Entries by Atlanta Bankruptcy Expert and Attorney Lorena Saedi

What Happens if You Receive a 1099 From a Creditor After You File for Bankruptcy?

1099 bankruptcy
WHY WAS I SENT A 1099-C AFTER DISCHARGE?
Did you receive a 1099-C after your bankruptcy discharge? A 1099-C is generated by a financial institution, such as a lender, after a qualifying event. A qualifying event occurs when the entity has written-off or canceled a debt in excess of $600. Cancelling the debt requires the bank to send you the 1099-C regardless of whether you received a discharge in bankruptcy. This means the 1099-C you received was likely generated appropriately, but does not mean that you must take it as actual income on your tax return.  If you had not filed bankruptcy, then you may have had to report the amount of forgiven debt on the 1099-C as gross income and pay taxes on the amount to the IRS. However, since you filed bankruptcy, generally there are no income tax consequences, but you will need to take appropriate action to handle the 1099-C.Note: Not all institutions send a 1099-C, so do not expect one for each debt you discharged. In addition, sometimes a 1099-C may be sent a few years after the bankruptcy discharge.WHAT DO I DO WITH THE 1099-C? EXCLUDING 1099-C CANCELED DEBT FROM INCOME AFTER BANKRUPTCY

In addition to filing your 1040 with the IRS, you will need to attach a Form 982 to your federal income tax return. By filling out Form 982 for the IRS, you will be letting them know that you are not adding the canceled debt to your gross income on your tax return and that the debt is excluded from your income due to the filing of a bankruptcy.  The instructions for Form 982 as well as IRS Publication 4681 provide more detail on excluding canceled debt from your income.

If you filed for bankruptcy and discharged the debt on the 1099-C in bankruptcy, then you should check box 1a.

This box says “Discharge of indebtedness in a title 11 case” (Title 11 is the bankruptcy code).

If you have any questions about Chapter 7 bankruptcy or Chapter 13 bankruptcy please feel free to go to https://saedilawgroup.com or contact us at [email protected]

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Converting Your Chapter 13 Bankruptcy Case to Chapter 7

Individuals who file for Chapter 13 bankruptcy sometimes find themselves unable to afford funding their Chapter 13 case.  Luckily, the bankruptcy laws were designed to anticipate this scenario and Congress realized that unexpected emergencies such as unforeseen bills, illness, and loss of employment happen. At this time of year in particular, we often see a large number of Chapter 13 clients that are considering converting to a Chapter 7 case.  At the start of the New Year, people often re-evaluate where they are financially.  In addition, many people will be receiving their income tax refunds and this can be a great time to make a new financial start with a Chapter 7 case. 

Switching Your Case to Chapter 7 Bankruptcy

There are always lots of different moving parts in a bankruptcy case so first and foremost, make sure that you schedule an appointment with your attorney to review your current situation before converting to Chapter 7.

The first question that needs to be answered is whether you are even eligible to proceed under Chapter 7 by converting your case. You must verify that it was over eight (8) years since the filing date of a prior Chapter 7 from the filing date of the Chapter 13 case. If you were not eligible to file for Chapter 7 when you filed your Chapter 13 case then you cannot convert your case.  You will need to look at whether you can file a motion to dismiss the Chapter 13 and then file Chapter 7. 

The advantage of converting to Chapter 7 from Chapter 13 is that you will only have to pay an additional $25.00 filing fee (Chapter 7 filing fee is $335.00 if you file it brand new). Additionally, you are not required to re-qualify under the bankruptcy Means Test. You will have to show however a new budget (Schedule I and J) to reflect that you can no longer afford your Chapter 13 payments and that you don’t have enough excess income to pay your bills.

A key issue to assess is whether you will have to allow the Chapter 7 trustee to liquidate your assets when you convert your case.  Before converting your case you need to review the fair marketing value of your assets with your attorney to ensure that they will be protected when you covert your case. If you are not able to protect your assets with the available exemptions then the Chapter 7 trustee can sell the assets for the benefit of your creditors.

Another consideration before you convert to Chapter 7 from Chapter 13 is whether you are paying off a vehicle loan inside your Chapter 13 Plan. Converting to Chapter 7 will cause the auto loan to, in most cases, go into default status because the loan was stretched out in the Chapter 13 Plan, most likely at a lowered interest rate. In many Chapter 13 Plans, the loan can be “crammed down,” meaning only the fair market value of the vehicle is considered a higher priority secured debt (which must get paid, with interest). Once you convert to Chapter 7 that all goes away so you lose that benefit of Chapter 13.

While some car creditors will just allow you to pick back up making your payments per a reaffirmation agreement, others will demand the account be caught up before allowing you to reaffirm the debt and retain the car.  There is no way we can no what creditor will agree to what so you need to be prepared for the worst if you decide to convert in regards to catching up your car payments.

Another thing to consider when converting a case to Chapter 7 is that you can include any creditors you owe or debts you incurred after you filed your Chapter 13 and up to the date of the conversion.  In addition, you keep the same case number that you were assigned when the case was first filed.  This means that instead of a 2nd bankruptcy case showing on your credit reports, you only have a single case showing.  

It is always a good idea to contact an attorney who is knowledgeable about the ins and outs of Chapter 7 and Chapter 13 bankruptcy when you are considering converting your Chapter 13 case to a Chapter 7 case. 

If you have any questions about Chapter 7 bankruptcy or Chapter 13 bankruptcy please feel free to go to https://saedilawgroup.com or contact us at [email protected]

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How Do You Deal with Timeshares in Bankruptcy?

What Type of Property Right is a Timeshare Exactly?

Time-sharing is an innovative form of property “ownership” borroweol from the computer industry. As the name implies, it is a method of creating multi- ple interests in a single piece of property by temporally dividing its use among as many as fifty purchasers. Each purchaser acquires the right to occupy theproperty during his “use period,” a recurring block of time lasting one to four weeks per year; title to the time-share property, usually a resort con- dominium, may either be retained by the developer or conveyed jointly to the purchasers.

Timeshares are typically structured either as shared deeded ownership or shared leased ownership:

Type 1: Shared Deeded Ownership

With shared deeded ownership, each owner is granted a percentage of the real property itself, correlating to the amount of time purchased. The owner receives a deed for his or her percentage of the unit, specifying when the owner can use the property.  This means that with deeded ownership, many deeds are issued for each property. For example, a condominium unit sold in one-week timeshare increments will have 52 total deeds when fully sold, one issued to each partial owner.

Type 2: Shared Leased Ownership Interest

If the timeshare is structured as a shared leased ownership, the developer retains deeded title to the property, and each owner holds a leased interest in the property. Each lease agreement entitles the owner to use a particular property each year for a set week, or a “floating” week during a set of dates.

If you buy a leased ownership timeshare, your interest in the property typically expires after a certain term of years, or at the latest, upon your death. A leased ownership also typically restricts property transfers more than a deeded ownership interest. This means as an owner, you might be restricted from selling or otherwise transferring your timeshare to another. Due to these factors, a leased ownership interest might be purchased for a lower purchase price than a similar deeded timeshare.

How Do You Deal With Timeshares in a Bankruptcy?

In bankruptcy, at least in the Northern District of Georgia where I practice, timeshares are almost always classified as luxury items.  How the timeshare is treated depends on what type of timeshare it is. For most of the people we meet with, they no longer have access to their original timeshare documents and are not 100% sure of what type of timeshare that they have.  It is for this reason that we always list the timeshare interest as an executory contract and with either assume or reject it in the case.

Shared Deeded Ownership Timeshare:

Most deeded timeshare programs divide ownership of a vacation unit into weekly shares. You buy an ownership interest in the unit for a specific week. This means you have an actual ownership interest in the real estate.  Bankruptcy treats fractional interest timeshares like other real estate that is not your primary residence. That is, assuming it is not exempt, the trustee can sell the timeshare and use the proceeds to repay your creditors. With that said, most timeshares are basically worthless or worth very little so most Chapter 7 trustee’s will not have an interest in your timeshare until.  If you want to retain the unit you will reaffirm on the debt and if you want to surrender it then you will need to list is as executory contract on Schedule G and also deed it back to the timeshare company.

If you are in a Chapter 13 bankruptcy you need to seriously consider if retaining the timeshare is really worth it because most of our Chapter 13 trustee‘s in the Northern District of Georgia will view this as a luxury item (I mean who really NEEDS a timeshare?) and if you are in a composition plan (meaning that you are not repaying all of your unsecured creditors) you will be forced to repay either 100% of your unsecured debts or a larger percentage.  I almost always advise my clients to surrender their timeshares because these are almost never a good investment and will just cause them to repay debts that they would have otherwise avoided paying.

Shared Leased Ownership Interest

In a right to use ownership arrangement, you buy only the right to use the unit during a specific week for a period of years. It is typically structured as a lease, which means you don’t have any actual ownership interest in the real estate.

Bankruptcy usually treats a right to use timeshare as a lease. A Chapter 7 trustee has the ability to assume the lease (take it over and continue it in force) or reject (terminate) the lease.  As noted above in regards to a Chapter 13 case, although you can choose to retain the timeshare, you will have to repay more to your unsecured creditors (if you are not repaying 100% of your unsecured creditors back) as this will be considered a luxury item not necessary to your reorganization.

How Do You Deal with Timeshare Maintenance Fees in Bankruptcy?

Maintenance fees that come due post-bankruptcy (after your case is filed) filing will continue to accrue against a debtor and the majority of courts provide that they are non-dischargeable. This means that you will still owe these debts every after you get out of bankruptcy. Therefore, what we advise most of our clients to do is to immediately get in touch with the timeshare company and deed the property back to them to avoid accrual of non-dischargeable post bankruptcy fees on the timeshare. What you don’t want to happen is to get out of bankruptcy with your fresh financial start and then years later get a collection lawsuit on post-petition timeshare fees on a timeshare that you never legally deeded back to the company and therefore still owned it.

If you are in a Chapter 13 bankruptcy and are going to retain the timeshare then you will need to reflect these monthly fees on Schedule J as an expense. You will continue to pay these fees through the life of your case.  If you are in a Chapter 13 bankruptcy and wish to surrender your timeshare you not only need to list this surrender on the plan but you also need to ensure that you deed back the timeshare.  Please note that because this is a transfer of property you will need to obtain court permission before doing this.  Review this with your attorney as each bankruptcy district has their own set of local rules for dealing with these matters.

If you are in a Chapter 7 bankruptcy and your are going to retain the timeshare then you will be required to reaffirm on this debt and continue to pay your fees.  Keep in mind that if you were behind on your maintenance fees before filing, and you want to reaffirm on this debt, then those past due fees will still be owed and will not discharged in the bankruptcy.

If you are in a Chapter 7 bankruptcy and you do want to surrender your timeshare then immediately get in touch with the timeshare company and deed the property back to them to avoid accrual of non-dischargeable post bankruptcy fees on the timeshare.

It is always a good idea to contact an attorney who is knowledgeable about the ins and outs of Chapter 7 and Chapter 13 bankruptcy when you have a timeshare and need to know how to handle it.

If you have any questions about Chapter 7 bankruptcy or Chapter 13 bankruptcy please feel free to go to https://saedilawgroup.com or contact us at [email protected]

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Can You Get Rid of Government Fines in Bankruptcy Cases?

Whether you can discharge a fine in bankruptcy will depend on why you were assessed the fine to begin with.  The general rule with respect to fines and court costs in criminal cases is that fines issued as punishment for the crime are not dischargeable in either a Chapter 7 or Chapter 13. This includes fines in a criminal sentencing order or restitution set out in a criminal sentencing order. Fines from a traffic ticket are also not discharged.

The Criminal Fines and Restitution Exception

Neither Chapter 7 nor Chapter 13 will allow a Debtor to write off criminal fines, penalties, forfeiture, or restitution. Section 523(a)(7) of the U.S. Bankruptcy Code provides that, under Chapter 7, any “fine, penalty, or forfeiture” owed to “a governmental unit” is excluded from discharge. .

Criminal restitution is also not written off in Chapter 7. Excluded are debts “for any payment of an order of restitution issued under title 18, United States Code.” Title 18 is the federal government’s criminal code. Bankruptcy courts have extended this to include state criminal restitution as well.

Chapter 13 excludes from write off “any debt . . . for restitution, or a criminal fine, included in a sentence on the debtor’s conviction of a crime.”  Section 1328(a)(3) of the Bankruptcy Code.

Are Any Government Fines Ever Dischargeable?

Fines that are related to court ordered reimbursement of governmental expenses are dischargeable in bankruptcy. Examples would be a fine to reimburse your city for not removing your trash when you were cited before. The fine is considered an attempt by the municipality to recoup an expense and is civil, not criminal, in nature. It can therefore be discharged.

Another common example of a government imposed debt is debt related to overpayment of public assistance benefits. These claims are civil in nature ( a claim for reimbursement of money paid), and therefore the claim can be discharged.

It is always a good idea to contact an attorney who is knowledgeable about the ins and outs of Chapter 7 and Chapter 13 bankruptcy when you cannot pay government debts, including criminal reimbursement fines or court related fines and costs.

If you have any questions about Chapter 7 bankruptcy or Chapter 13 bankruptcy please feel free to go to https://saedilawgroup.com or contact us at [email protected]

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Small Business Bankruptcy Chapter 7 Cases

Several times a week I receive a call from a business owner to discuss the closing of their business and how to deal with the often large debt owed by the company and usually personally guaranteed by the business owner. When it comes to closing a business, bankruptcy is one option that can allow a business owner to stop bleeding money and get a fresh start.

It’s a simple fact of entrepreneurship: Small businesses fail all the time and for many different reasons, some of which are outside of the owner’s control. If you’re falling deeper and deeper into debt by keeping your company open, sometimes the best business decision you can make is to shut down the business and cut your losses. (20% of small businesses fail in their first year, 30% of small business fail in their second year, and 50% of small businesses fail after five years in business. Finally, 70% of small business owners fail in their 10th year in business).

Who can file Chapter 7 bankruptcy?

Chapter 7 is a liquidation bankruptcy, which means all of your non-exempt assets will be sold off by a court-appointed trustee to repay your creditors. Both individuals and companies such as partnerships, limited liability companies (LLCs), and corporations can file for Chapter 7 bankruptcy. Business owners can file also Chapter 7 for themselves personally or their business.  A sole proprietor is personally liable for business debts so they can wipe out all debt with a personal filing. One thing to note however is that although business entities can file a Chapter 7  bankruptcy, they cannot receive a discharge like an individual debtor. 

Small Business Chapter 7 Bankruptcy Cases Are Often Not Necessary

When many people start a business—particularly first-time small-business owners—they are required to personally guarantee any leases, personal loans, credit cards, or equipment loans.  This means that when the business fails, they will need to look at filing a personal bankruptcy in order to wipe out that debt they guaranteed. Most of the small business owners I meet with have little or no inventory and simply need to just shut down their business, file a personal chapter 7, and move on with their life.  Although creditors could still pursue the company, there is nothing they can do once the owner files personally bankruptcy.  Most creditors will stop the pursuit of the closed company once they receive notice that the owner filed for bankruptcy protection.  The old saying, “You can’t get blood from a turnip” often applies in these cases.  

Reasons a Business Would File a Chapter 7 Corporate Bankruptcy

As a sole proprietor, Chapter 7 lets you wipe out both personal and business debt in a single filing. And even though your personal assets will be included in the bankruptcy estate, you can use exemptions to protect some—and maybe even all—of your property. Most of my business clients who file for Chapter 7 protection are able to keep their personal assets such as their homes and cars.  When you meet with a bankruptcy attorney make sure that they review what bankruptcy exemptions will be available to you if you file.  These exemptions vary from state to state.

If a company cannot receive a discharge of its debts then why file?  Why pay the filing fee and attorney fees and at the end of the day still have no discharge order? The main reason we see many clients request the Chapter 7 business bankruptcy is because they want an easy way to wind down the company and wrap everything up in a neat “package”.  Chapter 7 bankruptcy provides an orderly and transparent method for business entities to wind down their operations, sell off their assets, pay back creditors, and shut the entity down.

Although all these tasks can also be done outside of bankruptcy, doing so through Chapter 7 appoints a Chapter 7 Trustee to handle the estate. Creditors may prefer to see that, because it means there is less chance that the business owner is cheating by hiding company assets instead of selling them to pay back business debts.  Peace of mind is key to many business clients because they need to be able to put this behind them and go on to the next venture.  

If you have any questions about Chapter 7 bankruptcy or bankruptcy in general please feel free to go to https://saedilawgroup.com or contact us at [email protected]

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Motion to Retain Funds: How to Retain Your Tax Refund or Insurance Settlement While in Bankruptcy

Motions to Retain are a very common motion filed in bankruptcy court. The typical reason that bankruptcy attorneys file these motions is because their client is due either a tax refund or an insurance settlement and need to retain a portion or all of the funds for a necessary expense.

A Chapter 13 Bankruptcy typically lasts five years.  While it would nice if everything stayed the same during that five years, life happens and things come up. Over the course of five years our clients may get divorced, marry, have kids, need to purchase a vehicle, or even suffer damage to a home or vehicle already owned.  Like most Americans, most of our clients rely on their tax refunds to cover emergencies that come up.  Since bankruptcy clients are not allowed to save a portion of their regular monthly income in their budget they are usually very tight for money.

The general rule in bankruptcy is that if a debtor becomes entitled to any sum of money then it must be turned over to the bankruptcy trustee to be distributed to creditors.  Typical sources of money that need to be disclosed:

  1. Inheritance
  2. Tax refunds
  3. Insurance proceeds

If you receive any money during your Chapter 13 case you should inform your attorney immediately. If you want to keep some or all of the money that you are entitled to you can file a motion to retain the proceeds.  This will have to be submitted to the court and scheduled for a court hearing.  These motions typically will be heard in 30 days and can be opposed by a creditor or your trustee.  Below are the three most common scenarios we see in which a motion to retain is needed:

Client is due a tax refund and are in a case that requires tax refunds over $2000 be turned over to the trustee.

There are three chapter 13 trustee’s in the Northern District of Georgia where I practice and two of those trustees, Melissa Davey and Nancy Whaley, require that if a client is not in a case repaying 100% of their debt then they are required to turn over any tax refund money over $2000.00.

If a client is going to request to retain that refund over the $2000.00 then they have to provide proof that the refund is needed for a necessary living expenses.  These motions are very case specific but below is a list of needs that usually allow the retention or all or at least a portion of the client’s refund:

  • Dental work
  • Replacement of HVAC
  • Auto repairs
  • Funeral expenses
  • Medical expenses
  • Upkeep of home to avoid HOA fines

The trustee’s will not only require proof of the expense such as estimates, but some judges will also require proof of how the money was spent no later than 30 days after the hearing.  The courts want to ensure that the money being retained is actually for the purpose in the motion.

Client is due an insurance settlement check from a totaled car. 

For many of us living in the Atlanta metro area, we will be involved in a car accident while we live here.  My office hears from clients on a weekly basis that have been involved in an auto accident and have totaled their car.  If the client is entitled to receive money back from the insurance company after the car has been paid off, they are required to commit that money to the trustee if they are not repaying all creditors back in full.  Most clients in this position however need to obtain a replacement car in order to get to and from their job so they ask that we file a Motion to Retain.  It is important to note that if you receive insurance proceeds for property, i.e. a vehicle, and there is a total loss, then any existing loan balance has to be paid off before any funds are be released to you if your motion to retain is granted.
Client is due an insurance settlement check from a settled legal case

If a client has been involved in an accident then he or she may also have a legal action which entitles them to a recovery. If the client wishes to retain any or all of that money then they are required to show what basic living expense needs to be covered.  The trustee will want to see an estimate of the expense and will also seek to confirm how the money was spent.  Our firm recently handled a case in which our Chapter 13 client was injured in a very bad car accident.  Due to her injuries she need to have a special bed.  She was not able to purchase the bed until she received her legal settlement.  Our firm file the Motion to Retain and then provided the court with a copy of her doctor’s report in terms of the medical need for the bed and then an estimate from the manufacturer as to the cost.  Since this was a necessary medical reason, the court granted the motion and our client was able to purchase her bed.

If you have any questions about Chapter 13 bankruptcy or bankruptcy in general please feel free to go to https://saedilawgroup.com or contact us at [email protected]

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The Means Test in Chapter 7 and Chapter 13 Bankruptcy: What is it?

Probably the most “mythical” part of bankruptcy, the means test was a creation of the new bankruptcy law update in 2005. Basically, it is a 6 month look back period of your income and allowable expenses. Luckily, there are many ways to approach the means test when you are considering filing for bankruptcy. It is crucial that your attorney be well versed in what is and is not allowed in the calculations. A simple error on this form could cost you hundreds (or thousands) of dollars.

Who Get to Skip the Means Test?

If a filer’s debts are mostly “non-consumer” debts then the bankruptcy means test is inapplicable and the debtor may file for bankruptcy under Chapter 7. Tax debt is actually considered non-consumer as are many student loans. In addition, if your business debt is more than your personal debt, you are not required to go through the means test.

The bankruptcy means test does not apply to disabled veterans that incurred debt while on active duty or while serving in homeland defense activities. This exclusion applies as long as the veteran’s disability rating is at least 30 percent and more than half of the debt was acquired during active military duty or during service for homeland defense.

The Means Test: Step 1

The first part the means test compares the debtor’s average monthly income for the six months before filing for bankruptcy with their state’s median family income. If a debtor’s income is less than or equal to the state median, they can file for Chapter 7. There is still a chance that, even if a debtor passes the median income test, a bankruptcy trustee may later determine that the debtor has enough income after paying allowable expenses to repay creditors in a Chapter 13 repayment plan.

The income calculation should include the following sources:

  • wages, salary, tips, bonuses, overtime, and commissions
  • gross income from a business, profession, or a farm
  • interest, dividends, and royalties
  • rental and real property income
  • regular child support or spousal support
  • unemployment compensation
  • pension and retirement income
  • workers’ compensation
  • annuity payments
  • state disability insurance

Income excluded from the calculation includes tax refunds, Social Security retirement benefits, VA Disability, Social Security Disability Insurance, Supplemental Security Income, and Temporary Assistance for Needy Families (TANF).

The Means Test: Step 2

If the debtor makes more than their state’s median income, it is necessary to complete the second part of the means test to determine eligibility. If after deducting all allowed expenses — actual and standardized expenses — the debtor’s disposable income is enough to pay some portion of unsecured debt in a Chapter 13 repayment plan, then the debtor does not qualify for Chapter 7.

File for Chapter 13 Bankruptcy If You Fail the Means Test

A debtor that fails the means test may file for Chapter 13 bankruptcy. Chapter 13 places a filer’s debt in a five-year repayment plan. The plan must include the repayment of mandatory debts, such as priority debts and secured debts, and a portion of debts owed to nonpriority, unsecured creditors.

If you have any questions about Chapter 13 bankruptcy or bankruptcy in general please feel free to go to https://saedilawgroup.com or contact us at [email protected]

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The Pros and Cons of Filing for Bankruptcy

Declaring bankruptcy is a big choice that can be extremely scary. But you might be surprised to learn that the cons of bankruptcy are often outweighed by the pros. Personal bankruptcy can give you the clean break you need from debt, so you can start over. It’s often the best way to turn the page quickly on debt problems.

PROS OF FIILING FOR BANKRUPTCY:

When you file for bankruptcy, it initiates an automatic stay. This means that creditors, lenders, and debt collectors cannot take any action against you or contact you. They cannot attempt to get payment or call to harass you once you file. If they do, you can sue them for violating the law and collect damages.

The automatic stay also can delay foreclosure and repossession actions. As long as the automatic stay is in place while you go through the filing process, lenders can’t move to take your home or other property. Bankruptcy also will not leave you without assets. While courts may potentially liquidate assets during Chapter 7, even your home and car may be exempt from liquidation. So, you even with a Chapter 7 filing, you could likely keep more assets that you might expect. An experienced bankruptcy attorney can review your case and tell you what assets you can retain and which ones may be liquidated in a chapter 7 case. The great thing about bankruptcy is that In the end, you will not be burdened by all the debts you need to repay. The ability to wipe out most debts and focus on rebuilding for the future is priceless to many people.

CONS OF FIILING FOR BANKRUPTCY:

The point of filing for bankruptcy is to help you manage debt that you can’t pay. And, it’s often a last resort for people who are struggling to make ends meet or are overwhelmed by their financial obligations. With that said, in order to become debt free you will have to pay some court costs and your attorney to assist you in the process. Some people will often joke that they are too broke to file for bankruptcy! Luckily, most attorneys offer reasonable payment plans and court filing fees can be split up into installments so that consumers can start their cases sooner rather than later.

Many people are fearful of bankruptcy because the common myth they’ll lose everything they own if they file. While this is unusual, it’s important to fully understand how bankruptcy — and paying debts through bankruptcy — works. In some cases, such as chapter 7 bankruptcy, your personal belongings can be sold through a process called liquidation to help cover some debts. For example, a court trustee could sell of parcels of land or additional homes you own to cover pay your creditors. In many cases, courts sell off smaller items such as expensive clothing, accessories and luxury items while leaving your home or vehicle. Bankruptcy offers exemptions (protections for some property) so that you don’t have to start from square one. Make sure you disclose all of your assets when you meet with your attorney so they can properly advise you on any risks.

It almost goes without saying that bankruptcy will negatively impact your credit history. Many people are familiar with their credit score. Credit scores can often dip by 50 to 100 points based on the amount of debt and your score prior to bankruptcy. For many clients, they have already missed payments and are facing repossession or foreclosure so their credit is already bad. Filing bankruptcy is not going to affect them as much. The great thing is that rebounding for the credit ding is actually pretty quick and most of our clients have “good” creditor in about 24 months after filing.

If you have any questions about Chapter 13 bankruptcy or bankruptcy in general please feel free to go to https://saedilawgroup.com or contact us at [email protected]

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What Happens If You Wreck Your Car While You Are in a Chapter 13 Bankruptcy Case?

Since most chapter 13 cases last for about 5 years, lots of things can happen. One of those “things” that can happen is that your car is involved in a car wreck and now the car you were paying for in the bankruptcy has been totaled. What happens? What do you need to do? What does your insurance need to do?

If you have wrecked your car, but it is not totaled, then you go through the same procedure as if you were not in a bankruptcy case and make sure that your car is repaired. The bankruptcy court does not need to get involved in this process.

If your car has been totaled however, the process will be a little different depending on whether or not the ENTIRE car was paid off or if there is still a balance owed on the car.

THE CAR HAS BEEN TOTALED AND THE BALANCED OWED ON THE CAR HAS BEEN PAID IN FULL

The first thing you need to do is make sure that your claims handler is aware of the procedures for handling a claim for a client that is in a bankruptcy case. While there is nothing “magic” or “special” they need to do outside of normal claim handling, many insurance adjusters will get completely freaked out when they realize that the loan is a bankruptcy. Here is what we tell our clients (we even have a web page FOR their insurance people to literally SPELL it out for them):

  1. The insurance company evaluates the claim (as normal) and provides information to you as to what will be paid on the claim.
  2. In our district, there is NO motion or order filed/entered that “tells” the insurance company what to do. Some insurance companies will write the trustee and request a letter telling them this which is fine but it is NOT required.
  3. The insurance company contacts the lien holder and pays them the amount still owed on the car.  The lien holder will have this information since they are the lien holder. Again, nothing magic the trustee or your attorney needs to do.  The lien holder should know what is still owed on its claim.
  4. If there is any extra money left over to be paid to you then the insurance company must first send that money to the Chapter 13 trustee.  If you want to keep some of that money for an allowable purpose (maybe a down payment on another vehicle) then your attorney will need to file a Motion to Incur Debt.

THE CAR HAS BEEN TOTALED AND THE BALANCED OWED ON THE CAR HAS NOT BEEN PAID IN FULL

Same procedure as above except, since the car has not been paid off in full, the balance left must still be paid.  In our district at least, you would want to check with your attorney about filing a Post-Plan Modification in order to change the treatment of this claim from a secured claim to an unsecured claim.  Depending on your Chapter 13 Repayment plan terms you may not have to repay the remaining balance.  This will be on a case by case basis so check with your attorney on this issue.

You do want to ensure that your insurance company provides you proof of what was paid to the lien holder so that your attorney can provide this information to the court in order to modify the lien holder’s claim as paid through the plan.

If you have any questions about Chapter 13 bankruptcy or bankruptcy in general please feel free to go to https://saedilawgroup.com or contact us at [email protected]

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The Truth About Student Loans and Getting Rid of them in Bankruptcy

Most consumers facing bankruptcy also have student loans. With so much misinformation online on this topic, we cover the REAL facts about discharging student loans in bankruptcy. Under the current law, there are very few instances in which a debtor can use bankruptcy to discharge their student loans. It is also important to understand that it does not matter if you went to a college or a vocational school.  A loan for “educational purposes” is all it takes.

Under the Bankruptcy Code, Congress created certain exceptions to discharge of debt.  Student loans are specifically excepted from discharge under Sections 523(a)(8)(A)(ii) and 523(a)(8)(B):

“(a) A discharge under section727,1141,1228(a),1228(b), or1328(b)of this title does not discharge an individual debtor from any debt—

(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for—

(A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or

(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or

(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;

Most consumers in bankruptcy attempt to discharge their student loans under the “undue hardship” doctrine.  The seminal undue hardship case is the 1987 case of Brunner v. New York State Higher Education Services Corp.,  831 F.2d 395,  Bankr. L. Rep. P 72,025 (2d Cir. 1987).  The Northern District of Georgia (which is part of the 11th circuit) follows this case.

The Brunner court requires a three-part showing that:

(1) the debtor cannot maintain a minimal standard of living if forced to repay the loans

(2) the debtor’s disability is likely to persist for a significant period, and

(3) that the debtor has made good faith efforts to repay the loan.

Currently, at least here in the Northern District of Georgia, the problem facing debtors trying to discharge their student loans are proving:

  • what is a minimal standard of living?
  • how can a debtor prove that she has made a good faith effort to repay the loans? Does she need to apply to every program to reduce or repay loans? How many options does she need to research?

Chapter 7 and Student Loans

When you file Chapter 7 bankruptcy, even though you are required to list your student loans on your petition this does not mean they will be discharged.  If you want to attempt to discharge these loans then you will need to file a Complaint to Determine Dischargeability of Student Loan Debt.  Filing this complaint is extremely expensive to file and pursue in court and in the majority of cases, the court will deny these motions. Until the bankruptcy code is updated, this will most likely continue. If you are filing Chapter 7 just to discharge student loans then you should think twice.

Chapter 13 and Student Loans

If you file for Chapter 13 bankruptcy then you have the choice to either pay the student loans back through your case or allow the loan to be deferred while you are in your case.  Of course the interest will still accrue on the loans if you decide to defer the loans.  For most of our clients, it would make their trustee payment too high if they tried to cram in their student loan repayment over the 5 year plan.  Most clients opt to defer the loan with the bankruptcy filing but then work out a repayment plan directly with the student loan creditor on their own terms during their case.

Resources for Student Loan Repayment and Assistance: Federal Student Loans

Below are the federal student loan repayment options.

  • If you want to pay less interest: You make equal monthly payments for 10 years. If you can afford the standard plan, you’ll pay less in interest and pay off your loans faster than you would on other federal repayment plans.
    • How to enroll in this plan: You’re automatically placed in the standard plan when you enter repayment.
  • If you need lower payments: income-driven repayment. The government offers four income-driven repayment plans: income-based repayment, income-contingent repayment, Pay As You Earn (PAYE) and Revised Pay as You Earn (REPAYE). These options are best if your income is too low to afford the standard payment.  Income-driven plans set monthly payments between 10% and 20% of your discretionary income. Payments can be as small as $0 and can change annually. Income-driven plans extend your loan term to 20 or 25 years. At the end of that term, any remaining loan balance will be forgiven — but you pay taxes on the forgiven amount.
    • How to enroll in these plans: You can apply for income-driven repayment with your student loan servicer or at studentloans.gov. When you apply, you can choose which plan you want or opt for the lowest payment.
  • If you qualify for student loan forgiveness: income-driven repayment. Public Service Loan Forgiveness is a federal program available to government and certain nonprofit employees. If you’re eligible, your remaining loan balance could be forgiven tax-free after you make 120 qualifying loan payments. Only payments made under the standard repayment plan or an income-driven repayment plan qualify for PSLF. To benefit, you need to make most of the 120 payments on an income-driven plan. On the standard plan, you would pay off the loan before it’s eligible for forgiveness.
    • How to enroll in these plans: You can apply for income-driven repayment with your servicer or at studentloans.gov.

Resources for Student Loan Repayment and Assistance: Private Student Loans

Unfortunately, if you have a private student loan then you can either seek a repayment assistance plan offered by that specific company (which they may or may not offer). While some lenders do have programs in place to offer income dependent repayment plans, not all do (nor are they required).

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