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

Bankruptcy attorneys are good at hyping the bankruptcy discharge. Terms like “Erase Your Debts!” and “Start Fresh!” abound in consumer bankruptcy advertising. You may know that at the end of your bankruptcy case the court will enter an order discharging certain debts. But what exactly happens to debts that are discharged?

The bankruptcy discharge does not “erase” or “eliminate” the debt. The discharge is a permanent order injunction against certain creditors. The discharge forbids all action to collect the debt from the discharged debtor. This injunction applies to the original creditor, any collection agency or subsequent creditor, and to any attorney or other representative who may attempt to collect the debt.

The discharge injunction prohibits collection action against the discharged debtor. For instance, if a credit card debt is included in your discharge, then the creditor is barred from attempting to collect on the debt from you, personally. The debt still exists, but the creditor cannot take any legal action against you to collect.

A creditor may still have options to collect on a discharged debt. The bankruptcy discharge only applies to the individual debtor, so any co-debtor (who has not also filed bankruptcy) is fair game. In most cases, a co-debtor will be 100% liable for the entire remaining debt. The creditor cannot sue you for payment, but it can sue your co-debtor. Your co-debtor is also prevented from suing you for payment.

A creditor may also seek to collect from any property that was used as collateral for the discharged debt. Often property that was not acquired through financing (called “non-purchase money security”) can be protected, but the general rule in bankruptcy is that secured property must be paid for or returned. After the bankruptcy case is closed, a secured lender can repossess collateral that secures a discharged debt without violating the bankruptcy discharge injunction. Repossession after bankruptcy is actually very rare. There are several ways to protect property (especially a vehicle) during and after bankruptcy, including redemption, a Chapter 13 cram-down, or reaffirmation. If you have secured property you would like to keep, discuss your options with your attorney.

Many debts that are “forgiven” or “charged-off” can be taxed against the debtor. The IRS sees the forgiven debt as taxable income. Fortunately, the federal law contains an exception to this rule for debts discharged by bankruptcy. Discharged debts are not taxable as income by the IRS.

Since the debt still exists after the bankruptcy case, the discharged debtor may choose to make voluntary payments. The discharge injunction only applies to the creditor, and there is nothing that prohibits voluntary payments. Voluntary payments do not “revive” the debt, and it does not negate or suspend the discharge. The creditor is forever and always barred from contacting the debtor regarding the debt, and cannot call or even send reminder notices to pay.

If you have bills that you cannot afford to pay, contact an experienced attorney and discuss your options under the federal Bankruptcy Code. Bankruptcy is a powerful defense that can shield you from the negative effects of overwhelming debt.

 During World War II American servicemen were cautioned against careless talk that might reveal information useful to the enemy. One popular saying was, “Loose lips sink ships.” Today, debt collectors are using a variety of information sources to locate income and assets. A similar warning may be applied to bankruptcy debtors: “Loose lips may sink your bankruptcy.”

For some time debt collectors have used social media sites to discover information about a debtor. One popular method is through Facebook, which boasts more than 500 million active users. Some collectors make a friend request in order to gain access to the debtor’s private information and friends. Once the friend request is accepted, the collector will monitor the Facebook page for information concerning income and assets.

While Facebook is a fun way to keep in touch with your friends and discuss what is currently happening in your life, it can also create problems when you reveal too much. For instance, pictures of your home (including furnishings), yourself wearing jewelry, or photos of Christmas or birthday presents could reveal assets that were not listed in your bankruptcy schedules, or perhaps were erroneously under-valued. Additionally, discussion about jobs or even hobbies may reveal un-reported or under-reported income.

Not only are debt collectors looking for this information, but the bankruptcy trustee, private creditors, or perhaps an angry ex-spouse or ex-business partner may also be interested. In most cases debtors adequately account for income and assets, and the information obtained on an individual’s Facebook page is negligible. But why take the chance? The best advice is to heed this advice: “Loose lips may sink your bankruptcy.” Be careful what you disclose publicly – especially over the internet.

If you are struggling with debt, discuss your financial situation with a bankruptcy attorney. A licensed bankruptcy attorney will keep your financial information confidential and give you legal advice that will lead to a financial fresh start.

Individuals are required receive credit counseling from an approved agency within 180 days before the bankruptcy filing date. This requirement was enacted in 2005 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act, and is meant to encourage debtors to pursue non-bankruptcy alternatives. In reality, pre-bankruptcy credit counseling has no impact on the number of bankruptcy cases filed.

In a few limited circumstances credit counseling is not required. These circumstances are identified by the federal law as:

(1) incapacity where the person is so impaired by reason of mental illness or deficiency that the individual is incapable of making rational decisions;
(2) disability where the person is so physically impaired that the individual is unable, after reasonable effort, to participate in an in person, telephone, or Internet briefing session; or
(3) active military duty in a military combat zone (currently Arabian Peninsula Areas, Kosovo area, and Afghanistan).

The law allows individuals to receive credit counseling after the bankruptcy filing under the following conditions:

(1) exigent circumstances exist that merit a waiver;
(2) the individual requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain the services during the 5-day period before filing bankruptcy; and
(3) the request and explanation is satisfactory to the court.

Note that procrastination, inability to pay for the counseling, incarceration, etc. are not part of this list. The bankruptcy court is very reluctant to approve waivers except in the most extreme circumstances. A pending lawsuit or foreclosure alone is not enough.

Only agencies approved by the Department of Justice’s U.S. Trustee Program can issue pre-bankruptcy credit counseling certificated that are accepted by the bankruptcy court. Each agency is required to provide the service free of charge if you cannot afford to pay the credit counseling fee. Otherwise, the agency will charge a fee of around $50. The session will last approximately 60 to 90 minutes and includes an evaluation of your personal financial situation, a discussion of alternatives to bankruptcy, and may include a personal budget plan. This counseling session may take place in person, on the phone, or online.

Once your credit counseling session is completed, a certificate is issued which must be filed with your bankruptcy case. Failure to complete the credit counseling or file the certificate will result in the dismissal of your bankruptcy case.

Your bankruptcy attorney will recommend trusted credit counseling agencies. Discuss the credit counseling process with your attorney if you have questions. Do not overlook this mandatory credit counseling! 

Data recently released by Standard & Poor shows that home prices have dropped roughly two percent nationwide since June. This news is a grim reminder to homeowners that real estate is dragging behind in the economic recovery. In some cities, notably Phoenix and Las Vegas, home prices are now roughly where they were in 2000, while a 27 percent advance would have been needed to keep pace with inflation.

Some analysts have speculated that the homebuyer's tax credit artificially supported the housing market, and now that this credit has ended, the impact of foreclosures and a glut of homes for sale will depress prices in many areas. However, an improving economy could offset that trend and increase demand for homes as the job market improves.

In many cases the federal bankruptcy laws can help a family deal with a home that is losing value. During a Chapter 13 bankruptcy a debtor is able to strip away an entirely unsecured second and/or third home lien. A junior lien is unsecured when the senior lien is more than the value of the home. An unsecured junior lien can be stripped and the debt discharged during a Chapter 13 bankruptcy.

A Chapter 13 bankruptcy also provides an opportunity to negotiate with the lender for a modification of the debt. In some cases the lender may reduce principle or interest and modify the existing note, making staying and paying on the home a more attractive option.

During Chapter 7 or Chapter 13, a debtor is able to walk away from a house and discharge the debt. In this way bankruptcy can be used as a financial tool to relieve the burden of a declining investment.

If you are struggling with debt and overwhelmed by a home that is depreciating in value, speak with an experienced bankruptcy attorney and discuss your options. Your bankruptcy attorney can help you devise a plan to eliminate your debt and improve your financial situation, both short term and long term.
 

Most bankruptcy cases end with a discharge order from a federal bankruptcy judge. The discharge is a permanent injunction that prohibits pre-bankruptcy creditors from collecting against the debtor, and is a “fresh start” for the debtor. It effectively eliminates many debts and allows the debtor to start over with his or her finances.

Taking care of your finances after receiving your bankruptcy discharge is extremely important. The bankruptcy law requires that you complete a financial management course prior to your discharge which teaches basic management techniques. While this course is helpful, the first step in managing your finances after your bankruptcy is to identify any post-discharge debts.

First, what personal debt survived your bankruptcy case? Post-discharge personal debt generally falls into one of three categories: (1) debt automatically excepted from discharge; (2) debt excepted from discharge by court order; and (3) post-petition debts. Debts automatically excepted from discharge include student loans, most taxes, and child support obligations. Debts excepted from discharge by court order include debts involving fraud or other bad conduct. Post-petition debts are debts that first arise after the day you file your bankruptcy case. Post-petition debts are not included in your bankruptcy case and are not discharged.

Second, do you have property debt that survived the bankruptcy? In certain cases the personal obligation to pay a debt may be discharged, but the property lien survives. Although you owe nothing to the creditor, items secured by a property lien may be repossessed. Consult with your attorney and determine what, if any, property may be at risk of repossession after your bankruptcy.

Finally, did you agree to any new financial obligation during your bankruptcy case? Be clear about any new or changed financial obligation that you agreed to during your bankruptcy case. If you executed a reaffirmation agreement, redemption loan, or modification, make sure you understand the terms and obligations contained in that agreement.

You and your attorney should discuss the impact of your bankruptcy discharge on your debts. Be certain that you understand which obligations are discharged and which survive the bankruptcy case. Your bankruptcy attorney is happy to discuss your options for managing any debt that survives the bankruptcy discharge.

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The United States Trustee Program is a component of the Department of Justice.  The Trustee Program appoints and supervises local private trustees who administer Chapter 7 and 13 bankruptcy estates.  One of the private trustee’s chief duties in Chapter 7 cases is to liquidate the debtor’s nonexempt assets and pay creditors with the proceeds.  Similarly, in a Chapter 13 case the trustee must ensure that the debtor devotes all disposable income to debt repayment. Free Consultation 

The trustee is not your friend, the judge, or your legal counsel.  The trustee has no judicial power to make final decisions or issue orders regarding your bankruptcy case.  While the private trustee is very skilled at bankruptcy law, the trustee is forbidden from giving the debtor legal advice.   

On occasion a debtor will contact the trustee’s office with questions concerning the bankruptcy case.  This is always a bad idea and often results in a negative outcome.  Direct debtor contact is uncommon, so the trustee will identify and remember a debtor that personally contacts his or her office.  The case may have been a “routine” bankruptcy case for the trustee, but after the debtor contact the case is squarely on the trustee’s radar.  The trustee will assume there is a problem with the bankruptcy and scrutinize the case. Free Consultation 

During a lawsuit direct communication with represented litigants is generally prohibited.  Many trustees are also licensed attorneys, but may communicate directly with you while performing the duties of bankruptcy trustee.  If you call the trustee, he or she will likely speak with you.  And why not?  You may inadvertently disclose something that is better left unsaid.  What seems like an innocent and expedient communication may turn into an issue that you are unable to predict.  Free Consultation 

The bankruptcy trustee is not your friend.  If you have questions concerning your bankruptcy, discuss your issues with your attorney.  Your attorney can answer questions about your case, and is experienced in dealing with the bankruptcy trustee.  Let your attorney represent you and do not complicate your case by communicating directly with the bankruptcy trustee. Free Consultation