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Price and Price Law, P.C. Common Reasons Middle Class People File Bankruptcy and Consumer Bankruptcy ebook

I’m here because…

My home is in foreclosure or I’m behind on my mortgage payments

A bankruptcy may help you whether your goal is to stay in the home and cure the missed payments or surrender the home back to the lender. If you want to stay in the home and cure the missed payments, you may be able to file a chapter 13 bankruptcy. In a chapter 13 bankruptcy, your mortgage arrears and ongoing mortgage payments will be included in a chapter 13 plan. The arrears will be paid back and spread out for the term of the plan, which is 36 to 60 months. You will also make your ongoing mortgage payments through the chapter 13 trustee. This means for the term of the plan; the chapter 13 trustee will act as a conduit between you and your mortgage lender so there is no dispute as to whether ongoing mortgage payments have been paid. Once the plan is over, your mortgage will be current, and you will resume the ongoing payments on your own.

If you no longer wish to keep your home, you may surrender you home back to the lender. If you surrender the home to the lender through a bankruptcy, the lender cannot sue you for the deficiency.

I’m behind on my property taxes and the county is foreclosing

A bankruptcy can help you whether your goal is to stay in the home or keep the land and cure the missed taxes or surrender the home or land to the county. If you wish to stay in the home or keep the land and cure the missed taxes, you might consider filing a chapter 13. In a chapter 13 bankruptcy, the tax years you missed will be included in the chapter 13 plan and payment to the tax appraiser will be spread out over the plan term, which is 36 to 60 months. You will be responsible for making your ongoing tax payments on your own. When you finish the case, your taxes will be current.

If you no longer wish to stay in the home or keep the land, you may be allowed to surrender it back to the county. If you surrender the home or land through a bankruptcy, the county cannot sue you for any deficiency. This is especially important if you have other liens on the property. If the property is sold at auction, the primary lien holder is paid first, and the tax appraiser is only paid if there are sufficient proceeds from the sale. Since auction prices are notoriously low, the county may not be paid, and your debt may not be cleared if you do not surrender the property through a bankruptcy.

I’m behind on my HOA dues and the HOA is foreclosing

A bankruptcy may help you whether your goal is to stay in the home and cure the missed payments or surrender the home. If you want to stay in the home and cure the missed payments, you will may be able to a chapter 13 bankruptcy. In a chapter 13 bankruptcy, your missed HOA payments will be included in your chapter 13 plan and be paid back over the term of the chapter 13 plan. You will be responsible for the ongoing HOA payments.

If you no longer wish to stay in the home, you can surrender it back to the lender. If you surrender the home through a bankruptcy, the HOA cannot sue you for any deficiency. This is especially important if you have other liens on the property. If the property is sold at auction, the primary lien holder is paid first, and the HOA is only paid if there are sufficient proceeds from the sale. Since auction prices are notoriously low, the HOA may not be paid, and your debt may not be cleared if you do not surrender the property through a bankruptcy.

I’m behind on my car payments

A bankruptcy may be able to help you whether your goal is to keep the vehicle and cure the missed payments or surrender the vehicle back to the lender. If you want to keep the vehicle and cure the missed payments, you will file a chapter 13 bankruptcy. In a chapter 13 bankruptcy, your car note will be included in the chapter 13 plan and the note will be spread out and paid over the term of the chapter 13 plan, which is 36 to 60 months. If you have owned your vehicle for 910 days, you can pay the value of the vehicle rather than the amount owed on the note. Even if you have not owned your car for 910 days, you may be able to pay less interest. When the case is over, you will receive title to the vehicle and your car note will be paid in full.

The IRS is after me

A bankruptcy may help you discharge certain tax debts and repay others. Usually, an individual with tax debts chooses to file a chapter 13 bankruptcy and reorganize because they are not eligible for a chapter 7 or because the tax debt is not dischargeable. It is important to note that you must file all tax returns required for the tax periods ending within four years of filing your bankruptcy. You must also stay current on your tax returns and tax debt during the pendency of your case.

Tax debts are unique because they can be categorized as secured, unsecured or priority debts. Secured taxes occur when the IRS places a lien on your property, such as your home. In this case, you cannot sell your home without paying your IRS debt. Priority tax debt is not dischargeable and must be repaid. Generally, priority tax debt can be thought of as your most recent tax debt, or tax debt which has accrued within the last three years. Secured and priority tax debts will be repaid through your chapter 13 plan over a period of 36 to 60 months.

Unsecured tax debt is the only tax debt which may be discharged in bankruptcy but defining unsecured tax debt can be difficult. Taxes may only be discharged when the taxes were due three years before filing the petition and assessed 240 days before the petition. If you have engaged in an offer in compromise during this period or had a prior bankruptcy case, the time frame for calculating dischargeability will be different. In addition, the fifth circuit has ruled that all tax returns must be filed on time or they are not dischargeable. This means your debt may meet the bankruptcy definition of an unsecured tax debt, but it will not be discharged in bankruptcy due to the fifth circuit ruling. As a result, the IRS will collect this debt when your case is finished.

The IRS has some helpful information on their website. Links are below.

I owe back child support

A bankruptcy may help you repay your child support arrears through a chapter 13 plan. If you owe ongoing child support, you will continue to pay your ongoing obligations as usual. This is important because it can affect your wage garnishment. Your wages will continue to be garnished for ongoing child support, but child support arrears will be included in the chapter 13 plan.

Under the bankruptcy code, child support obligations are nondischargeable. This means you cannot get rid of child support debts through bankruptcy. For this reason, most people who owe child support choose a chapter 13 since a chapter 7 cannot help them with their child support debts.

In a chapter 13, your child support arrears (the child support payments you missed prior to filing) will be paid through a chapter 13 plan. Your other debts may be included in your chapter 13 plan as well, but under the bankruptcy code, your child support arrears will be treated as a priority debt. Because of the priority rules, your child support arrears will be paid ahead of mortgage arrears, vehicle payments, IRS debts and other debts.

If you have child support arrears when you file your chapter 13, you must pay all child support arrears owed prior to filing and all ongoing child support owed during the pendency of the case to receive your discharge. When your case is discharged, your arrears will be paid and your child support payments will be current.

My checking account is being garnished by the student loan lender

Generally, bankruptcy is not your best option if student loans are your only financial difficulty. Student loans are only discharged under extreme circumstances and there is no recent case law which discharges student loan debt. Your best option is to contact your student loan company and work out a payment arrangement. If you have attempted a payment arrangement and failed, a bankruptcy can buy you time. During the time you are in the case, the student loan company cannot collect. However, interest and penalties will continue to accrue while you are in the case. This means you may exit the case owing more than when you started.

The circumstances under which you may consider bankruptcy to stop student loan collections are rare. For instance, if you have attempted a payment arrangement but failed, the student loan lender is currently garnishing your account, and you believe the bankruptcy will give you time to find employment or a better paying job, you may consider filing bankruptcy to help delay student loan collections. Otherwise, filing a bankruptcy simply to put off the student loan company may dig a deeper hole.

The US Department of Education has some helpful information on their website. Links are below.

I had financial problems years ago and now the collection agencies are hounding me

A bankruptcy may help with collection debt. A collection debt is an unsecured debt and is dischargeable. In a chapter 7, unsecured debt will not be paid unless there are nonexempt assets. Since the exemption statutes are generous, it is rare for a client to have nonexempt assets; however, it is important to disclose all your assets. In a chapter 13, unsecured creditors will only receive a distribution if your budget allows or you have nonexempt assets. When your case is completed, unsecured creditors are discharged.

In these circumstances, clients often find a bankruptcy improves their credit. A bankruptcy will stay on your credit report for 8 to 10 years. However, most clients find their credit scores improve after their bankruptcy case is discharged. This is because many clients have debts in collection. You can continue to rebuild your credit by paying your bills on time. Some companies offer to help you remove inaccuracies from your credit report, but you can do this on your own by writing to the company falsely reporting your debt and the credit reporting agencies.

I’m being sued

A bankruptcy may help you with a civil suit. Usually, clients seek bankruptcy protection when they are being sued under breech of contract for money loaned. This frequently occurs when an unpaid credit card bill is sold to collections, sometimes for an amount less than $1,000.00. Due to the automatic stay, the bankruptcy can stop the lawsuit. In the example above, the party suing would be listed with the unsecured creditors and we would file a Suggestion of Bankruptcy in the state court where the lawsuit was filed. The party suing you would be treated like any other unsecured creditor in your case. When the case is over, this debt would be discharged.

I had a medical emergency, but I didn’t have insurance

A bankruptcy may help with medical debt. When you file bankruptcy, your medical bills are listed as an unsecured debt. In a chapter 7, medical bills are discharged without any distribution to creditors unless there are nonexempt assets. Since the exemption statutes are generous, it is rare for a client to have nonexempt assets; however, it is important to disclose all your assets. In a chapter 13, medical creditor will only receive a distribution if your budget allows or you have nonexempt assets. When your case is completed, medical bills are discharged.

I had a financial emergency and maxed out my credit cards

A bankruptcy may help with credit card debt. Credit card debt is an unsecured debt and is dischargeable. In a chapter 7, unsecured debt will not be paid unless there are nonexempt assets. Since the exemption statutes are generous, it is rare for a client to have nonexempt assets; however, it is important to disclose all your assets. In a chapter 13, unsecured creditor will only receive a distribution if your budget allows or you have nonexempt assets. When your case is completed, unsecured creditors are discharged.

Credit card debt is nondischargeable if you have used your cards to purchase luxury goods or services on or within 90 days of filing, the debt is owed to a single creditor and the luxury purchases total more than $650. Luxury Goods and services do not include services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor.

Cash advances are nondischargeable if you have taken a cash advance of $925 or more within 70 days of filing.

I had a repossession or foreclosure and now the lender is after me for the deficiency

A bankruptcy may help with a deficiency resulting from a repossession or a foreclosure. A deficiency debt is an unsecured debt and is dischargeable. In a chapter 7, unsecured debt will not be paid unless there are nonexempt assets. Since the exemption statutes are generous, it is rare for a client to have nonexempt assets; however, it is important to disclose all your assets. In a chapter 13, unsecured creditors will only receive a distribution if your budget allows or you have nonexempt assets. When your case is completed, unsecured creditors are discharged.

I tried to open a small business but was not successful

If you are a small business owner, it is likely you are personally liable for all the business debt. For this reason, you may want to consider a personal bankruptcy so that you can receive a bankruptcy discharge. When a consumer debtor owes at least 51% of his/her debts toward a business, he/she may file for a chapter 7 even if he/she may not otherwise meet the means test requirements.

It is important to realize that a business may file a chapter 7 bankruptcy, but a business is not eligible for a discharge. If you have filed a personal bankruptcy listing the business debts, you will no longer be personally liable for the dischargeable debts.

Often, a separate business bankruptcy is unnecessary. However, some clients choose to file a business and personal bankruptcy concurrently for peace of mind.

I’m a small business owner but I don’t want to close down

If you are a small business owner and you want to continue operating your business, you can still file a bankruptcy, but there will be extra paperwork involved and some extra precautions. For instance, you will need to prepare a profit and loss. You will also need to prepare a list of any business assets. There are many types of business entities and it is best to bring as much information as possible to your consultation, so we can help you meet your goals.

What is a chapter 13 bankruptcy?

The Federal Code describes Chapter 13 an adjustment of debts of an individual with regular income. This means a person, married couple or sole proprietor may file a chapter 13 plan to repay 1) priority debts which must be repaid, such as child support and certain taxes; 2) secured debts which the Debtor would like to retain, such as a home and vehicle 3) and any unsecured debts which may be allowed for by the Debtor’s disposable income or non-exempt assets. If the Debtor has no disposable income or non-exempt assets, then the unsecured debts will be discharged by Court order.

What is a chapter 7 bankruptcy?

A chapter 7 bankruptcy is a liquidation bankruptcy. For a consumer, this means a person, married couple, or sole proprietor is offering their non-exempt assets to the bankruptcy estate to repay debts. If nonexempt assets are not present, then the consumer shall receive a discharge without providing compensation to unsecured creditors. However, the consumer shall still be liable on the secured debts he/she would like to retain, such as a home or vehicle, and other nondischargeable debts such as taxes, child support and student loans.

How to rebuild your credit score after bankruptcy:

A discharge is the goal of bankruptcy. When you receive your discharge order, your discharged creditors cannot act to collect against you. Discharged debts may include credit cards, payday loans, medical bills, repossessions and charge offs.

A bankruptcy will stay on your credit report for 8 to 10 years. However, most clients find their credit scores improve after their bankruptcy case is discharged. This is because many of their debts have been negatively reported. You can continue to rebuild your credit by paying your bills on time. Some companies offer to help you remove inaccuracies from your credit report, but you can do this on your own by writing to the company falsely reporting your debt and the credit reporting agencies.

If you would like to set an appointment for your free consultation, email megan@priceandpricelawfirm.com or call 214-696-9601.

**The information contained in this booklet is general information and is not legal advice about your specific case. **

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