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Bankruptcy Basics of Chapter 9

The bad financial situation can affect not just individuals but also organizations (both government and private). However, the rules for getting a fresh start differ slightly in both cases. While consumers can opt for Chapter 7 or Chapter 13 bankruptcy to get their debts discharged, Chapter 9 bankruptcy helps municipalities (cities, towns, villages, counties, taxing districts, municipal utilities, and school districts) reorganize their debts. This bankruptcy chapter helps protect debt-ridden municipalities from creditors, while a reorganization plan is being developed for adjusting their debts. Reorganization mainly takes place by extension of debt maturities, reduction of the principal or interest amount or by getting the debt refinanced by taking out a new loan.

Though it may seem similar to other bankruptcy chapters, lawyers of Dallas based bankruptcy firm Recovery Law group elaborate that it is significantly different as no liquidation of assets takes place to pay off creditors in this case. Even the bankruptcy court plays a limited role in chapter 9 cases. Its role is restricted to:

 Approval of petition (in case the debtor is eligible);
 Confirmation of the debt adjustment plan;
 Ensuring that the plan is implemented
Eligibility for Chapter 9 bankruptcy

A municipality is defined as a “public agency, political subdivision, or instrument of a State.” This includes school districts, townships, counties, and even cities, apart from revenue-generating bodies like highway authorities, bridge authorities and gas authorities. Since only a “municipality” can file under Chapter 9 from financial relief, it is important that they consult the opinion of expert bankruptcy lawyers by calling 888-297-6023 to discuss particulars of their case. The additional eligibility requirements for a Chapter 9 bankruptcy case include:

1. The municipality must be specifically authorized to be a debtor by either a State law or a government officer or organization empowered by State law’
2. The municipality must be insolvent;
3. A municipality must desire to plan to adjust its debts;
4. The municipality must either:

a. Obtain creditors’ agreement holding at least a majority in number of claims of each class that the debtor intends to impair under a plan under chapter 9;
b. Negotiates in good faith with creditors and fails to obtain the agreement of creditors holding at least a majority in number of claims of each class which debtor intends to impair under the plan;
c. Be unable to negotiate with creditors as such negotiation is not practical; or
d. Believe reasonably that a creditor might get a preference.

What happens during Chapter 9 bankruptcy?

Municipalities need to seek protection under Chapter 9 of the Bankruptcy Code. They also need to file a list of creditors. Though the debtor should provide the creditors’ list at the time of filing, in this case, bankruptcy court allows the option to provide it at a different time. The case is not assigned automatically to any judge to avoid any political interference in the case of Chapter 9 bankruptcy. A notice of commencement of the case and the order for relief is essential. This notice is published at least once a week for three consecutive weeks in a newspaper having general circulation in the district where the case begins as well as in other newspapers which are generally used by bond dealers and bondholders. The newspapers in which notice and additional notice is published and who gives or receives notice by mail is a prerogative of the court.

The bankruptcy court also allows objections to the petition including –
 Whether negotiations were conducted in good faith,
 Whether the state has authorized a municipality to file,
 Whether the petition is filed in good faith.

In case an objection is filed against the petition, a hearing on the objection is held by the court. In case the petition is not filed in good faith or does not meet the requirements of Chapter 9, it can be dismissed by the court. If the petition is not dismissed on any objections, Bankruptcy Court needs to order relief and allows the case to proceed under Chapter 9.
Just like other bankruptcy cases, an automatic stay is applicable in this case too. In fact, additional automatic stay provisions prohibit any action taken against officers and inhabitants of the debtor if they seek to enforce a claim against the debtor. The stay refrains a creditor from bringing a mandamus action against any officer of the municipality; against an inhabitant of the debtor to enforce a lien on or arising out of taxes owed to the debtor.

A proof of claim or interest needs to be filed within the stipulated time frame. It is considered filed in case of Chapter 9 if it appears on the list of creditors filed by the debtor. In case it appears disputed, contingent, or unliquidated, then a creditor needs to file a proof of claim. The court, according to Bankruptcy Code Sections 903 and 904, the court has limited power over operations of the debtor. It cannot interfere with political powers, property or revenues of the debtor as well as the debtor’s use of its property and revenues.
The role of the trustee is limited. They do not preside over a meeting of creditors (it is not held), cannot convert the case, do not supervise the administration of the case, and do not monitor financial operations of the debtor too. The role of creditors is also limited in this case, since there is no meeting of creditors. They can, however, choose and authorize attorneys and accountants to represent the committee, consult with debtors regarding the administration of the case, investigate the conduct, asset, liabilities and financial condition of the debtor and formulate a plan for the cumulative interest of all creditors.

Discharge in chapter 9
A plan for adjustment of debts must be filed by the municipality to adjust their debts. The plan is confirmed if it meets the statutory requirements. A discharge is available for municipal debtor on confirmation of debt adjustment plan; a deposit made by the debtor is distributed as per the plan by disbursing agent appointed by court and determination by the court that securities deposited constitute valid legal obligations of the debtor. Exceptions to the case also exist for –
 Any debt excepted from discharge by plan or order confirming the plan;
 Any debt owed to an entity before confirmation of the plan, who had no notice or knowledge of the case.

July 11, 2019
Bankruptcy and Payday Loans
Payday loans are a very innovative concept which is running around the United States quite contagiously today. It provides instant cash by keeping your future paycheck as collateral. Payday loans are a common point of discussion during bankruptcy as they can make the procedure complicated. While most people take payday loans to clear their existing debts, which may be credit card bills, utility bill payments, personal expenses, etc., the amount is usually limited to about 70-80% of the average paycheck. Just like credit cards, the interest charged on a payday loan is very high. It is an unsecured form of loan and does not have any asset backing and hence, falling into a vicious interest cycle is quite common and obvious. Need more tips on managing finances, log on to Recovery Law Group for more info.

Concept of Payday loans

Unlike credit cards or other loan forms, payday loans are highly liquid and are directly deposited in the bank account or are in the form of cash advances. The approval process is also quick, but the processing charge and interest rate are on the higher side. Ideally, the payday loan should be used in a very difficult circumstance and if you are falling back on it several times, its high time you had worked on controlling your finances. Payday loans are generally given on the basis of employment income and history. Credit score and other parameters often play a minimalistic role in determining eligibility to payday loans. Hence, it is the most common loan form for employed individuals with low credit score to access cash instantly.

Your recent pay slips, employment tenure, etc., matter the most for payday loans. Though there are the state and federal agencies monitoring payday loan providers, it is up to the borrowers to not consider payday loans as a viable option. If it is a one-off situation that wasn’t anticipated then it could still be fine, however, if you need to look forward to a payday loan because your paycheck isn’t enough for meeting routine expenses, you might have just put your foot in the spider webbing.

Can bankruptcy help in cutting the spider webbing?

Since payday loans are considered as unsecured debt, bankruptcy can help significantly in managing or releasing the payday loan debts. Whether you file bankruptcy through Chapter 7 or Chapter 13, there are good chances of releasing the payday debts. However, if the payday loans were taken recently before filing bankruptcy, the lender might argue for your intention to not pay the loan and it might be converted a fraud transaction, which will not be released by the bankruptcy court.

The bankruptcy trustee tracks 70-90 days of transactions hence, it is important to not file bankruptcy after taking payday loans for that period. The usage of these loans also has to be for the necessary expenditure. If any luxury items were purchased or the money was transferred to friends, relatives, parents, etc., for clearing their debt, there can be further consequences of retrieving money from the ‘insiders’. Making big transactions or purchases could also bring you under the scanner of the bankruptcy trustee.

What is in your favor?

The bankruptcy courts by default do not support or tend to like the payday loan providers. Hence, there are several favorable clauses that could prove the lender’s claims incorrect. For instance, the court regards the first payday loan as the transaction start date ignoring the recent loan transactions. This certainly helps in addressing the 90-day period that is under the trustee’s scanner. The only option left with the payday loan providers is to convert the transaction into a fraud one, which is not an easy task for sure.

Payday lenders may also seek for security based on various different factors. It could be a post-dated cheque or a Demand Draft or any financial instrument with a promise of you paying them back in future. The payday lender might try to cash in the cheque even when you have declared bankruptcy and the ‘automatic stay’ has been applied. This is a violation, but litigation and court cases will consume a lot of time and money. The best way to handle this scenario would be by notifying your attorney, bankruptcy trustee and your bank about the post-dated cheque to the payday lender. The banks offer to a stop payment facility at a fee, which is derived based on the number of checks issued. You can consider paying the stop payment fee and preventing the payday lender from cashing a post-dated cheque.

Need help get help

Payday lenders often threaten for criminal cases as writing a bad check is one. However, the law is different during bankruptcy. By the illustrated above method, you can stop payment to your payday lender once you are in the ‘automatic stay’. Also, if the payday lender has cashed in the cheque just before you file bankruptcy, the same can also be retrieved for the bankruptcy estate under the Chapter 7 bankruptcy norms. Also, there are many fraudulent payday lenders around in the market who operate only by a website or an app. These websites charge a fee upfront for processing loans and just disappear. Such duping of customers has seen a typical rise in the recent 6-7 months.

As per law, no upfront fees can be charged before processing a payday loan. Hence, a fee or charge before loan processing is a serious trigger. If you are confused and need help, reach out to 888-297-6203 for immediate professional help!
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July 11, 2019
Avoid Transfer of Real Estate Prior to Bankruptcy Filing If You Seek Respite from Financial Issues
Bankruptcy is the best legal recourse available to people who are struggling with financial debts which they are simply unable to pay off. Though it is essentially designed to provide respite to people, there are rules attached to it. One of them is about the transfer of property prior to a bankruptcy filing. Many people transfer assets (jewelry, shares, property, etc.) to family and friends in order to avoid them becoming a part of the bankruptcy estate. However, the court doesn’t look too kindly on such transfers. Moreover, inform bankruptcy lawyers of Los Angeles based firm Recovery Law Group mixing of bankruptcy and civil lawsuits can be quite horrible as seen in the case of Catherine, a California resident who was handling two lawsuits and two bankruptcies.

Catherine did not get along with her neighbors and often there was discord among them due to her behavior. She used to play loud music in the middle of the night which disturbed her neighbors; took her dogs to defecate in front of neighbors’ front lawns, and even released her vicious dogs into her yard to scare small kids and grandchildren of her neighbors. She even posted signs making outrageous claims defaming her neighbors. The signs accused neighbors of criminal and civil misdeeds and tanked their reputation, resulting in a loss of business for them. All of this behavior resulted in the neighbors’ filing a defamation lawsuit against Catherine.

While the defamation lawsuit was still pending, Catherine transferred the deed of her house to her daughter, with simply a “life estate” in the house. A life estate means that a person can reside in the property until they die. Catherine’s daughter agreed to return the deed on request, thereby becoming the legal owner of the house. After one year of this transfer of property, Catherine filed for Chapter 13 bankruptcy. The automatic stay benefit resulted in seizing of all collection actions including putting a stop to the defamation lawsuit of the neighbors since they were asking for monetary damages. With the dismissal of her bankruptcy after a couple of months, the automatic stay benefit was also lifted.

The neighbors filed again to set aside the transfer of her house as dishonest. Since they had filed a defamation lawsuit expecting to win, the move by Catherine to transfer her house was probably an attempt to make her “judgment proof.” In case a person is judgment proof, the plaintiffs, even after winning their case won’t be able to collect any compensation. Catherine lost the defamation suit and was expected to pay $320,000 to the neighbors, but she appealed against the verdict. One year after filing the appeal (and waiting for an update on the same), she filed for a Chapter 7 bankruptcy. By then, the judgment for $320,000 was affirmed.

After two months the court ruled that the transfer of Catherine’s house to her daughter was void. With this ruling, she became the legal owner of the house and that the property could be sold off to pay her dues to the neighbors. Catherine again filed for an appeal against the verdict, but unfortunately passed away before it could be decided. Her death resulted in the transfer of the ownership to her daughter as per the terms of transfer. This resulted in her estate having no money to pay off the neighbors’ debts. In case the transfer was deemed void, the property will be handed over to Catherine’s bankruptcy trustee who would then sell it off to pay the debts.

Catherine had transferred the house to her daughter’s name in order to protect it. However, since the transfer was considered fraud, it was voided. Thus the legal claim of the house remained with Catherine (and eventually her bankruptcy trustee). The law restricts people from transferring property to family and friends prior to bankruptcy filing since this is an attempt to prevent the sale of the said property during Chapter 7 bankruptcy. With the court holding on to the appeal, the transfer was declared void and after 20 long years’ Catherine’s neighbors received the compensation.

Often courts are able to see through the elaborate schemes people concoct to trick their creditors. Bankruptcy trustees are required to see through all paperwork to ensure that no asset goes unaccounted for. Any transfer of property to family and friends within a specified time frame, without proper compensation, is generally considered fraud. Such activity may result in dismissal of your bankruptcy case too. If you are going through a tough financial phase, feel free to call at 888-297-6023 to discuss your case with expert bankruptcy lawyers.
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By clicking “Submit”, whether I do or do not purchase any products or services on this website, I hereby give my express written consent to receive calls and SMS/text messages, including calls and SMS/text messages made and sent using automated dialing equipment and/or pre-recorded or artificial voice technology and email, about offers and deals that I wish to be kept informed about from (“Partners”), at the phone number and/or email address provided on this form, including any wireless numbers provided, even if I have previously registered the provided number on any Do Not Call Registry. If I do not make a purchase on this website, it is expressly understood that the Partners retain permission to contact me as specified earlier in this paragraph. Carrier SMS/MMS and data messaging rates apply. I also agree that by clicking “Submit” that I agree to the Privacy Policy and Terms and Conditions.
July 11, 2019
Who is Notified of Your Bankruptcy Filing?
Despite being one of the best legal options to get rid of accumulated debt, people refrain from filing for bankruptcy probably because they fear being judged. One of the major concerns people have is that their bankruptcy will be announced to their family and friends, which probably is shameful for them. While considering bankruptcy, and to quell any fear, it is important that people are aware of who will be aware of their bankruptcy filing. According to Dallas based law firm Recovery Law Group, there are two chapters under which individual debtors can file for bankruptcy – Chapter 7 and Chapter 13. Both bankruptcy chapters come with the automatic stay benefit and prevent creditors from taking any collection actions. However, there is a difference in the way your assets and debts are treated in both of them.

In the case of Chapter 7 bankruptcy, your assets are divided into the exempt and non-exempt property. There are two types of exemptions in bankruptcy, state and federal. Some states allow you to choose between federal and state bankruptcy exemptions, while others like California do not. However, provisions are made to protect different amounts of various properties like house, car, and household goods. In the majority of cases, nearly all property of a debtor comes under the exempted category, thereby offering protection. In case some property is not protected under the exemption, it is sold by the trustee to pay off creditors. Any dues which remain after selling off of non-exempt property are discharged at the end of the bankruptcy.

When an individual fails to qualify for Chapter 7, the other option available is Chapter 13. In this bankruptcy chapter, a repayment plan is devised keeping in account your earnings, your debt, and your assets, in order to repay your creditors. The repayment plan continues for 3-5 years duration after which any unsecured debts like credit card and medical bills or personal loans are discharged. Though Chapter 13 is slightly tougher, it is ideal for debtors with income above the mean state income.

Who knows of your bankruptcy?

In case you are facing a difficult financial situation and wish to weigh in your options you can call 888-297-6203 to consult with expert bankruptcy lawyers. Once you have reached the decision of filing for bankruptcy after discussing with your attorney and undergoing the mandatory credit counseling course, the case is filed at the United States Bankruptcy Court. Due to filing in a court of law, it becomes public record. However, finding the details of your case is like looking for a needle in a haystack. Unless the details are available, it is next to impossible to know about your bankruptcy. There are some people though, who are aware of your bankruptcy proceedings. These include:
- Your creditors are aware of your bankruptcy as you are expected to provide a list of your creditors to the court. This is because your creditors need to be aware of your impending bankruptcy and the automatic stay. In case you forget to add a creditor’s name, those debts won’t be discharged through bankruptcy. Apart from the creditors, the local bankruptcy trustee is aware of your bankruptcy. However, both court employees and the creditors are barred from reporting about your bankruptcy.
- Family and friends are generally unaware of your bankruptcy unless they have co-signed a loan which may result in them having some liability with you filing for bankruptcy. Unless they go digging around, they won’t be aware of your bankruptcy till you spill the beans, because the court prohibits court employees and creditors from disclosing such information.
- Employers are generally not notified of the bankruptcy filing and can only be aware if you inform them or they search through public records. Many people are worried that bankruptcy might hinder their chances of better employment but that is not so. However, bankruptcy shows on your credit report. Thus, if a prospective employer opts for a credit check before hiring he/she might become aware of your bankruptcy filing. One ray of hope for you is that employers cannot discriminate hiring prospective In some cases of Chapter 13, repayment to creditors might be deducted from your pay cheques due to which HR might become aware of your bankruptcy. Similarly, if wage garnishment is taking place then also your employer might become aware of your bankruptcy.
Bankruptcy has been devised as a mean to help people struggling with insurmountable debts to start afresh. It is no way meant to name and shame you. In case you are considering bankruptcy as a means of getting out of the financial mess, you need to consider an expert lawyer who can guide you through the entire way.
*Are you more than 60 days past due on your mortgage?
YesNo

*Do you own a home?
YesNo

Are you currently working?
YesNo

By clicking “Submit”, whether I do or do not purchase any products or services on this website, I hereby give my express written consent to receive calls and SMS/text messages, including calls and SMS/text messages made and sent using automated dialing equipment and/or pre-recorded or artificial voice technology and email, about offers and deals that I wish to be kept informed about from (“Partners”), at the phone number and/or email address provided on this form, including any wireless numbers provided, even if I have previously registered the provided number on any Do Not Call Registry. If I do not make a purchase on this website, it is expressly understood that the Partners retain permission to contact me as specified earlier in this paragraph. Carrier SMS/MMS and data messaging rates apply. I also agree that by clicking “Submit” that I agree to the Privacy Policy and Terms and Conditions.
July 9, 2019
What Happens if You Forget to Include a Creditor in Your Bankruptcy?
A lot of paperwork is involved when you file for bankruptcy, including documentation for your income, assets, and a comprehensive list of your debts as well as your creditors. This complete list of creditors is used by the court to inform everyone concerned about your bankruptcy. Since all of this involves a lot of paperwork, it is quite possible that one or two creditors might miss making the list. Since creditors also have legal rights in your bankruptcy case, if any of them fails to get a mention in your list of creditors while filing for bankruptcy, what effect can it have on your case?

What is the creditor mailing list?

According to Los Angeles based law firm Recovery Law Group, the “Creditor Mailing List” (also known as the mailing matrix) should include all your creditors along with their contact information. It must also include debts like student loan debt which are not handled via bankruptcy. Once you file for bankruptcy, this mailing matrix is used to inform all creditors of it. This is an important step as creditors wish to be kept in the loop when such an occurrence happens.

The creditors, depending on which chapter of bankruptcy you file, might be involved in the confirmation of your debt, or pay-out of your liquidated assets, or might be required to approve the repayment plan. To be eligible for their repayment portion, they are required to file a “proof of claim.” If they have no information about your bankruptcy, they cannot file a proof of claim and thus will lose their chance of getting payment from your bankruptcy.

The creditor mailing list is an integral part of your case. When you file for bankruptcy, you get automatic stay protection which effectively ceases all collection actions by creditors. Unless the creditors are aware of your bankruptcy, they will not follow automatic stay. Thus you might lose wages to garnishment or have your home foreclosed or face a lawsuit for collection if you miss out any creditor on the creditor mailing list. Additionally, omitting a creditor can affect your bankruptcy too! The bankruptcy forms are filed under a penalty of perjury, i.e. leaving any information off the papers intentionally is considered a crime. The unintentional omission is understood by the court and you are given a chance to rectify your mistake. If you have unintentionally left any creditor off from the mailing list, the consequence depends on which chapter of bankruptcy you have filed.

Adding creditor in Chapter 7 bankruptcy

In Chapter 7 bankruptcy, also known as liquidation bankruptcy, your non-exempt assets are surrendered to the court which is then sold off to pay the creditors. Many times, thanks to state and federal exemptions, debtors have little to no non-exempt assets; such cases are known as “no asset” bankruptcy cases. When some non-exempt property is available, which can be sold off to pay creditors, the bankruptcy is known as an “asset” bankruptcy. In case you forget to include a creditor in the creditor mailing list while filing for Chapter 7 bankruptcy, the outcome depends on whether it is an asset or no-asset bankruptcy.
- Asset bankruptcy
When you have non-exempt assets, unsecured creditors get paid in proportion to the amount you owe them, when they file a proof of claim. When you leave a creditor off the mailing list, they won’t be notified of bankruptcy and subsequently will not be able to file proof of claim, thereby losing out on their repayment amount. Any unsecured creditor who is left out of their rights can go after you to collect the dues after a bankruptcy discharge. The only respite you have in this case is that they can collect dues only from non-exempt assets. Chapter 7 bankruptcy exemptions can help save a number of your assets. Secured creditors, if they are left out of creditor mailing list, have rights to pursue collection actions against you after your bankruptcy discharge.
- No asset bankruptcy
In this case, since there are no non-exempt assets, the unsecured creditors (credit card, medical bills, personal loans, etc.) do not get anything in bankruptcy. Since unsecured creditors do not have any property attached to their debt, they don’t have any proof of claim to file. If you accidentally forget to add an unsecured creditor’s name to the list, not much of consequence happens in this particular case. As is the case with no asset bankruptcy, unsecured creditors, listed or not, get nothing in such cases. The debt gets discharged with creditor having no claim to collect.

Consequences of leaving a secured creditor out of the creditor mailing list are far more serious than leaving an unsecured creditor out. You can face collection actions after a bankruptcy discharge. Secured debts which are linked to the property are not discharged during bankruptcy but can be surrendered or reorganized. All of this requires the involvement of the creditor. If you wish to reaffirm your car loan, you need to make payments through and even after your bankruptcy. If you miss adding the name of your auto lender or any other secured creditor off the mailing list, the debt won’t be discharged and the creditors are eligible to collect the payment even after your bankruptcy, which may include foreclosure and/or repossession of said property.

Certain debts like child and spousal support, government taxes, etc. are not discharged during bankruptcy. Since these debts won’t be discharged, the accidental omission of such debts will not have any effect on your bankruptcy case. They were and remain collectible even after bankruptcy. Since a majority of Chapter 7 cases are no asset cases, there aren’t any major consequences of the accidental omission of a creditor.

What happens if you fail to add a creditor in Chapter 13 bankruptcy?

Creditors have more involvement in a Chapter 13 bankruptcy compare to a Chapter 7 case. They have a say to review, object or approve your repayment plan. If and when your repayment plan is approved, the payments are divided amongst your creditors proportionately. If you fail to include a creditor in this type of bankruptcy, the debt won’t be included and therefore not discharged at the end of your bankruptcy. This leaves the creditor free to attempt collecting the debt after your bankruptcy discharge.

Options available for you if you forget to add any creditor when you file for bankruptcy

Irrespective of the type of bankruptcy filed, if you realize you have unintentionally omitted any creditor, you should contact and inform your bankruptcy attorney of it. They can help guide you on ways to fix the mistake. If you haven’t reached the end of your bankruptcy, filing a form in bankruptcy court to add the missing creditor can help get the problem solved. In case you have got your bankruptcy discharge and get a collection notice from a left out creditor, you need to contact your bankruptcy attorney. Depending on the type of bankruptcy you had filed, the lawyer can find out if the creditor has any right to collect dues or not. An unsecured creditor trying to collect dues from you has no right to them if you filed for a no-asset Chapter 7 bankruptcy. The creditor can be informed by the lawyer of the case in such a situation. If that is not the case, the bankruptcy lawyers can assess whether different factors like the statute of limitation can affect your dues to the creditor.

If you remember to have left out a creditor, contact your bankruptcy attorney immediately. Wilful omitting of a creditor is considered a form of perjury, which can lead to the filing of criminal charges and even dismissal of your bankruptcy case. Bankruptcy can be trying times, emotionally and financially. It is important to have a bankruptcy attorney by your side in such cases. If you don’t have one, feel free to call 888-297-6203 to get your case evaluated.
*Are you more than 60 days past due on your mortgage?
YesNo

*Do you own a home?
YesNo

Are you currently working?
YesNo

By clicking “Submit”, whether I do or do not purchase any products or services on this website, I hereby give my express written consent to receive calls and SMS/text messages, including calls and SMS/text messages made and sent using automated dialing equipment and/or pre-recorded or artificial voice technology and email, about offers and deals that I wish to be kept informed about from (“Partners”), at the phone number and/or email address provided on this form, including any wireless numbers provided, even if I have previously registered the provided number on any Do Not Call Registry. If I do not make a purchase on this website, it is expressly understood that the Partners retain permission to contact me as specified earlier in this paragraph. Carrier SMS/MMS and data messaging rates apply. I also agree that by clicking “Submit” that I agree to the Privacy Policy and Terms and Conditions.
July 9, 2019
My Cosigner Filed for Bankruptcy; Does it Impact Me?
In many different places, getting loans or line of credit is not easy. There is always a requirement of a guarantor or a cosigner. Parents, relatives, spouse, or friends could play as guarantor/cosigner. How does the bankruptcy of one cosigner impact the other person? This is what we will discuss in detail here. For best and quick solution on bankruptcy related issues, just hop to Recovery Law Group.

Cosigner and the relationship

A Cosigner is a person who is liable to pay the loan in case the primary borrower defaults. The Cosigner is the backup plan for the financial institution to recover its debt. The cosigner could be a known or unknown person who agrees to do so. Cosigners are common for people with short or no loan or credit history. People with bad credit score, lower income, no assets to pledge as collateral, etc., usually require a cosigner for swift loan approvals. California, Texas, New York, Los Angeles, etc., are some states where you would typically see the use of cosigners a lot. However, as a cosigner one can be held liable in case of defaults, bankruptcy and other scenarios. Hence, one should be very cautious when opting for the role of a cosigner.

Impact of bankruptcy declaration

The unsecured debts which are usually the case with the debts associated with cosigner get released when bankruptcy is filed. The obligation for the primary debtor to pay off the debts is released. This is true for all types of unsecured debts. This release of obligation, however, does not apply to the cosigner and he/she still remains liable to the debt not paid by primary borrower due to bankruptcy. The primary borrower may declare bankruptcy through Chapter 7 or Chapter 13. In the case of Chapter 7 bankruptcy declaration, the primary borrower gets an ‘automatic stay’, which evades the borrower from all unsecured creditors. However, this benefit does not shield the cosigner. This means the risk and liability will shift to the co-borrower or cosigner completely.

How to protect your cosigner?

There are ways to protect the cosigner. The primary borrower is the primary link for the bank or any other financial institution. Hence, the cosigner would not know if any payment due has been missed or not been paid. Keeping the cosigner informed in advance can help in keeping the loan current and reducing the number of payment defaults. If you are the cosigner, it is a good practice to keep a check on the payments on every due date. Any payments missed will directly impact on the credit history, score and various other parameters for both the parties involved in the transaction.
- Reaffirmation of loan
Reaffirmation is a very difficult decision to make. This is another way of releasing your cosigner. Reaffirmation is the process of making the self completely liable for the loan. The process also will not allow you to discharge the unsecured debt even if you declare bankruptcy in the future. The bankruptcy of the primary borrower would not affect the cosigner however, default would. In the case of loan default, the cosigner will still be liable.

Chapter 13 bankruptcy declaration

Compared to Chapter 7 bankruptcy option, Chapter 13 is very beneficial for the primary borrower as well as the cosigner. The ‘automatic stay’ under Chapter 13 covers and protects the cosigner along with the borrower. This is applicable only if the primary borrower accepts to pay the debt in full and includes the same in Chapter 13 repayment plan. When creating a Chapter 13 repayment plan, one can include the cosigned debt and continue to pay the installments with the income available for disposable. This safety shield is a weak one though and can be breached by the creditors if payments are missed or if the bankruptcy is no longer applicable. Making payments regularly as per the Chapter 13 payment plan is the only way to safeguard your and your cosigner interests.

Credit score implications

A credit score takes a severe beating of about 200 points if not more if bankruptcy is applied or declared by the borrower. The cosigner might not be directly impacted by the primary borrower’s bankruptcy unless and until he/she continues to make the payments on time. The bank or financial institutions does not care if cosigner or primary debtor is paying the dues, the payments have to be made on time. Until this is true, cosigner’s credit score is safe. Missed payments directly negatively impact the credit score of both parties involved, the primary debtor as well as the co-borrower.

What happens if the scenario is reversed?

What if the cosigner or the guarantor is going to file bankruptcy? This can be a serious problem for the primary borrowers. Even if you are current with your payments, you can be in default if your guarantor defaults. This holds good in most student loan scenarios. This directly has a very negative impact on your credit score as well. To minimize damage, the best way is to disassociate the guarantor from the loan either by proving your credit worthiness based on historic payments to the bank or by employing a new guarantor. It is, however, difficult to remove or replace a cosigner or guarantor.

Cosigner and borrower relationship can be more complicated than it looks. If you are confused, need help or specialized professional assistance, reach out to (888)-297-6203 for the best solution for all your doubts and questions.
*Are you more than 60 days past due on your mortgage?
YesNo

*Do you own a home?
YesNo

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July 9, 2019
Taxes in Bankruptcy
People with overwhelming debts often seek bankruptcy as a viable solution. However, even in bankruptcy, certain debts such as secured debts like mortgage and car loan as well as government taxes and child and spousal support cannot be avoided. Apart from federal taxes, certain states like California also impose state income tax on its citizens. Similar to credit card debt, tax debt also gets added up and often becomes difficult to manage. A bankruptcy filing can definitely get rid of your unsecured debts but many people are confused regarding its effect on their taxes.

What to know before filing for bankruptcy?

According to Los Angeles based bankruptcy law firm Recovery Law Group , a number of options are available for dealing with income tax debts prior to bankruptcy filing such as “offer in compromise” (OIC), installment agreements, or filing a previous tax return. Since every financial obligation and individual circumstances are different, the solution also needs to be tailor-made for every client, after careful consideration of all factors.

OIC option is available to taxpayers with no delinquent returns, who have made all tax payments and are not involved in active bankruptcy. OIC is similar to debt settlement, you offer to pay IRS less than what you owe and if the terms are agreed, you will be able to satisfy your debts. This option is excellent for those people having a higher tax liability and lower income to pay off debts. Initial high payment is expected from the taxpayer in OIC apart from complete compliance with the terms and conditions during the tenure and an additional 5 years after that.

You can also avail to pay your taxes in installment if the IRS agrees. An installment agreement makes you compliant in the IRS’s eyes and prevents any possible debt collection steps. Additional benefits include reduction of harassed phone calls and letters from IRS while the downside to the agreement is that you continue accumulating interest on the tax obligation for the amount of time it takes to pay the debt.

Another way of addressing this delinquent tax debt is to file for amended past due to tax return. This option is preferred as filing for it results in a direct reduction in tax liability due to preparer error. It is essential to weigh all the options with your bankruptcy lawyer or financial/tax expert who is aware of statutes of limitations as well as applicable tax codes.

Viability of bankruptcy

Filing for bankruptcy might relieve you of some tax liability from both federal income tax as well as the state tax. However, the tax debt discharge depends on a number of factors like:

1) duration of tax debt, depends on the date tax returns were due when bankruptcy papers were filed.

2) the date when tax assessment was due.

3) whether you are guilty of avoiding (willful or fraudulently) any tax debt.

4) apart from this, to discharge federal and California state tax during bankruptcy, you need to fulfill these requirements –

* tax debt is due for over past 3 years from the more recent of either an extension or the original filing date;

* taxpayer had filed returns in a timely fashion or it has been a minimum of 2 years since the tax returns were filed;

* taxpayer has not attempted to commit any fraud or tax evasion and the taxes have not been assessed in the past 240 days (240-day rule)

Benefits of the automatic stay in bankruptcy

Consumers can file for bankruptcy under either chapter 7 or chapter 13. In the case of former, all unsecured debts are discharged including income tax if you meet the above-mentioned conditions. During chapter 13 a repayment plan is devised to make payments to all your creditors including IRS if you have included them. You can also enter in an agreement with the IRS to get a rebate in your debts. Any remaining debts are discharged after the duration of your repayment plan. This may include income tax debts if you meet the criteria.

Whichever chapter of bankruptcy you choose to file under, both come accompanied with the benefit of the automatic stay. This puts all collection actions including foreclosure, wage garnishment and repossession on hold.

Though you might not be able to get all your tax liabilities discharged when you file for bankruptcy, you might be able to come to a working agreement with the tax credit on a repayment plan within the bankruptcy.

In case the IRS has obtained tax lien against your property, bankruptcy won’t be able to help you much. Though they will retain the claim on your property, your personal liability will be wiped out. In this case, if the IRS sells the property and gets less than what you owe, you cannot be held for any deficiency. Bankruptcy ensures that none of your assets are seized by the IRS without court permission.

To fully understand your rights when it comes to taxes and bankruptcy you need to be aware of IRS bankruptcy tax guide. In case you are struggling with tax debts and are considering bankruptcy as an option, call 888-297-6203 to consult with expert bankruptcy lawyers regarding your case.
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By clicking “Submit”, whether I do or do not purchase any products or services on this website, I hereby give my express written consent to receive calls and SMS/text messages, including calls and SMS/text messages made and sent using automated dialing equipment and/or pre-recorded or artificial voice technology and email, about offers and deals that I wish to be kept informed about from (“Partners”), at the phone number and/or email address provided on this form, including any wireless numbers provided, even if I have previously registered the provided number on any Do Not Call Registry. If I do not make a purchase on this website, it is expressly understood that the Partners retain permission to contact me as specified earlier in this paragraph. Carrier SMS/MMS and data messaging rates apply. I also agree that by clicking “Submit” that I agree to the Privacy Policy and Terms and Conditions.
July 9, 2019
Can You Convert Your Bankruptcy Chapter?
Filing for bankruptcy is a big decision. It is important to choose the bankruptcy chapter which can help protect most of your assets and results in the discharge of various debts. There are numerous factors involved while choosing a specific chapter to file bankruptcy. A lot of what happens to your circumstances and the time taken to discharge depends on the chapter of bankruptcy you have filed for. However, if your circumstances change, there are provisions available to switch the bankruptcy chapter. Changing bankruptcy chapter can be a complicated process. Los Angeles based bankruptcy law firm https://bankruptcy.staging.recoverylawgroup.com/, therefore, advised that you consult a qualified attorney to get your bankruptcy discharged and get a fresh start.

Type of bankruptcy which can be filed in California

Chapter 7 (liquidation bankruptcy) and chapter 13 (wage earner’s plan) are the major bankruptcy types available for consumers. In the case of chapter 7, your assets will be sorted into the exempt and non-exempt property. In the state of California, two exemption systems exist which cover different amounts of properties like home, furniture, care, etc. System 1 exempts $75,000 and $175,000 of equity in the home and $3,060 in case of a vehicle; whereas according to system 2, you can avail $26,800 in home equity and $5,350 for your car. Due to the difference in exemption amount, it is best to work with a financial advisor or bankruptcy attorney to protect most of your assets.

The exempt property is safe during the bankruptcy process while any non-exempt property you have is sold off to repay your loans. In the majority of cases, bankruptcy filers are able to get most of their property exempted and therefore don’t have to surrender any. The unsecured debts (credit card, etc.) are discharged after bankruptcy. With secured debts, you have the choice of making payments to keep the assets or surrendering the assets if you cannot afford to pay the debts. To qualify for chapter 7 bankruptcy, you need to pass the complicated means test which compares your income to the average income of a family your size. In case you fail to pass the means test, chapter 13 is the bankruptcy option available for you.

In the case of chapter 13 bankruptcy, a repayment plan is devised keeping your debts, assets and average income as well as expenses. According to this plan you are expected to make monthly payments from your disposable income to your bankruptcy trustee who then distributes it amongst your creditors for a period of 3-5 years. Any unsecured debts which remain after the repayment plan are discharged. You can continue making payments for secured debts throughout and even after the repayment plan.

The automatic stay provision is available in both chapters of bankruptcy. Thanks to it, your creditors cannot contact you to demand any payments, any foreclosure or repossession actions cease and so does wage garnishment and bank account levies. Thus you get some respite from constant creditor harassment while the court goes through the bankruptcy process.

Converting a chapter 7 bankruptcy to Chapter 13

Most debtors prefer chapter 7 if they are able to qualify for it. This is so because you get to keep almost all your assets, all your unsecured debts are discharged sooner since typically this bankruptcy takes less time than chapter 13. It, therefore, is difficult to comprehend why someone would convert from chapter 7 to chapter 13.

If you wish to keep your property, you might wish to convert. Chapter 7 allows you to keep your home if you continue making regular payments on your mortgage. Any failure to do so might result in foreclosure. Any non-exempt property you have needs to be surrendered in this bankruptcy chapter. But in the case of chapter 13, you don’t have to give up any property while making mortgage payments through the repayment plan. Thus if you wish to protect all your property, chapter 13 is a better option.

Conversion of Chapter 7 bankruptcy to chapter 13 can be done once without court approval provided that it is done in good faith. If you follow the rules and do not attempt to hide property then you won’t face any problems. Since there are no court fees involved while converting from chapter 7 to chapter 13, you are not required to pay any conversion fees. Since chapter 13 involves a repayment plan, if you do not have the income to support the repayment, your conversion won’t be permitted. In this situation, you might need to file a motion in the court.

Converting a chapter 13 bankruptcy to Chapter 7

All your disposable income is used to repay your creditors in this bankruptcy chapter. Debts like a child and spousal support need to be paid in full. All of this might take a toll on you. A change in circumstances like losing a job, prolonged illness, etc. can make your repayment plan slightly difficult to manage. Converting to chapter 7 might be a good option in this case.

If you haven’t received a chapter 7 discharge within the past 8 years, you can seek to convert your bankruptcy from chapter 13 to chapter 7. If you have, bad luck! You are stuck with chapter 13. Since chapter 7 requires you qualifying the means test, you can convert your bankruptcy chapter only if you earn less than the state’s mean income. If nothing works for you, you remain stuck with chapter 13. The only recourse available is to ask for a dismissal of your case, which has serious consequences like losing the automatic stay benefit. What’s more is that if you ever file for bankruptcy again, the automatic stay benefit might not be readily available for you. You will be handling your creditors on your own without the help of any bankruptcy court. Conversion from chapter 13 to chapter 7 has a conversion fees of $25 which has to be deposited when you file for a motion in the court.

Should I convert my bankruptcy chapter?

Sometimes the court might force you to convert your bankruptcy chapter from 13 to 7. This can happen if you don’t get your payment plan approved or miss making payments on it. Any unnecessary delay in the case which can harm your creditors can also be the reason for the conversion of your bankruptcy chapter. If a discrepancy is observed in your means test and it is found that you don’t qualify for chapter 7 bankruptcy, then your bankruptcy chapter will be converted.

Since the conversion of the chapter is a complicated process involving a number of motions, forms, and schedules, it is important if the process is handled by competent bankruptcy attorneys. Discuss with your attorney whether conversion of bankruptcy chapter might be beneficial for you. You can call 888-297-6203 for a consult regarding your bankruptcy case.
*Are you more than 60 days past due on your mortgage?
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*Do you own a home?
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Are you currently working?
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By clicking “Submit”, whether I do or do not purchase any products or services on this website, I hereby give my express written consent to receive calls and SMS/text messages, including calls and SMS/text messages made and sent using automated dialing equipment and/or pre-recorded or artificial voice technology and email, about offers and deals that I wish to be kept informed about from (“Partners”), at the phone number and/or email address provided on this form, including any wireless numbers provided, even if I have previously registered the provided number on any Do Not Call Registry. If I do not make a purchase on this website, it is expressly understood that the Partners retain permission to contact me as specified earlier in this paragraph. Carrier SMS/MMS and data messaging rates apply. I also agree that by clicking “Submit” that I agree to the Privacy Policy and Terms and Conditions.
July 5, 2019
What does Bankruptcy mean for Senior Citizens?
Financial troubles can hit anybody, anytime. Nearly half the senior citizen population in the U.S. was facing debts (mortgage, car loan, medical bills, etc.) in 2010, averaging at $50,000. When you have accumulated debts of such huge proportions, it is natural to be a bit worried as to how the debts are going to affect you and your heirs. While you are earning, there are still chances of you being able to repay the loan, but post-retirement, making monthly payments towards the debt is a bit difficult with a fixed income at hand. According to Los Angeles based law firm Recovery Law Group, many senior citizens often consult about their options with respect to debt.

Options available for seniors to deal with debt

The state of California offers a number of protections to senior citizens when it comes to debt collectors and collection actions. The Social Security, retirement accounts and other government benefits are protected by the law. These assets cannot be touched by any creditors who sue you for non-payment of debts. Many times, creditors refrain from filing a lawsuit against you since there’s not much that they can lay their hands on. The term “judgment-proof” is used to describe such a situation where almost all your assets are protected from collection actions. In case you are “judgment-proof” there is no need to file for bankruptcy to get rid of your debts. However, it is an option worth considering as your heirs might find have to bear the burden.

When a debtor passes away, the debts he/she owed do not lapse with the death. Though they aren’t passed to the heirs, they definitely affect the estate. After death, all your assets (your estate) go into “probate” which provides ample opportunity to creditors to file claims for payment. When it comes to inheritance, the creditors are paid before anything is passed on to the heirs. Unfortunate circumstances may see emptying of bank accounts and selling of house, car, jewelry or any other asset. The only respite available is for your home, which might be exempted in case of a surviving spouse or minor heirs who reside there. The probate court sets aside some assets to care for dependants, while the remaining assets are used to pay the creditors. On the brighter side, your heirs won’t be held liable for any debts left after the probate but if you leave your assets to them in a trust and the trustee does not inform the creditors, your debts might invariably be passed on to your heirs.

Bankruptcy and estate planning

Though bankruptcy is not essential for senior citizens, they surely can benefit from it, especially debtors who are judgment proof. California provides bankruptcy exemptions which protect a huge part of senior citizen’s property like retirement accounts, government benefits, etc. from creditors during bankruptcy. Since old age is often accompanied by numerous medical issues, senior citizens often end up accumulating huge medical debts as healthcare is undoubtedly expensive. Since medical debt is an unsecured debt, it is wiped off in bankruptcy. Thus after bankruptcy, you will be devoid of any debt and can save your property which can be passed on to your successors.

The effect bankruptcy has on credit score is a major consideration. Though bankruptcy has a negative effect, unpaid dues aren’t exactly helping to the cause. Since the majority of senior citizens already own a home and car, there isn’t much need to take any more loans. Thus, bankruptcy can have not much negative effect on the life of a senior citizen. Additional benefits include an end to the collection calls which are quite irritating. Despite you being judgment-proof, creditor harassment sees no end to see that they get a payment. Bankruptcy also helps relieve stress which can have numerous health benefits.

Should you file for bankruptcy?

Despite the advantages associated with bankruptcy, in case you have any doubts regarding it, you can call 888-297-6203 to get a better assessment of your financial situation. In case, you have mostly secured debts, bankruptcy will not be of much help for you, as this kind of debt is not discharged. Having large equity in your home is not a good option too as you might have to surrender it during bankruptcy. Discussion with an expert bankruptcy attorney can help you choose which set of the California state exemptions can help you protect your property. An estate planning lawyer can help you manage your estate in an efficient manner.

Many people strive hard to build their property with the intention of giving it to their children or heirs. Despite bankruptcy being a good option to get rid of your unsecured debts, it is better that you consult an experienced bankruptcy and debt management attorney to find out other options of getting rid of debt. You have the option of challenging those debts which have passed the statute of limitations, i.e. cannot be collected from you or your heirs. Alternately, you could also ask for debt consolidation or settlement before you pass away. If you are a senior citizen who is struggling with debt, or are judgment-proof but wish to keep your estate secure (against your creditors) for your heirs, then consult a bankruptcy attorney for a free consultation and case evaluation.
*Are you more than 60 days past due on your mortgage?
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*Do you own a home?
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Are you currently working?
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By clicking “Submit”, whether I do or do not purchase any products or services on this website, I hereby give my express written consent to receive calls and SMS/text messages, including calls and SMS/text messages made and sent using automated dialing equipment and/or pre-recorded or artificial voice technology and email, about offers and deals that I wish to be kept informed about from (“Partners”), at the phone number and/or email address provided on this form, including any wireless numbers provided, even if I have previously registered the provided number on any Do Not Call Registry. If I do not make a purchase on this website, it is expressly understood that the Partners retain permission to contact me as specified earlier in this paragraph. Carrier SMS/MMS and data messaging rates apply. I also agree that by clicking “Submit” that I agree to the Privacy Policy and Terms and Conditions.
June 30, 2019
Is your Pension safe during Bankruptcy?
Getting pension benefits at the end of a hard and long career is what drives most people to work. When you retire, your pension is what you will be surviving on. However, during the course of your career, there might come a time, when you face financial problems due to which you might have to consider bankruptcy as an option to survive. Since in bankruptcy, some of your assets are used to pay off the creditors before your debts are wiped out, one of the major concern people have is whether their retirement funds are at risk? According to Los Angeles based bankruptcy law firm Recovery Law Group, your retirement accounts are protected in the bankruptcy process. This is because the law understands that people work hard and save money in pension and other retirement accounts to reap benefits at an age when it is not possible for them to work anymore.

How are retirement accounts protected during bankruptcy?

When an individual files for bankruptcy, everything they own comes under bankruptcy estate. Amongst these, some assets are protected by State bankruptcy exemptions (which vary from one state to another) which may include the equity in your car or home. Other assets which are saved due to exemption include any compensation plans, tax-deferred allowances, and any employer-based retirement plans. Since all of these are exempted, they cannot be a part of the bankruptcy estate and therefore cannot be used to pay back creditors.

Sometimes, retirement plans are set as trusts. They are worded in a manner which makes it impossible for creditors to use them during bankruptcy. Thus, retirement plans are protected by a double layer of shield. However, any unusual trust is scrutinized by the bankruptcy court; i.e. if you structure a plan in the form of a trust which you are funding and you are the sole beneficiary, then such a trust is not protected during bankruptcy.

The federal law has set a list of bankruptcy exemptions and also allows different states to have their own set of exemptions. States also offer the debtor the option of choosing from only the state exemption or choose between the state and federal bankruptcy exemptions. The state of California requires the debtor to choose the California state law exemptions, but some non-federal exemptions, such as those for retirement plans are also applicable in California.

Federal exemptions for retirement accounts

Changes made in the bankruptcy laws in 2005 were not exactly debtor-friendly, except for those involving the retirement funds. These accorded improved protection for debtors. As per the changes incorporated in the federal law, all retirement accounts and pension funds are protected from creditors, even in states where bankruptcy filers don’t have the option of choosing federal bankruptcy exemptions. What’s even better is that the exemptions amount is not limited. Few examples of federal exemptions include:
- 401(k)s
- 403(b)s
- Defined benefit plans
- Employee annuities
- ERISA (qualified) pension plans
- Government deferred compensation plans
- Keoghs
- Money purchase accounts
- Profit sharing plans
- Stock bonus plans
However, there are limits to the exemptions provided. The traditional IRA and Roth exemptions are capped with the amount over $1 million.

California pension payment and exemptions

Californians who are contemplating bankruptcy due to immense financial pressure are often worried about their retirement funds. However, with federal law, California state law and specific terms of trust accounts, creditors find it extremely difficult to nick a penny from your retirement funds. Even when you have received money from retirement funds, the money is exempted, i.e. creditors simply cannot take that money because it is out of your pension accounts.

Considering the fact that your retirement funds are protected by numerous layers of federal and state exemptions, it is important to not touch those funds if you plan to file for bankruptcy. You might be tempted to use the money from retirement accounts to pay off some debts. Since retirement funds are protected from bankruptcy, using that money to pay creditors is not a wise move. The money might not be enough to clear the debt, which will result in you still having some debt and without a source of income when you retire. You require the assistance of a financial planner or a bankruptcy lawyer to help determine the best course of action for you. If you wish to gather more knowledge about the bankruptcy procedure, feel free to contact 888-297-6203. Bankruptcy lawyers can explain the difference between using retirement fund money to pay off debts or using bankruptcy to get rid of debts while retaining your pension funds.
*Are you more than 60 days past due on your mortgage?
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*Do you own a home?
YesNo

Are you currently working?
YesNo

By clicking “Submit”, whether I do or do not purchase any products or services on this website, I hereby give my express written consent to receive calls and SMS/text messages, including calls and SMS/text messages made and sent using automated dialing equipment and/or pre-recorded or artificial voice technology and email, about offers and deals that I wish to be kept informed about from (“Partners”), at the phone number and/or email address provided on this form, including any wireless numbers provided, even if I have previously registered the provided number on any Do Not Call Registry. If I do not make a purchase on this website, it is expressly understood that the Partners retain permission to contact me as specified earlier in this paragraph. Carrier SMS/MMS and data messaging rates apply. I also agree that by clicking “Submit” that I agree to the Privacy Policy and Terms and Conditions.
June 30, 2019