Lien Stripping in Chapter 13 Bankruptcy

 Section 506(a) of the Bankruptcy Code separates the debtor’s obligations into two general categories or “claims”: secured claims and unsecured claims. Secured claims are obligations in which payment is guaranteed (or “backed” or “secured” or “collateralized”) by property. Section 506(a)(1) provides that a secured creditor's claim is “a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property . . . and is an unsecured claim to the extent that the value of such creditor's interest . . . is less than the amount of such allowed claim.” Consequently, when the value of the property is less than the amount of the secured claim, Section 506(a) allows the obligation to be divided into a secured claim and an unsecured claim.

For instance, suppose the debtor finances a car for $40,000. It’s commonly said that a car depreciates the minute it drives off the lot, so let’s say the car is now worth $35,000 and no payment has been made. In bankruptcy, this car loan would have a secured claim of $35,000 (the value of the collateral) and an unsecured claim of $5,000.

The most notable prohibition against reducing the amount owed on a secured obligation is found in Section 1322(b). This provision, often called the “anti-modification provision,” prohibits a Chapter 13 debtor from modifying the rights of a secured claim when the claim is secured only by the debtor’s principal residence. The U.S. Supreme Court in the case of Nobelman v. American Savings Bank, 508 U.S. 324 (1993), decided that 1322(b) means that a claim against the debtor’s primary residence cannot be bifurcated into secured and unsecured claims. However, most bankruptcy courts have distinguished the ruling in Nobleman to allow a junior mortgage to be stripped away if the value of the senior claims are more than the value of the debtor’s home.

To understand how lien stripping works, consider the following “negative equity” example of a debtor’s home:

Value of home:           $330,000

First mortgage:            $360,000

Second mortgage:       $40,000

Amount of equity       -$70,000

Most courts allow the $40,000 second mortgage to be stripped off and reclassified as an unsecured debt because the amount owed on the first mortgage is more than the value of the home. In other words, the second mortgage is not actually secured by anything because the amount owed on the first mortgage “eats up” all of the home’s equity. There is no equity left to secure the second mortgage. If the second mortgage was partially secured, even by one dollar, the second mortgage could not be lien stripped according to Nobelman.

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

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.

 

 

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.

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.
 

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.
 

Elderly Debtors Win in Fourth Circuit Appeals

The first of July was a red-letter day for senior citizens considering whether to file for Chapter 13 bankruptcy. The Fourth Circuit Court of Appeals held in Ranta v. Gorman (In re Ranta), No. 12-2017 (July 1, 2013) that debtors who file for Chapter 13 bankruptcy are not required to list their Social Security income as part of their projected disposable income for purposes of the Chapter 13 means test.

 

In general, the Chapter 13 means test requires that debtors who wish to file Chapter 13 bankruptcy must make payments for 5 years – 60 months – unless their average gross income is less than the median income for similar households in the state. In the event that their average gross income is less than the median household income, they may make payments on a plan for only 3 years – 36 months.

 

For debtors, a shorter payment plan under Chapter 13 is better than a longer one. In fact, Chapter 13 debtors who fall below the median household income figure stand to save thousands of dollars and, literally, years of frustration, anxiety and stress. Thus, one of the critical questions in a Chapter 13 filing is whether a debtor’s projected disposable income exceeds the median household income for his or her state. This question, in turn, is dependent upon simple arithmetic: namely, adding up a debtor’s projected income.

 

Enter the Ranta decision. By excluding Social Security income as part of the projected disposable income calculus, the Fourth Circuit made it easier for Chapter 13 debtors to qualify under the Chapter 13 means test and, consequently, enter a 36 month plan rather than a 60 month one.

 

Want to find out more about Chapter 13 bankruptcy and the case law that may make easier – or more difficult – for you to successfully restructure your personal finances. The dedicated and experienced attorneys at the Dallas law firm of Fears Nachawati may be able to help you. For your free consultation, contact us today.

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).


 

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.
 

What Debts Should You Reaffirm?

Let’s say you’ve decided to declare Chapter 7 bankruptcy. As a general rule, you’ve decided to shed your debts and start with a clean slate. Of course, you’ve also decided to sacrifice many of your assets in order to pay your creditors as much as possible.

 

As with all rules, there are exceptions. And one of the biggest exceptions to the general rule of shedding your debts in Chapter 7 bankruptcy is whether to reaffirm certain, particularly valuable debts. Reaffirming your car debt, for instance, may ensure that you keep your car – a particularly valuable asset for your post-bankruptcy financial future.

 

Reaffirming your car loan isn’t just about keeping your car. It’s about ensuring that you have any car after your bankruptcy. Although a Chapter 7 bankruptcy can serve many valuable strategic ends, it comes with costs. Most notably, you may have to go months – and even years – without meaningful access to credit. Reaffirming certain debts, such as your car loan, may let you hold on to assets that you might not otherwise have.

 

Do you have questions about the strategic nuances of your personal bankruptcy? Hope is not a plan; if you’re in need of a meaningful plan for personal financial restructuring, the attorneys at the Dallas law firm of Fears Nachawati can answer all of your pressing, important questions. Contact us today for your free consultation. We’re ready to help.

Your Credit after Bankruptcy

Although declaring personal bankruptcy has many advantages, one of the principle disadvantages is that it can be difficult to access credit in the weeks, months and even years after your Chapter 7 or Chapter 13 filing. Fortunately, by taking timely, prudent action, you can minimize your interest payments and maximize your credit score.

 

There are many steps you can take. And the best one may be to work out a post-bankruptcy financial plan with the professionals at the law firm of Fears Nachawati. Still, here are three suggestions you may consider.

 

First, review your credit score, credit history and claims against your credit. Make sure that the listed debts are numerically accurate. Also, be sure to check that they are appropriately characterized. Debts that were included in bankruptcy should be labeled as such – as should debts that are not included in bankruptcy.

 

Second, write a budget and live within your means. It’s a lot easier to say than to do, but making the hard choices now will make your life much easier in the near future. Once your financial life has stabilized, you’ll feel a lot more comfortable using credit instruments – like credit cards – when the time comes.

 

Finally, think seriously about when you should reacquire credit – and for what purpose. It’s important not only to steer clear of a bad relationship with credit cards, but also to establish a good one. Future lenders will want to see that you can handle the challenges of credit. At some point, you may want to contract for a limited amount of debt that serves a particular purpose, such as your weekly tank of gas.

 

The team of professionals can help you plan for your future – both in bankruptcy and beyond. Contact our attorneys today for your free consultation.

Timing is Everything in Bankruptcy

There are many decisions to consider when contemplating bankruptcy. Will you file under Chapter 7 or Chapter 13? Will you file alone or with your spouse? Will you reaffirm secured debts or “walk away?” But the most important decision is when to file your bankruptcy. The timing of your bankruptcy filing will determine many aspects of your case.

Your bankruptcy estate is determined on the date you file your case. All property owned and debts owed on the date you file must be listed in your bankruptcy schedules. A great example of how bankruptcy timing can affect your case is during tax season. If you file your case before you receive your income tax refund, your refund is property of the bankruptcy estate. If you file after you receive your refund, but before you spend the money in your bank account, the money is property of the bankruptcy estate. If you file after you receive your tax refund and after the money is spent, there is nothing left for the bankruptcy estate. Timing is everything!

The Bankruptcy Code places time limitations on the debtor for obtaining certain relief. An example of this is the restriction on vehicle cram down in a Chapter 13 bankruptcy case. Suppose you have a car that is worth $6,000, but you owe $12,000 on it. In a Chapter 13 case you may cram down the car loan to its fair market value. In other words, you only pay $6,000 for your $6,000 car. The Bankruptcy Code restricts vehicle cram down to vehicles purchased more than 910 days (2-1/2 years) before the bankruptcy filing date. Waiting to file bankruptcy could save you thousands!

The timing of your bankruptcy filing can make a difference to the Bankruptcy Means Test. This test requires the debtor to calculate income from all sources for the last full six months. This income is averaged and then analyzed to determine disposable income – money you may have to pay to unsecured creditors. Consider the case of a debtor who receives a one-time $12,000 employment bonus in May, then needs to file bankruptcy in November. The “look back” period for calculating income is the last full six months, or October, September, August, July, June, and May. Including May in the calculation artificially inflates the average monthly income by $2,000 per month! If the debtor waits until December 1 to file, May (and the bonus) are not considered by the Means Test. Timing is everything!

If you are experiencing serious financial trouble, speak with an experienced bankruptcy attorney. Your attorney is skilled at identifying timing issues in bankruptcy and will give you options to avoid complications in your case.
 

Liens in Chapter 7 Bankruptcy

A common saying in Chapter 7 bankruptcy is “secured items must be paid for or returned.” This general rule applies to items that are secured and perfected with a lien. In truth, there are several ways to deal with a secured item in Chapter 7 bankruptcy.

What is a Lien?
A lien is created when a borrower pledges collateral to guarantee payment of a debt. Simply, if the borrower does not pay, the creditor can take and sell the collateral to try to recoup losses. The most familiar type of lien is a car loan scenario. The creditor loans the borrower money to purchase the car, then takes a lien against the car. If the borrower defaults on the car loan, the creditor repossesses the car.

A lien only applies to the pledged collateral and is separate from the personal obligation to pay the debt. That is why when the creditor repossesses the car, the debt is not satisfied. Attorneys call the personal obligation to pay a debt an “in personam” obligation, and the lien on property an “in rem” attachment.

How Chapter 7 Affects Liens
Chapter 7 bankruptcy discharges a debtor’s in personam obligation on the debt. A discharged debt is unenforceable against the debtor; however the in rem lien remains. After discharge a creditor may repossess collateral, but cannot seek payment from the debtor.

Keeping Collateral in Chapter 7
Chapter 7 offers three options to keep collateral: reaffirmation, redemption, and lien avoidance. In reaffirmation, the debtor agrees that the personal obligation to pay the debt will continue after bankruptcy and the creditor agrees to not repossess the collateral. A debtor may choose to redeem personal property and pay the creditor the fair market value in exchange for releasing the lien. Most courts require the debtor to pay the redemption in a lump sum. A debtor may also avoid a lien on household items, if the debtor owned the items when the lien was created and is able to exempt the property in bankruptcy.

Ride through, a fourth possibility, may also exist as an option. Ride through refers to a debtor continuing to pay the original note without reaffirming the personal obligation. The debt is discharged, but the creditor cannot repossess because the debtor is current with his or her payments. This option only exists when state law prohibits repossession without a default or other breach of contract. A lien without an enforceable debt is called a non-recourse debt, because the creditor has no recourse against the debtor after default.

Perfecting a Lien
In bankruptcy, a secured debt is only “secure” if the lien is perfected, usually by recording the lien with an appropriate local or state records office. Failing to do this will cause the lien to fail in bankruptcy. A common situation is a car loan with a family member: mom loans the money for the car, but does not record a lien against the property. A security agreement (e.g. promissory note) alone is insufficient. Without perfecting the lien the property is unsecured.

It is important to identify and review all of your secured loans prior to filing bankruptcy. Providing your attorney with security agreements and loan contracts are a good first step, but be sure to confirm liens at state offices.
 

Is Student Debt Causing You Undue Hardship?

Indebtedness arising out of your time in college or graduate school can be some of the most difficult form of debt to discharge in bankruptcy – but it’s not impossible. Moreover, for debtors struggling under the weight of student loans, bankruptcy may also be an effective strategy for clearing out non-student debt, such as home loans, car loans, credit card debt, and short-term bank loans.

 

In general, bankruptcy courts require a debtor with student debt to demonstrate that the debt “will impose an undue hardship on you and your dependents,” in order to discharge the student debt in bankruptcy. As is often the case with the legal standards, every word in a rule is important, and the standard for the discharge of student debt is no different. Your student debt must be more than a hardship. It must be an undue hardship. Likewise, that hardship must not only impact you, but your spouse or children, your dependents, as well. Not surprisingly, many debtors carrying student debt face hardships, but few face the kind of particular hardship that the rule requires. Still, if you face hardship as a result of your student debt, it may be worthwhile to speak to the attorneys at Fears Nachawati.

 

Many debtors who carry student debt also have non-student debt, too. Even if your student debt is currently non-dischargeable, eliminating portions of your non-student may make it considerably easier for you to manage your personal finances. For some debtors, Chapter 13 restructuring of their personal balance sheet is best; for others, Chapter 7 liquidation – a completely fresh start – is preferable. Find out what course of action is best for you by talking to the professionals at Fears Nachawati today.

 

With years of experience and dedicated expertise, we can quickly assess your financial and legal needs and give you the direction and comfort you want and need.

Federal Reserve Policy and Its Effect on Bankruptcy

For the last several years, the United States Federal Reserve Bank, the financial entity with the ability to set interest rates, has kept the cost of borrowing money low in an attempt to encourage economic growth and prevent a “double-dip” recession. In Texas, during this period, the economy has been improving. But it’s difficult to know whether this growth is because of – or in spite of – Fed policy.

 

And some suspect that the number of bankruptcies in D/FW is artificially low as a result of Fed policy and that a flood of filings may be just around the corner.

 

In North Texas, the Fed’s low-interest policy has likely resulted in a significant decrease in the number of business bankruptcies. The first quarter of 2013, for instance, saw an 11 percent decline from the same period in 2012 in Chapter 11 filings. Looking back even further to 2011, the decline is even more steep.

 

Critics of the Fed’s “cheap money” policy and its effect of discouraging Chapter 11 filings have prompted some to call this the era of “extend and pretend.” Banks are extending loans, they say, and pretending that their debtor’s underlying business reality is not as bad as it appears.

 

If these predictions are accurate, debtors and their creditors may soon find that even a modest increase in interest rates may kick off a wave of business filings. That may, in turn, put pressure on bankruptcy professionals and courts to process the significant influx of bankruptcy filings.

 

Want to know the extent to which your small business is exposed to the risk that interest rates increase in the months ahead? Do you have your own “break the glass” plan in which you begin taking steps toward bankruptcy? Answer these questions and many more important concerns like them by talking to the dedicated professionals at Fears Nachawati today. We’re prepared to advise you.

Adjust Withholding During Chapter 13

When you withhold too much during the tax year, the IRS will return your money in the form of a tax refund after your tax return is filed and processed. What happens to this tax refund during a Chapter 13 bankruptcy case depends on the policy of the Chapter 13 trustee.

Many Chapter 13 trustees consider your income tax refund "disposable income." Without getting bogged down with a lengthy discussion of what "disposable income" means in a Chapter 13 case, suffice it to say that a Chapter 13 debtor is expected to repay all debts that he or she can reasonably afford. A trustee may consider your income tax refund as “extra money” that is not needed for your family's welfare during the year. Consequently, this money should go to repay your debts.

Money is obviously tight during a Chapter 13 repayment plan, and most debtors can ill afford to lose their income tax refunds. This is why it is important to consult with a tax expert and adjust your withholding. Withholding too little may create a heavy tax burden at the end of the year that could cause your bankruptcy to fail. Withhold too much, and your money may be taken by the Chapter 13 trustee. Consequently, having your tax withholding reviewed periodically by a tax expert will avoid these two extremes, keep the money in your pocket, and avoid IRS tax debt. Small withholding adjustments can pay big dividends.

Successfully navigating through a Chapter 13 case requires the care and attention of an experience bankruptcy attorney. If you are dealing with financial hardship, discuss your situation with experienced legal counsel. Your attorney can offer options, including those found in the federal Bankruptcy Code. Bankruptcy offers permanent relief for discharging and restructuring your debts, and presenting you with a fresh financial beginning.
 

The Unintended Benefits of Bankruptcy

Bankruptcy was originally intended for debtors who had experienced financial hardship. In modern practice, however, this important legal right has become much more than a shield in the face of oppressive personal finances. In some situations, it can be used as an effective sword, too, freeing up needed financial resources to underwrite important life choices and changes.

 

Litigation can be costly. Like a job loss or a medical procedure, the high costs of fighting a court battle can be so high that the only way to free up enough available income is to declare personal bankruptcy. It isn’t the right move for everyone – or even necessary an available action for some – but for many, filing for Chapter 7 or Chapter 13 is an effective way to move forward.

 

In addition to the benefits of shedding debt, filing bankruptcy empowers a debtor with the automatic stay. By compelling all other legal actions to stop, a bankruptcy’s automatic stay momentarily prevents litigation from moving forward. This can let you maintain your lifestyle a little longer and, more importantly, can open up opportunities for negotiation and collaboration between you and your creditors.

 

Don’t let civil or criminal litigation result in you winning the courtroom battle but losing the financial war. Bankruptcy may expand your options during this difficult period and buy you a little more of your most precious asset: time. To find out how the bankruptcy professionals at the law firm of Fears Nachawati may be able to help you, contact our team of dedicated attorneys today. With years of experience, we’re ready to help you.

Ensure All Owed Taxes Are Included in Your Chapter 13 Bankruptcy

Chapter 13 is a powerful legal mechanism to stop IRS harassment and allow you to pay owed taxes over three to five years. For some debtors this type of relief is a long time coming, and often is an on-going problem. However, only tax debts that the debtor owes on the day the bankruptcy is filed are included in the debtor’s Chapter 13 bankruptcy case. A suspected tax debt that the debtor may owe at the end of the year is considered a post-petition debt that is not included in the bankruptcy case.

Fortunately, your attorney has a solution for a debtor who needs to file in the middle of the year and suspects that he owes for the current year: file a partial year tax return before filing the Chapter 13 bankruptcy case. Tax debts are ordinarily only legally recognized at the end of the tax year, or December 31, but the tax code allows a taxpayer to file a partial year return and thereby create a legally recognizable tax debt before the end of the year. Once the tax debt is legally recognized, you can include this debt in the Chapter 13 bankruptcy and pay it alongside tax debts from previous years.

Avoiding future tax debts is a cooperative effort between you, your bankruptcy attorney, and your accountant. A Chapter 13 bankruptcy debtor is required to adjust his or her budget to stay current with any ongoing tax obligations. Consequently, you should not owe a substantial amount for any future tax year, including the remaining portion of the current year.

If you are struggling with debt you cannot pay, including tax debt, speak with an experienced attorney and discuss how the federal bankruptcy laws can help. Bankruptcy can reign in your out of control tax debt and get the IRS monkey off your back for good!
 

Asset Sale May Be Helpful in Chapter 13 Case

If your liabilities exceed your assets, filing personal bankruptcy may be the right strategic move for your personal balance sheet. And if your monthly debt payments exceed your available monthly income, bankruptcy may be the only realistic option for protecting your family’s financial and legal interests.

 

If Chapter 13 bankruptcy is the right direction for you – or if it’s your only choice – it’s important to recognize that the law may require you to sell some of your assets. In this circumstance, it may be important for your legal counsel to help you maximize the value of the assets you put on the action block. Even on a relative basis, the proceeds from these sales may reduce the amount that you’re required to pay your Chapter 13 plan.

 

When thinking about when to file for personal bankruptcy, consider your timing. Some assets, such as real estate, can experience significant fluctuations in value in the span of just a few months or years. By delaying – or expediting – a sale of assets in bankruptcy, you may be able to increase the value of your estate and, as a result, reduce a portion of the obligations you’ll carry into your plan.

 

Want to find out more about how a timely, well-considered asset sale may improve your ability to manage your future during bankruptcy? The attorneys at the law firm of Fears Nachawati may be able to help answer your questions. Talk to us today for your free consultation.

My Discharge Was Denied! Now What?

Dismissal of your bankruptcy case is different from a denial of discharge. A dismissal is the court ending your case. Usually a case is dismissed when the debtor fails to do something he/she must do, such as attend the creditors' meeting. A denial of a discharge is very different and does not dismiss the case; it is a specific order that denies the debtor a discharge of any and all debts in the entire case.

There are many reasons that a bankruptcy court may deny your Chapter 7 discharge, but there is one common denominator: you have done something very wrong during the bankruptcy process. Section 727(a) of the Bankruptcy Code lists reasons that you can be denied a discharge, including:
• transfer or concealment of property with intent to hinder, delay, or defraud creditors;
• destruction or concealment of books or records; perjury and other fraudulent acts;
• failure to account for the loss of assets; and
• violation of a court order.

The court order denying your discharge does not dismiss or terminate your bankruptcy case. The Chapter 7 trustee will continue to liquidate any of your non-exempt assets, but you lose your opportunity to discharge your debts.

A denial of discharge can have lasting consequences. When you are denied a discharge, section 523(a)(10) of the Bankruptcy Code denies a discharge in future Chapter 7 cases of any debt that was or could have been scheduled in your prior bankruptcy. In plain English: if you are denied a discharge in your first bankruptcy, all those debts can never be part of a discharge in a future Chapter 7 case.

However, it is possible to discharge those debts in a Chapter 13 case. Section 1328 does not enumerate the disqualifying provisions of 523(a)(10) among the list of exceptions to a Chapter 13 discharge. If you need bankruptcy relief and have been previously denied a discharge, speak with an experienced attorney to review your bankruptcy options.
 

Appellate Court Approves Chapter 20

“Chapter 20” bankruptcy was very popular before the Bankruptcy Code was revised in 2005. Chapter 20 does not officially exist, it is a colloquial reference to a debtor’s Chapter 13 bankruptcy filed soon after a Chapter 7. Before the Bankruptcy Code revisions, a debtor could discharge Chapter 7 unsecured debts (credit cards, medical bills, etc.), then use a Chapter 13 to cram down a car to value or catch up on mortgage arrears without paying unsecured debts during a three to five year repayment plan.

Several provisions of the new bankruptcy law stopped Chapter 20 filings. Some courts have stated that Chapter 20 is simply no long available. However, the Fourth Circuit Court of Appeals recently concluded that Chapter 20 is a viable option in some circumstances. The Fourth Circuit reviews federal court cases from federal districts in Maryland, North Carolina, South Carolina, and Virginia. In the case at issue, In re Davis (Branigan v. Davis), No. 12-1184 (4th Cir. May 10, 2013), the debtors filed Chapter 7 bankruptcy and discharged all of their debts. They subsequently filed a Chapter 13 and asked the bankruptcy court to strip entirely unsecured second and third mortgage liens. The Chapter 13 trustee objected.

On appeal, the Fourth Circuit sided with the debtors. In a split opinion, the Fourth Circuit stated that while a debtor who receives a Chapter 7 discharge is ineligible for a subsequent Chapter 13 discharge for a period of four years, there is nothing that precludes that discharged debtor from taking advantage of other bankruptcy protections, like catching up on a mortgage arrears, or paying other debts under court protection and supervision.

In the Davis case, the debtors were allowed to strip off their entirely unsecured junior mortgages. Since their prior Chapter 7 bankruptcy had already discharged all of their personal obligations, the debtor’s are not obligated to pay the second or third mortgage at all. Once the Chapter 13 plan is completed, the junior liens are stripped away permanently.

Some courts and commentators (and creditors!) have complained that Chapter 20 is a bad faith attempt to get around the Bankruptcy Code. Under different circumstances, a court could find that the debtor has engaged in bad faith and refuse to provide relief. Every case (and court) is different. To discuss your particular circumstances and explore your options in bankruptcy, contact and experienced bankruptcy attorney.


 

Bankruptcy Dollar Amounts Increase

Section 104 of the Bankruptcy Code authorizes adjustments of certain dollar amounts every three years to account for inflation. The effective date of the most recent changes was April 1, 2013 and increased bankruptcy dollar amounts by 6.3%. The next adjustment will occur on April 1, 2016. These increases affect many aspects of bankruptcy, including property exemptions; means test calculations; and fraudulent transfers.

Here are some of the changes:

Federal Exemptions
• The federal bankruptcy homestead exemption amount increased from $21,625 to $22,975.
• The federal motor vehicle exemption amount increased from $3,450 to $3,675.
• All other federal exemption amounts increased.

Chapter 13 Bankruptcy Eligibility
The debt limit for eligibility to file Chapter 13 bankruptcy increased. To qualify for Chapter 13, a debtor must have secured debts less than $1,149, 525 (previously it was $1,081,400) and unsecured debts less than $383,175 (previously it was $360,475).

Credit Card and Cash Advance Limits
To prevent debtors from charging up credit cards on a pre-bankruptcy spending spree, Congress established limits on credit card charges and cash advanced. These limits have increased. Now if you charge more than $650 in luxury goods within 90 days of your bankruptcy filing, or taken out more than $925 in cash advances within 70 days of your bankruptcy filing, those charges are presumed to be non-dischargeable. Both of these limits were increased by $50 from their former amounts.

Means Test Threshold
The means test is the gatekeeper for Chapter 7 eligibility. A case is “presumed abusive” if, after applying statutorily allowed deductions, too much income remains. The amount that determines “too much” income has increased from $11,725 to $12,475 in one case and $7,025 to $7,425 in another.

No two bankruptcy cases are identical. For many bankruptcy cases, the process is part law, part accounting, and part creativity. Applying the bankruptcy laws creatively to your financial situation is the recipe for a successful bankruptcy outcome. If you are struggling with debt, make sure that your attorney is experienced, knowledgeable about the law, and will zealously represent you during the bankruptcy process.

 

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

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

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

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

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

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

 

Basic Types of Chapter 13 Plans

Each local bankruptcy court uses a model plan and allows Chapter 13 debtors to choose how they will treat unsecured creditors (like credit cards and medical bills) during their bankruptcy cases. There are a few basic types that are in common use across the country:

100% Dividend Plan – In a 100% dividend plan the debtor has sufficient income to pay 100% of his unsecured debts over the plan term. In a 100% dividend plan, the bankruptcy case may end sooner than five years.

0% Dividend Plan - A 0% dividend plan means that no unsecured creditor is paid by the trustee. All plan payments are paid to secured or priority creditors, and to administrative expenses such as bankruptcy trustee fees or unpaid attorney fees. Unpaid unsecured creditors are discharged at the conclusion of a 0% Dividend Plan

Disposable Income Plan – In a Disposable Income Plan, unsecured creditors receive a pro-rata share of a monthly payment that is determined primarily by the Chapter 13 means test and the debtor’s current income and expenses. Generally, after deducting payments to secured creditors, any priority claims, administrative claims, and the debtor’s reasonable living expenses, whatever is left goes to unsecured creditors. How long the debtor pays this monthly amount depends on whether the means test requires a 36 or 60 month repayment period. The exact amount a creditor receives in this type of plan depends on the total amount of the debt and the number of allowed claims. Any unpaid unsecured debts at the end of a Chapter 13 Disposable Income Plan are discharged.

Liquidation Analysis Plan – A Chapter 13 Liquidation Analysis Plan is used when the debtor does not have enough exemptions to protect his property from turn-over in a Chapter 7 case. Unlike a Chapter 7 case, the debtor keeps his property in Chapter 13, but must pay the amount of non-exempt equity in the debtor’s property to unsecured creditors. This amount is divided into equal payments over the plan period.

If the debtor has both extra disposable income and non-exempt equity, and the disposable income is sufficient to pay the value of the non-exempt assets, then no amount must be added to the disposable income plan. However, if the value of the non-exempt assets is more than the amount available under the disposable income test, then the debtor must pay an amount equal to the Liquidation Analysis Plan.

Base Plan - A Base Plan is a repayment plan proposed by the debtor that deviates in some way from one of the plans mentioned above. A Base Plan is calculated by multiplying the number of months in the base by the monthly plan payment. To illustrate, let’s suppose, that a debtor, let’s call him Bo, has a modest delivery driver income, but owns outright an orange 1969 Dodge Charger. The Charger is nice, but has some cosmetic blemishes (Bo lives in a rural area and likes to drive it fast with his brother Luke). Bo and his attorney have reasonably valued it at $20,000. After negotiating with the trustee, they agree that Bo’s monthly payment is $575 over 36 months under the Liquidation Analysis Plan. Well, that’s just a little bit more than Bo’s budget will allow. Bo’s attorney proposes a more affordable Base Plan over 48 months at $431.25 per month.

The type of plan used in your Chapter 13 bankruptcy case is largely determined for you after examining your circumstances. In some cases deviating from a default plan may make more financial sense to the debtor. A skilled bankruptcy attorney can guide you to the type of plan that is most beneficial to your bankruptcy success.
 

Chapter 13 Bankruptcy Timeline

A Chapter 13 is a repayment bankruptcy case that takes three to five years. To keep the case moving along, the federal law has imposed certain deadlines on a Chapter 13 case for the debtor, the trustee, and the bankruptcy court to follow:

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

30 Days After Case Filing - Commence plan payments to the Chapter 13 Trustee.

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

1 Day Prior to 341 Meeting - Tax returns for the prior 4 tax years filed with the IRS and state must be sent to the bankruptcy trustee. These documents are usually sent to the trustee on the date that you file your case. 11 U.S.C. §1308

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

(Generally) 21 Days after the First Setting of the 341 Meeting – Creditor objections must be filed so the debtor’s plan can be confirmed without further notice or hearing absent timely objections. Determined by local rule.

90 Days after the First Setting of the 341 Meeting - Creditor’s bar date for proof of
claim filings. 11 U.S.C. §502, Fed. Rule 3002

180 Days after the First Setting of the 341 Meeting -Governmental bar date for proof of claim filings. Fed. Rule 3002

(Generally) 45 Days after the First Setting of the 341 Meeting - You must file your Financial Management Course certificate with the court. 11U.S.C. §1328; Determined by Local Rule.

Three to Five Years after Case Filing – Discharge Order entered by the court. 11U.S.C. §1328. Additional filing requirements may be imposed on the debtor or trustee by local rule, such as motions and notices.
 

Timeline Chapter 7

Chapter 7 Bankruptcy Timeline

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

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

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

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

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

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

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

Switching Chapters During Bankruptcy

When a voluntary bankruptcy case is filed, the debtor announces his or her intent to proceed under a specific chapter of the Bankruptcy Code. There are three chapters the debtor may choose from: 7, 11, or 13. Chapter 7 is a “liquidation” bankruptcy and the debtor receives a discharge in around 4-5 months. Generally no creditors are paid during a Chapter 7 case. Chapter 11 and 13 are reorganization and repayment cases, and creditors are repaid in accordance with the debtor’s financial ability.

In some rare instances, something occurs during the debtor’s bankruptcy that changes the legal and financial landscape of the case. Suppose the debtor files a Chapter 13 bankruptcy, but then suffers a no-fault injury with medical bills and is unable to work. Consequently, the debtor no longer has the ability to pay the Chapter 13 monthly payments. When the trustee does not receive payment, the case is in danger of dismissal. What can be done?

The bankruptcy code permits a debtor to convert the case from one chapter to another. In the scenario above, the debtor could choose to convert the case to a Chapter 7 and obtain a quick discharge. As an added benefit of conversion, any debt that arose after the original bankruptcy filing date, but before the date of conversion, is included in the newly converted Chapter 7 case. This means the medical bills can be included and discharged.

Conversion works the same way from Chapter 7 to Chapter 13. For instance, suppose the debtor honestly underestimated the value of an asset. The debtor has a one-time right to convert his case from Chapter 7 to 13, as long as the case has not been previously converted. However, this right may be denied if a court finds that the conversion is due to bad faith or abuse of the bankruptcy process.

If you are struggling with your Chapter 13 payments and your circumstances have changed, discuss your situation with your bankruptcy attorney. The federal bankruptcy laws are very flexible in the hands of a skilled and experienced attorney, and are designed to get honest, but unfortunate debtors the relief they deserve.

 

What to Consider When Considering Bankruptcy for Your Small Business

Small business restructurings are often as relatively costly as they are emotionally painful. Clearly, large corporate bankruptcies, like the recent American Airlines restructuring, carry legal and consulting fees in the millions of dollars. However, given the size of American Airlines assets and its potential for future revenue, these fees are just a few small drops in a huge bucket. For a small business, the costs of bankruptcy can swamp revenue and doom the opportunity to bounce back.

 

For many small businesses, the price of Chapter 11 is too high. Legal and consulting fees can extend into the tens and hundreds of thousands of dollars. Without significant financial resources, often in the form of outside equity or creditor financing, small businesses can’t survive the long haul that is Chapter 11.

 

Chapter 13, the cheaper form of small business restructuring, presents many challenges for managers, owners, and stockholders. With your business assets under the supervision of a bankruptcy court, your decisions may be scrutinized. During the restructuring period, your staff would be required to submit monthly reports to the bankruptcy trustee. In general, the fruits of any business upside would go to your past creditors, not to you and your team. Additionally, your business would have to keep up with plan payments.

 

If Chapter 13 is too risky or expensive, then Chapter 7 may be your only option. Liquidation isn’t fun, but it may be the only way for you to bounce back. With your business debts clear, when the time comes, a Chapter 7 liquidation will free you to try again.

 

Want to know more about your legal options? The attorneys at Fears Nachawati understand how to advise you of your options and execute on the decisions you make. Contact us today for your free consultation. We’re ready to give you the help you need. 

Why Are You Thinking about Bankruptcy?

Americans consider filing for personal bankruptcy for a wide variety of reasons.

 

For some, their month-to-month costs already exceed their income and, as a result, they have been confronted with creditor state law claims, such as garnishment of their wages, repossession of property, like an automobile, or even foreclosure on a home. Where this is the case, bankruptcy may provide not only a longer-term solution to their financial predicament, but also an immediate reprieve, courtesy of the Bankruptcy Code’s powerful automatic stay provision.

 

For others, their income may exceed their operating costs, but their overall debt burden far exceeds their assets. Moving the mountain of debt they face may take years, even decades, and for some debtors, the prospective of managing this process is just too much to bear. Divorce, medical costs, or a legal verdict may have caused the immediate and profound spike in their personal debt level.

 

Recognizing why you’re thinking about bankruptcy and what you hope to gain from this life-changing legal procedure is important if you are to achieve a successful outcome. No approach to personal bankruptcy is easy. Chapter 7 takes place quickly, over just a few months, but the amount of change a debtor experiences is considerable. Likewise, Chapter 13 imposes less dramatic change to your day-to-day life, but typically occurs over a period of between three and five years. Living with your finances under bankruptcy court supervision for that long can be trying to any debtor – and their family.

 

What’s the right way forward for you and your loved ones? The attorneys at the Dallas law firm of Fears Nachawati can help you answer this and many other important questions. Before you make any major decisions with respect to your finances, talk to our dedicated professionals. The consultation is free and the advice could prove very helpful.

Can Bankruptcy Halt Your Foreclosure?

The short answer to this important question is usually, “Yes, but not always.”

 

Many Americans qualify to file bankruptcy under Chapter 13 of the Bankruptcy Code. For these debtors, Chapter 13 provides them with the opportunity to make up past mortgage payments on a court-supervised repayment plan that more closely matches your financial means with your financial obligations.

 

For those debtors who earn too much income for Chapter 13, Chapter 7 bankruptcy can sometimes provide a way to keep your house. First, the provision of the Bankruptcy Code known as the automatic stay will stall the foreclosure proceedings. Second, if a debtor only has unsecured debt or if he or she can find a way during the bankruptcy proceeding to catch up on the secured lender’s claims, then the house may stay in his or her possession.

 

Unfortunately, for debtors who make too much money for Chapter 13 and who have outstanding secured debt against their home, Chapter 7 may only delay, but not ultimately prevent a creditor’s successful foreclosure proceeding. Where this is the case, you should take care to ask if bankruptcy really is right for you and you may also want to explore whether a private workout may better accomplish your financial objectives.

 

Want to know more about the differences between Chapter 7, Chapter 13, and a private workout, as well as which one may be right for you? The dedicated and experienced attorneys at Fears Nachawati know how to answer these important questions and many more. To get started, talk to our team today. Your consultation is free. 

Will a Private Workout Work for You?

If you’re facing financial distress, you may be considering whether you should file personal bankruptcy or attempt a private workout with your creditors. In some cases, a private workout isn’t possible because your creditors simply refuse to negotiate with you. In other situations, a personal bankruptcy isn’t an option because you’ve already filed within the seven-year period following a prior bankruptcy discharge.

 

Notwithstanding these considerations, more often than not, debtors have a choice. If this is a choice you’re facing, it may be wise to speak with the dedicated bankruptcy and insolvency lawyers at Fears Nachawati. With years of experience advising clients just like you and your family, we know how to address your fears, ease your concerns, and advise you of your legal and financial interests.

 

A private workout has advantages. Compared to a personal bankruptcy, a private workout can take place quickly and without the hassle and expense of litigation. Similarly, because the parties can speak to one another more directly and define their own needs, a debtor and his creditors may consider options that may not be available otherwise.

 

Of course, a Chapter 13 or Chapter 7 bankruptcy has its advantages, too. By availing himself of the Bankruptcy Code, a debtor may operate within its protections. Interest on pre-petition debts will stop accruing. The automatic stay will prevent collection efforts by harassing institutions. State law exemptions, such as Texas’s generous homestead exemption, may allow a debtor to shelter valuable assets from creditors.

 

Each situation is unique. Your legal affairs deserve the personal attention and experienced qualifications that our team provides. Contact our professionals today to learn how we can help you as your move toward financial solvency and certainty.

Denial of Discharge in Chapter 7

In Chapter 7 cases, the debtor does not have an absolute right to a discharge. An objection to a Chapter 7 discharge can be filed by a creditor, by the trustee, or by the U.S. Trustee. The bankruptcy court sets a deadline for objecting to issuing a discharge order in the debtor’s case. To object to the debtor's discharge, a creditor must file a complaint in the bankruptcy court before the deadline set out in the notice. Filing a complaint starts an “adversary proceeding,” which is a case-within-a-case. If the issue of the debtor's right to a discharge goes to trial, the objecting party has the burden of proving all the facts essential to the objection.

Under Section 727(a) of the U.S. Bankruptcy Code, the court may deny a Chapter 7 discharge if you:
One - Intentionally transferred, removed, destroyed, mutilated, or concealed (or allow someone else to transfer, remove, destroy, mutilate or conceal) property within one year of the filing of your case or property after the filing of the case;
Two - Concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which your financial condition or business transactions might be ascertained (unless such act or failure to act was justified under all of the circumstances of the case);
Three - Knowingly and fraudulently made a false oath (in other words, that you lied);
Four - Given, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act;
Five - Withheld recorded information, including books, documents, records, and papers, relating to your property or financial affairs;
Six - Failed to explain satisfactorily any loss of assets or deficiency of assets; or
Seven - Refused to obey any lawful order of the court, other than an order to respond to a material question or to testify.

Additionally, a bankruptcy court cannot grant a Chapter 7 discharge to: an entity that is not an individual; a debtor who failed to complete the mandatory class on financial management; or to a debtor who received a Chapter 7 discharge within the past eight years or a Chapter 13 discharge within the past six years (although there are special exceptions when dealing with a prior Chapter 13 case). Finally, under Section 523(a)(10) of the U.S. Bankruptcy Code, you can’t get a discharge if you were denied a discharge in a prior Chapter 7.

Denial of your Chapter 7 discharge doesn’t stop the bankruptcy case. The Chapter 7 trustee will continue to gather and liquidate any non-exempt assets, but the debtor does not receive the benefits of the Chapter 7 discharge. The debtor may not ever discharge any of these debts through bankruptcy, and immediately loses the protection of the automatic stay. Essentially, a denial of discharge becomes an asset grab for the trustee and your creditors.

Failing to act honestly in bankruptcy has very serious consequences. Sometimes even an honest mistake can land you in deep trouble. Get the help of an experienced attorney for your case.
 

What are the Advantages of Chapter 13?

Chapter 13 bankruptcy isn’t for everyone. For many debtors, added fees for the U.S. trustee and the cloud of uncertainty associated with the three-to-five year payment period discourage some debtors. Moreover, many others do not even qualify under the Chapter 13 means test. In short, they make too much money to declare Chapter 13.

 

For millions of Americans, however, Chapter 13 is an available and reasonable option. Chapter 13 gives debtors the chance to consolidate their various outstanding debts into one, easy monthly payment. Additionally, Chapter 13 debtors can keep their property. Many debtors have real and personal property that is personally invaluable. Chapter 13 dramatically increases the likelihood that they can hold on to these near-and-dear assets.

 

For debtors who complete the Chapter 13 marathon and cross the finish line, Chapter 13 provides a clean slate. Specifically, unsecured debts which remain unpaid at the end of the applicable three or five-year period are eliminated, leaving many debtors with considerably greater disposable income in the years ahead.

 

Bankruptcy isn’t right for everyone, and Chapter 13, a particular kind of bankruptcy, may not be the best option for you and your family. On the other hand, for those debtors who may benefit from Chapter 13, the financial, emotional, and personal benefits can be enormous. Want to find out if this strategy is right for you? Contact the dedicated professionals at Fears Nachawati today. We’re here to help you.

What is Chapter 20 Bankruptcy?

The Bankruptcy Code is a set of federal laws found in Title 11 of the United States Code. The Bankruptcy Code is divided into nine chapters that deal with the different aspects of bankruptcy. The chapters are:

Chapter 1 - General Provisions
Chapter 3 - Case Administration
Chapter 5 - Creditors, the Debtor, and the Estate
Chapter 7 - Liquidation
Chapter 9 - Adjustment of Debts of a Municipality
Chapter 11 - Reorganization
Chapter 12 - Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income
Chapter 13 - Adjustment of Debts of an Individual with Regular Income
Chapter 15 - Ancillary and Other Cross-Border Cases

Chapters 7 or 13 (and sometimes 11 or 12) are used by individuals. In a Chapter 7, the debtor liquidates non-exempt assets to pay unsecured creditors and receives a quick discharge of all debts he cannot afford to pay, with a few exceptions. A Chapter 7 generally takes less than six months to finalize. When an individual files a Chapter 13, he enters into a repayment plan to pay his creditors what he can afford over a three to five year period under court supervision.

Note that there is no “Chapter 20” in the Bankruptcy Code. Chapter 20 is a creation of bankruptcy practitioners to describe the filing of a Chapter 7 liquidation bankruptcy, and then a quick filing of a Chapter 13 repayment bankruptcy. Why would anyone want to file two bankruptcy cases? That is a good question and there are some good answers for it!

Imagine that you are self-employed and have a non-dischargeable $80,000 tax debt to the IRS, and $20,000 in credit card debt. Money has been tight over the past year, and you haven’t been able to pay the IRS or keep up with your credit card payments. Then one day, surprise! The IRS freezes your bank account. What can be done? A Chapter 20 strategy can be used to rescue the money frozen by the IRS, discharge the $20,000 in credit cards through a Chapter 7 case, and then repay the $80,000 over five years with no interest or penalties (or threat of collection action) through a Chapter 13.

Chapter 20 can also be used to repay child support arrears without contempt of court hanging over your head, or cure a secured debt arrearage over three to five years, like a house or car payment. The primary benefit of discharging debt through a Chapter 7 initially is to free up money and eliminate creditors once and for all. If your circumstances improve during your Chapter 13 case, like you win the lottery, all you need do is pay the remaining balance in your Chapter 13 and walk away. The creditors discharged by your previous Chapter 7 case get nothing.

Chapter 20 is not right for every case, and is typically used only in rare circumstances. In some cases a court may allow you to file your Chapter 13 case before your Chapter 7 case has been discharged. Speak with your bankruptcy attorney to determine whether Chapter 20 is right for you.
 

Do You Have a Break the Glass Plan?

During the height of the 2008 financial crisis, policymakers at the Treasury Department and the U.S. Federal Reserve Bank created a “break the glass” plan. For use only in an emergency, the break the glass called for an extraordinary set of policies designed to right the U.S. financial ship, should the need arise. As it happened, the need arose.

 

Do you have a “break the glass” plan for your own personal balance sheet? If not, it may be time to visit with the bankruptcy professionals and dedicated attorneys at Fears Nachawati. With years of experience in this important area of law, we can help define the issues you may face and discuss contingency plans that work best for you.

 

Personal financial crises are like national and global financial crises in that they happen at unpredictable times and in unpredictable ways. You can’t predict when a crunch may come, but you can prepare for it. That’s what a “break the glass” plan is all about.

 

What might be the components of your plan? For many debtors, a three-step process makes the most sense.

 

First, you should know what a so-called “workout” between your creditors and you might look like. This may include modifying your debts, extending payment periods, or altering the interest rate.

 

Second, you should know what triggering events in your life might prompt you to declare Chapter 7 or Chapter 13 bankruptcy. Timing and asset allocation can have a meaningful impact on your bankruptcy’s bottom line, so preparation is critical.

 

Finally, you should have a post-bankruptcy plan, too. Living in the wake of a personal bankruptcy can be tough at times. Being forewarned is to be forearmed.

 

Ready to find out more? Talk to our professionals today. We’re ready to help you and the consultation is free. 

To Keep or Not to Keep Your House

If you’re facing financial trouble, you’re probably asking yourself one question above all others: should we sell our house?

 

A residence is typically the most valuable asset an individual or family owns. Not surprisingly, it’s also frequently the asset against which the most amount of debt is leveraged. Residential mortgage debt often extends into the range of hundreds of thousands – if not millions – of dollars. It can be the source of an incredible amount of personal and financial stress.

 

If you qualify under the Chapter 13 means test, your bankruptcy attorney may be asking himself one question above all others: should the ownership of this house determine whether this debtor enters Chapter 7 or Chapter 13 bankruptcy?

 

A Chapter 13 bankruptcy is the personal equivalent of a corporate restructuring under Chapter 11. Under Chapter 13, a debtor may elongate his debt repayment schedule, retain levered assets, and force his creditors to bet with him on his future. Under a Chapter 7 liquidation, however, a debtor loses more of their assets immediately.

 

How much do you value your residence? This question may be central to your upcoming financial planning if you’re a distressed debtor. To find out the answers to your questions, including how you should approach the timing and strategy of your debt relief options, talk to the bankruptcy professionals at Fears Nachawati today.

Plan Your Timing, Prepare for Your Needs

The effectiveness of your bankruptcy may turn on your timing and your needs. With this in mind, it’s important to prepare carefully and time your filing accordingly.

 

Sometimes, a consumer debtors needs to act quickly. If you’re facing the possibility of a home foreclosure, apartment eviction, or car repossession, filing immediately will activate the Bankruptcy Code’s powerful automatic stay provision. As a result, pending legal actions – such as foreclosures, evictions, or repossessions – will stop in their tracks.

 

On the other hand, a consumer debtor sometimes needs to act deliberately. In general, there’s only one shot in the bankruptcy gun. You need to hit your target the first time. Additionally, the Bankruptcy Code’s look-back provision may make you unwind certain monetary transfers that took place in the months preceding bankruptcy. In some cases, waiting just a matter of days or weeks can save you thousands of dollars.

 

Finally, it’s important to speak with bankruptcy and financial professionals to understand more clearly what your financial future will look like after bankruptcy. If you undergo a Chapter 13 restructuring, you may have to pay a portion of your monthly earnings to your creditors. Living within this budget can constrain your lifestyle in new ways. You’ll want to prepare for that change before it comes.

 

Ready to speak with the dedicated professionals and skilled attorneys at Fears Nachawati. Our Dallas-area practice is ready to serve your needs and prepare you for your bankruptcy filing. For your free consultation, talk to us today.

Can I Keep My Apartment during Bankruptcy?

Whether you can keep your apartment during your bankruptcy is an important question for many debtors. If possible, this is a question you may consider asking – and answering – before you file your bankruptcy petition.

 

If you are current on your rent payments, your Chapter 7 or Chapter 13 bankruptcy will largely not effect your rental arrangement. While you must continue to make payments and your rental deposit may be subject to a trustee action, your landlord won’t be one of your creditors and, therefore, won’t have an interest in your bankruptcy.

 

On the other hand, if you’ve fallen behind in your rent payments, your landlord will likely be one of creditors for purposes of your Chapter 7 or Chapter 13 bankruptcy. As a result, you may fall into a risky and conflictual legal grey area.

 

If you file your bankruptcy petition before your landlord files an eviction action, it’ll probably be easier for you to stay in your apartment. On the other hand, if your landlord beat you to the punch and has filed an eviction action before you’ve filed for bankruptcy, it’ll probably be harder for you to stay in your apartment.

 

In either case, persuasive arguments from the landlord’s legal counsel may sway the bankruptcy judge to lift the automatic stay to your bankruptcy proceeding just as compelling arguments from debtor’s counsel may convince the bankruptcy judge to stay the state court eviction action.

 

The bottom line: the well-trained, dedicated attorneys at Fears Nachawati can advise you as to the facts in your particular case and can fight for your right to remain in your apartment. To get started on your bankruptcy case, talk to our professionals today.

What If I Get Money After Filing Chapter 7 Bankruptcy?

The basic rule in a Chapter 7 bankruptcy is, whatever money you are entitled to receive on the day that you file your case is property of the bankruptcy estate. Even if the money is not yet in your possession, if you are legally entitled to receive it, you must list the property in your bankruptcy schedules. Money that you are legally entitled to receive may include: money owed to you; bonuses that are contractually guaranteed; insurance proceeds from a pre-bankruptcy claim; and tax refunds. It may also include inheritance money.

Tax refunds are the most common type of money received after filing bankruptcy. Your attorney will discuss your expected income tax refund with you before you file your case. Even if it is not tax season (after January 1), you could still lose a portion of your income tax refund to the trustee. As the tax year progresses and income taxes are withheld from your wages, you may be entitled to receive some of that money as a refund. Generally, the bankruptcy trustee makes a simple calculation to determine the percentage you are owed based on the date you filed your case. For instance, if you file your case on October 31, that is ten out of twelve months of the year. On the date that you file bankruptcy, you are legally entitled to 10/12 of your income tax refund (all other things being equal, of course).

Even if you are legally entitled to receive money on the day you file your bankruptcy, you may get to keep all or some of it. First, you can use any available legal exemptions to protect cash money. Federal and state laws allow debtors to keep certain property to assist in their “fresh start,” including cash money. Second, even if you cannot exempt all of your cash entitlement, the remaining amount may be so small that it is not worth the bankruptcy trustee’s time to collect and distribute it. In that case, the trustee will declare the property de minimis (Latin for “very small value”) and “abandon” the property back to the debtor.

The bankruptcy law has carved out a special exception for inheritance money that you are not presently entitled to receive on the day you file. If you inherit money within six months after your case is filed, that money is property of the bankruptcy estate – even if your case has been closed by the bankruptcy court. If you learn that you are to receive an inheritance, contact your attorney immediately. The time period is 180 days from the day you file your case to the day your relative passes. When you actually receive the money does not matter.

If you are entitled to receive money, but need to file bankruptcy, discuss your situation with your bankruptcy attorney. There are several options available to protect cash money. You may use legal exemptions, or you may wait to file your case until after the money is received and spent responsibly on necessary expenses. Your attorney can guide you in the right direction to protect as much as possible.
 

Debt Consolidation or Personal Bankruptcy?

If you’re facing the financial effects of unemployment, an illness, divorce, or mismanagement, you may be considering a serious, life-altering financial decision, such as debt consolidation, Chapter 7, or Chapter 13 bankruptcy. Before you make any decisions, you may want to consider speaking to a dedicated professional at Fears Nachawati.

 

Debt consolidation may be the right decision in some circumstances. In effect, a debtor will take out a large loan in order to pay down or pay off several other smaller loans. When does this strategy make sense? If you can trade high-interest, short-term loan, such as credit card debt, for a long-term, lower-interest loan, you may pay less in monthly payments for the same amount of debt.

 

Of course, debt consolidation may just treat the symptoms, not the problem, and leave debtors worse off than before. For instance, if overspending is causing you to experience monthly shortfalls, debt consolidation may just delay the inevitable. Moreover, if you trade unsecured debt for secured debt, then your ultimate personal bankruptcy could be worth a lot less as you lose the ability to take advantage of valuable exemption.

 

Personal bankruptcy isn’t much fun – and it isn’t the right decision for everyone – but it is a solution for some debtors. If you’re considering debt consolidation, you may also want to talk to our professionals so that you can learn about all of your options and the comparative advantages of each strategy. Talk to us today for your free consultation.

Do You Have Questions about Your Bankruptcy?

In many situations in life and in the law, knowing the questions can be more important than knowing the answers. When considering bankruptcy or going through the process, questions can keep you focused on your next steps and on sticking with your plan.

 

Don’t be afraid to ask your bankruptcy-related questions to a qualified professional or dedicated attorney at Fears Nachawati. Want to know whether your spouse has to file bankruptcy along with you? (A: Not necessarily.) Interested in finding out whether you can discharge your parking tickets, traffic citations, or property taxes in bankruptcy? (A: Nope.) Worried that you won’t be able to access credit after your bankruptcy? (A: You might be surprised.) For all of these questions and more, the attorneys at Fears Nachawati can give you the help you need.

 

Chapter 7 and Chapter 13 are confusing, even for many lawyers. What kind of debt you hold, who holds it, and what it was used to purchase are all features of your bankruptcy that can have profound – and unintuitive – effects upon your personal finances. Doing-it-yourself is a risky strategy that will likely result in you missing out on good opportunities and may even put your bankruptcy discharge at risk.

 

Ready to talk to professionals who know the answers to your questions and are prepared to guide you through the process of declaring personal bankruptcy? Our team is ready to fight for you. To learn how we can help, contact us today.

Protect Your Health During Bankruptcy

When money gets tight, a person must make hard choices. In some cases that means reducing or eliminating services that the person really needs, like health insurance or contributions to a health savings account. This begs the question whether a debtor in Chapter 13 bankruptcy can claim an expense for health insurance when has not been paying for it.

The answer to this question is found in Section 707(b) of the bankruptcy Code (actually 707(b)(2)(A)(ii)(1)), which states that the debtor’s monthly expenses “shall include reasonably necessary health insurance, disability insurance and health savings account expenses…” This means that the debtor can deduct the costs of health insurance that he ought to have but does not currently have. There is magic in describing health expenses as “reasonably necessary” because it frees this section from expenses deductions prescribed by IRS standards. It also makes it unnecessary to show a payment history of such expenses.

Even if the debtor doesn’t currently have health insurance, disability insurance, and a health savings account, he can deduct the “reasonably necessary” costs when calculating the disposable income available to pay his unsecured creditors. There is even a box to check on line 34 of B-22A of the means test to indicate that the debtor isn’t currently paying those items.

Since a Chapter 13 bankruptcy case lasts from three to five years, it is important to budget for health insurance, disability insurance and a health savings account. This not only immediately reduces the amount you pay creditors each month, it also protects your future should you have an illness.

If you are financially strapped and considering bankruptcy, speak with an experienced bankruptcy attorney and learn how the bankruptcy laws make it possible to repay, reduce, or eliminate your debts while providing a decent living for you and your family. Let the federal law work for you!
 

Can a Creditor Object to Your Chapter 7 Bankruptcy Filing?

It may come as a surprise, but you don’t have an absolute right to a Chapter 7 bankruptcy discharge. A creditor, your trustee, or the United States trustee each has the right to file an objection to a consumer debtor’s Chapter 7 discharge. In fact, all they have to do to begin an adversary proceeding is file a complaint outlining the basis of their objection to your bankruptcy.

 

Of course, objections can come as the result of outright, intentional, unmitigated fraud, however, many small errors can be just as deadly to your petition. For instance, failing to include a tax document among your disclosures, failure to take a credit counseling course required by federal law, or failing to account for a lost asset can all scuttle your bankruptcy. Some mistakes may be innocent, but the consequences will be severe.

 

Successfully navigating all of the challenges associated with your personal bankruptcy can be a demanding feat. Fortunately for you, the attorneys at the Dallas law firm of Fears Nachawati know how to handle to particular difficulties associated with your bankruptcy. Whether you’re considering Chapter 7 or Chapter 13, our team knows how to advise you, what questions to ask, and what steps to take.

 

As the nit-picky potential objections to a Chapter 7 discharge suggest, the devil is in the details when it comes to bankruptcy. When a debtor can receive a second discharge, whether your discharge may be revoked post-petition, and what options exist relating to repayment of a discharged debt are all just a few of the issues our firm can address.

 

Your free consultation is just a phone call or email away. If you’ve got questions about bankruptcy and how to prepare for your financial future, talk to our professionals today.

 

How to Lose Everything and Go to Jail

Ex-baseball player Lenny Dykstra was recently sentenced by a federal court for bankruptcy fraud. Dykstra, once a star player for the New York Mets and Philadelphia Phillies, was ordered confined for six months in federal prison, to pay $200,000 in restitution, and ordered to perform 500 hours of community service.

Dykstra, 49 years old, filed for Chapter 11 bankruptcy protection. He listed $50,000 in assets and $10 to $50 million in debts. His case was later converted to a Chapter 7 liquidation.

In June 2010, the Chapter 7 bankruptcy trustee charged that Dykstra had lied under oath, had improperly hidden and sold assets, and had repeatedly acted in a “fraudulent and deceitful manner” during his bankruptcy case. After an investigation, Dykstra was charged with embezzling from the bankruptcy estate by selling or destroying more than $400,000 worth of items from his $18.5 million mansion without permission of a bankruptcy trustee. Dykstra subsequently plead guilty to the charge.

Bankruptcy is not a time for concealing or avoiding the truth. It is a time for brutal honesty. The federal bankruptcy law allows the honest debtor a fresh start, an opportunity to begin again without the burdens of debt. The relief is very powerful and very real. Many successful people have used the federal bankruptcy laws in the past to make their lives better in the future.

On the other hand, dishonest debtors make their situations much worse. Along with his jail sentence, restitution, and community service, Dykstra faces a complete denial of discharge. He lost everything, went to jail, and may be stuck with all of his debts.

Dykstra’s story may be public and chaotic, but it is not that unusual. Some debtors try to use the bankruptcy system to shield assets from creditors while they hide property for their own benefit. Concealing assets and lying during your bankruptcy case is a federal crime that is investigated by the FBI and usually the IRS. The results of these investigations are sent to the Department of Justice and to the federal bankruptcy court judge. In other words, it is not a good idea to monkey around during bankruptcy!

When facing bankruptcy, discuss your situation honestly and completely with your attorney. Your experienced bankruptcy attorney will present options to protect your assets and discharge or reduce your debts in a legal way without risk of bankruptcy fraud.
 

Chapter 13 May Let You Save Your House

Most Americans don’t simply own a house. They live in their home. Years of birthdays, holidays, anniversaries, and little joys and tragedies have made their residence something far more meaningful than what economists would merely call part of the “housing stock.”

 

In the face of difficult financial circumstances, you may be facing a tough choice: do you let the bank foreclose on your home or do you declare Chapter 13 bankruptcy? When you’re facing this choice, it’s important to make a timely decision – and the right decision for you and your loved ones. Fortunately, the attorneys at the Dallas law firm of Fears Nachawati can help you make the right decision on the right timeline.

 

Chapter 13 is an imperfect solution, but for many debtors it is a solution. By agreeing to pay arrearages over the period of your repayment plan, you can take the time you need to get current on your mortgage. You may ultimately pay a little more as a result, but you’ll get to keep the home that’s become so meaningful to you.

 

Chapter 13 can also let you shed excessive debt loads that have built up on your house. Second and third mortgages, such as home equity lines of credit, may exceed the value of your house. If this describes your situation, your “secured” lender may actually be unsecured. These differences aren’t merely semantic. By “lien stripping” your home, you can significantly reduce your debt burden and make ultimate repayment a real possibility.

 

These legal options are complex. Trying to do-it-yourself can be time-consuming and, potentially, a fool’s errand. The professionals at our firm can help you answer your questions and get you started on the right foot down your path to Chapter 13. 

Hardship Discharge in Chapter 13 Bankruptcy

A Chapter 13 bankruptcy lasts three to five years. During that time all of the debtor’s disposable income is used to repay creditors. At the end of the case, the remaining debts are discharged and the debtor receives a financial “fresh start .”

But what if circumstances change? For some, the answer is a Chapter 13 hardship discharge. A hardship discharge is granted by the bankruptcy court to a debtor unable to complete her Chapter 13 repayment plan, and will end the case before the plan termination date.

A Chapter 13 hardship discharge is a special order from the bankruptcy judge, so you and your attorney must file an application for this discharge. To obtain the hardship discharge the debtor must first show an inability to continue making the scheduled Chapter 13 plan payments. In other words, something has happened to you financially that reduced your income or ability to pay your creditors.

The change in finances must be beyond the debtor’s control. For instance, if you voluntarily quit your job to go back to school, you are not eligible for a hardship discharge. The change must be serious and on-going. The debtor must also show how the situation is not likely to change, and modification of the repayment plan is not practical or feasible.

Finally, the debtor must demonstrate that if the court approves the hardship discharge, creditors will receive at least as much as they would have received during a Chapter 7 case. Hardship discharges are only granted for the most extreme cases. The Bankruptcy Code also limits the scope of the hardship discharge to that of a Chapter 7 discharge, so some debts may not get discharged if the case ends early.

If you experience a serious financial setback and cannot no longer afford your Chapter 13 payments, discuss the possibility of a hardship discharge with your bankruptcy attorney. In some cases a hardship discharge is available and preferable to modification, conversion, or dismissal. Your attorney can explain these options and help you decide on the best course of action.
 

Is Chapter 13 Right for Your Family?

Consumer debtors often have a choice when considering how to shed their excessive and burdensome financial debts through bankruptcy: liquidation or restructuring. Liquidation, also known as Chapter 7, is available to everyone. It’s fast, definitive, relatively easy. However, it has one particularly large flaw: debtors generally lose a lot of property.

 

A financial restructuring, generally referred to as Chapter 13, is not available to everyone. It’s slow, carries more risk, and extends out over many years, up to five. On the other hand, it has one particularly large advantage: debtors keep considerably more of their property, including a home, car, and other leveraged assets.

 

Chapter 13 includes something that Chapter 7 simply doesn’t: time. By extending obligations into the future, debtors have the ability to apply future income to past and present obligations. In turn, this gives creditors the chance to divide a large pie. Likewise, the debtor can spread the costs of debt repayment over a longer period of time rather than facing an immediate, sharp cut.

 

Successfully pursuing a Chapter 13 restructuring requires a solid plan that you execute over many years. Debtors should be organized and prepared for a long road. Nevertheless, with the right legal advice and a good strategy, Chapter 13 can let you keep what some of what you most value and shed the debt you most despise.

 

Ready to find out if a Chapter 13 restructuring is available to you and right for your family? The attorneys at the Dallas law firm of Fears Nachawati can help you answer this important question. Talk to us today for your free consultation. 

Chapter 7 Redemption

Suppose that you are buried in credit card and medical bills, upside down on your car loan, and behind in your car payments. You have considered bankruptcy, but you don't want to go through a three to five year Chapter 13 repayment plan, and you need to keep your car to get to work. What can you do?

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

The secured portion of property is determined by its “replacement value” - the price a retail merchant would charge for property of that kind, considering the age and condition of the property at the time you redeem it. If you and the lender disagree on the replacement value of the property, the court may hold a “valuation” hearing and decide the question for you.

The down side of redemption is that you must pay the secured portion to the lender immediately after the court approves your motion for redemption. Not surprisingly, several lending sources are available for financing a redemption. Your bankruptcy attorney is familiar with these lenders and can discuss options and terms with you. Once the redemption sum is paid, the lender no londer has a secured claim against the property.

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

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

Speak with an experienced bankruptcy attorney if you need to take advantage of the Bankruptcy Code’s redemption provision. In many cases redemption can save you thousands of dollars in debt and reduce your monthly loan payment.
 

Does the Timing of a Filing Matter?

More than you might realize, the timing of when you file for personal bankruptcy can have an impact on your ability to successfully restructure your personal finances. Although many debtors are better off filing sooner rather than later, that isn’t always the case. In fact, some debtors might be best advised to hold out a few weeks or months in order to take advantage of particular bankruptcy rules.

 

Why should you rush to the courthouse? Many reasons may influence this decision, but one of the most important is the protection of the automatic stay. If creditors are harassing you at home or at work, you may want to avoid the embarrassment – and the state legal actions – associated with their debt collection efforts.

 

Likewise, if you have made decisions that will decrease your available exemptions, such as preparing to sell a rural residence to move into the city, you may be better advised to file before the move so that you can take advantage of certain bankruptcy provisions.

 

On the other hand, you may wish to walk slowly to the courthouse. Creditors and the bankruptcy trustee may only examine so far into your past transactions. Last year’s Christmas gifts may be characterized as an inappropriate asset transfer if you file on December 20th of this year. However, if you file on January 2, 2013, those gifts may be beyond the applicable window.

 

Should you move quickly or slowly? Or is timing not really a factor in your Chapter 7 or Chapter 13 bankruptcy? The attorneys at the Dallas law firm of Fears Nachawati can help you answer this important question. Talk to our experts and dedicated professionals today. 

Will Texas Chapter 11's Increase in the Months Ahead?

Chapter 11 bankruptcies in Texas declined by a notable 39 percent from 2011 to 2012. This decrease in business bankruptcies is three times larger than the Chapter 11 decline nationwide.

 

What drove this decline in 2012? The reasons are many, but one of the most important is the Federal Reserve Bank’s monetary policy. By keeping interest rates at extreme lows, financially troubled firms are able to restructure debt outside of bankruptcy and acquire additional debt at affordable rates.

 

Will this trend change in the year ahead? Many bankruptcy professionals in North Texas believe that Chapter 11 bankruptcies will increase in 2013 as businesses and banks lose access to cheap money and are forced to recognize real and irreversible losses. When that time comes, it’ll be important for managers to know who to call and what to request.

 

Business bankruptcy, provided for in Chapter 11 of the Bankruptcy Code, is important for many businesses as a way of extending the life of the firm, protecting current employees and retirees, and putting the business on a firmer footing for the future. While equity holders may lose some value, prompt decisions can ensure that stockholders and partners may retain some of their investment.

 

The attorneys at Fears Nachawati are prepared to help you as you consider how to save your business. With years of experience and dedicated expertise, we’re ready to give you and your managers the advice you need. Contact our professionals today.

Middle Class Bankruptcy

Who declares bankruptcy? Of the roughly 1,000,000 Americans who file a bankruptcy petition every year, the large majority of debtors are from solidly middle class backgrounds. In fact, some may not even be financially insolvent. Of course, at the moment of bankruptcy, their personal balance sheet and bank statement may look bleak, but debtors rarely come from an impoverished background – and they generally return to some level of prosperity after their bankruptcy.

 

Why do debtors declare bankruptcy? Most often, Americans file for Chapter 7 or Chapter 13 protection because their high-interest debt payments seriously threaten to overwhelm their monthly income. In many circumstances, major life events – family deaths, job losses, medical events, or business failures – wipe out an individual’s personal equity, require a rapid increase in debt, and precipitate a balance sheet imbalance that ultimately results in insolvency and bankruptcy.

 

What’s better: Chapter 7 or Chapter 13? A straight liquidation, codified in Chapter 7 of the Bankruptcy Code, offers distinct advantages over a payment plan, provided for in Chapter 13 of the Code, in some cases. However, for debtors who are prohibited from filing Chapter 7 or who are looking to hold onto particular assets, Chapter 13 may be the preferred approach. Ultimately, a liquidation or a restructuring of debt is a choice that depends on the needs of the debtor. Advice of counsel is important to make this decision.

 

Ready to talk about whether personal bankruptcy is right for you and your family? The professionals at Fears Nachawati have the experience and expertise to advise you well. You can trust that our years of practice will help you move from insolvency to a new financial future. For your free consultation, talk to us today.

Bankruptcy a Good Step for Underwater Homeowners?

What do 11,000,000 Americans have in common? They represent the more than 20 percent of all homeowners who owe more against their residence than the home is actually worth. For many, this life investment has become a millstone around their necks.

 

When is the right time to declare bankruptcy and surrender this underwater asset? It’s a tough choice for many people. Hope that a meaningful recovery is just around the corner or that a bounce in home prices will restore their solvency causes many homeowners to continue to make payments against their mortgage. Sadly, however, many Americans forgo necessary expenditures, including health care, to pay for the debt on their home.

 

America’s economic recovery after the financial crash of 2008 has been infamously anemic. Just as housing was at the center of the crisis, it remains at the center of the slow recovery, too. Many homeowners keep hoping that the good times will return, despite the fact that experience suggests that many would be wise to recognize their losses, endure the frustration of bankruptcy and re-start their financial lives fresh.

 

Do you want to find out how Chapter 7 or Chapter 13 bankruptcy might help your family recover more quickly after the financial pain caused by 2008 and the years that followed? The attorneys at the Dallas firm of Fears Nachawati are prepared to answer your questions. With years of experience and dedicated expertise, we’re ready to help you.

Chapter 7: Get It Right the First Time

Americans have a right to declare bankruptcy. Article I, Section 8 of the Constitution provides Congress with the power to enact “uniform Laws on the subject of Bankruptcies.” The right to declare bankruptcy provides Americans with important individual and community benefits, such as the ability to shed overly burdensome debt or the freedom to start a business without fear that a failed commercial endeavor will destroy their personal financial life.

 

Bankruptcy is also a privilege, however. In order to protect creditors from a debtor’s inaccurate, misleading, untimely, or unfair claims, federal and state laws provide a number of limitations on how a debtor can declare bankruptcy. For instance, creditors are benefited by the fact that only some kinds of debt are dischargeable, some types of debt receive greater protection, and federal courts and executive branch officials police the bankruptcy process, guarding against debtor abuse.

 

One of the most important limitations on a debtor’s ability to declare bankruptcy is a rule that prohibits individuals from declaring bankruptcy on multiple occasions during a specified period of time. Specifically, a Chapter 7 debtor cannot receive a second discharge of debt if he or she filed within eight years prior to a previous Chapter 7 discharge or, generally speaking, within six years of a Chapter 13 discharge.

 

What does this mean for you? It means that when considering their bankruptcy options, Chapter 7 debtors need to “get it right the first time.” Which debts you declare, which ones you assume, when you declare, and what kind of plan you have for your financial life after your bankruptcy are important considerations.

 

The attorneys at Fears Nachawati can help you sort through these challenging bankruptcy issues. With years of experience and dedicated expertise, we know how to advise you. Contact us today for your free consultation and to understand the best way to move forward. We’re ready to give you the help you need.

Small Business Owners May Face Bankruptcy Dilemma

For most workers, filing for personal bankruptcy is a stressful decision, but it’s fairly straightforward. If a debtor qualifies under the Chapter 13 means test and determines that restructuring his debts allows him to keep more of his assets or more of the assets he wants, then he moves forward under Chapter 13. On the other hand, if his monthly income or overall debt level exceeds Chapter 13 or if he decides that the speed of Chapter 7 is more valuable than its costs, then he moves forward with a straight liquidation.

 

For some small business owners, bankruptcy can be that simple – but that’s not always the case. If the business in question is a sole proprietorship, the Bankruptcy Code considers these debts to be personal, not business. Alternatively, if the debts are entirely the obligation of a partnership or corporation, Chapter 11, not Chapter 13, will apply. When the owner of the debt isn’t at issue, small business owners may get off easy.

 

Unfortunately, however, today’s tight lending environment requires many small business owners to be personally liable for their partnership or corporation’s debts. Like a parent who assures to pay the debts of a child, a small business owner’s surety for the business’s debts can add a complicated wrinkle in the event of a business’s downturn. Ultimately, the small business owner may have to simultaneously take his business and his own family through separate bankruptcy proceedings.

 

Chapter 11 and Chapter 13 can be difficult to navigate. Travelling through both of them at the same time is particularly challenging. If you’re a small business owner, you may want a little guidance. Fortunately, the attorneys at the law firm of Fears Nachawati are here to help you. With years of experience and dedicated expertise, we know how to advise you. Talk to our professionals today for your free consultation. Let us help you.

Burdened by Student Debt?

Have you recently graduated from college or graduate school with thousands of dollars in personal debt? You’re not alone. While personal bankruptcy may not be a direct solution to your school-related financial problems, it may be more help than you might first think.

 

Technically, Section 523 (a)(8) of the Bankruptcy Code permits debtors to discharge student loans if that debt would impose an undue hardship on the debtor and the debtor’s dependents. However, bankruptcy courts interpret the phrase “undue hardship” narrowly. In lay terms, undue hardship means that the bankruptcy judge should be weeping over the dire straights that the former student now finds himself as a result of the education debt. Absent pretty extreme circumstances, the debtor will not meet the undue hardship requirement, and in turn, the court will not discharge the student debt.

 

The high bar associated with the discharge of student debt is the bad news. The good news is that personal bankruptcy can clear out a lot of other types of debt, leaving you with a more manageable overall debt load, even if student debt remains. If you have indebtedness in the form of car loans, a second mortgage, or high interest credit card bills, Chapter 7 or Chapter 13 bankruptcy may be the right way forward.

 

Ready to find out whether personal bankruptcy is right for you and your family? The professionals at the law firm of Fears Nachawati may be able to help you. With years of experience taking debtors through out-of-court settlements, liquidation, and restructuring, we know how to guide you during these difficult times. Talk to our professionals today to learn what tactics we can use to help you.

Bankruptcy: A Tactic, Not a Strategy

There are some important differences between a strategy and a tactic. In simple terms, a tactic is the way you intend to execute your plan. A strategy is your plan.

 

Many people who are struggling to make ends meet assume that bankruptcy is a strategy to get them out of hot water. While it’s true that bankruptcy can provide a little breathing space and will stop creditors from harassing you, bankruptcy is really a tactic to accomplish your financial goals. Bankruptcy is not an end in itself. It’s a means to successfully move from where you are to where you want to be.

 

Just as bankruptcy is best understood as a tactic rather than a strategy, whether you should pursue a Chapter 7 or Chapter 13 bankruptcy is a question best answered by your longer-term strategic goals. For instance, if you need financial breathing space, a Chapter 13 may be the better option. With a plan of reorganization lasting up to five years, a Chapter 13 reorganization give you time to get your financial house in order.

 

On the other hand, if you qualify for a Chapter 7 and need a relatively quick discharge of some one-time-only debts, a Chapter 7 straight liquidation may be right for you. In general, a Chapter 7 bankruptcy is less expensive, considerably less time consuming, and much less stressful.

 

What’s the right direction for you? It’s important to research your options, but spending some time with a qualified bankruptcy professional is a great way to tailor your tactical options to your longer-term financial strategy. Experience counts. Experience and expertise is what you’ll find with the bankruptcy attorneys at Fears Nachawati. For your free consultation, talk to our professionals today. We’re here to help clients like you.

 

Are Social Security Benefits At Risk In Bankruptcy?

The Tenth Circuit Court of Appeals recently held that Social Security benefits are not part of a debtor’s “projected disposable income” for determining monthly payments in a Chapter 13 repayment plan. The case, In re Cranmer, No. 12-4002 (10th Cir. Oct. 24, 2012), involved a Chapter 13 debtor who committed only a part of his $1,940.00 monthly Social Security benefit to repaying his creditors. He also excluded the entire Social Security sum when figuring his total monthly disposable income through the means test Form B22C.

In plain English, the debtor claimed that he could choose to use his Social Security benefit to repay some creditors, like a house or car payment, but the bankruptcy trustee could not force him to pay other debts (like medical or credit cards) with the Social Security benefit. The Tenth Circuit agreed, citing that the Bankruptcy Code excludes Social Security benefits from the debtor’s disposable income and projected disposable income calculations.

Social Security benefits are generally protected during bankruptcy. Social Security checks are not subject to garnishment or seizure from non-government creditors. Consequently, Social Security income does not drive up a retiree’s gross income for purposes of the bankruptcy means test, and the trustee (who stands in the creditor’s shoes during bankruptcy) cannot compel the debtor to pay creditors out of Social Security income. This strategy is a great benefit to many older Americans who need bankruptcy relief without committing all of their retirement income to debt repayment.

If you receive Social Security benefits and need debt relief, speak with an experienced attorney about your bankruptcy options. You could be eligible to discharge many burdensome bills, retain your home or cars, while keeping all or most of your retirement income.
 

What Are Your Exemptions Under Texas Law?

Are you at the end of your financial rope? Thousands of Texans file for personal bankruptcy every month. The reason why is understandable. In the last several years, wages have been stagnate in many professions, unemployment has remained high, costs continue to rise, and home prices continue to remain stuck in neutral.

 

Consumer bankruptcy, whether a Chapter 7 liquidation or a Chapter 11 restructuring, is a necessary solution for many debtors. Of course either of these debt-shedding strategies have their drawbacks, but they offer a fresh start for individuals and for families.

 

In Texas, bankruptcy can be particularly beneficial for debtors. Not only are the Texas homestead exemptions generous, Texas debtors may keep relatively large amounts of their personal property, insurance benefits, pension benefits, and tools of the trade. For many debtors, the property exempt from the reach of creditors is crucial for restarting their financial lives.

 

If you’re struggling to make ends meet, you need to know not only about your bankruptcy options, but also about what assets Texas law will and won’t let you protect if you file. You may be pleasantly surprised at how much of your personal items you can keep. To find out what you need to know about your financial options, talk to the professionals at Fears Nachawati today.

Rich Dad, Poor Dad, Bankrupt Dad

Robert Kiyosaki, author of the book, "Rich Dad, Poor Dad" filed for corporate bankruptcy for one of his companies, Rich Global LLC. Kiyosaki’s best selling book was the first in a profitable line of self-help financial books including "Retire Young, Retire Rich," and "Midas Touch," co-authored with real estate mogul Donald Trump (who has previously filed corporate bankruptcies).

Rich Global, LLC’s largest creditor is Learning Annex, which received a $23.7 million judgment in New York. The basis of the lawsuit was that Rich Global, LLC failed to pay Learning Annex a percentage of profits from Kiyosaki’s speaking engagements.

Kiyosaki’s company filed for Chapter 7 bankruptcy protection on August 20 in a Wyoming bankruptcy court. In a Chapter 7 business bankruptcy, no debts are discharged. The company ceases to do business, and business assets are liquidated by the bankruptcy trustee to pay creditors. An LLC (Limited Liability Company) shields the personal assets of the individual owners. Consequently, Kiyosaki will pay nothing from his personal wealth, but Rich Global, LLC will lose all of its assets, reportedly a $1.8 million dollars.

A Chapter 7 business bankruptcy is the last option for a company. Chapter 11 is a business reorganization that will restructure debt and provide a company time to repay its debts. However, sometimes the amount of debt is too great for the business to repay, and Chapter 7 can liquidate the business assets in an orderly fashion. Chapter 7 cannot wipe out personal liability for business debts, and there is no “co-debtor stay” to prevent a creditor from collecting from a personal guarantor.

If your business is weighed down by crushing debt, speak to an experienced attorney and discuss bankruptcy options for your business. In many cases a company can reorganize under Chapter 11 and continue its business while under the protection and supervision of the federal court.
 

The Big Decision: Chapter 7 v. Chapter 13

For Americans who are considering whether to file for personal bankruptcy, there are many decisions. For instance, you may have asked yourself whether you should hire an attorney, when you should file, or how long it might take you and your family to recover financially, professionally, or emotionally from your bankruptcy filing.

 

In a personal bankruptcy, there are a lot of questions. However, few questions are more important or challenging for a debtor than whether you should file for Chapter 7 or Chapter 13 bankruptcy. If you find yourself at this crossroads, it may be time to speak with one of the dedicated bankruptcy professionals at the law firm of Fears Nachawati.

 

Chapter 7 bankruptcy, also known as liquidation bankruptcy, is helpful for debtors who primarily hold unsecured debt, such as credit card expenses, and who don’t have a lot of leveraged assets, such as a home or car. Also, Chapter 7 debtors must pass a statutory “means test” in order to qualify for liquidation bankruptcy. For young workers who are just starting out in life or for an older family that was unexpectedly slammed by medical expenses, Chapter 7 relief may be right for you.

 

By contrast, Chapter 13 bankruptcy is a kind of restructuring of debts in which personal debtors pay their creditors for a longer period of time – sometimes as long as five years – but are allowed to keep certain assets that they would lose in a Chapter 7 bankruptcy. For higher income debtors who do not qualify for Chapter 7 under the means test and for asset-rich, cash-poor, overleveraged debtors, Chapter 13 may be the best approach.

 

Do you fall somewhere in between Chapter 7 and Chapter 13? Worried that you don’t know which one is right for you and your family? Your free consultation is just a phone call or email away. With years of experience and dedicated expertise, our attorneys are ready to give you the financial and bankruptcy advice you need. Talk to us today.

What Are the Tax Effects of Your Bankruptcy?

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

 

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

 

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

 

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

 

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

Pay Your Bills During Bankruptcy

One common myth is that you can stop paying your bills after filing bankruptcy. This is a gross generalization, and it likely springs from constructive legal advice from a seasoned attorney. You see, in a Chapter 7 bankruptcy case, an erase-your-debts-and-start-fresh bankruptcy, debtors are often advised to stop payments on unsecured debts, like credit cards and medical bills. Unsecured debts are discharged at the end of a Chapter 7 bankruptcy case, and paying these debts is just throwing good money away that could be used to help your family get back on its feet. Likewise, it is pointless to continue to pay secured creditors if the debt will be discharged in a Chapter 7 case and the property will be returned to the creditor. While these Chapter 7 situations are common, the application of this “stop payments” advice is narrow.

For instance, if you are keeping your house or car in a Chapter 7 case, you must continue to pay the debt after filing bankruptcy. If you fall behind on payments that come due after the bankruptcy case is filed, your creditor may foreclose or repossess after your case closes. You will receive no protection form the bankruptcy court.

If your case is a Chapter 13, you must continue your payments to secured creditors that arise after your bankruptcy is filed. If you fail to make your "post-petition" house payments, the mortgage company could ask the bankruptcy court for permission to foreclose. Equally important are insurance payments. If you fail to keep your secured property insured, the creditor may ask the court for permission to foreclose or repossess. The same is true for post-petition rent payments to a landlord.

Paying your post-petition debts can mean the difference between a successful bankruptcy and an “epic fail.” Some debtors have fallen into the trap of reorganizing their pre-bankruptcy debts, only to lose property because they failed to meet their post-bankruptcy financial obligations.

If you are struggling with debt, speak to an experienced bankruptcy attorney and develop a comprehensive strategy to eliminate unwanted debts and restructure your finances for a better future. Your attorney will explain the federal bankruptcy laws and how you can get a fresh start.


 

Pro Se Debtor, Fool for a Client

There’s an old expression in the legal community: a person who represents himself in court has a fool for a client. In most situations, a non-lawyer who represents himself in a Chapter 7 or Chapter 13 bankruptcy (i.e. a pro se debtor) exposes himself to legal and financial risks he doesn’t understand. While there are many potential adverse outcomes associated with self-representation, the most significant is that the pro se debtor will lose his chance to shed consumer debts through bankruptcy.

 

Unfortunately, there’s been a dramatic rise in the number of pro se debtors in recent years. In 2005, Congress passed major bankruptcy reform legislation, known as BAPCPA, which has had the effect of making bankruptcies more complicated and costly for consumer debtors. Specifically, Chapter 7 debtors now face more paperwork, tighter deadlines, and more arduous procedural requirements. In general, this has driven up the cost of hiring experienced counsel and, in turn, caused more debtors to self-represent. Since the passage of BAPCPA, the number of debtors filing pro se has jumped more than 150 percent, according to data from the Consumer Bankruptcy Project (CBP).

 

Consumer bankruptcy is a minefield of technicalities and requirements. And, like a minefield, disturbing just one mine can have catastrophic results. If you’re thinking about filing for personal bankruptcy, you should also consider finding a qualified, dedicated attorney who has experience in handling consumer bankruptcies. You need someone who can guide you through the minefield.

 

The attorneys at the Dallas law firm are prepared to help you work your way through each stage of the bankruptcy process: from preparing to file, to living post-petition, and to adjusting to life after your discharge. Talk to our professionals today to find out what your next steps should be. We’re ready to help you.

Successful at Coaching, Unlucky in Business

University of Arkansas head football coach John L. Smith filed for bankruptcy earlier this month, revealing he had acquired $25.7 million in debt during the last several years. Smith’s bankruptcy has made national headlines because of the amount of his personal debt and the prominence of the debtor. However, the reality is that in a number of important ways, Smith’s bankruptcy is very much a run-of-the-mill Chapter 7 liquidation.

 

According to Smith’s bankruptcy filings, Smith accumulated a considerable amount of unsecured debt, particularly in relationship with the amount of money he earned as a football coach. While Smith’s contract with the University of Arkansas – $850,000 over 10 months – clearly makes him a high-income earner, even this salary isn’t enough to feasibly support his level of debt.

 

How could a debtor with millions in unsecured debt reflect many Chapter 7 debtors? First, Smith’s debt originated primarily from a series of Kentucky-based real estate transactions that were premised on the assumption that the land would increase in value. When property values tanked, equity holders like Smith became obligated for the debt.

 

Second, Smith isn’t a professional failure. The opposite is true, in fact. Smith’s success at the University of Louisville earned him the position of head coach at one of the most storied and prominent football schools in nation’s premier college football conference. As Smith himself admitted recently, his skills on the gridiron didn’t translate to business.

 

The painful truth for many debtors and their families is that bankruptcy court dockets in Arkansas, Texas, and throughout the country are filled with Chapter 7 debtors who are talented, intelligent, experienced, and successful professionals. They just made commercial and financial mistakes. And frequently, those mistakes took the form of real estate that looked promising, but ultimately plummeted in value.

 

Ready to talk to the attorneys at Fears Nachawati who can help you chart a course through the choppy waters of personal bankruptcy? With years of experience and dedicated expertise, we know how to protect you and your family from hard-nosed creditors. Start your journey toward solvency today by contacting our professionals.

Do You Qualify under the Chapter 7 Means Test?

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

 

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

 

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

 

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

 

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

10 Easy Ways To Ensure Chapter 13 Success

Chapter 13 bankruptcy is a three to five year debt repayment plan. It is a short term fix to ensure long term prosperity. When you emerge from Chapter 13 bankruptcy you will be in a better financial position. However, neither your attorney, nor the bankruptcy court, nor the bankruptcy process can produce miracles. The lion's share of the responsibility for change and long term success is on you. If you and your family follow the ten directions listed below, you will be on the path to recovery and financial health.

1. "Stay the course." You and your attorney have developed a realistic family budget. It is your responsibility to stick with it. Now is a good time to change your spending habits and become financially conservative.
2. Notify your attorney of any change (or potential change) in your income. The sooner your attorney knows about the financial change, the better your chances of a successful outcome. You and your attorney can discuss your options when there is a job loss, reduction of income, etc.
3. Make all plan payments on time. A voluntary wage deduction that sends your plan payment to the trustee every month has a greater chance of success.
4. Pay any post-petition debt on time every month, including mortgage or car payments. Scheduling bank debts ensures on-time payment.
5. Avoid bank overdrafts. Bank fees can quickly bust a budget.
6. Avoid gambling.
7. Do not apply for credit during your Chapter 13 case until you have discussed the matter with your attorney. Chapter 13 debtors are prohibited from using credit without prior permission.
8. Maintain insurance on your house and car.
9. Notify your attorney if you change addresses or telephone numbers. Your attorney must be in contact with you during your case to inform you of any requests from the trustee (such as providing income tax returns).
10. Open mail from your attorney, the bankruptcy trustee, creditors, or the bankruptcy court.

Remember, you and your attorney are partners in your bankruptcy case. Your attorney will guide you through the process, but it is up to you to manage your finances responsibly. Chapter 13 bankruptcy can provide a fresh financial start and a better financial future. Contact an experienced bankruptcy attorney to discuss your personal financial situation and learn how the federal bankruptcy laws can help you.
 

What If I Lose My Job During Bankruptcy?

A Chapter 13 bankruptcy case is commonly called a “wage earner’s” bankruptcy. That is because the debtor must have a regular income to pay the monthly Chapter 13 plan payment. Losing your job could affect your ability to pay your post-petition payments, like your home mortgage or car loan, or may cause you to miss plan payments.

If your income interruption is brief, and you only miss one or two plan payments, the bankruptcy trustee will work with you to catch up. The trustee may allow you to extend your payments (if available) or simply give you time to pay. The bankruptcy court could also modify your payments according to your new income.

You must also make arrangements to make up any missed post-petition payments that are not included in your monthly plan payment. If you do not pay your monthly house or car payment, the creditor could ask the court for relief from the bankruptcy stay. In some cases it may make sense to surrender a vehicle or even real estate that you cannot afford to keep. Your attorney can review these options with you to successfully restructure your bankruptcy plan.

If the loss of income continues, you may be forced to consider converting your case from a Chapter 13 to a Chapter 7. In Chapter 7 you can eliminate your responsibility for most of your debts through a discharge. In some cases your can also keep property through a reaffirmation agreement with your creditor.

A job loss is a stressful situation and may significantly impact your bankruptcy case. Keep your attorney informed of any changes that occur in your finances. Your attorney can recommend changes to your plan that are in your best interest.

 

Passing Bankruptcy Means Test

The bankruptcy means test was implemented in 2005 with the purpose to weed out Chapter 7 debtors who could afford to repay debts in Chapter 13. Someone who files Chapter 7, but can afford to repay debts in a Chapter 13 is said to be “abusing” the system. The means test is a burden shifting device that presumes either an ability or inability to afford a repayment plan. Since the means test only makes a presumption based upon historical evidence (the past six months), the ultimate result may be different.

In order to qualify for a Chapter 7 bankruptcy, the debtor must essentially pass two income tests. The first is the income presumption created by the means test. The debtor's income is averaged over the past six months (not including social security income). If the debtor’s income is higher than the state median income, the Chapter 7 debtor is presumed to be abusing the system. A second analysis is made of the debtor's "present day" income. For instance, a debtor who was unemployed for six months prior to the bankruptcy filing may "pass" the means test. However, if this debtor is recently employed with a $150,000 a year job, the Chapter 7 case can still be dismissed for abuse. The means test creates a presumption that the debtor cannot afford to repay debts in a Chapter 13 bankruptcy. However, in actuality the debtor can afford to repay debts because of his present income.
Conversely, a debtor could "fail" the means test because of a high income over the previous six months. However, the debtor's present income may have suddenly decreased, or the six month average may be artificially inflated because of a one time bonus or other income windfall. The means test result shows the debtor can afford to repay debts during Chapter 13, but the present income qualifies the debtor for Chapter 7. Evidence of current income is presented to the bankruptcy trustee that rebuts the presumption that the debtor can repay during Chapter 13.

"Passing" or "failing" the bankruptcy means test is often a matter of selecting the proper legal entitlements and making the right financial calculations. It is also a matter of looking critically at your present financial condition. Your bankruptcy attorney will help you identify your true past and present incomes and assist you in deciding which bankruptcy chapter best serves your short and long term needs.
 

The "Absolute" Right to Dismiss a Bankruptcy Case

Very rarely does it make sense to dismiss a bankruptcy case. A bankruptcy debtor has several options when financial circumstances change, including converting the case to another chapter. For instance, if a large medical bill is incurred after a Chapter 7 case is filed, the debtor could petition the bankruptcy court to convert the case to a Chapter 13 and include the medical bill.

Sometimes it makes more sense to dismiss the bankruptcy case altogether.

A bankruptcy debtor cannot ordinarily dismiss a Chapter 7 case. Once the debtor has attended the trustee’s meeting (also called the “341 meeting of creditors”), the case generally proceeds to discharge. If a debtor “forgets” about an asset, or is surprised by a large income tax refund, the trustee can compel the debtor the debtor to turn over the asset to pay creditors. The debtor cannot simply dismiss the case and keep the money.

On the other hand, a Chapter 13 debtor is generally able to dismiss the bankruptcy case almost as a matter of right, as long as there is no “bad faith” involved in the dismissal.

An example of a “bad faith” situation can be found the case of In Re Kotche, filed in the US Bankruptcy Court in Maryland. The trustee in that case objected the confirmation of the debtor’s Chapter 13 plan and asked the court bankruptcy judge to convert the case to Chapter 7. In response the debtor asked the court to dismiss the case. The issue in the case was the value of the debtor’s jewelry, which she listed at $50. However, the debtor’s ex-husband testified included a diamond wedding ring set with a separately purchased center-diamond stone of 3.64 karats, a tennis bracelet, two diamond bracelets, a diamond necklace, a watch, and a cocktail ring. Kotche also failed to list a baby grand piano. Oops!

The bankruptcy court found that Kotche had not been complete or forthright in her bankruptcy paperwork, and found that her motion to dismiss was brought in bad faith. In other words, she was dishonest and wanted out of bankruptcy when she was discovered. The bankruptcy court said that Kotche could not be kept in Chapter 13 against her will, but that she did not have an absolute right to have her case dismissed:

“There is no indication that Section 1307(b) is intended to provide the dishonest debtor a right to misuse the protections of a bankruptcy case and then escape with impunity. Such result would permit abusive practices and render null and void any judicial power to prevent or protect against such fraudulent practices…”

Bankruptcy is meant to provide the “honest but unfortunate debtor” with a fresh financial start. Kotche wanted a “head start” by keeping her expensive assets and discharging her debts. The bankruptcy court refused her motion to dismiss and converted the case to Chapter 7.

When a financial change occurs in your bankruptcy case, discuss the matter immediately with your attorney. Dismissal of your case should only be considered as a last option. You and your counselor will review your options and determine a course of action that is in your best interest.
 

How Chapter 13 Bankruptcy Can Help

Chapter 13 is known by several different names: reorganization plan, wage earner's plan, and repayment plan. Whatever the name, filing a Chapter 13 bankruptcy indicates an intention to repay creditors over three to five years. The debtor makes a monthly payment to a bankruptcy trustee, who in turn pays the creditors.

Save your home
Many debtors file Chapter 13 to stop the home foreclosure process. The moment the bankruptcy is filed a foreclosure action must stop. The debtor is given an opportunity to propose a plan to pay the delinquent mortgage payments over three to five years. During this repayment period the debtor must also pay any mortgage payments due after the bankruptcy is filed (called post-petition payments). Failure to make post-petition payments can result in losing the bankruptcy protection and the bank may resume the foreclosure action.

Cram-down
The Chapter 13 debtor can ask the bankruptcy court to modify and reduce a secured loan to the value of the security. This process, commonly called a “cram-down,” is done when the amount of the secured loan is significantly more than the value of the property. The resulting benefit is a lower monthly payment.

For example, say the debtor owes $20,000 on a car loan, but the car is worth only $10,000. The loan can be “crammed-down” to an allowed secured debt in the amount of $10,000 only. The debtor pays only the $10,000 during the Chapter 13 bankruptcy and the remaining unsecured portion is discharged at the end of the case. Every situation is different, so be sure to discuss your options with your bankruptcy attorney.

Repayment of non-dischargeable obligations
Sometimes a Chapter 13 is used to repay debts that cannot be otherwise discharged. Tax debt and child support debts are two common debts that get paid under the supervision of the bankruptcy courts.

What you expect during a Chapter 13 bankruptcy
Once the debtor files a bankruptcy, the bankruptcy court automatically issues an injunction prohibiting creditors from collecting from the debtor. This “automatic stay” also stops foreclosure, lawsuits, and garnishments. Within 15 days of the filing the debtor must file a proposed repayment plan with the court. The plan is sent to the U.S. trustee and to all creditors for review. The plan must provide for regular fixed payments to the trustee who then distributes the funds to creditors according to the terms of the plan (which may be less than full payment on their claims). It is common for a chapter 13 plan to propose to pay secured creditors in full and nothing to unsecured creditors. This largely depends on whether there is “extra” money at the end of the month after the debtor’s secured creditors and monthly expenses are paid.

If you need assistance from the federal bankruptcy laws, contact an experienced bankruptcy attorney to review your options. The bankruptcy code offers powerful relief to deserving people in bad financial situations.
 

Chapter 11 Can Help Turn Around A Small Business

For many people Chapter 11 bankruptcy conjures up thoughts of General Motors or Washington Mutual. Fortunately, Chapter 11 bankruptcy is not just reserved for billion dollar corporations, but is a useful tool for many small companies suffering from financial distress that need to reorganize.

Chapter 11 of the Bankruptcy Code contains special provisions designed for small businesses. Generally, to qualify for these special bankruptcy procedures the small business must be engaged in commerce with debts less than $2.19 million. The small business must file a bankruptcy petition and include (1) the most recent balance sheet; (2) a statement of operations; (3) a cash flow statement; and (4) the most recent tax return.

The federal law imposes an automatic stay after the Chapter 11 case is filed that prohibits all collection actions against the small business. This stay halts lawsuits, assets seizures, and other legal actions. Normal business operations continue under the court’s supervision during the pendency of the bankruptcy.

The goal of the Chapter 11 is to obtain a court-ordered plan to repay some or all of the company's debts over time. The business debtor’s plan may propose to pay a percentage of the debt, or change the terms of leases and contracts. In general, the court will confirm a plan that is feasible, proposed in good faith, and complies with the legal requirements under the Bankruptcy Code. Creditors must also receive as much as it would if the business’s assets were liquidated.

Chapter 11 bankruptcy offers financially distressed small businesses an opportunity to continue operations while restructuring debts. If your company could benefit from Chapter 11 of the Bankruptcy Code, contact an experienced bankruptcy attorney and discuss your options.
 

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How to Protect Excess Equity in Bankruptcy

Equity in a Chapter 7 bankruptcy case is the difference between the value of the item, minus all liens against it, minus all legal exemptions available to protect it. For most debtors the equity value for their property is negative, which means there is nothing for the bankruptcy trustee to sell to pay unsecured creditors. If you are one of the few Chapter 7 debtors that may have positive equity in property, read on.

Positive equity in property (called non-exempt equity) will send up a red flag during your bankruptcy case, but that does not mean that you will lose property to the trustee. The trustee must justify the expense of taking and selling your property in a commercially reasonable manner (which usually means at auction). If the amount of non-exempt equity is too small (called “de minimis”), the trustee will abandon his or her interest in the property and you get to keep it.

Protecting equity in property is usually a matter of shuffling your legal exemptions. However, sometimes that is not enough to protect the property and your attorney will discuss your options before you file your case. There are two popular pre-bankruptcy options for eliminating non-exempt equity: selling the property or obtaining a lien.

There is nothing wrong with selling property prior to filing bankruptcy. This is especially wise if the property is at-risk to be taken and sold to pay unsecured creditors. By selling the property, you will convert the equity into cash without risk of losing it to the bankruptcy trustee. If you are considering selling property prior to filing bankruptcy, discuss the matter with your attorney to avoid complications with the trustee.

The second option is more complex and is usually reserved for motor vehicles. Attaching a lien to a vehicle is a matter of executing a promissory note (an I.O.U.), and filing notice of the secured interest with the state department of motor vehicles. Anyone can become a lien holder, including a close relative. That person will have the right to repossess your vehicle should you fail to honor the payment agreement contained within the promissory note. After the non-exempt equity is eliminated, the trustee cannot take and sell your vehicle.

Every bankruptcy case is unique and requires an experienced bankruptcy attorney to guide you to your best “fresh start” result. Statistically, only one in twenty Chapter 7 bankruptcy cases has any non-exempt equity, and many of these situations can be avoided with simple (and legal!) pre-bankruptcy planning. If you need bankruptcy relief, speak with an experienced attorney and discuss your pre-bankruptcy options.

 

 

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A Financial Emergency During Chapter 13

A Chapter 13 bankruptcy case is a repayment plan over three to five years. The idea is that the debtor pays all he or she can afford to creditors, and any unsecured debt that is unpaid at the end is discharged. Consequently, there is very little money available in case of a financial emergency.

If you have a financial emergency and are unable to pay your Chapter 13 payment, speak with your bankruptcy attorney immediately. Your attorney may be able to extend your plan or waive a payment. However, your plan may not extend past 60 months. If the financial emergency is short-term, the trustee may also allow you time to “catch up” your payments.

If you are experiencing a long-term financial change, you should discuss modifying your repayment plan. Your attorney must propose a new plan and modified payments to the court along with evidence of a change in financial circumstances. A modification is generally successful if you are repaying debts that are not required to be paid during your bankruptcy case.

A serious financial change that makes repayment impossible may qualify you for a hardship discharge. A hardship discharge may be granted before the end of your case when modification is not practical. Hardship discharges end the bankruptcy case, but there are limitations on discharging some debts prematurely.

Conversion to Chapter 7 may be an option if you can no longer afford monthly payments to unsecured creditors. If you convert from Chapter 13 to a Chapter 7, any debt incurred since your Chapter 13 filing date can be included in the Chapter 7 case. For example, if you are repaying debts in Chapter 13 and have a medical emergency that prevents you from working and leaves you with new medical bills, you may convert to Chapter 7 and discharge the medical debts.

Finally, it may make sense to dismiss the current bankruptcy and re-file at a later time. This is a last option because it creates two bankruptcy cases on your credit report, but it may be necessary to save a home from foreclosure or to manage other debts. A second bankruptcy that is filed within a year after dismissal comes with some restrictions, including a limit on the bankruptcy automatic stay.

Some financial change occurs in nearly every Chapter 13 case. The key to managing change is to communicate early with your bankruptcy attorney. The federal bankruptcy laws are flexible to accommodate financial changes, and your attorney can discuss your options with you.
 

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Qualifying For Bankruptcy

Some people believe that they do not "qualify" for bankruptcy relief. Often the reasons for disqualification are strange: for instance, "I make too much money," or "I don't make enough money," or "I only have medical debt." In some cases there is a bit of truth to these excuses, but many of the reasons are pure hogwash.

The federal bankruptcy laws exist to give an honest debtor relief from overwhelming financial obligations. There are two basic types of personal bankruptcy, codified in the Bankruptcy Code under Chapter 7 and Chapter 13. "Qualifying" to file under one of these chapters depends upon your circumstances.

Chapter 7 is a straight bankruptcy. The idea is to eliminate your debts quickly and give you a fresh financial start. To qualify for a Chapter 7 bankruptcy, the debtor must demonstrate that there is not sufficient income to pay back a substantial portion of all unsecured debts over the next three to five years. The debtor must take a financial means test to show that he or she is unable to pay creditors.

There is no minimum or maximum debt limit in a Chapter 7 case. Most debts are discharged during Chapter 7, but some debts may be excluded, including child support debts, tax debts, and criminal restitution.

A Chapter 13 is a repayment bankruptcy. The Chapter 13 debtor submits a repayment plan to the bankruptcy court offering to repay some or all of his creditors over three to five years. Naturally, the debtor must show that he or she has sufficient income to complete the repayment plan. While there is no minimum amount of debt required to file a Chapter 13 case, the Bankruptcy Code limits Chapter 13 cases to debtors with unsecured debts less than $360,475 and secured debts under $1,081,400.

When a debtor is able to repay some debts, but does not qualify for Chapter 13 bankruptcy, the debtor may elect to file a Chapter 11 bankruptcy case. Chapter 11 is most often used for corporations like General Motors, but individuals can also file Chapter 11. There are no minimum or maximum debt limits in a Chapter 11 case.

If a debtor has previously filed a bankruptcy case, the debtor may be ineligible for certain bankruptcy relief for a period of time. For instance, you are not permitted to file another bankruptcy case for 180 days if your bankruptcy case was voluntarily dismissed after a creditor requested relief from stay, or your case was dismissed for failure to obey a court order. Additionally, after you receive a discharge in a previous Chapter 7 bankruptcy case, you must wait 8 years before you can receive another Chapter 7 discharge; and 6 years to receive a Chapter 13 discharge. If you received a discharge in a previous Chapter 13 bankruptcy case, you must wait 4 years before you can receive a Chapter 7 discharge; and 2 years to receive another Chapter 13 discharge.

Very few people do not “qualify” for bankruptcy. If you are hurting financially and need help, the federal bankruptcy laws offer many different forms of relief. Call an experienced bankruptcy attorney and learn how the law can eliminate or restructure your financial situation to get you out of debt.

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Bankruptcy Can Help Distressed Homeowners

Reuters.com recently published a story predicting an increase in home foreclosures in 2012. Banks slowed their foreclosure processes in 2011 due to the "robo-signing" scandal, but this past February five major banks settled a major lawsuit with 49 U.S. states. Now there are signs that foreclosures are ramping up again. One mortgage servicing provider recently reported "foreclosure starts" had increased 28 percent in January.

The Reuters article quoted RealtyTrac CEO Brandon Moore as saying that the "numbers point to a gradually rising foreclosure tide as some of the barriers that have been holding back foreclosures are removed." This new wave of foreclosures targets middle class homeowners hit hard by tough economic times. "The subprime stuff is long gone," said Michael Redman of 4closurefraud.org. "Now the folks being affected are hardworking, everyday Americans struggling because of the economy."

Current data estimates around 13 million Americans are unemployed and millions more are under-employed making it difficult to pay a monthly mortgage. To make matters worse, many homeowners are struggling with homes that are "underwater" - the market value of the home is worth less than the amount owed.

The federal bankruptcy process can help a homeowner manage a distressed home situation. First, the Bankruptcy Code allows the debtor to strip away junior mortgages that are entirely unsecure. For instance, if your home is worth $200,000, and you owe $200,000 or more on your first mortgage, any junior mortgage or judicial lien can be stripped off during a Chapter 13 bankruptcy. This process is especially useful to homeowners struggling with HELOC loans.

Second, a Chapter 13 bankruptcy can provide the homeowner with time to catch up past-due mortgage payments or property taxes. During a Chapter 13 bankruptcy the debtor is allowed up to five years to pay off mortgage arrears while the bank is prohibited from foreclosing. Finally, if you are unable to keep your home, a Chapter 7 bankruptcy will allow you time to surrender your home back to the lender on your terms.

Bankruptcy is a legal shield that can protect you during tough financial times. If you are facing foreclosure, speak with an experienced bankruptcy attorney and discuss how the federal bankruptcy laws can help you.

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Discharge Your Debts and Keep Your 401(k)

Have you ever heard the phrase “throwing good money after bad?” It means spending money on something that has little chance of success. When you get into financial trouble, the sensible thing is to fight to work your way out of trouble. Unfortunately, many people fail to recognize that point when it no longer makes good sense to continue throwing money at a problem. Some will eat through savings and retirement accounts hoping to delay the problem long enough for something good to happen. In the end the savings and retirement accounts are gone, and the debt is still there.

Bankruptcy is a legal process than can reorganize your finances and eliminate your overwhelming debt. In bankruptcy most retirement funds are protected, so if you’re facing a debt that you cannot pay, consider filing bankruptcy instead of draining your retirement accounts.

Whether a retirement account is protected first depends on if the account is “property of the bankruptcy estate.”. The U.S. Supreme Court in the case Paterson v. Shumate, 504 US 753 (1992), stated that retirement plans that contain an “anti-alienation clause” are not property of the bankruptcy estate pursuant to 11 USC § 541(c)(2). An “anti-alienation clause” prevents creditors (and the bankruptcy trustee) from seizing your retirement funds. Nearly all ERISA retirement plans and 401(k) accounts have an “anti-alienation clause.”

If your account does not have an “anti-alienation clause,” it may be exempt from creditor collection. Examples of retirement accounts that are exempt during bankruptcy include Roth IRAs, up to $1,171,650.00; and qualifying plans under sections 401, 403, 408, 414, 457, and 507(a) of the Internal Revenue Code. Other plans not listed above can be exempt during bankruptcy. In some cases the law on exempting retirement accounts is complicated and is changing rapidly. Consult your attorney for specific advice on your retirement account.

If you are overwhelmed by a debt problem that will not go away, speak with an experienced bankruptcy attorney before cashing out your retirement accounts. In many cases your debt can be discharged or paid over three to five years, and you can keep your retirement accounts. So consider bankruptcy to throw out the bad debt and keep your good money!

 

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Discharging Debts Involving Willful Injury

One of the main purposes of bankruptcy is to provide a second chance and a fresh start to deserving people. This is generally accomplished by discharging of debts that the debtor cannot afford to pay. However, sometimes the benefit of the discharge is outweighed by other considerations. In these cases the debt may be found not dischargeable in bankruptcy.

When the debtor has committed a willful and malicious injury to another person, the Bankruptcy Code does not allow the discharge of a debt associated with the injury. These injuries are known as "intentional torts," and include personal injury lawsuits where the debtor acted intentionally as opposed to negligently or recklessly. The 1998 U.S. Supreme Court case of Kawaahuau v. Geiger stated that for bankruptcy purposes, the term "willful" refers to the injury rather than to the act. The debtor must act with the willful intent to cause the injury, rather than willfully acting that results in an injury. If the debtor did not act willfully to cause an injury, the debt is dischargeable.

Willful damage to property is also excepted from a Chapter 7 discharge, but is dischargeable in a Chapter 13 bankruptcy case. Certain injuries caused by operating a vehicle under the influence of alcohol are also non-dischargeable. In order for the debt to be excepted from the bankruptcy discharge, the injured party must file an "adversary proceeding" within 60 days after your first scheduled meeting of creditors under section 341. If the adversary case is not filed within that period, the debt is included in the discharge. The bankruptcy judge will conduct a hearing to determine if the injury was caused willfully.

If you have committed an intentional tort and cannot afford to pay the debt, speak with an experienced bankruptcy attorney and discuss your options. In some cases bankruptcy can discharge the debt, or can provide you time to pay the debt under court supervision over three to five years. Bankruptcy can also shield your assets and wages for a time while you repay what you can afford.
 

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Top 5 Questions About Chapter 13 Bankruptcy

The chief distinguishing characteristic of a Chapter 13 bankruptcy is its repayment plan. Unlike a Chapter 7 bankruptcy case, the Chapter 13 debtor submits a proposal to the court to repay creditors over three to five years. There is no repayment plan in a Chapter 7 bankruptcy case. Because of the repayment plan, Chapter 13 cases are generally more complicated than Chapter 7 bankruptcies, but the debtor’s relief can be more powerful. With this in mind, here are the top five questions clients ask when considering Chapter 13 bankruptcy:

Will I lose any property?
No. The Chapter 13 trustee will not take property from you. The law allows you to keep and “exempt” a certain amount of property during your bankruptcy case. If you have property in excess of the legal exemption amounts, you are required to pay unsecured creditors an amount equal to the non-exempt equity during your repayment period.

How can I keep my car if I owe more than its worth?
If your vehicle loan was made more than 2-1/2 years before your bankruptcy is filed, you can “cram down” your loan to the fair market value of the vehicle. For instance, if you owe $15,000, but your car is only worth $9,000, the bankruptcy court will separate the debt into a secured amount of $9,000, and an unsecured debt in the amount of $6,000. You must pay the secured debt in order to keep your vehicle, but the remaining unsecured debt will be paid at the same rate as other unsecured creditors (like credit cards and medical bills). Usually this payment is nothing or a few cents on the dollar. At the end of the case most unsecured debts are discharged.

My house is in foreclosure. Can I keep it?
If you are behind on mortgage payments, a Chapter 13 bankruptcy will allow you to “catch up” the arrears over three to five years. Additionally, while you are not able to “cram down” a mortgage on your home, if you have a junior (second or third mortgage, or tax or judgment lien) that is entirely unsecured, Chapter 13 may afford a significant benefit. The bankruptcy judge can strip off the lien and the junior debt becomes an unsecured debt, payable at the same rate as other unsecured creditors.

How much is my monthly payment?
Your monthly payment will largely depend on your ability to pay your creditors. The bankruptcy law requires that you pay priority creditors first. Priority creditors include domestic support obligations and most taxes. Any secured property you want to keep is paid next. Finally, any “extra” income (called “disposable” income) must be paid to unsecured creditors.

What if my income changes during the repayment period?
Immediately report any changes in income to your attorney. If there is a substantial increase, your monthly payments will likely increase. Similarly, if your income is reduced, your monthly payment may decrease. If you are unable to complete your plan because of a reduction in income, you may qualify for early discharge, or your plan can be modified.

Chapter 13 is a very flexible legal tool for restructuring personal finances. Your attorney can explain how the federal bankruptcy code can provide relief from overwhelming debt and help you on your way to a bright financial future.

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Personal Financial Management Requirement In Bankruptcy

In 2005, Congress enacted broad changes to the federal bankruptcy code. Among these changes was the new requirement that an individual debtor must complete a course in personal financial management before a bankruptcy discharge can be ordered in the case. The hope was that by mandating a little financial education, the individual would be able to make better financial choices and have a better chance at future economic success.

So does the personal financial management class help? That question was examined in a recent article posted on Creditslips.org, a bankruptcy blog written by attorneys, for attorneys. During a study conducted in 2007, debtors were asked "1) would what they learned in the financial education class have helped them avoid bankruptcy originally, and 2) would help them avoid financial trouble in the future." 33% responded that the course information could have helped them avoid filing, and 72% said the information would help them in the future.

The negatives of the personal financial management course are that it costs the debtor time and money (although the course only lasts an hour or two and typically costs around $50). Failure to complete the class can result in a denial of discharge (a very heavy penalty). The truth that bankruptcy practitioners know, and that the 2007 study data confirms, is that most people are forced to file bankruptcy through no fault of their own. There is no class that can teach you how to avoid a work layoff or large unexpected medical bill. No course that shows you how to pay your bills when you don't have enough money

On the other hand, the personal financial management course teaches budgeting and money management. These skills can make it easier to make ends meet and help provide a more solid financial footing after bankruptcy.

If you need to file bankruptcy, your attorney can help guide you through the process and give you a fresh financial start. Building a better financial future requires the budgeting and money management skills you will learn during your personal financial management course. Your attorney will provide you with court approved providers for this course, and help get you enrolled.
 

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Transportation During Chapter 7 Bankruptcy

For most people having reliable transportation is a necessity. A vehicle is required to get to work, school, or to an appointment at the doctor. Most of us can't imagine doing without a personal vehicle. Filing bankruptcy doesn't mean you have to give up having a car, truck, or motorcycle.

The first question is whether you have equity in the vehicle you own. Equity is simply the difference between the amount you owe and what your vehicle is worth. If you owe more than your vehicle is worth, you have "negative equity," which is really no equity at all. The bankruptcy laws allow you to keep a reasonable amount of vehicle equity. If this amount is not enough to fully protect the vehicle, you may use other legal exemptions to protect your vehicle equity. Finally, if you have more vehicle equity than you can legally protect, you can purchase the equity from the Chapter 7 trustee.

The second consideration is your lender. There are three options for dealing with vehicle loans in Chapter 7 bankruptcy: reaffirmation, redemption, and surrender (a controversial "fourth option" is available in some states and circumstances. Speak with your attorney to see if your situation qualifies).

If you wish to continue the monthly payment, you can execute a reaffirmation agreement. This is a contract that states that the debt you owe the lender will survive the bankruptcy and the lender agrees to not repossess the vehicle. In some cases you can use a reaffirmation agreement to rewrite the original agreement. This can be useful if you have missed a few payments or need to reduce your interest rate.

If your vehicle is substantially "upside down," you may want to consider a redemption. In a redemption, the debtor pays the lender the fair market value of the vehicle. The payment is made in a lump sum which usually requires another loan at a high interest rate. However, for a car that is worth thousands less than what is owed, the new monthly payment could be hundreds less - even with the high interest rate.

The final option is surrender. Sometimes just walking away from a lemon or a bad deal is the best choice. In a Chapter 7 bankruptcy, you simply turn over the car to the lender and owe nothing. There is no prohibition against buying a different vehicle during or after your bankruptcy case. If you need to purchase a different vehicle, speak with your bankruptcy attorney.

The United States bankruptcy laws contain powerful provisions for protecting property and reducing debt. There are many options available in Chapter 7 or Chapter 13 cases. Consult with an experienced bankruptcy attorney and explore your options under the federal law.
 

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Chapter 7 Bankruptcy Timeline

The most common type of bankruptcy case is the Chapter 7 no asset case. In this case the debtor does not lose any property and unsecured creditors (e.g. credit card companies and medical bills) receive nothing. A Chapter 7 no-asset bankruptcy is usually a “quick and easy” process. The following timeline describes the process:

Meet Your Attorney
Your attorney will listen to your concerns, identify legal issues concerning your debts, and recommend legal solutions. While bankruptcy is not always the best option to solve a financial problem, it is a powerful tool that should be considered. Your attorney will also ask you to provide financial doc