Texas Bankruptcy Blog

What is an Adversary Complaint?

Bryan Fears — Fri, 27 Jan 2012 08:41:47 -0600

Federal laws protect an individual from creditor harassment during a bankruptcy case. Sometimes disputes arise during the case and a creditor, the trustee, or the bankruptcy debtor needs the issue tried by a court. In these cases the matter can be heard as an adversary proceeding before the bankruptcy judge.
An adversary proceeding is a separate court case, but is heard by the bankruptcy court when it has jurisdiction over the matter. The jurisdiction of bankruptcy court judges is limited to core proceedings or matters “related to” the bankruptcy. Matters that are not directly related to the bankruptcy case are outside the court’s jurisdiction. For instance, many family law matters, like modifying child support or granting a divorce, cannot be heard as adversary proceedings. Common disputes that are adversary proceedings are:
• Cases involving the return of money or property;
• A case to determine the validity, priority or extent of a lien;
• An objection to discharge or an action to revoke discharge;
• The attempt to revoke an order of confirmation of a Chapter 13 bankruptcy plan;
• A case to decide whether a debt is eligible for discharge; or
• A request for an injunction.
Not all disputed matters related to the bankruptcy case are filed as adversary proceedings. The bankruptcy rules distinguish adversary proceedings from “contested matters.” A note to the Federal Rules of Bankruptcy Procedure states, “Whenever there is an actual dispute, other than an adversary proceeding, before the bankruptcy court, the litigation to resolve that dispute is a contested matter.” An objection to a proof of claim is an example of a contested matter that is not an adversary proceeding.
To commence an adversary proceeding, a party must file an adversary complaint with the bankruptcy court. In cases alleging fraud or debts caused by willful and malicious injury, the bankruptcy law requires that the complaint must be filed within 60 days after the first Meeting of Creditors. The court will issue a summons and schedule a trial date. The trial is held with testimony and exhibits offered as evidence.
An adversary proceeding does not postpone the debtor’s discharge. However, discharge of the debt at issue is delayed until the adversary proceeding is resolved.
If you need to restructure your debts in bankruptcy, but also need a court to decide a matter concerning one of your debts, an adversary proceeding in bankruptcy may be beneficial. Adversary proceedings are conducted quickly and efficiently, so the matter will be fairly tried by a federal judge without a lengthy delay. Speak with an experienced bankruptcy attorney about your financial situation and learn how an adversary proceeding can help.

Will I Lose My Anticipated Income Tax Refund In Chapter 13 Bankruptcy?

Bryan Fears — Wed, 25 Jan 2012 09:36:06 -0600

Chapter 13 is a repayment bankruptcy. You pay your creditors whatever you can afford over three to five years (three years for lower income earners, five years for higher wage earners). You are required to commit your disposable income to the repayment plan during the repayment period. You are also required to pay as much to unsecured creditors as they would receive in a Chapter 7 liquidation bankruptcy.

An expected income tax refund is property of the bankruptcy estate. Many debtors are able to protect all or a portion of their income tax refunds by applying legal exemptions to the expected refund. After applying all of your available exemptions, the remaining unprotected amount is often little or nothing.

If you cannot protect your tax refund with exemptions, you are required to pay the non-exempt amount in your monthly plan payments. This is because your unsecured creditors would get this money if you filed a Chapter 7 bankruptcy.

Even if you have a non-exempt tax refund, your bankruptcy attorney may be able to save your refund under certain circumstances. One trick to apply the non-exempt portion of your expected income tax refund to next year’s taxes. The IRS will keep your tax overpayment and use it for taxes you may owe in the future. The Tenth Circuit case of Weinman v. Graves, 609 F.3d 1153 (10th Cir. 2010) holds that the bankruptcy trustee cannot force the IRS to turnover a tax refund that is held to pay future taxes. The election to apply the refund to your future tax liability is irrevocable under section 6513(d) of the Internal Revenue Code. Consequently, your interest in the refund when you file bankruptcy is limited to what is left after the IRS applies the money to next year’s tax liability.

This trick is common in Chapter 7 cases, but can be used in Chapter 13 cases as well to avoid increasing your monthly plan payment. Working closely with your bankruptcy attorney and a skilled CPA will maximize the amount of money you get to keep. If you are expecting a large income tax refund, but need to file Chapter 13, speak with an experienced bankruptcy attorney and discuss your options. Your attorney can explain how the federal laws can protect your assets and discharge your debts.

Stopping a Tax Offset for a Defaulted Federal Student Loan

Bryan Fears — Mon, 23 Jan 2012 10:41:38 -0600

Stopping a Tax Offset for a Defaulted Federal Student Loan

Federal student loans are guaranteed by the US government and administered by the Department of Education. When a borrower defaults on the loan, the Department of Education may refer the loan to the Department of the Treasury for collection. The Treasury issues your tax refund check, which can be offset to pay your defaulted student loans. The Treasury will offset your entire refund, even if it includes money owed to your non-obligated spouse or an earned income tax credit.

So what can you do to stop this nightmare?

First, the Department of Education is required to send you notice of the offset. You are entitled to a hearing and an opportunity to present evidence when challenging the debt. If you make a timely request for a hearing, the collection process must stop. So it is in your best interest to review the loan documentation and request a hearing if there are mistakes. During that time you should also contact the Department of Education, negotiate a repayment schedule, and request that all garnishments and seizures cease.

Second, you should check with the Internal Revenue Service and see whether your tax refund will be offset. The number to the IRS Offset Hotline is 800-304-3107.

Third, if you filed a joint income tax return, your spouse may be eligible to reclaim his or her portion of your joint refund. Your spouse must file an "injured spouse" claim form (IRS Form 8379) with the Internal Revenue Service. Questions regarding the amount your spouse will receive can be answered by the IRS by calling 800-829-1040.

Fourth, you may be able to stop the collection process if you can show evidence of financial hardship. You must contact the Department of Education and submit documentation to support your claim. The Department of Education will consider your claim and may agree to modify the withholding action.

Finally, bankruptcy may stop an offset of your income tax refund. The bankruptcy laws on this matter are complex and require the attention of an experienced attorney. In general, the bankruptcy code allows a creditor to offset money owed to the debtor against a pre-bankruptcy debt. The offset must involve the same parties to the credit and the debt. If the creditor wants to perform an offset during the bankruptcy (for instance, during a Chapter 13 bankruptcy), it must first ask the bankruptcy court for relief from the automatic stay.

If you have defaulted on your student loans, you may be able to stop an IRS offset of your income tax refund. It is important to discuss the specifics of your situation with an experienced bankruptcy attorney. Your attorney can recommend the best course of action to protect your assets and income.

Top Five Don'ts Before Filing Bankruptcy

Bryan Fears — Fri, 20 Jan 2012 11:17:08 -0600

Many people start financial planning when the decision is made to file bankruptcy. Financial planning is good, but doing it yourself can be disastrous. In particular, there are five activities that can cause serious problems in your bankruptcy case, so today’s article is a list of the top five activities to avoid before you file bankruptcy.

5. Don’t use credit cards. In bankruptcy, as in life, honesty is the best policy. Using credit when you have no intention on repaying is fraud and you can be charged with a crime! The bankruptcy code gives the credit card company legal advantages when credit is used just prior to filing bankruptcy. The result is often that you have to repay credit you use just before filing bankruptcy. Consult with your bankruptcy attorney before you use a credit card convenience check, transfer a credit card balance, take a cash advance, or go on a spending spree.

4. Don’t transfer property. Transfers just before bankruptcy must be identified and the bankruptcy trustee will take a special interest in your case. The bankruptcy trustee always assumes the worst and will look on any transfer with suspicion. Illegal transfers can be voided by the trustee and you may lose your right to protect the property. For instance, let’s say you sold your car worth $3,000 to your adult daughter for $1. Since this is not an arm’s length and fair transaction, the trustee can avoid the transfer, and force your daughter to turn over the car to the trustee. Since you did not own the car when you filed, you are not entitled to protect the vehicle with your legal exemptions. The trustee will now sell the car to pay your creditors and you lost a $3,000 asset. If you want to sell or transfer property, speak with your bankruptcy attorney. Your attorney can show you the right way to transfer the property without causing a legal mess.

3. Don't repay loans to friends or family. Money used to repay a loan to a friend or family member within a year of your bankruptcy filing can be avoided by the bankruptcy trustee. The trustee can sue your friend or family member for the money.

2. Don't pay more than $600 to one creditor. Like payments to friends or family members, payments that exceed $600 to any one creditor within 90 days of the bankruptcy filing can be avoided. Speak with your bankruptcy attorney before paying creditors.

1. Don't cash out retirement plans or 401k's. Retirement plans are often fully protected by bankruptcy laws, so do not touch these accounts until after you file bankruptcy. Once the money is moved it is more difficult to protect and you may lose your retirement funds.

The bankruptcy code contains many traps for the unwary. A bankruptcy professional can help you avoid these common traps. Don’t wait to speak with a bankruptcy attorney and discuss your financial situation. Get experienced advice on how to obtain the help you need.

Dismissing Your Bankruptcy Case

Bryan Fears — Wed, 18 Jan 2012 10:58:17 -0600

The most common goal in bankruptcy is the discharge; however the discharge is not every debtor’s goal. For some, the goal of bankruptcy may be to use the automatic stay to postpone a legal action, like a foreclosure or a lawsuit, while the debtor negotiates a settlement. For others, it may mean buying time to refinance a debt. When the objective is met, these debtors want to dismiss the bankruptcy case. The bankruptcy code contains special provisions for dismissing a bankruptcy case.

A Chapter 7 debtor is not able to dismiss the case without the permission of the bankruptcy judge. If the case does not contain assets (a “no asset case”), approval is easy to obtain. On the other hand, if the case is an asset case and creditors will receive money, the trustee will likely object to the dismissal and request permission to distribute the asset proceeds to your creditors. This is important for a Chapter 7 debtor who receives a large sum of money like an unexpected inheritance. The debtor cannot just say “forget it” and walk away from the bankruptcy case and keep the money.

A Chapter 13 debtor has an absolute right to dismiss the bankruptcy case. The theory behind this is that a debtor should be able to stop the bankruptcy and repay creditors on his or her own terms. The bankruptcy court will still look at whether the debtor is acting in good faith. If the debtor is not acting in good faith, the case may be converted involuntarily to a Chapter 7.

While the discharge remains the crown jewel of the bankruptcy process, it is not the only reason to consider a personal bankruptcy. An experienced bankruptcy attorney can discuss the advantages of the federal bankruptcy code and how it can help you and your situation. Your bankruptcy attorney can work with you to plan your strategy to eliminate debt and reorganize your finances.

Advantages of Chapter 13 Bankruptcy

Bryan Fears — Mon, 16 Jan 2012 09:48:29 -0600

The most common types of personal bankruptcy are Chapter 7 and Chapter 13 bankruptcy. A Chapter 7 bankruptcy is an “erase-your-debts-and-start-fresh” bankruptcy. The Chapter 7 case typically takes around four to five months and unsecured debts are discharged. On the other hand, Chapter 13 cases last three to five years and all disposable income is paid to unsecured creditors. So why would any reasonable person choose Chapter 13 over Chapter 7? There are several differences between Chapter 13 and Chapter 7 which offer special advantages under the right circumstances.

The most significant advantage, and perhaps the main reason many debtors choose Chapter 13, is the opportunity to save a home from foreclosure. Chapter 13 allows the debtor to cure overdue mortgage payments over the life of the repayment plan (three to five years). During a Chapter 13 bankruptcy, the debtor may also take advantage of any home loan modification program that he or she is otherwise qualified to receive. Finally, a home that has a second or third mortgage that is completely unsecured may qualify for lien stripping in Chapter 13. Once the junior mortgage is stripped off, the debt is paid at the same rate as other unsecured debts and the remaining balance is discharged at the end of the bankruptcy case.

Another advantage is the ability to “cram-down” a motor vehicle loan to the fair market value of the vehicle. The loan principal of the qualifying vehicle loan is reduced and the payment is stretched over the life of the repayment plan. High interest may also be crammed down to the trustee’s interest rate, which could mean a significant savings in monthly payments.

During a Chapter 13 bankruptcy case, any co-debtor or co-signor is protected from creditor collector and harassment. This provision protects a co-debtor from harm while the debt is repaid in bankruptcy.

Chapter 13 also acts like a court ordered consolidation loan. The bankruptcy court judge orders the creditors to accept payments during bankruptcy, whether they like it or not! The debtor has no direct contact with the creditors during the case. If the creditor has an issue with how its debt is treated in bankruptcy, the creditor must take it up with the judge.

Chapter 13 can be a powerful legal tool for some debtors, but it is not for everyone. The federal bankruptcy code contains many provisions that are specifically suited to help individuals recover during financial crisis. The protection is broad and the relief is very real. If you are struggling financially, speak with an experienced bankruptcy attorney and learn how the bankruptcy laws can help you.

Budget Like It's 1971

Bryan Fears — Fri, 13 Jan 2012 08:51:24 -0600

In the 1980’s Prince sang, “Tonight I’m gonna party like it’s 1999!” Well, if you’re being financially squeezed, perhaps its time to “budget like it’s 1971!” What that means is to take a hard look at where your money is going and how you can cut expenses. Chances are you can make big cuts in discretionary spending for high tech products and services. Let’s look at how we can save money on three technologies that were not commercially available in 1971:

Cable or Satellite TV
Basic cable or satellite television services promise a reasonable monthly rate, but your bill can quickly escalate with high definition service and premium channels. Many of these channels are never watched or wanted, but you still pay for them in a subscription package. So ask yourself, can you live without watching the Golf Channel in high definition?

Internet
Basic internet services also start low, but can quickly double in price as speed increases. Many companies offer high speed internet in a bundled package that includes television and telephone. Bundled packages are often discounted for the first year of a two year contract, and jumps significantly in price during the second year. However, that is not always the case, and more companies are offering “no contract” services as a way of luring new customers. The moral here is, “Shop around!”

Cellular Phone
Basic cell phone “talk” minutes are relatively cheap, while text and data packages are more costly. One simple way to reduce your cell phone bill is to ask your carrier to conduct an audit on your account. You may be able to reduce your monthly minutes or eliminate extra features you don’t use.

The popularity of cellular phones has made the home phone almost extinct. Even those households that use a landline for fax use can reduce costs by connecting a home office fax machine to the internet and drop home phone service altogether.

Ask for a Discount
You don’t get what you don’t ask for! If you are under contract with a television, internet, or cell service, call your provider and say you are a loyal customer interested in reducing your bill. In many cases the provider will discount your bill to keep you happy (and loyal)!

Families struggling with finances can save money by taking a critical look at their expenses. If cutting costs isn’t enough, the federal bankruptcy laws can eliminate your debts. The combination of reducing spending and eliminating bills through bankruptcy can be powerful financial medicine.

Distressed Homeowner Fraud Scheme Uncovered

Bryan Fears — Wed, 11 Jan 2012 11:45:13 -0600

There is an old saying, "A drowning man will grab even the edge of a sword." For a homeowner drowning in debt, any assistance may seem beneficial. Unfortunately, there are scam artists that use a desperate situation to make a few quick bucks.

Case in point is an Austin, Texas, man who recently pled guilty to operating a foreclosure-rescue scam. Frederic Alan Gladle, 53, admitted that for four years he defrauded homeowners that netted him more than $1.6 million in fees. According to court documents, Gladle used different aliases and the stolen the identity of at least one person to set up a mobile phone number.

Gladle, who played linebacker on the University of Southern California’s 1978 national football championship team and is married to the 1984 Playboy Playmate of the Year, charged distressed homeowners fees in exchange for fraudulently postponing foreclosure sales. He faces two to seven years in prison.

In a statement released by the U.S. Department of Justice, "Gladle admitted that he recruited homeowners whose properties were in danger of imminent foreclosure and falsely promised to delay the foreclosures for up to six months, in exchange for a fee of approximately $750 per month. Gladle, directly or through salespersons, directed homeowners to sign deeds granting fractional interest in their properties to debtors in bankruptcy proceedings whose names Gladle found by searching bankruptcy records. The debtors were unaware that their names and bankruptcy cases were being used by Gladle in his scheme. Gladle then sent the unsuspecting debtors’ bankruptcy petitions, and the deeds that transferred fractional interests to the debtors, to the homeowners’ lenders to stop foreclosure proceedings."

The involvement of the federal bankruptcy process immediately stopped the foreclosure on the homeowner's property and forced lenders to seek permission to proceed from the bankruptcy courts.

“This is the latest example of heartless criminal activity by an individual who sought to capitalize on the misfortune of those affected by hard economic times,” said Steven Martinez, assistant director of the FBI’s Los Angeles field office. “Mr. Gladle defrauded victims trying to save their homes, further exploited those in debt by stealing their identities, and wreaked havoc on both banks and the bankruptcy courts by manipulating the system.”

If you are facing foreclosure, speak with an experienced bankruptcy attorney and discuss your legal options. You may be eligible for home loan modification, including a principal and/or interest reduction; repayment or second mortgage lien stripping through Chapter 13 bankruptcy; or debt elimination under Chapter 7. Your attorney can explain your options and help you decide on a course of action that is best for your family without making matters worse, or involve you in illegal activity.

Bankruptcy Rate Falls During 2011

Bryan Fears — Mon, 09 Jan 2012 09:57:39 -0600

Fewer personal bankruptcy cases were filed during 2011 according to a report by the National Bankruptcy Research Center. In 2011 about 1.3 million consumer bankruptcy cases were filed throughout the United States, or about one out of every 175 Americans. That is a decrease from 2010 when slightly less than 1.5 million cases were filed, or one out of 150 Americans, filed bankruptcy.

Chapter 13 filings fell 8 percent from 2010 totals, and Chapter 7 filings dropped 13 percent. 2011 marked the first time the number of personal bankruptcy cases had fallen since 2006. Nevada remains at the top spot for the nation’s highest per capita filing rate at 8.98 bankruptcy cases per 1,000 residents. That is a drop from Nevada’s 11.1 filing rate in 2010.

“The decline in total filings reflects the retrenchment in consumer spending associated with a down U.S. economy,” said American Bankruptcy Institute Executive Director Samuel J. Gerdano. “As consumers continue to deleverage their debt and access to credit remains tight, bankruptcy filings will continue to decrease.” The American Bankruptcy Institute is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency.

While national bankruptcy statistics may be interesting, your financial situation is not a statistic. Your case is unique and deserves a skilled attorney committed to guide you through the maze of the federal bankruptcy laws. You may need a Chapter 7 “straight bankruptcy” that can discharge unsecured debts and get you quickly back on the road to recovery. Or your situation may require a Chapter 13 repayment plan to save your family home and right your sinking financial ship.

If you are struggling with debts you cannot pay, speak with an experienced bankruptcy attorney and discover how the federal bankruptcy laws can help you. Each year over a million people chose bankruptcy relief because it works! Bankruptcy can eliminate your debt burden and put you on the path to a fresh financial start.

When a Creditor Violates the Bankruptcy Discharge

Bryan Fears — Fri, 06 Jan 2012 10:31:00 -0600

The bankruptcy discharge is a court ordered permanent injunction prohibiting certain creditors from taking collection action against the debtor. A debt discharged by your bankruptcy cannot be collected from you. Unfortunately, some creditors refuse to take “No” for an answer. If you are contacted regarding a discharged debt, here’s what to do:

Inform the creditor of your bankruptcy discharge
When a debt is discharged in bankruptcy it does not simply vanish. The debt still exists; it is just not “collectible.” This debt may be sold or transferred to another collector, and the new collector may not know about your bankruptcy discharge. This is not to say that ignorance is a defense to violating the court order! However, informing the collector of your bankruptcy discharge is usually enough to stop all collection activities.

The collector may ask you for information about your case, including your case number, bankruptcy chapter (Chapter 7 or Chapter 13), and the date of the discharge. These are reasonable requests if meant to update their records so you are not bothered in the future. If you do not have this information, simply refer the collector to your bankruptcy attorney.

Ask for sanctions
In some cases the creditor knows about the bankruptcy discharge and still tries to collect. Whether its action results from ignorance or arrogance, the bankruptcy court takes a very dim view of creditors that intentionally violate its discharge order. When a court order is violated it is punished by contempt of court. The bankruptcy court can sanction the violator (called the “contemnor”) and assess a fine, award actual damages, and order the contemnor to pay the debtor’s attorney fees.

The federal bankruptcy laws offer very powerful protection. Getting the full benefit of your bankruptcy case requires a skilled and experienced attorney. Your attorney can use the bankruptcy laws to give you a fresh start that is free of creditor harassment.

Credit Card Debt Is On The Rise

Bryan Fears — Wed, 04 Jan 2012 16:36:17 -0600

A recent survey indicates a disturbing trend in the spending habits of the American consumer. After two years of moderate credit card use, new figures from Card Hub show that credit card use has significantly increased during the past year. Consumers are on track to end 2011 with a $64 billion increase in credit card debt.

Americans are also paying off credit card debt at a slower pace. During the first quarter of each year credit card debt usually declines, mostly due to annual bonuses and tax refund checks. In 2009 and 2010, consumers paid down more in the first quarter than they charged in new debt through the end of the third quarter. This year consumers kept the cash and kept charging throughout the year. Even more disturbing is that this year's third quarter credit card debt total was 154 percent more than in the same period last year.

Carrying large credit card debt can create serious financial problems. According to the Federal Reserve's credit card repayment calculator, a $5,000 debt at a 15% interest rate will take 7 years to pay off at $100 per month. During this time you will pay an extra $2,896 in interest charges!

If credit card fees are eating up your paycheck, it may be time to consider bankruptcy. During Chapter 13 bankruptcy you are able to structure an affordable repayment plan to pay credit card debt. Whatever you are not able to pay will be discharged after three to five years of repayment.

If you cannot afford to repay anything towards your credit card debt, Chapter 7 may be the answer. A Chapter 7, also called a "straight bankruptcy," lasts about five months and nothing is paid to your credit cards. Most bankruptcy debtors are able to keep everything they own while discharging debts they cannot afford to pay.

When credit card debt has taken over your finances, consult with an experienced bankruptcy attorney and learn how the federal bankruptcy laws can help. Don't let credit card debt hold your paycheck hostage! Bankruptcy offers powerful protection from creditors and can discharge overwhelming debts.

How To Walk Away From Your Home

Bryan Fears — Tue, 03 Jan 2012 11:23:22 -0600

There are many reasons that an individual would consider "walking away" from a home. Before abandoning your home, speak with a qualified bankruptcy attorney about the consequences. Your attorney can discuss alternatives for keeping your home such as loan modification, bankruptcy lien stripping, or Chapter 13 repayment. If surrendering your home is the best option, then a short sale, a deed in lieu of foreclosure, or even renting out your home may be better solutions than walking away. In most cases staying in your home as long as possible is the best choice. Be sure to consult with an attorney and examine all of your options before you make a decision.

If you decide to walk away from your home, be aware that you are still the legal owner. Consequently you should maintain insurance on the property until the property is transferred. Many things can happen to an empty house. Someone may be injured on the property, there may be fire or flooding, the roof may leak, or the pipes may freeze. If the lender takes out insurance on the property (“force-placed” insurance), you are not covered. Force placed insurance only covers damage to the property.

Filing bankruptcy does not mean that you no longer own the property. You may be liable for a claim or an accident that happens on the property after you file bankruptcy and before ownership is transferred. A claim that arises after you file bankruptcy is generally not dischargeable! Additionally, some condominium or homeowners association fees that occur after you file bankruptcy may not be dischargeable, and there is the possibility of tax consequences. Speak to an experienced attorney to determine whether you will be responsible for these fees and taxes.

Aside from insurance, there are other things you can do to protect yourself and the property. First, be sure that all windows and doors are locked. Second, ensure that all mail and newspaper service are forwarded or cancelled. Do not advertise that the house is vacant. Third, turn off lights and unplug appliances. Fourth, turn off air conditioning and turn down heat to a low level. Maintaining a modicum of heat is necessary to prevent walls and pipes from freezing. Fifth, remove any swing sets, trampolines, play gyms, or other items that might attract children into your yard. Finally, arrange for someone to inspect the home periodically and take care of any yard work. Failure to maintain the property may result in fines or citations from local authorities.

Document all of the activities surrounding the home including the date that you move out, and the condition of the house. Note any damage, and take digital pictures of the inside and outside of the house. Do not remove anything that is permanently attached to the property. Toilets, built-in appliances, and other fixtures are a permanent part of the property and removing these items may cause you legal headaches in the future.

Walking away from your home can lead to legal complications. Explore your options with your attorney before making a decision. Your attorney can help you reach the best decision for your family, and help manage any potential legal liability.

Fresh Start on a New Year

Bryan Fears — Wed, 28 Dec 2011 07:00:00 -0600

The first few months of the year are a busy time for bankruptcy attorneys. There are two reasons for this: first. First, it is the start of a new year and a good time for a change. The holiday season has passed and families begin making plans for the future. When you take a look at your finances and an ugly pile of unpaid bills is looking back at you, it is probably time to consult with an experienced bankruptcy attorney.

The second reason is tax season. While filing for bankruptcy is cheap compared to many other legal services, finding extra cash to pay court fees, the credit counseling class, and your attorney's fees can be challenging. Many debtors use income tax refunds to pay bankruptcy fees.

The safest advice for a debtor expecting a tax refund is to postpone filing bankruptcy until after you have received and spent your income tax refund. Any expected refund that has not been received is property of the bankruptcy estate. The debtor must account for the expected refund and then apply a legal exemption to protect it. If you underestimate your refund, and do not have enough legal exemptions to protect it, you may lose a portion of your tax refund.

Taxes that have been received and spent before filing bankruptcy are not property of the bankruptcy estate. However, it is important to spend your income tax refund wisely. Any payment of over $600 to one creditor just prior to filing must be reported, and the bankruptcy trustee may ask the creditor to return the money. Gifts or loan payments to friends or family members can also be “avoided” by the trustee. Consult with your attorney before spending your income tax refund.

Tax season is a good time to file bankruptcy. Your income taxes have been recently prepared, and this information is needed for your bankruptcy case. Your attorney can advise you concerning the best time to file bankruptcy. Make your new year a fresh start on a better financial future.

How To Buy A Home After Bankruptcy

Bryan Fears — Mon, 26 Dec 2011 19:56:54 -0600

There are many myths surrounding bankruptcy. Fortunately, these myths can be quickly dispelled during a free consultation with an experienced bankruptcy attorney. One of the most serious myths is that an individual with a history of bankruptcy cannot qualify for a home loan. This myth can prevent someone deep in debt from obtaining needed relief.

The truth is that while banks hate bankruptcy, they love federal guarantees. The Federal Housing Administration (FHA) is a government agency that insures certain home loans, and its policy for qualifying for a home loan is very flexible. The FHA will guarantee a home loan after a bankruptcy when:
Twenty four months have passed since the bankruptcy has been discharged;
Any outstanding tax liens have been paid or the appropriate arrangements have been made via a repayment plan on file with the IRS or Department of Revenue;
Three years have passed since a foreclosure or a deed-in-lieu has been resolved; and
All judgments have been paid.

FHA-insured home mortgages are also available to Chapter 13 debtors during bankruptcy. The debtor must (1) have completed one year of payments as required while under Chapter 13 and (2) must obtain a letter from the Trustee of the court, stating the dollar amount the applicant can borrow.

In addition to the above, individuals must meet the mortgage lender’s criteria. This usually means showing a stable employment history, a manageable debt to income ratio, and a good credit score. Surprisingly, most debtors are able to improve their credit scores quickly after a bankruptcy discharge. Your credit score is weighted heavily on recent events, so when you file bankruptcy your score will immediate plummets. However, the farther you are from your bankruptcy discharge, the better your score will become. Additionally, an absence of credit delinquencies and a solid history of on-time payments after your bankruptcy case will boost your credit score.

Many debtors are able to purchase a home 24 months after a bankruptcy discharge. In many cases home ownership is only possible after debts have been discharged by the federal bankruptcy court. If you are struggling with debt and want to purchase a home, speak with an experienced attorney and learn how the federal bankruptcy laws can help.

Debt Settlement and Your Taxes

Bryan Fears — Fri, 23 Dec 2011 07:00:00 -0600

Debt settlement ads are very attractive to individuals struggling with debt. The promise is to reach an agreement you can afford to pay. The debtor agrees to pay a percentage of the debt (usually in a lump sum), and the creditor agrees to release the remaining obligation. Sounds simple, right?

Unfortunately, many times the debtor will receive a nasty surprise in the mail: an IRS Form 1099-C: “Cancellation of Debt.” You see, the U.S. Internal Revenue Service considers forgiven or canceled debt as part of your income. In fact, any creditor who agrees to accept at least $600 less than the original balance is required to file a 1099-C form with the IRS and to send debtors a canceled debt notice. If you have negotiated a debt settlement, you must report the forgiven or canceled debt as income on your federal income tax return. This usually causes a tax debt, since no money was withheld from this "income."

There is an exception to this situation. If you were insolvent at the time the debt was settled, the cancelled debt is not considered income. The IRS instructs the taxpayer to "determine your liabilities and the fair market value of your assets immediately before the cancellation of your debt to determine whether or not you are insolvent and the amount by which you are insolvent." Let's say your net assets after subtracting your liabilities amounts to $5,000. If you negotiate a debt settlement for $10,000, you must pay taxes on the first $5,000 of the cancelled debt. If your tax rate is 25%, you may Uncle Sam over a thousand dollars!

For debtors who have negotiated big savings through a debt settlement company, a large tax debt can be a slap in the face. Owing the federal government is much worse than owing a credit card company. Here are some interesting "facts" about owing the IRS:

* the IRS does not have to obtain a court judgment before garnishing your wages;
* recent tax debts are not dischargeable in bankruptcy;
* the IRS can intercept future tax refunds and even government benefits like social security to pay your income tax debt.

Congress has made sure that all debts discharged during bankruptcy are excluded from "Cancellation of Debt" income. If your debt is discharged, the debt cannot be collected from you in the future, and you owe no taxes on it. If you can afford to repay a part of a debt, a Chapter 13 bankruptcy will allow you to pay what you can afford, over three to five years, and the remaining debt is discharged without a "Cancellation of Debt" tax obligation. If you cannot afford to repay any part of the debt, a Chapter 7 can discharge the debt within a few short months.

Debt settlement often makes a bad situation worse. Before you commit to a settlement process to eliminate your debts, speak with an experienced bankruptcy attorney. You deserve to know all of the consequences before agreeing to any financial program - including any potential tax liability. Your attorney can explain the pros and cons of debt settlement and bankruptcy, and can help you decide on the best course of action.

Saving a Credit Card for a Rainy Day?

Bryan Fears — Wed, 21 Dec 2011 07:00:00 -0600

From time to time a Chapter 7 client will ask, “Can I keep a credit card with a zero balance?”

The answer is, “Yes. . .but.”

Be honest: As a bankruptcy debtor you are required to name all creditors and the amount owed as of the day your bankruptcy case is filed. These creditors are sent notice of your case directly from the bankruptcy court. The flip side of this is that if you do not have a balance on a credit card, you do not have to list the creditor. Consequently the bankruptcy court does not send the credit card company notice of your bankruptcy case.

Be aware: Many credit card companies conduct periodic checks on their cardholders’ credit to discover financial changes, including matching bankruptcy records. Once you are discovered to be in an open bankruptcy case, the card company will terminate your line of credit. The slight benefit here is that if you escape the initial detection, you may be able to use the credit card to jump start your credit recovery after bankruptcy.

Be warned: You must disclose any payments totaling more than $600 made to one creditor within 90 days of the bankruptcy filing date. This is called a “preference” situation, and the bankruptcy trustee can ask the creditor to turnover the money. If you pay off a credit card in order to keep it out of the bankruptcy, you may be swapping one bankruptcy entanglement for another. Best advice: consult with your attorney before making any pre-filing payments to creditors.

Also, while using credit after a bankruptcy filing is not restricted for Chapter 7 debtors, using credit without court permission is prohibited during a Chapter 13 case. Again, consult with your attorney if you need a credit card for work or otherwise.

Now, be smart: Credit after bankruptcy is not all that difficult to obtain. Sure, not many will qualify for $5,000 in credit a month after the bankruptcy discharge, but why do you need all that credit in the first place? Debit cards can be used as credit card substitutes for most transactions, even purchasing hotel rooms. Unsecured or secured, credit or debt, Visa or MasterCard, are all available after your bankruptcy discharge. Speak with your bankruptcy attorney about the pros and cons of keeping a credit card “off the books.”

Lifting the Automatic Stay

Bryan Fears — Mon, 19 Dec 2011 07:00:00 -0600

The bankruptcy automatic stay is an enormously broad and powerful legal protection. The stay is a temporary injunction that prohibits creditors from proceeding with collection actions against the debtor during the bankruptcy case. The bankruptcy debtor is entitled to this protection automatically from the moment the case is filed. Creditors are “stayed” (stopped) from collecting until either the bankruptcy court modifies this injunction, or the debtor receives a discharge.

Before a creditor can proceed to collect on a debt, it must receive permission from the bankruptcy court. This process is commonly referred to as “lifting the automatic stay.” A creditor that does not first obtain this permission acts in violation of the bankruptcy court injunction, and may be subject to federal contempt of court charges.

When a “motion to lift stay” is filed, the debtor is entitled to notice and a hearing. A secured creditor will often file this motion if the debtor is not making payments on the loan. The bankruptcy court generally grants these requests when payments are delinquent and there is no equity in the property. Defending this kind of motion is generally a matter of catching the payments up to date.

In cases where the collateral for a loan is not insured, or there is no assurance that future payments will be made, the creditor may complain that it is not “adequately protected.” These are fair concerns that can be overcome with evidence of insurance and/or evidence of future ability to pay.

Recently debtors have had success in defending motion to lift stay filed by mortgage companies. One common defense is that the mortgage company cannot prove that it is the rightful owner of the mortgage, and therefore is not legally entitled to lift the stay (also known as a “lack of standing”). This is especially true when a mortgage has been transferred several times over the years, and the original note has been lost.

Unsecured creditors and other parties at interest can ask the court to lift the stay. These requests are generally denied when the debt will be included in the discharge. On the other hand, the request is likely to be granted when it is excluded from the discharge. Debts commonly excluded from the bankruptcy discharge include child support obligations, spousal support, criminal restitution and fines.

A motion to lift stay is a common event in the bankruptcy courts and is generally very predictable. In many cases your bankruptcy attorney expects the motion and can discuss it with you even before your case is filed.

Lien Stripping and Cram-Down in Chapter 13 Bankruptcy

Bryan Fears — Fri, 16 Dec 2011 07:00:00 -0600

When an individual chooses to file a Chapter 13 bankruptcy, debts are repaid over three to five years. The debtor pays unsecured creditors (e.g. medical bills, credit cards, etc.) whatever he or she can afford during this time, although many debtors end up paying nothing to unsecured creditors. At the end of the case, any remaining unsecured debt is discharged. The debtor can also pay secured debts through the Chapter 13 bankruptcy. Secured debts, like a home mortgage or car loan, are sometimes modified through the Chapter 13 repayment plan, either by cram-down or lien stripping. These bankruptcy tools can be very beneficial because many individuals are upside-down on secured property, meaning they owe more than the property is worth.

During a cram-down the debtor converts a portion of a debt from secured to unsecured status. The amount of the secured debt is “crammed-down” to the actual value of the property. For instance, a $15,000 car loan secured by a $10,000 car can be crammed-down to a $10,000 secured debt. Additionally, a high interest rate may be crammed-down to an interest rate approved by the bankruptcy court. This modified debt is paid over the life of the bankruptcy case. Any remaining unsecured debt receives the same payment status as other unsecured creditors. Cram-down is not allowed on a primary residence or a recent car loan (purchased within 910 days of the bankruptcy filing).

Lien stripping is the conversion of an entire debt from secured to unsecured status. When a lien on property is wholly unsecured, the lien may be stripped off and made unsecured. For instance, assume that a home has three debts: $100,000 is owed on a first mortgage, $20,000 is owed on a second mortgage and $5,000 is owed on a judgment lien for a total of $125,000. Also assume that the fair market value of the home is $99,000. The second mortgage and judgment lien are not secured by any value in the home. The bankruptcy court can convert the secured status of the second mortgage and judgment lien to unsecured status, and these stripped off debts receive the same payment treatment as other unsecured debts.

Lien stripping and cram-down are beneficial features of a Chapter 13 bankruptcy. The debtor can save thousands and keep their property. If you have upside-down loans, speak with an experienced bankruptcy attorney and discuss your options. Your attorney can use the power of the federal bankruptcy laws to improve your financial situation and put you back on the right track.

Winning the Lottery May Not Help

Bryan Fears — Wed, 14 Dec 2011 07:00:00 -0600

Who hasn’t fantasized about winning the lottery when you are cash strapped? It seems that winning the lottery would solve all of your financial problems.

Not so fast.

A March 2010 study by economists at the University of Kentucky, University of Pittsburgh, and Vanderbilt University suggests that winning the lottery does not reduce the likelihood of a future bankruptcy. The study examined data from 35,000 winners of Florida's Fantasy 5 lottery from 1993 to 2002, and compared this information with state bankruptcy records. The economists found that more than 1,900 lottery winners filed for bankruptcy relief within five years after winning, a rate double that of the general population during the study period. "The results show that giving $50,000 to $150,000 to people only postpones bankruptcy," the authors concluded.

Not every lottery winner will act like Callie Rogers, winner of a $3 million UK lottery in 2003. Callie spent every dime of her winnings on shopping, cocaine, friends and breast augmentation, and two years ago she was working as a maid. But then, Callie was probably not a skilled money manager, like the three co-workers who won a $254 million Powerball lottery in Connecticut. If you are lucky enough to win a large lottery, these professionals offer a blueprint on how to protect your money from yourself.

Financial management may seem like common sense, but Americans have many pressures to spend now and worry about the consequences in the future. It takes a reasoned approach and discipline to make a budget and stick to it. To help educate individuals and combat financial illiteracy, Congress amended the bankruptcy laws to require debtors to complete a course in financial management before the completion of the bankruptcy case. The hope is that by providing a bit of education, the debtor will take a more active interest in managing his or her finances and avoid future costly mistakes.

If you are battling insurmountable debt, don’t wish for a magical cure. Take charge of your finances and educate yourself about your options. Speaking with an experienced bankruptcy attorney is a solid first step in taking control and building a better future.

Nuns in Bankruptcy Court

Bryan Fears — Mon, 12 Dec 2011 07:00:00 -0600

What an unusual headline: “More Nuns in Bankruptcy Court.” That was the news story on Senior Housing News, a website that reports on the senior housing industry. This story, which was also reported on by Business Week, concerns Clare Oaks, a retirement community in a Chicago suburb. Clare Oaks filed for Chapter 11 bankruptcy protection to restructure its debts. What makes the story newsworthy is that Clare Oaks was founded by The Sisters of St. Joseph of the Third Order of St. Francis, a Roman Catholic religious institute.

The Clare Oaks bankruptcy is the third time in two months that Chicago area nuns have wound up in bankruptcy court. In November, The Franciscan Sisters of Chicago Service Corporation filed Chapter 11 to restructure debts owed by a luxury senior living facility located in Chicago. That same month The Franciscan Sisters of Chicago also filed a Chapter 11 for a facility in Ohio.

Nuns in bankruptcy court may be an unusual event, but in today’s sluggish economy, major sports teams, cities, airlines, and even churches have found themselves in bankruptcy court. Most large corporations and institutions file bankruptcy to give themselves breathing room and an opportunity to restructure their finances. Bankruptcy court is an effective place for debtors and creditors to come to a fair reconciliation regarding debts.

These same principles apply to individuals. An individual bankruptcy under Chapter 7, 11, or 13, can give you time and space to effectively reorganize. Once you file a bankruptcy, all creditor collection action must stop immediately. Your attorney can work to negotiate with your creditors, or in some cases, you can discharge the debt entirely and permanently.

The lesson to be learned from “nuns in bankruptcy court” is that bankruptcy is not morally wrong. There is nothing evil in seeking bankruptcy help, just as there is nothing inherently wrong with credit. Bankruptcy and credit are simply financial tools.

If you need financial help, be sure to explore all of your options. An experienced attorney can explain the bankruptcy process and how the federal laws can help give you time and the legal ability to restructure your finances.