Can I Use My Credit Card in Bankruptcy?

The short answer is no.  This is because while you are in bankruptcy you should not be incurring new debt without court permission.  Most of the time a credit card will not issue a card to someone who is in an active bankruptcy case, because they do not want to violate the bankruptcy code and face sanctions from the bankruptcy court.  Furthermore any cards that a debtor has prior to filing the case will be discharged in the bankruptcy case, except under rare exceptions.  Therefore the debtor will not be able to continue to use their cards.  

The entire point of a bankruptcy case is to get a fresh start and to get rid of the debt and allowing a debtor to continue to incur debt while in the bankruptcy case complicates and frustrates this goal.  When preparing to file a bankruptcy case a debtor must take a look at their finances and make sure that they are living within their means and question why they would have a need to continue to spend on credit. 

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

What is a Chapter 7?

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

Will I Lose My Property if I File Bankruptcy?

Many clients I meet with are concerned that they will have to surrender their house and car if they file bankruptcy.  As long as you can afford to maintain the payments on the mortgage and car note, you will not lose either in a bankruptcy filing.  Most states provide exemptions for your house and car which allow additional protection for these assets.

In addition, for those who have fallen behind on mortgage or car payments, Bankruptcy may actually provide a favorable option to keep these assets and catch up on payments over time.  A Chapter 13 Bankruptcy, which typically takes 36-60 months to complete, places debtors on a payment plan which commits their disposable income to their creditors.  This is beneficial for debtors who experienced a temporary setback, just as a loss of job, and needs additional time to catch up on car payments or mortgage arrears.  In the Chapter 13, the arrears are spread out over the length of the bankruptcy plan, providing a manageable payment arrangement as opposed to trying to catch up in one lump sum.  Keep in mind that you are still responsible to maintaining regular monthly payment to the mortgage or car creditor during the bankruptcy in the event these are listed as a pay direct obligation and the monthly payments are not part of your bankruptcy plan, which varies from district to district. If you have questions regarding your assets, exemptions, or Chapter 13 payment plans, contact an attorney today at 866-705-7584 or send an email to fears@fnlawfirm.com.

 

What If I Don't Qualify for Chapter 7 Bankruptcy

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

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

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

 

Divorce and Bankruptcy

According to the American Psychological Association, about 40 to 50 percent of married couples in the United States get divorced.    While getting divorced may not be the easiest process, if you happen to be involved in an active Bankruptcy case, it can add additional step to complete your divorce proceeding.  The good news for those going through a divorce is that you can still complete the process if you or your spouse are involved in a bankruptcy.
 
As part of your divorce proceeding, the Judge will divide the family assets between the spouses.  If you are in a Bankruptcy, this division of assets is prohibited unless approved by the Bankruptcy Court.  After the Bankruptcy is filed, all of your assets become property of the Bankruptcy estate.  The automatic stay, which provides protection from your creditors, prevents distribution or liquidation of the bankruptcy estate without permission from the Court.  In order to proceed with the divorce in State Court, your Bankruptcy Attorney will need to petition the Bankruptcy Court for permission to proceed with the State Court Divorce proceeding.  This is generally accomplished by filing a Motion for Relief From Automatic Stay in the Bankruptcy Court.  Once the Automatic Stay is lifted for the purpose of filing divorce, you will be able to proceed in the State Court.
 
If you are involved in an active Bankruptcy case, you should discuss your situation with your Bankruptcy Attorney to make sure you are properly following the rules of the Bankruptcy Court. 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.
 

Getting Married During My Bankruptcy

For those involved in a Bankruptcy, rest assured that your Bankruptcy case will not prevent you from getting married.  For those involved in a Chapter 13 Bankruptcy however, your upcoming marriage may have an effect on your case.
 
In a Chapter 13 Bankruptcy, you are required to pay your disposable income into your bankruptcy plan in order to pay back your creditors.  The calculation to determine your disposable income includes all household income.  Even if you file an individual case, as opposed to a joint case with your spouse, your spouse’s income is still included as the household income.  For those who get married after their case is filed, their household income may increase if their new spouse is employed.  The Bankruptcy Trustee will want to review their income to see if you can afford a higher return to your creditors.  While your new spouse’s credit will not be affected by your bankruptcy, their income may still come into play.   However, your spouse will have their separate expenses which they were responsible for before the marriage.  
 
If you decide to get married during your bankruptcy, congratulations!  Also, discuss your situation with your bankruptcy attorney who can assist you making any necessary changes to your bankruptcy plan and make sure any changes fit inside your budget. 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.
 

The Federal Government Worries About Your Mortgage

Isn’t it common sense to read an important document before you sign it?

Apparently the Consumer Finance Protection Bureau’s (CFPB) believes that millions of Americans are not reading (or understanding) important lender-required disclosures before they sign mortgage papers. To combat this, the CFPB is implementing new rules intended to eliminate redundancy and overlapping information, and help consumers better understand the loan closing process.
 
The new rules are collectively called “Know Before You Owe,” will merge four documents will be merged into two: the Truth in Lending Disclosure and HUD-1 Settlement Statement are combined into the Closing Disclosure; and the Good Faith Estimate and Truth in Lending disclosures are replaced by a new single Loan Estimate form. The most relevant details of the mortgage loan including the interest rate, the amount of the monthly payments, and a list of all closing costs are clearly spelled out all on one page.
 
The Know Before You Owe rules also require that the Loan Estimate must be delivered to the buyer no later than three business days after receiving the application. If there are changes during that 72-hour period, the closing could be delayed. That is a big change from the current rules that allow presentment of and changes to the HUD-1 Settlement Statement on the same day as the execution of the mortgage loan. Opponents of this rule cite that many closings may be delayed. Proponents say that the rule allows borrowers an opportunity to review and digest loan terms – and to avoid a bad deal.
 
The CFPB’s new rules are scheduled to take effect October 3, 2015. Will Know Before You Owe have a positive effect on the lending process? Will borrowers become more informed and make better choices because of these rules? Or will this cause costly delays, broken deals, and added consumer expense? Only time will tell.
 
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.

Christmas Gifts and Bankruptcy

For many Americans, overspending is a holiday tradition. According to the National Retail Federation, the average American shopper will spend $804.42 to celebrate this holiday season. For some, this spending season will be followed by a visit to a bankruptcy attorney’s office; so many think, why not throw caution to the wind, spend a little more, and enjoy the season?

There are a few precautions to take when preparing for a bankruptcy filing. The first and most important is to not incur a debt that you have no intention to repay. There is a great temptation to max-out personal credit cards and then discharge the debt during bankruptcy – especially when the credit is used to purchase gifts for other people. However, credit card companies review your pre-bankruptcy purchases to discover fraud. You could face an objection to your bankruptcy discharge or even a criminal complaint! Before using available credit, seek the advice of an experienced bankruptcy attorney.

Another way you can create a bankruptcy issue is by making large gifts to friends and family. For instance, you may sign over a car title as a gift to your son as an act of holiday generosity. Unfortunately, the bankruptcy laws penalize this type of pre-bankruptcy transfer, and your son may lose the car to the Chapter 7 bankruptcy trustee. While the circumstances are different in every case, often you can give your son the car after the case is filed without penalty. Again, the safest route is to discuss any gifts with your bankruptcy attorney before making the transfer.

Finally, some individuals will work overtime or take on a part-time job to afford holiday gifts. This extra income is sometimes problematic when calculating a person’s disposable income for bankruptcy purposes. The Bankruptcy Code looks to the past six months of income and projects the debtor’s ability to repay debts in the future. Inflating your six month average income through overtime or a part-time job can push you out of Chapter 7 and into Chapter 13, or may increase your monthly Chapter 13 plan payment. Before taking on extra income, speak with your attorney.

The holidays are not an excuse to act financially irresponsible. If you are hurting and need to file bankruptcy, get the guidance you need from an experienced bankruptcy attorney and ensure that you don’t make matters worse.

Non-dischargeable Student Loans

 A statute of limitation is a law that limits the amount of time that a plaintiff or prosecutor has for filing a legal action. Most crimes have a statute of limitations which varies from state to state. For misdemeanors, like petty theft or public intoxication, the time most states allow to bring charges is one to three years, with a few states allowing up to seven years. Felony crimes generally have longer statute of limitations periods, and certain crimes are considered so heinous and unforgiveable that there are no statute of limitations to allow criminals to escape justice. Examples of crimes with no statute of limitations are: Murder; War Crimes; Kidnapping; Treason;

and Federal Student Loans.

While being unable to pay federal student loan debt is not really a crime, the law certainly makes a borrower feel like a criminal. Like murder, there is no statute of limitations for federal student loans. The debt will follow the borrower to his or her grave, unless it is paid; forgiven or canceled under a qualifying program or certain situations; or discharged in bankruptcy.

Forgiveness or cancelation programs are very narrow and the guidelines are strict. Consider the Teacher Loan Forgiveness program. If all of your federal student loans were obtained after October 1, 1998, and you teach full-time for five consecutive years at a low-income elementary or secondary school, you may have up to $17,500 of your subsidized or unsubsidized loans forgiven. Since the average college student graduating in 2014 has more than $33,000 in student loan debt (according to Forbes), and the average first year teacher salary for many states is just over $30,000 (according to the National Education Association), this “benefit” seems hardly beneficial.

If the debtor is unable to pay, and does not qualify for forgiveness or cancelation under a federal program, that leaves bankruptcy. Prior to 1976, an honest, but unfortunate debtor could file a Chapter 7 bankruptcy and discharge unaffordable federal student loans. Since that time Congress has raised the bar for discharging student loan debt to a very difficult height. Today, the standard is whether repayment of the student loan “would impose an undue hardship on the debtor and the debtor’s dependents.” See 11 U.S.C. § 523(a)(8).

Debtors who are truly unable to pay anything towards federal student loan debt, and will not be able to pay anything in the future (due to age or infirmity), often qualify for student loan discharge. Other cases of hardship discharge are fact-specific and can depend on the political leanings of the bankruptcy judge.

If you are buried in federal student loans that you cannot pay, speak with an experienced bankruptcy attorney and discuss your options. In some cases bankruptcy can reduce or eliminate federal student loans, or help you restructure your finances to make the debt more affordable.

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 and email to fears@fnlawfirm.com.

BANKRUPTCY TRAP: Divorce after Bankruptcy

As one court put it, “Neither knaves nor fools should be representing debtors who need legal assistance.” Bankruptcy law is not for the inexperienced, imprudent, or unprepared. Take, for example, a very common situation: divorce after bankruptcy.

It is an unfortunate reality that some debtors divorce after Chapter 7 bankruptcy. In fact, some clients show up for an initial attorney consultation already determined to file divorce “right after the bankruptcy.” For the most part, eliminating financial obligations and obtaining a financial fresh start is a good first step, and alleviating the financial pressures can sometimes even save a marriage.

There are traps along the way for debtors who are intent on divorce after bankruptcy. The most significant is found in Section 541(a)(5) of the Bankruptcy Code which states that property acquired by the debtor within 180 days as a result of a marital property settlement agreement or divorce decree becomes property of the debtor’s bankruptcy estate. Under this statute, a bankruptcy debtor who receives property during a dissolution case will lose it unless the property is already protected with available exemptions.

Cases where a debtor has lost property under this section include a home owned by a husband and wife. The family court awarded the wife full interest in the marital home which was protected during bankruptcy by a tenants by the entireties exemption. Upon divorce within 180 days of the bankruptcy filing, the tenants by the entireties protection was extinguished and the bankruptcy trustee was able to take and sell the home to pay creditors. See In re Cordova, 73 F.3d 38 (4th Cir. 1996).

Other courts have broadly construed Section 541(b)(5) and found that property acquired ''as a result of a property settlement agreement ... or of an interlocutory or final divorce decree'' includes alimony and spousal support received within six months after the bankruptcy is filed. If these payments cannot be exempted, which is the case in some states, the result is that all payments due in the six months after the bankruptcy filing must be turned over to the trustee. Some courts, including the Court of Appeals for the Tenth Circuit in Peters v. Wise (In re Wise), 346 F.3d 1239 (10th Cir. 2003), and the Bankruptcy Appellate Panel for the Eighth Circuit in In re Jeter, 257 B.R. 907 (B.A.P. 8th Cir. 2001), have held that section 541(a)(5)(B) does not apply to alimony, maintenance or support payments.

Avoiding these traps is fairly simple. First, a debtor who expects to receive property in a dissolution proceeding should avoid commencing a bankruptcy case, unless it is clear that all property that may be awarded in an after bankruptcy dissolution is protected by exemptions. Second, the debtor may delay the award of property beyond the 180 day claw back period. While these tips appear simple and direct, competent legal assistance from an experienced bankruptcy attorney is needed to ensure that the debtor’s actions cannot be construed as efforts to conceal property and otherwise run afoul of the bankruptcy process.

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.

What's in a Name?

 A bankruptcy case is part lawsuit, part financial accounting. Before filing bankruptcy, the debtor must make a good faith effort to account for and disclose all of his creditors and debts; monthly income and expenses; and describe and value all assets. In addition, the federal law requires the debtor to disclose financial transactions, such as a sold automobile, cashed out stock, or transferred real estate prior to filing bankruptcy. The debtor and his attorney may spend many hours probing the debtor’s finances, including investigating bank accounts; tax returns; mortgage documents; titles and deeds; and retirement accounts.

Considering all the meticulous preparation before filing bankruptcy, it’s remarkable when a debtor (and his attorney) files a case under a false name. Let me explain. Suppose your name is Sally. Your parents, teachers, friends, spouse, co-workers, pastor. . . everyone knows you by Sally. Your credit cards, debit card, and library card all say Sally.

The only problem is, your birth certificate name is Sarah.

The government knows you as Sarah, not Sally. Your driver’s license and your social security card identify you as Sarah, so “Sarah” is the name you must use on the bankruptcy petition. That is also the name you must use when completing the pre-bankruptcy credit counseling course and the post-bankruptcy financial management class.

“But wait,” you say, “everyone other than the government knows me as Sally.” The bankruptcy petition form gives a debtor an opportunity to list nicknames, trade names, names used in doing business, former married name(s), and maiden name immediately after the debtor’s legal name:

All Other Names used by the Debtor in the last 8 years

(include married, maiden, and trade names):

Alias information is indexed into the bankruptcy system and is searchable for creditors. All notices sent by the bankruptcy court contains alias information provided by the debtor.

Other common pseudonym situations that may cause trouble include:

  • Using “Sr.” to identify the father of a “Jr.” when the father has not legally changed his name with the government.
  • Using a married name when the spouse has not legally changed his or her name.
  • Using a maiden name after divorce without legally changing the name with the government (even if the change is authorized or ordered by the divorce court).

Bankruptcy Rule 1005

Rule 1005 of the Federal Rules of Bankruptcy Procedure requires a debtor to include the “name, employer identification number [if any], last four digits of the social-security number, any other individual-taxpayer identification number, and all other names used” within eight years before filing the petition. This information helps creditors to (1) correctly identify the debtor when they receive notices and orders from the court, (2) comply with the automatic stay, (3) file a proof of claim, and (4) exercise other rights given to them by the Bankruptcy Code. A failure to list correct identifying information on a petition fails “to notify creditor about the relevance of the bankruptcy proceeding to some of its claims.” See Ellet v. Stanislaus, 506 F.3d 774 (9th Cir.2007).

Consequences

It is important to make sure that all creditors know about the bankruptcy proceeding and are allowed to exercise their rights in the case. A debt owed to a creditor who is not given proper notice of the bankruptcy may not be discharged and the liability may continue despite the completion of the bankruptcy case. See 11 U.S.C. § 523(a)(3). While an error on the debtor’s petition is correctable by filing an amendment, the error may cause delay in the case. In one case out of the Ninth Circuit, the time for filing creditor objections was extended when the debtors’ name was misspelled on the petition. See In re Diepholz, 2012 WL 4747238 (9th Cir. B.A.P.).

It is essential to provide the proper legal name and all other names used by the debtor when filing a bankruptcy case. Notice to creditors is an essential part of the bankruptcy process; without it, the debtor’s fresh start may stall at the starting line. 

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.

Chapter 13 Bankruptcy

 A Chapter 13 bankruptcy case is primarily used to repay all or some of an individual’s debts. It is also known as a debt adjustment case, or a “wage earner's plan.” Chapter 13 can stop a foreclosure or repossession and allow the individual time to make payments over three to five years, often even over the objection of a creditor.

A debtor who is behind on a mortgage or car loan is able to catch up in a Chapter 13 bankruptcy. Through Chapter 13, the debtor may restructure debts and sometimes change loan terms, such as the interest rate and the time for repayment. Some upside-down vehicle loans can be “crammed down,” meaning the obligation is reduced to the value of the vehicle and then paid over three to five years.Second or third mortgage debts can also be stripped off, if the amount of the first mortgage is equal to or more than the value of the home.

Chapter 13 differentiates between three types of debts: first, priority debts, including most taxes and child support, must be paid in full. Second, secured debts, debts secured by collateral, must be paid with interest over the life of the plan, or surrendered back to the creditor. Finally, unsecured debts, like credit cards and medical bills, are paid in accordance with the debtor’s financial ability. This may be as much as 100% or as little as 0%.

 

The main feature of a Chapter 13 bankruptcy is the repayment plan, which must be approved by the bankruptcy court. A Chapter 13 plan will propose a monthly payment to pay all or some creditors over three to five years.  Once the bankruptcy court approves a Chapter 13 plan (called “confirmed” in bankruptcy lingo), the court will direct the bankruptcy trustee to pay creditors (and keep a percentage as a fee) in accordance with the confirmed plan.

 

There are monetary limits on the amount of unsecured and secured debts in a Chapter 13, currently set at $383,175 in unsecured debts and $1,149,525 in secured debts. Debtors who exceed these limits are not eligible for Chapter 13 relief and should consider a Chapter 11 reorganization bankruptcy.

 

The Bankruptcy Code does not allow joint debtors to double the Chapter 13 debt limits. Most courts apply the plain meaning of the statute and disqualify couples who exceed the debt limits. A minority of courts will look at the individual debtor’s debts to determine whether the individual falls under the debt limits. In these courts if both debtors are individually under the debt limits, the joint case is allowed to proceed. In those cases, if only one debtor qualifies and the other debtor does not, the qualifying debtor may continue with her Chapter 13 case, while the nonqualifying debtor must convert to another chapter.

If a claim is “underwater,” such as a junior mortgage, it is classified as unsecured for purposes of the Section 109(e) so long as it is not supported by any part of the collateral’s value. This is the case even when the creditor’s lien has not been avoided as of the petition date, and even if the loan is not avoidable at all. Similarly, most courts will bifurcate a debt into secured and unsecured portions when analyzing the debt limits of Section 109(e).

 

When pushing Chapter 13 debt limits in a joint case, the debtors should consider: (1) filing separate cases for married couples (and consider filing a Chapter 7 for one spouse and a Chapter 13 for the other); and (2) using Chapter 20. Your attorney can help you decide the best strategy to maximize your bankruptcy benefits.

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

Supreme Court Elaborates on Bankruptcy Jurisdiction

Recently the United States Supreme Court clarified the powers of the bankruptcy court to rule on many issues that arise during a bankruptcy case. The case, Executive Benefits Insurance Agency v. Peter H. Arkison, concerned the bankruptcy court’s authority to decide non-bankruptcy issues that impact or relate to the bankruptcy case.

Many citizens are not aware that while bankruptcy court judges have jurisdiction over bankruptcy issues, they are not “Article III” judges described in the U.S Constitution like other federal judges, are not confirmed by the Senate, and do not serve a life term. Instead, bankruptcy judges are appointed by federal appeals court judges and serve 14-year terms. Consequently, in 2011 the Supreme Court ruled in the Anna Nicole Smith inheritance case (Stern v. Marshall) that bankruptcy courts do not have the constitutional authority to issue final rulings on certain legal claims, unlike Article III federal district court judges.

In a unanimous opinion delivered by Judge Clarence Thomas, the court said that, while the Constitution does not permit a bankruptcy court to enter final judgment on a bankruptcy-related claim, the relevant statute nevertheless permits a bankruptcy court to issue proposed findings of fact and conclusions of law to be reviewed by a district court. The Supremes did not comment on whether a bankruptcy judge may issue a final judgment in a case where the parties consent to litigation in the bankruptcy court. Several courts of appeal have allowed the bankruptcy court this jurisdiction after consent, but the question has not been finally resolved.

Navigating through the bankruptcy process requires a skilled and experienced guide. If you are experiencing serious financial difficulties, consult with a bankruptcy attorney to learn how the federal bankruptcy laws can help provide you with a fresh financial start.

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

File a Proof of Claim in Your Chapter 13 Case

Once the Chapter 13 bankruptcy plan is confirmed, the trustee will pay allowed claims. The first step for a creditor to obtain an allowed claim is to file a proof of claim in the case. But Section 501(c) of the Bankruptcy Code also allows the debtor to file a proof of claim if “a creditor does not timely file a proof of such creditor’s claim.” The claim must be filed “within 30 days after the expiration of the time for filing claims.” See Rule 3004, FRBP.

Why in the world would a debtor file a proof of claim in his own case?

Consider this scenario: the debtor files Chapter 13 bankruptcy and proposes to pay 100% of his mortgage arrears and discharge 100% of his high medical bills. His plan is confirmed, but two years later he discovers that the trustee has been sending 100% of his plan payment to his medical creditors and has not sent a dime to his mortgage company! How did this happen? Because the medical creditors filed a timely proof of claim and the mortgage company did not.

In the first place, this problem should never occur if the debtor and his counsel are vigilant and monitor the claims as they are filed. Second, once it was discovered that the mortgage company failed to file a proof of claim in the debtor’s case, the debtor should file one to ensure that the trustee pays the arrears (and possibly the future mortgage payment, if local rule dictates). A debtor filing a proof of claim in his own case is actually in a stronger legal position, since the burden is on an objecting party to prove that a claim is invalid or the claim amount is incorrect.  

You know that old joke about “When you assume. . .?” An experienced and competent attorney never assumes that a creditor will file a proof of claim. Careful monitoring of a bankruptcy case is necessary to safeguard the debtor’s interests.

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

I surrendered my property in my Bankruptcy, Now What?

 

When you file for bankruptcy, you have the option of surrendering your secured property which you no longer wish to keep.  For instance, if you have a rental house which you can no longer afford, you can surrender it through your bankruptcy and discharge your personal liability for the remaining debt.  However, surrendering the property does not automatically mean that it is no longer yours.  When you elect to surrender something through bankruptcy, you basically give up your interest.  It also allows the secured creditor to retake possession of the property without seeking permission of the court. 

In the above example, it is important to remember that even though you may have surrendered your interest in the house, the mortgage company would still need to go through the formal foreclosure process in order to take proper ownership of the property.  The foreclosure would have to take place even if your case has been discharged and closed.  While pre-petition debt associated with the property, meaning debt from before the bankruptcy was filed, is likely to be discharged, you are still liable for any post-petition debt.  If you were required to pay Home Owner Association fees, they will continue to accumulate after the bankruptcy even if the property was surrendered.  Furthermore, you will be liable for all the post-petition HOA fees, property taxes and other related debts until the bank formally forecloses on the property.

Contact a bankruptcy attorney for more questions on the consequences of surrendering your property through your case. 

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

Post-Petition Debts in Chapter 13

A lot can happen during the three to five years of a debtor’s Chapter 13 repayment plan. Even though the Chapter 13 trustee forbids the use of credit during the repayment period, the trustee is powerless against life. To paraphrase Forrest Gump, “Stuff happens.” 

 

Post-Petition Tax Debts

One of the most common post-petition debts that happen during Chapter 13 bankruptcy is the tax debt - so common that Congress put in a special provision for it in the Bankruptcy Code. See 11 U.S.C. § 1305(a)(1). The bankruptcy court allows tax creditors to file claims for post-petition tax debts, and then treats the claim as a pre-petition, priority debt (meaning that it must be paid in full during the bankruptcy case). The debtor is required to amend his repayment plan to account for this new debt, which may mean making a larger payment each month. This may also cause unsecured creditors to receive less.

Post-Petition Consumer Debts Incurred Without Court Approval

During Chapter 13 bankruptcy all of the debtor’s income belongs to the bankruptcy estate. That is why using credit is forbidden – the debtor’s income cannot be used to repay post-petition creditors during the bankruptcy case without permission. If a new credit debt is incurred without court permission, it is not part of the bankruptcy case, no portion is discharged at the end of the case, and, if the debtor attempts to pay the post-petition debt, the trustee or creditor may file an objection stating that the debtor is not devoting all disposable income to repaying bankruptcy debts.

Despite the Bankruptcy Code’s prohibition and the trustee’s admonition, some debts arise without prior court permission. The debtor may still seek the court’s approval by showing that it was not possible to get court approval ahead of time. For example, a medical bill after a car accident is not foreseeable, and it is impractical (or perhaps impossible) to get the court’s permission prior to receiving medical treatment. To include this type of debt in the debtor’s bankruptcy case, the creditor must agree to submit a proof of claim, and the debtor must amend the bankruptcy plan. If the bankruptcy court refuses to include the debt in the repayment plan, the automatic stay will still prevent the creditor from seeking payment from property of the bankruptcy estate (including the debtor’s wages) during the Chapter 13 case. If the creditor refuses to submit a proof of claim and receive partial repayment through the plan, the debtor may consider either conversion, or dismissal and refilling later to include this new debt.

Post-Petition Consumer Debts Incurred With Court Approval

The most common post-petition debt incurred with court approval is the new car purchase. The debtor must first contact the trustee’s office and gain the trustee’s support before asking the bankruptcy court for permission to incur the debt. Generally, the court will approve new debt, or an extension of credit, if it is necessary for the completion of the bankruptcy plan. See Section 1305(a)(2)(approval of credit is available “for property or services necessary for the debtor’s performance under the plan”). In other words, the debtor must show that he or she needs a car to get to work to make money to pay the plan payment. With court approval, the debtor may include the debt in the plan once the creditor files a proof of claim.

To buy a car during Chapter 13 bankruptcy the debtor needs to (1) negotiate financing and loan terms with the car dealer; (2) contact the trustee, explain why the car is necessary to complete the plan, and state the terms of the loan and how the debtor will pay it; (3) petition the bankruptcy court to approve the new debt; (4) file an amended plan and schedules to account for the new car payment; and (5) ensure that the auto lender files a proof of claim. If all of these steps are followed, the auto lender has a secured interest in the vehicle and receives the full contract price during the bankruptcy case.

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

Will My Job Find Out That I Have Filed for Bankruptcy?

Bankruptcy can be a very embarrassing and private matter that many people do not want anyone to find out about, especially their employers.  When you file for bankruptcy there is no requirement that your employer be informed. The court does not automatically send notice to your employer and the debtor is not required to tell them.

There are ways a debtor’s employer may find out about a bankruptcy. One way is by doing periodic credit checks. Now most employers only do credit checks when they are hiring new employees, but when anyone checks a debtors credit they will see any bankruptcy filings within the last ten years.

The other way an employer may find out about a bankruptcy filing is through a wage directive or pay order in a chapter 13 case.  Some jurisdictions require that a pay order be filed in the case to insure that the plan payment is paid each month. The wage order is mailed the debtor’s pay roll and then the plan payment is garnished from each paycheck. If the jurisdiction requires that a pay order be filed the Debtor’s attorney will need to request that the court wave the pay order. This can be done either with a motion or by agreement with the Trustee.

If your employer does find out that you filed bankruptcy there are laws that protect debtors from discrimination for filing bankruptcy. Private employers may not fire you or punish you because you filed for bankruptcy, however, a future employer can take your bankruptcy filing into consideration when choosing to hire you.

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

Supreme Court to Decide Case Involving Inherited IRA

The Supreme Court is preparing to hear arguments in Clark v. Rameker a seventh circuit case involving whether an inherited IRA would be exempt under the federal bankruptcy exemptions. 

For more information on the Seventh Circuit see our previous article: Are Inherited IRAs Exempt in Bankruptcy

Specifically the statue in question is 11 U.S.C. § 522, which exempts "retirement funds to the extent that those funds are in a fund or account that is exempt from taxation,” under several provisions of the IRS code.

The Debtor is arguing that the funds should be exempt because the funds were set-aside for retirement into the identified account and remains in that account. Further the Debtor points to years of congressional history showing there intention for retirement funds to be exempt.

The Trustee on the other hand is arguing that the funds were not set aside by the Debtor and the Debtor could remove the funds without any additional tax liability.

Both sides have strong arguments and legal scholars are not clear which side the court is likely to come down.

 For further reading: Argument preview: Scope of protections for retirement funds in bankruptcy squarely at issue.

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

Beware the Wolf in a Sheep's $2,000 Suit

Most of us can recognize a scam, especially when it comes in the form of an offer to repair your credit. Advertisements by credit repair firms found in the local pennysaver (you know, the free ads found at your local laundry mat) promise to magically erase the negative marks from your credit reports. Like dad always advised, “If it seems too good to be true, it probably is.”

But what if the credit repair firm is a “not-for-profit” or even a lawyer? To help consumers tell the unscrupulous wolves from the sheep offering good and lawful services at a fair price, Congress enacted laws to regulate the credit repair industry. The rules are codified in the Credit Repair Organizations Act, or “CROA.” According to CROA, any company that provides services marketed as credit improvement and is paid for those services is a credit repair organization. That includes attorneys who offer credit repair assistance. See Rannis v. Recchia, 380 Fed.Appx. 646 (9th Cir. 2010). Not-for-profit organizations are exempt from the CROA, but many credit repair organizations that claim not-for-profit status are actually offering for-profit services and must adhere to the CROA.

Pursuant to the CROA, credit repair organizations may not charge a fee in advance for services, must provide certain disclosures to their customers, allow their customers to cancel at any time, and not make any guarantees regarding their results. The Federal Trade Commission is tasked with enforcement of the CROA. You can also file an action against the credit repair organization for actual damages, punitive damages, costs, and attorneys' fees for violations of the CROA.

Honest credit repair is not difficult. All three of the major credit reporting bureaus (Experian, Equifax, and Trans Union) provide simple and clear instructions on how to dispute inaccurate information on your credit report. A copy of your report is available from each of these bureaus simply by visiting a website: annualcreditreport.com. In other words, a credit repair organization cannot do anything more than you can do for yourself.

Not all credit repair organizations act honestly or within the spirit of the federal rules. Some engage in “guerilla tactics” and dispute every negative item on a credit report, whether accurate or not. The credit bureau is then obligated to either verify the accuracy of the information within 30 days, or remove it from the individual’s record. The problem is that after you have paid the credit repair organization for its magical services, the information may reappear on your report after it is verified (or, in some cases, inaccurate information may show up again). The credit repair company gets your money and you only get temporary relief.

Before you hire a credit repair company that you found while waiting for your whites to tumble dry, have your situation reviewed by a licensed bankruptcy or consumer credit attorney. Your attorney can use the federal laws to improve your credit, reorganize your finances, or help you attain a fresh financial start.

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

Avoid the Bankruptcy Means Test

The great Chinese military general Sun Tzu once wrote, “The best victory is to win without actually fighting.” In bankruptcy, the best way to beat the means test is to avoid it altogether. Taking the Means Test only complicates your bankruptcy case, and may disqualify you from Chapter 7, force you into a five year Chapter 13, or make you pay more money each month to unsecured creditors. There are three situations when an individual is excepted from taking the bankruptcy Means Test:

Disabled Veteran

Some disabled veterans may qualify to avoid the Means Test. First, the individual must be (1) a veteran who is entitled to compensation under laws administered by the Secretary for a disability rated at 30 percent or more, or (2) a veteran whose discharge or release from active duty was for a disability incurred or aggravated in line of duty.

Second, the debts in your bankruptcy case must have been “primarily” incurred while on active duty, or while performing a homeland defense activity. “Primarily” is generally interpreted by the bankruptcy courts as greater than 50%.

Primarily Non-Consumer Debts

The Bankruptcy Code excepts business debtors from the Means Test. If your business-related debts comprise more than 50% of your total debt, then you are excused from the Means Test requirement. Courts differ on the definition of “non-consumer” debts. Debts incurred with a profit motive, like a bank loan to buy a commercial oven for your upstart catering business, are clearly non-consumer debts. However, some courts have stated that personal tax debts and student loans are non-consumer debts as well.

Active Duty Military, Reservists and National Guard

Active duty military members also get a pass on the Means Test. In order to qualify, the individual must have been on active duty for at least 90 days, or performed a homeland defense activity for a period of at least 90 days. The Means Test exclusion lasts for the duration the individual is on active duty or performing a homeland defense activity, and for 540 days thereafter. Once the 540 day exclusion period ends, if the time has not passed for objections to the Means Test qualification in your bankruptcy case, you will have to take and pass the Means Test.

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

Debts that are discharged in Chapter 13, but not in Chapter 7

Some debts are discharged at the end of Chapter 13 case which cannot be discharged in a Chapter 7 bankruptcy. Chapter 13 is a payment plan bankruptcy, and creditors are repaid over three to five years. That’s a long time for a debtor to remain in bankruptcy, so Congress has placed a few “carrots” to entice individuals to file Chapter 13 and attempt to repay whatever he or she is able.

A list of nondischargeable debt is found in Section 523 of the Bankruptcy Code. All of the debts listed in that section are not dischargeable in a Chapter 7 or Chapter 11 individual case. Some attorneys less familiar with the Bankruptcy Code believe that debts excepted by Section 523 are also excepted in Chapter 13 cases. Well, some are, but Chapter 13 has its own section that identifies nondischargeable debts: Section 1328. This specific section applies only to Chapter 13 cases and supersedes the general provisions in Section 523 that apply to all cases. Bankruptcy attorneys refer to these differences as part of Chapter 13’s “Super Discharge.”

Debts that are not dischargeable in Chapter 7, but can be discharged in Chapter 13 bankruptcy include:

  • willful and malicious injury by the debtor to another entity or to the property of another entity [11 USC § 523(a)(6)]
  • civil fines and penalties [11 USC § 523(a)(7)]
  • debts that couldn’t be discharged in a previous bankruptcy [11 USC § 523(a)(10)]
  • debts incurred to pay a nondischargeable tax debt [11 USC § 523(a)(14) and (14a)]
  • marital debts created in a divorce or settlement agreement [11 USC § 523(a)(15)]
  • condominium, cooperative, and home­owners’ association fees incurred after the bankruptcy filing date [11 USC § 523(a)(16)], and
  • debts for loans from a retirement plan [11 USC § 523(a)(18)].

The Bankruptcy Code contains general rules on discharging debts, but applying these rules to the specifics of an individual’s bankruptcy case can mean the difference between a fresh start and a false start. You need an experienced attorney on your side to apply the rules and ensure that you obtain the full benefits of the bankruptcy laws.

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

Keeping Your Homestead Exemption in Bankruptcy

When a court interprets a statute to apply the law to a set of facts, it first looks at the “plain meaning” of the statute. The United States Supreme Court discussed the plain meaning rule in Caminetti v. United States, 242 U.S. 470 (1917), reasoning “[i]t is elementary that the meaning of a statute must, in the first instance, be sought in the language in which the act is framed, and if that is plain... the sole function of the courts is to enforce it according to its terms.”

The plain meaning rule often plays an important part in exemption issues during bankruptcy. The bankruptcy court will examine the statute and apply it to the facts of the case. How the court interprets both the statute and the facts of the case can mean the difference between protecting and losing property during a bankruptcy case.

For instance, James and Glory Demeter had maintained their principal residence at a home in Riverview, Michigan, since 1972. In fact, they occupied the home when they filed Chapter 7 bankruptcy in 2012. But they also owned a second home in Cheboygan purchased in 1996. The Demeters lived in Riverview half the year and Cheboygan half the year, and they planned to ultimately live in Cheboygan full time. Consequently, the Cheboygan property was never rented out, never winterized, and was used on winter holidays including Christmas and New Year.

A Michigan bankruptcy court allowed the Demeters to apply their homestead exemption under Section 522(d)(1) of the Bankruptcy Code to protect the Cheboygan property. The court pointed out that this section is not limited to the debtor’s primary or principal residence (whatever those terms mean, since they are not defined by the Bankruptcy Code). The court said that a bankruptcy debtor can apply the homestead exemption to any property that the debtor uses as a residence, even if his principal residence is elsewhere. See In re Demeter, 478 B.R. 281 (Bankr. E.D. Mich. 2012).

Likewise, in the case of Condit v. McKeithan, Case No. 11-41305 (5th Cir. 2012), a debtor was allowed to claim a homestead exemption on property she owned in Texas, but had not resided in for nine years! The debtor had lived with her daughter in Louisiana due to a medical condition, but never abandoned the property in question and consistently stated her intention to return when her health would permit. The debtor maintained the property, paid the taxes and insurance, and kept utilities. She even had an active land-line telephone at the property. However, the debtor used her daughter’s address for mail and on her driver’s license.

Once a property has acquired the status of a homestead, this status typically continues until an abandonment occurs, which depends largely upon the intent of the debtor/claimant and upon the facts of the case (and how the court interprets the homestead statute). The 5th Circuit Court of Appeals stated in Condit v. McKeithan that abandonment of a homestead requires both cessation of use of the property as the debtor’s homestead coupled with an intent to permanently abandon the property as a homestead. The appellate court said that the evidence did not indicate any intent to permanently abandon the homestead.

Placing property on the market with an intent to sell may also put the debtor’s homestead exemption at risk. By evidencing no intent to remain in the home, the debtor may abandon his homestead exemption under certain state laws. See Carpenter v. Brown, 13-CV-61183-KMM (SD Fla. 2013)(signing contract for sale before bankruptcy abandons homestead exemption, even though debtor still lived in property). In some cases the debtor’s intent to reinvest proceeds from the sale of a home into another homestead (within a reasonable time) may be sufficient to protect the homestead exemption. See Orange Brevard Plumbing & Heating Co. v. La Croix, 137 So. 201 (Fla. 1962).

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

Credit Unions Can Help After Bankruptcy

Rebuilding your credit after bankruptcy is not automatic. Raising your score and proving your credit-worthiness takes vigilance and persistence. If you never re-establish your credit, then the last (and eventually, only) entry on your credit report will be your bankruptcy filing. To raise your score, you must show responsible use of credit.

There are many credit roads to take after bankruptcy. Many individuals report receiving credit card offers in the mail a few weeks after filing bankruptcy. Most of these offers contain high interest rates and fees, but are effective to re-establish a revolving credit history. Installment loans and revolving credit are two types of credit that will quickly raise a credit score.

Perhaps the safest and least costly way to rebuild your credit is by taking advantage of credit building programs at your local credit union. Unlike banks, which are publically owned and concerned with turning profits for shareholders (generally through large-scale lending), credit unions are owned by members and are not-for-profit institutions. Consequently, most credit unions offer aggressive and helpful products to assist members with credit problems.

Credit Builder Loan

A Credit Builder Loan is an old trick that bankruptcy debtors have used for years. It is a simple signature loan secured by a cash deposit. For instance, you give the credit union $500, and it loans you $500. You make a monthly payment at a low interest rate, and the credit union reports your payments to the credit bureaus. At the end of the loan, the deposit is returned to you, plus interest.

Secured Credit Card

Many credit unions also offer secured credit cards to their members. A secured credit card works in much the same way as a Credit Builder Loan: you make a small cash deposit with the credit union, say $500, and the credit union extends you a credit line on a Master Card or Visa. When you make a small purchase on the card and pay the monthly payment, the credit union reports the responsible credit usage and payments to the credit bureaus. Once the account is finally closed, the deposit is returned to the member. In many cases the secured card is converted into an unsecured card after the member proves his or her credit worthiness.

Rebuilding a credit profile after bankruptcy and raising your credit score is not difficult, it just takes some savvy and some effort. Your bankruptcy attorney can provide you with helpful credit rebuilding tips and suggestions that are tailored to your individual case.

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

Revoking Debtor's Discharge

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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.

Justice Department Announces New Means Testing Figures

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

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

 

     

FAMILY SIZE

 

STATE

1 EARNER

2 PEOPLE

3

PEOPLE

4

PEOPLE *

ALABAMA

$39,768

$48,770

$51,621

$66,434

ALASKA

$53,489

$76,118

$82,377

$85,581

ARIZONA

$41,993

$55,022

$56,503

$64,604

ARKANSAS

$37,081

$46,495

$50,755

$58,333

CALIFORNIA

$47,798

$62,009

$66,618

$75,111

COLORADO

$50,242

$65,701

$71,138

$83,330

CONNECTICUT

$60,403

$72,761

$86,254

$104,670

DELAWARE

$51,711

$62,350

$68,439

$85,806

DISTRICT OF COLUMBIA

$45,793

$89,233

$89,233

$101,582

FLORIDA

$41,334

$51,839

$53,952

$63,196

GEORGIA

$40,631

$52,610

$55,829

$68,085

HAWAII

$52,975

$65,708

$80,618

$83,538

IDAHO

$40,303

$51,105

$52,366

$59,971

ILLINOIS

$47,536

$61,253

$70,014

$81,680

INDIANA

$41,250

$51,926

$61,021

$71,113

IOWA

$42,346

$58,057

$64,027

$76,173

KANSAS

$43,793

$57,502

$65,394

$72,453

KENTUCKY

$40,633

$47,788

$53,639

$67,839

LOUISIANA

$38,639

$49,078

$53,768

$68,890

MAINE

$40,560

$53,979

$61,702

$72,841

MARYLAND

$58,202

$75,992

$86,655

$105,685

MASSACHUSETTS

$55,794

$69,569

$84,269

$105,299

MICHIGAN

$44,072

$52,540

$61,110

$74,863

MINNESOTA

$48,876

$64,454

$77,579

$90,945

MISSISSIPPI

$35,306

$44,149

$44,149

$51,140

MISSOURI

$40,994

$51,421

$57,468

$72,230

MONTANA

$40,419

$55,715

$60,107

$69,954

NEBRASKA

$41,866

$59,564

$61,380

$73,402

NEVADA

$41,054

$55,349

$55,349

$61,732

NEW HAMPSHIRE

$52,588

$67,408

$82,656

$97,499

NEW JERSEY

$60,317

$70,150

$85,575

$103,946

NEW MEXICO

$38,914

$49,538

$50,548

$55,184

NEW YORK

$47,414

$59,631

$70,151

$83,614

NORTH CAROLINA

$40,736

$51,662

$55,049

$66,147

NORTH DAKOTA

$44,098

$61,172

$72,041

$87,154

OHIO

$43,057

$53,075

$60,679

$76,381

OKLAHOMA

$39,749

$51,097

$55,641

$64,916

OREGON

$44,779

$55,568

$60,693

$70,812

PENNSYLVANIA

$47,119

$55,872

$70,092

$81,961

RHODE ISLAND

$48,651

$61,510

$74,720

$91,592

SOUTH CAROLINA

$39,301

$48,891

$54,010

$62,490

SOUTH DAKOTA

$39,040

$56,899

$60,259

$75,267

TENNESSEE

$39,759

$48,053

$56,042

$62,805

TEXAS

$41,354

$56,296

$59,567

$68,566

UTAH

$49,347

$57,734

$65,311

$70,176

VERMONT

$43,772

$60,346

$67,388

$79,128

VIRGINIA

$51,817

$65,510

$75,774

$90,945

WASHINGTON

$52,996

$63,409

$72,286

$84,970

WEST VIRGINIA

$42,415

$45,284

$54,229

$65,442

WISCONSIN

$43,958

$57,903

$67,808

$80,198

WYOMING

$51,116

$65,237

$70,319

$76,120

         

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

   

Inheritance During Chapter 13 Bankruptcy

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

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

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

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

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

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

 

Surrender Property During Bankruptcy

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

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

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

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

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

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

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

 

 

Bankruptcy Courts Open During Government Shutdown

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

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

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

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

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.

 

 

Student Loan Reform Stalled

 
President Obama’s student loan proposal has taken a back seat to new pressing issues that face the country. The conflict in Syria, and now the government shut down and debt ceiling debate, have curbed current efforts to tackle this continuing issue.

Congress’s inability to work together may be casting a shadow on any attempts to reform the broken Student Loan system. The President’s proposal included expansion on income-based repayment, and a “race to the top” provision, which requires congressional action. Not included in the proposal was an expansion on bankruptcy laws that would allow a discharge through the bankruptcy process.

In 1970 restrictions were put on the dischargeablilty of student loans to prevent law and medical students from discharging the debt immediately upon graduation. Then in 2005 the laws were expended and also included private student loans as well as public student loans.

With out the ability to discharge student loans in bankruptcy, this is placing a huge burden on consumers all across the country. Student loan debt is growing rapidly and there have been few proposals to solve the problem.

If you have questions about your student loan debt or about bankruptcy, the experienced attorneys at the Fears | Nachawati Law Firm can clarify and resolve any questions or issues you have on these sometimes confusing items. For a free consultation, contact our office at 1.866.705.7584.

 

How Bankruptcy Affects Auto Insurance

The amount of an auto insurance premium is determined by statistical data that predict the individual’s risk for a loss. Common factors that impact an insurance premium include year, make and model of the vehicle (e.g. more expensive cars are more expensive to repair and insure), the age and gender of the driver (e.g. a young male is statistically more likely to have an accident than a middle aged woman), and how the vehicle is used (e.g. driving a short daily commute is less likely to be in an accident than a traveling salesman).

Another predictor of risk used by 92% of all insurance companies is the individual’s credit score. Filing bankruptcy will drive down an individual’s credit score and will ordinarily increase insurance premiums. This begs the question, what can an individual do to keep his or her insurance rates low when filing bankruptcy?

The first and most obvious answer is, lock in your insurance rate before filing bankruptcy. Instead of a six month auto insurance policy, consider one with a term of twelve months. Paying the policy in full prior to bankruptcy also reduces the chances of being canceled for a poor credit score. Credit scores are generally lowest immediately after a bankruptcy filing and will increase during the subsequent twelve months.

Another option is to do some rate shopping. Not every insurance company discriminates on the basis of credit, and some are more forgiving when it comes to personal bankruptcy. An independent insurance agent with connections to several different companies should be able to find a reasonable rate, especially if there is a good history of paying insurance premiums, no insurance claims, and no moving violations in the past three years.

Bankruptcy is often trading a short-term pain for a long-term gain. An experienced bankruptcy attorney can prepare you for some of the issues surrounding your bankruptcy filing and lessen the temporary sting. If you are considering filing for bankruptcy, the experienced bankruptcy attorneys at the Fears | Nachawati Law Firm can offer you the legal guidance and assistance needed to get back on your feet financially. For a free consultation, contact our office at 1.866.705.7584.


 

Consumer Bankruptcy Takes a Plunge in 2013

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

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

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

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

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

Filing a Bankruptcy Pro se

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

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

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

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

Cram Down a Vehicle in Chapter 13

While some Americans are able to get by without a personal vehicle, having reliable transportation is necessary to most. Whether it is a means to get to work or to school or to take the kids to soccer practice, a vehicle can be an important part of daily life. It is no wonder that one of the first questions bankruptcy clients ask is, “Can I keep my vehicle during bankruptcy?” Fortunately, a Chapter 13 bankruptcy debtor may be able to keep his or her vehicle and qualify for lower monthly payments.
   Commonly called a “cram-down,” Section 506 of the Bankruptcy Code allows a bankruptcy court to separate a creditor’s claim into two parts (called “bifurcation”). The first part is a secured claim, which is allowed up to the value of the securing collateral. The second part is an unsecured claim, which is paid at the same rate as other general unsecured creditors or simply discharged at the end of the case.
   Take for example, a vehicle with a fair market value of $10,000 and a loan of $20,000 secured by a perfected lien. Under the cram-down provisions, a bankruptcy court can designate $10,000 of the loan as secured (equal to the vehicle value) and $10,000 as unsecured. The secured portion is paid over three to five years in the debtor’s plan. The remaining unsecured debt is treated the same as the debtor’s medical bills, credit cards, and other unsecured debts. Obviously, cram-down can be a tremendous benefit to a debtor with an upside-down vehicle loan.
Not all vehicle loans qualify for cram-down. Section 1325(a) of the Bankruptcy Code prohibits bifurcation under certain circumstances. Let’s look at when those limitations occur:

. . .section 506 shall not apply to a claim described in that paragraph if[:]
(1) the creditor has a purchase money security interest securing the debt that is the subject of the claim,
(2) the debt was incurred within the 910-day period preceding the date of the filing of the petition,
(3) and
a. the collateral for that debt consists of a motor vehicle (as defined in section 30102 of title 49) [and]
b. acquired for the personal use of the debtor…

   First, if the secured loan isn’t a purchase money interest (PMSI), there is no cram-down prohibition. Black’s Law Dictionary defines PMSI as the interest created when a buyer uses the lender’s money to make a property purchase and the lender retains a secured interest in the property as collateral for the loan. See Black's Law Dictionary (9th ed.2009). Refinancing loans or pledges of a vehicle as collateral are not PMSI loans, so Section 1325(a) does not apply.
   While the federal bankruptcy laws are meant to be uniform across the country, the sweeping changes to the Bankruptcy Code in 2005 left many questions that are still being resolved by different circuits. Courts are also currently struggling with whether inclusion of negative equity from a trade-in or purchase of an extended warranty plan transforms or bifurcates the PMSI. If transformed, then section 1325(a) does not apply. If bifurcated, then the loan is split into PMSI and non-PMSI interests. Section 1325(a) would only apply to the PMSI portion.
   For instance, the Ninth Circuit in the case of In re Penrod broke from the rest of the country and decided that the amount of negative equity in a trade-in that was rolled into a new vehicle loan could be stripped off, even when the loan is less than 910 days old. This case highlights the different interpretations of the new bankruptcy laws and why it is critical to investigate current case law in the jurisdiction and local bankruptcy court practices.
   Second, a vehicle is ineligible for cram-down if it was purchased within 910 days of the bankruptcy filing. Vehicles ineligible for cram-down during Chapter 13 bankruptcy must be repaid over the three to five year repayment period. If the vehicle was purchased more than 910 days before the bankruptcy filing, the court may bifurcate the loan in a cram-down.
   Third, is the property a “motor vehicle” as defined by 42 USC 30102? The answer will almost always be “yes,” but this definition does leave some wiggle room. A “motor vehicle” means a vehicle driven or drawn by mechanical power and manufactured primarily for use on public streets, roads, and highways, but does not include a vehicle operated only on a rail line. Consequently, a Segway, a travel trailer, semi trailer, racing bike, dirt bike, and ATV are all outside the classification of “motor vehicle.”
   Fourth, the vehicle must have been acquired for the personal use of the debtor. The term “personal use” is not defined by the bankruptcy code. Most courts interpret this section to mean non-business use. Some courts use a totality of the circumstances test and find that a vehicle is not acquired for personal use if it allows the debtor to make a “significant contribution” to the family income. Vehicles such as a delivery van or work truck with racks used in the debtor’s business probably fail the “personal use” test. A tougher question is when the debtor purchased the vehicle for a child or non-filing spouse. A vehicle acquired for the personal use of a non-filing family member may be outside the protection of the hanging paragraph.
   One last note: even if the principal amount of the secured loan is ineligible for cram-down, the interest rate can be adjusted to a maximum allowed rate, called the “Till rate” so named after the U.S. Supreme Court case, Till v. SCS Credit Corp., 541 U.S. 465 (2004). The Till rate is adjusted twice a year by the bankruptcy court, and has recently been around 5%. Vehicle debt for many Chapter 13 debtors is paid at the Till rate over the course of the bankruptcy case.
   If you are considering bankruptcy, the experienced attorneys at the Fears | Nachawati Law Firm can help you navigate through the sometimes confusing process of filing a bankruptcy and get you back on track to financial stability. For a free consultation, contact our office at 1.866.705.7584.

 

Collision of Tax Return and Bankruptcy Forms

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

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

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

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

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

 

Three Reasons to Consider Bankruptcy in Early Fall

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

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

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

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

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

Honest Fees for Honest Work

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

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

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

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

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

Positives and Negatives of Reaffirmation Agreements

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

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

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

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

Help! I'm a Bankruptcy Creditor!

Bankruptcy law is a balancing act between the rights of the debtor and his creditors. The presumption is that the debtor receives a discharge of debts and a fresh financial start - but that is not the end of the story. When you receive a notice of bankruptcy filing, you have rights and responsibilities. You may even be entitled to receive some or all of the money owed by the debtor.

The first and most important thing for a creditor to know is that a bankruptcy filing (generally) imposes an automatic stay against collection actions against the debtor. This is a court-ordered injunction that stops garnishments, harassment, and legal processes. If you choose to ignore the stay order, you may be penalized with contempt of court by a federal bankruptcy court judge. This may include a fine, an order to pay attorney fees, or other penalty. Consequently, the best (and safest) thing a creditor can do after receiving a notice of bankruptcy is to immediately stop all collection activity.

The second important thing is to consult with a bankruptcy attorney. Just because the automatic stay is in place does not mean that your hands are completely and forever tied. On the contrary, you may be able to collect from property securing a debt, or you may be able to obtain relief from the court order in order to proceed in your collection efforts (commonly called “lifting the stay”).

As a creditor, you will receive notices about the debtor’s case. You are also entitled to attend court hearings and invited to the debtor’s meeting of creditors. Most creditors do not attend this meeting; even though it can be a valuable source of information. In a bankruptcy case in which funds are paid to unsecured creditors, such as many Chapter 13 cases or Chapter 7 asset cases, you must file a proof of claim in order to have a chance at receiving payment from the bankruptcy Trustee.

A creditor may object to the discharge of his debt, or to the debtor’s discharge entirely. The Bankruptcy Code lists situations when a debt may be excepted from discharge (for fraud, for example), but the creditor must file a complaint objecting to the discharge of the debt before the bankruptcy court’s deadline, or the debt will be included in the debtor’s discharge.

In extreme cases of debtor dishonesty, a creditor can ask the court to deny the debtor a discharge of all debts. This usually involves the cooperation of the bankruptcy Trustee (and the Department of Justice, the FBI, and often the IRS). If you suspect the debtor is engaged in bankruptcy fraud, hiding assets or simply not telling the whole story, you should contact the bankruptcy Trustee and discuss the situation.

Creditor vigilance and obtaining representation is the appropriate response to a notice of bankruptcy filing. For the honest but unfortunate debtor, the creditor may be out of luck. However, if there are assets available for distribution to creditors, the vigilant creditor will get paid while inattentive creditors do not.

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

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

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

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

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

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

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

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

 

The Automatic Stay

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

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

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

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

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

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

How can I get in Trouble in a Bankruptcy?

For the most part, bankruptcy is largely a trust process. What this means is that it is extremely unlikely that any court representative or creditor will ever come to your home and take an inventory of what you own. The trade off for that is that you have to swear under penalty of perjury that everything in the bankruptcy petition and schedules is true and correct to the best of your knowledge. You will also be testifying to that effect in front of a Bankruptcy Trustee. The only way you can get in trouble in a bankruptcy is if you lie or hide something. The most common examples of this are that someone will hide property (usually by giving it to a family member) or lie about their income. Committing perjury (lying under oath)in a bankruptcy can have absolutely horrible consequences, including seizure of assets, the revocation of the bankruptcy discharge, and potential jail time and fines.

Here in the Dallas/Fort Worth area, there was a famous case a few years ago where a pharmacist filed for bankruptcy. He had hidden nearly $6 million dollars in cash in his house when he filed for bankruptcy. He disclosed none of that money in his case. In a bankruptcy case, that money would have been used to pay off his creditors. Federal agents later raided his home and found all of the money in various hiding places. The pharmacist is now serving 14 years in federal prison, and he also had to forfeit all of his money. More information on the case can be found at: http://www.dallasnews.com/news/crime/headlines/20130717-colleyville-pharmacist-and-son-get-prison-time-for-tax-fraud1.ece. More recently, a reality television star from the Real Housewives of New Jersey has been indicted for bankruptcy fraud for lying about their income. More on that story can be found at: http://www.nj.com/entertainment/index.ssf/2013/09/trial_real_housewives_teresa_joe_giudice_postponed.html.

So what is the moral of the story? If there’s a lesson to be learned it is that in bankruptcy (and out), honesty is always the best policy. A competent bankruptcy attorney can help you overcome many issues. Anything you tell an attorney is covered by attorney/client privilege so make sure that you always give your attorney the complete picture, ugly or not. The only way you can truly get in trouble in bankruptcy is by not telling the truth. If you have complicated issues that you want an attorney to look at, come visit with the attorneys at the Fears | Nachawati Law Firm. Our successful bankruptcy attorneys can help you sort out your financial issues and put you back on the right track to financial stability. To set up a free consultation, click here or call our office at 1.866.705.7584.

 

 

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

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

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

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

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

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

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

Will Filing Bankruptcy Affect my Job?

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

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

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

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

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

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

Personal Guarantees and Bankruptcy

 A financially struggling small business owner can become confused as to the extent of his or her personal liability for business debts. The answer is found in the relationship between the individual and the debt, in other words, “Is there a personal guarantee?”

What is a Personal Guarantee?

A personal guarantee is a contractual promise that obligates a person to a loan. All “personal” loans have a personal guarantee, i.e. the bank gives you money and you promise to repay it. The promise to personally repay the debt is sometimes backed by the individual’s good credit, and other times by property pledged as collateral.

Personal Guarantees can be Discharged in Bankruptcy

Most personal guarantees can be discharged in bankruptcy. Some personal guarantees cannot be discharged because the underlying debt is non-dischargeable (such as some student loans or some agreements in divorce cases). Whether a personal guarantee is discharged depends largely on the relationship between the original obligor and the debtor issuing the personal guarantee. The most common relationships are:

  • Individual
  • Co-debtor
  • Sole Proprietor
  • Company

Individual

A personal guarantee is standard for most personal obligations. In other words, if you borrow money, you are obligated to repay the debt. If you don’t pay, the lender can collect from you personally. Discharging a personal obligation in bankruptcy means that the debt is no longer enforceable against the discharged debtor. However, the creditor may seek to collect on any property pledged as collateral for the debt.

Co-Debtor

Personal guarantees are often given for co-signed loans. There is a great deal of confusion surrounding co-signed loans. Many people believe that a co-signor is not directly obligated for the debt. While a lender will seek payment from the borrower first, the co-signor is 100% obligated for the full amount of the debt. Consequently, if the borrower files bankruptcy, the co-signor owes the entire debt.

Sole Proprietor

Bankruptcy is not much help in a sole proprietor situation because the business does not legally exist. An unincorporated business is an extension of the owners, so there is no business to file bankruptcy. All sole proprietor business debts are personal debts.

Company

Most small business debts are personally guaranteed. When a business files bankruptcy, the creditor will turn to the guarantors for payment. If the debt is not personally guaranteed, the creditor is left to collect from business assets.

If you are you burdened by personal guarantees on your business debts, speak to an experience attorney at Fears | Nachawati and see if bankruptcy is right for you. Bankruptcy can discharge personal guarantees and get you back on your feet again. For a free consultation, contact us here or call our office at 1.866.705.7584.

Who is a Good Candidate for Chapter 7 Bankruptcy?

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

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

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

-Rental houses, vacation homes, time share property

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

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

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

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

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

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

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

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

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

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

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

I Received Notice that my Bankruptcy Case is Being Dismissed, What Should I do?

 While in a bankruptcy case a party can move to have the case dismissed. Dismissal put simply, ends the bankruptcy case and you no longer have the protection of the bankruptcy code and its automatic stay.  When your case is dismissed your creditors can restart collection actions, this means that they can call you, file lawsuits and/or if you are behind on your house or car payments, then they can foreclose or repossess the collateral.  If you get a notice that your bankruptcy case is in the process of being dismissed the first thing to do is CONTACT YOUR ATTORNEY. There are ways to avoid a dismissal, but without first speaking with your attorney it may not be avoidable.

There are a variety of reasons why your bankruptcy case may be up for dismissal; below are the most common examples and some possible solutions to resolve a dismissal.

The most common dismissal is for failure to make plan payments. In a chapter 13 case, if you fall behind on your plan payments a party, typically the Trustee, can move to dismiss your case.  In order to avoid dismissal you will need to get current on the plan payment. The ideal solution is for you to make a large payment to get caught up, but this is not always possible. You may also be able to work out a short term payment plan with the Trustee, whereby you send in an increased payment for a short number of months until you pay off the amount you were behind on. Another option may be to modify your chapter 13 plan and try to pay the delinquency over the remainder of your plan. There are a variety of options, so speak to your attorney about which is best for your case.

Another reason for dismissal is failure to confirm your chapter 13 case. This will typically be filed if you miss your first plan payment, failed to provide documents, file amendments, failed to conclude your 341 meeting, or other confirmation issues. The best way to resolve these dismissal actions is to work with your attorney to make sure they have all the required documentation and information needed to confirm your case. If you fail to get the case confirmed, the case can be dismissed.

Throughout a chapter 13 case the debtors are required to stay current with their ongoing income tax obligations. The IRS can ask for your case to be dismissed if you have a large tax liability and are unable to timely resolve the tax debt. The reason for this type of dismissal is that the bankruptcy code wants debtors to avoid a double insolvency; put in another way, being bankrupt while in bankruptcy which frustrates the “fresh start.” A debtor will want to make sure before the case is filed that their withholding is sufficient to cover any tax liability, or that they send in quarterly taxes to the IRS to cover any potential liability. If something happens and you do have a large liability, your attorney can work with the IRS to possibly include the post petition liability in the plan. Section 1305 of the bankruptcy code allows some post-petition priority debts to be included in the chapter 13 plan. If this happens to you, it is important to speak to your attorney because the IRS and the Trustee must agree to allow you to include the IRS debt, and they will want to insure that a future tax debt does not arise.

A bankruptcy dismissal is a very serious matter. If you receive notice that a party is seeking dismissal, contact your attorney as soon as possible. Responding quickly to these matters is essential in working out a resolution. If you have any questions regarding how chapter 13 works contact the experienced attorney’s at Fear I Nachawati here for a free consultation, or call our office at 1.866.705.7584.

Who can I Claim as a Member of my Household in a Chapter 7 or a Chapter 13 for Purposes of the Means Test?

 In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which completely changed the eligibility for consumers to file a Chapter 7 bankruptcy. BAPCPA was signed into law by President George W. Bush and began affecting cases filed after October 17, 2005. One of the principal changes that BAPCPA made is that it imposed a mathematical formula to determine who qualifies to file a Chapter 7; this formula is often called “The Means Test.”

One of the biggest components of the Means Test is determining the number of “members” who reside in a household. Household size is very important because it helps determine what the applicable median income for your family is. In very general terms, if your family is below median income, you qualify to file a Chapter 7. In Texas, the median income for various household sizes is equal to: 1 member= $41,225.00; 2 members= $55,895.00; 3 members =$60,503.00; and 4 members=$67,296.00. For each additional household member, you get to add another $8,100.00.

Unfortunately, when Congress passed BAPCPA, they failed to define what actually constitutes as a “household member”. So what determines whether or not someone can be included as a member of your household? Most of the time, a household member is synonymous with who you claimed as a dependent on your last tax return. This can include your children, spouse, and/or elderly relatives. Some debtors can run into trouble when they claim an adult child as a dependent. Typically, if a child is older than 18 and lives at home, the parent can usually no longer claim that child as a member of their household for purposes of the Means Test*.

The Bankruptcy Trustee and Judges view this scenario as follows: if the child is an adult and not attending school, nor has a disability, that child should be working to support himself/herself. By paying for the adult child’s expenses, the Court will view the parent as squandering precious resources that could be used to pay off at least some of the debtor’s debts. Is this a realistic position given the realities of the current value of a college education and today’s job market? Possibly not. But regardless, the Court will not typically allow a parent to claim an adult aged child for that reason.

While who a debtor has claimed on their tax returns as a dependent in the past is a good indicator for who should be considered to be a member of a debtor’s household, it is not the sole determination. The best thing to do is to talk to an experienced bankruptcy attorney regarding your situation. If you are interested in filing bankruptcy, the attorneys at  Fears | Nachawati will be happy to discuss your options with you. For a free consultation, contact us here or call our office at 1.866.705.7584.

 

*If a child is older than 18 and is either a full-time student or disabled, the parent can still claim the child as a dependent. 

Statute of Limitations on Debt Collection Action in Texas

The Texas civil practices and remedies code sets the statute of limitations on a breach of contract for a debt, either in writing or oral for 4 years. (See Tex. Civ. Prac. & Rem. Code § 16.004(a)(3)).  This means that from the time of the last payment by the debtor, the creditor has 4 years to file a lawsuit to obtain a judgment on the debt. However, even after the debt has surpassed the 4-year limitation, that doesn’t necessarily mean that you don’t need to worry about it any longer. There are many nuances to this rule that can cause issues for debtors who are straddled with debt.

First, the statute of limitation is a defense. This means that a creditor can still file a lawsuit even if the 4 years have passed. It is then up to the debtor to plead that the debt is past the statute of limitations. If the debtor doesn’t answer the lawsuit the creditor may still get a default judgment, and it can be costly to go in after the fact to get it reversed.

The statute of limitations starts from the time the debt defaulted. Defaulted means from the last time the debt was paid. So a debt may be more then 4 years old, but if you make a payment then that will reset the clock on when the statute runs. This includes a settlement payment if you try to work something out with a creditor.

Debt information will remain on your credit report for up to 7 years. Even if your debt has past the statute of limitations, the debt will still affect your credit score. The credit reporting agencies will list the debt for up to 7 years and this can result in a negative credit score.

Most creditors will file a lawsuit well before the statute of limitations runs, especially if the debt amount is high. This is because most creditors know the statute of limitations and want to make sure that they do not become time barred from filing.

The strongest aspect of the statute of limitations is that it stops a creditor from pursuing a judgment on a debt after the limitations have ended. This means that the creditor will never be able to attach their judgment on any of the debtor’s property, and they cannot get a court to enforce it.  Also, if a debtor were to file a chapter 13 bankruptcy, the statute of limitations can prevent the creditor from being paid out by the chapter 13 plan payment. If you have an old debt that is ruining your credit, or if a collector is harassing you, contact the experienced attorneys atFears | Nachawati Law Firm at 1.866.705.7584. We offer a free 60 minute consultation and will review your debts with you to determine what the best course of action is. 

Claims and Causes of Action in a Bankruptcy Case

 When filing for bankruptcy, you will be required to list all of your property and assets on your schedules or bankruptcy paperwork. A type of asset that is often overlooked includes any potential lawsuits you may be able to bring. Usually, these kinds of cases would be a personal injury case, like a car accident or slip-and- fall case, or it could be a wrongful termination, or even a breach of contract. It is important that if you have a cause of action, you make sure that it is listed on your bankruptcy schedules. Failing to list a cause of action can cause this potential suit to be barred. In other words, you would not be able to pursue that lawsuit at any point in the future.  This is because of the legal doctrines of judicial estoppel or res judicata. Note: you can also be subject to penalties under the bankruptcy code for failing to list assets.

Failure to disclose a cause of action in bankruptcy could result in a total bar to prosecution of the cause of action through judicial estoppel.  Put simply, you can’t have your cake and eat it too. Judicial estoppel is an equitable doctrine which prohibits a party from taking a position on an issue that is clearly inconsistent with what they previously asserted. So in other words, you can’t say that you do not have a lawsuit and then later claim that you do because it’s convenient. Debtors may also find their causes of action barred by res judicata if they fail to disclose the causes of action on their schedules. Res judicata seeks to prevent parties from having multiple opportunities to litigate the same claim that they have or should have already taken care of.

The value listed on the schedules for a cause of action or a potential cause of action can also have judicial estoppel effects. For instance, if you claim a cause of action for a very small value or no value, you may be limited to that amount if/when you pursue the lawsuit.

Value is also important so that you can exempt the cause of action. Certain types of lawsuits fall under state or federal exemptions. For example, awards from personal injury lawsuits or wrongful death lawsuits can qualify for federal exemptions under 11 U.S.C. § 522(d)(11). Under the Federal exemptions debtors can also use the 11 U.S.C. § 522(d)(5) or “wildcard” exemption to exempt the asset.

Therefore, it is very important that if you are preparing to file for bankruptcy that you tell your attorney about any lawsuits you may have.  The attorneys at Fears | Nachawati will be able to walk you through this important process and make sure that you are able to protect your lawsuit and make sure you file under the right chapter or use the correct exemptions. To get started with a free consultation, call our office at 1.866.705.7584.

Check Your Credit Report After Bankruptcy

 The Federal Trade Commission (FTC) recently released a study citing that one in four American consumers have errors on their credit reports. In some cases, these errors are serious enough to cause higher interest rates for auto loans, insurance, and other credit products.

Most people examine their credit reports when preparing for bankruptcy. Credit reports issued by Trans Union, Experian, or Equifax offer a wealth of useful information, like creditor names, addresses, account numbers, and amounts. However, few see the need to review their credit reports after bankruptcy.

One common misconception is that the bankruptcy court will report to the credit bureaus. It does not. It is your responsibility to ensure that the information in your credit report is accurate. Discharged debts should be listed as “included in bankruptcy,” with a balance of “zero.” There should be no collection activity listed on your credit report after the filing date of your bankruptcy case. For instance, the addition of a third party collector after the date you filed bankruptcy violates the bankruptcy automatic stay injunction and should be removed from your credit report. Likewise, overdue payments after the filing date are considered collection actions and should be removed.

Cleaning up your credit report is the first step to credit recovery after a bankruptcy case. In many cases, a person can improve his credit score to an average score within a year or two after bankruptcy. However, any stumble along the way will only magnify the bankruptcy filing and keep your credit score low. For this reason, it is important to monitor your credit report for errors or any changes at least twice a year.

The federal law mandates that each credit reporting agency must issue a free credit report to a person once a year upon request. To facilitate this directive, the three major credit bureaus have created a consumer website: https://www.annualcreditreport.com. At this cite you can obtain an entirely free credit report without a credit card or on-going financial obligation. A copy of your credit bureau credit score is also available for a nominal fee.

Checking your credit report for errors after bankruptcy is the first step to recovering from bankruptcy. Equally important is continuing to monitor your report as you rebuild your credit. With patience and vigilance, the recovery process can be surprisingly quick. Many bankruptcy debtors are able to obtain car or home loans at average interest rates just a few years after filing bankruptcy. If you are considering filing for bankruptcy or have any questions, the experienced bankruptcy attorneys at Fears | Nachawati Law Firm can provide the legal guidance and advice you need to make a fresh start financially.  For a free consultation, contact the attorneys  here or by calling the office at 1.866.705.7584.

 

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

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

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

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

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

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

 

 

My Creditor is Suing me. What do I do?

 Often times, the reason that a debtor will choose to file bankruptcy is because a creditor is suing them. Usually, it is a credit card that they have been unable to pay do to some unforeseen circumstance. Many debtors will also try to make payment arrangements with the creditor but are unable to do so either because they have too much income or too little.  

If your creditor sues you the first thing that will happen is that you will receive a citation. This will be served upon you either by a sheriff or a process server. If the creditor is unable to serve you, they may also be able to get court permission to use an alternative service; by either posting the citation on the door or mailing it to you.  

After you have been served you are only given a certain number days to file an answer. The standard answer deadline in Texas is the Tuesday following 20 days after the debtor was served. If the debtor doesn’t file an answer the creditor can get a default judgment, which is basically an automatic win for the creditor. If the debtor files an answer, then the creditor will either send discovery requests to the debtor to get more information, or set the case for trial and prove their case.

A judgment will allow the creditor to attempt to collect on their debt by attaching it to non-exempt property. Exempt property in Texas includes your homestead, your car, and personal items. Also, the Texas constitution prohibits a creditor from garnishing your wages, but they can attach the judgment to your bank account and garnish your money until the judgment is settled.

Filing for bankruptcy imposes an automatic stay, which will stop all collections. This includes a lawsuit. The filed suit will then discharge the debt that the creditor is attempting to collect. For more information on how to deal with a creditor who files a lawsuit and/or filing for bankruptcy, contact the experienced attorneys at Fears | Nachawati Law Firm.  

                                 

 

Educational Debts that are Dischargeable in Bankruptcy

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

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

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

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

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

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

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

                                                                                                                   

Setoff in Bankruptcy

 One area of bankruptcy law that can be a surprise to some debtors, especially pro se debtors, is the concept of “setoff”. Section 553 of the Bankruptcy Code allows creditors to offset debts owed to the creditor with debts that the creditor owes back to the debtor. The most common example of this would be a debtor’s bank account at an institution where they carry credit card debt. For example, Joe banks at Federal Bank where he has a checking account. That checking account has $2,500.00 in it the day Joe files bankruptcy. Prior to filing, Joe had a credit card with Federal Bank that he owed $5,000 on. Once Joe files bankruptcy, Federal Bank would be entitled to freeze Joe’s bank account and take his $2,500.00 to “setoff” the debt owed to them.

To enforce a setoff, the creditor has to have the right to do so under state law; Texas happens to be a state that allows setoff.  Once a debtor files bankruptcy, the creditor can administratively freeze any bank account the debtor has with them. Before the creditor can actually “take” the funds in the bank account, the creditor will have to file a Motion to Lift the Automatic Stay.

However, it is important to remember that a setoff only affects PRE-petition debts and PRE-petition credits. Here’s an example: Joe files bankruptcy on Wednesday. At the time of filing, Joe owed Federal Bank $5,000. At the time of filing, Joe did not have any money in his Federal Bank checking account. On Friday, Joe gets his paycheck direct deposited into his account for $2,000. Can Federal Bank take that money? Absolutely not. Joe filed on Wednesday and the money was not in his account until Friday, therefore Federal Bank would not be able to touch that money.

Setoff is a hidden pitfall that debtors can encounter if they don’t have an attorney. It is just one of the many instances where having an attorney can actually end up saving you a great deal of money and frustration. If you’re looking into filing bankruptcy and have questions, contact the knowledgeable attorneys at Fears Nachawati who will set you on the right path. 

                                

Creditor Notice of Appearance

You may ask yourself, what is that beautiful house?
You may ask yourself, where does that highway lead to?
You may ask yourself, am I right, am I wrong?
You may say to yourself, my god, what have I done?
- Talking Heads, Once in a Lifetime (1981)

There is usually a great sense of relief after filing bankruptcy. Creditors stop calling; threats of litigation, foreclosure, or repossession cease; garnishments end. You have a competent bankruptcy attorney handling your case, you have a solid plan to reorganize your finances, and you have provided complete and honest information; what is there left to worry about?

Then you receive a document in the mail entitled something like, “Entry of Appearance and Request for Notices,” and you start worrying again. What does it mean?

A notice or entry of appearance is a very common and innocuous document. It is merely a notice filed in the bankruptcy court by an interested party, usually by the attorney representing a creditor in your bankruptcy case. For instance, a notice of appearance is commonly filed by a secured creditor with an interest in following your case, like the bank that has your car loan. The notice of appearance contains contact information for the attorney and creditor, and copies of all future documents filed in the case are sent to this attorney.

In a Chapter 13 case, a notice of appearance is often filed with a proof of claim. In a Chapter 7 case, the creditor may file a notice of appearance concurrently with a motion for relief from stay. A creditor may also file this document when offering the debtor a reaffirmation agreement. The notice of appearance is not always an indication of the creditor’s intent to actively participate in or contest your bankruptcy case. Many times it is simple a desire to be added to the mailing list.

A notice of appearance does not require any action on the part of the debtor. It is not a time for worry or stress. To again quote the Talking Heads, it is same as it ever was. Your attorney will notify you if there is any action you need to take in your bankruptcy case.

 

Should you consider trading vehicles prior to filing chapter 13 bankruptcy?

 Although common sense might lead you to believe that it is a bad idea to acquire a new loan for a vehicle prior to filing bankruptcy, this may not be true in many situations.  Consult with your bankruptcy attorney and consider these issues:

First, there is no per se violation for acquiring a new secured debt prior to filing bankruptcy, so long as it is done “in good faith”. Generally, that means that you had a legitimate need for another vehicle. Perhaps your current vehicle is older and beginning to have mechanical difficulties. If you anticipate the cost of repairs to be significant, it may not make sense to spend a lot of money on repairs on an older vehicle.  Of course, you should also consider whether you need to purchase a vehicle at all.  The availability of public transportation in your area may make it unnecessary to actually own your own vehicle, but there are many areas of the country where public transportation is not a practical option.  As such, virtually all bankruptcy Trustees recognize that being a reliable worker requires having reliable transportation.

“Good faith” also means purchasing a vehicle that is within your needs and within your means.  Obviously, you should avoid purchasing vehicles that are considered luxury brands, but you should also select a vehicle that fits your needs.  There is usually no need for an SUV type of vehicle if you don’t have a family, and if you have to commute long distances it would be wise to purchase a fuel efficient car.

Another consideration is whether you believe your current vehicle will continue to be reliable throughout the term of your bankruptcy. This is important because once you file your bankruptcy case most Trustees and Courts won’t allow you to incur any new debt without first getting permission from them.  Therefore, assuming you will need to finance the vehicle, you can avoid this permission issue by purchasing the vehicle prior to filing. Furthermore, it is easier to obtain credit from a lender when purchasing prior to filing. Many lenders refuse to lend at all if you are already in a bankruptcy case.

Finally, if you believe that purchasing another vehicle prior to filing is the right option for you, then consider these issues when acquiring the loan.  First, be truthful on the loan application. Most lenders are going to be surprised if you file for bankruptcy protection shortly after acquiring the loan, and if they re-examine your application after that and determine you provided false or misleading information, they can ask the bankruptcy Court to set aside (undo) the financing transaction.  Or even worse, they may be able to bring a legal complaint against you for providing fraudulent information on your loan application. Also, it is usually not a good financial decision to purchase financing extras; such as credit life insurance in this type of situation. The attorneys at Fears | Nachawati would be happy to guide you and advise you on what your best course of action is. 

 

"Real Housewives" Stars Indicted on 39 Counts of Fraud

Lying, concealing, or omitting information during bankruptcy can have serious consequences – just ask Joe and Teresa Giudice of New Jersey. Teresa, star of Bravo cable channel's Real Housewives of New Jersey, recently appeared in court with her husband Joe to answer a federal indictment that that includes 39 counts of fraud. The Giudices made a brief appearance in a Newark, New Jersey federal court, surrender their passports, and were freed on $500,000 bond each.

The Giudices are accused of defrauding lenders during bankruptcy proceedings. Prosecutors say the couple received about $4.6 million in mortgages, withdrawals from home equity lines of credit and construction loans. Joe also failed to file tax returns for the years 2004 through 2008. During that time his income is said to have fluctuated wildly; the indictment states he made $323,481 in 2005 and $26,194 in 2006.

Teresa previously agreed to waive discharge of her debts in bankruptcy after the trustee accused the couple of concealing assets. According to the consent order, Teresa stated that she wanted to resolve the proceedings against her “without the need for further inquiry or litigation, and without her making any further admissions.” Other court papers revealed that Joe pleaded the Fifth Amendment when asked about hidden assets.

Real Housewives of New Jersey is in its fifth season on Bravo.

According to Teresa Giudice's attorney, Henry Klingeman, she will plead not guilty. If convicted the couple could spend 30 years in prison. Joe, who is not a U.S. citizen, could be deported back to Italy.

The bankruptcy process is an opportunity to set your finances right. It is a second chance for a fresh start. However, when the federal bankruptcy laws are abused, things can turn ugly very quickly. Not only can the court deny bankruptcy discharge to the debtor, the FBI and IRS may be called to investigate. The federal bankruptcy laws offer powerful protection and real relief without the need to conceal assets or perjury.

 

The Trustee's Avoidance Powers, Preferential Transfers, and Fraudulent Transfers in Bankruptcy

 It is almost always a bad idea to transfer assets prior to filing a bankruptcy. Usually this will raise red flags for the Trustee and the Court and lead them to believe that a debtor is attempting to hide assets. The Trustee can undo or “avoid” certain transfers made prior to the filing of a bankruptcy case. These transfers are usually called “preferential transfers” or “fraudulent transfers”.

A preferential transfer is basically a payment or transfer of property to a creditor prior to filing a bankruptcy case. In order to be “preferential”, the transfer must benefit a creditor (someone you owe money to), must be made while the debtor is insolvent, and is made within 90 days of filing a case, or one year if the transfer is to an “insider”. An “insider” is basically someone closely associated with the debtor, whether that is a friend, parent, sibling, or business partner. If the transfer meets these criteria, the bankruptcy Trustee can undo these transactions.

The best way to illustrate this is through an example. Say Joe borrowed $5,000 from his father in May of 2013. In April of 2013, Joe received his tax refund from the IRS for $6,000. In May, Joe takes the money from the refund and uses it to pay off his debt to his father. If Joe were to file bankruptcy in July 2013, the Trustee would be able to do undo that transfer. Essentially the Trustee would sue Joe’s father to get that money back into the estate; an unpleasant experience for both Joe and his father. The preference would expire in May of 2014, because the transfer was to an insider.

It also important to remember that, while the “preference period” is limited to 90 days or one year, the Trustee has a longer reach-back period to go after “fraudulent” transfers. Under the bankruptcy code, the Trustee has two years to go back and undo a fraudulent transfer. The Trustee can also use state fraudulent transfer law which usually has a reach-back of four years. A “fraudulent” transfer is usually defined as an action to hinder, delay, or defraud creditors. It is usually one where a debtor receives less than reasonably equivalent value for the property transferred and is either: 1) made while the Debtor is insolvent and/or 2) made for the benefit of an insider.

A typical example of this would be:  In January 2012, Joe’s debts far outweigh his assets and he hasn’t been paying his bills. Acme, Inc. got a judgment against Joe for $10,000 in April of 2012. In May of 2012, Joe decides to transfer his 1969 Ford Mustang (worth $20,000) to his son, Junior, for $1.00 to protect it from Acme taking the vehicle. In July of 2013, Joe decides to file bankruptcy.  First off, Junior is definitely an insider. The car at the time of the transfer was worth $20,000 and Joe only received $1.00 for it. Joe knew that he had a judgment against him from Acme at the time of the transfer. This would constitute a fraudulent transfer in the eyes of the Trustee. The Trustee could sue Junior to recover the vehicle, as May 2012 is clearly within the bankruptcy code’s two year window.

The moral of the story is: do not transfer assets prior to filing bankruptcy. Transferring assets can hurt your case and hurt the people you transfer your property to. Don’t consider transferring assets prior to filing bankruptcy without at least talking to a knowledgeable attorney. The attorneys at Fears | Nachawati would be happy to guide you and advise you what your best course of action.

                                                                                                                   

Automatic Termination of the Bankruptcy Stay

The Bankruptcy Code’s automatic stay is powerful protection that prohibits creditors from attempting to collect during a bankruptcy case. The protection was so powerful and effective that creditors lobbied Congress to amended the automatic stay laws in 2005. Now the Bankruptcy Code provides that the automatic stay is terminated if a debtor fails to (1) file a timely statement of intention with the bankruptcy court to reaffirm, redeem, or surrender property, AND (2) take timely action to perform the stated intention. Failure to perform either step means the property is removed from the bankruptcy estate, and creditors are free to repossess or take other collection action against the property in accordance with state law.

To prevent the termination of the automatic stay, section 362(h)(1)(B) of the Bankruptcy Code requires the debtor “to take timely the action specified” in the statement of intention, meaning some action beyond simply filing the statement of intention. Merely stating an intention to reaffirm a debt and expressing interest in negotiating payment terms is not enough. Taking steps to perform the debtor’s intention means actually signing a reaffirmation agreement; or taking steps that proves the debtor is willing and able to execute a reaffirmation agreement prepared by the creditor.

The Bankruptcy Code provides the debtor with a safe harbor if a debtor takes steps to reaffirm on the original contract terms and the creditor refuses to agree. In this case the automatic stay continues - but what if the debtor is behind on payments, is unable to catch up, and the creditor refuses to negotiate terms? This is sometimes the case when a debtor converts from Chapter 13 to Chapter 7. In the case of a home mortgage, the debtor may have no option but to deal with the mortgage arrears outside of bankruptcy. Another possibility is filing a “Chapter 20” bankruptcy: discharging all unsecured debts in Chapter 7, then filing a Chapter 13 to pay a mortgage arrears. The debtor is not eligible for a discharge in the Chapter 13 case, but can pay the mortgage arrears under the protection of the automatic stay.

Keeping the automatic stay in effect is more than just filing paperwork and waiting for the creditor to send a reaffirmation agreement. Reaffirming a debt requires attention to the case and communication with the creditor. Your bankruptcy counsel has procedures in place to ensure that the requirements of section 362 are met.

 

Declaring Bankruptcy: A Strategy for Twenty-Somethings?

If you’re in your twenties, things could be a little rough right about now. For recent college graduates, job prospects are tough. Interest rates on college loans – and for debt in general – are on the rise. Moreover, statistics suggest that you’re likely to go in-and-out of the job market, make several expensive moves and experience costly personal turmoil in the near future. With this in mind, declaring bankruptcy may be tempting.

 

For some twenty-somethings, declaring bankruptcy may be the right decision. Filing Chapter 7 or Chapter 13 bankruptcy can be like hitting the “reset” button, letting you shed credit card debt, become revenue positive and reduce your stress level. And for debtors who end up so deep in debt that bankruptcy is the only way out of the hole, filing sooner may be better than filing later.

 

On the other hand, other twenty-somethings may make the wrong choice if they file. Student debt is infamously difficult to shed in bankruptcy, meaning that your primary financial obligation may stay on your balance sheet. Moreover, by putting a personal bankruptcy on your credit rating, you could reduce your ability to access the credit you need to start out in life. This includes formal credit – like a car or home loan – as well as informal credit – like whether an apartment owner will rent to you.

 

The bottom line is that these decisions are difficult and that for many debtors in their twenties, it’s best to get good advice. Fortunately for you, the attorneys at the law firm of Fears Nachawati specialize in this area of law and, as a result, can guide you through the tough decisions you may face. Find out how we can help by contacting us today. The consultation is free and the advice could be priceless.

The Power of the Automatic Stay

If you’re behind on your debts, it probably feels like you’re at a disadvantage when it comes time to negotiate with your creditors. And, in many ways, you may be. However, for debtors who declare bankruptcy, one provision of the Bankruptcy Code in particular – the automatic stay – may level the playing field.

 

The automatic stay is sometimes referred to as “the big stop sign.” In general, the automatic stay puts a stop on all legal proceedings, including wage garnishments and the repossession efforts of creditors. For people who are in a losing battle for their home, car, paychecks or home furnishings, the automatic stay could be just what they need.

 

On the other hand, it’s important to understand that although the automatic stay is powerful and useful, it isn’t a silver bullet. The automatic stay has its limits. For instance, it won’t put an end to child support payments or criminal proceedings. And if you don’t make monthly payments on your secured loans, its benefits could be short-lived.

 

The dedicated, experienced and knowledgeable bankruptcy professionals at the law firm of Fears Nachawati are prepared to answer your questions about the automatic stay and the many other bankruptcy provisions that might help you. For your free consultation, call us today. We’re ready to help you.

Supreme Court to Decide Bankruptcy Surcharge Case

The United States Supreme Court recently agreed to review a bankruptcy case from the Ninth Circuit Court of Appeals. The case is Law v. Siegel (In re Law), 435 Fed. Appx. 697 (9th Cir. 2011), and it involves payment of a Chapter 7 trustee’s fees and costs from the proceeds of a debtor’s exempt property. This case is remarkable for several reasons: (1) the Supreme Court reviews very few bankruptcy cases each year; (2) the case was appealed by the debtor pro se; and (3) the U.S. solicitor general recommended against reviewing the case.

The surface issue in Law is the ability of a bankruptcy court to impose a surcharge on exempt property for debtor misconduct. The debtor in Law claimed that his homestead was subject to two liens which consumed all of its nonexempt value. The trustee objected to the second lien, which the bankruptcy court found bogus and avoided the lien. After the property was sold, the bankruptcy trustee sought to “surcharge” the debtor's homestead exemption to recover some of his litigation expenses. The bankruptcy court surcharged the debtor's exemption by $75,000. The Ninth Circuit Bankruptcy Appellate Panel and the Ninth Circuit Court of Appeals affirmed the lower court’s decision.

The Ninth and First circuits hold that bankruptcy courts have the power to impose an “equitable surcharge” on otherwise exempted property under Section 105 of the Bankruptcy Code. The Tenth Circuit has ruled otherwise, creating a split of authority in the Circuit Courts.

The second issue is more weighty: how should Section 105 of the Bankruptcy Code be interpreted. Section 105 gives courts the power to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of” the Bankruptcy Code. Courts have come to different conclusions on the parameters of Section 105. In the context of Law, Section 105 was used to set aside the debtor’s statutory exemptions in order to “protect the integrity of the bankruptcy process,” as the BAP court reasoned in Law. On the one hand Courts should be able to remedy manifest injustice and punish a dishonest debtor. On the other hand, Congress has laid out exemption statutes that each bankruptcy court must follow.

For the bankruptcy world, Law v. Siegel is very compelling. It will be interesting to read the briefs and the ultimate decision from the U.S. Supreme Court. Law also highlights how important it is to have experienced counsel guiding you through the bankruptcy process.
 

Bankruptcy is Not Insolvency

Although down-on-their-luck debtors are often said to be “bankrupt,” that turn-of-phrase is a bit inaccurate. While it’s true that people who can’t pay their debts often declare bankruptcy, the two terms mean different things.

 

An individual is insolvent when he or she cannot meet his or her financial obligations as their debts come due. An individual is bankrupt when he or she takes a certain legal action, namely, filing bankruptcy, wherein he or she files a petition with a bankruptcy court as provided under federal law (the Bankruptcy Code).

 

The difference is more than mere semantics. An individual who is insolvent may not chose to declare bankruptcy. Creditors may exercise their rights under state law or they may simply wait and hope that the debtor makes a payment at a later time.

 

Likewise, a bankrupt debtor is not necessarily insolvent. The Bankruptcy Code does not impose an insolvency requirement. As a result, some debtors decide to make a strategic bankruptcy filing, declaring bankruptcy before they hit rock bottom. Consequently, they are often left with more available financial assets and cash-on-hand than if they waited until the bitter end.

 

Are you considering declaring bankruptcy, regardless of whether you happen to be insolvent? You may have questions and, fortunately, as experienced bankruptcy professionals, we may have answers. Find out whether the attorneys at the Dallas law firm are prepared to help you by talking to us today. With years of experience, we help struggling debtors get back on their feet. For your free consultation, call today.

Filing for Divorce While in an Active Bankruptcy

 

 Sometimes while in a Chapter 13 case a couple may decide to file for divorce. An active Chapter 13 case will not prevent Debtors from filing for and getting a divorce but it does add a few additional steps to the process. (This post will outline the steps taken in Texas to get a divorce. Since divorce is a state preceding, the steps may be different depending on the state in which you are filing.)

If the Debtor is represented by an attorney, it may be necessary for the divorce attorney to obtain permission to serve as counsel for the Debtor from the bankruptcy court. This is because a Debtor typically has to ask permission when obtaining the use of professional services, such as an attorney, and because the Debtor cannot obtain new debt without court permission, such as attorney fees.

The next step will be for the Debtor or their attorney to file a petition for divorce in the state court. After the petition is filed in state court the Debtor can request permission to proceed with the divorce. The Debtor will need to file a motion to lift the automatic stay to allow the state court permission to grant the divorce. The reason for this is that the state court may be dividing up the assets and debts of the Debtors. Typically the Chapter 13 trustee will ask that the divorce decree be provided to their office after it is granted. This is so that they can review the effects the divorce will have on the current case.

Once the court grants the motion the state court can proceed with the divorce and can enter the final decree of divorce. 

After the divorce is granted it is important that the Debtor contact their bankruptcy attorney because their schedules may need to be updated to reflect the changes in the household. If the Chapter 13 case originally was a joint-petition between the two married Debtors, the Debtors can continue in the bankruptcy together even after the divorce.  If you are contemplating filing for bankruptcy but have concerns about your marriage, the attorneys at Fears Nachawati can help discuss your issues and advise you on how best to proceed through the process. For answers to any of your bankruptcy questions, contact us today for a free consultation.   

 

Converting from Chapter 13 to Chapter 7

You have the right to convert your Chapter 13 case to one under Chapter 7, the only restriction is that the debtor cannot convert if a Chapter 7 discharge was issued to the debtor within the previous eight years. Converting the case is a simple procedure, but you must still jump through many of the same hoops as a newly-filed Chapter 7 case.

In order to proceed with your Chapter 7 case, you must qualify as a Chapter 7 debtor. For most that means passing the bankruptcy means test. However, bankruptcy courts are split on the issue whether you must pass the means test when you convert your Chapter 13 case to a Chapter 7 case. The majority of bankruptcy courts find that a presumption of abuse under Section 707(b) applies equally to Chapter 7 cases and to cases converted from Chapter 13 to Chapter 7. A minority of courts do not apply this section to converted cases.

You must also file new bankruptcy paperwork called “conversion schedules.” In most courts the bankruptcy paperwork you filed during your Chapter 13 case becomes a part of your converted Chapter 7 case. When you convert, you must update any changes and amend your forms. Any new debts that arose after the initial bankruptcy filing can be added to your case and possibly discharged. You are also required to file a Statement of Intention, which is your intention to either reaffirm, redeem, or surrender secured property.

You may review your exemptions, which a majority of courts hold are determined on the date of conversion. Your assets may have increased or decreased in value; or been surrendered, lost, or transferred. It is therefore important to perform another accounting, file amended schedules, and apply your legal exemptions.

Converting your case from Chapter 13 to Chapter 7 is a second chance at a fresh start. Make the most of this opportunity by consulting and cooperating with your bankruptcy attorney.
 

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

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

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

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

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

  

Emotional Neutrality Critical in Personal Bankruptcy

Investors have a term for not letting your emotions get the better of your decision-making: emotional neutrality. In a world where fear can cause a foolish sale and greed can cause a foolish purchase, investors understand how important it is to check your emotions at the door when handling your finances.

 

The benefits of emotional neutrality are equally important in personal bankruptcy. A legal process designed to let you shed yourself of your debts and get a fresh start in life, personal bankruptcy is a critically important tool for people who want to rebuild their finances.

 

The challenge is that bankruptcy is emotional. The hope of financial freedom can produce elation. The fear of failure following your plan confirmation can result in severe apprehension. The tedious and lengthy process can result in boredom and frustration. A successful debtor must play the long game, remaining focused on the end result and not getting distracted by the imperfect means.

 

To maintain emotional neutrality, it’s important to have a skilled, dedicated attorney who can guide you through the bankruptcy process and serve as your emotional ballast, not letting you list too much toward irrational hope and unnecessary fear. The professionals at the Dallas law firm of Fears Nachawati are ready to give you the direction you need. Call us today to schedule you’re free consultation.

What Does Bankruptcy "Fresh Start" Mean?

Take a look at bankruptcy attorney advertising and you will find the phrase “fresh start” used ad nauseam. What exactly does it mean to have a “fresh start” through bankruptcy?

What Fresh Start Means
Bankruptcy is a federal legal process for helping people who can no longer pay their creditors get a “fresh start” – by liquidating assets to pay their debts or by creating a repayment plan. Essentially, bankruptcy reorganizes your finances. You pay your creditors what you can afford, either by using your income or non-exempt assets, and what you cannot afford is discharged. A debt discharged through bankruptcy is no longer legally enforceable against you. For most, the bankruptcy discharge is the essence of the “fresh start.” As the US Supreme Court said:

[Bankruptcy] gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.

After the bankruptcy case, you will have a reasonable amount of property to start over and few debts, if any. The bankruptcy discharge protects you from any personal collection effort. Any attempt to collect or coerce payment from you can be penalized by contempt of the bankruptcy court. This included a bill through the mail, a telephone call, or a lawsuit.

What Fresh Start Does Not Mean
While the vast majority of debts are discharged in bankruptcy, some debts have been excluded from the bankruptcy discharge for public policy reasons. Bankruptcy does not discharge certain debts (like child support); some debts are discharged only in certain situations (like taxes); and a select few debts are rarely discharged (like student loans for undue hardship). A debt may be excluded from the bankruptcy discharge by law, by a specific order of the bankruptcy court, or by agreement between the debtor and creditor.

A fresh start does not “erase” a debt. The discharge is technically an injunction that makes a debt uncollectible. The debt still remains and may show up on a credit report, but all activity on the debt must stop from the day you file bankruptcy. The creditor may also attempt to collect from a source other than the debtor, like from liened property or from a co-debtor who has not filed bankruptcy.

If you are struggling with debt and need a “fresh start,” consult with an experienced bankruptcy attorney. The bankruptcy law is powerful protection and can discharge debts permanently. A bankruptcy fresh start may be just the thing you need for a new financial beginning.

 

Disclose Your Lawsuits

Every year, many Americans unexpectedly suffer a personal injury and must confront large and growing medical bills. They are unable to pay not because they didn’t prepare or spent foolishly; they simply can’t afford the care their injury demands. As a result, they decide to file for personal bankruptcy and the protection of bankruptcy law.

 

In a large number of instances, their decision is the right one. Bankruptcy gives their family and their pocketbook a little breathing space. It also opens important conversations with their creditors, including the health care providers who offered medical services. Lastly, it also let’s them consider whether to move forward with any personal injury claims associated with the party who caused their injury.

 

If this situation sounds familiar, it’s important to remember: you must disclose any active personal injury litigation in your bankruptcy filing. Although it may not feel like your rights have monetary value, that’s exactly how the law – and your creditors – see it. If you’ve sustained an injury because of someone else’s carelessness and you’ve filed a lawsuit in order to prosecute your claims, you must disclose that lawsuit. In the event of a successful tort action, your creditors may have a claim against those proceeds.

 

Don’t run afoul of federal bankruptcy law by failing to disclose pending litigation to which you are a party. It’s a relatively easy misstep to avoid – and an important one. Do you have questions about the relationship between your tort law claims and your bankruptcy filing? The attorneys at the Dallas law firm of Fears Nachawati are prepared to advise you. Talk to us today to schedule your free consultation.

Calculating Your Chapter 13 Payments

Chapter 13 bankruptcy law and procedure appears to be a complicated mess to the outsider. The heart and soul of Chapter 13 is the repayment plan, but obtaining a confirmed plan can sometimes get technically difficult. Confirming a Chapter 13 plan essentially boils down to examining six “tests” outlined in the Bankruptcy Code:
1. Administrative claims
2. Priority claims
3. Secured Creditor claims
4. Best efforts of the debtor test
5. Best interest of creditors test
6. Feasibility

Administrative Claims
Administrative claims are paid 100% during the Chapter 13 case. Common administrative claims include court fees, trustee fees (3% to 10% of each monthly payment), and attorney fees.

Priority Claims
Priority claims are paid 100% during the Chapter 13 case. Priority claims include:
• certain recent taxes
• domestic support obligations such as alimony and child support
• salaries, wages, or commissions owed to employees
• certain customs duties and penalties owed to the government
• claims arising from death or injury caused by operation of a vehicle while intoxicated, and
• contributions owed to employee benefit plans.

Secured Creditor Claims
For secured property that is retained, any arrearage is paid 100% during the Chapter 13 case. In other words, if you fell behind a few payments on your house or car, you must pay that amount during the bankruptcy. You must also pay any future payment that comes due during the case or the creditor can ask the court for permission to repossess or foreclose on the property. In some cases the terms of a secured debt can be modified by the bankruptcy court and paid in full during the case.

Best Efforts of the Debtor Test
This test means what it says: the debtor must make his best effort to repay unsecured creditors. The bankruptcy law looks to your disposable income and to the applicable commitment period as calculated and determined by the bankruptcy means test. The debtor and bankruptcy trustee sometimes disagree on the means test calculations, which can result in a payment to unsecured creditors between 0% and 100% of the total debt.

Best Interest of Creditors Test
Under this test you must pay your unsecured creditors in a Chapter 13 case as much money as they would receive if you filed a Chapter 7 bankruptcy. This calculation includes equity in non-exempt property and the money the trustee can recover from any preference payments or fraudulent transfers of property, minus the cost of liquidation and the trustee fees and expenses. For instance, if you have a car worth $10,000, you owe $2,000, and you have a $2,000 in available exemptions, then you must pay your unsecured creditors $6,000 during your case for the non-exempt equity in your car.

Feasibility
Your plan payment must be feasible, meaning it must be both practical and affordable.

Chapter 13 is a powerful tool for restructuring your finances in a way that you can afford. The tests contained in the Bankruptcy Code form the framework for balancing the rights of both you and your creditors. In most cases your payments in Chapter 13 bankruptcy are significantly less that your payments before bankruptcy. An experienced bankruptcy attorney can analyze your situation and tell you exactly how much you have to pay during your Chapter 13 case.
 

Considerations for Using Chapter 13 to Avoid Repossession of a Vehicle

 

 

Chapter 13 bankruptcy includes a provision to prevent all collection activities after a bankruptcy case is filed.  This provision is commonly called the “automatic stay”.  In the case of repossession, it means that a lender (Creditor) must stop all repossession activities IMMEDIATELY upon the filing of the bankruptcy case.  It even means that the vehicle cannot be sold to anyone else for a period of time AFTER repossession so long as the buyer (Debtor) still has some “interest” or some “right” to take the vehicle back. 

 

These “interests” or “rights” may vary from state to state and; therefore, should be the subject of a whole separate discussion.  However, it does form the basis of one of the benefits of Chapter 13 bankruptcy.  The benefit is that the Debtor is usually able to get the vehicle back shortly after repossession if the bankruptcy case is filed during this period of time.  However, another issue to consider is that the Debtor is usually obligated to pay certain fees incurred by the Creditor as a result of having to repossess the vehicle if the Debtor intends to keep the vehicle. 

 

Most importantly, the Debtor should compare the cost of saving the vehicle in bankruptcy versus the amount of money the Debtor actually has invested in the vehicle.  The cost of saving the vehicle should include the fees for the bankruptcy (both attorney fees and filing fees) as well as Trustee fees and additional interest that may be incurred by keeping the vehicle in bankruptcy.  Once again, bankruptcy fees vary but it is typical to expect approximately $3,000.00 in bankruptcy fees in Chapter 13.   In addition, Trustee fees are typically 7-10% of the value of the debt included in the bankruptcy plan.  Therefore, a vehicle that has a debt of $20,000.00 would cost as much as an additional $2,000.00 in Trustee fees.  It is easy to see from this example that a vehicle for which a debt of $20,000.00 is owed may not be worth saving; unless the vehicle is worth over $25,000.00. 

 

However, the example above assumes that saving the vehicle from repossession is the only reason for filing the bankruptcy.  In most cases, the repossession or potential repossession of a vehicle may be only one of many reasons for filing the bankruptcy case.  Most consumers who have experienced financial difficulty that prevented them from making their vehicle payments are also having difficulty with other payments such as mortgage payments and/or credit card payments.  If the Debtor in this example has credit card debt of $5,000.00 or more and can eliminate some or all of it in bankruptcy, then it may still be a good alternative to seek bankruptcy protection.  

 

Two common situations where it may not be advisable to save a vehicle from repossession in bankruptcy are where the vehicle is worth LESS than the debt that is owed on it, and where the Debtor is not able to make the vehicle payments at all.  Chapter 13 requires that the Debtor must commence making payments to the Trustee within 30 days of filing the bankruptcy case.  And because of the fees mentioned earlier in this blog, it is unlikely that the Trustee payment is going to be much less than what the vehicle payment was originally.  So if the Debtor is still without income or unable to make a monthly payment to the bankruptcy Trustee, then filing bankruptcy will probably not be a good alternative for saving the vehicle.

 

There is one exception to the situation where the vehicle is worth less than the debt that is owed on it.  In cases where the vehicle has been OWNED for more than 910 days, (approx 2.5 years) then it is possible to “cram down” the debt owed on the vehicle to the current value of the vehicle.  Determining the value of a vehicle in this situation can be difficult, but where it is clear that the value is less than the debt, there is a definite benefit to using Chapter 13 to save the vehicle. 

 

Of course, every person’s financial situation is different and there may be other considerations for filing Chapter 13 besides the ones mentioned above. But if you are in danger of losing your vehicle to repossession you should speak to a bankruptcy professional and consider Chapter 13 as one of your alternatives.

 

 

 

Stopping Creditor Calls to Your Cell Phone

Being unable to pay your bills can make you feel powerless. Nasty letters and phone calls can ruin your day, especially when a collector calls your cell phone during work or while you are with friends. Fortunately, there are several consumer protection laws that can redistribute the balance of power and bring you some peace.

One powerful protection is the Telephone Consumer Protection Act, or TCPA. The TCPA prohibits making a call to a cellular telephone using an automatic telephone dialing system without the prior express consent of the called party. This law is often used to stop debt collectors using auto dialing systems to cell phones. The penalties for violating the TCPA start at $500 per phone call.

A debt collection company sued for violating the TCPA can avoid liability by proving that the debtor gave “express consent” to be called on his/her cell phone. The Federal Communications Commission considers “express consent” given when a person provides a cell phone number to a creditor, for example, as part of a credit application. Courts have found that a person can give express consent in other ways including verbal, in writing, or by a spouse. Additionally, the FCC states that calls “placed by a third party collector on behalf of that creditor are treated as if the creditor itself placed the call.”

While express consent may be easy to find, revoking this consent is more problematic. Courts differ whether express consent can only be revoked by giving the creditor and/or collector written notice. Stopping creditor calls to your cell phone may be as easy as sending a written cease and desist notice to the collector. However, revocation of consent under the TCPA does not stop all debt collection calls, only auto dialer calls to your cellular phone.

Filing for bankruptcy is effective to stop all debt collection calls. Once you file bankruptcy, all of your creditors are prohibited from continuing collection attempts, including collection calls. The bankruptcy automatic stay stops collectors cold, and the discharge order at the end of the bankruptcy case stops them permanently.

 

Are Payroll Cards Part of Your Bankruptcy?

Increasingly, national retailers are adopting a new way to pay employees: payroll cards. In the last several years, some national employers like Walgreen’s, McDonald’s and Wal-Mart have begun paying employees with payroll cards instead of cash or check.

 

Similar to debit cards, payroll cards have many of the benefits of other A.T.M.-compatible cards. Like debit cards, payroll cards may be used to purchase items online. Employees can check their account balance with a few clicks of a mouse or touches on a screen. And by holding digital currency rather than a check, unbanked employees avoid the fees of a check cashing service.

 

Of course, as with debit cards, payroll cards have detriments, too. If a cardholder uses an out-of-network A.T.M., they may face a different set of fees. Also, payroll cards can be inconvenient for people who need ready cash for a variety of purposes; it can be difficult to know how much to withdraw at the A.T.M.

 

But what is most important at the moment is not just the virtues and drawbacks of payroll cards. It’s whether these employers received the consent of their employees before dramatically altering the way they compensated their workers. That’s the question that some state attorneys general want to answer. It’s a question you may want to answer, too.

 

If you’re facing financial distress in part because of the difficulties of managing your payroll card, you may consider discussing that with an attorney from the dedicated firm of Fears Nachawati. With years of experiencing handling consumer claims and consumer bankruptcies, we’re prepared to help you consider whether you have valuable claims with respect to your payroll card. Let us advise you. Contact us today for your free consultation.

How are Monthly Payments Determined in a Chapter 13?

For many debtors, a Chapter 13 bankruptcy can be a good solution to financial difficulties. Perhaps the most important feature to most debtors is that a Chapter 13 can allow you to catch up on house and car payments and will stall a foreclosure or repossession. Chapter 13 offers many advantages, in that it allows a debtor to get on a payment plan to catch up on their debts and/or repay a certain percentage of their creditors. Each month, a Trustee will collect funds from the debtor and distributes those funds to the debtor's creditors. To allow you time to catch-up, we can divide up what you owe over a period of up to 60 months. But what is going to determine someone's monthly Chapter 13 plan payment? The monthly Trustee payment is going to be determined by a combination of four (4) factors: 1) your household income and expenses, 2) any "priority debts" that you have such as recent tax debt or child support arrears, 3) the amount of arrears on the secured debts for property you wish to keep (for instance mortgage or vehicle arrears), and 4) the value of any non-exempt property that you have. All of these factors affect your Chapter 13 plan payment and can make the Chapter 13 process very complicated (usually too complicated) for pro-se debtors. If you are considering filing a Chapter 13, the attorneys at Fears Nachawati will help guide you through this complicated process and explain how it works step-by-step. It is our job as attorneys to work hard to make sure that your payment is as low as is possible under the law and that is what we will do. Contact us with any questions today!

Mortgage Deficiency Collection on Rise

A recent story published in the Washington Post suggests that the collection of foreclosure deficiencies is on the rise. This may signal the start of a new wave of litigation and collection efforts to pursue the debts remaining after the housing collapse. It also means adding insult (a six figure judgment) to injury (a past foreclosure).

A foreclosure deficiency occurs when there is money owed to the lender after a foreclosure. For instance, suppose a borrower “walks away” from an underwater home in 2009 owing $400,000 on a mortgage debt. The bank forecloses on the home in 2010, and then sells it at auction in 2011 for $300,000. The remaining balance owed on the debt is $100,000. The lender (or a subsequent purchaser of the debt) can sue the borrower to obtain a “deficiency judgment.” But that’s not the end of the story. The homeowner may remain on the hook for costs until the bank obtains ownership through foreclosure. Also, there are interest and fees, including attorney fees and court costs, which increase the total debt. In some cases this can be $10,000 or more each year which can turn a $100,000 debt into $200,000 within a mere few years.

The law regarding the collection of foreclosure deficiencies varies from state to state. Presently 40 out of the 50 states permit creditors to pursue a residential mortgage deficiency. In many states collectors are allowed a certain time to sue the debtor after foreclosure, ranging from 30 days to 20 years. Collecting after the judgment can be stretched for more than 20 years with continuing legal fees, costs, and judgment interest.

If the state law allows a mortgage creditor to delay pursuing the borrower for a deficiency judgment, there is little incentive to sue the borrower. A recent government audit found that the recovery rate for foreclosure deficiencies was a mere one-fifth of 1 percent. The lender gains an advantage by waiting for interest and fees to increase, and time for the borrower to “get back on his feet” financially. A lawsuit for a deficiency judgment can be devastating to a person recovering from a foreclosure, and in many cases this lawsuit arrives without warning.

For those sued for a foreclosure deficiency, a six figure judgment is unthinkable. Bankruptcy is one of the few remaining options to escape the pain of forced repayment through garnishments and asset seizures. For most situations, bankruptcy can discharge the mortgage debt for good.

 

Discharging Student Loans in Bankruptcy

Student loan debt is estimated at over $1 trillion according to a recent article published by the New York Times. This figure is on the rise as loan interest and new debts increase the total. Current bankruptcy law provides that student loans are generally not dischargeable under any chapter of the bankruptcy code, unless the debtor can show that repayment of the loan creates an “undue hardship.” Congress has not defined what “undue hardship” means in the bankruptcy process, so federal courts have been forced to guess at the meaning and develop their own legal standards for discharging student loans.
The most common of the “undue hardship” tests for discharge is from a case decided by the Second Circuit in 1987: Brunner v. N.Y. State Higher Educ. Servs., 831 F.2d 395 (2d Cir. 1987). Other federal circuits have developed their own versions based largely on Brunner. Under the Brunner test, a debtor must show that:
(1) The debtor cannot currently maintain a minimal standard of living for himself and his dependents if required to repay the loans;

(2) It is likely that the debtor’s circumstances will persist for a significant portion of the repayment period; and

(3) The debtor has made good faith efforts to repay the student loans.

While the first two prongs of the Brunner test are generally satisfied by the debtor’s insolvency, debtors have struggled to satisfy the third prong in the Brunner test: a good faith effort to repay.
Student loan lenders typically challenge good faith provision of the Brunner test by pointing to the availability of the Income Based Repayment Plan, or IBR. Under the IBR, a borrower who is experiencing trouble repaying a student loan can pay 15% of total income during the period of hardship. If the hardship persists, the entire loan is forgiven after 25 years (or 10 years for public service employees). Many bankruptcy courts have agreed with this argument against bankruptcy discharge, but recent appellate decisions show an opposing trend may be developing.
In Krieger v. ECMC, No. 12-3592 (7th Cir, 2013), the Seventh Circuit Court of Appeals decided that the debtor could discharge her student loans without first enrolling in IBR (although the opinion in this case states that “Krieger’s situation is hopeless” – an extremely high standard to meet for discharge!). Likewise, in the case of Roth v. ECMC, BAP No. AZ-11-1233-RnPaKi (2013), the debtor was permitted discharge without enrolling in IBR. The Ninth Circuit Bankruptcy Appellate Panel found that Roth was 64 years old, in poor health, unlikely to ever make a payment on the loans, and likely to owe a significant tax penalty when the loan would be canceled in 25 years. Consequently, her decision to not enroll in IBR was not a lack of good faith.
Obtaining a hardship discharge for student loan debt requires opening an adversarial case. An adversary case is a separate case in the bankruptcy court and the debtor must file a complaint, serve the student loan lender, engage in discovery, attend a pre-trial conference, and finally conduct a court trial. In many cases an insolvent debtor does not have the resources to fund this litigation. Case in point, a study by Jason Iuliano published in 2011 identified 69,000 student loan debtors as good candidates for a hardship discharge, but fewer than 300 attempted to discharge their loans.
The road to a hardship discharge is, well, hard. Even when a debtor successfully discharges a student loan debt in bankruptcy court, the student loan creditor will often challenge the decision on appeal. Take the recently decided case of Michael Hedlund, a graduate of Willamette Law School. Hedlund v Educational Resources Inst., No. 12-35258 (9th Cir. May 22, 2013). The 9th Circuit Court of Appeals gave Hedlund a partial discharge of his student loan debt after ten years of litigation. This case will likely be appealed to the United States Supreme Court, so the Hedlund case make take many more years to finally resolve.
If you are struggling with debt and cannot repay your student loans, speak with an experienced bankruptcy attorney and discuss your options. There are repayment programs such as the IBR and Pay as You Earn plans that can alleviate your student loan repayment burden. Your bankruptcy attorney can also evaluate your case as a candidate for hardship discharge.
 

Understand the Texas Exemptions

Texans are fortunate. They live in a state where taxes are low and opportunities are plentiful. What’s more, our laws are forgiving for people who take chances, make mistakes or fall down on their luck. When facing bankruptcy, Texans find that although time may not be on their side, the law related to exempt assets in bankruptcy is.

 

Texas law shields certain types of property from the reach of your unsecured creditors if you decide to declare bankruptcy. As you confront your financial difficulties, it may be important to remember what assets are exempt – and what assets are not.

 

The Texas homestead exemption is one of the most generous in the country. Regardless of its value, a residence located on no more than 10 acres in the city or 100 acres in the country is exempt from the reach of creditors. For that matter, so are the proceeds of the sale of a residence if you file for bankruptcy within six months.

 

The Texas motor vehicle exemption is generous, too. One vehicle per licensed household member, regardless of its value, is exempt under Texas law. In other words, whether it’s a Mercury or a Mercedes, each driver may keep his car.

 

Third, Texas exemption law protects certain pension, retirement and insurance accounts. For older debtors, these exemptions may be particularly important, as your net worth may be high, but your impending health-related expenses may be even higher. If your wealth has been placed in the right asset classes, you may be able to hold on to your retirement nest egg.

 

Finally, Texas exemption law shields a number of items of personal property, $30,000 for an individual or $60,000 per couple, including firearms, family heirlooms, jewelry, pets and clothing. As you think about how to remember your past, continue in the present and rebuild in the future, these items can be of particular sentimental as well as financial value.

 

Want to know more about Texas exemption law and how it may impact your bankruptcy? The dedicated attorneys at Fears Nachawati are prepared to help you get started with your free consultation. Let us inform your decisions and put your mind at ease.

Keeping or Surrendering your Home or Car in Bankruptcy

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

 

Keeping your Secured Collateral:

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

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

Surrendering your Secured Collateral

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

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

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

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

Pre-Bankruptcy Protection: The Fair Debt Collections Practices Act

Some time ago the Washington Post reported that a Southern California debt collection firm was shut down by the Federal Trade Commission for violating debtor harassment laws. This story was especially newsworthy because of the outrageous conduct by the collection company, including threats against a family pet and digging up a corpse!
The FTC shut down this company and froze its assets. The company’s owners were charged with violating the Federal Trade Commission Act and Fair Debt Collection Practices Act. The FTC alleged that a collector for the company unlawfully threatened a woman who owed money on her daughter’s funeral bill. She was told that they were going to dig up the body and hang her from a tree if she didn’t pay. She was also told that they would take her dog and eat it.
The Fair Debt Collections Practices Act, or FDCPA, protects consumers from abusive collections practices and outrageous threats by third party collectors. Third party collectors include collection agencies and collection attorneys. The FDCPA does not apply to business debts or to original creditors. 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. This is known as the mini-Miranda by debtor collector. 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.

The FDCPA prohibits certain abusive practices including:
• Requesting payment beyond what is actually owed;
• Using abusive, profane or obscene language;
• Threatening legal action which is not permitted by law (e.g. criminal action);
• Telephone calls at work after being instructed that your employer prohibits phone calls from debt collectors;
• Contacting you directly after being instructed that you are represented by an attorney
• Contacting a third party who does not owe the debt;
• Making a false threat of civil or criminal legal action;
• Contact by embarrassing media, such as a postcard or telegram;
• 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).

When you hire a bankruptcy attorney, the FDCPA prohibits third party collectors from further contact with you directly. The collector can only communicate with your attorney. Consequently, the FDCPA provides immediate relief from collector harassment while you prepare to file your bankruptcy case. While the FDCPA does not prevent a lawsuit, repossession, or foreclosure, the involvement of a bankruptcy attorney usually delays these processes. A violation of the FDCPA is a serious matter and may be litigated in federal or state court. The statute provides for a civil penalty of up to $1,000 and attorney fees.
If you are being harassed by creditors for bills you cannot pay, speak with an experienced bankruptcy attorney and consider your options. Hiring a bankruptcy attorney will stop these harassing calls from third party collectors, and a bankruptcy discharge will eliminate the troubling debt permanently.

 

Property of Bankruptcy Estate After Conversion From Chapter 13 to Chapter 7

Converting from a Chapter 13 case to a Chapter 7 is not procedurally difficult. Most courts simply require a filed motion and a small conversion fee. A debtor may convert to Chapter 7 from Chapter 13 as a matter of right. See 11 U.S.C. §1307(a). But converting the case triggers many questions and the answers may be case-specific.

The bankruptcy court will schedule a Chapter 7 meeting of creditors and impose new deadlines. The debtor is required to file a Statement of Intention within thirty days of conversion and file amended Schedules reflecting unpaid debts incurred after filing of the petition. See Rule 1019(1)(B) and 1019(5)(B), Federal Rules of Bankruptcy Procedure. Filing new schedules is a “second-chance” opportunity for the debtor to eliminate debts that arose after the date of the bankruptcy filing, but before the date of the conversion. These debts are treated as if they arose prior to the initial petition and are subject to the bankruptcy automatic stay and to discharge. 11 U.S.C. §348(d). However, conversion of the debtor’s case does not re-impose an automatic stay when the creditor has already received relief.

Accounting for the debtor’s Chapter 7 bankruptcy estate can sometimes be difficult. The Bankruptcy Code states that the Chapter 7 estate consists of the property belonging to the Chapter 13 estate at the time of the initial bankruptcy filing that remains in the possession or control of the Debtor. 11 U.S.C. §348(f)(1)(A). However, if the court finds that the debtor converted the case in bad faith, the Chapter 7 estate property is determined upon the date of conversion. 11 U.S.C. §348(f)(2).

A recent Bankruptcy Appellate Panel case out of the 9th Circuit denied a Chapter 7 trustee’s motion to compel turnover of a tax refund. In the case of In re Salazar, 465 B.R. 875 (9th Cir BAP 2012), the debtors were owed an income tax refund when they filed their Chapter 13 bankruptcy (and admitted it was part of the Chapter 13 estate), received the refund and spent the money on ordinary and necessary expenses; and then converted the case to a Chapter 7. The BAP agreed with the lower bankruptcy court that the debtors spent the tax refund money in good faith to pay ordinary and necessary living expenses during the period from the petition date to the conversion date. Consequently, the spent tax refund was not property of the bankruptcy estate on the conversion date. See also In re Grein, 435 B.R. 695, 699 (Bankr.D.Colo.2010); Bogdanov v. Laflamme (In re Laflamme), 397 B.R. 194 (Bankr.D.N.H.2008).


 

U.S. Trustee's Office: John Wayne of the Bankruptcy Court

For decades, the actor John Wayne played the part of the sheriff in Western movies. Citizens of frontier towns were able to live their quiet lives, but if they stepped over the line and into criminal conduct, they risked reprimand by the tall, forceful and loud-voiced sheriff.

 

In the context of federal bankruptcy law and bankruptcy courts, the United States Trustee’s Office plays a part similar to that of John Wayne’s sheriff. More specifically stated, the mission of the U.S. Trustee Program is to promote the integrity and efficiency of the bankruptcy system for the benefit of all stakeholders – debtors, creditors, and the public.

 

Attorneys for the U.S. Trustee’s Office have standing in bankruptcy cases to fight for the fair process upon which all of the related parties rely. UST attorneys may take action to prevent fraud and abuse, refer matters for criminal investigation, ensure that fees are reasonable, review disclosure statements, and advocate for changes to procedural and substantive bankruptcy law.

 

Want to know more about the United States Trustee Program and the role they may play in your bankruptcy? The attorneys at the law firm of Fears Nachawati are prepared to answer this and many more important questions. Talk to our professionals today so that you can begin the process of moving toward financial freedom.

Preparing Your Statement of Financial Affairs?

Accurately completing your statement of financial affairs (SOFA) is one of the most important early steps in your bankruptcy proceeding. Like business’s balance sheet, your SOFA should list the entire universe of your assets and liabilities, including which creditors have a priority claim, a secured claim, and an unsecured claim against you.

 

As a general rule, you must list everything you own or owe on your SOFA – even if you are absolutely certain that the listed asset is protected against repossession or the listed debt is uncollectible. In fact, failing to disclose a portion of your assets or liabilities can be a serious civil and criminal offense that may be fatal to your ability to file for bankruptcy and receive a discharge of your debts.

 

Your SOFA may look like a “check the box” form, but appearances may be deceiving. The questions on a Statement of Financial Affairs tend to be nuanced, precise, and comprehensive. To make sure that you complete your SOFA correctly, you should seriously consider speaking with an experienced and qualified bankruptcy professional.

 

The dedicated attorneys at the law firm of Fears Nachawati are prepared to help you. For your free consultation and the opportunity to find the answer to your questions about your Statement of Financial Affairs and, more generally, your bankruptcy, contact us today.

Selling Personal Property Before Bankruptcy

Having too much equity in personal property can needlessly complicate your bankruptcy case. If the value of the property is significant, the Chapter 7 bankruptcy trustee can take the “non-exempt” property and sell it to pay your unsecured creditors. This has an obvious result: you don’t directly receive the benefit of the property. Additionally, after the trustee pays the administrative costs and takes a fee for himself, there is usually little left for your creditors. A less obvious result is that your case may remain open for many more months after your discharge while the trustee administers the money in the estate. Finally, the trustee may take a harder look at your case for more money for the bankruptcy estate.

One of the easiest ways to avoid a personal property equity issue in bankruptcy is to liquidate all non-exempt property. In English, this means selling items that you cannot protect with your bankruptcy exemptions. Selling your property may make a great deal of sense when examining your financial restructuring.

There is no general prohibition regarding selling personal property before filing bankruptcy. However, there are cautions that must be observed. First, the transaction must be fair and honest. You must receive a fair price for the property and the transaction cannot be fraudulent. The first part of this equation is easy – just sell the property at or close to fair market value. The second part is harder. Selling property to a family member or close friend will always raise questions of insider shenanigans. Likewise, selling a property or equipment, like a back hoe, to a company that you own is of little use to protect the property. The best and easiest way to sell property prior to bankruptcy is to conduct business with a stranger at a fair price. Selling property at auction on EBay rarely raises eyebrows.

After you receive the proceeds of the sale, you must either dispose of the cash or protect it with a bankruptcy exemption. In most cases, simply spending the money on reasonable and necessary items for your health and welfare will suffice, but care is need here as well. If you have excess equity in personal property, discuss your situation with your bankruptcy attorney. Your attorney can advise you on the best way to protect or sell your assets, including proceeds from the sale of personal property.
 

 

Rising Medical Bills Push Up Bankruptcy Filings

An estimated 1.7 million Americans will file for personal bankruptcy this year as a result of their medical expenses. For most observers, this doesn’t come as a surprise. Factors such as rising health care costs, a soft economy, and reduced health insurance coverage are converging to cause serious financial problems for a sobering number of Americans.

 

What’s more, for every American who declare bankruptcy as a result of unsupportable medical costs, more than 25 more will not declare bankruptcy despite owing more than they can easily pay. While some of these chose not to declare for valid reasons, many others fail to declare bankruptcy because of a lack of information or fear.

 

You don’t have to feel ashamed about filing for bankruptcy as a result of rising medical costs. In many cases, debtors who filed for bankruptcy do so because of a sudden, sharp increase in costs. An extended stay in the hospital, new and costly prescription drugs, or an expensive surgery hit their wallet at a time they least expect. As a result, filing for Chapter 7 or Chapter 13 is really their only option.

 

Want to know more about your options in bankruptcy? The dedicated and experienced professionals at Fears Nachawati are prepared to give you the advice you need to make an informed, fear-free choice. Contact our attorneys today for your free consultation.

Risking a Homestead Exemption in a Living Trust

During bankruptcy a debtor may protect the equity in his residence by claiming a homestead exemption. Bankruptcy courts look to state law to determine whether the property qualifies as the debtor’s homestead. This analysis can get complicated if the debtor has placed the property into a living trust before filing bankruptcy.

In many states the law is clear and case law has previously decided that the debtor does not lose his or her homestead exemption when the property is owned by the living trust. For instance, New Hampshire's General Statutes specifically state that a home in a living trust may still be exempted by the debtor in bankruptcy as a homestead. Likewise, on certification of a question from the U.S. Court of Appeals for the Tenth Circuit, the Kansas Supreme Court determined that a bankruptcy debtor may claim a homestead exception even after the real property was transferred to a living trust prior to bankruptcy. See Redmond v. Kester, Redmond v. Kester, 284 Kan. 209, (2007).

On the other hand, in some states, notably Texas, the debtor loses the ability to claim a homestead exemption if the property is owned by a Living Trust. Under the Texas Property Code, trust property is owned by the trust, not the debtor. Consequently, the debtor is unable to claim the homestead exemption.

The bottom line is this: if you are thinking that a living trust will protect your home during bankruptcy, you may be making a huge mistake. If you have already placed property into a living trust, you may need to transfer the property back to yourself before you file bankruptcy. However, every situation is unique and requires the careful review of an experienced attorney prior to a bankruptcy filing.

 

Bonus Checks During Chapter 13 Bankruptcy

Bonus checks are something most employees look forward to receiving. For a debtor in a Chapter 13 bankruptcy, a bonus check can be a source of anxiety and frustration. Whether the debtor can keep the bonus check depends on several factors. Let’s take a look at what happens when a debtor receives a bonus check during a Chapter 13 bankruptcy case.

The first question to address is whether your bonus check is a one time event, or a regular occurrence. If your bonus check is regular and consistent, it should have been factored in to your pre-confirmation income figures. As such, it is already accounted for by the bankruptcy court by either increased monthly plan payments, or turnover to the trustee when your receive it.

If your bonus is not regular and consistent, and therefore not already provided for in your bankruptcy plan, then you must refer to your bankruptcy plan when you receive your bonus. Your Chapter 13 plan is a court order binding and directing you and your creditors during your bankruptcy case. Once your plan is confirmed, it is controlling. Your plan may direct you to turn over any extra income to the trustee for distribution to creditors, unless your plan already provides a 100% payout to creditors.

Your plan may be silent as to irregular bonuses. In that case, the bankruptcy trustee will likely discover the bonus income through your yearly tax return, and could request an upward modification of your plan payments to include the bonus income. The adjustment is not automatic and requires the order of the bankruptcy court. Any increase in income, including a part time job, regular overtime, or raise at work, may form the basis for an increase in your plan payment.

If you receive regular bonuses or commissions at work, discuss your income situation with an experienced bankruptcy attorney. Your attorney can advise you as to your obligations to your bankruptcy case and whether you will be able to keep your bonus during your Chapter 13 bankruptcy case.
 

Filing Bankruptcy with Uncleared Checks

Suppose you are paid on a Friday and write a $800 check to your landlord for rent. The following Tuesday you go to your attorney’s office, pay the remaining fees owed on your bankruptcy, and tell your attorney that you have exactly $450 remaining in your checking account.

But that’s not exactly true, because your landlord’s check has not cleared your bank account.

Uncleared bank checks are a common trap for bankruptcy debtors. Your bankruptcy estate is determined on the day you file bankruptcy. The money in your bank account on the day your file bankruptcy is property of the bankruptcy estate. It does not matter if you have written outstanding checks that have not yet cleared. The reason for this is that bank funds do not transfer until a check is honored, not when the check is written. See Barnhill v. Johnson (In re Barnhill), 503 U.S. 393 (1992) (transfer of funds occurred when the drawee bank honored the check). Consequently, the debtor still has “possession, custody, or control” of the funds, and the check is simply an order for the bank to pay the recipient a stated sum of money on demand. Until the bank issues payment, the debtor has the ability to close the account or stop payment of the check.

The practical consequence for the debtor is that the trustee may demand turnover of bankruptcy estate funds, either from the debtor or from the check payee. Avoiding this trap is not difficult, but it requires good communication with your attorney and diligence. The best practice is to print a bank statement of your account on the day you file your bankruptcy case and take it to your attorney for review. If there are any outstanding checks, notify your attorney. Your attorney can then determine the proper course of action, which may include doing nothing (especially if the checks amounts are small and/or there are sufficient available exemptions), a brief delay in filing, or in some extreme cases the debtor may issue a stop payment on the check to freeze the funds.


 

Is Your Retirement Plan Protected in Bankruptcy?

A 401(k), a retirement plan held by millions of Americans, may be one of your most important financial assets. In addition to its value, it represents something powerful for you and your family: the ability to retire. As many debtors consider filing for personal bankruptcy, they often ask: will I be able to keep my 401(k) assets?

 

The short answer is, “Yes – most of the time.” In general, the assets contained in a 401(k) plan are shielded from creditors during Chapter 7 or Chapter 13 bankruptcy. Specifically, Section 522 of the Bankruptcy Code provides an unlimited exemption for retirement assets exempt from taxation such as ERISA qualified and solo 401(k) plans.

 

There is a catch, however. If you withdraw assets from your 401(k) account, you may be required to recognize those dollars as income – and as non-exempt property available to your creditors. Even if you later attempt to return this income to your 401(k) account, it may be too late and the damage to your bankruptcy-protected retirement assets may have already been done.

 

Want to know more about the relationship of your 401(k) account and your pending Chapter 7 or Chapter 13 bankruptcy? The dedicated and experienced attorneys at the Dallas law firm of Fears Nachawati are prepared to answer these and other important questions. To get started with your free consultation, talk to our professionals today.

Paying a Nondischargeable Debt On Eve of Bankruptcy

Suppose Joe owes $10,000 on a recent tax debt to the IRS, a few other unsecured debts totaling another $30,000, and the IRS just seized $10,000 from Joe’s savings account. If Joe files Chapter 7 bankruptcy within the preference period, the trustee can force the IRS to return the money to the bankruptcy estate - that is without dispute (as long as the preference payment rules are satisfied). However, what happens to the IRS debt is a gray area.

A similar issue was addressed by the Ninth Circuit Court of Appeals in the case of In re Laizure, 548 F.3d 693 (9th Cir.2008). In that case the debtor made a large payment to a creditor on the eve of bankruptcy to repay an embezzlement loss. The lower courts stated that the creditor no longer had a claim against the debtor – only the bankruptcy estate. The Ninth Circuit disagreed, and reinstated the creditor’s nondischargeable claim against the debtor.

In reaching its decision, the Laizure court stated that a claim determined and allowed under § 502(h) of the Bankruptcy Code retains the same characteristics it held prior to the filing of the bankruptcy petition. The court cited In re Bankvest Capital Corp., 5 F.3d 51 (1st Cir.2004), as persuasive, which held that that a secured creditor's claim that is avoided as a post-petition transfer is entitled to that same secured claim following turnover to the trustee. See also David Gray Carlson, Security Interests in the Crucible of Voidable Preference Law, 1995 U. Ill. L.Rev. 211, 356 (1995) ("Payments received by a secured party are analytically different. Prior to bankruptcy, the 'payment' extinguished the antecedent debt. Once the payment is returned, it ought to be the case that the old debt, once dead, is now revived. This is universally assumed to be true, and § 502(h) more or less supports this conclusion[.]").

Following this rationale, the trustee in Joe’s case would force the IRS to turn over the $10,000 seized from Joe’s bank account, pay himself attorney fees and costs, and distribute the remaining funds to unsecured creditors, including the IRS. Since the IRS debt is reinstated as a nondischargeable debt, after the bankruptcy Joe still owes the IRS a remaining balance. While it is not clear that other courts would apply this line of reasoning for every pre-petition payment, it is certainly a potential trap for the unwary and could create unnecessary litigation!

The moral of this story is that bankruptcy law is challenging. In Joe’s case, he did not actually owe the IRS anything on the date he files bankruptcy. It was only after the trustee compelled the return of the payment that the debt was reinstated. Your bankruptcy case deserves an experienced bankruptcy attorney who is able to see beyond the actual circumstances to the potential liabilities in your case. Don’t risk your fresh start – get experienced help today.
 

Should You Consider a Short Sale?

If the value of your mortgage exceeds the value of your house, your home is “underwater.” It’s not an enjoyable position to be in and, what’s more, it probably means that you’re experiencing financial difficulties in other parts of our life, too. Perhaps you’ve even considered bankruptcy.

 

Personal bankruptcy may be a solution to the problems you face. And, if that’s the right course of action for you, the dedicated attorneys and professionals at the Dallas law firm of Fears Nachawati can help you navigate the challenges and opportunities associated with declaring Chapter 7 or Chapter 13 bankruptcy.

 

It’s important to note, however, that bankruptcy may be a more extreme remedy than the one you may actually need. Selling your home for the value of the mortgage (but less than the full value of the property) is known as a “short sale.” For many debtors, a short sale may have the advantage of knocking out your largest financial obligation, freeing up your monthly income and settling with your primary creditor. Additionally, a short sale may leave you with a better credit score than what you might have post-bankruptcy.

 

Short sales aren’t risk free. Depending on your type of mortgage, you may have lingering debt following a short sale. And if you have large amounts of unsecured financial obligations – such as credit card bills – then a short sale may not do enough good to justify the personal and financial costs.

 

Want to know whether bankruptcy or a short sale is your best bet? Our attorneys can help you answer this and many other important legal and financial questions. For your free consultation, talk to a Fears Nachawati representative today. We’re dedicated to helping clients just like you.