Chapter 13 Discharge

Chapter 13 Discharge

The discharge is the overall of any consumer bankruptcy case.  This is occurs at the conclusion of the case and it is a permanent injunction that eliminates the dischargeable debts.  A chapter 13 debtor is entitled their discharge after they complete of their chapter 13 plan payments and so long as the debtor has:

1.      1. certified that they have made all domestic support obligations (child support and/or alimony) that came due during the case  (if applicable);

2.       2. has not received a discharge in a prior case filed within a certain time frame see How Often Can I File Bankruptcy? ; and

3.      3.  completed an approved course in financial management course  

The court will enter the discharge order an opportunity for notice and if necessary a hearing.

The discharge releases the debtor from all debts provided for by the plan and these creditors may no longer initiate or continue any legal or collection action against the debtor. 

 

Jurisdictional Limit on Chapter 13

 In order to be eligible to file chapter 13 bankruptcy there are certain requirements that must be met.  First of all only individuals can file for chapter 13.  In other words corporations, partnerships, business and municipalities cannot file chapter 13, although there are other reorganization chapters which they can file.   Although an individual who is self-employed or operating a business can file a personal bankruptcy.
                Additionally, 11 U.S.C. § 109 places debt limits on chapter 13 as well. Currently a debtor may not have more than $383,175 in unsecured debts and $1,149,525 in secured debt. These amounts are adjusted periodically to reflect changes in the consumer price index and it is important to verify the current limits.  The US Courts usually provide the information on their website

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.

Can I Keep My Anticipated Tax Refund If I File Chapter 13?

Your Chapter 13 bankruptcy is an opportunity to pay creditors over three to five years. Your monthly payments are largely determined by whatever you can afford to pay, but there are other rules. One of these rules directs that you must pay unsecured creditors an amount equal to what they would receive in a Chapter 7 liquidation bankruptcy. This can be a sticking point when it comes to an anticipated tax refund in a Chapter 13 case.

When you file bankruptcy, any income tax refund you are entitled to, but have not yet received, is property of the bankruptcy estate. While you can keep any amount of your tax refund that is protected by legal exemptions, any non-exempt amount must be either paid over the Chapter 13 trustee for distribution to creditors, or your monthly plan payments are increased to account for the non-exempt tax refund. Consequently, proper application of exemptions is very important. In some cases, your tax refund may be entirely protected by legal exemptions, especially when the refund is small.

If you are unable to exempt money from your anticipated tax refund, the traditional advice is to delay filing until your refund is received and spent. The most important part of this strategy is to file your bankruptcy case after the money is gone. Speak with your attorney about the do’s and don’ts of spending a tax refund.

One situation sometimes overlooked by pro se debtors and inexperienced attorneys is the “accrued” tax refund. A debtor’s entitlement to a tax refund accrues during the tax year, even though it may not be owed or payable to the debtor until after the bankruptcy case is filed.  For instance, if the debtor files bankruptcy on October 1, three-fourths of the debtor’s full refund has (arguably) accrued. If the total refund is $4,000, then $3000 is a pre-filing asset. The debtor must account for this $3,000 and either claim it as exempt, or non-exempt (and therefore available for distribution to creditors). A partial year tax return may be beneficial in this type of situation.

Debtors lose anticipated income tax refunds regularly through poor pre-bankruptcy planning and carelessness.  This unfortunate situation can be easily rectified by working closely with a your attorney and your CPA. If you are considering a bankruptcy filing and expect an income tax refund, discuss your situation with an experienced bankruptcy attorney.

Can I Keep My Future Tax Refunds After I File Chapter 13?

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 re-emphasized the need for a Chapter 13 debtor to commit all of his or her disposable income to repaying creditors during bankruptcy.  Since that time, Chapter 13 bankruptcy trustees across the country have argued that tax refunds constitute disposable income – income not needed by the debtor to pay reasonable and necessary expenses, such as food, transportation and shelter. Courts have unanimously agreed with the trustees: tax refund money is surplus, and the Chapter 13 debtor must turn over these refunds to the bankruptcy estate.

There are a few ways to combat this loss during a Chapter 13 bankruptcy.  The most obvious way is to not create a tax refund in the first place. This means careful vigilance of your tax situation. Instead of Uncle Sam holding onto your money throughout the year, make sure that you only give the tax man what is owed – and no more.

Another way to avoid an income tax loss is to include language in the bankruptcy plan that excludes income tax refunds. This exclusion must be supported by evidence of the need to pay a reasonable and necessary expense. For instance, you may propose to pay annual property taxes with income tax refunds. These types of proposals have a low success rate and will almost always draw an objection from the trustee or a creditor.  Furthermore, the bankruptcy court may be reluctant to allow this proposal due to the unpredictable nature of using a tax refund as income (the refund may be what you expect, it may be more, it may be less, or it may not come at all).

Finally, many Chapter 13 debtors attempt to modify their plans to excuse a particular refund, or part of a refund. Some courts and trustees will allow a debtor to keep money from an income tax refund when the debtor shows that the money is needed to pay reasonable and necessary expenses.  For instance, if the debtor suffers an unexpected expense, such as an unexpected medical bill, funeral expenses, or a car repair, the debtor may be able to keep tax money to cover the expense.  The bankruptcy court will not allow the debtor to keep tax money to pay for food, utilities, a car payment, or other expenses that should be paid by the debtor’s regular income.

Income tax refunds (and underpayment of taxes) during Chapter 13 bankruptcy always cause headaches, so the best advice is to pay attention to your income. A regular visit to a seasoned CPA will avoid tax issues and keep more money in your pocket. 

Supreme Court to Decide Bankruptcy Issue

Imagine that you propose a Chapter 13 repayment plan to repay your creditors, but the bankruptcy court refuses to confirm it.  What can you do?

If you live in the Third, Fourth or Fifth circuits, you may immediately appeal the bankruptcy court’s decision. However, if you live in the First, Second, Sixth, Eighth, Ninth or Tenth circuits, you are stuck with either proposing another plan or having the case dismissed. In these circuits, only after the case is dismissed is the issue a final, appealable order.

Partly as a result of this split of opinion between the circuit appellate courts, the U.S. Supreme Court recently agreed to hear the issue as part of the case of Louis B. Bullard v. Hyde Park Savings Bank et al, a case on appeal from the First Circuit. In that case the debtor proposed a plan to split a home mortgage debt into secured and unsecured portions. Pursuant to the plan he would then pay the secured portion at one rate and the unsecured portion at the same rate as all other unsecured debts in the case. The bankruptcy court rejected the plan. When the debtor appealed, the appellate court found that the bankruptcy court’s rejection of the repayment plan was not a final order because the debtor could simply propose another plan.

This issue has potential far-reaching consequences in Chapter 13 and Chapter 11 business bankruptcy cases. The Supreme Court will likely hear oral arguments in the spring.

Is a Mortgage Loan Servicer Subject to the FDCPA?

For many homeowners, the monthly home loan payment is sent to a mortgage servicer, not to the lender. A mortgage servicer is a company that acts as a mortgage holder’s agent and collects and processes the monthly mortgage payment for a percentage of the interest payment. Distinguishing when a company is a servicer or a note holder can be confusing because big banks like Wells Fargo and Bank of America have servicing groups. U.S. Bank may hold the home loan note, but Bank of America may service the loan for U.S. Bank.

Mortgage servicers operate under many federal and state laws, such as the Real Estate Settlement Procedures Act (RESPA) and the Truth-in-Lending Act (TILA). A mortgage servicer is obviously a “third party” and a “collector”, but does the mortgage servicer meet the statutory definition of a debt collector and fall under the Fair Debt Collection Practices Act (FDCPA)?

The FDCPA’s definition of “debt collector” excludes creditors and those who collect debts that are not in default. See 15 U.S.C. § 1692a(6)(F)(iii). Consequently, if a home loan is transferred to a mortgage servicer while the loan is current, any attempt to collect the debt by the home loan servicer is not subject to the FDCPA. The FDCPA does not apply to that servicer even if the loan subsequently goes into default status. If a home loan is transferred to a loan servicer during a time when the loan is in default, then its collection activity is subject to the FDCPA.

But don’t always believe the plain language of the statute because sometimes the courts have different interpretations. . .

In 2012, the United States Court of Appeals for the Sixth Circuit (which hears federal appellate case from Kentucky, Michigan, Ohio, and Tennessee) held that a mortgage servicer was liable under the FDCPA even though the loan was not in default. In Bridge v. Ocwen Federal Bank, FSB, 681 F.3d 355 (6th Cir. 2012), the appellate court held that the mortgage servicer and the purchaser of the mortgage were subject to the FDCPA because the mortgage servicer treated the mortgage as if it were in default and attempted to collect it as a defaulted debt. Contrary to the plain language of the FDCPA, the court explained that it interpreted the definition of debt collector found in the FDCPA to include mortgage servicers who treat a loan as if it were in default even when it is not. The holding concluded that the reason for mistakenly treating the mortgage as defaulted, such as a clerical mistake, error, or even intentional, does not matter.

If you are being harassed by a loan servicer, speak with an experienced bankruptcy or consumer debt attorney regarding your state and federal legal protections. Your attorney can explain your options for stopping harassment and saving your home from foreclosure.

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 .

 

Bankruptcy Waivers are Generally Void

When a person is short of money, he may ask for a loan. Usually the more desperate the person’s financial situation, the higher the interest rate becomes – and the greater the creditor’s risk that the individual will file for bankruptcy protection. In order to manage that risk, some loan contracts contain bankruptcy waivers.

A bankruptcy waiver is an agreement that the borrower will not file bankruptcy and discharge the debt. Courts consider these waivers unenforceable and are considered void against public policy. See Klingman v. Levinson, 831 F.2d 1292 (7th Cir. 1987); see also In re Citadel Properties, Inc., 86 B.R. 275 (Bankr. M.D. Fla. 1988)(“A total prohibition against filing for bankruptcy would be contrary to Constitutional authority as well as public policy”).

While courts agree that an agreement that impairs a party’s ability to file for bankruptcy protection is void, courts have disagreed when it comes to waivers of specific bankruptcy protections. For instance, a secured creditor may include a provision that waives the automatic stay on the real estate, which will allow the creditor to quickly obtain relief from the automatic stay and proceed with a foreclosure or repossession. The creditor must still seek an order lifting the stay from the bankruptcy court, but the waiver provides evidence of the debtor’s consent and reason for the court to lift the stay protection. See In re Cheeks, 167 B.R. 817 (Bankr. D.S.C. 1994).

A pre-petition bankruptcy waiver is generally binding on the debtor unless it was obtained by coercion, fraud or mutual mistake of material fact. See In re South East Financial Associates, Inc., 212 B.R. 1003 (Bankr. M.D. Fla. 1997). These waivers are not binding against third parties, like creditors or the bankruptcy trustee. Consequently, if a waiver affects the rights of other creditors in the bankruptcy case, a court is not likely to enforce the waiver. Some courts look to a series of factors to determine if the waiver is enforceable and valid, including:

(1)   the sophistication of the debtor,

(2)   the consideration for the wavier,

(3)   whether other parties or creditors are affected, including unsecured creditors and junior lienholders, and

(4)   the feasibility of any Chapter 11 or 13 repayment plan. 

See In re Sky Group International, Inc., 108 B.R. 86 (Bankr. W.D. Pa. 1989).

Pre-petition bankruptcy waivers are serious business, and it is always best to avoid them. However, if your loan agreement contains a bankruptcy waiver and your finances have taken up permanent residence in Brokeville, consult with an experienced bankruptcy attorney regarding your rights under the federal bankruptcy Code.

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 .

 

 

Direct Payments to Secured Creditors

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

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

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

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

Bankruptcy Courts Open During Government Shutdown

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

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

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

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

Consumer Bankruptcy Takes a Plunge in 2013

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

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

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

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

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

Filing a Bankruptcy Pro se

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

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

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

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

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.

 

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.

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. 

 

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.   

 

Recent Issues in Student Loan Debt

According to the Consumer Financial Protection Bureau, student loan debt has topped $1 trillion dollars in the United States. If you include the debt owed to private student loan companies the total debt reaches $1.2 trillion. This report coincided with Congress’s inability to reach a deal before the July 1st deadline, to keep interest rates on federally backed student loans at 3.4%. Currently the interest on new government loans has doubled to 6.8%. Subsequently, the Senate has reached a tentative deal that would base future rates for student loans on the ten-year note plus an additional percentage, keeping the loans at a projected rate of 3.86 percent. Furthermore, graduate students could borrow at 5.4 percent and parents could borrow at 6.4 percent. This may be good news for future borrows, but this doe not resolve massive amounts of student loan debt plaguing Americans.
The Senate has recently begun investigating so-called debt consolidation companies who have been employing deceptive practices to capitalize on the student loan crisis. These companies charge debtors an exorbitant amount of money claiming to reduce their student loan payments, when in fact these companies are just enrolling debtors into already available federal repayment programs without disclosing the information to the debtors.
Bankruptcy is not always an option for people dealing with high student loan debt. The current standard for discharge is that the debt places an “undue hardship” on the debtor. This standard sounds relatively simple; however, in actuality is a very high threshold, requiring nearly complete disability to achieve.
Even if you do not meet this standard there may still be some relief options that are available in bankruptcy. If a debtor has income, but not enough income to pay the large student loan payment, they may be able to file a Chapter 13 bankruptcy case. A Chapter 13 bankruptcy is a 3-5 year payment plan. While the Chapter 13 case will most likely not wipe out the student loan debt, the payment plan can usually lower the payment, making it more manageable for the debtor. In addition, the bankruptcy will also wipe out any other unsecured debt the debtor may have, such as credit cards or medical bills. After the bankruptcy, with all their unsecured debt paid off and some of their student loan debt paid, many debtors can then manage a direct payment on the balance to pay off the remainder. An issue that Chapter 13 can create is that the loans will continue to earn interest while the debtor is in the repayment plan. So if the payment plan is only paying the interest, or nothing to the student loans, the total amount can increase over the plan. However, the debtor will be able to hold off on these payments while in the case. While Chapter 13 may not be a permanent solution, it can stop a default or give a debtor time to improve their financial situation. The attorney’s at Fears and Nachawati can help you make sense of your student loan debt and determine if a bankruptcy case can assist you in helping ease your student loan burden. To get started with a free consultation, call us today.

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.

 

 

 

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!