I Signed an Agreement Making a Debt Non-dischargeable. Now What?

Posted on March 31, 2013 by Staff Writer

Generally speaking, courts do not like agreements to make a debt non-dischargeable in bankruptcy. Bankruptcy courts have been unreceptive to the use of consent decrees and settlement agreements which attempt to create, by contract, a debt that will be nondischargeable in the bankruptcy of an individual.

Waivers of Discharge

Even the U.S. Supreme Court has held that waivers of discharge are unenforceable. A creditor cannot contract away a debtor’s right to defend his right to a debt discharge by using “boilerplate” covenants of nondischargeability. Occasionally a creditor will slip verbage into a contract that says something like: “I understand that this debt is still owed even if I file bankruptcy”. Often this language is put into contracts used by less reputable creditors like Payday lenders or title companies. Their hope is that the debtor will believe they are obligated to pay the debt even if they file bankruptcy.

If simply putting this language into a contract would keep the debt from being discharged in bankruptcy then every lender in the country would put that same language into every contract they entered into.

Settlement Agreements

Settlement agreements are typically used to bring an end to parties’ disputes and provide a clear outline of the parties’ respective rights and obligations going forward. Attorneys representing creditors will often spend a great deal of time and energy in trying to ensure that settlement agreements will actually be enforceable.

While, covenants in a settlement agreement that provide for the debtor to waive his right to a discharge are unenforceable as against public policy, creditors will still include such covenants in their settlement documents because this is an evolving area of law. Because settlements agreements related to a fraud claim may provide a narrow exception to the normal rule of dischargeability. If a debtor admits to fraud in a settlement agreement and later files bankruptcy the creditor may try and use the settlement agreement as the basis of a §523 action in bankruptcy court.

If you signed a nondischargeability agreement and want to know what your rights are then contact us today for a free consultation.

Credit Card Debt Rising

Posted on March 30, 2013 by Staff Writer

According to a recent TIME.com article, the Federal Reserve Bank of New York is reporting that although American debt in general dropped overall in the third quarter of 2012, consumer credit card debt rose by $2 billion in that quarter. This occurrence, the American Bankers Association (ABA) is warning, when combined with the still-uncertain economic forecast, may very well lead to increased credit card delinquencies in 2013.

TransUnion, a major credit bureau, reported that the average borrower was carrying $4,996.00 in debt by the end of the third quarter of last year. That amount is expected to increase to $5,446.00 by the end of 2013, which will mark the highest average amount of debt since 2009. Unfortunately, TransUnion agrees with the ABA that credit card delinquencies, defined as people who are more than 90 days late paying their bills, will increase over the next year. As the credit bureau pointed out, banks are again signing up customers for credit cards who are at a higher risk of defaulting on those credit card debts, in large part because the credit card industry generates a great deal of revenue for banks. These banks also may extend credit at relatively high interest rates with the goal of marketing other products to consumers, such as mortgages and business loans.

Increases in credit card balances and default rates will only lead to collection agencies harassing consumers for payments and lawsuits over paid debts. While common sense tells consumers to avoid the credit card trap altogether, life circumstances may force consumers to fall into debt anyway. Often, credit card bills result from a consumer’s inability to pay other bills, such as unexpected medical expenses and routine household expenses, which might occur due to illness, disability, death, or job loss.

If you should find yourself in this situation, bankruptcy may the best alternative. Filing for bankruptcy can stop debt collection agencies from continually contacting you, stop wage garnishments that you cannot afford, and stop lawsuits against you to recover debts. Moreover, bankruptcy can give you a solution to the debts that are overwhelming you, allowing a fresh financial start for you and your family. Consult with your Phoenix bankruptcy attorney today, and see how bankruptcy can make a difference in your life.

What will happen at my 341 meeting? Does everyone who files bankruptcy have a 341 meeting?

Posted on March 28, 2013 by Staff Writer

Yes, per the U.S. bankruptcy code everyone who files for personal bankruptcy is required to attend a 341 Meeting of Creditors. Because the requirement is found in section 341 of the bankruptcy code, the hearing has earned the nickname “341 Hearing”. All bankruptcy filers are to be examined under oath with regard to the information contained in their schedules to be eligible to receive a discharge. These meetings are usually held approximately 30 to 45 days after the bankruptcy case has been filed.

Identification Verification

Your trustee must see your driver’s license and social security card to verify that you are who you say you are. So bring your government issued photo I.D. as well as your social security card. Your Chapter 7 bankruptcy trustee will compare the information on your identification with the information submitted on your bankruptcy petition. The purpose of this requirement is to help curtail identity theft and bankruptcy fraud. In the past criminals had taken a fake social security number, incurred debt associated with that number and then filed for bankruptcy using that number.

Debtor Questioning

The hearing gives the trustee and creditors an opportunity to ask questions of you with regard to the information listed in your petition and schedules. Bankruptcy is open to the public and so anyone who wants can attend your 341 hearing. However, in most cases, only you, your attorney, and the Chapter 7 bankruptcy trustee will actually participate in the hearing. Your creditors have the right to appear at the 341 hearing although they almost never do.

Your trustee will ask you additional questions with regard to your assets, liabilities, income, expenses and statement of financial affairs. Typical questions are:

“Do you accept the oath I just administered to you?”

“Did you read, review and sign the Petition, Schedules, and Statement of Financial Affairs filed in your case?”

“Are there any amendments or changes that need to be made to your paperwork?”

“Have you filed another Bankruptcy in the previous 8 years?”

“Have you ever filed Bankruptcy using a different name or Soc. Sec. number?”

“Have you lived in Arizona for more than 2 years?”

“Have you paid back money to any family member or friend in the last year”

“Does anyone owe you money?”

“Did you list all of your assets?”

“Did you list all of your debts?”

“Do you owe anyone Spousal Maintenance (Alimony) or child support?”

“Did you read, sign, and return the letter you received from the Trustee?”

If you have more questions about the 341 hearing please contact one of our attorneys.

Can I Discharge My Taxes?

Posted on March 27, 2013 by Staff Writer

Is tax debt dischargeable in bankruptcy? Generally the answer is no, however, there are exceptions to this rule. If the debt is not discharged then it will still be owed at the end of a chapter 7 bankruptcy or you’ll have to repay them in full in a Chapter 13 bankruptcy repayment plan.

When You Can Discharge a Tax Debt

You can discharge debts for federal income taxes in Chapter 7 bankruptcy only if all of the following conditions are met:

The due date for filing a tax return is at least three years ago.

The tax return was filed at least two years ago.

The tax assessment is at least 240 days old.

The tax return was not fraudulent.

The taxpayer is not guilty of tax evasion.

Non-dischargeable Tax Debts

The following type of non-income-related tax debts cannot be discharged in a Chapter 7 bankruptcy:

Tax liens. A Chapter 7 bankruptcy discharge of income taxes wipes out the personal obligation to pay the tax and prevents the taxing authority from going after your bank account or wages. However, tax liens, also known as secured taxes, will remain attached to your property. This rule applies only to tax liens recorded against your property before you file for bankruptcy. This means that although you might not be personally liable for the tax debt, you’ll have to pay the lien from any profits when you sell the property.

Recent property taxes. If a property tax is incurred before you file for bankruptcy, the tax is nondischargeable. However, this only applies to property taxes last payable within one year of your bankruptcy filing. You can discharge your personal liability for property taxes that were payable more than one year before your bankruptcy filing. Keep in mind, though, that many counties attach a lien to your property upon assessment or one year afterwards. If you have a lien against your property for the property tax, that lien will remain after your Chapter 7 discharge.

Taxes that a third party is required to collect or withhold. This covers the so-called “trust fund” taxes such as FICA, Medicare, and income taxes than an employer must withhold from the pay of employees, and sales taxes paid by the debtor’s customers that the debtor is required to send to a governmental unit.

Certain employment taxes, excise taxes, and custom duties, depending on specific time periods.

Non-punitive tax penalties on nondischargeable taxes if the transaction or event that sparked the penalty occurred less than three years before filing the bankruptcy petition.

Erroneous tax refunds or credits relating to nondischargeable taxes.

Can You Stop Debt Collectors From Harassing You?

Posted on March 26, 2013 by Staff Writer

With most Americans carrying at least some debt, a recent story from THELAW.TV highlights the Consumer Financial Protection Bureau’s statement that an estimated 30 million Americans are currently experiencing some type of contact with debt collectors. Although a federal law called the Fair Debt Collection Practices Act does offer protection to consumers from the overreaching collection tactics by debt collectors, some debt collectors tend to ignore the restrictions set forth in the Act and needlessly harass consumers for repayment of debt. If you are aware of your rights under the Act and some state laws, then you can stop the harassing and in some cases, abusive behaviors, that some debt collection agencies may attempt to use.

For instance, debt collectors can only contact you during regular hours. This means that a debt collector who is calling you repeatedly at 3:00 a.m. is violating the law. Similarly, while debt collectors can call your family members when they are trying to locate you, they can only contact you once, and they are not allowed to tell your family members, your employer, or other third parties that you owe money to them. Plus, while debt collectors can call you at work, they have to stop doing so once you have notified them orally or in writing that your employer does not permit you to accept those types of calls at work.

Likewise, debt collectors can and will say anything possible in order to get you to make a payment toward your debt. Although they are not supposed to lie or tell you that they are attorneys, some debt collection agencies reportedly reward this sort of behavior. The bottom line, however, is that debt collectors cannot threaten you with violence, use obscene language during your conversations, or call you repeatedly just to harass you.

On the other hand, debt collectors can threaten to sue you, garnish your wages, or foreclose on your home, if the law permits them to do so and they fully intend to do so. The reality is that if you owe a debt and fail to make the required payments as agreed, you can and will be contacted by collections agencies, and you can be sued by that creditor in an attempt to collect the debt.

Bankruptcy may be a potential solution for consumers to rid themselves of harassing calls by creditors. Filing for bankruptcy results in the bankruptcy court issuing the automatic stay, which is a court order that prevents creditors from continuing to contact you about the debts that you owe. Plus, bankruptcy may allow you to repay all or a portion of your debts over time, or to discharge your responsibility to pay those debts altogether. Contact your Arizona bankruptcy law firm today for an evaluation of your financial situation, and see whether bankruptcy is a viable option for you and your family.

Am I Only Allowed to File Bankruptcy Once in my Lifetime?

Posted on March 25, 2013 by Staff Writer

You are permitted to file bankruptcy more than once in your life; however, there are mandatory waiting periods between bankruptcies. The waiting period depends on what chapter of bankruptcy you filed previously and what chapter of bankruptcy you would like to file this time. If you previously filed a Chapter 13 bankruptcy and would like to file another Chapter 13 then you must wait 2 years from the discharge date. If you previously filed a Chapter 13 and would like to file a Chapter 7 then you must wait six years from the date of filing the 13.

For people who previously filed a Chapter 7 bankruptcy then the waiting periods are a little different and the time is measured from the date of filing. If you previously filed a Chapter 7 and would like to file a Chapter 13 then you cannot received a Chapter 13 discharge within 4 years of filing the Chapter 7. If you previously filed a Chapter 7 bankruptcy and would like to file another one then you must wait 8 years to file the second bankruptcy from the date the first bankruptcy was filed.

The waiting periods only apply for people who actually received a discharge from their previous bankruptcy. So if you filed a bankruptcy and it was dismissed then you are not required to wait before filing another bankruptcy. If your case is dismissed then it is as if you had never filed bankruptcy because you did not get a discharge of debt.

What Happens if A Creditor Files a Relief From the Automatic Stay?

Posted on March 24, 2013 by Staff Writer

One of the most important protections a debtor automatically receives upon filing for bankruptcy is the “automatic stay.” The automatic stay is imposed upon all of a debtor’s creditors preventing those creditors from actively collecting on a debt. The stay binds all creditors, not just unsecured creditors. Upon filing for bankruptcy protection, a creditor can no longer harass, garnish wages, levy bank accounts, foreclose on a property, repossess a vehicle, or even pursue an eviction. The stay remains in effect while the bankruptcy is pending but is lifted once the bankruptcy case is discharged. At that point, the discharge acts as an injunction from your creditors from actively collecting on those debts that were discharged in the bankruptcy.

However, the stay can be lifted during the bankruptcy upon motion by a creditor. Motions to lift the stay are not as common as one would think. When a creditor files a motion to lift the automatic stay, the debtor is entitled to notice and a hearing. The burden is on the creditor to convince the bankruptcy court that there is a very good reason to lift the stay, and the court is predisposed to continue the bankruptcy protection. For instance, the court will not lift the stay when an unsecured debt will be included in the debtor’s discharge.

Generally, secured creditors are the most common type of creditor that would seek to lift the stay. (A “secured debt” is a debt that is secured to a form of collateral, i.e. a mortgage or car loan.) Secured creditors often file motions to lift the stay when the debtor is not making payments. Since property used as collateral must be paid for or returned during bankruptcy, the court will normally lift the stay unless the debtor can bring the payments current or show another good reason to deny the motion (for example, the debtor will use one of the available methods for dealing with secured debts in Chapter 7 bankruptcy, or the debtor has provided for payment of the debt in a Chapter 13 repayment plan). For example, if you are behind on your mortgage when you file for Chapter 7 bankruptcy, your mortgage lender is likely to ask the court to lift the stay so it can continue with foreclosure.

A landlord may also seek relief in order to evict for non-payment of rent. A bankruptcy debtor’s rent obligation is divided on the bankruptcy filing date into pre-bankruptcy and post-bankruptcy debts. Pre-bankruptcy rents are dischargeable, and post-bankruptcy rents are not dischargeable and not subject to the automatic stay. This means that while the automatic stay would prohibit the landlord from collecting on unpaid pre-bankruptcy rent, the landlord may evict if post-bankruptcy rents are not paid.

What is the “Means Test” and why do I need to know about it?

Posted on March 23, 2013 by Staff Writer

The bankruptcy code was revamped in 2005 and one of the most important enactments was the requirement for an income qualification for a Ch. 7 filing. The purpose was to prevent individuals or married couples from simply filing a Ch. 7 when they had the means to pay back their debt. Means testing “refers generally to the eligibility for relief for debtors who have sufficient financial means to pay a portion of their debts.”

The bankruptcy amendments effectively subject most debtors who make an income, as calculated by the Code, above the median income of the debtor’s state to an income-based test. This test is referred to as the “means test.” The means test provides for a finding of abuse if the debtor’s income is higher than a specified portion of their debts. Debtors whose income is below their state’s median income are not subject to the means test. Notably, the Code-calculated income may be higher or lower than the debtor’s actual income at the time of filing for bankruptcy.

There are certain exemptions from the Means Test. The following are a list of common examples of exemptions to the Means Test:

If the debtor’s debt is not primarily consumer debt, then the means test is inapplicable.
If the debtor is either in the military or is a former military member, and the majority of the debtor’s debt was accumulated while on active duty, then the means test is inapplicable.
Social security income is not calculated in the means test formula.
Income received as a criminal restitution is not calculated in the means test formula.

Debtors that do not pass the stringent means test requirements can still file for a bankruptcy, but are forced to file as a Ch. 13. Here they will then be required to pay back some or possibly all of their debt. Due to the complexity of the means test, it is always recommended to speak with an experienced attorney to discuss a possible bankruptcy filing. If you are experiencing financial hardship, call my office right now so that we can discuss your options as they pertain to bankruptcy.

Detroit on the Verge of Bankruptcy

Posted on March 22, 2013 by Staff Writer

Detroit has been always been known as the Motor City – years of popping out automobiles made this city flourish. Jobs were a plenty and industry was booming. However, the past few years have destroyed Detroit’s value. Since 2005, the city has been in a downward spiral to a deficit that no one is really sure if they can get out of.

Michigan’s Republican Governor, Rick Snyder, has already taken control of Benton Harbor, Ecorse, Pontiac, Flint and Allen Park and school districts in Detroit, Highland Park and Muskegon Heights with emergency managers to get back on their feet. He just needs to make sure they are in a financial emergency. The past few months the state’s appointed review team has declared Detroit as a financial emergency city. They will need a make a plan to get out of this dreary situation.

The cash crisis they are under could have reached $900 million last year but Detroit did some serious borrowing of money. Their long term liabilities are also adding up to $14 billion. All problems together are difficult to solve because the city’s bureaucratic structure is so hard to work through.

Governor Snyder has 30 days now to decide if the city is in a financial emergency. After that, Mayor Dave Bing has 10 days to request a hearing to appeal. All of this is for the formation of an emergency manager who would be responsible for overseeing all of Detroit’s spending and decide all financial matters. This manager would then be the one who could authorize bankruptcy.

City and other government bankruptcy issues are complicated. Individual and corporate ones are just as complicated. If you are in need of filing for bankruptcy, contact a bankruptcy lawyer today. An Arizona attorney can walk step by step with you through this process.

Image courtesy of freedigitalphotos

Can I be Employed by the Government if I file for Bankruptcy?

Posted on March 21, 2013 by Staff Writer

No federal, state, or local government agency may take your bankruptcy into consideration when deciding whether to hire you. No employer, whether that involves the government or a private company, may fire you because you filed for bankruptcy. Nor may an employer discriminate against you in other terms and conditions of employment, for example, by reducing your salary, demoting you, or taking away responsibilities, because of your bankruptcy.

However, many jobs require a security clearance. If you are a member of the armed forces or an employee of the CIA, FBI, another government agency, or a private company that contracts with the government, you may have a security clearance. The good news is that you most likely do not risk losing your security clearance if you file for bankruptcy. In fact, the opposite may be true. According to credit counselors for the military and the CIA, a person with financial problems, particularly someone with a lot of debt, is at high risk for being blackmailed. By filing for bankruptcy and getting rid of your debts, you substantially lower that risk. Bankruptcy usually works more in your favor than to your detriment.