Should you file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy?

The answer to the question of what type of bankruptcy to file is that it depends on your financial circumstances.

A Chapter 7 bankruptcy and a Chapter 13 bankruptcy are really designed for two different types of debt situations. Read the rest »

The United States District Court located in San Diego recently issued an opinion on December 10, 2008, holding that student loans may be discharged in chapter 13 bankruptcy cases where the creditor fails to object after receiving proper notice.  Other cases around the country are also holding the same and the United States Supreme Court will be deciding a similar case this year. Read the rest »

What happens when you cannot make your Chapter 13 payments due to unexpected bills?  A furnace goes, or a car breaks down, or you get sick or hurt.  What then?

There are a number of options.  None of them are “Keep this secret from your lawyer!”

You can ask for a suspension, or moratorium of payments and catch up by adding months to the end of your plan if your original plan was for less than 60 months, or you can increase the remaining payments if not.  You can modify your plan to reduce the dividend to the unsecured creditors or to surrender a now-broken car.  You can seek a Chapter 13 hardship discharge or you can convert to Chapter 7.  Under the right circumstances, you can even ask permission to borrow additional money.

Each alternative has pros and cons which may or may not be appropriate for your situation.  But there are options.

Do not keep your struggles a secret from your lawyer.  There will be a motion to dismiss or motion for relief from stay (to begin foreclosure) soon enough, making the challenge more difficult for your attorney than if you had said something when the troubles began.

Filing  Chapter 7 bankruptcy will stop collection efforts of your creditors, however that relief may be temporary if your debts are of the kind that are not discharged in bankruptcy.

Some debts, like student loans, child support, many taxes, and a few others, are not discharged by bankruptcy.  However you may experience some relief from their collection for the few months a Chapter 7 is open.

Upon filing of Chapter 7 bankruptcy, an automatic stay is put into place that keeps all of your creditors from taking action against you, but the automatic stay will end when you get your Discharge.  Read the rest »

My client’s business corporation is long dead and he’s back to working for others.  But six quarters of unpaid corporate payroll taxes  not only become his  personal debt, but a  tax that is never dischargeable in bankruptcy and a priority claim which must be paid in his Chapter 13 case.

It is so tempting for the small business person:  pay the employees their take home pay, and put off paying the IRS the money withheld from the employee’s check .  The business gets a little extra cash flow, without having to arrange a loan.  Only the IRS sees it as theft.

The IRS will give the employee credit for the income tax withheld from his check, whether or not the employer ever actually sends that part of his earnings to the IRS.  The IRS puts the onus on the employer who used that money to keep the business afloat. When the employer is a corporation, the law makes anyone who could sign a check on the corporation’s account potentially responsible for those missing funds.

Small business folks are the most energetic, optimistic, tenacious people around.  They find it tempting to put off settling up with the IRS.  They forget that something like 9 out of every 10 small businesses fail within 5 years, but the tax burden for payroll taxes lives on.

Courts may grant a Motion for Relief from Stay in a Chapter 7 if it was filed because a debtor is behind on the mortgage when filed, and there is no equity in the property for creditors.  Chapter 7 is not designed to stop foreclosures to give people time to catch up on their mortgages.  That is what Chapter 13 bankruptcy is for.   However, a motion for relief is often denied to stop a foreclosure to give a Chapter 7 Trustee time to sell property with equity that will go to pay creditors.  That situation is if there is non-exempt equity in the property.

In a Chapter 7, the “Automatic Stay” (like a restraining order) prevents creditors from doing anything to collect a debt.  The Chapter 7 automatic stay is a limited stay that ends a few months after filing Chapter 7 bankruptcy anyway.  Therefore fighting to keep it in place only keeps it in place temporarily, even if the motion is denied.   When granted, the borrower is still protected under state laws and foreclosures don’t occur if you are not in default.  Therefore catching up the mortgage is the most important thing to do if you want to prevent foreclosure.

Whether or not you should file a response in your particular case is something that you should speak to your attorney about since each case is different and reasons to respond vary.

Clients frequently ask us if they must be a citizen of the United States to file a bankruptcy case in the United States.  No - you don’t have to be a citizen to file a bankruptcy case in the United States.

You do have to be a resident of the place where you plan to file your bankruptcy case for the greatest part of the last 180 days.  This usually means that you have lived someplace just over 3 months unless you have been moving around a lot.

Another way you could file a bankruptcy case in the United States is if you own property in the place where  you are plan to file.  The reason for this is that bankruptcy jurisdiction derives from property - it’s called “in rem” jurisdiction.  Don’t worry about legal formalities here.

You really need a bona fide residence to file a bankruptcy case in the United States if your case is based on residency and not property. Read the rest »

The Southern District of California Bankruptcy Court in San Diego recently issued a ruling that allowed a junior lien to be removed in a Chapter 13 case, even though the debtor was not eligible to obtain a discharge. Discharge was not available since the debtor previously filed a chapter 7 petition and the new bankruptcy laws prevented a subsequent discharge within 8 years of that filing in another chapter 7 or 4 years in a chapter 13.  Nevertheless, repeat filings without discharge are possible and often referred to as “chapter 20″ cases.  Despite NO DISCHARGE, liens can still be eliminated in these cases!

Read the rest »

Clients frequently face debts from countries other than the United States.  If you file a bankruptcy case in the United States, what is the effect on your debts from overseas?

We tell clients not to worry too much about this.  First of all, it takes some effort for a foreign creditor to make its judgment enforceable in the United States.  Some states might allow for “domestication” of judgments easily and others might not.

Nevertheless, a discharge in bankruptcy will wipe out all judgments against you whether they arose here in the United States or someplace else.  This means that judgment creditor may not collect this judgment against you in the United States after your discharge.  If it does, you could sue them for the violation of the discharge injunction.  You may have other remedies too.

This does not mean that you are “home free.”  If you were to move back to the country where the judgment arose, let’s say Scotland for example, your United States bankruptcy discharge would not affect the validity of the judgment in Scotland.  You would have to seek bankruptcy in the foreign country under the foreign country’s laws in order to protect yourself there.  So, more realistically, if you have claims against you in neighboring countries like Mexico or Canada, you’d have to address your rights under Mexican or Canadian bankruptcy law if you planned to move back there to protect yourself against claims arising in your home country.

This leads us to another important point.  You need not be a citizen of the United States in order to file a bankruptcy case in the United States.  Tune in tomorrow for a new post on citizenship and bankruptcy.

Lakelaw helps people from all over the world file bankruptcy cases in Illinois and Wisconsin.

Creditors can argue that your case should be dismissed for abuse, a term not defined in the Bankruptcy Code;  It generally means that you’ve been a bad boy.  There’s a presumption of abuse when you flunk the Means Test and show that you have means to pay some of your debt.  Abuse might also exist if you’ve hidden assets.

A losing creditor might have to pay your attorney fees for the defense, if the creditor (1) really had an improper purpose, such as delay, harassment, or an increase of your attorney fees, (2) argued without legal support or reasonable grounds to attempt to change existing law, or (3) argued without factual support, even after an investigation.  The creditor can also be forced to pay your fees if it files too many papers which  vexatiously multiply the proceedings.

Good luck.  Don’t be afraid to use this weapon and stop a bullying creditor from preventing your achievement of a fresh start.