Posted on January 23, 2017 in Bankruptcy Law

Unexpired leases and executory contracts can continue on after you file your bankruptcy case. What are they and what makes them special?

Debt Contracts

Most debts arise out of a written contract. You sign a credit card application agreeing to pay according to the stated terms. Go to a new doctor and you sign a form agreeing to pay for all services to be provided. Buy furniture, appliances, or electronics at a retail chain store after agreeing in writing to pay for the goods purchased. Buy a vehicle and sign the lender’s loan document. Buy a home and sign dozens of mortgage documents.

In all these situations the creditor provides you money, goods, or services which you agree to pay for. At that point the creditor has finished performing its obligation. Now you are supposed to perform your side of the bargain—to pay the debt.

Executory Contracts and Unexpired Leases

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 Posted on January 16, 2017 in Secured Debts

Statutory liens on your home cannot be gotten rid of in bankruptcy like judgment liens often can. So it’s important to know what they are.

Statutory Liens Are Rare, Sort of

There’s a good chance you don’t have any statutory liens on your home. But you may.

• Has the IRS or your state recorded a tax lien against your home for unpaid income taxes?
• Have you had a dispute with a roofer or some other kind of building contractor resulting in a contractor’s or mechanic’s lien?
• Are you late on monthly dues or special assessments to your homeowner association, resulting in a lien against your condo?

These are the most common kinds of statutory liens on your home.

What Is a Statutory Lien?

The U.S. Bankruptcy Code says that “the term ‘statutory lien’ means [a] lien arising solely by force of a statute on specified circumstances or conditions.” (Section 101(53).) A statutory lien is essentially created automatically, by operation of a statute, without further action by a court.

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 Posted on January 09, 2017 in Bankruptcy Procedure

Here’s an example showing why a judgment lien on your home is dangerous, and how bankruptcy can solve this problem.

The last two blog posts have been about judgment liens on a home: the trouble they cause and how bankruptcy gets rid of them.

Today we’ll give examples both of judgment lien trouble and of bankruptcy’s solution.

The Trouble Caused by a Judgment Lien

Brent and Sandra Taylor own a $290,000 home with a $250,000 mortgage. They have a lot of other debt. Besides the mortgage they owe mostly medical bills and credit cards—$80,000 and $55,000 of them, respectively, $135,000 altogether.

One collection agency collecting on $20,000 of the medical bills sued them six months ago. Brent and Sandra didn’t respond to the lawsuit. They figured they definitely owed those medical bills and so had no reason to respond or object. Plus they had nothing to offer in settlement, either as a lump sum or in monthly payments.

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 Posted on January 02, 2017 in Chapter 13

If your liability dispute with your creditor spills into your Chapter 13 case, the bankruptcy court may be a good forum to fight it out.

Our last three blog posts were about objecting to a creditor’s proof of claim in a Chapter 13 case. Today we look at situations when this is the most important part of your case.

Bringing a Liability Dispute to the Bankruptcy Court

It’s not unusual that a dispute with a single creditor forces a person into bankruptcy. Often it’s just one otherwise ordinary creditor which is more aggressive than the others, suing you ahead of the others, and then garnishing your paycheck or bank account.

Sometimes it’s not just any extra-pushy creditor, but rather one that you’ve been fighting for quite a while. The fight you are having with that creditor may be the main reason why you filed bankruptcy.

Maybe you were in a serious vehicle accident, and did not have enough insurance coverage. You are being accused of causing the accident but don’t believe you were its primary cause. Because of major injuries to others you potentially owe hundreds of thousands of dollars.

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 Posted on December 26, 2016 in Bankruptcy Procedure

If you object to a creditor’s proof of claim in your Chapter 13 case, and prevail in that dispute, you pay nothing on that debt.

Our last blog post was about what happens to creditors who fail to file a proof of claim on time in a Chapter 13 “adjustment of debts” case. The creditor’s debt receives no payment through your Chapter 13 plan, and the debt is discharged—written off.

There’s another way to achieve this same result. Your bankruptcy lawyer can object to a creditor’s proof of claim if you don’t owe the debt as stated.

If the Creditor Does Not Respond to the Objection

Creditors sometimes file proofs of claim that are clearly not legally valid. Your debt may no longer be collectable because the statute of limitation has expired. An ex-spouse may owe the debt on which you’re not liable. Someone with the same name as you may owe the debt instead of you.

In these and similar situations your lawyer would likely file an objection to the proof of claim. Otherwise the legally invalid debt would be treated as a legitimate one. That illegitimate claim could share in whatever you are paying other similar debts under your Chapter 13 payment plan.

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 Posted on December 23, 2016 in Chapter 13

If a creditor doesn’t file a timely proof of claim on a debt in your Chapter 13 case, you pay nothing on that debt.

Our last blog post was about Chapter 13 “adjustment of debts” cases in which you don’t pay anything on any of your “general unsecured” debts. In parts of the country where that’s allowed, those debts are fully and forever discharged after you pay nothing. That’s a pretty good debt “adjustment.”

But that can happen only in certain circumstances, with certain combinations of debts, assets, income and expenses. What’s much more common is a Chapter 13 case in which you would pay nothing only to certain creditors. That happens often because creditors regularly fail to file their proofs of claim on time with the bankruptcy court.

Sometimes that has little or no effect on how much you pay into your Chapter 13 plan before it’s completed. But sometimes it makes a huge difference. It could potentially save you lots of money, or even significantly shorten the time you’re in your payment plan.

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 Posted on December 21, 2016 in Discharge of Debts

In some jurisdictions you can pay nothing to your “general unsecured” creditors, if all your money goes to paying higher priority ones.

We’re in the middle of a series of blog posts about the discharge of debts through Chapter 13. We’re specifically talking about Chapter 13 cases in which you’d pay nothing to some or even most of your creditors.

A Conventional Chapter 13 Plan

The U.S. Bankruptcy Code’s official name for Chapter 13 is “Adjustment of Debts of an Individual with Regular Income.” In most cases that “adjustment” means you must pay something to all or most of your creditors.

Here’s the way it usually works. You and your bankruptcy lawyer put together your budget. It shows your monthly income, expenses, and the remaining “disposable income.” That remaining amount is usually what you pay into your Chapter 13 plan each month.

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 Posted on December 14, 2016 in Discharge of Debts

The main goal of bankruptcy is often to write off—“discharge”—your debts. Here’s how it works in Chapter 7 “straight bankruptcy.”

When you file bankruptcy, especially Chapter 7 “straight bankruptcy,” the relief you want is to be free of your debts. Chapter 7 accomplishes this by giving you a “discharge” of all or most of your debts. A discharged debt is permanently written off. It’s explicitly illegal for your creditors to take any further collection action on them.

A Bit of Eye-Opening History

You might think, well of course bankruptcy discharges debt—that’s what it’s supposed to do.

So you may be surprised to learn that for much of the history of bankruptcy there was no discharge of debts. In England, where we get much of our law, back in the 1500s debtors were called “offenders.” Only creditors could file bankruptcy, in order to have the assets of the “offender” seized and sold to pay creditors. After the bankruptcy the creditors could continue chasing the “offender” for any remaining balance owed. In the 1700s the discharge of debts was added, but only if the creditors agreed to allow it!

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 Posted on November 25, 2016 in Secured Debts

If you are concerned that in a Chapter 13 case a debt resulting from surrendered collateral will cost you more, often it won’t.

Secured Debts in Chapter 13

In a Chapter 13 “adjustment of debts” case you have the option of keeping or surrendering collateral.

Whether it’s your home, your vehicle, or any other collateral, Chapter 13 gives you powerful tools for keeping that collateral.

But in spite of that, sometimes the best option is still to surrender that collateral. You may have overextended yourself buying a vehicle whose payments and insurance you can no longer afford. Or you’ve learned that it’s a lemon and not worth the constant repair costs. Or you bought a home that you’re so far behind on that it’s not worth the cost and effort to catch up, even if Chapter 13 gives you a lot of time to do so.

Secured Debts Turned into Unsecured Ones

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 Posted on November 23, 2016 in Secured Debts

If you want secured creditors to be paid in your Chapter 13 plan, they must file proofs of claim. Let’s use the example of a vehicle loan.

Secured Debts

A debt is secured if the creditor has a lien on something you own. The lien gives the creditor rights against that thing you own. That usually includes the right to repossess it if you don’t pay the debt.

Let’s focus on what’s probably the most common kind of secured debt: a vehicle loan. When you finance your purchase of a car or truck, your lender becomes its lienholder. To secure the loan the lender requires you to give it a lien on the vehicle. That lien is a “charge against or interest in [your] property to secure payment of a debt or performance of an obligation.” (Section 101(37) of the Bankruptcy Code)

Bankruptcy discharges—legally writes off—most debts, including secured debts. But that just discharges the personal liability on the debt itself. The lien—the lender’s right to repossess—is not erased by bankruptcy. If you want to keep a vehicle when you go through bankruptcy, you have to deal with the lien. Generally, unless you’re surrendering the vehicle, the way to deal with the lien is to pay the debt owed.

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