April 1, 2020

Can I Convert From Chapter 13 Bankruptcy to Chapter 7?

Sometimes debtors file for Chapter 13 bankruptcy but then realize that they should have filed for Chapter 7.

When you file for Chapter 13 bankruptcy, you will be repaying all or a portion of your debt by making installments to the Chapter 13 Trustee that have been outlined in the payment plan and approved by the bankruptcy court. The Trustee is then responsible for paying the creditors that you owed. Sometimes debtors that have filed for Chapter 13 realize that they are unable to make their plan payments, or cannot make car or mortgage payments once the plan has begun.

If this is the case, as long as your bankruptcy case has not been converted before, it is your legal right to try and convert from a Chapter 13 to a Chapter 7 bankruptcy. Here are several things you will need to do in order to convert to a Chapter 7 bankruptcy.

You will need to take the “Means Test” again, which the court will use to determine if you qualify for Chapter 7 bankruptcy by evaluating your financial information such as your income, debts, and expenses. If you pass the means test you will need to then file a “Notice of Conversion,” which costs a fee, with the bankruptcy court. The Trustee will then be in charge of determining if you are eligible to convert to Chapter 7 bankruptcy.

Because bankruptcy laws are very complex and constantly changing, I recommend speaking with an experienced bankruptcy attorney to assist you through the Chapter 13 to Chapter 7 conversion process.

Chapter 13 Payment Plans Can Vary During the Course of a Bankruptcy

While most people believe that when they file for bankruptcy their payment plan is set in stone, this is not always the case. When you file for Chapter 13 bankruptcy, the amount you pay each month may vary each month.

For example, payments change greatly if you have an adjustable mortgage, your energy bills are different every month, and/or if you need to surrender or purchase a home or a vehicle. All these scenarios will cause your Chapter 13 budget to be affected. Because your budget is constantly changing, your plan may be adjusted accordingly.

Under section 1329 of the Bankruptcy Code, the trustee, the debtor, or one of the unsecured creditors can ask for a change in the payment plan anytime during your Chapter 13 bankruptcy case. The amount that your budget needs to change before your plan is adjusted depends on who reviews your plan. While all bankruptcy courts follow the Bankruptcy Code, states and districts enforce it differently. Typically, if you have a change of 10% in your budget for three or more months, your plan may be adjusted. If your expenses increase, it may be determined that you owe your creditors less money. If your income increases, it may be determined that you owe your creditors more money.

I strongly recommend speaking with an attorney to understand your Chapter 13 payment plan and how it can fluctuate throughout the duration of your case. Because the Bankruptcy Code is enforced differently depending on location, an attorney can clarify how it will be enforced in your case. Also, make sure that you notify your attorney of changes in your budget throughout the duration of your case, because you can get in trouble for concealing such changes.

Information for Tennessee Farmers: Chapter 12 Bankruptcy Might Be An Option

What is Chapter 12 Bankruptcy?

On this Tennessee Bankruptcy Blog, we regularly go over the most common types of personal bankruptcies, Chapter 7 and Chapter 13. However, there are less-known types of bankruptcy protections as well, such as Chapter 9, Chapter 11, and Chapter 12 bankruptcy. In this post, we will focus on Chapter 12 bankruptcy, which may help some of you Tennessee farmers out there. Commonly known as the Family Farmer Chapter, Chapter 12 is designed specifically to meet the needs of family farmers and fishermen.

To be defined as a family farmer for Chapter 12 bankruptcy, you must meet certain criteria. The farmer’s debts can not be over $1.5 million, which does not include debt owed on a home unless it is directly connected to the farming business. At least half of the farmer’s gross income must have been earned from farming in the year prior to the filing, and at least 80% of the debt must be farm related. Also, the farmer must make an income that is large enough to be able to make payments under a Chapter 12 plan, before the bankruptcy petition is approved.

The Basic Process: To file for Chapter 12 bankruptcy, the debtor must first file a bankruptcy petition at a cost of $200. Within 15 days after filing, the debtor must give a complete list of their liabilities and assets, and must pay a deposit of $500 to the appointed Chapter 12 trustee. Within 90 days the debtor needs to file a repayment plan telling how their creditors will be repaid. The debtor must also file a financial report every month which shows disbursements and receipts. Within 20 to 60 days after the bankruptcy petition is filed, the debtor must attend a meeting where they are questioned by the trustee and creditors and suggestions on the repayment plan are made. Within 45 days since the repayment plan was filed, the court will either approve or reject the plan.

Chapter 12 bankruptcy is very similar to Chapter 13, but has a higher debt ceiling than Chapter 13 because farmers and fishermen must sustain higher debts than workers with normal wages. Debtors must repay all or part of their debts within three years, or five years if they can persuade the court of extenuating circumstances.

Just like I would suggest to those thinking of filing a Chapter 13, I advise anyone that is considering filing bankruptcy under Chapter 12 to consult and with an experienced bankruptcy attorney.

Toyota Owners Beware: When filing for bankruptcy, don’t forget to notify the court/trustee of your participation in class action suits or the potential of receiving other settlements at a later time

As everyone knows, Toyota has been having issues with their vehicles lately. Millions of Toyota vehicles have been recalled due to faulty pedals and floor mats. If you are filing for bankruptcy and own a Toyota, it is important to talk to a lawyer about the Toyota recalls.

It is possible there are already class action lawsuits you are involved in which you may even be unaware of, or you may already have a claim against Toyota for defects or injuries suffered due to your vehicle.

When you are filing for bankruptcy, you must disclose all of your assets. If you have a claim against Toyota, or are a part of a class action lawsuit, it is considered an asset you own and must be disclosed in your bankruptcy case. If you’re in the situation where you didn’t know about the claim at the time you disclosed your assets, you need to update your paperwork with it when you do find out.

If you are going to someday recover money from a claim, who gets the share depends on the details of your specific case. However, your chances of keeping a share of the money are much better if you disclose it to the court, rather than the court discovering that you kept it from them.

For example, in 2007 a Utah couple lost a $50,000 personal injury settlement to the bankruptcy trustee when they failed to list the pending lawsuit as an asset when they filed Chapter 7 bankruptcy. The couple would most likely have been able to keep the settlement if they had disclosed the asset to the court, but they had knowingly concealed it and lost it instead.

It has been reasoned that if the filer can prove that they had absolutely no knowledge of the asset or there was no obvious reason to conceal it than they could keep it. The trial judges have great discretion in deciding if someone has purposefully hidden an asset or not. The lesson though is this; assets that should be yours can be easily taken away if you fail to disclose everything to the bankruptcy court.

If you own a Toyota and are filing bankruptcy, talk to a lawyer immediately to make sure you are aware of any class action lawsuits you are involved in and are disclosing all assets in your bankruptcy filing. After all you have been through already with a faulty product, the last thing you want is to lose access to the settlement payout you deserve.

Teaching Young Adults How to Manage Credit

In a post published this past July, we discussed a program in Tennessee known as the $mart Tennessee Financial Literacy program, which teaches students financial literacy. Continuing in that same vein, in today’s I would like to discuss the importance of teaching young adults to manage credit.

Along with cell phones and personal computers, the age of people using credit cards is getting younger and younger. What used to be considered to be only used by adults, credit cards are now regularly used by many young adults/teenagers.

Studies show that 32% of high school seniors use a credit card. And college freshman are offered an average of 8 credit cards during their first week of school. However, with 60% of students maxing out their credit cards within their first year of college, young adults are obviously not being taught how to responsibly use a credit card or the importance of their credit score. This can have devastating effects, as even some young people end up having to file for bankruptcy in some occasions. Fortunately, as of February 2010, Congress passed the Credit Cardholder’s Bill of Rights, which has limited the amount that credit card companies can advertise to young people.

Numerous college students are forced to drop out of school due to credit card related financial issues that could have been prevented with proper credit-education. The CARE Program, which stands for Credit Abuse Resistance Education, provides financial education presentations to students. With the constant messages of excessive consumption and material pleasures, it can be difficult for young adults to fight the temptations of overspending and abusing credit. CARE interjects to teach the consequences of irresponsible spending, such as bankruptcy, dropping out of school, higher interest rates, and other serious financial problems that can occur down the line as a result of misuse of credit.

CARE has put together a video that you can watch here: (http://www.careprogram.us/video-taking-control-of-your/ )

The video is aimed to teach students about the dangers of credit cards and covers the basics of credit, debt, savings, and the importance of making a budget. The video also provides important information for adults as well, and I recommend people of all ages to watch it, especially if you are experiencing personal financial troubles or are considering bankruptcy. It is never to early or late to learn about responsible spending and how to use credit cards wisely. As you know, credit counseling is a requirement of bankruptcy, so perhaps familiarizing yourself with how to make wise financial choices is your first step in getting back on your feet financially.

Secured Debt and Bankruptcy

In the most recent post, we discussed medical bills, a type of unsecured debt which can be discharged if you file bankruptcy. In this post, we will discuss secured debts, as people often have questions about the differences between secured and unsecured debt.

Translating legal jargon can be daunting, especially when dealing with the stresses of bankruptcy. Many terms are frequently used but not fully understood by filers. To determine if a debtor is eligible to file for Chapter 13 bankruptcy, they need to know the total amount of the secured debt. Here, I will cover what “secured debt” is, and how to tell if a debt is secured.

Examples of secured debts are home mortgages, home equity lines of credit, and car loans. These secured debts are liens, which means the creditor is secured, and were legally created by an agreement between the debtor and the creditor. Liens determine the rights a creditor may have in the debtor’s property. Here are some less known forms of liens:

Security Interests: A seller is secured when they finance a purchase you make. Credit plans by retailers such as Sears and Good Guys give the seller a security interest in the products purchased, and they have the right to reclaim the goods if you discharge the debt through bankruptcy. In contrast, if you purchase the products using a credit provided by a lender instead of the seller (a credit card) then the products are yours with no security interest in favor of the lender. However, creditors rarely take legal action to repossess the products.

Judgment Liens: A creditor must take an extra step of filing or recording the judgment to create a lien on the judgment debtor’s property. Secured debts are totaled separately from unsecured debts when determining the debtor’s eligibility to file Chapter 13 bankruptcy, so you need to know if judgment liens have been perfected. Laws vary between states so it’s important to check how judgment liens are perfected in your state. For example, in California if a creditor records the judgment then they have a lien on all of the debtor’s property in the county.

Tax Liens: If a tax lien is recorded, then a lien is perfected on all of the taxpayer’s property.

Blanket Security Interests: If you give the lender a security interest in all of your personal property, then the lien “blankets” all of your assets, potentially even including assets acquired after the security interest agreement is signed.

Medical Bills and Bankruptcy

According to a Harvard study recently reported in the LA Times, medical bills played a role in 62% of all bankruptcies filed in 2007, which is up 7% from 2001. Interestingly, a large majority (78%) of these filers even had health insurance.

When someone is burdened with medical problems, multiple other issues arise that contribute to why they would need to file for bankruptcy. Along with extremely high medical bills, lost wages from having to take days of work off all are also major factors.

The study also revealed a fact that challenges the negative stigma often associated with filing bankruptcy. Approximately 70% of the people that filed bankruptcy for medical reasons owned homes, and the majority had gone to college. It is finally becoming realized that there is no shame in filing bankruptcy, as so many filers these days are middle class and financially stable before medical reasons push them into bankruptcy.

Medical problems can occur suddenly and can hit hard. And they can happen to anyone. Health insurance is not a guarantee that injuries or illness won’t burden you with out-of-control debt, and it’s almost impossible to plan for the unexpected.

If you are filing medical-related bankruptcy, medical bills are considered unsecured debt and will be discharged entirely if you are filing Chapter 7 bankruptcy. If you are filing a Chapter 13 bankruptcy, your medical bills can be ordered and combined with other debts, and potentially reduced, in a bankruptcy trust. In either case, bankruptcy may be just what you need to eliminate your debt arising from medical bills and help you get back on your feet again.

The Elderly and Bankruptcy: Seniors Make Up Largest Group Filing Personal Bankruptcy

In the last post, we discussed how student loans are not wiped out by bankruptcy and how those with student loans can deal with this type of debt. In this post, we discuss bankruptcy and the elderly and how seniors’ retirement funds may be protected by bankruptcy.

In the last eight years, Americans aged 55 and older have become the group most likely to file for personal bankruptcy, according to the AARP. Over half of people aged 50 and older that have debt spend the majority of their monthly income paying it off. Mortgages, home-equity loans, large credit-card balances, and loss of income are all reasons seniors are experiencing financial distress.

If the economic situation was not so dire, retirees may have been able to downsize their homes to pay off their debts, or get reverse mortgages. However, with the current declines in housing markets, many do not have enough equity in their homes to do so. Seniors that refinanced their mortgages during the real estate boom may have enormous mortgage payments. In many cases seniors owe more on their homes than they’re worth.

According to the National Foundation for Credit Counseling, seniors carrying high credit card debt into retirement, and the high interest payday loans against Social Security checks, produce the biggest burdens for senior debtors. With no income coming in, the debtor has fewer options for paying off the credit cards…and interest can grow quickly. Since last year’s market’s crash, many seniors don’t have as much money locked away as they planned.

Another possible contributing factor to senior’s financial troubles can be their own children. Many parents try to help their children financially even if they can’t afford to do so. Some financial advisers won’t even allow their clients to loan money to their children when they are in or near retirement to prevent their financial situation from going further south.

Many times bankruptcy is the best option for seniors with large debts. People with large medical debts can declare bankruptcy and keep their savings because assets in IRAs and other retirement accounts are protected from bankruptcy judgments up to $1 million. Depending on state laws, some debtors can keep their home as well.

Fortunately, there are agencies that are available to provide credit counseling or debt management services to those that need help. Talk to an experienced bankruptcy attorney to find the best route to take. Be careful as there are many scam artists that try and take advantage of senior citizens during their financial distress.

Student Loans and Bankruptcy

Student loan debt is a significant, ceaseless weight on many Americans. While filing for bankruptcy will discharge many debts – such as credit card debt – it’s virtually impossible to get out of student loan debt. According to FinAid.org, there is an estimated $730 billion in outstanding federal and private student-loan debt, and only 40% of that debt is actively being repaid.

In these tough economic times – where salaries are reduced, layoffs are increasing, and job openings are difficult to find – many graduates are feeling the weight of their student loan debt and finding it difficult to repay. Here are some ideas on how to handle your student loans outside of bankruptcy:

Study your loan to make sure you understand the exact terms and what is expected of you. Then examine your budget and figure out what you can realistically afford to pay each month. Once you know what your budget will allow, familiarize yourself with your options for repayment.

There are several options you can look into depending on your circumstances. You can work with your lender to modify your repayment plan. If the terms of your student loan need to be revised, contact your lender once you know the specific modifications to ask for. Some lenders will let you pay less at first, and then pay more each month which is helpful if you’re expecting to have more money in the future. If your loans are through the Federal Government, you can see your choices at the Federal Direct Loan web site found here: http://www2.ed.gov/offices/OSFAP/DirectLoan/index.html.

Some lenders allow you to defer your student loan payments for various reasons. For example, if you go back to school, work in certain fields, or are unemployed, you may qualify for deferment. But be aware that interest will likely accumulate while your payments are deferred.

If you are can prove financial hardship, you can apply for forbearance, which means you may be able to make reduced payments or suspend payments completely. Just like with deferment however, interest is likely to accumulate.

Another option is consolidation, which allows you to make a single payment each month and can potentially lower interest rates. It is important to know the exact terms and penalties of consolidation.

What happens to my car when I file bankruptcy?

When you file for bankruptcy, what happens to your car differs depending on what chapter bankruptcy you file for (Chapter 7 or Chapter 13).

bankruptcy-and-your-car

Chapter 7 Bankruptcy and Your Car

If you file for Chapter 7 bankruptcy, filers are offered a complete discharge of many unsecured debts. Your car loan is considered a secured debt because it’s attached to property. If you file for Chapter 7 bankruptcy, you have these three options for your car loan:

You can redeem your car where you would make one lump sum payment to your creditor for the car’s current fair market value. If you can afford to make this payment, it’s a good option because you’ll have eliminated car payments and it may make life easier in the future.

However, most people who file for bankruptcy are low on cash, so it is not possible to make one lump sum payment. Another option is to reaffirm your car loan, which allows you to continue to make payments as you did before you filed for Chapter 7 bankruptcy. When you reaffirm your debt, you are agreeing to make payments according to a schedule agreed upon by you and your creditor.

If your financial situation does not allow you to continue making payments or redeem your car, or if you owe more on your car than it’s currently worth, then surrendering your vehicle is the next option. You can also choose to surrender your car to your creditor and have the remainder of your debt discharged.

Chapter 13 Bankruptcy and Your Car

If you file for Chapter 13 bankruptcy, what happens to your car depends on when you purchased it.

Your car is considered a newer car if you purchased your car within 910 days of your bankruptcy filing. If your car is newer, then you are required to pay the full value of the car loan, though it’s possible your interest rate may be reduced.

Your car is considered an older car if you purchased it more than 910 days before your bankruptcy filing. If your car is older, then you are only required to repay the car’s current fair market value.