Posted by Kevin on June 28, 2017 under Bankruptcy Blog | 
Here are 3 scenarios where a debtor tries to save his or her home. When is Chapter 7 “straight bankruptcy” enough, and when do you need Chapter 13 “adjustment of debts”?
Scenario #1: Current on Your Home Mortgage(s), Behind on Other Debts
Chapter 7: Would likely discharge (legally write off) most if not all of your other debts, freeing up cash flow so that you can make your house payments. Stops those other debts from turning into judgments and liens against your home.
Chapter 13: Same benefits as Chapter 7, plus often a better way to deal with many other special debts, such as income taxes, back support payments, and vehicle loans. May be able to “strip” (permanently get rid of) a 2nd or 3rd mortgage, so that you would not have to make that monthly payment, and paying little or nothing on the balance during the case and then discharging any remaining balance at the successful completion of your case.
Scenario #2. Not Current on Home Mortgage(s) But Only a Few Payments Behind & No Pending Foreclosure
Chapter 7: May buy you enough time to get current on your mortgage, if you’ve slipped only two or three payments behind. Most mortgage companies and their servicers (the people you actually interact with) will agree to give you several months—generally up to a year—to catch up on your mortgage arrearages. Generally called a “forbearance agreement”—lender agrees to “forbear” from foreclosing as long as you make the agreed payments. Works only if you have an unusual source of money (a generous relative or a pending legal settlement that’s exempt from the other creditors), or if filing Chapter 7 will stop enough money going to other creditors so you will have enough monthly cash flow to pay off the mortgage arrearages quickly.
Chapter 13: Even if only a few thousand dollars behind on your mortgage, you may not have enough extra money each month after filing a Chapter 7 case to catch up quickly on that mortgage arrearages. If lender is inflexible about giving you more time to catch up, a Chapter 13 case forces them to accept a much longer period to do so—three to five years.
Scenario #3. Many Payments Behind on Your Mortgage(s):
Chapter 7: Not helpful here. Buys at best only two to three months or so. Also, no possibility of “stripping”a 2nd or 3rd mortgage.
Chapter 13: Assumes that you can at least make the regular mortgage payment consistently, along with the arrearages catch-up payments. As stated above, gives you up to five years to pay off the mortgage arrearages, Your home is protected from foreclosure as long as you maintain the agreed Chapter 13 Plan and mortgage payments. Does not enable you to reduce the first mortgage payment amount, although in some situations you may be able to “strip” your 2nd or 3rd mortgage.
In my 30+ years of experience as a bankruptcy attorney, have seen Scenario #1 only once (was a close friend and he is still in his home). Usually see Scenario #3 because most debtors do not seek counsel until they are really “in the hole”. Be smart. When things start to go south, call an experienced bankruptcy attorney to learn your options.
Posted by Kevin on June 20, 2017 under Bankruptcy Blog |
Can you really keep everything you own if you file bankruptcy? The Answer: Usually Yes.
Some basics.
There are two basic types of consumer bankruptcies. Chapter 7 is an asset based approach. The Chapter 7 trustee sells your “non-exempt” property and pays your creditors. Chapter 13 is an income based approach where you generally keep your assets but have to make payments to your creditors over a 36-60 month period.
There are two types of creditors: secured creditors (they took collateral as a condition of granting you credit, and can look to the collateral to be paid even after the bankruptcy), and unsecured creditors (basically no collateral).
The purpose of bankruptcy is to give an honest debtor a fresh start. That means that most, if not all, of your debts are discharged, and you can keep all or most of your property.
Now how is that accomplished.
In a Chapter 13, as stated above, you keep the property you want to keep in exchange for making payments over the term of 36-60 months.
In a Chapter 7 “straight bankruptcy,” your debts are discharged—legally written off forever—in return for you giving your unprotected assets to your creditors (as represented by the bankruptcy trustee). But here is the good part: for most people, all or most of their assets ARE protected, or “exempt.” from the trustee and your creditors. Why? The fresh start.
Property Exemptions- The Basics
- The Bankruptcy Code has a set of federal exemptions, and each state also has its own exemptions. In some states you have a choice between using the federal exemptions or the state exemptions, while in other states you are only permitted to use the state exemptions. In New Jersey, we can use either. In many states, choosing which of the two exemption schemes is better for you is often not clear. However, in New Jersey, debtors generally use the federal exemptions. Why? Because many of the New Jersey exemptions were created by statute about 100 year ago or more, and were not adjusted for inflation. Moreover, New Jersey has no homestead exemption.
- If you have moved relatively recently from another state, you may have to use the exemption rules of your prior state. Because different state’s exemption types and amounts can differ widely, thousands of dollars can be at stake depending on when your bankruptcy case is filed.
- In some circumstances, it is not clear how the federal exemptions will be applied. What if you own a car and you owe $10,000 on your car loan. Clearly, the bank (secured lender) has an interest as do you. But, the trustee also may be able to make a claim to part of the value to the car, and sell it.
Navigating through exemptions can be much more complicated than it looks, and is one of the most important services provided by your bankruptcy attorney. It can maximize the amount of property you keep after receiving your bankruptcy discharge.
Posted by Kevin on June 15, 2017 under Bankruptcy Blog |
Bankruptcy is about Discharge
The point of bankruptcy is to get you a fresh financial start through the legal discharge of your debts.
Both kinds of consumer bankruptcy—Chapter 7 “straight bankruptcy” and Chapter 13 “adjustment of debts”—can discharge debts.
This blog post focuses on Chapter 7 discharge of debts.
What Debts Get Discharged?
Is there a simple way of knowing what debts will and will not be discharged in a Chapter 7 case?
Yes and no.
We CAN give you a list of the categories of debts that can’t, or might not, be discharged (see below). But some of those categories are not always clear which situations they include and which they don’t. Sometimes whether a debt is discharged or not depends on whether the creditor challenges the discharge of the debt, on how hard it fights for this, and then on how a judge might rule.
Why Can’t It Be Simpler?
Laws in general are often not straightforward, both because life can get complicated and because laws are usually compromises between competing interests. Bankruptcy laws, and those about which debts can be discharged, are the result of a constant political tug of war between creditors and debtors. There have been lots of compromises, which has resulted in a bunch of hair-splitting laws.
Rules of Thumb
Here are the basics:
#1: All debts are discharged, EXCEPT those that fit within a specified exception.
#2: There are quite a few of exceptions, and they may sound like they exclude many kinds of debts from being discharged. It may also seem like it’s hard to know if you will be able to discharge all your debts. But it’s almost always much easier than all that. As long as you are thorough and candid with your attorney, he or she will almost always be able to tell you whether you have any debts that will not, or may not, be discharged. Most of the time there are no surprises.
#3: Some types of debts are never discharged. Examples are child or spousal support, criminal fines and fees, and withholding taxes.
#4: Some other types of debts are never discharged, but only if the debt at issue fits certain conditions. An example is income tax, with the discharge of a particular tax debt depending on conditions like how long ago those taxes were due and when its tax return was received by the taxing authority.
#5: Some debts are discharged, unless timely challenged by the creditor, followed by a judge’s ruling that the debt met certain conditions involving fraud, misrepresentation, larceny, embezzlement, or intentional injury to person or property.
#6: A few debts can’t be discharged in Chapter 7, BUT can be in Chapter 13. An example is an obligation arising out of a divorce other than support (which can never be discharged).
The Bottom Line
#1: For most people the debts they want to discharge WILL be discharged. #2: An experienced bankruptcy attorney will usually be able to predict whether all of your debts will be discharged. #3: If you have debts that can’t be discharged, Chapter 13 is often a decent way to keep those under control.
Posted by Kevin on June 9, 2017 under Bankruptcy Blog |
How does bankruptcy stop garnishments, foreclosures, and repossessions?
Filing a bankruptcy case gets immediate protection for you, for your paycheck, for your home, and for all your possessions. This “automatic stay” provides this kind of protection for you and your property the moment either a Chapter 7 “straight bankruptcy” case or a Chapter 13 “adjustment of debts” case is filed. Virtually all efforts by all your creditors against you or anything you own comes to an immediate stop.
“Automatic Stay” = Immediate Stop
“Stay” is simply a legal word meaning “stop” or “freeze.”
“Automatic” means that this “stay” goes into effect immediately upon the filing of your bankruptcy petition. That filing itself, according to the federal Bankruptcy Code, “operates as a stay” of virtually all creditors’ actions to pursue a debt or take possession of collateral. Since the filing of your case itself imposes the stay, there is no delay or doubt about whether a judge will sign an order to impose the “stay” against your creditors.
Creditors Need to Be Informed, Sometimes Directly
Although the protection of the “automatic stay” is imposed instantaneous, practically speaking your creditors need to be informed about the filing of your case so that they are made aware that they must comply with it. If your creditors are all listed in your bankruptcy case documents, they should all get informed by the bankruptcy court within about a week or so after your case is filed. This doesn’t take any additional action by either you or your attorney (beyond making sure all of your creditors are listed in the schedule of creditors filed at the bankruptcy court). If you have no reason to expect any action against you by any of your creditors before that, just letting them all be informed by the court is usually all that’s needed.
However, if you are expecting some action by any of your creditors quicker than a week or so after filing the case, be sure to talk with your attorney about it. That way any such creditor can be directly informed by about your bankruptcy filing to stop whatever collection action it was contemplating. Make sure you and your attorney are clear which of you is informing that creditor and in what way.
Creditor Action Taken Unexpectedly
But what if a creditor has not yet been informed of your bankruptcy filing when it takes some action against you or your property in the days after your bankruptcy filing but before it finds out about it?
If this happens, the “automatic stay” is so powerful that in most circumstances such a creditor must undo whatever action it took against you after your bankruptcy was filed, even if this creditor honestly did not yet know about your filing. For example, if after your bankruptcy is filed a creditor files a lawsuit against you or gets a judgment on a lawsuit that it had filed earlier, the creditor must dismiss (throw out) its lawsuit or vacate (erase) the judgment.
Posted by Kevin on June 7, 2017 under Bankruptcy Blog |
Chasing a Discharged Debt is a Violation of Federal Law
The Bankruptcy Code makes it perfectly clear that for a creditor to try to collect on a debt after it is discharged under either Chapter 7 “straight bankruptcy” or Chapter 13 “adjustment of debts” is illegal. Section 524 of the Bankruptcy Code is about the legal effect of a discharge of debt. Subsection (a)(2) of that section says that a discharge of debts in a bankruptcy “operates as an injunction against” any acts to collect debts included in that bankruptcy case. Acts explicitly stated as illegal include:
the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor.
In other words, the creditor can’t start or continue a lawsuit or any legal procedure against you, and can’t act in any other way to collect the debt.
What If a Creditor Violates This Injunction?
Nowhere in Section 524 of the Code does it say anything about what happens if a creditor violates the law by disregarding that injunction. The section does not clearly say what, if anything, the penalties are for a creditor caught doing so.
However, even though no penalties are specified in THAT section, there is a strong consensus among courts all over the country that bankruptcy courts can penalize creditors for violating the discharge injunction through another section of the Bankruptcy Code, Section 105, titled “Power of Court.” The idea is that the injunction against pursuing a discharged debt is a court order, and so a creditor violating it is in contempt of court. So the usual penalties for those who act in civil contempt of court apply.
Penalties Assessed Against Violating Creditors
These penalties for civil contempt can include “compensatory” damages and “punitive” damages.
Compensatory damages are intended to compensate you for harm you suffered because of the creditor’s violation of the injunction. These potentially include actual damages such as time lost from work or other financial losses, emotional distress caused by the illegal action against you, and attorney fees and costs you’ve incurred as a result.
Punitive damages are to punish the creditor for its illegal behavior. So the judge looks at how bad the creditor’s behavior was in determining whether punitive damages are appropriate and how much to award.
Conclusion
The vast majority of the time creditors in a bankruptcy case write the debts off their books and you never hear about those debts again. But even though it’s illegal for creditors to try to collect on a debt that’s been legally written off in bankruptcy, once in a while they do try. Some creditors don’t keep good records or simply aren’t all that serious about following the law.
So after you receive your bankruptcy discharge, if you hear from one of your old creditors trying to collect its debt contact your attorney right away. This needs immediate attention. If the creditor’s behavior is particularly egregious, you and your attorney should discuss whether to strike back at the creditor for violating the law. There might possibly even be some money in it for you.
