Posted by Kevin on September 1, 2019 under Bankruptcy Blog | 
First, let’s review the different types of debts in bankruptcy.
Secured debts are collateralized usually by your home, your car or your truck, maybe your furniture and appliances. Priority debts are ones that are usually not secured but are favored in various ways in the bankruptcy law. For most consumer debtors, they include child and spousal support, and certain taxes.
The remaining debts are called general unsecured debts. Think credit cards and medical bills. What do all these debts have in common-no collateral attached to these debts and not given a favored (priority) position under the law.
In most Chapter 7 bankruptcies, the vast majority of debts are general unsecured debts. In Chapter 7 bankruptcy, most general unsecured debts are legally, permanently written off. The legal term is “discharged”. That means that once they are discharged—usually about 3-4 months after your case is filed—the creditors can take absolutely no steps to collect those debts.
The only way general unsecured debts can be paid anything is if either 1) the debt is NOT dischargeable or 2) it is paid (in part or in full) through an asset distribution in your Chapter 7 case.
1) “Dischargeability”
A creditor can dispute your ability to get a discharge of your debt. In the rare case that the discharge of one of your debts is challenged, you may have to pay that particular debt. That depends on whether the creditor is able to establish that the facts fit within the narrow grounds for an exception to dischargeability. This usually involving allegations of fraud, misrepresentation or other similar bad behavior on your part. If the creditor fails to establish the necessary grounds, the debt is discharged.
There are also some general unsecured debts that are not discharged unless you convince the court that they should be, such as student loans. The grounds for discharging student loans are quite difficult to establish. Check /http://studentdebtnj.com/ for more detailed information relating to your student loans.
2) Asset Distribution
In order for a debtor to get a fresh start, the Bankruptcy Code allows a debtor to exempt certain property. That means you keep that property. If everything you own is exempt, or protected, then your Chapter 7 trustee will not take any of your assets from you. This is what usually happens—you’ll hear it referred to as a “no asset” case. But if the trustee DOES take possession of any of your assets for distribution to your creditors—an “asset case”— your “general unsecured creditors” may receive some of it. The trustee must first pay off any of your priority debts, as well as pay the trustee’s own fees and costs. Whatever remains goes to the unsecured creditors on a pro rata basis.
Conclusion
In most Chapter 7 cases your general unsecured debts will all be discharged and, most of the time, general unsecured creditors will receive nothing from you. Rarely, a creditor may challenge the discharge of its debt. If the creditor is successful, you will still owe that debt after the close of the bankruptcy. And if you have an “asset case,” the trustee may pay a part, or in extremely rare cases, all of the general unsecured debts, but only after paying all priority debts and his or her fees and costs.
Posted by Kevin on September 20, 2018 under Bankruptcy Blog |
Over the years, I have received numerous phone calls from people who have tried to file a bankruptcy by themselves (known as “pro se” debtors) and have gotten into trouble. I also see first hand what happens when people file without an attorney when I attend “meetings of creditors”, also known as 341a meetings. A 341a meeting is the usually straightforward, usually short meeting with the bankruptcy trustee that everyone filing bankruptcy must attend. Unfortunately, with many pro se debtors, the 341a meeting is not always straightforward or short.
But I wondered whether anybody has actually investigated this question. In searching the internet, I came across a book published a few years ago titled Broke: How Debt Bankrupts the Middle Class. This book is a series of articles about current issues in bankruptcy. One such article is titled “The Do-It-Yourself Mirage: Complexity in the Bankruptcy System” by Professor Angela K. Littwin of the University of Texas School of Law. Professor Littwin analyzed data from the Consumer Bankruptcy Project, “the leading [ongoing] national study of consumer bankruptcy for nearly 30 years.” Her finding: “pro se filers were significantly more likely to have their cases dismissed than their represented counterparts.”
Very interestingly, she also learned from the data that
consumers with more education were significantly more likely than others to try filing for bankruptcy on their own, but that their education didn’t appear to help them navigate the process. Pro se debtors with college degrees fared no better than those who had never set foot inside a college classroom.
She concluded that after bankruptcy law was significantly amended back in 2005 in an effort to discourage as many people from filing, “bankruptcy has become so complex that even the most potentially sophisticated consumers are unable to file correctly.”
Almost 10 Times More Likely to Get a Discharge of Your Debts
In another study, Prof. Littwin stated that “17.6 percent of unrepresented [Chapter 7 “straight bankruptcy”] debtors had their cases dismissed or converted” into 3-to-5-year Chapter 13 “adjustment of debts” cases. “In contrast, only 1.9 percent of debtors with lawyers met this fate.” Even after controlling for other factors such as “education, race and ethnicity, income, age, home ownership, prior bankruptcy, whether the debtor had any non-minimal unencumbered assets at the time of the filing,” “represented debtors were almost ten times more likely to receive a discharge than their pro se counterparts.”
The bottomline is that you are better off going to an experienced bankruptcy attorney.
Posted by Kevin on August 20, 2017 under Bankruptcy Blog |
You can usually get out of an ongoing Chapter 13 “adjustments of debts” bankruptcy case by simply asking to do so.
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Unlike Chapter 7, if you file a Chapter 13 case you can end it—“dismiss” the case—at any time, and in just about any circumstance. But why the difference?
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Explicit Right to Dismiss
Why can a Chapter 13 case be dismissed by the debtor? Because unlike with Chapter 7, Section 1307(b) of the Bankruptcy Code says so. And quite strongly.
“On request of the debtor at any time… the [bankruptcy] court shall dismiss a case under this chapter [13].”
Notice that the debtor can ask for a dismissal “at any time.” This implies that the request could come any time during the life of a Chapter 13 case, including when it might be particularly inconvenient for a creditor. Or whenever. Also notice that the court does not seem to have any discretion about whether or not to dismiss–it “shall” dismiss the case. Not “may” or “might” dismiss it, but “shall” do so.
An Absolute Right to Dismiss?
Actually there has been debate among bankruptcy judges about whether a court can ever prevent a Chapter 13 case from being dismissed on request of a debtor. And a number of judges have decided that in situations of serious abuse or fraud by the debtor, there are other provisions in the law that trump this section and prevent a Chapter 13 case from being dismissed. But still, in the vast majority of situations, a request by a debtor to dismiss a Chapter 13 case results in its near-immediate dismissal.
Why So Different Than Chapter 7?
But why does the Bankruptcy Code—the federal statute governing bankruptcy—provide for a right to dismiss a Chapter 13 case when it does not provide for Chapter 7 dismissal the same way?
Because (beyond the reasons given in the last blog related to Chapter 7) when Congress established the bankruptcy options, it wanted to encourage debtors to file Chapter 13 cases. This was in part so that they paid back at least some of their debts. Congress probably also recognized that filing a Chapter 13 case is generally riskier than filing Chapter 7. That’s mostly because it involves making payments diligently over the course of years, while not getting the reward of the discharge (legal write-off) of the debts unless successfully getting all the way to the end of it. To encourage taking on the risk of starting a Chapter 13 case, Congress made it easy to get out of it if things did not go as planned.
Posted by Kevin on August 3, 2017 under Bankruptcy Blog |
You can usually change from an ongoing straight Chapter 7 case into a Chapter 13 payment plan. But getting out of bankruptcy altogether is generally not allowed.
Most Chapter 7 cases are finished in about 3 months. For the most part, the bankruptcy trustee determines that everything you own is covered by property exemptions, so you get to keep it all—the trustee has “no assets for a meaningful distribution to the creditors.” You get your deb discharged and your case is closed. Not much time for your circumstances to change.
But sometimes things happen. Things do in fact change. Your uncle dies unexpectedly and even more unexpectedly you get a chunk of an inheritance. Or you find out you have an asset you didn’t know about. Or something you own is worth much more than you expected. Or you run up a major medical expense right after filing. So now you don’t want to be in the Chapter 7 case, or maybe not in that Chapter 7 case. What can you do?
Common sensically, you figure you can either end your case or switch it to some other kind of bankruptcy.
Dismissal of a Chapter 7 Case
But unlike Chapter 13, you don’t have a right to just end—“dismiss”—a Chapter 7 case.
Why not? You filed the case; why can’t you just end it?
Because the Bankruptcy Code does not give you that right. The theory is that if you submit yourself, and your assets, to the bankruptcy court in order to get the benefits you want from it—immediate protection from your creditors and a discharge (legal write-off) of all or most of your debts—then you’ve got to live with the consequences.
It’s as if you’ve created a new legal person—your “bankruptcy estate”—with the Chapter 7 trustee in charge of it. This new “person” does have a life of its own of sorts, and doesn’t disappear just because you change your mind.
That doesn’t mean you can’t ever get the court to dismiss your case. It just means that you have to have a really good reason. One that doesn’t just benefit you, but also your creditors.
Getting out of a Chapter 7 is a “depends-on-the-circumstances” situation. Honestly, having an experienced attorney at your side would be critical for knowing what to do if this kind of thing happened to you.
Conversion of a Chapter 7 Case
Changing your case from a Chapter 7 before it’s done into a Chapter 13 is much easier. The Bankruptcy Code says that the “debtor may convert a case under this chapter [7] to a case under chapter… 13… at any time, if the case has not been [already] converted… .” (Section 706(a).)
To do so, you do have to qualify for Chapter 13. Among other requirements, this means:
1) you can’t have more debt than certain limits—$394,725 in unsecured debts and $1,184,200 in secured debts (until these amounts are revised as of 4/01/13) (Section 109(e)); and
2) you must be an “individual with regular income,” meaning that your “income is sufficiently stable and regular to enable [you] to make payments under a [Chapter 13] plan.” (Sections 109(e) and 101(30).)
Whether or not you’d want to convert from Chapter 7 to Chapter 13 depends—naturally—on the circumstances. At first blush, changing from what you might have expected to be a three-month procedure into one that will likely take three years or more probably doesn’t sound so good. But if you are converting the case to preserve an asset, or to deal with a special creditor, Chapter 13 can be a very good tool for these purposes.
If either your financial circumstances significantly change after your Chapter 7 case is filed, or your case proceeds in an unexpected direction, Chapter 13 may have actually have been your better alternative at the outset. And if not, it can be a very sensible second choice.
Posted by on April 20, 2016 under Bankruptcy Blog |
Very rarely, the filing of a bankruptcy will NOT stop the creditors from chasing the debtor. Here’s how to avoid this happening to you.
The Essential “Automatic Stay”
In just about every bankruptcy case, stopping creditors from pursuing you and your assets is a crucial part of what you get for filing the case—regardless whether it’s a Chapter 7 or Chapter 13 case. This benefit of filing bankruptcy—called the “automatic stay”—generally applies to every case, to every creditor, and to just about to everything that a creditor can do related to collecting a debt.
Exceptions to the automatic stay are there, however, and can put you in a very bad position. About 2 weeks ago, I had a frantic telephone call from a homeowner who stated his house was being sold in three weeks. He was confused because he filed Chapter 13 and then he got notice of sale. He called the lender who refused to cancel the sale. After some questions, I discovered that this Chapter 13 filing was the second such filing in the last three months. The first Chapter 13 was dismissed for failure to file the schedules and plan.
BAPCPA, THE 2005 REVISIONS TO THE BANKRUPTCY CODE, PUT RESTRICTIONS ON THE AUTOMATIC STAY
Before BAPCPA, a very small minority of people filing bankruptcy would file a series of separate cases, one after another, with the intention each time of using the new “automatic stay” of each new case to repeatedly delay a foreclosure or some other collection action. Congress decided that this was an inappropriate use of the bankruptcy laws, and put a stop to it by taking away the benefit of the “automatic stay” as follows.
The Two Rules
The First Rule: The “automatic stay” WOULD NOT go into effect at all when filing a new case if within the past year you had filed two or more other bankruptcy cases, and those earlier cases had been dismissed. If this were to happen, the “automatic stay” COULD potentially still be applied to your case after filing but only by convincing the bankruptcy judge that you meet certain conditions.
The Second Rule: The “automatic stay” WOULD go into effect filing a new case if within the past year you had filed one other bankruptcy case, which was dismissed, BUT the “automatic stay” would expire after 30 days. Its expiration COULD be avoided, but only by convincing the bankruptcy judge that you meet certain conditions.
The conditions referred to above that you’d have to meet for imposing or preserving the “automatic stay” involve justifying why the previous case(s) was (were) dismissed and why the present case is being filed. (The details of these conditions are complicated and beyond what can be covered in this blog.)
Watch Out to Make Sure of No Prior Recent Bankruptcy
Be careful because sometimes people can file a bankruptcy case and have it dismissed without realizing or remembering what happened. For example, if someone files a bankruptcy case without an attorney, and somehow does not complete it, the case would get dismissed. Or is someone does hire an attorney and the case gets filed, because of some miscommunication the case could get dismissed. Either way, months later when this person wants to file bankruptcy he or she could not understand or recall that in fact a case did get filed and dismissed.
So…
Avoid this problem by thinking carefully about whether there is any possibility that a bankruptcy case was filed in your name in the past 365 days. And if it possibly happened, tell your attorney about it right away.
Posted by Kevin on April 10, 2015 under Bankruptcy Blog |
The appropriately criticized Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) tried to prevent perceived abuses of the bankruptcy laws in a number of ways. One of them you’ve probably not heard about and can give you a bad surprise if you stumble into it.
The Bad Surprise
Beside the legal write-off (“discharge”) of your debts, the other big benefit you usually get from filing bankruptcy is protection from your creditors. That legal protection is called the “automatic stay,” and prohibits creditors from pursuing you or your money or your other assets. It goes into effect the moment your bankruptcy case is filed, and lasts throughout the life of your case—the few months of a Chapter 7 case and the few years of a Chapter 13 case (unless a creditor files a motion and gets special court permission, the so-called creditor’s “relief from stay”).
But imagine filing a bankruptcy and getting no protection at all from your creditors. Being in a bankruptcy case with the creditors still being able to call you, sue you, garnish your wages. Imagine this happening when you totally don’t expect it. That WOULD indeed be a bad surprise.
Having this happen is very rare, but considering the extreme consequences you want to make absolutely sure that it does not happen to you.
The Abuse Being Addressed
The problem arises in certain circumstances if you filed a prior bankruptcy case which got dismissed—closed without being completed. Before Congress put this law into effect, a very, very small minority of people filing bankruptcy–usually people without attorneys representing them—would file a series of bankruptcies, one after another, for the purpose of continuously delaying a foreclosure or some other action by a creditor. After their first bankruptcy case would get dismissed, they would file another one just in time to again impose the “automatic stay” and stop the foreclosure or other creditor action, and then repeat the cycle. You can see how this could be seen as an abuse of bankruptcy in general and abuse of the “automatic stay” protection in particular.
The Rules
So this is the law that Congress passed to counter this. It has two main parts.
First, if you are filing a bankruptcy case now, AND you filed ONE previous bankruptcy case during the one year before filing this new one, AND that previous case was dismissed, the “automatic stay” goes into effect when you case is filed BUT AUTOMATICALLY EXPIRES after 30 days UNLESS before that time we convince your bankruptcy judge that you meet certain conditions so that the “automatic stay” continues. See Section 362(c)(3) of the Bankruptcy Code.
Second, if you are filing a bankruptcy case now, AND you filed TWO OR MORE previous bankruptcy cases during the one year before filing this new one, AND those two cases were dismissed, then the “automatic stay” does NOT GO INTO EFFECT AT ALL with the filing of the new case. The “automatic stay” CAN go into effect AFTER the case is filed if within 30 days of the date of filing we convince your bankruptcy judge that you meet certain conditions so that the “automatic stay” gets imposed. See Section 362(c)(4).
The details of the conditions that must be met to continue or impose the “automatic stay” in these two circumstances are beyond the scope of this blog, but they require you to establish your “good faith” about why the previous case(s) was (were) dismissed and why you filed the new one.
Some Important Practicalities
If you have never filed a bankruptcy case, or have definitely not done so in the last year, then you don’t need to worry about any of this. And even if you have, these rules don’t apply to you unless your prior case(s) was (were) dismissed. Usually you would know if you’ve had a case dismissed.
Nevertheless, keep in mind that people get unexpectedly tripped up on these rules more often than you might think. It tends to happen one of three ways:
1) A person files a bankruptcy without an attorney, gets overwhelmed by the process and doesn’t follow through, so the case gets dismissed. The person may think he or she didn’t “really” file a bankruptcy case, or may simply forget about it under the stress of the time months later when filing another case.
2) A person sees an attorney, signs some papers, and the case gets filed at court, maybe without the person fully realizing it, and then gets dismissed because he or she doesn’t follow through and doesn’t stay in touch with the attorney. Months later, while seeing another attorney or trying to file a new case without one, the person isn’t aware that he or she had filed that previous case, and/or has forgotten all about it.
3) A person’s Chapter 13 case is dismissed because changed circumstances make it impossible to make the court-approved plan payments. Months later, when creditors are causing problems again he or she files a Chapter 7 without an attorney. Not realizing that the previous Chapter 13 case ended by being dismissed, in the new case the “automatic stay” expires after 30 days, letting all his or her creditors resume all collection activity.
To Be Safe…
Prevent any of this happening to you by 1) carefully considering whether you might have somehow filed a bankruptcy case within the last year, and 2) if there’s ANY chance that you did, telling your attorney in your new case right away. If you did file a case that got dismissed, there is a good chance that your attorney will be able to persuade the bankruptcy court to impose or retain the automatic stay. But that will only happen if your attorney knows about the issue in advance and determines whether your case will meet the necessary conditions.
Posted by Kevin on March 25, 2014 under Bankruptcy Blog |
One advantage of filing a Chapter 13 case is that you can get out of it “at any time.”
Chapter 13 comes with a right to dismiss. This means that at any point of your case you can get out of the case and out of the bankruptcy system altogether. Since this type of bankruptcy generally takes three to five years to complete, and involves projecting your income and expense that far out into the future, you’re only being sensible to ask what happens if your financial circumstances change during that period.
There are a number of other options for dealing with changes in your income and expenses, such as making adjustments in your Chapter 13 plan, or converting your case into a Chapter 7 one. There’s even something called a “hardship discharge” which in limited circumstances allows you to complete your case early. We’ll look at these other options in future blogs.
Dismissing your case is probably the most extreme of all the options. But it can be the best one in some situations.
If you dismiss your case, here are some of the main consequences:
- Once the bankruptcy judge signs the order dismissing your case, you no longer need to make payments under the Chapter 13 plan, and neither the court nor the Chapter 13 trustee has any further jurisdiction over your income, your tax refunds, or anything else addressed in your Chapter 13 plan.
- You lose the immediate benefit of being in a bankruptcy case, the “automatic stay” preventing your creditors from collecting on their debts and repossessing or foreclosing on any collateral. So before dismissing your case, be sure you know how each of your creditors is likely to act in response to the dismissal.
- Because under Chapter 13 you do not get a discharge of your debts until successful completion of the case, if you dismiss your case you will owe all your creditors as before except to the extent that they received payments during the case. Most interest and penalties stopped during the Chapter 13 case will usually be able to be added onto your debts, including for the period of time that you were in the case.
So why would somebody ever want to dismiss their Chapter 13 case? Simply because in some situations the advantages of dismissal outweigh any disadvantages. Chapter 13 cases can take such different forms and be filed for so many different reasons that it’s impossible to give a neat and tidy answer to this. So here is one scenario that illustrates when a dismissal can be the best choice.
Assume that a single mom with a young child has a vehicle loan, a home mortgage, and owes back income taxes. During a period of 10 months of unemployment she had managed to keep current on her vehicle loan because that was her absolutely highest priority. But while she was unemployed she could only do this and still take care of her necessary living expenses by not paying her mortgage. So she fell behind 10 payments of $1,500, or a total of $15,000. She also owed $2,000 to the IRS for the prior year’s income taxes because of not paying any withholding on her unemployment benefits. So she filed a Chapter 13 case a year ago in order to have three years both to catch up on that $15,000 mortgage arrearage and to pay off the income tax. She continued paying the vehicle loan so she’s still current on that.
But now she got a job offer in a neighboring state, where her parents live, who could help raise her child. So she’s ready to surrender the home to the mortgage company, and under the terms of her mortgage she would owe them nothing if she did so. The income from her new job would be enough to allow her to continue making her vehicle payments, and to set up an installment payment plan with the IRS to pay off the tax debt outside of bankruptcy. With her changed circumstances, and all her creditors taken care of, a dismissal of her Chapter 13 case would be appropriate and the best option here.
Posted by Kevin on February 20, 2014 under Bankruptcy Blog |
You have some wiggle room if you either want to get out of your bankruptcy case or change to the other Chapter.
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After starting your bankruptcy case, your circumstances could suddenly change or for some other reason you may no longer want to be in the bankruptcy case that you’re in. Getting out of the bankruptcy court altogether—dismissing your case—is not very easy in a Chapter 7 case, easier in a Chapter 13 one. Changing from one Chapter to the other—converting the case–is usually allowed. We start today with some reasons why you might want to dismiss or convert, and then in the next two blogs talk about dismissal and conversion first under Chapter 7 and then under Chapter 13.
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Why Dismiss or Convert?
To put this into context, what types of situations would lead to a person to want to get out of a bankruptcy case after presumably giving the decision a lot of thought beforehand?
Although some situations could apply to both Chapter 7 and 13, these two procedures are very different in two very practical ways so that the situations that would motivate you to get out of the case tend to be different. The two big differences are their length and likelihood of successful completion:
• most Chapter 7 cases usually lasts only about three months, compared to three to five years for a successful Chapter 13 case; and
• most Chapter 7 cases are completed successfully (at least those where the debtors are represented by an attorney), while a significant percentage of Chapter 13 cases are not.
Why Would You Want to Dismiss or Convert Under Chapter 7?
Under Chapter 7 “straight bankruptcy,” there’s a lot less that can go wrong and a lot less time for your circumstances to change. The focus is on your assets and debts at a fixed moment in time, at the point your case is filed. So if a careful analysis of your financial situation at that time indicates that your case meets the requirements of Chapter 7, not much should change that.
Here are some problems that can nevertheless arise making you wish you could get out of your Chapter 7 case:
• Although assets are fixed as of the date of filing, under Section 541(a)(5) of the Bankruptcy Code, if a relative dies within 180 days of the filing of your case leaving you as the beneficiary of an inheritance or a life insurance policy, that inheritance or insurance proceed becomes available to pay your creditors.
• If shortly after filing your case you have an accident and incur significant new medical debts because of having insufficient medical insurance, the new debt cannot be included and discharged in your case because that debt did not exist when your case was filed.
• You may be unaware at the time your case is filed that you have a legal right to a valuable asset, for example you did not know that your parents’ vacation home had been secretly deeded to you and your siblings.
Why Would You Want to Dismiss or Convert Under Chapter 13?
Under Chapter 13 “adjustment of debts bankruptcy,” there’s a lot more going on and so a lot more that can go wrong than in a Chapter 7 case. A Chapter 13 plan lays out how much and when the various creditors will be paid (if at all), and creditors can object to the plan and sometimes force it to be changed before it’s approved by the bankruptcy judge. Then you have to comply with the terms of the plan, over the course of three to five years, which give a lot of time for your circumstances to change. The focus is on your financial life not at a fixed moment in time but rather throughout the years of your case. Your Chapter 13 plan usually assumes that your income and expenses will stay the same, or else sometimes tries to predict how they will change into the future. Either way, those assumptions come with risk.
So all kinds of things can happen which could make you wish you could get out of your Chapter 13 case, but here are some representative examples:
• Your plan is designed around your desire to save your home, but a year or so later you find a job which requires you to move, taking away the primary purpose of your case.
• You filed a joint Chapter 13 case with your spouse, but two years later you go through a divorce, totally changing your financial life.
• Your income is significantly reduced permanently; so much so that even amending your Chapter 13 plan is not feasible, making you no longer eligible for Chapter 13.
• Your income is significantly increased a year into your case; so much so that you become obligated to amend your plan to pay most or all of your debt.
Again, the next two blogs will be about getting out of Chapter 7 and then Chapter 13, in situations like the examples given above.
