Student Loan Dischargability in Bankruptcy

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Clients frequently inquire as to whether their private and government backed student loans can be discharged in bankruptcy. Sadly for them, it is almost impossible to discharge federal student loans in bankruptcy given certain changes in the way they are structured today.

The so called Brunner Test (named after the seminal case on the topic), which contains the standards used in bankruptcy courts to determine whether a student loan can be discharged, specifies that in order for discharge to occur, all of the following must be true:

based on current income and expenses, the debtor cannot maintain a “minimal” standard of living for herself or her dependents if forced to repay the loans;
additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period for the student loans; and,
the debtor has heretofore made a good faith effort to repay the loans.

Yes, you can try to prove undue hardship, under these tests, but it is now, for all practical purposes, almost impossible to do and this is why. First, under the various special repayment schemes: income based repayment, pay as you go, income sensitive repayment; you can have a zero dollar ($0) monthly payment assuming your income is low enough. At the end of the term of these programs (20 to 25 years), any remaining student loan balance will be forgiven. So how can anyone successfully argue that a zero (or very low) monthly payment with the prospect of loan forgiveness creates an undue hardship? Secondly, now that the Dept. of Education has a workable administrative process for a disability discharge, if you are declared 100% disabled by the social security admin, you can discharge your federal student loan. Thus, people who once would have been able to show Brunner hardships because of disability no longer need to do so. those people don’t need bankruptcy for their student loans.

So, if you have both significant private student loans and federal loans and are a good candidate for a bankruptcy hardship discharge, you include both classes of debts in the case. (Note: The bankruptcy must be filed (either a 7 or 13) then an adversary proceeding (2nd lawsuit) against the student loan lenders must be filed.) Assuming you can win on undue hardship, the court is likely to only discharge the private student loans because these do not have the programs discussed above attached to them.

If you are not already on one, you need to get on a specialized repayment program. I suggest that you visit the following site to find out more information.

https://studentaid.ed.gov/repay-loans/understand/plans/income-driven

Also, it is recommended that you discuss this issue with a seasoned bankruptcy lawyer. I am Christopher C. Carr, Esq., a Chester County Bankruptcy Lawyer who can assist you with these and all other matters relating to bankruptcy and debt relief.. Call me at 610-380-7969 today!

M is for Matrimonial Property Obligations and the Discharge in Bankruptcy

Jul22

By Christopher C. Carr, Esq. Chester County bankruptcy attorney.

Tel: 610-380-7969 Email: cccarresq@aol.com Web: westchesterbankruptcyattorney.org

M by BigBlue Meanie There are two main types of domestic support obligations (‘DSO”) defined in the bankruptcy code. The first kind of DSO encompasses things such as child support payments and alimony. (To simplify, let’s just call this type: “support“). The second type of DSO comes from the distribution of property in divorce; in Pennsylvania the statutes refer to this as “equitable distribution“, which is the terminology I will use here. The latter usually consists of the spouse’s equitable share of the equity — as adjudicated by the courts or agreed to in a property settlement agreement, which also must be court approved in Pennsylvania — in the marital residence but can also include joint bank accounts and other valuable items.

In the general definitions within the Bankruptcy code 11 USC Sect.. 101(14 a-c), both support and equitable distribution appear as DSO’s, misleading one to think that perhaps the two will be treated identically in bankruptcy. However, while this is true of a Chapter 7, it is otherwise for a Chapter 13. The difference in treatment as between the two different kinds of domestic support obligations only become apparent when one looks at how they are treated those portions of the Bankruptcy Code dealing specifically with the discharge of these specific categories of debt.

At first glance in 11 USC Sect. 523(a)(5) and 11 USC Sect. 523(a)(15), the sections of the Code dealing with equitable distribution, it appears that these two subsets of domestic support obligations are treated the same. That is to say, neither support nor equitable distribution obligations appear to be discharged in bankruptcy, meaning specifically that in both a Chapter 7 bankruptcy these debts survive the bankruptcy and remain obligations of the debtor and alternately in a Chapter 13, they both must be paid in the plan and/or any amount left over so survives.

However, 11 USC Sect. 1328(a)(2) changes the picture radically, at least insofar as discharge after completion of a Chapter 13 Plan is concerned. (Note that virtually anyone who has a regular income can elect a Chapter 13 filing as versus a Chapter 7.) This provision essentially states that once all the plan payments are made and the debtor complies with its other requirements, the DSO types not listed in the statute will be discharged: one of the provisions so listed is 11 USC Sect. 523(a)(5), which again deals with with support debts. However, whether by design or inadvertence, Congress conspicuously excluded from that list 11 USC Sect. 523(a)(15), which again pertains to equitable distribution obligations.

Thus, unlike support, which cannot be discharged either in a Chapter 7 or a Chapter 13, the proceeds of an equitable distribution can be discharged to the extent that the ex-spouse still owes same once the Chapter 13 plan payments have been otherwise completed. A clever bankruptcy lawyer, knowing this, will to the extent possible, draft a plan which, perhaps by favoring secured and other priority unsecured debt in order and amount of payment, provides for less than all of the equitable debt to be discharged, which has the effect of excusing the debtor spouse from his or her remaining equitable obligations, even though ironically these were awarded to the creditor spouse by a court of law. The (alas little appreciated) lesson for the family lawyer representing the creditor spouse is to require all equitable debt to be paid up before the property settlement agreement is authorized, so as to avoid eventual loss of some or all of their equity in a potential Chapter 13 bankruptcy.

Law Offices of Christopher C. Carr, MBA, P.C., is a quality bankruptcy and debt relief practice, located in Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester, Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!

I also provide Mortgage Modification Services.

Others blogging on M include:

Bill Balena, CLevand Bankruptcy lawyer tells us that M is for Mistakes .
Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell says M is for Means Test.
Marin County Bankruptcy Lawyer, Cate Eranthe blogs M is for Means Test, a popular topic.
New York Bankruptcy Lawyer, Jay S. Fleischman agrees M is for Means Test too.
Colorado Springs bankruptcy Attorney Bob Doig says M is for Meeting of Creditors.
Northern California Bankruptcy Lawyer, Cathy Moran believes M is for Modify & also for Monthly Income.
Hawaii Bankruptcy Lawyer, Stuart T. Ing says M is for Mortgage Arrears.

Picture credit: Bigbluemeanie

“R” in Bankruptcy is for Rental vs. Chapter 13 Home Retention: A Tax Benefit Analysis

Apr3

is for Rental vs. Home Retention

By Christopher C. Carr, Esq. Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com Web: westchesterbankruptcyattorney.org

Deciding whether to keep your home or not is not always a simple “Rent/bankruptcy vs. “Keep/no bankruptcy” decision: if you have regular income and otherwise are eligible to file a Chapter 13 Bankruptcy you should also consider keeping the property in a 13. In a 13 you still have to pay principal and interest and escrows, if any but the 13 Plan, once confirmed by the Court, will allow you to hang on to this most precious of assets and pay the arrears in the plan over a 3-5 year period instead of selling at a loss and in many cases owing the deficiency to the lender.

The decision is not an easy one and there are almost always emotional ties to a home as well. But one thing is for certain: you have to pay taxes and anything that saves you a dollar in taxes is like a dollar in your pocket right?

Some lawyers and others will, in “knee jerk” fashion, tell you that since your house is under water you should short sell and “find another place to rent”. However, any analysis which does not “add back” into the equation the net present value of the tax advantages of home ownership at your marginal tax rate is telling you only half the story. Renting has little or no tax advantage, mortgage payments do. (Same for state and local taxes that you pay or are escrowed by your lender) Let’s say your mortgage is $950 a month you are in the 25% bracket for example and your property taxes are $3,600 a year or $300 a month, then the ownership “savings” is computed as follows: ($950 + $300) x .25 or $312.50. Another way to say it is that the government is subsidizing 25% of your ownership cost under these assumptions (not quite because as I explain below, we also have to consider insurance in the computation).

The pragmatic way to analyze this as they taught us in MBA School, is to compute your net after tax cost of home ownership and ask yourself the question: CAN YOU REALLY FIND EQUIVALENT RENTAL HOUSING FOR A PRICE AS GOOD or BETTER THAN YOU ARE PAYING NOW? Let’s look again at the example I have been exploring above. To get the full cost of ownership you have to add in home insurance (which is not tax deductible). Let’s say that is another $75 a month. So your fully loaded cost (assuming you live in a place with no association fees) is (950 + 300 + 75)-312.50 = $1012.50. Note when you figure in the tax savings in it brings the overall cost of home ownership down to only a few dollars more than the amount of your mortgage payment. So ask yourself, using your actual costs and tax bracket instead, can I find adequate rental housing for that net figure (in my example $1012.50 a month)? If not, you might want to consider a Chapter 13 to allow you to keep your current residence.

Of course, the above analysis while a good starting point, it is just one of the factors to be considered. A couple of examples: if you can strip out your second mortgage in a Chapter 13 because your home is completely under water as to the second (meaning that there is not enough equity coverage for the second and any homestead or other exemptions that are applicable in your jurisdiction), that will further reduce your ownership costs by the amount of the monthly payment you make on the second now. And if you can get rid of your credit card debt to boot, you are that much more ahead (assuming you are still paying on them). In a 13 keep decision, these things also have to be weighed against the rental advantages. Also consider any costs of sale and the effects of the deficiency judgment (see above) that you might incur! See my article in this series called: J is for “Judgment” Lien and its Impact upon Homeowners for more information.

One factor that may seem to favor renting is the negative impact that a decision to go bankrupt will have on your credit. Financial advisers warn that foreclosure will leave a “strong negative” on a credit report for as long as seven years from the date of discharge (which can be longer than 5 years from the date of filing in a Chapter 13), though the impact on a borrower’s rating declines over time. But remember that if you are far behind on you payments and/or your credit cards your credit has already been affected… and, a good bankruptcy lawyer can show you ways to rebuild credit even while in a Chapter 13 bankruptcy plan period (3-5 years).

Whatever your decision may be, I wish you luck.

I also provide Mortgage Modification Services.

Other Attorneys Blogging on the Letter R Include: .

New York Bankruptcy Lawyer, Jay S. Fleischman on R is for Redemptions.
Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell on R is for Reaffirmation Agreements
Bay Area Bankruptcy Lawyer Cathy Moran on Retirement.
Colorado Springs Bankruptcy Lawyer Bob Doig on Repossession.
Kona Bankruptcy Lawyer, Stuart T. Ing also on Repossession

Photo by mag3737.

P is for Property of the estate: The key to when a lien can be stripped by the bankruptcy court.

Mar21

By Christopher C. Carr, Esq. Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com Web: westchesterbankruptcyattorney.org

When you inherited that property from your father who died in Texas, it had a second lien which was completely under water and impairs an exemption but you had no liability for the underlying home equity loan so it can’t be stripped in your Chapter 13 bankruptcy, right? Wrong. Let’s see why.

To be “strip eligible”, a secured claim has to be an “allowed claim”. Section 506(a)(1) of the US Bankruptcy Code provides:

An allowed claim of a creditor secured by a lien on property in which the estate has an interest … is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property…”,

The relevant inquiry then for lien stripping is not does the “debtor” owe the debt but does the estate have an interest in the property to which the lien attaches? For that to happen all that is required is that the subject property be in the estate created when the debtor declares bankruptcy. Here are 3 examples to better illustrate the point:

Simple Inheritance Scenario. Suppose the debtor inherited a parcel of real property from her deceased father subject to a lien in favor of his creditors. In the debtor’s bankruptcy case, a lien securing the father’s promise to pay the Bank of Armadillo is just as strip eligible as if the debtor rather than her deceased father were herself the borrower. As long as the property which is collateral for the debt is properly before the court, the lien is subject to stripping.
Co-Beneficiary Scenario. Take the same case but now we have two debtors, each a co tenant and heir with a sibling in the same inherited house (a duplex). Both halves of the house are subject to the BOA lien. If only one debtor files bankruptcy, only that co-tenant’s interest in the house is property of the estate, and the court can only strip the lien from the half of the property because only half is in the bankruptcy estate.
Husband & Wife (certain states only) Scenario. Somewhat the reverse fact pattern is a very common one in Pennsylvania, where I primarily practice law. This can happen for example because the original owner, say the wife, upon marriage deeds the property into husband and wife form, which under Pennsylvania is called “tenancy by the entireties” and serves to protect the marital property from the creditors of the individual marriage partners. The husband is now on title to the property while the wife, the original owner, remains the only one liable on the note. If both spouses file for bankruptcy,, the real estate comes into the bankruptcy estate. Once again, it’s strippable simply because the collateral is property of the estate without reference to the locus of the debt.

Because bankruptcy is essentially “all about the debtor and his or her debts”, it is a common mistake to overlook liens that could have been stripped because the debts do not happen to “belong” to the debtor. This then is another illustration of how competent counsel, by properly identifying and claiming this benefit for you, can save you far more than any legal fee you might have to pay.

I also provide Mortgage Modification Services.

Other Attorneys Blogging on the Letter P Include:

Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell: P is for Plan.
New York Bankruptcy Lawyer, Jay S. Fleischman: P is for Pay Advice.
Colorado Springs Bankruptcy Attorney Bob Doig: P is for Preferences.
Maui Bankruptcy Attorney, Stuart Ing: P is for Preference.
Southgate, Michigan Bankruptcy Lawyer, Christopher McAvoy: P is for Pride.
Cleveland Bankruptcy Attorney, Bill Balena: P is for Phone Call
Wisconsin Bankruptcy Lawyer, Bret Nason: P is for Property of the Estate
San Mateo Bankruptcy Lawyer, Jeff Curl: P is for Priority Debt
Metro Richmond Consumer and Bankruptcy Attorney, Mitchell Goldstein: P is for Privacy
Jacksonville Bankruptcy Attorney, J. Dinkins G. Grange: P is for Payment

Photo by Too Far North

“W” is for Wages are not always safe from creditors in Pennsylvania

Feb22

By Christopher C. Carr, Esq. Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com Web: westchesterbankruptcyattorney.org

age garnishment is not legal in Pennsylvania. So your paycheck is safe and sound, right?

Your employer has just deposited your paycheck into your bank account and you write a check to pay your mortgage, “knowing” there is now plenty of money in there to cover it and nobody can get it. But the check comes back “NSF”. It bounced and for the life of you, you cannot figure out why! But then there’s that innocent little check you cashed a while back for $1.19 and now it’s coming back to haunt you. Read on to see what happened…

Well, while your wages may be safe from direct garnishment this may be cold comfort indeed because, your bank accounts are not protected in this way. In Pennsylvania, a bank account levy is allowed under Section 9607 – Title 13 – COMMERCIAL CODE only after judgment is awarded. But once armed with a judgment your creditors can take your entire bank account – if they can find it. If a legal judgment has been entered against you in Pennsylvania, the holder of that judgment can satisfy it in whole or in part with money in your bank accounts simply by obtaining a court order against your bank.

And how can creditors gain access to this information in this day and age of “privacy protection”? Well one way is through you via what is called “discovery in aid of execution”. That is, under the PA Rules of Civil Procedure you can be required by subpoena to submit to questioning under oath regarding your assets and accounts.

But most collectors cannot be bothered to go through proper legal channels…that costs legal time and money. Instead they will resort to various underhanded schemes to find your accounts. One of the most successful routines they use is to trick debtors into cashing small checks they send them, say, for $1.19 (see above). Accompanying the check will be a fake letter saying “we made an error in your account in your favor and so here’s $1.19 back”. When you cash the check the collector will see a copy of it in his bank statement and he can tell exactly where you do your banking. That is enough to allow him to get what is called a “Seizure Order” against that bank. You may never even figure out how he got you but for a mere $1.19 (which he just tacks back onto your account) he typically seizes several hundred dollars. (The typical collector’s commission is between 40-50% of every dollar he collects.) The lesson is simple – don’t cash small checks your creditors send you.

Here is another far more important lesson: If you get served with a debt complaint, you definitely want to get a lawyer involved right away not only because not only can he defend you against it (either with a bankruptcy filing or outside bankruptcy) but also because a creditor judgment (that’s the key word of this blog if you haven’t guessed) can ALSO result in a lien against your home which will have to be satisfied before you can sell, whether or not you later go bankrupt. See my blog on the complex topic of Liens.

Now back to the exciting conclusion of this blog: except for a few minor exceptions such as the Commonwealth’s statutory exemptions and payments received from Social Security, the entirety of all of your bank accounts may be subject to garnishment by a creditor who has obtained a judgment against you. And this applies to your hard earned wages as well, once they have been paid to you, as they become available to garnishment once they are on deposit in your personal checking account.It is important to recognize (i) that this is not a one shot deal, it can happen again and again until the debt is satisfied and (ii) that the one sure way to protect your bank accounts and the wages on deposit in them is to avail oneself of the automatic stay in bankruptcy to protect your assets. The stay is one really important reason why people in financial distress opt to seek the protection of the bankruptcy court!

I also provide Mortgage Modification Services.

Other attorneys playing the bankruptcy alphabet game:

L in Bankruptcy is for Long Term Payments, Chapter 13 Plans

Feb4

By Christopher C. Carr, Esq. Chester County bankruptcy attorney.

Tel: 610-380-7969 Email: cccarresq@aol.com Web: westchesterbankruptcyattorney.org

This article deals with situations where debt repayment extends beyond the 3-5 year period allowed in a Chapter 13 and the end of the automatic stay in bankruptcy and some things that can be done about it.

The typical scenario would be where a homeowner uses a Chapter 13 to repay the arrears on their mortgage. The law states that while the arrears must be paid 100% over the course of the plan, payments on the mortgage may extend beyond that time. How could it be otherwise because almost all mortgages have a life of 30, 40 even 50 years, far longer than the maximum bankruptcy plan?

But what about a homeowner who also has non dischargeable taxes? They too can be “scheduled” and payments made over the course of the plan…but when the plan ends so does the “automatic stay” and the tax creditors will STILL be there waiting to get their money. And the IRS has an array of weapons at its disposal. For example, unlike common creditors, it can slap a lien on your home without even having to file suit to do so. And such liens can be more than just a nuisance, especially when it comes time to sell because then the title company will not issue a policy of title insurance until the lien has been paid thus in effect giving the IRS a second bite at the apple. You can try negotiating a lower tax with the Service by submitting what is called an Offer in Compromise after the bankruptcy is discharged but not everyone can qualify and a 20% nonrefundable down payment must be submitted with your offer on IRS form 656. If the IRS accepts the offer, it will want the remainder in 5 or fewer monthly installments.

But luckily there are other alternatives. The law allows a tax debtor to file under more than one chapter in bankruptcy in sequence. Many people wrongly believe that there is a waiting period after a discharge before another bankruptcy can be filed whereas the law actually reads only that you cannot receive a discharge in the second bankruptcy. However, as to non dischargeable debt, it really does not matter.

There are 2 scenarios where this strategy can be used with good effect. Suppose you file Chapter 7 to wipe out all your qualifying dischargeable debts and taxes. When the Chapter 7 is completed, some non-dischargeable taxes remain, but you could file under Chapter 13 for a repayment plan to deal with the balance. This strategy is called: “Chapter 20” (7 + 13). This stops interest and penalties.

Likewise, a “Chapter 26” (13+13) may be a way to spread paying a tax debt over a longer period– up to ten years (i.e. 2 5 year plans). This means filing one Chapter 13 and completing it, and then filing a second Chapter 13 for remaining debts. This also stops interest and penalties and most importantly liens will not attach to your property because of the automatic stay. If done quickly enough, this can be accomplished before the IRS starts up collection activity again.

As always, it is best to seek the advice of a competent bankruptcy attorney as this is a complex timing sensitive legal area.

I also provide Mortgage Modification Services.

Others who have actually reached the letter L in the Bankruptcy Alphabet include:

St. Clair Shores MI attorney, Kurt OKeefe, who speaks the truth when he says that L is for Lie, the Big Mortgage Industry

Cleveland Attorney ( oh how I miss beautiful Cleveland on the shores of lake Erie where once I lived), Bill Balena ensures us that L is for Life Insurance

New York & California Bankruptcy Lawyer, Jay S. Fleischman who attaches great relevance to L is for Lien

Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell who lays it all bare for us in L is for Lien Stripping

Honolulu Bankruptcy Attorney Stuart T. Ing also peels back the layers in L is for Lien Stripping

Marin County Attorney, Catherine Eranthe enlightens us in L is for Lift the Stay

Colorado Springs Attorney Bob Doig has gems of wisdom on why L is for Luxuries

Metro Richmond Consumer Attorney, Mitchell Goldstein who is solidly behind L is for Liquidated

Allen Park, Michigan Bankruptcy Lawyer, Christopher McAvoy enumerates how L is for List It Or Lose It

J is for “Judgment” Lien and its Impact upon Homeowners.

Jan1

By Christopher C. Carr, Esq. Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

1. What Is a Judgment vs. a Lien and how do they arise in Real Estate?

When you owe money and are unable to pay, the creditor, unless it is the IRS, must take you to court before levying upon your back accounts or garnishing your wages. Typically the creditor will sue you in municipal court or in common pleas court in Pennsylvania if the amount of the claim is larger than $12,000 (up to 15,000 for Philadelphia County real estate matters). When a lawsuit is initiated against you, you will be served with a Complaint. If you do not respond (by answer or other responsive pleading) within a set period of time or appear at the hearing set for your case, a default judgment will be issued against you. This judgment will be recorded by the court.

In Pennsylvania, a judgment is an automatic lien on real property owned by the defendant in the county in which the judgment is located. The lien of a judgment lasts for 5 years, 42 Pa. C.S.A. Sec. 5526, and execution must be issued against personal property within 20 years after entry of the judgment, 42 Pa. C.S.A. Sec. 5529. In addition, via a mechanism called a writ of execution liens can be transferred to other counties in Pennsylvania where the debtor owns property. A lien on real property means that the debtor cannot sell the property until all liens are paid. However, a judgment lien can only be arise in real property. If the debtor does not own real property within the applicable jurisdictional limits, the judgment lien cannot attach to anything and all the creditor has is a recorded judgment. What is the use of this? Well, the creditor can then use this judgment to pursue garnishment where available or levy upon your Pennsylvania bank accounts. However, wage garnishment is prohibited in Pennsylvania except for certain obligations such as support. It is critical for homeowners to respond to all lawsuits by bringing them immediately to the attention of their attorney as in this way an ordinary unsecured debt such as a unpaid credit card debt can become a lien against your home. (See final comment below.)

The filing of a bankruptcy will stay a foreclosure and the underlying debt can be discharged in a bankruptcy except for certain obligations such as domestic support obligations (DSO’s) which are non-dischargeable under Section 11 USC. 523(a) (5) of the Bankruptcy Code. (But see my blog on the effects of a Chapter 13 bankruptcy on DSO’s for further valuable information for homeowners facing support issues.) Even if these steps are taken the lien of the prior judgment will typically continue (in some some cases they can however be completely or partially removed as discussed below) and may cause difficulties for homeowners. To avoid the continuing negative financial consequences they can create, the judgment will need to be removed where possible.

2. REASONS TO HAVE A LIEN/JUDGMENT REMOVED:

When a creditor who has obtained a judgment but the debtor subsequently files a bankruptcy, the debt underlying the judgment is discharged through the bankruptcy. However, the lien of the judgment itself will remain and will be effective against any real property in the county and will interfere with the sale of the property. A lien on real property means that the debtor cannot sell the property until all liens are paid. Understandably, a title company will refuse to clear the title for a home when the property has a judgment lien against it until the title insurer receives proof that the lien has been satisfied or discharged and this can defeat or delay a sale of the property. A lien can of course be satisfied through payment but a typical homeowner files bankruptcy precisely because they can no longer pay their mortgage.

Even if you do not own real estate, while no creditor can collect upon the judgment, it will still continue to exist on the county record. The judgment will be reported to credit bureaus as active, thus continuing to impair your credit for up to 7 years, which is the length of time a judgment can remain on your credit.

3. WHICH JUDGEMENTS AND LIENS IN REAL ESTATE MAY/MAY NOT BE DISCHARGED BY BANKRUPTCY AND HOW IS THIS DONE?

Certain types of debt cannot be discharged through a bankruptcy. For example, back child support cannot be discharged through a bankruptcy.

The lien of a judgment which was entered before the bankruptcy was filed will appertain against real property of the debtor for at least 5 years after entry of the judgment in the county. (See above). However, to the extent the lien impairs an exemption the lien will be subject to removal once the debt has been discharged.

The homestead exemption in bankruptcy applies to property used as your residence. As of early 2012, the federal homestead exemption is $21,625 (if both spouses file, this is doubled). State homestead exemptions vary a great deal. In some states, like Florida, there’s no limit, while in other states, like New York, the limit is $50,000 to $150,000, depending on where in the Empire State you reside. In Pennsylvania, for example, the federal exemption may be elected. So, if you have a house with $50,000 worth of equity you are entitled to a federal exemption with your spouse of $43,250.00. If you only owe $50,000 on the property, you can petition the court and have the judicial lien removed up to the exemption amount. The lien for the remaining $6,750 will remain on the books. Unfortunately however, few homeowners in this day and age of declining home values have sufficient equity in their homes to claim equity impairment sufficient to remove liens following bankruptcy. (See final comment below.)

This process only works when you have claimed a valid exemption relating to your principal residence in the bankruptcy proceeding and the underlying debt has been discharged. If these conditions are met, the bankruptcy court will, upon motion made by your attorney, remove the lien to the extent it impairs your homestead exemption.

A debt must have however been included in the bankruptcy for it to have been discharged. If the creditor was not listed and the debt existed before the case was filed, the case may need to be reopened and the creditor added. (This topic will be treated in greater detail in my blog under construction with the working title: “U is for the Unlisted Creditor in the Bankruptcy Alphabet”.)

If you are involved in a Chapter 13 bankruptcy, which is the usual case for homeowners, you cannot receive a discharge until your plan has been completed which can take up to 60 months. A judgment cannot be removed if a discharge has not been issued. You will have to wait until your plan is completed before you will be able to remove any judgments issued against you and begin to clear your credit.

Once the discharge has been obtained, clearing a listed judgment (but not the judicial lien if you have non-exempt real estate in the county: see above) may be as simple as having your lawyer send a notice of discharge in bankruptcy to the clerk of the court of the county in which the judgment was recorded with a copy to the creditor.

Clearing debt off your credit report however can require the additional help of a credit specialist. Certain lawyers can assist you with credit repair.

4. CONCLUSION: DO NOT HIDE YOUR HEAD IN THE SAND:

Obviously these rules are very complicated and, while I have illustrated with examples drawn mainly from Pennsylvania where I practice, vary from state to state and even within state boundaries. There is however one sure fire way to keep a lien from arising on your real property in Pennsylvania and elsewhere. Never allow a judgment to be entered against you before you have the oportunity to file bankruptcy. Instead, seek the advice of a competent bankruptcy lawyer as soon as you see the first sign of a law suit looming on your horizon and start planning for a bankruptcy filing to preempt the filing of a judgment.

I also provide Mortgage Modification Services.

Other bankruptcy attorneys discussing the Letter “J” include:

Joint Filing Marin County Bankruptcy Attorney, Catherine Eranthe http://marin-bankruptcy-law.com/2011/11/27/bankruptcy-a-to-z-j-is-for-joint-filing/
Judgment Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell http://bankruptcyblog.caldwell-lawfirm.com/2011/11/09/bankruptcy-alphabet-j-is-for-judgment.aspx
Your Personal Finance Lawyer New York Bankruptcy Lawyer, Jay S. Fleischman http://www.consumerhelpcentral.com/jay-fleischman-personal-finance-lawyer/
Justify Northern California Bankruptcy Lawyer, Cathy Moran http://moranlaw.net/blog/bankruptcy-alphabet-j-for-justify/
Judgment Liens Colorado Springs Bankruptcy Attorney Bob Doig http://springsbankruptcylaw.com/?p=1165
Joint Debts Hawaii Bankruptcy Attorney, Stuart T. Ing http://www.bankruptcyhi.com/2011/12/j-is-for-joint-debts/
Judicial Lien Cleveland Area Bankruptcy Lawyer, Bill Balena http://ohiobankruptcysource.com/?p=2325

I is for “IRA” in the Bankruptcy Alphabet Game (New IRA Exemption )

Dec23

is for “IRA” (and 401k’s) in Bankruptcy. How they can help (or hurt) you.

By Christopher C. Carr, Esq. Chester County bankruptcy* attorney.* Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

The 2005 amendments to the U.S. Bankruptcy Code added a broad new category of property that may be excluded from bankruptcy to the extent that such funds are deposited by the debtor in a tax exempt fund. As part of an overall initiative by Congress to expand the bankruptcy protection of tax exempt investment vehicles, one can now exempt up to one million dollars in an IRA account and such amount may be increased “if the interests of justice so require”.

Section 522 (d) 12 of the Bankruptcy Code states, in pertinent part:

For assets in individual retirement accounts described in section 408 or 408A of the Internal Revenue Code of 1986, other than a simplified employee pension under section 408(k) of such Code or a simple retirement account under section 408(p) of such Code, the aggregate value of such assets exempted under this section, without regard to amounts attributable to rollover contributions under section 402(c), 402(e)(6), 403(a)(4), 403(a)(5), and 403(b)(8) of the Internal Revenue Code of 1986, and earnings thereon, shall not exceed $1,000,000 in a case filed by a debtor who is an individual, except that such amount may be increased if the interests of justice so require.

This new provision of the Bankruptcy Code is important for asset protection and planning purposes. An IRA (other than a “sep” pension or “simple” account) can now be used to shelter funds that would otherwise not be exempt under a state or federal exemption and could thus be eligible for distribution to creditors. Such funds would simply be contributed by the debtor (from say a non-qualified savings account or a tax refund) to a qualified plan, up to the annual aggregate limit imposed by law (for 2011: $5,000 if under 50 years of age and $6,000 if over 50), on or before the date of the bankruptcy filing.

It is important to note as well that this protective coverage is afforded not only for money in qualified funds but also to rollovers from a plan so long as the distribution is again deposited into a qualified plan within sixty days. Thus, perhaps as an unintended byproduct of the rollover provisions, individuals can make emergency IRA withdrawals to meet very short term needs but this strategy should only be pursued in situations where the funds withdrawn are certain to again become available before the sixty day deadline (from say an income tax refund or maturing CD). Otherwise, there will be a “double whammy” effect: not only will such withdrawn funds then be taxable income to the debtor (who may possibly be assessed IRS penalties as well) but the shelter from creditors in bankruptcy discussed above would not be available.

We have talked a lot about IRA’s but what about the employer sponsured plans, the 401k? Well there are advantages for the debtor here as well: The law allows you to pay your creditors and still can save for your retirement. In fact, the more you puy into the plan subject to plan limitations, the less you have to pay them.

When you file a Chapter 13 you can reduce income on both schedule I and on the means test by the amount you contribute to qualified retirement plans. In general this means payroll deductions for both 401k contributions and loan payments. Your plan payment can be unacceptably high, if you are in an excess income situation. But if you max out your contribution, this will result in a dollar for dollar reduction in your plan payment. That is, iyou have the opportunity to turn the tables: instead of making a high monthly payment to your unsecured creditors and a correspondingly lower retirement contribution, you are minimizing the amount they receive by providing for the future of you and your family. What could be better than that?

I also provide Mortgage Modification Services.

Other lawyers in the bankruptcy alphabet game:

Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell: I is for involuntary petition too.

New York Bankruptcy Lawyer, Jay S. Fleischman : I is for Income.

Marin County Bankruptcy Attorney, Catherine Eranthe claims I is for Income as well.

Northern California Bankruptcy Lawyer, Cathy Moran: I is for IRS.

Colorado Springs Bankruptcy Attorney Bob Doig: I is for In Forma Pauperis (he speaks Latin).

Big Island Bankruptcy Attorney, Stuart T. Ing: I is for Independent Contractor.

Michigan Bankruptcy Lawyer, Christopher McAvoy:I is for income Tax Refunds.

Los Angeles Bankruptcy Attorney, Mark J. Markus: I is for Insiders.

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The H in the Bankruptcy Alphabet is for “Honesty” and Fraud Avoidance.

Dec20

is for Honesty

By Christopher C. Carr, Esq. Chester County bankruptcy* attorney.* Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

Every potential bankruptcy client needs to understand that it is in his/her best interest to be entirely honest in their dealings with their lawyer, the trustee and the courts. Not only may the debtor harm themself by failing to disclose material information but they may also potentially face severe criminal penalties.[1] The United States bankruptcy laws require the debtor to disclose all income and assets to the bankruptcy court and the court is empowered under applicable federal statutes to uphold the integrity of the system and the participants in it. The theory and practice of these disclosures, is that if accurate and complete, the bankruptcy trustee and the court are able to determine what, if anything, the debtor can afford to repay to the creditors.

The bankruptcy disclosure form which every debtor is required to sign WARNS as follows:

Bankruptcy Crimes and Availability of Bankruptcy Papers to Law Enforcement Officials

A person who knowingly and fraudulently conceals assets or makes a false oath or statement under penalty of perjury, either orally or in writing, in connection with a bankruptcy case is subject to a fine, imprisonment, or both. All information supplied by a debtor in connection with a bankruptcy case is subject to examination by the Attorney General acting through the Office of the United States Trustee, the Office of the United States Attorney, and other components and employees of the Department of Justice.

WARNING: Section 521(a)(1) of the Bankruptcy Code requires that you promptly file detailed information regarding your creditors, assets, liabilities, income, expenses and general financial condition. Your bankruptcy case may be dismissed if this information is not filed with the court within the time deadlines set by the Bankruptcy Code, the Bankruptcy Rules, and the local rules of the court. [2]

Oftentimes the debtor will unintentionally hurt their case by “shading” the truth based upon an inaccurate understanding of the bankruptcy laws. For example, a debt may not be listed on the petition because the debtor does not wish to reveal it. However, a debt that is not disclosed cannot be discharged in bankruptcy.

One of the great unfounded fears in all of bankruptcy is that the debtor will “lose all their assets in bankruptcy”. Thus, a debtor may fail to reveal an asset which might have been partially or completely exempt and thus unnecessarily face the complete loss of the asset (see below). There are generous exemptions available for many assets especially under the federal statutes and the laws of states like Pennsylvania where I practice law allow debtors to elect these, instead of the far less generous state exemptions. Other states like Florida have homestead exemptions which allow a debtor domiciled in Florida to completely shield their primary residence.

One article provides the following example of this temptation in action and how the result of yielding to it easily can be detected:

“Because cash is difficult to track down, it may be tempting to pile up as much cash as you can before bankruptcy and then “forget” to include the cash on your financial statement that you file with the bankruptcy court. Be forewarned that the bankruptcy code imposes significant civil and criminal penalties on debtor’s who intentionally provide false information to the bankruptcy court. Because the bankruptcy trustee will have access to all your recent history of earnings, bank statements and other financial records, there is a strong likelihood that the trustee will be able to tell if you have attempted to siphon off cash before filing your bankruptcy petition.”

It is thus essential that the debtor reveal all debts, assets and income sources to the lawyer who can then properly advise the debtor on legal protections and issues. If there is any question for example as to whether an item is an asset, the debtor should disclose it and let the lawyer decide how to properly treat it in the petition. Some writers have indicated that such proactivity can help to show that the debtor did not have the requisite intent to commit bankruptcy fraud.

One consequence of failing to disclose income or assets is that the debtor may be denied a bankruptcy discharge and remain liable for all debts under Section 727 of the Bankruptcy Code. Its provisions permit the court to dismiss the debtor’s case for dishonesty on the bankruptcy schedules, hiding assets, failing to maintain financial records, refusing to turn over records, or refusing to cooperate with the trustee. Not only may the court deny the dishonest or uncooperative debtor a discharge under Section 727 but any assets turned over during the case will still be sold by the bankruptcy trustee so that the debtor loses the property without any concomitant bankruptcy benefits.

As is indicated above, the most serious consequence for the debtor of dubious honesty is the prospect of being charged with criminal bankruptcy fraud. Most bankruptcy fraud first comes to the attention of the bankruptcy trustee during the course of the bankruptcy or as a result of “whistle blowing” by neighbors, creditors, or ex-spouses. The IRS under the Internal Revenue Service Criminal Investigation’s Bankruptcy Fraud Program and the US Trustee are the most active in investigating fraud. The Department of Justice Trustee Program encourages individuals to report bankruptcy fraud to the US Department of Justice for further potentially criminal action. The IRS also maintains a whistle blower award program.

The IRS appears to use the Bankruptcy Fraud Program to make examples of egregious miscreants, especially where a case also involves tax fraud or evasion, and consequently has an extremely high conviction rate. For example in 2011, 83% of those who had been charged with bankruptcy fraud are now serving time. In virtually all these cases, the individual was also required to make substantial financial restitution and also were required to serve a period of supervised release.

In addition, just because your bankruptcy is discharged, don’t think that you are off the hook. Individuals who file for relief under Chapter 7
or Chapter 13 of the Bankruptcy Code are subject to audits by the U.S. Trustee. For further information visit the U.S. Trustee site.

The moral of the story? You are filing bankruptcy to get a fresh start. You have little to fear and everything to gain from the process if you are honest and adopt a policy of full disclosure.

Law Offices of Christopher C. Carr, MBA, P.C., is a quality Chester County Bankruptcy Practice, located in Valley Township, west of Coatesville, Pennsylvania, where Attorney Carr, who has over 30 years if diversified experience as an attorney, concentrates his practice on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester, Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!

[1] The criminal sanctions can include sentence of up to five years in prison and fines up to $250,000.

[2] Source

I also provide Mortgage Modification Services.

For other articles in the nationwide bankruptcy ABC’s series check out these attorneys:

Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell: H is for Hearing.
New York Bankruptcy Lawyer, Jay S. Fleischman: H is for Household.
Northern California Bankruptcy Lawyer, Cathy Moran: H is for House, no not the doctor.
Colorado Springs Bankruptcy Lawyer Bob Doig: H is for Homestead.
Los Angeles Bankruptcy Attorney, Mark J. Markus: H is for House
Hilo Bankruptcy Attorney, Stuart T. Ing: H is for Household Size.
Cleveland and Lorain Count Bankruptcy Attorney, Bill Balena: H is for Honesty

Photo by Arenamountanus

G in the Bankruptcy Alphabet is for “Garnishment”: Will Bankruptcy Help?

Dec18

By Christopher C. Carr, Esq. Chester County bankruptcy* attorney.* Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

G takomabibelot 2657676353_a57f4042a9_t[1] is for for “Garnishment”: Will Bankruptcy Help? In addition to the obvious monetary loss for the debtor/garnishee, a garnishment can negatively impact employment, because the employer will see that the employee is having credit issues[1] and also is presented with the added administrative burden of complying with periodic court orders. Can you put a stop to it with a bankruptcy?

A. Garnishment For Ordinary Consumer Debt:

In most states, garnishment for ordinary consumer debt is permitted. Most US states allow wage garnishment for consumer debt with the exception of Pennsylvania, South Carolina, North Carolina and Texas (depending upon the debtor’s circumstances).

The automatic stay in bankruptcy (Section 362 of the U.S. Bankruptcy Code) is a fundamental consumer protection. It halts most creditor actions against you, including collection proceedings from the moment your case is filed with the bankruptcy court, including wage garnishment for consumer debt. A garnishment of wages is considered a collection proceeding under the bankruptcy code. As a result, a creditor that attempts to garnish wages violates the debtor’s rights to an automatic stay under the Bankruptcy Code.

The automatic stay generally protects you against garnishment until the end of your case whether closed, discharged or denied. If the bankruptcy discharge is granted and the case is closed then the automatic stay becomes permanent in the form of the discharge injunction. Article Source: http://EzineArticles.com/3689006 by Jay Fleishman, Esq.

B. Garnishment For Unpaid Domestic Support:

However, garnishment for is a creature of a different stripe altogether, All US states allow income garnishment for tax arrearages and child support and in some states even spousal support (alimony) may be garnished as well. These are termed domestic support obligations (DSO’s). DSO’s cannot be discharged or modified in either a Chapter 7 or Chapter 13 bankruptcy, pursuant to 11 USC. 523(a)(5). However, the impact a bankruptcy will have on support payments differs as between a Chapter 7 or a Chapter 13.

A Chapter 7 bankruptcy filing is useless against the collection, enforcement, or payment of DSO’s. Thus the automatic stay in effect does not exist in a Chapter 7.

However, in contrast, a Chapter 13 proceeding can actually work to protect the debtor against DSO enforcement actions, including wage garnishments, because all property acquired by the debtor is property of the bankruptcy estate. Thus, all actions to collect or enforce DSO’s usually will be halted by the filing of a Chapter 13 bankruptcy. Support payments may be temporarily stopped until the plan payment details are worked out as well. For more information on DSO’s and how they are impacted by bankruptcy, see my article “D” is for Domestic Support Obligation.

I also provide Mortgage Modification Services.

Visit the sites of these other lawyers for their pespectives on the letter G:

Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell says G is for General Unsecured Creditor.

New York Bankruptcy Lawyer, Jay S. Fleischman who says G is for Garnishment.

Maui Bankruptcy Attorney, Stuart Ing who talks about Garnishment too.

Northern California Bankruptcy Lawyer, Cathy Moran says G is for Guaranty.

Colorado Springs Bankruptcy Attorney Bob Doig says G is for Goals.

Los Angeles bankruptcy attorney, Mark J. Markus says G is for Gifts.

Jacksonville Bankruptcy Attorney, Monica D. Shepard has an article that says G is for Guilt.

Tagged as: Automatic Stay In Bankruptcy, bankruptcy, creditor, debt, Christopher Carr Bankruptcy Lawyer, Philadelphia Bankruptcy Attorney, Philadelphia Bankruptcy Lawyer, stay, garnishment

[1] Nowadays a credit check is routinely done before a job is offered so credit is obviously of heightened concern to employers.

Christopher Carr, Esq. on Debt Relief

A Frank Discussion of Debtor's Rights & Consumer Bankruptcy

Tag Archives: bankruptcy

Student Loan Dischargability in Bankruptcy

M is for Matrimonial Property Obligations and the Discharge in Bankruptcy

“R” in Bankruptcy is for Rental vs. Chapter 13 Home Retention: A Tax Benefit Analysis

P is for Property of the estate: The key to when a lien can be stripped by the bankruptcy court.

“W” is for Wages are not always safe from creditors in Pennsylvania

Other attorneys playing the bankruptcy alphabet game:

L in Bankruptcy is for Long Term Payments, Chapter 13 Plans

J is for “Judgment” Lien and its Impact upon Homeowners.

I is for “IRA” in the Bankruptcy Alphabet Game (New IRA Exemption )

is for “IRA” (and 401k’s) in Bankruptcy. How they can help (or hurt) you.

By Christopher C. Carr, Esq. Chester County bankruptcy* attorney.* Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

Other lawyers in the bankruptcy alphabet game:

The H in the Bankruptcy Alphabet is for “Honesty” and Fraud Avoidance.

is for Honesty

By Christopher C. Carr, Esq. Chester County bankruptcy* attorney.* Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

For other articles in the nationwide bankruptcy ABC’s series check out these attorneys:

G in the Bankruptcy Alphabet is for “Garnishment”: Will Bankruptcy Help?

By Christopher C. Carr, Esq. Chester County bankruptcy* attorney.* Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

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Other attorneys playing the bankruptcy alphabet game:

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is for “IRA” (and 401k’s) in Bankruptcy. How they can help (or hurt) you.

By Christopher C. Carr, Esq. Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

Other lawyers in the bankruptcy alphabet game:

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is for Honesty

By Christopher C. Carr, Esq. Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

For other articles in the nationwide bankruptcy ABC’s series check out these attorneys:

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By Christopher C. Carr, Esq. Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

Rate this:

By Christopher C. Carr, Esq. Chester County bankruptcy* attorney.* Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

By Christopher C. Carr, Esq. Chester County bankruptcy* attorney.* Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

By Christopher C. Carr, Esq. Chester County bankruptcy* attorney.* Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com