Recent Posts in General Law Category

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.

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.”

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.