Call Today for a FREE Consultation
210-342-3400
Recent Blog Posts
Timing: Writing Off Recent Credit Card Debt
Using a credit card shortly before filing bankruptcy doesn’t seem right. The law agrees. Writing off this kind of debt can be a problem.
Our last blog post was about writing off—“discharging”—income taxes. The conditions you have to meet to discharge a tax debt are mostly very clear. These conditions are based on rather straightforward calculations of time. If you don’t meet those time-based conditions the tax does not get discharged; you still owe it.
Credit card debts are completely different. First, they’re almost always discharged. Second, there are some timing rules but those rules don’t necessarily decide whether or not the credit card debt is discharged or not. We’ll explain all this in today’s blog post.
The Point of the Timing Rules
With income tax debts, they’re NOT discharged unless you meet the timing rules. With credit card debts they ARE discharged unless you meet the timing rules.
Two Examples of Bankruptcy Timing with Medical Debts
How to know whether to delay filing bankruptcy when you’re expecting new medical services and their medical debts? Here are two examples.
Our last blog post was about the importance of timing your bankruptcy filing to include more of your debts.
One example we used was of a person with unresolved medical issues requiring ongoing medical care. That person could be overwhelmed by medical and other debts already owed. But he or she may wonder whether it would be wise to hold off on filing bankruptcy until the anticipated medical debts were incurred and so could be included.
We’ll now present two examples of this situation, each with different facts. We’ll show how these different facts resulted in these two people getting quite different legal advice.
Jeremy’s Facts
Jeremy is 30 years old, and single. He was in a car accident a year ago, resulting in serious injuries and huge medical bills. He’s not yet medically stable. He was underinsured, so that a big chunk of his medical expenses were covered but a lot were not. Because he’s maxed out his vehicle insurance coverage he’ll be liable for most of his future medical expenses.
Timing: Including Debts in Bankruptcy
A bankruptcy covers the debts that exist as of the time your case is filed, not future debts. So how do you know when to file your case?
If you’re feeling overwhelmed by your present debts so much that you’re considering bankruptcy, you’re not likely worrying much about future debts.
Or maybe you are.
Maybe you’re dealing with a medical issue and are very concerned about how you’re going to pay for future medical expenses. You’re already feeling overwhelmed by your present debts. But you’re wondering if you should wait to file bankruptcy until after you’ve finished incurring new medical debts.
Or maybe you’ve been relying on credit cards, cash advances, or other credit to get by day to day. You owe a lot of money and don’t see how you could ever pay it all. So you know you need some relief from these debts. But right now you’re afraid of being cut off from these sources of credit. So you wonder whether and when you should file bankruptcy.
A Sample Completed Chapter 7 Case
What does the completion of a successful Chapter 7 “straight bankruptcy” case look like? What happens to your debts?
A Sample Chapter 7 Case
In our last blog post we wrote about completing a Chapter 13 “adjustment of debts” case. Today we’re doing the same thing with a Chapter 7 case.
And like last time we’ll show what a finished Chapter 7 case looks like through tangible facts.
So imagine Jennifer filing a Chapter 7 case through the help of her bankruptcy lawyer to stop a lawsuit by a collection company, write off some old income taxes she’d been struggling to make monthly payments on, hang onto a vehicle whose loan she’d started falling behind on, and write off a bunch of medical, credit card and other personal debts.
The Facts
Jennifer had fallen behind on virtually all of her debts 18 months ago. She’d lost her job and it took her 3 months to find a new one.
A Sample Completed Chapter 13 Case
What does the completion of a successful 3-to-5-year Chapter 13 case look like? What happens to your assets and debts?
The Sample Chapter 13 Case
In our last blog post we wrote about completing a Chapter 13 “adjustment of debts” case. We focused on the benefits you get at the tail end of your case, and on the case’s final events.
But like so many other bankruptcy procedures, Chapter 13 completion makes much more sense when tied to tangible facts.
So imagine a Chapter 13 case filed to catch up on a home mortgage, “strip” a second mortgage, catch up on some property taxes, and deal with some IRS income taxes.
Henry and Heather had been $7,500 behind on their first mortgage and so at risk of foreclosure. The situation was worsened because they were also $3,000 behind on their home’s property taxes. They hadn’t paid on a $30,000 second mortgage in months, so that mortgage holder was also threatening foreclosure.
Getting Ready to Finish a Chapter 13 Case
Finishing a Chapter 13 case successfully is a big deal. It’s rewarding financially and emotionally. Here’s how it happens.
The End-of-Chapter 13 Benefits
Just because of the way Chapter 13 works, a lot of its benefit comes near or at its very end. For example:
- “General unsecured debts”: In most cases most of the debts are neither secured nor “priority,” meaning they are “general unsecured” ones. Also, in most cases a major portion of those debts are not paid through your Chapter 13 plan but rather discharged—legally written off forever. But that doesn’t happen until you successfully finish the case.
- “Priority” income tax debts: You have to pay these taxes (usually because they too new to discharge) through your Chapter 13 plan. But you usually don’t have to pay interest or any ongoing penalties on these taxes. However, if you don’t successfully finish your case that interest and those penalties would be imposed again. Once you finish the case, that interest and those penalties disappear.
The Chapter 13 Trustee
The Chapter 13 trustee is an important player in your “adjustment of debts” case so it helps to know how to deal with him or her.
Chapter 13 Trustee vs. the Chapter 7 One
In a Chapter 7 “straight bankruptcy” case the bankruptcy trustee’s role is very different than in a Chapter 13 case.
Most Chapter 7 consumer cases involve a quick determination whether you can keep everything you own—whether it’s all “exempt.” It’s the Chapter 7 trustee’s job to determine this. This would usually happen within about a month after you and your bankruptcy lawyer would file your case. If everything is exempt—as it usually is—your case is usually done 2 or 3 months later. The trustee has some other important roles but in most cases nothing comes of them. Within about 4 months of filing your case is finished.
A Chapter 13 case is very different and so the role of the trustee is as well. Your Chapter 13 case is based on a three-to-five-year payment plan. So a lot of it involves putting together, getting court approval for, and then implementing that payment plan. The plan usually greatly reduces what you need to pay to most of your creditors. It often allows you to pay much more to secured creditors and special “priority” creditors to achieve certain goals. Then by the end of your Chapter 13 case usually some of your debts have been paid off or else get written off then.
A Second Mortgage "Strip" through Chapter 13
If you own a home with a qualifying 2nd or 3rd mortgage, one of the best reasons to file a Chapter 13 case is to “strip” off that mortgage.
Chapter 13 can help you keep your home in many powerful ways. Of those “stripping” a second or third mortgage can likely save you the most money. If you qualify, you can stop paying that mortgage immediately. And it can save you a tremendous amount of money in the long run.
Second or Third Mortgage Under Chapter 7 “Straight Bankruptcy”
If you file a Chapter 7 case you are not able to “strip” a mortgage. You simply have to pay any second and third mortgages on your home or lose the home. The mortgage is a lien on your home, so you have to pay it or the mortgage lender will foreclose on your home.
If your home is worth less than the combined balances of your first and second mortgages you may be able to sell your home through a “short sale.” In this situation the second mortgage lender accepts less than its full balance when you sell the home. But you may be left owing the balance. And in any event, this is not a way to keep your home.
A Caution about Severing Your Chapter 13 Case from Your Spouse
If getting separated or divorced while in a Chapter 13 case, you’ll likely each need a new lawyer for independent advice about what to do.
Last time we explained an important option for spouses filing a Chapter 13 together: “severing” their case into two if they later separate or divorce. That allows each spouse to do whatever they want to do with their side of the case. Each person can either continue in the Chapter 13 case, convert to Chapter 7, or dismiss out of bankruptcy altogether.
You should know about this severing possibility before filing your case because it’s good to know your future options. You need to know how much flexibility Chapter 13 has if your circumstances change. And you need to know the limits on that flexibility.
With this in mind there’s a practical consideration about case severing that we didn’t have room to discuss last time. That’s the fact that your bankruptcy lawyer may not be able to advise either of you once you’re getting divorced.
The Option of Severing Your Chapter 13 Case from Your Spouse
When deciding to file a Chapter 13 jointly with your spouse, realize that you can split that case later into two cases if you get divorced.
A Chapter 13 “adjustment of debts” case usually lasts three to five years, and a lot can happen in that time. It is not likely worth filing jointly with your spouse if you already believe your marriage won’t last that long. Chapter 13 provides much relief. It can even help your marriage because of the financial pressure it can relieve. But the two of you still very much need to be on the same page to make it work.
You can believe in the stability of your marriage but you’d still be wise to want to know what happens to your Chapter 13 case if things don’t work out between the two of you.
Dismissal and Converting to Chapter 7
In the last two blog posts we’ve covered voluntarily dismissing your case, and converting it into a Chapter 7 one. Those two ways to end a Chapter 13 case may be appropriate if your marriage is ending.
Contact Our Firm
The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.
I have read and understand the Disclaimer and Privacy Policy.
Call Today for a FREE Consultation
210-342-3400
