Recent Blog Posts in 2009

There are a number of advantages that chapter 13 affords to debtors.  The most significant is the ability to stop a home foreclosure and force the creditor to accept payments for any delinquent mortgage payments.  The bankruptcy automatic stay stops foreclosure proceedings immediately upon the debtor’s bankruptcy filing with the court.  However, this temporary relief may be lost if the debtor fails to make the regular mortgage payments that come due after the chapter 13 filing.

Another advantage of chapter 13 bankruptcy is that a debtor may modify a secured loan and repay it over the plan term.  This usually lowers the monthly payment.  In certain circumstances the debtor can also “cram-down” the secured loan by stripping away the unsecured portion of a debt.  For example, a debtor may owe $20,000 on a car that is only worth $10,000.  Chapter 13 may allow the debtor to modify this loan and only pay the creditor the value of the car, or $10,000.  There are special qualifying rules for this type of modification, so be sure to discuss your situation with your attorney.

Within 15 days of the filing of the chapter 13 bankruptcy petition, the debtor must file a proposed repayment plan with the court.  The plan is also sent to the U.S. trustee and all creditors for review and opportunity to object.  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.

Occasionally circumstances change after confirmation of the chapter 13 plan that prevents the debtor from completing the repayment plan.  The debtor may ask the court to allow the debtor to modify the plan, or to grant a “hardship discharge” and end the case early.  Otherwise, at the end of the three to five year repayment period the court will discharge the debtor’s remaining debts that are not “non-dischargeable” by law.  The chapter 13 bankruptcy discharge prevents those creditors from seeking payment from the debtor.   

If you are over-burdened with secured debts and are in need of relief, consult with an experienced bankruptcy attorney about your rights under chapter 13 of the bankruptcy code.

Passing the Means Test

The Means Test is a formula designed to identify debtors that can afford to pay some of their unsecured debts (for instance, credit card debt) and encourage repayment of these debts through a Chapter 13 repayment plan.  Debtors that “fail” the Means Test are disqualified from filing Chapter 7 bankruptcy.

The Means Test is actually two tests.  The first part of determines whether your current monthly income is less than your state’s median income for a household of your size.  The current state median income figures can be found at the U.S. Trustee’s website: http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm

If your family’s income is less than your state’s median income for a family of your size, you PASS the Means Test.  There is no other testing and you can proceed with a Chapter 7 bankruptcy.

If your family’s income is more than your state’s median income, you must complete the Means Test worksheet to calculate if you have (or should have) money to repay unsecured creditors.  In the end if you are able to pay a significant portion of your unsecured debt, you will FAIL the Means Test and cannot file a Chapter 7 bankruptcy.

The truth is that very few debtors fail the Means Test.  Many debtors earn significant incomes and still qualify for Chapter 7 bankruptcy.  Debtors with large monthly secured debt payments (e.g. house, car) often pass the Means Test as there is no extra money at the end of the month to pay unsecured creditors.

If you are contemplating a bankruptcy filing, it is in your best interest to consult with an experienced bankruptcy attorney as soon as practical.  The Means Test is a new and complex feature of the bankruptcy laws, and, consequently, its application and interpretation varies from jurisdiction to jurisdiction.  By examining your case early, a skilled bankruptcy attorney can identify whether you are able to pass the Means Test now or in the future.

The “Co-Debtor Stay,” also known as the “Co-Debtor Automatic Stay,” is a feature of a Chapter 13 Bankruptcy designed to protect a debtor by insulating him from indirect pressures from his creditors exerted through friends or relatives.  The Co-Debtor Stay stops all collection actions against any individual who is obligated on a consumer debt owed by the debtor.  The Co-Debtor Stay continues until the Chapter 13 case has concluded.

The Co-Debtor Stay is not a direct protection intended for the co-debtor.  The debtor’s Chapter 13 Bankruptcy will not discharge the co-debtor’s responsibilities to the creditor.  It will, however, prevent collection action by the creditor against the co-debtor (e.g. lien perfection or even adverse notation on the co-debtor’s credit report) during the pendency of the Chapter 13 case. 

The Co-Debtor Stay does not prohibit collection on a debt incurred in the ordinary course of business by the debtor.  Additionally, tax debt is generally not considered a consumer debt.  It is important to note that the Co-Debtor Stay does not apply at all to Chapter 7 Bankruptcy cases.

The Co-Debtor Stay is effective immediately upon the filing of the debtor’s Chapter 13 petition and continues until the case is closed, dismissed, or converted to Chapter 7 or 11.  The Bankruptcy Court can also modify or terminate the Co-Debtor Stay upon the motion of a creditor.  The creditor may be successful in this type of motion if the codebtor received “consideration” for the debt (e.g. you cosigned a car loan for your brother, who actually owns the car), if the debtor’s Chapter 13 plan proposes to not pay the debt, or if the creditor’s interests would be irreparably harmed by continuation of the Co-Debtor Stay.

A knowing violation of the Co-Debtor Stay is contempt of court and punishable by damages, including attorney’s fees.  Any collection action taken by a creditor in violation of the co-debtor stay is void. 
The Co-Debtor Stay is a powerful tool to prevent collection action in Chapter 13 Bankruptcy.  If you are contemplating a bankruptcy filing and have co-debtors, consult with an experienced bankruptcy attorney.  An experienced bankruptcy attorney can explain your options and work with you to find the best result.

“This purpose of the act has been again and again emphasized by the courts as being of public, as well as private, interest, in that it gives to the honest but unfortunate debtor . . . a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”

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

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

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

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

As a general rule, credit card debt is among the easiest type of debt to discharge during a Chapter 7 or Chapter 13 Bankruptcy.  However, in some cases credit card companies will dispute the discharge of credit card debt by filing an adversarial proceeding against the debtor in the bankruptcy court.  The creditor may claim that all or a portion of the debt is non-dischargeable.  Debts that are declared non-dischargeable may have to be paid during the bankruptcy, or may survive the bankruptcy altogether.

A credit card company may claim that the debtor committed fraud in obtaining or using the credit card.  If the creditor can prove that the card was obtained under false pretenses (i.e. that the application was false), the credit card debt may be declared non-dischargeable because of the fraud.

A credit card company may also claim that charges were placed on the credit card when the debtor had no intention to repay the debt.  Additionally, a presumption of fraud arises where luxury goods and services are purchased or cash advances are taken shortly before the filing of a bankruptcy case. 

Credit card companies are entitled to notice of a debtor’s bankruptcy case, and these companies monitor bankruptcy cases for signs of fraud.  Certain actions send up a red flag including:

• Filing bankruptcy on a new card;
• Taking a cash advance prior to filing;
• Charges for travel or vacation;
• A debt transfer from one card to another;
• Credit charges while unemployed; and
• Charges made after consulting a bankruptcy attorney.

The more time between the credit card activity and the bankruptcy filing, the less likely the charge will cause a discharge dispute.  The best advice is: if you are considering bankruptcy, stop using your credit cards.  Consult with your bankruptcy attorney regarding the best way to discharge your credit card debt.

Payday loan companies prey on individuals experiencing financial difficulties.  These lenders offer a short-term loan of a few hundred dollars that will be repaid on the borrower’s next payday.  To obtain the loan the borrower usually writes the lender a post-dated check.  Often the payday loan lender will require a certification that the borrower is not contemplating bankruptcy, and, sometimes, that the borrower will not file bankruptcy.

While the borrower may initially intend to use payday loans to fix a short-term financial problem, often payday loans start an endless cycle of debt.  Payday loan companies charge high interest rates over short periods and rely on the borrower’s inability to satisfy the loan, and is consequently forced to renew it.  Unfortunately, this cycle of debt often leads the borrower to file bankruptcy.

Many individuals worry that they will face criminal trouble for passing a bad check when they cannot cover their post-dated check.  With a few narrow exceptions, being unable to pay the payday loan check is not a criminal act.  However, your post-dated check may still be presented for payment, resulting in significant bank fees.  In some cases (notably in the 6 ^th and 8 ^th Circuit Court of Appeals) courts have stated that the presentment of the post-dated check does not violate the automatic stay provisions of the bankruptcy code.  However, these courts have said that the funds collected by the payday loan company may be an “avoidable transfer.”

While an agreement to not file bankruptcy is generally considered void because it violates public policy, a representation to the payday loan lender that the borrower is not contemplating bankruptcy is a serious matter.  A borrower that takes a payday loan with the intention of discharging it through bankruptcy, and with no intention on repaying the loan, may have committed fraud and even a criminal act!

Proper handling of an outstanding payday loan is an important consideration before filing bankruptcy.  Most payday loans are discharged through bankruptcy without problem; however, payday loan companies are becoming increasingly more knowledgeable and aggressive towards debtors in bankruptcy.  If you have an outstanding payday loan, consult with your attorney and protect your legal rights.

If you are paying child support, you may be confused about the effect of a bankruptcy filing on your child support obligation.  A bankruptcy filing generally protects the debtor from the collection actions by creditors, but Congress has not extended the same protections to child support issues.  Under the bankruptcy laws child support is a “non dischargeable debt” which means that the obligation will survive the bankruptcy, regardless whether it is a current or past debt.

The bankruptcy automatic stay does not apply:

(1) to the establishment of a child support obligation;
(2) to the collection of child support from property that is not property of the estate; or
(3) to the withholding of income that is property of the estate for payment of a child support obligation under a judicial or administrative order or statute.

In “non-lawyer speak,” child support collection actions are generally not halted by filing bankruptcy.  Additionally, filing a bankruptcy case does not stop a tax intercept for the payment of child support arrears.

Domestic support obligations, including child support obligations, receive top payment priority when funds are available to pay creditors in a Chapter 7 case.  In a Chapter 13 case, child support arrears are paid through a “repayment plan” and are paid as a first priority.  Support payments due after the bankruptcy filing date must be kept current or the debtor’s plan will not be confirmed, and the bankruptcy court will not issue a discharge in a case where child support is owed.

In addition to child support, debts that are “in the nature of support” (e.g. medical expenses, educational expenses, etc.) are ineligible for discharge.  The bottom line is: child support obligations must be paid.  Fortunately, the bankruptcy laws offer options to make the debtor’s payment burden more bearable.  However, a debtor’s child support obligation is often a difficult legal situation that requires expert guidance.  If you have a child support obligation and are considering filing bankruptcy, consult with an experienced bankruptcy attorney and discuss your options.

Will Filing Bankruptcy Ruin My Credit?

“Will filing bankruptcy ruin my credit?”  This is a common question asked by individuals contemplating a bankruptcy filing.  Usually this question is answered by asking another question, “If you are considering bankruptcy, isn’t your credit already ruined?”

Individuals in serious financial crisis generally wait too long before seeking assistance.  A recent survey by the Consumer Bankruptcy Project, a continuing study of consumer bankruptcy filings, found that over 40 percent of individuals said they struggled with financial difficulty for more than two years before filing bankruptcy.

If you are facing a serious financial crisis, it is in your best interest to educate yourself and to identify your financial options.  Waiting can only exacerbate the situation.  Sometimes individuals try to “save the sinking ship” by taking on more debt (e.g. a home equity loan) to solve their debt crisis.  Others empty their retirement accounts to pay down short-term debt.  These tactics are short-term solutions and will rob your family of its future financial health.  Even sadder is that many individuals discover that their quick fix solutions did not solve their financial problems – only now they are facing bankruptcy with no equity in their home, or without a retirement account.

A bankruptcy filing will stay on your credit report for ten years and may have a detrimental impact on your ability to borrow money (at least in the short run).  However, bankruptcy will also lighten your debt load significantly and give you a second chance to arrange your finances in a way that is manageable for years to come.  If you are facing serious financial difficulties, speak to an experienced texas san antonio bankruptcy attorney before taking a quick fix route just to save your credit score.  Don’t be “penny wise and pound foolish.”

Dallas, the third largest city in Texas, is the economic centre of Dallas-Fort Worth-Arlington metropolitan area. Cases of bankruptcy filing, as the statistics reveal, are on the rise in Dallas. According to the data published by the United States Bankruptcy Court, there was a 35% increase in the bankruptcy cases filed in the Northern District of Texas. Dallas too falls in the same region.

A Chapter 7 bankruptcy discharge releases an individual from personal liability for most debts and prevents creditors from taking collection action against the debtor.  In other words, the bankruptcy discharge is a legal injunction prohibiting the creditor from collecting against you personally.  There are a few circumstances in which a debt may “survive” the bankruptcy and be enforceable against the debtor.  The most common is a voluntary process known as “reaffirmation.”

A reaffirmation is an agreement that continues the debtor’s obligation on a debt, even though the debt would otherwise be discharged in the bankruptcy.  Usually these agreements concern property with a lien attached (e.g. a car) and the creditor agrees to not repossess the property as long as the debtor continues to pay the debt.

The decision to reaffirm a debt should not be made lightly.  A reaffirmation agreement must be made in writing before the discharge is entered.  It must be filed with the bankruptcy court and the debtor must include a statement of current income and expenses that demonstrates sufficient income to repay the debt.  The debtor’s attorney certifies that the debtor has been advised of the legal effect and consequences of the agreement and that reaffirmation of the debt will not create an undue hardship for the debtor or the debtor’s dependants.

Sometimes a reaffirmation agreement is not in the debtor’s best interest.  For instance, many co-signed unsecured loans that the debtor perceives a moral obligation to repay can be paid without a reaffirmation agreement (and without a subsequent legal obligation).  As you can see, reaffirmation agreements can be complicated and should be carefully considered.  Fortunately, the bankruptcy laws provide many options and tools for solving difficult financial problems.  If you are considering a reaffirmation agreement to continue paying on a debt, seek the advice of an experienced bankruptcy attorney. 

Clients have many questions during the initial appointment with a bankruptcy attorney.  The most common concerns are losing property, and rebuilding credit after the bankruptcy case is over.  Occasionally someone will ask a straight-forward question: “Will filing a bankruptcy ruin my life?”  This powerful and important question deserves a straight-forward answer:

No!

The bankruptcy laws are widely misunderstood by the average American.  The purpose of bankruptcy is to put overwhelming financial difficulties behind and give an honest person a fresh start.  Many Americans have taken advantage of a fresh start to improve their lives and have made tremendous contributions to our society.  Perhaps the best way to illustrate the power of bankruptcy’s fresh start is to look at some famous examples:

Actor Burt Reynolds filed for bankruptcy in 1996 after his divorce from Loni Anderson. He listed more than $10 million in debt, and his dinner theater in Jupiter, Florida was foreclosed on and his ranch was sold.  Never one to quit, Reynolds continues to act in movies and television.  Burt Reynolds was nominated for an Academy Award for Best Supporting Actor for his performance in the 1997 film Boogie Nights and won a Golden Globe Award for the movie.

Named as one of Time Magazine’s “100: The Most Important People of the Century,” business titan Henry Ford didn’t always have the Midas touch.  By 1901 Ford had unsuccessfully managed his first automobile company into bankruptcy.  Two years later he founded Ford Motor Company.

Walt Disney may have had vision, but he needed a second chance to make the Happiest Place on Earth a reality.  After his first film company failed, Disney filed bankruptcy in 1923.  Five years later Disney introduced the world to Mickey Mouse and the Disney empire was born.

In 1875 a young businessman saw his horseradish company go bankrupt.  Undeterred, the young man formed a new company in Pittsburgh, PA with his brother and cousin making ketchup.  That company was a success for H.J. Heinz and in 2007 the H.J. Heinz Company had over $10 billion in revenue.

Other famous people who have used the bankruptcy laws to help them recover from financial difficulty include: singer Willie Nelson, talk show host Larry King, actress Kim Basinger, and even billionaire Donald Trump!

Don’t let financial difficulty stand in the way of your dreams!  Bankruptcy will not ruin your life; it is a tool to help you build a better future for yourself and your family.

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

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

Some zombie debt collectors actually violate the law by attempting to collect. For instance, trying to collect a debt that was discharged in bankruptcy is a serious violation of the federal court discharge injunction. Threatening a lawsuit for a debt that is past the statute of limitations is a violation of the federal Fair Debt Collections Practices Act (FDCPA). Zombie collectors not only rely on ignorance of the law, they thrive on it! Some individuals want to pay these debts. While admirable in intention, the result may be extremely harmful. Unpaid debts that have dropped off a credit report may be reported for another seven years after the payment date. That dead and gone debt may reappear as an entirely new (and legal) negative item on your credit report – and substantially harm your credit score.

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

• Know your rights! Your attorney can explain the statute of limitations or other legal restriction to the collection of an old debt.
• Do not give any personal information to a zombie debt collector. Nothing good can result.
• Do not make a payment on an old debt until you learn your rights. What may seem like an honest act of payment on an old debt may turn into a nightmare on your credit report.

Remember, zombie debt collectors are the bottom feeders of the collection industry. They have been known to employ the worst ethical practices to obtain payment. Don’t be haunted by zombie debts. Contact your attorney and chase them back to the grave!

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

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

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

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

You can protect yourself from these scams by consulting an attorney.  Only an attorney can explain your legal rights and help you choose the best course of action to resolve your debt problems.

During a Chapter 7 bankruptcy all unsecured debts are discharged. Debts that are secured by collateral (e.g. car loans) must be paid or the collateral must be returned to the lender. Occasionally an individual considering Chapter 7 bankruptcy will own a vehicle that is worth less than what is owed. This situation is often referred to as “upside down and usually involves a late model vehicle that has depreciated faster than the person has paid on the loan. It doesn’t make any sense to pay for something that is “upside down, but often an individual needs to keep the vehicle for transportation to work and for family use.

Fortunately, a provision of the Chapter 7 bankruptcy code allows an individual to keep a vehicle and pay only its current market value. This process is called “redemption.” During a redemption the value of the vehicle is determined (either by agreement between the debtor and creditor or by the bankruptcy judge after a hearing) and a court order is issued directing the creditor to accept a sum from the debtor in exchange for a release of its lien. In plain terms the lender is paid a lump sum and the lien on the vehicle is released. For example, a debtor that owes $15,000 on an auto that is worth $10,000 will only pay $10,000.

Unfortunately, the payment must be made in a one-time lump sum to the lender at the time of the redemption order. If the debtor is unable to pay for the vehicle, there are finance companies that make redemption loans for debtors in bankruptcy. Before making a redemption loan these finance companies require a loan application and certain assurances of repayment. The interest rate can be high for a redemption loan, however the resulting monthly payment is often lower than the original payment. It is important to carefully consider all of the advantages and disadvantages before making a decision to redeem a vehicle:

Advantages of a redemption loan:

• Retention of the vehicle;
• Vehicle is no longer “upside down;”
• The creditor cannot repossess the vehicle;
• Usually results in a lower monthly payment.
• Disadvantages of a redemption loan:
• High interest rate.

Redemption is not the only option for keeping a vehicle after a bankruptcy. A skilled bankruptcy attorney can explain all of your options and help you obtain the best deal for your family.