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April 23, 2014

Bankruptcy – a Legitimate Reset Button?

Any ethical bankruptcy lawyer will tell you that filing a Chapter 7 or Chapter 13 should be your last resort. It is something that needs plenty of meaningful thought and the advice of professionals who help good people to see debt relief as achievable. There are ways to deal with debt that will not involve a filing of bankruptcy, but one size does not fit all.  The main thing to remember:  if you do nothing, the problem will not disappear. [Read More...]

Why Would You Choose to File a Proof of Claim on Behalf of a Creditor in Your Chapter 13

When you file Chapter 13, you include in your schedules the names and addresses of all of your creditors.  The Clerk of Court then mails out a notice of your filing to those creditors along with a form called a Proof of Claim form.

Under the Federal Rules of Bankruptcy Procedure, your creditors must file their proofs of claim within 90 days after the first date set for the Section 341 first meeting of creditors.  Since 341 hearings are usually set about 30 days after you file, this means that, generally, creditors have about 4 months to file their claims.  The deadline for creditors to file claims is called the bar date.

What happens, however, if a creditor fails to file a proof of claim in your Chapter 13.  If the claim is an unsecured claim, like a credit card debt or a medical debt, that creditor does not get payments from the Chapter 13 trustee and when the final discharge order is issued, that unsecured creditor’s claim is discharged, or wiped out.  Assuming you provided a valid address, unsecured creditors who received notice but who do not file a proof of claim cannot come back and sue you post discharge.

Secured and priority creditors are a different story.

In the case of a secured creditor, like a mortgage company or a vehicle lender, the Chapter 13 discharge would wipe out your personal liability but the lender’s lien against the property remains valid.  Thus, your vehicle, house, furniture, jewelry or other secured debt could be repossessed or foreclosed post bankruptcy, although you would not have any personal liability for any deficiency claim. [Read More...]

What are My Alternatives to Bankruptcy?

Many people ask us abBankruptcy Alternativesout alternatives to bankruptcy, so we decided to take a look on the web to see what is out there.  We came across an interesting article entitled “What are my Alternatives to Bankruptcy?” on a bankruptcy site covering Chapter 7 and Chapter 13 filings in Dothan, Alabama.

First, the author suggests that before taking any steps toward legal action, you should first obtain your credit report from a credit bureau.  The three major credit bureaus are Equifax, Experian, and TransUnion and you can obtain free copies of your credit reports online at AnnualCreditReport.com.  Your credit report will include the names of your creditors, the names of any collection agencies used by those creditors and the amounts owed to each.

You may find that when all of your credit accounts are laid out in front of you, your debt situation may appear less overwhelming than you had originally anticipated.  You may find that by simply eliminating certain non-essentials from your budget, you will be able to pay off your debts and avoid bankruptcy entirely.

You also may be able to use the information from your credit reports to negotiate and set up your own payment plan with your creditor(s).  Of course, if you and your creditor both agree to an “informal” payment plan, it is highly recommended to confirm your agreement in writing.  Beware that in the negotiation process, creditors may want you to sign “consent judgments” or other legal documents that may waive some of your rights.  You should, of course, first speak with an attorney before signing any type of binding legal document or contract. [Read More...]

Retirement Account Documents – Read the Fine Print

We ran across a very interesting decision by Eastern District of Tennessee bankruptcy judge  Judge Richard Stair that disallowed the debtor’s claimed exemption of a $61,000+ retirement account in his Chapter 7 bankruptcy.   In the James L. Daley case, Judge Stair ruled in favor of the Chapter 7 trustee, who had objected to the exemption.  This means that if he remains in Chapter 7, Mr. Daley will have to liquidate his retirement account and pay the funds to the trustee.

Why did this happen?  The retirement funds at issue were contained in a Merrill Lynch IRA that appeared to constitute a qualified retirement account by the IRS.  Merrill Lynch even provided the debtor with a letter from the IRS stating that IRA accounts of this type had been deemed qualified.  So far so good.  Qualified retirement accounts are “exempt assets” in Tennessee bankruptcy cases.

The problem was this – the fine print of the account contained two problems:

Gifts vs. Loans – Big Differences in Bankruptcy Court

I recently ran across an interesting blog post from Mark Markus, a bankruptcy lawyer in Los Angeles, who noted that the characterization of a your receipt of money as a gift is significantly different from characterizing that receipt of money as a loan.

If the funds received are a gift, the funds would count as income for means test purposes and these funds (assuming they are not yet spent) would be an asset of your bankruptcy estate and potentially reachable by a bankruptcy trustee.

By contrast, if funds received are treated as a loan, these funds would not count as income for means test purposes, although cash still on hand would be an asset.

Mr. Markus also notes that if you pay back the lender before filing, the repayment could have bankruptcy implications.  He is referring to the issue of preferences, which are provisions of the Bankruptcy Code that allow trustees to recover money from lenders in certain situations.

Your lawyer can advise you regarding the preference issues and about the means test as well as exemptions that can allow you to protect cash and other property from the trustee’s reach.  However, as Mr. Markus points out a threshold question is whether funds received are a gift or a loan.  What are the differences? [Read More...]

Should You Reaffirm Your Mortgage Loan in Chapter 7?

mortgage reaffirmation in Chapter 7When it works as planned, Chapter 7 serves to discharge (wipes out) your unsecured debt, while allowing you to keep most or all of your property.   If you have secured debt in your Chapter 7, you generally have the options of:

  • surrendering your property and walking away from any associated debt
  • redeeming your property by paying the secured creditor the fair market value in one lump sum
  • reaffirming your property by re-entering into a contract to pay the installment note
  • continuing to pay the note but not signing a reaffirmation

There are pros and cons for each of these options.   In this blog post I want to discuss the good and bad of reaffirming your mortgage debt.

Many lawyers feel very strongly that you should never reaffirm your mortgage.   When you reaffirm, you are obligating yourself personally to pay your mortgage note.   This means that if you should default on this obligation and the value of your home is less than the outstanding balance (a very real possibility in current economic times) you could find yourself facing a deficiency claim in the tens of thousands of dollars. [Read More...]

Congress Considers Law to Make Private Student Loans Dischargeable in Bankruptcy

Under current bankruptcy law, most types of student loans are not dischargeable in bankruptcy.  Specifically, Section 523(a)(8) of the Code makes non-dischargeable:

an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or

an obligation to repay funds received as an educational benefit, scholarship, or stipend; or

any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;

Currently student loans would only be dischargeable if the debtor files an expensive “Adversary Proceeding” in bankruptcy court and successfully argues that repayment would present an “undue hardship.”  Statistically a finding of undue hardship has proven to be very, very difficult.

Recently, however, there comes word that Congress is considering a change in this law that would make some private student loans dischargeable.   San Francisco bankruptcy attorneys Jeena Cho and Jeff Curl report on their blog that H.R. 5043 entitled the Private Student Loan Bankruptcy Fairness Act, a bill co-sponsored by Tennessee representative Steve Cohen, is now making its way through Congress. [Read More...]

Why You Must Disclose Injury Claims When You File Bankruptcy

[this post is written by guest bloggers Lex Rogerson, who is a bankruptcy lawyer in the Lexington/Columbia area of South Carolina and Russell DeMott, a Charleston, South Carolina bankruptcy attorney].

If you have any kind of claim that could produce money or property for you, it’s critical that you tell your bankruptcy attorney all about it.  Here’s why.

Everyone who files bankruptcy is required to file a set of schedules that list all their debts and all their property.  These schedules are filed under penalties of perjury.  Most people try to give accurate information because they want to be honest but also because failure to do so is a federal crime.  Rich and powerful people have gone to federal prison for hiding assets.

The Bankruptcy Code defines “property” very broadly.  It includes much more than obvious things like real estate, cars, jewelry, and bank accounts.  It also includes intangible assets like tax refunds, potential lawsuits, and claims for personal injury, workers compensation, social security, or child support.  So the simple reason you should disclose such claims is to be honest and to comply with the law.

There is also a more complicated but equally powerful reason.  Courts have developed a doctrine called judicial estoppel that can kill your claim if you do not disclose it.

Judicial estoppel is based on every court’s desire to maintain its own integrity.  Judges believe people should not be able to assert one set of facts in one court and completely opposite facts in another.  Because people who file bankruptcy swear that their schedules accurately disclose all their assets, failure to list a claim in effect tells the bankruptcy court that you do not have a claim.  Then, when you try to prosecute the claim in another court, or before an administrative agency, you are saying that you do have a claim – the exact opposite. [Read More...]

Getting Your Repossessed Vehicle Back with Bankruptcy

If your vehicle or other property has been repossessed, it may be possible to get your property back when you file for bankruptcy. If you are timely and have a good attorney, the creditors can potentially be forced to return the property to you.

Examples of ‘other property’ that can be repossessed include jewelry, furniture, electronics, home appliances, and cash. Here we will focus on your repossessed vehicle, however, which is the most common property repossessed, and how to get it back.

It is very important to act quickly to get your repossessed vehicle back because the law states you must file for bankruptcy within 90 days of the repossession in order to retrieve the vehicle. However, you should act right away – because the creditor can resell your vehicle and it is then extremely difficult to get back.

When you file for bankruptcy, the bankruptcy court can look at any payments and property transfers within the past 90 days and determine if they may hinder the repayment of creditors. Any payments or property transfers within 90 days before you filed for bankruptcy can be seen as a preferential transfer and can be reclaimed. When your vehicle is repossessed, the creditor is acquiring equity on it. Because of this, the vehicle can be seen as a preferential transfer and the creditor can be forced to return the vehicle to you.

Fortunately in this situation the law works in your favor, but the court must still be persuaded that the vehicle is rightfully yours and order the creditor to return it. Your attorney must file a bankruptcy petition and argue that the repossession of your vehicle is a preferential transfer.

If you are in this situation, speak with an experienced attorney to learn more about how to get your repossessed property back. The attorneys here at Clark and Washington have many years’ experience in helping debtors reclaim their repossessed vehicles, so we know how to use the law to your advantage.

Bankruptcy and the Military

If you are in the United States military you don’t need to worry about bankruptcy! The government created the SCRA, short for the Servicemembers’ Civil Relief Act, to provide protection against bankruptcy for members of the military. The SCRA ensures that military members are not distracted by financial troubles such as bankruptcy and can focus on their military responsibilities.

Here are some ways the SCRA protects you from bankruptcy while you are serving in active duty in the military:

  • All bankruptcy proceedings are frozen, eviction is prevented, and the court cannot enter into a judgment while members of the military are serving in active duty.
  • Actions such as reducing interest rates on loans and debts that accumulated before active duty can be taken to assist the service person.
  • If military reasons prevent a service person on active duty from appearing in court, an attorney can be appointed for the service person to protect them against default judgments such as bankruptcy proceedings.
  • It is possible for court proceedings to be halted if the defendant is a member of the military and is not able to appear in court.

Even if a court proceeding started before you were serving in the military, the SCRA protections apply to any court proceedings taking place, including bankruptcy, once you begin to serve. Typically 90 days after you have been discharged from the military, SCRA protections end. However, you can be released from an agreement, such as a lease, without any consequences if you were stationed after the agreement was made.

There are several factors that determine SCRA protections and I recommend speaking with an experienced attorney if you are experiencing financial troubles.

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