Archive for 'Bankruptcy'
Cram-downs and the Hanging Paragraph
Posted on 17. Nov, 2009 by emmettjones.
One of the largest advantages of a Chapter 13 bankruptcy is that you are able to “cram-down” the value of your car in bankruptcy, assuming you meet the correct criteria. The criteria itself? It’s found in the “hanging paragraph” of the bankruptcy code. Section 1325(a)(*) of the bankruptcy code is dubbed as the hanging paragraph in large part because Congress delegated the re-writing of the bankruptcy code to the credit card industry, before jumping in to write one section…and failing to name it, or proof read it, depending on the attorney you ask. It provides the following,
For the purpose of paragraph [1325(a)](5), section 506 shall not apply to a claim described in that paragraph if the creditor has a purchase money security interest securing the debt that is the subject of the claim, the debt was incurred within the 910-day [period] preceding the date of the filing of the petition, and the collateral for the debt consists of a motor vehicle (as defined in section 30102 of title 49) acquired for the personal use of the debtor, or if collateral for the debt consists of any other thing of value, if the debt was incurred during the 1-year period preceding that filing.
Congress has a way with words, don’t they?
For purposes of this discussion all you need to know is a debtor’s ability to “cram-down” a motor vehicle (instead of paying the entire amount owed on a loan, the debtor would pay the fair market value of the motor vehicle at the time of bankruptcy filing) is constrained by the need to have owned the motor vehicle for at least 910 days prior to the bankruptcy filing, and that the vehicle was purchased for the personal usage of the debtor.
Of course, this brings a myriad of other questions into focus…
Can I prove the vehicle was purchased for non-personal (business) usage?
Can I prove the vehicle was purchased for a spouse’s usage? Or one of my children?
Might a cram down situation make a Chapter 13 more appealing than a Chapter 7?
These and other questions vary from person to person. Every situation is different! I would suggest speaking with a bankruptcy attorney to help you through the ins and outs of bankruptcy law to ensure your bests interests are kept in mind.
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Bankruptcy: Discharge versus Dismissal
Posted on 16. Nov, 2009 by emmettjones.
Bankruptcy cases usually end one of two ways. Debtors either receive a discharge, or they receive a dismissal.
So…which one is good and which one is unwanted?
A discharge in bankruptcy occurs at the end/completion of your bankruptcy proceedings. It is the bankruptcy discharge that takes away your obligation to pay back outstanding debts as a debtor, and takes away the creditors rights to enforce the debt against you.
Bankruptcy dismissals on the other hand, usually deal with either a misstep procedurally (i.e. the entire bankruptcy petition was not completed in time, leading to a dismissal) or a failing within the bankruptcy process itself (i.e. debtor fails to make their chapter 13 plan payments). Dismissals are important because it means that the automatic stay protection, that is granted to a debtor when a bankruptcy is initially filed, has ended. Creditors will now have the chance to enforce all of the remedies they had available prior to the bankruptcy filing (foreclosures, lawsuits, etc.).
Another point to remember with a dismissal is that there are two types of dismissals, “with prejudice or without prejudice”. When your bankruptcy case is dismissed “without prejudice” you have the option of refiling your case, and can petition the court for a new grant of protection under the automatic stay. Debtors who’s cases dismissed “with prejudice” are precluded from filing another bankruptcy proceeding for 180 days. More than enough time to create a very daunting situation if your creditors had already brought a complaint in foreclosure prior to the bankruptcy filing. Although judges do like to err on the side of caution when dismissing a case “with prejudice”, one has to remember that bankruptcy is a very important tool that can carry serious consequences when used improperly.
So, to answer the question? Bankruptcy discharges are great. Dismissals? you may want to consult your lawyer and discuss your options.
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Refinancing in Bankruptcy
Posted on 31. Mar, 2009 by emmettjones.
Refinancing is generally defined as a replacement of an existing debt with a new debt that has different (usually better) terms. People use refinancing or a “re-fi” for a myriad of different reasons; using extra money to pay off credit card debt, turn adjusted rate mortgages into fixed rate mortgages, consolidation of loans, etc. But what about those people who have already filed bankruptcy and are already repaying or having their credit card debt discharged? Can they refinance as well? And is there any purpose to refinancing?
Yes. and Yes.
It is possible to refinance your home mortgage while in bankruptcy as long as you have PRE-APPROVED COURT APPROVAL. The refinancing process is generally the same, with your bankruptcy attorney initially filing a motion requesting refinancing (containing pertinent information like lender’s name, amount financed, etc.), a hearing on that motion and then a court decision sometime after that hearing which would either grant or deny the motion filed by your attorney. The process is approximately 45 to 60 days long (at least in the Western District of Pennsylvania), so attempting to refinance is obviously going to take some advance planning on the part of the debtor and the attorney, lest the lender take their offer off the table.
Refinancing in Chapter 7
Due to the relatively short length of most Chapter 7 cases, refinancing while in a Chapter 7 is fairly unlikely. As I mentioned before, the entire process of receiving court approval could take roughly two months, which is approximately half the time spent in the bankruptcy. Furthermore, once the re-fi is approved, the lender has paperwork that needs to be signed, disclosures to send out, etc. hold-up’s that usually make the hassle of even attempting to receive refinancing in a Chapter 7 a less than worthwhile option.
Refinancing in Chapter 13
Refinancing in a Chapter 13 is a much more likely scenario, and usually occurs a few years after the case has began. Refinancing in Chapter 13 bankruptcies is usually used to pay off a Chapter 13 plan (the same way it would be used to pay off credit card debt) or to fix mortgage rates and potentially lower Chapter 13 plan payments.
In the end, yes, it is certainly possible to refinance while in bankruptcy. So, the next time your Chapter 13 plan payments are becoming unbearable and you have some equity in your property, don’t rule out the possibility of a refinancing; go and discuss the situation with your attorney. For those Chapter 7 debtors? You only have to play the waiting game for about 6 months or so, then refinancing will be available to you as well.
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The Automatic Stay, Repossessions, Shut-off Notices, and Foreclosures
Posted on 27. Mar, 2009 by emmettjones.
Foreclosure rates are skyrocketing. Many employees have received pay-cuts, or lost their jobs entirely, making day-to-day living more difficult than it has ever been. Many are in danger of having vital utility services turned off, or losing their homes altogether. How does bankruptcy fit into these situations?
The Automatic Stay.
Although many people are afraid to file for bankruptcy because of the stigma that is attached to it, bankruptcy is actually a financial tool devised by the government to help those who are unable to financially help themselves. The reach of bankruptcy does not just apply to those who are in credit card debt, it also applies to those with other financial situations, such as those listed above. If nothing else, the bankruptcy code is designed to help people, not hurt them.
One provision that is of extreme importance to debtors is that of the automatic stay. The automatic stay is a bankruptcy provision that is activated as soon as a debtor files for bankruptcy, regardless of the chapter. In the simplest terms, the automatic stay freezes any action that any creditor could bring against you or has already brought against you. So, that electricity shut-off notice requiring you to pay money by next Friday? Its stopped. Have a pending sheriff sale on your house next month? Not anymore. About to have your car repossessed for not making payments? I don’t think so. Debtors who are in bankruptcy and under the protection of the automatic stay cannot be touched by creditors WHILE THEY ARE UNDER THE PROTECTION OF THE STAY.
So, the next time you receive a call regarding repossession of your vehicle, or you are unable to work out any sort of loan modification with your mortgage company, remember the automatic stay. Although every situation is different, maybe filing for bankruptcy can buy you the extra time needed to delay your sheriff sale, or save your car from being repossessed.
NOTE: As with everything on this site, it is important to discuss matters such as the automatic stay with a licensed bankruptcy attorney. Depending on your situation it is possible to lose automatic stay protection, or to only have said protection for a limited amount of time. Consult with an attorney about your particular situation to determine the best option for you.
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Bankruptcy and Cosigners Liability
Posted on 25. Mar, 2009 by emmettjones.
Because every situation is different, and certainly some are more complicated than others, not every bankruptcy is cut-and-dry. This post looks at the liability of the cosigner if the primary borrower files for bankruptcy.
Co-signers and Chapter 7 Bankruptcy
Chapter 7 debtors who file for, and complete their bankruptcy proceedings typically have all of their unsecured debts discharged. But what happens to the co-signer, on credit card debt, for example, who signed a contract saying that they would pay in the event that the initial borrower was unable to pay?
Simply put, they are now liable for the debt.
The contract initially signed by the co-signer stated that they would assume liability for the debt in the event that the primary borrower couldn’t pay. The fact that the primary borrower has had their obligation to pay the debt extinguished does nothing more than trigger the liability of the co-signer on the remaining portion of the debt. Technically, the creditor can demand money from the co-signer immediately after finding out that the primary borrower has filed a Chapter 7 bankruptcy.
Co-signers and Chapter 13 Bankruptcy
Co-signers fare far better in a Chapter 13 bankruptcy. In a Chapter 13, co-signers are protected as long as the debt in question is a consumer debt (i.e. not a business expense), and the co-signer cannot benefit from the proceeds of the debt. If those conditions are met, and the debtor remains in a Chapter 13 bankruptcy, creditors are not allowed to go after the co-signer for any portion of any debt upon which they’d otherwise be liable.
Now, it is important to note that if a debtor’s Chapter 13 plan does not allot for a repayment of all of a debtor’s debts, those debts are discharged at the end of the case. (i.e. if the debtor has accrued $100,000 worth of credit card debt, but, based on their Chapter 13 plan, they can only pay back $60,000, the obligation to pay the remaining $40,000 is discharged at the end of the bankruptcy) Cases such as these put the co-signer in a situation akin to the Chapter 7 example; they would be liable for any portion of the debt that was not paid off, and the creditor could demand payment from them once the debtor’s Chapter 13 bankruptcy had concluded.
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Frequently Asked Questions (Bankruptcy)
Posted on 12. Mar, 2009 by emmettjones.
If most debtors had the option, they would choose to file a Chapter 7 bankruptcy as opposed to a Chapter 13. Why isn’t that option available to everyone?
Debtors that have disposable income are usually unable to file a Chapter 7 bankruptcy. In part because the bankruptcy trustee is unwilling to let the debtor keep a portion of their month to the detriment of their unsecured creditors. Another factor that must be examined is whether or not the debtor passes the MEANS TEST. Debtors that fail the means test automatically have a presumption of abuse of the Chapter 7 code which must be rebutted before a Chapter 7 discharge can be obtained, so the failing of the MEANS TEST will impact on determining which chapter of bankruptcy is filed.
How long does a bankruptcy filing stay on my credit report?
Bankruptcy filings typically stay on your credit report for somewhere between 6-10 years. Typically a Chapter 7 filing will stay on your credit report for the 10 years, while a Chapter 13 typically appears on your credit report for seven years, which is usually done as a small reward for paying back some of your debts versus having all of your debts liquidated.
What’s a reaffirmation agreement, and why does my creditor want me to sign one?
The easiest way to explain a reaffirmation agreement is to consider it as a new contract between a debtor and a creditor, after a debtor has filed bankruptcy. Technically, when a bankruptcy is filed, the debtor is placed on a path to have their obligation to pay back their debts extinguished. Meaning that you technically won’t have an obligation to pay your car payment, for example (NOTE: If you want to keep your car, you still need to make the payments as usual, it is just the obligation to make the payments, created when you signed the car contract, that is extinguished). This becomes highly important if you live in a state that allows deficiency judgments. A quick example, below.
Debtor’s Car Value = $20,000
Amount owed = $16,000
—-> Fast forward to 6 months after the debtor has received their bankruptcy discharge —->
Assume that that the debtor cannot make the payments and the car is repossessed. After repossession the car would be sold at an auction.
Vehicle proceeds at auction = $4,000
Deficiency Balance (difference between amount owed and the amount received for the vehicle sale) = $12,000.
Debtors that signed a reaffirmation agreement before their bankruptcy case was completed would owe the $12,000 deficiency judgment based on the above example. Debtors that did not sign the reaffirmation agreement would not be obligated to pay the $12,000 deficiency. (NOTE: Amendments to the bankruptcy code in 2005 now require debtors to sign and file reaffirmation agreements, although this rule is not followed in every location. You should check with an attorney in your area to find out the rules for your location).
Can I obtain credit while in bankruptcy?
While not approved in every situation, debtors can obtain credit while in bankruptcy, as long as they have court approval. If you feel that you need to obtain financing, contact your attorney so that you may discuss the situation more thoroughly.
What if I can’t make my Chapter 13 plan payments?
Debtors that cannot make their Chapter 13 plan payments have a few options. Depending on the situation, they may be able to have their Chapter 13 plan amended; either in length, or in monthly payment amount. They also may have the ability to convert their case to a Chapter 7. Finally, they may also have the case voluntarily or involuntarily dismissed. (NOTE: deciding to amend a case or convert a case is a complex matter which should be discussed between you and your attorney. It is not guaranteed that you will not lose some of your assets upon conversion or amendment of your bankruptcy proceeding. If you feel that you cannot make your Chapter 13 plan payments, contact your attorney immediately).
Can I refinance my home while in bankruptcy?
Yes. Read the post “Refinancing in Bankruptcy” for more information.
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Chapter 7
Posted on 12. Mar, 2009 by emmettjones.
Chapter 7 is typically known as the “liquidation” bankruptcy. The liquidation refers to the liquidation of unprotected assets in order to pay off a debtor’s debts (NOTE: depending on the assets you have, you may not lose any of your assets with a Chapter 7 filing. Schedule a consultation with an attorney to discuss your particular situation). In a Chapter 7, debtors are usually not required to pay back any portion of the unsecured debt which they owe, barring special circumstances such as an extremely high amount of equity in their property, or a violation of the bankruptcy code, preventing the debtor’s discharge. Under the current bankruptcy provisions, debtors are able to file for and receive a Chapter 7 discharge every eight years.
The chapter 7 process is approximately 6 months long, and during that time the debtor(s) is not required to pay back any portion of their unsecured debt (assuming that the debtor has not violated the bankrutpcy code and is completing the case properly). Debtors are usually able to keep their homes and vehicles, assuming they can stay current on the payments before and during the bankruptcy, and that they do not have an overabundance of equity in the property.
Chapter 7, your credit score, and credit report
A Chapter 7 discharge stays on a debtor’s credit report for somewhere between six to ten years. Which means that if you received a discharge today, and checked your credit report 7 years from now, the fact that you filed a bankruptcy would still be shown on the report. The more important issue though, seems to be those matters related to a debtors credit score and the ability to obtain credit after bankruptcy. Obviously, when a bankruptcy is filed, the debtor’s credit score is going to drop dramatically, but it does not necessarily preclude the debtor from obtaining credit in the future. Part of a lenders’ determination of credit-worthiness is an examination of the borrowers current debt. In normal Chapter 7 cases a borrowers unsecured debts are completely discharged, making their ability to obtain after-bankruptcy credit a very realisitic goal.
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Chapter 13
Posted on 12. Mar, 2009 by emmettjones.
Chapter 13 is typically known as the “reorganization” bankruptcy. The reorganization usually applies to the debtor’s secured and unsecured debts. In a Chapter 13, debtors are put into a plan that looks to pay back only a portion of what is owed to their unsecured creditors, while either continuing to keep current on their secured debts or a combination of catching up on any arrearages they may have while continuing to stay current. Under the current bankruptcy provisions, a debtor can file a Chapter 13 bankruptcy as often as needed, as long as those bankruptcy filings are filed in good faith.
A Chapter 13 bankruptcy typically lasts in between 3-5 years, with the debtor having paid any sort of arrearages on secured debt and receiving a discharge from any unpaid unsecured debt. Assuming the debtors stay current on their Chapter 13 plan payments, they are able to keep their house, vehicle, and other property.
Chapter 13, your credit score, and your credit report
A completed Chapter 13 bankruptcy typically stays on a debtor’s credit report for seven years and up to ten years. Which means that if you received a discharge today, and checked your credit report 8 years from now, the fact that you filed a bankruptcy would probably not be shown on your credit report. The more important issue though, seems to be those matters related to a debtors credit score and the ability to obtain credit after bankruptcy. Obviously, when a bankruptcy is filed, the debtor’s credit score is going to drop dramatically, but it does not necessarily preclude the debtor from obtaining credit in the future. Part of a lenders’ determination of credit-worthiness is an examination of the borrower’s current debt. In normal Chapter 13 cases a borrower’s unsecured debts are either discharged or paid off, at the end of the case, so obtaining credit is certainly not an impossibilty. In fact, many debtors are actually able to obtain credit even during their Chapter 13 bankruptcy, pending court approval of financing.
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341 Meeting
Posted on 12. Mar, 2009 by emmettjones.
The bankruptcy meeting of creditors, (sometimes called the “Creditors Meeting” or “341 Meeting”) is a meeting that occurs between the debtor(s), their attorney, the bankruptcy trustee, and the creditors of the debtor(s). The meeting occurs approximately 4-6 weeks after the debtor(s) petition has been filed, and it is primarily used to determine whether or not the debtor is in the correct bankruptcy chapter, whether the debtor has any unprotected assets that can be sold for the benefit of the bankruptcy estate, and as a forum for any creditors that have issue with the debtors bankruptcy petition or their future bankruptcy discharge.
Meeting of Creditors Process
The meeting of creditors typically begins with the debtor presenting two forms of identification to the trustee (photo identification and proof of the debtor(s) social security number) to prove their identity. Debtors are then sworn in by the trustee, and then asked to state their names and address for the record (*Note: everything during the meeting of creditors is tape recorded, so debtor(s) will need to speak loudly and clearly). Once the formalities are finished, the trustee then questions the debtor(s) on their debtor(s) bankruptcy petition. Sample Questions are listed below:
- Did you have a chance to read, review, and understand the bankruptcy information sheet provided by the United States Trustee’s Office
- Did you review all of the schedules of the petition and did you sign the bankruptcy petition?
- Are there any changes or amendments to the petition that need to be made at this time?
- Have you filed bankruptcy previously? And if so, when?
- Have you filed all of your federal income taxes that are due?
- Have you lived in the state in which your petition is being filed for at least the two years prior to the petition being filed?
- Have you transferred any property (sold or given away assets) to anyone in the last 5 years?
- Have you had any property repossessed in the last 2 years other than what would already be listed on your bankruptcy petition?
- Are you expecting to receive anything of value in the next 6 months other than your income as listed on your bankruptcy petition?
- Do you currently owe a child support or alimony obligation? (*Note: if you do owe an obligation, you will probably have to state the name and address of the person to whom you pay child support)
- Are you aware of any lawsuits (in which you are plaintiff or defendant) other than what would already be listed on your petition?
- Why did you file bankruptcy? (*Note: the four common responses to this question are overspending, loss of income, medical reasons, or divorce)
Please note that the questions will differ slightly between Chapter 13 and Chapter 7 bankruptcy candidates. Expect the meeting of creditors to typically run 5-15 minutes long, and possibly longer depending on the complexity of your case, and the number of creditors that show to the meeting.
More questions about the meeting of creditors, or looking to file bankruptcy in the Western Pennsylvania (Pittsburgh) area? Use the contact page to schedule a free consultation.
