Texas Bankruptcy Blog

Loading Up on Debt Prior to Bankruptcy

Bryan Fears — Wed, 10 Mar 2010 07:57:13 -0600

For most, the decision to file a bankruptcy is a tough choice. It is the final step in a long journey that has included great compromise and sacrifice. A person usually experiences a sense relief when deciding to file bankruptcy, and there may be a tendency to "let go" of your debt problem. Unfortunately, in some cases people will “let go” by recklessly spending money and running up credit card balances.

It is generally not a good idea to incur any new debt before a bankruptcy filing. The Bankruptcy Code has several provisions prohibiting the debtor from loading up on debt prior to filing bankruptcy. One of the most commonly cited is a spending spree prohibition against purchasing “luxury goods or services” totaling more than $550.00 within 90 days prior to filing a bankruptcy case. Another provision makes credit card cash advances presumptively non-dischargeable if taken within 70 days prior to the bankruptcy filing.

Recently the United States Supreme Court in Milavetz, Gallop & Milavetz, P. A. v. United States reiterated that incurring new debt before bankruptcy with the intent to discharge the debt is not only prohibited, but may also amount to civil fraud or a criminal act. The high court said that bankruptcy attorneys cannot instruct or encourage debtors to take on more dischargeable debt before bankruptcy, but attorneys “remain free to talk fully and candidly about the incurrence of debt in contemplation of filing a bankruptcy case.”

There are many situations where taking on additional debt is beneficial and permissible. The Supreme Court cited three of those situations in the Milavetz opinion: (1) refinancing a mortgage; (2) purchasing a reliable car; and (3) incurring “additional debt to buy groceries, pay medical bills, or make other purchases ‘reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor[.]’”

The bankruptcy process can relieve you of many financial worries. However, your path to financial recovery can be complicated without the sound advice from an experienced bankruptcy attorney. Don’t make any significant financial decisions prior to filing bankruptcy without consulting your attorney.

Protecting Your Attorney Client Privilege in Bankruptcy

Bryan Fears — Mon, 08 Mar 2010 07:12:03 -0600

Most bankruptcy clients are aware of the attorney-client privilege, an evidentiary rule that protects confidential communications between an attorney and client. It encourages candid communication between clients and attorneys without fear that the discussion will be used against the client. This privilege belongs to the client and the client determines when to waive it. The privilege exists generally in every legal forum in the United States, however its application can vary.

In a Chapter 7 bankruptcy case, a trustee is appointed to administer the case and liquidate the debtor's nonexempt assets. In performing these duties it may become important for the trustee to have certain information and the trustee may seek to have the debtor’s attorney disclose information obtained during a confidential attorney client discussion.

To compel the disclosure of this information, the trustee may invoke section 542(e) of the Bankruptcy Code which states that “[s]ubject to any applicable privilege, after notice and a hearing, the court may order an attorney, accountant, or other person that holds recorded information. . . relating to the debtor’s property or financial affairs, to turn over or disclose such recorded information to the trustee.” In opposing this disclosure, the debtor may assert the attorney-client privilege and argue that the trustee does not have the power to waive this privilege.

Bankruptcy Courts have taken three different approaches to resolving the issue of whether the trustee can waive the attorney-client privilege: (1) the trustee can waive attorney-client privilege; (2) the attorney-client privilege is absolute and cannot be waived by the trustee; and (3) whether the trustee is entitled to waive the attorney-client privilege depends upon the circumstances in the case. Bankruptcy courts using this last test generally balance the benefit to the bankruptcy estate against the potential harm to the debtor. See In re Courtney, 372 B.R. 519 (Bankr. M.D. Fla. 2007).

The bottom line is “let the client beware!” Discussions with your bankruptcy attorney, personal injury attorney, or other attorney may be subject to disclosure during your bankruptcy case. While most financial records would not be subject to the attorney-client privilege, the discussion of these records with your client may be privileged. Be warned that protecting this privileged communication may be at the discretion of the bankruptcy court.

The bankruptcy laws are constantly changing. Make sure that your fresh start is not a false start and hire an experienced and knowledgeable bankruptcy attorney who can protect your rights.

5 financial jams that bankruptcy can resolve

Bryan Fears — Sun, 07 Mar 2010 10:55:05 -0600

Consumers who file for bankruptcy tend to face a lot of the same problems, such as the loss of a job or a serious illness. For these individuals, bankruptcy is often a viable option for getting their finances back on track after a life-changing event.

Here are five of the most common financial pitfalls from which bankruptcy can help save a consumer.

1. Severe or prolonged illness

A prolonged or serious illness can lead to massive medical bills. Some families find themselves unable to get out from underneath mounting medical expenses. Bankruptcy is a legitimate way to eliminate medical-related debts.

Because medical bills are unsecured debts, they can be discharged in bankruptcy. In these cases, a Chapter 7 liquidation bankruptcy is often a viable option for eliminating your medical bills and getting your finances back under control.

2. Job loss

The poor economy has resulted in job loss and layoffs for countless individuals in Texas and across the United States. The reduction in income that comes from a job loss is one of the most common reasons for individuals filing bankruptcy.

Even if you find a new job, it can be difficult to catch up on your past overdue mortgage, car and credit card payments. Bankruptcy will stop the garnishment on your wages at your new job.

For individuals who find themselves suddenly without a job, bankruptcy may be the best solution.

3. Divorce

As a result of a divorce, debts are often apportioned between the two former spouses. One spouse may find themselves unable to repay their portion of the debt. Bankruptcy, be it Chapter 7 or Chapter 13, is one way that this individual can get back in charge of their finances.

Note that child support and alimony payments are not dischargeable debts in bankruptcy. Bankruptcy, however, can still wipe out unsecured debts incurred as a result of a divorce.

4. Massive consumer debt

Most consumers who file for Chapter 7 bankruptcy have between $50,000 and $75,000 in debt. With interest mounting on credit card debts, it can be difficult, if not impossible, for these consumers to catch up on their payments.

Rather than liquidating your retirement savings, you can consider filing for bankruptcy and have those debts discharged. Bankruptcy, in some cases, can be a matter of saving your financial future.

5. Impending foreclosure

Bankruptcy can be the solution for a homeowner who is facing imminent foreclosure. Filing for bankruptcy can put an immediate stop to a foreclosure. In many cases, due to exemptions, the homeowner will be able to keep their property.

If you are considering filing for bankruptcy in Texas for these other reasons, contact a qualified bankruptcy attorney today to receive expert advice on your options.

Consumer bankruptcy filings up in 2010

Bryan Fears — Sat, 06 Mar 2010 18:55:50 -0600

Bankruptcy filings are on the rise – that’s according to the American Bankruptcy Institute which pulled data from the National Bankruptcy Research Center. This past February, 111,693 consumer bankruptcies were filed, which represents a 14% increase over the 98,344 consumer bankruptcy filings in February of 2009.

The number of consumer bankruptcies filed in February was also 9% higher than the 102,254 filings in January 2010.

The director of the American Bankruptcy Institute, Samuel Gerdano, believes that the number of bankruptcies filed in 2010 could ultimately exceed 1.5 million.

Last year, there were more than 1.4 million bankruptcy filings, including both consumer and business bankruptcies. That represented a 31.9% increase over the previous year, according to a report released by the Administrative Office of the U.S. Courts (AOUSC).

Of those bankruptcies, says the AOUSC, the majority were filed by consumers rather than businesses. Overall, consumer bankruptcies in 2009 increased 32% from the 1.07 million filed in 2008.

While business bankruptcies may have totaled fewer than consumer bankruptcy filings, the overall increase was higher, with 60,837 filings equating to a 40% increase over 2008.

If you are considering filing for bankruptcy in Texas, seek the advice of a qualified bankruptcy attorney today.

Employment Discrimination and Bankruptcy

Bryan Fears — Fri, 05 Mar 2010 07:14:58 -0600

Most bankruptcy clients worry about how a bankruptcy might disrupt their lives. While many of these fears are unfounded, it is important for you to know the truth about the bankruptcy process and how it may affect you after your case. One serious matter is how a bankruptcy may affect an individual’s employment.

The first concern is how a bankruptcy can affect your current job. An employer will not receive notice of your bankruptcy except under two circumstances. First, you owe a debt to your employer, the bankruptcy court will notify your employer. Second, if you file a chapter 13 debt repayment bankruptcy, and choose a voluntary wage garnishment to pay creditors, your employer will be notified.

Additionally, section 525 of the Bankruptcy Code prohibits a government or private employer from terminating or discriminating against an employee who files bankruptcy. You cannot be fired from your current job because you filed bankruptcy.

A second concern is how a bankruptcy may affect your ability to get a job. Government employers are absolutely prohibited from denying employment to a person solely on the basis of a bankruptcy filing. As for private employers, most courts have found that the bankruptcy code does not prohibit a private employer from denying a person employment because of a bankruptcy filing.

Refusing to hire a person solely because of a bankruptcy filing seems like a very short-sighted and naïve policy. Consider that the U.S. Census Bureau estimates there are around 308 million people in the United States. From 2000 to 2009, there were over 13 million non-business bankruptcy filings (source: American Bankruptcy Institute). That is over four bankruptcy filings per one hundred people. That figure rises substantially once you take into account that the census includes many that are not in the “working” population, and that many of the non-business bankruptcy filings were joint husband and wife filings. Add to the fact that there are many legitimate and blameless reasons for filing bankruptcy, and it is no wonder that most employers do not discriminate based upon a bankruptcy filing.

If you are experiencing financial difficulty, consult with a bankruptcy attorney and explore your options. Bankruptcy is a federally guaranteed legal process that helps individuals recover from overwhelming financial hardship. Get your financial fresh start today.

Potential lawsuits are an asset for purposes of filing bankruptcy

Bryan Fears — Thu, 04 Mar 2010 08:53:27 -0600

When you file for bankruptcy in Texas, you are required to list all of your assets on your bankruptcy petition. What many debtors do not realize, however, is that a potential legal claim against a third party is considered an asset for purposes of bankruptcy.

A bankruptcy attorney should always ask their clients whether they have any claims against any third party that could potentially be filed in court. Essentially, your bankruptcy attorney needs to know if you have any potential lawsuits.

Why is a potential lawsuit an asset? Because, if you file the claim and win the lawsuit, then you will likely receive financial compensation – and that money is obviously another asset.

One reason that it is so important that you tell your bankruptcy attorney about any potential lawsuits is that if you fail to list the claim on your bankruptcy petition, you could forever lose your right to file a lawsuit based on that claim.

For example, if you have a potential personal injury lawsuit against a driver that caused a car accident in which you were hurt, you must list that potential lawsuit as an asset. If you don’t list it, and you later attempt to file that lawsuit, you may be found guilty of committing bankruptcy fraud. You would then be prohibited from filing the lawsuit even after your bankruptcy case has concluded.

Upon your filing for bankruptcy, a bankruptcy estate is created. All of your assets, which includes potential lawsuits, then become the property of this estate. That is, it becomes property of the bankruptcy estate unless you are able to exempt it, which means that the proceeds of the settlement would be distributed amongst your creditors. For that reason, it is always the smartest move to list and attempt to exempt an asset than to not list it at all.

As always, being completely open and honest with your bankruptcy attorney is key to filing a successful petition.

Options When Sued Over Credit Card Debt

Bryan Fears — Tue, 02 Mar 2010 16:08:11 -0600

Receiving a lawsuit summons is a very scary thing. Whether served by a law enforcement officer, private process server, or received by mail, the idea of facing a judge and a skilled attorney is very intimidating. Fortunately, your legal options are very clear: (1) do nothing; (2) defend the law suit; (3) negotiate a settlement; or (4) file a bankruptcy.

The first option, do nothing, is obviously a bad choice. The court will enter a judgment against you and your wages may be garnished or property seized (e.g. the contents of a bank account). Even if the debt is ultimately paid or discharged in bankruptcy, the judgment will remain on your credit report for at least seven (7) years.

The second and third options, defend the law suit and/or negotiate a settlement, are very difficult to accomplish. Once the creditor has hired an attorney and filed a lawsuit there is very little that a person or non-attorney debt settlement firm can do to “settle” the debt. The collection attorney will use the legal processes to its advantage and knows that an unrepresented person is generally unable to successfully defend the lawsuit. Even the lay-person-friendly small claims process can be filled with pitfalls. Additionally, the cost of hiring an attorney and defending a lawsuit can get very expensive and the collection attorney is betting that you will not pay $3,000 to an attorney to contest a $3,000 credit card debt. The collection attorney believes (rightly) that it has the advantage and will ultimately obtain a legally enforceable judgment against you. Depending on your cardholder agreement, you may be liable for the principal, interest, penalties, court fees, and attorney fees. Why would they settle for less?

The final option, bankruptcy, is a very powerful tool. Bankruptcy immediately stops the lawsuit and prevents the entry of a judgment. Once the individual’s obligation to pay the debt is discharged by the bankruptcy court, the lawsuit must be dismissedand cannot be refilled. Filing bankruptcy prevents almost all future lawsuits from being filed and can discharge the obligation to pay most court judgments.

If you have been sued by a credit card company, discuss your situation with an experienced bankruptcy attorney. There are many options for dealing with your financial difficulty, and a bankruptcy attorney can help you select the best course of action for you and your family.

5 surprising secrets about Texas bankruptcy revealed

Bryan Fears — Mon, 01 Mar 2010 12:43:13 -0600

People often fear the idea of filing for bankruptcy in Texas because they are operating under myths and misconceptions. The fact is, there is a lot about Texas bankruptcy that most people don’t know.

To help you make a more informed decision, Fears | Nachawati – a team of experienced Texas bankruptcy attorneys – has put together this list of five of the most surprising secrets about bankruptcy:

1. You may be able to keep most, if not all, of your property: Texas bankruptcy law allows you to choose between Texas state exemptions and federal exemptions. These exemptions allow you to keep a good deal, if not all, of your property when you file for bankruptcy. For example, in Texas, you may be able to keep your car, home, household goods, jewelry and retirement savings, among other things.

2. There is no minimum amount of debt necessary to file for bankruptcy in Texas: No law, in Texas or elsewhere, exists that dictates the amount of money you must owe in order to file for bankruptcy. Bankruptcy laws were designed to help out individuals who are unable to pay their existing debts. Whether or not you can file for Chapter 7 bankruptcy in Texas is a matter of evaluating your debts, assets and income.

3. It is possible to get credit after bankruptcy: Because bankruptcy does negatively affect your credit for a time and does remain on your credit report for up to 10 years, many people understandably but mistakenly believe that they will never be able to obtain credit again if they file for bankruptcy in Texas. However, the reality is that you will be able to get credit within a relatively short time after you file for bankruptcy. You will, for instance, be able to get secured credit cards that will improve your credit score. You might even be able to get a mortgage within as little as two years after filing for Texas bankruptcy.

4. Your employer will not be notified of your bankruptcy: While it is true that bankruptcy records are public, there is little chance that your employer will find out about your bankruptcy. No one from the bankruptcy court will notify your employer of your bankruptcy. The only people who will know about your Texas bankruptcy are your creditors and the people that you choose to tell.

5. Your spouse is not required to file for bankruptcy with you: There is absolutely no legal requirement that you and your spouse file jointly for bankruptcy in Texas. One spouse can file for bankruptcy without the other. The effect that your bankruptcy will have on your spouse’s assets and liabilities is a question that can be answered by a qualified Texas bankruptcy attorney.

Popular Half-Truths About Bankruptcy

Bryan Fears — Mon, 01 Mar 2010 08:19:15 -0600

The internet is full of half-truths that feed the speculative fears of the evils of bankruptcy. Most of this information comes from sources outside the bankruptcy process, like debt counselors, or financial planners who often are selling alternatives to bankruptcy. The most commonly stated “reasons to avoid bankruptcy” are:

1. It will ruin your credit

2. You will lose property

3. Not all debts are eliminated

4. You may be subject to repossession or foreclosure

5. You may not be able to get a job

6. You cannot get credit

Those are serious allegations, so let’s look at them.

First, bankruptcy is typically a last-resort option, so the average bankruptcy filer’s credit is already ruined. The bankruptcy wipes the slate clean and stops future adverse reporting for past debts. In other words, if you are 120 days late on a credit card, your credit report will continue to show that you are 120 days late month after month. A bankruptcy stops that reporting from the day you file your case so your credit can improve.

Second, it is exceedingly rare that a debtor loses property unexpectedly. When it happens it is generally the result of poor communication with the client. In all other cases the debtor will only lose property that is voluntarily surrendered, meaning the debtor has made a financial decision to not keep a house or car.

Third, there are actually very few debts that cannot be eliminated. The most common types are child support, some IRS debts, and student loans. However, even these non-dischargeable debts can be managed within the bankruptcy.

Fourth, the bankruptcy automatic stay will stop any foreclosure or repossession. If the creditor wants to take possession of the property after the bankruptcy filing, it must petition the bankruptcy court for permission.

Fifth, it is against the federal law to discriminate against a job applicant solely on the basis of filing a bankruptcy.

Sixth, many bankruptcy debtors have rebuild their financial lives within a year or two of the bankruptcy filing. It takes time and effort to rebuild, but there are no past debts to drag you down!

Don’t get your bankruptcy information from internet sources that use scare tactics and half-truths. Talk to an experienced bankruptcy attorney and get the facts. Find out how bankruptcy can solve your debt problems today.

When can I apply for credit after filing for bankruptcy?

Bryan Fears — Fri, 26 Feb 2010 13:24:07 -0600

The decision whether to extend a person credit is up to each individual creditor. There is no law that dictates how long you must wait after filing for bankruptcy before you can seek a credit card or loan.

Creditors vary greatly from one another in their willingness to grant credit to a person who has recently filed for bankruptcy. While bankruptcy can remain on your credit report for up to 10 years, it is quite possible to establish good credit within a short time after filing for bankruptcy.

Obtaining and using credit is critical to your ability to improve your credit score after bankruptcy, which is why financial experts recommend that you apply for a secured credit card. With a secured credit card, you are given a line of credit equal to an amount of money you deposit with the issuing bank. You may be able to find one that converts to an unsecured credit card after 12 to 18 months of on-time payments.

Another important step you can take to rebuild your credit after bankruptcy is ensuring that your credit report is accurate. Review a copy of your credit report to ensure you’re your discharged debts are no longer listed as open and overdue.

The bottom line is that credit will be available to you even after you file for bankruptcy. You won’t have to wait until the bankruptcy disappears from your credit report before you will be able to obtain a loan or credit card.

Oh, Those Misbehaving Debt Collectors

Bryan Fears — Fri, 26 Feb 2010 08:01:06 -0600

When Congress passed the Fair Debt Collections Practices Act (“FDCPA”) it stated that its purpose is “to eliminate abusive debt collection practices by debt collectors[.]” Congress cited the need for consumer protection because of the “abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors. Abusive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.”

Abusive debt collection practices are just bad news.

On February 22, 2010, the United States Supreme Court declined to hear an appeal from the Fifth Circuit U.S. Court of Appeals on a FDCPA case: Kay v. Gonzales, U.S., No. 09-542. In that case the Plaintiff, Jose Gonzalez, received a letter from the Kay Law Firm. The letter, written on law firm letterhead and unsigned, told Gonzalez, “Please be advised that your account, as referenced above, is being handled by this office.” On the back of the letter was this statement: “At this point in time, no attorney with this firm has personally reviewed the particular circumstances of your account.” Gonzalez sued the Kay Law Firm for violating the FDCPA which prohibits debt collectors from falsely representing or implying that the debt collector is an attorney or that the communication is from an attorney.

The federal district court found that the disclaimer was sufficient to notify Gonzalez that the collection matter was not being handled by an attorney and the Gonzalez’s case was dismissed. On appeal the Fifth Circuit Court of Appeals found that the letter’s disclaimer on the back was mixed in with “legalese” which may not be sufficient to notify the consumer of the attorney’s non-involvement in the case. The Fifth Circuit reversed the district court dismissal and remanded the case for trial. Gonzalez v. Kay, No. 08-20544 (5^th Cir., 2009). Now that the Supreme Court has denied the Kay Law Firm’s appeal, Mr. Gonzalez will have his day in court.

The Fifth Circuit in its opinion cites the Seventh Circuit Court of Appeals for why it is important to protect against this type of deceptive collection practice:

“An unsophisticated consumer, getting a letter from an ‘attorney,’ knows the price of poker has just gone up. And that clearly is the reason why the dunning campaign escalates from the collection agency, which might not strike fear in the heart of the consumer, to the attorney, who is better positioned to get the debtor’s knees knocking.”

Avila v. Rubin, 84 F.3d 222, 229 (7th Cir. 1996).

If you receive a collection letter from a law firm, speak to an experienced bankruptcy attorney and learn your rights. Bankruptcy attorneys are trained in matters of debt defense and can help explain your rights under the FDCPA and the federal bankruptcy laws. Don’t let an unscrupulous debt collector get your “knees knocking.”

Will my spouse's assets be affected if I file for bankruptcy?

Bryan Fears — Thu, 25 Feb 2010 10:17:37 -0600

There is no legal requirement that both spouses file for bankruptcy. If you choose to file for bankruptcy alone, in general, your spouse’s assets and liabilities will not be directly affected. Just because you are married, that does not make your spouse automatically responsible for all of your debts.

However, there are some ways that bankruptcy could potentially have an effect on your spouse. If an asset, such as a house, is owned jointly by both spouses, then the Trustee will liquidate the one-half interest owned by the spouse who is filing for bankruptcy. Also, if both you and your spouse are responsible for a debt, such as a loan, then the non-filing spouse will then be liable for the full debt.

But, as long as your spouse is not responsible for any of your debt, they will not be affected by you filing for bankruptcy. Also, your spouse’s credit rating will not be affected if you file for bankruptcy.

An experienced Texas bankruptcy attorney can help you understand what, if any, effect your bankruptcy filing will have on your spouse’s debts and assets.

How to Find a Bankruptcy Attorney Online

Bryan Fears — Wed, 24 Feb 2010 07:59:36 -0600

While many attorneys advertise their qualifications on their web sites, NO ONE should hire legal counsel based solely upon the results of an online search. However, information you obtain from the internet can be useful in narrowing your search, provided you know what to look for in a prospective bankruptcy attorney.

First, is the attorney licensed to practice in your area? Usually the attorney’s biography will state his or her bar admissions. Each of the 94 federal judicial districts has a bankruptcy court, and these courts are defined by geographic jurisdictions. More information concerning federal court geographic boundaries can be found here.

An attorney who is not a member of the bar where you reside will have to petition the court for admission pro hac vice (“for this event only”). An attorney who is not active in a court may not have useful information regarding the bankruptcy judge, the trustee, local customs and rules, or contacts to make your case go smoothly.

Second, how long has the attorney been practicing bankruptcy law? The federal bankruptcy laws are complex and attorneys spend years learning how to successfully navigate a case from start to finish. Don’t be a test case or a learning experience for a new attorney.

Third, does the attorney belong to any professional associations? The National Association of Consumer Bankruptcy Attorneys and the American Bankruptcy Institute are two outstanding resources for attorneys to keep current on changes in the bankruptcy law. Member attorneys also receive training and information that is beneficial to their clients.

An experienced bankruptcy attorney is easy to find, if you know the tell-tale signs. Use these signs to narrow your search, and then interview your candidates either by phone or in-person. Your choice of a bankruptcy attorney is a serious matter and should be carefully considered, so get to know your attorney’s qualifications before your make a hiring decision.

Six mistakes to avoid before you file for bankruptcy

Bryan Fears — Mon, 22 Feb 2010 10:20:35 -0600

Here are six common mistakes that debtors make when they are considering filing for bankruptcy – mistakes that can lead to additional debt and even to having your bankruptcy petition dismissed.

Avoid the following mistakes to ensure that your bankruptcy petition is successful and that as much debt as possible is discharged:

1. Running up credit card bills once you’ve decided to file for bankruptcy: Some debtors mistakenly believe that they can charge as much to their credit cards as they want since their debts are going to be eliminated in bankruptcy. The fact is, however, certain debts you incur within 90 days before filing for bankruptcy are non-dischargeable – which means you’re left with the bill and you won’t get the clean slate you were hoping for.

2. Transferring property out of your name: Often consumers mistakenly believe that they can protect assets such as their home or car by giving it to a family member before they file for bankruptcy. Under the law, a bankruptcy trustee has the authority to reverse transfers of property if those transfers were made in an attempt to hide assets from creditors. Undertaking these transfers is typically unnecessary anyway because property exemptions allow debtors to keep much of their property after filing for bankruptcy.

3. Repaying family members:Under bankruptcy law, you cannot treat one creditor more favorably than another, and that includes family members.Payments that you make to family members within one year of filing for bankruptcy may actually be reclaimed by the bankruptcy trustee and then distributed proportionately amongst your creditors.

4. Liquidating your retirement account: In general, retirement accounts are considered exempt property in bankruptcy filings. By cashing out your retirement accounts, you could lose your security for the future while still being left with considerable debts.

5. Using an equity line of credit to pay off debt: Under bankruptcy law, you typically have the ability to claim an exemption for equity in your home, which means that you retain that equity even after you go through bankruptcy. If you convert your equity into debt before filing for bankruptcy, however, you may be left with new debt that will be non-dischargeable, meaning you will still be responsible for paying it off even after your other debts have been wiped out.

6. Failing to be completely honest with your bankruptcy attorney: Unless your bankruptcy attorney has complete and accurate information about your debts and assets, they cannot properly file your bankruptcy petition. By withholding information from your bankruptcy attorney, you are taking the chance of having your bankruptcy petition dismissed as well as losing out on assets you may otherwise have been able to keep. Attempting to hide an asset can even result in criminal charges.

Remember, your bankruptcy attorney is there to help you, not judge you – there is no reason why you can’t be completely open and honest with your bankruptcy attorney throughout the entire process.

The ABCs of Bankruptcy

Bryan Fears — Mon, 22 Feb 2010 08:36:17 -0600

Bankruptcy law has its own confusing language. It is a good idea to have a basic understanding of bankruptcy terms before your initial consultation with a bankruptcy attorney. While most bankruptcy attorneys are very skilled at explaining the bankruptcy process and its impact to their clients in plain language, sometimes technical terms can sneak into the conversation. Below is a very general explanation of the most common bankruptcy terms:

Automatic stay – a court injunction that stops all collection action against the debtor. The automatic stay is effective immediately upon filing the bankruptcy

Bankruptcy estate – the debtor’s legal and equitable interest in property at the time the bankruptcy case is filed

Chapter – a section of the bankruptcy code. Some chapters are general and apply to all cases; other chapters apply only to specific bankruptcy cases.

Debtor – an individual who files a bankruptcy petition

Discharge – a court permanent injunction prohibiting the collection action against the debtor personally for any debt discharged in the bankruptcy

Equity – the value of a debtor's interest in property after subtracting monetary liens

Exemptions – legal protections that shields property from creditor collection

Means test – a calculation of the debtor’s income and expenses meant to determine the debtor’s ability to pay creditors

No-asset case – a Chapter 7 case where there are no assets available to satisfy any portion of the creditors' unsecured claims

Nondischargeable debt – a debt that cannot be absolved through bankruptcy and the debtor remains personally liable after the bankruptcy case has closed.

Petition – the papers filed by the debtor that commences the bankruptcy.

Plan – the debtor’s description of repayment of debt during a Chapter 13 bankruptcy

Preference – a debt that was paid prior to the bankruptcy when the debtor was insolvent and unable to pay other creditors

Proof of claim – the creditor’s claim and verification of a debt

Reaffirmation agreement – an agreement between the debtor and creditor that entitles the debtor to retain property in exchange for continued personal liability to pay a debt (common examples are a car or house loan)

Schedules – the detailed description of the property, debts, income and expenses of the debtor

Secured creditor – a creditor holding a lien against property of the debtor’s as security for payment of a debt

341 meeting – a mandatory meeting that the debtor must attend with the trustee. The debtor’s creditors are invited to the 341 meeting and are allowed to ask questions.

Trustee – an individual appointed to oversee the debtor’s bankruptcy case. This is not the bankruptcy judge.

Can I Have Money in a Bank Account When I File Bankruptcy?

Bryan Fears — Fri, 19 Feb 2010 09:47:32 -0600

The two most common types of consumer bankruptcies are Chapter 7 and Chapter 13. In a Chapter 7 all of the debtor’s property is placed into an estate which is controlled by the bankruptcy trustee. While no property physically changes hands (at least not at the beginning of the case), the trustee and bankruptcy court have broad legal power over your property. If you have money in a bank account on the day you file, your bank account and money are assets of the bankruptcy estate. You are no longer free to transfer funds or assets as they now belong to the bankruptcy estate.

Take for example that you have $5,000 sitting in your checking account on the day you file bankruptcy. That money is property of the Chapter 7 bankruptcy estate and is no longer yours to control or use. If you take the $5,000 out of the bank the day after filing to pay your mortgage payment and other bills, the Chapter 7 trustee can seek to recover those funds, either from you or from the payee.

During a Chapter 13 bankruptcy the debtor retains possession and control over his or her property, and is free to use any funds in the debtor’s bank account. An accounting is performed and the debtor’s property is classified as either exempt or non-exempt. Non-exempt property is not taken from the debtor (as is often the case in a Chapter 7), but the Chapter 13 debtor is required to pay unsecured creditors a sum equal to the amount of non-exempt equity. For instance, if there is $5,000 in the debtor’s bank account, the debtor may only be able to exempt a portion of the entire sum. The non-exempt portion must be paid to the creditors through the debtor’s Chapter 13 plan (over three to five years).

Cash in a bank account can be a problematic issue for a debtor. Avoiding these problems is the joint responsibility of the debtor and the debtor’s bankruptcy attorney. Timing is critical to minimizing your financial exposure. An experienced bankruptcy attorney can help you maximize the benefits of the bankruptcy laws and navigate around any pitfalls.

When Your Town Goes Bust

Bryan Fears — Wed, 17 Feb 2010 10:59:34 -0600

Lately municipal bankruptcy has been the subject of many news features as economic troubles press cities to consider their legal options. San Diego and Los Angeles are two major cities that are reportedly considering federal bankruptcy protection.

While federal bankruptcy protection has been available to U.S. cities since the 1930’s, only a few hundred have actually filed. Chapter 9 of the Bankruptcy Code provides a financially distressed municipality the opportunity to reorganize its debts under federal protection. A “municipality” as defined in the Bankruptcy Code includes cities, counties, and special districts. This definition does not include states.

A Chapter 9 bankruptcy can only be commenced after the governing body specifically authorizes the filing. Twenty-six U.S. states have prohibited their municipalities from filing bankruptcy: Alaska, Delaware, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Mississippi, Nevada, New Hampshire, New Mexico, North Dakota, Oregon, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia, West Virginia, Wisconsin, and Wyoming.

Once filed the federal bankruptcy law’s automatic stay provision enjoins creditors from taking any collection action against the municipality. The automatic stay provides an opportunity for the municipality to raise new revenues, renegotiate contracts, or restructure its debt without pressure from creditors. Chapter 9 is tricky business for the bankruptcy court because the Tenth Amendment to the U.S. Constitution and section 904 of the Bankruptcy Code prevents a federal bankruptcy court from interfering with the city’s political or governmental powers. The bankruptcy judge is largely a facilitator of the restructuring process.

The essence of a Chapter 9 bankruptcy is that it gives the municipality an opportunity to reorganize and restructure its debts through an agreement with its creditors called a “Plan of Adjustment.” If a creditor cannot agree with the municipality, Chapter 9 allows the bankruptcy court to force the municipality’s Plan of Adjustment on the non-consenting creditor. The bankrupt municipality is also empowered to accept or reject contracts and leases through the Plan of Adjustment.

Chapter 9 municipal bankruptcy is a very rare and special bankruptcy case. The stigma and complexity of Chapter 9 makes it a last option for U.S. municipalities. However, if the debt problem is serious and substantial enough, the federal bankruptcy laws can protect a city of millions and give it a chance for a fresh start, just like it can protect an individual or family in financial distress.

Bankruptcy and Court Ordered Marital Obligations

Bryan Fears — Mon, 15 Feb 2010 09:03:56 -0600

Bankruptcy can have a serious impact on an ex-spouse. That is because a family court will often assign payment of a joint debt to one party only. In many cases the obligated party lacks the resources to pay the debt in full or to refinance it. Therefore the ex-spouse remains legally obligated to the creditor. This is often the case with automobile debt and credit cards with large balances.

A court-ordered debt to a former spouse is given special consideration by the bankruptcy laws. In a Chapter 7 bankruptcy case these debts are generally non-dischargeable. An order directing payment to a third party (e.g. a mortgage payment) is also generally non-dischargeable if the payment is effectively a form of spousal support. Even an obligation to pay your ex-spouse's attorney fees in connection with the divorce proceeding is generally non-dischargeable.

While past due support obligations are also non-dischargeable debts in a Chapter 13 bankruptcy, debts not in the nature of support (e.g. a division of marital property) can be discharged. The ex-spouse must contest the debtor's characterization of the obligation and convince the bankruptcy court that the debt is a support obligation in order to save it from discharge. If the court determines the debt is a support obligation, it must be paid by the debtor through the Chapter 13 bankruptcy.

Whether the family court-ordered obligation arises from a property division or from a support obligation, the ex-spouse will likely suffer harm from the debtor's bankruptcy filing. The sad truth is that any non-payment of a joint monthly obligation will harm the ex-spouse's credit report and there is little that can be done to remedy it. If the debt is discharged through the debtor's Chapter 13 bankruptcy, the creditor may elect to pursue the ex-spouse and there will be no recourse against the debtor.

Regardless whether you or your ex-spouse owes a court-ordered joint obligation, if bankruptcy is in the future, you should seek professional help. It is important to evaluate the impact the bankruptcy will have on the debt and determine a course of action that will best protect you. Timing can be very critical, so consult with an experienced bankruptcy attorney early.

Will I Lose My Tax Refund by Filing Chapter 13 Bankruptcy?

Bryan Fears — Fri, 12 Feb 2010 07:02:45 -0600

A Chapter 13 bankruptcy is a repayment plan that lasts three to five years. During that time the debtor is required to devote all disposable income to the repayment of debt. Most bankruptcy trustees and courts consider tax refunds part of the debtor’s disposable income that is over-withheld and should be paid into the Chapter 13 plan. However, instead of reducing the amount payable under the debtor’s plan, tax refund money is paid to unsecured creditors that would otherwise not be paid. If the debtor is paying a 100% repayment plan, the trustee will not request turnover of any tax refunds.

Some courts have approved a provision in the Chapter 13 plan that requires the Internal Revenue Service to forward any tax refund to the trustee’s office. However, at least one bankruptcy court has found this practice to be unlawful. In United States v. Carroll, No. 2:09-cv-13505 (E.D.Mich. Jan. 20, 2010), the bankruptcy court concluded that the IRS was not a party to the debtor’s chapter 13 case and did not have an opportunity to object to the plan. Additionally, as a part of the United States government the IRS possesses sovereign immunity that it did not waive.

Keeping your money and avoiding an income tax turnover may be as simple as adjusting your paycheck withholding. By speaking to a tax professional you may be able to predict your tax liability and put more money in your pocket each payday. However, be careful to avoid a situation where you do not withhold enough taxes and end up with a large tax bill at the end of the year.

If your tax refund is largely due to an Earned Income Tax Credit (EITC), the IRS allows tax payers to request an advance payment of the EITC. Information regarding this advance payment program can be found on the IRS website. If you qualify, your employer will add additional money to your take-home pay each paycheck.

If you want to avoiding surprises during your Chapter 13 bankruptcy, seek out and hire an experienced bankruptcy attorney. An experienced bankruptcy attorney can discuss your financial situation with you and help you keep your hard-earned money for your family.

How long do bankruptcy cases take?

Bryan Fears — Thu, 11 Feb 2010 09:46:16 -0600

The length of a bankruptcy case depends primarily on which type of bankruptcy you file: Chapter 7 or Chapter 13.

The average Chapter 7 bankruptcy case takes between 3 and 6 months before the debtor receives their bankruptcy discharge. Because a discharge of debts is the goal of a Chapter 7 bankruptcy, the bankruptcy case, from the debtor’s perspective, is essentially over once the discharge is obtained.

Note that even though it takes 3 to 6 months to obtain a discharge, an automatic stay that protects you from further debt collection efforts goes into place immediately after you file for bankruptcy.

By their nature, Chapter 13 bankruptcies take longer than Chapter 7 bankruptcies. A Chapter 13 bankruptcy is a repayment plan. Under the repayment plan, the debtor is given a set amount of time – between 3 and 5 years – to repay the reduced debts. Once the repayment plan is successfully completed, the debtor’s remaining debts can be discharged.