of Justice.

 

One goal of the bankruptcy process is to return the debtor to financial health by relieving the burdens of overwhelming debt.  The great majority of debtors never file bankruptcy again and rebuild their financial lives by making good decisions after the bankruptcy discharge.  For these people, bankruptcy provides a second chance.

 

If you need a second chance and a fresh financial start, speak with an experienced bankruptcy attorney and discuss your options.  Make wise decisions about your personal finances.  The bankruptcy laws help over a million families get a new financial beginning each year, and it can help you too!

Fears & Nachawati Law Offices

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FTC Cracks Down On Debt Settlement Companies

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

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

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

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

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

If you are struggling with debt, consult with an experienced bankruptcy attorney.  The bankruptcy process offers many advantages over debt settlement and may be the remedy you need.  Whatever path you choose to resolve your debt problem, get the facts and make a considered decision.

Debt Settlement vs. Bankruptcy

Examining your options is important for anyone experiencing debt problems.  If you are considering bankruptcy or debt settlement to resolve your financial difficulties, investigate the consequences of each process before making your decision.  Below is some information about debt settlement companies and bankruptcy that you may not know: Free Consultation 

Debt Settlement:  The debt settlement process will harm your credit for years.  Creditors will report your delinquent account until it is paid.  Your report may identify settled accounts as paid less than 100%, which also adversely affects your credit score. 

Bankruptcy:  Any debt included in a bankruptcy appears on your credit report as discharged with a zero balance from the date you filed your bankruptcy case.  Bankruptcy stops adverse reporting so your credit report can improve.  Free Consultation 

Debt Settlement:  The typical debt settlement account will resolve your debt with a lump sum payment of between 20% and 80% of the debt.

Bankruptcy:  In most bankruptcy cases you pay nothing to unsecured creditors. 

Debt Settlement:  Any settled debt will have tax consequences and you may have to pay the IRS. 

Bankruptcy:  There is no tax liability for a debt discharged in bankruptcy. 

Debt Settlement:  You may be sued while you or your representative is attempting to settle your debt.

Bankruptcy:  All lawsuits are prohibited during your bankruptcy case. 

Debt Settlement: Some debt settlement companies are disreputable and the process is even illegal in some states.

Bankruptcy:  The bankruptcy process is authorized by the United States Constitution and its laws are written by Congress.  Only licensed attorneys admitted to practice in the federal courts are able to represent bankruptcy debtors. 

Debt Settlement:  The debt settlement process can take more than a year.  The general rule is: the longer you don’t pay, the better the settlement.  Creditors are reluctant to accept less than full payment unless they believe that you may file bankruptcy. Free Consultation

Bankruptcy:  The typical chapter 7 bankruptcy case takes less than six months. 

If you are struggling with debt, investigate your options and speak with an experienced bankruptcy attorney.  The federal bankruptcy law is a powerful tool to eliminate your debt problem and put you on the road to financial recovery.

Discharging Bank Account Debt During Bankruptcy

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

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

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

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

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

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

4 Common Financial Mistakes during the Recession

An article provided by Bankrate.com found here lists out 4 common financial mistakes that people can make during the recession and solutions to prevent the same mistakes from happening again.  The 4 common financial mistakes are listed below and follow the article link above to find out how to avoid these costly errors. 

1.  I didn't have emergency reserves.

2.  I panicked when the market collapsed.

3.  I greedily overinvested in a 'sure' thing.

4.  I didn't read the fine print on my loan.

If you believe you have made some costly mistakes that have put you in a financial bind that you cannot escape then you may want to speak with an attorney that can provide you with options.  Call bankruptcy law firm Fears | Nachawati for a free consultation by simply dialing toll free 1.866.705.7584 or by e-mail at info@fnlawfirm.com

Bankruptcy's "Fresh Start"

The principal theory of consumer bankruptcy in America is that it provides a “fresh start” to debtors. A prime example of this policy is found in the 1918 Supreme Court case of Stellwagen v. Clum in which the Court stated:

“This purpose of the act has been again and again emphasized by the courts as being of public, as well as private, interest, in that it 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.”

The idea of giving a poor, but honest debtor a “fresh start” is not a modern concept. The Bible also contains debt forgiveness laws:

“At the end of every seven years you shall grant a release of debts. And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the Lord's release.” Deuteronomy 15:1-2.

Under modern bankruptcy law a debtor is entitled to a Chapter 7 bankruptcy discharge once every eight years. However, this is not a clean slate. A Chapter 7 bankruptcy can stay on your credit report up to 10 years, and you may encounter other obstacles after filing bankruptcy (e.g. obtaining credit). Several bankruptcy courts have described the Chapter 7 discharge as giving honest but unfortunate debtor a fresh start, not a head start.

Bankruptcy is a safety net when you are at the end of your rope. The Chapter 7 discharge provides a second chance and a new beginning free of creditor harassment. If you are burdened with debt, consult with an experienced bankruptcy attorney and discover how a fresh start under the law can help you.

 

 

Debt Relief Companies: So Many Names, So Many Scams

Debt relief ads seem to be everywhere: on television, on the radio, and in newspapers and magazines.  These companies use different terms to describe their services like counseling, consolidation, negotiation, mediation, settlement, reduction, relief, elimination, and so many others.  They all make promises – some more bold than others.  A few of these companies are legitimate.  I want to discuss the majority of these companies that are not legitimate and how to identify debt relief scams.

 

There are several simple warning signs to identify debt relief scams.  One warning sign is when the company requires a large up-front fee.  The company may even disguise that fee by calling it a “first payment.” Many consumers are surprised when that “first payment” is paid to the debt company and not paid to creditors.  That can also result in a thirty day delinquency on a credit report – just the kind of damage the consumer was trying to avoid!

 

Another warning sign is if the company makes promises that your credit score will not be affected by their program.  The truth is that there is not a legitimate debt relief program available that can guarantee that your credit report will not be adversely affected.  Any time a debt is not paid according to the terms of the original contract, the creditor is entitled to report adversely.  The creditor may fail to report, or may agree to not report at all, but there is no way to prevent a creditor from reporting truthful information to a credit bureau.

 

Finally, if the company claims that it can protect you from lawsuits or creditor harassment, run away!  The Fair Debt Collections Practices Act (FDCPA) provides that third party collectors (e.g. collection agencies) cannot contact a debtor directly once an attorney is representing the debtor.  However, the FDCPA does not apply to original creditors (e.g. a credit card company), and it does not apply to non-attorney debt relief companies.  If your creditor wants to sue you over a delinquent debt, only a bankruptcy filing can prevent it.  Additionally, the debt relief company cannot represent you in court – only a licensed attorney can do that!

 

You can protect yourself from these scams by consulting an attorney.  Only an attorney can explain your legal rights and help you choose the best course of action to resolve your debt problems.  For more information on how to protect yourself contact Fears | Nachawati toll free at 1.866.705-7584 or by e-mailing info@fnlawfirm.com

 

Debt Collector Complaints Are Increasing

A recent survey by the Consumer Federation of America found that debt collection issues are the fastest growing category of consumer complaints.  The survey polled 34 state, county and city consumer agencies in 19 states and uncovered many abusive debt collection practices.  The complete report, including proposals for consumer protection laws and tips for consumers to protect themselves, is available at the Consumer Federation of America web site, www.consumerfed.org.

 

The results of this survey are not surprising to many bankruptcy attorneys.  People in debt can face a multitude of unethical practices employed by debt collectors.  Fortunately, there are some consumer protections that are available.  One of the most important consumer protections is the federal Fair Debt Collections Practices Act (FDCPA).  This law restricts third party debt collectors from employing abusive or unethical practices when collecting a personal, family, or household debt.  The law restricts these collectors from:

 

*  Contacting a third party who does not owe the debt;

 

*  Making a false threat of civil or criminal legal action;

 

*  Making repeated telephone calls or calls at unreasonable times (before 8:00 AM or after 9:00 PM); or

 

*  Making phone calls to an inconvenient place (e.g. contacting you at work in violation of your employer's policy).

 

Under the FDCPA the collector must state that the communication is from a debt collector and that any information obtained may be used to collect the debt.  Additionally, the debt collector must provide certain information concerning the debt, including:

 

*  The amount of the debt;

 

*  The name of the creditor (and original creditor);

 

*  That the debt will be assumed valid unless you dispute the debt within thirty days; and

 

*  That if you dispute the debt, the debt collector must provide verification of the debt.

 

One of the most beneficial aspects of the FDCPA is that once you are represented by an attorney, the debt collector can no longer contact you directly.  All communication must be made to the attorney.  That means that once you employ bankruptcy counsel, you should no longer be called at home or at work by third party debt collectors.

 

A violation of the FDCPA is a serious matter and may be litigated in federal or state court.  If you are being hounded by creditors, investigate your legal rights.  An experienced bankruptcy attorney can explain your legal rights and help you choose the best course of action.  Contact bankruptcy law firm, Fears | Nachawati, for a free consultation at toll free 1.866.705.7584 or via e-mail at info@fnlawfirm.com

 

Don't Let Zombie Debts Haunt You

If a debt collector is harassing you over a debt that you thought was dead and buried, you may be dealing with a zombie debt.  The usual scenario is an unexpected phone call or letter asking for payment on a debt that is either outside the statute of limitations or is in some other way legally uncollectible (e.g. discharged in bankruptcy).  The collector may even offer a “special deal” like a 75% discount for immediate payment.  What the collector will not reveal is that the debt is legally uncollectible – meaning it is unenforceable in a court of law.

Zombie debt collection is big business.  Zombie debt collectors buy old debts for pennies on the dollar, then try to collect as much as possible.  If the zombie debt collector buys an old $1,000 credit card debt for $20, and one phone call settles the debt for $100, the zombie debt collector makes a nice profit.  Since the debt is not legally enforceable, guilt and scare tactics are all the collector has to coerce payment.

Some zombie debt collectors actually violate the law by attempting to collect.  For instance, trying to collect a debt that was discharged in bankruptcy is a serious violation of the federal court discharge injunction.  Threatening a lawsuit for a debt that is past the statute of limitations is a violation of the federal Fair Debt Collections Practices Act (FDCPA).  Zombie collectors not only rely on ignorance of the law, they thrive on it!

Some individuals want to pay these debts.  While admirable in intention, the result may be extremely harmful.  Unpaid debts that have dropped off a credit report may be reported for another seven years after the payment date.  That dead and gone debt may reappear as an entirely new (and legal) negative item on your credit report – and substantially harm your credit score.

So what should you do if you encounter a zombie debt collector?

·                    Know your rights!  Your attorney can explain the statute of limitations or other legal restriction to the collection of an old debt.

·                    Do not give any personal information to a zombie debt collector.  Nothing good can result.

·                    Do not make a payment on an old debt until you learn your rights.  What may seem like an honest act of payment on an old debt may turn into a nightmare on your credit report.

Remember, zombie debt collectors are the bottom feeders of the collection industry.  They have been known to employ the worst ethical practices to obtain payment.  Don’t be haunted by zombie debts.  Contact bankruptcy firm Fears | Nachawati for a free consultation by calling 1.866.705.7584 or by e-mailing info@fnlawfirm.com and chase them back to the grave!  

 

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How To End The Vicious Downward Cycle Of Credit Card Debt

Many people who are in over their heads with credit card debt are basically “Robbing Peter to pay Paul”. For example, many people who are out of work may be taking large cash advances to pay other debts. But in the end the credit card bill with the cash advance shows up and there is not enough money to pay it, so another credit card is used to pay that bill. It’s a merry go round that is very difficult to get off.

 

Many Dallas residents end up going through their savings account and putting themselves in heavy debt without realizing that they have a perfectly legal option such as filing for Chapter 7 bankruptcy. Some of the advantages of filing for a Chapter 7 bankruptcy:

 

  • You do not have to make payments to creditors
  • Creditors can not take action against you (liens on paycheck or bank account)
  • Harassing phone calls must stop immediately
  • All debts will be discharged

If you are a resident of Fort Worth, Dallas, Arlington, Garland, Rowlett, Mesquite and Plano, contact bankruptcy law firm, Fears | Nachawati, toll free at 1.866.705.7584 or info@fnlawfirm.com for more information how Chapter 7 can help you get a fresh start.

 

Consumer Bankruptcy Filings on the Rise

Consumers filed 675,351 bankruptcy filings in the first half of 2009, an increase of 36.5
percent from a year ago according to the American Bankruptcy Institute (ABI). Samuel J.
Gerdano, Executive Director of the ABI, expects new bankruptcy filings during 2009 to
exceed 1.4 million. That would be a substantial increase over the 1.06 million in 2008 and
801,840 during 2007.
 
“As unemployment, foreclosures rates and health care costs continue to rise, more
consumers are turning to bankruptcy as a last financial resort,” Gerdano stated in a news
release. Other bankruptcy experts agree with Gerdano’s assessment. In a story published
by the Washington Post in 2008, Harvard law professor Elizabeth Warren said, "The rise in
bankruptcies is not about something that happened last week or last month. It's about the
fundamentals. It's about declining wages, rising costs, inadequate health insurance, job
instability. More hardworking middle-class families simply can't make it in this economy,
and it's only getting worse."
 
When you are at the end of your rope, bankruptcy is a safety net. The federal bankruptcy
law provides powerful tools to forge a fresh start and a new financial future for your
family. Bankruptcy can protect the things that matter most to you like your home, auto,
and retirement accounts, while restructuring or eliminating your debt. No one wants to file
a bankruptcy, but if you are faced with serious financial difficulties, your best course of
action is to explore your financial options. A qualified bankruptcy attorney can explain
your options and help you decide the best choice for your family.

 

5 Common Financial Mistakes in Today's Bad Economy

The Dallas Morning News published an article recently by bankrate.com regarding 5 common financial pitfalls that individuals make in a bad economy.  The article outlines the below 5 mistakes and offers realistic solutions regarding how to avoid them.  For a link to the article click here.     

1.  Continued spending using credit cards

2.  Invading your nest egg - withdrawing money from your IRA or 401k

3.  Paying for college without applying for aid

4.  Investing inertia - long-term investment management

5.  Obtaining cash from your home

If you have found yourself in one of the above situations not realizing that they were mistakes and cannot find a solution for relief then you may want to speak to an experience attorney who can discuss your options with you.  Call us toll free at 1-866-705-7584 or e-mail us at info@fnlawfirm.com.   

What Can You Keep When Filing for Bankruptcy?

This is a quick list of the things you can keep when filing for bankruptcy (Depending on the type of exemptions you qualify for and the amount of equity you have).

1.       Your house

2.       Your Car(s)

3.       Your Bank Account(s) – including Savings Accounts

4.       All Retirement Account(s) – Yes, 401ks, 403bs & IRAs.

5.       Your Personal Belongings

6.       Stocks, Bonds and Mutual Funds

7.       You’re Sanity!

Call the office anytime to find out more by dialing toll free 1-866-705-7584 or e-mailing info@fnlawfirm.com

Why Bankruptcy Can Help Improve Your Credit

One of the main reasons people are afraid to file for bankruptcy is the misleading claim by credit companies that filing for bankruptcy will ruin your credit. The reality is that the opposite is true for people who are in over their heads in debt. Filing for a Chapter 7 bankruptcy in Dallas, Texas, will erase most if not all of your debt and help give you a clean start in rebuilding your credit.

Additionally, when you have no excess credit card debt or other financial obligations there will be no more late payments on your credit report because your debt has been eliminated. And with the new credit card law, Credit CARD Act of 2009*, and careful management of your finances you should be able to rebuild your credit in a few years.

Although lenders will be able to see the bankruptcy on your credit report, they will primarily focus on the last 2-3 years of your credit history when extending credit.

For a free consultation on how Dallas bankruptcy law can help you get out of debt, contact Dallas bankruptcy law firm, Fears | Nachawati, toll free at 1-866-705-7584 or by e-mail at info@fnlawfirm.com.

*Credit CARD Act of 2009 is a federal law passed by the United States Congress and signed by President Barack Obama on May 22, 2009. Briefly, it is comprehensive credit card reform legislation that aims "...to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, and for other purposes."

Can The New Credit Card Law Erase Your Credit Card Debt?

In many ways the new credit card law, the Credit Card Accountability Responsibility and Disclosure Act of 2009 or Credit CARD Act of 2009* can help you with future credit card debt. It will help you against predatory lending practices and will help keep you in check by limiting your credit availability. But if you are looking for a fresh start right now, filing for Chapter 7 may be the best way to relieve the heavy burden of excess credit card debt.

When you file for a Chapter 7 bankruptcy in San Antonio, Texas, your credit card debt will be dismissed. You will get the fresh start you need as well as the opportunity to build credit in a more consumer friendly environment under the new Credit CARD Act of 2009.

If you are feeling the stress of too many credit card bills and not enough money to pay them, then a Chapter 7 bankruptcy may be the best option for you.  For a free bankruptcy consultation contact San Antonio Bankruptcy law firm, Fears | Nachawati, via toll free phone at 1-(866) 705-7584 or via e-mail at info@fnlawfirm.com

*Credit CARD Act of 2009 is a federal law passed by the United States Congress and signed by President Barack Obama on May 22, 2009. Briefly, it is comprehensive credit card reform legislation that aims "...to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, and for other purposes."

House Approves Bill Increasing Credit Card Holders' Rights

Credit-card holders in Dallas and Fort Worth should benefit from House Bill, HR 627, which passed the House on Thursday.  The Credit Card Holders' Bill of Rights passed following lobbying by President Obama and the White House Administration.  If the Bill becomes law, the new provisions will not take effect for a year, other than one key requirement that customers get 45 days' notice before interest rates are increased.  The requirement may take effect in as soon as 90 days.  The changes in credit cards could cost the banking industry more than $10 billion a year in interest payments.  Because of the recession, many people have defaulted on their credit card obligations.  This Bill will certainly ease the burden of many households in the Dallas Fort Worth area and hopefully stymie the number of bankruptcy filings.  Questions or legal information inquiries concerning this Bill and its potential effect on individuals can be directed to info@fnlawfirm.com.