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How Bankruptcy Affects Credit Score
Bankruptcy is a legal proceeding where debtors have the opportunity to reorganize or eradicate their debt. Filing for bankruptcy can be a very financially rewarding situation for those overwhelmed with debt. A bankruptcy lawyer should be consulted as filing for bankruptcy is not an easy decision.
While the main purpose of bankruptcy can help to ease your debt burdens, it provides the added benefit of typically boosting credit score. Although the bankruptcy could appear on the credit report for up to 10 years, it does not have the detrimental effect some people might think it does.
Obtaining credit after a bankruptcy case is typically very easy. Credit cards, which are important for emergencies, typically can be obtained right after discharge (albeit with low limits in the range of $250 -$500). Your credit will usually improve if you follow some simple steps to boosting it after bankruptcy.
No-Asset Bankruptcy Cases in Chapter 7
The majority of Chapter 7 bankruptcy filers do not lose any assets through the bankruptcy process. These cases are often referred to as no-asset bankruptcy cases. In such a case, the Trustee informs creditors not to expect payment out of the bankruptcy proceeds.
In a no-asset Chapter 7 scenario, you do not have any assets that the bankruptcy trustee is allowed to take and sell for the benefit of creditors. Of course, most debtors have personal property and a home, but the debtor still normally retains all of their property because it is protected under federal or state law exemptions.
Understanding What No Asset Means
“No Asset” is a term used to describe debtors who declare bankruptcy without owning property that the Trustee or Creditors can take. It’s worth noting that this doesn’t mean the debtor is homeless or living in poverty. It implies that the debtor’s assets are all secured or shielded by exemptions or that the debtor’s assets that are not exempt are not valuable enough to warrant being sold.
Consolidated Appropriations Act 2021 Bankruptcy Relief Provisions
Congress passed the Consolidated Appropriation Act (CAA) on December 27, 2020. The almost 5,600-page bill is claimed to be the longest bill ever enacted by Congress. Besides financing the federal government in 2021 and providing relief for individuals and businesses affected by COVID, the current bill modifies the Bankruptcy Code in at least nine respects. Most of the amendments will end after one or two years. One of the amendments would only become applicable once the Small Business Administration signs it.
Below, you’ll find a brief description of some of the amendments that directly affect the bankruptcy code.
PPP loans available to some debtors (and trustees)
The CARES Act developed the Paycheck Protection Program (PPP), the now-familiar program of forgivable loans operated by the Small Business Administration (SBA). Almost right after the CARES Act’s passing, the debtors started to apply for PPP loans, causing a debate about the supply of such loans to bankrupt businesses. The SBA repeatedly opposed PPP loans to debtors, and the case law was varied throughout the country.
Bankruptcy and Child Support
Noncustodial parents with a child support obligation who are thinking about filing for Bankruptcy must understand the relationship between Bankruptcy and Child Support. Parents ordered to pay child support have a legal responsibility to consistently take care of their children financially, even if they are struggling with debt. Each Chapter of Bankruptcy has different requirements for Debtors who owe Child Support.
Child Support Obligor (Owes Support) & Chapter 13 Bankruptcy
Noncustodial parents who owe Child Support and file for Chapter 13 Bankruptcy still need to fulfill their responsibilities under the support order. The monthly obligation must remain current throughout the life of the case otherwise the Debtor will face dismissal of the case and or denial of discharge. If the support order is in arrears at the time a Chapter 13 is filed, those arrears would be repaid through the Chapter 13 Plan. Upon completion of the 3-5 year plan the child support would be current due to repayment of the arrears through the plan and the required maintenance of the monthly payments over the life of the plan.
What is an Automatic Stay in Bankruptcy?
Automatic Stay: The instant that a Bankruptcy Case is filed an injunction called the Automatic Stay is put into place, with certain exceptions, to prevent creditors from continuing collection actions of any kind. This includes continuation of lawsuits, phone calls, emails, letters, etc. that seek to collect a pre-petition debt.
The Automatic Stay is the first benefit of filing for Bankruptcy. The Automatic Stay prohibits the continuation or filing of lawsuits, stops foreclosures, car repossessions, etc.
What does automatic stay prevent?
Eviction
Getting evicted can be stopped with the automatic stay, that is if your landlord does not have a judgment for possession against you yet. The Automatic Stay along with a Chapter 13 Bankruptcy could provide an opportunity to pay the back rent and continue to stay in your home.
Texas Bankruptcy and Foreclosure
Failing to make mortgage payments in Texas can mean getting your home foreclosed. Lenders notify debtors about the foreclosure by mail to provide a 20 day time frame to pay the loan; if the debt isn’t paid off, lenders notify the loan is due and a sale of the property has been scheduled to cover it. There are interactions between Texas bankruptcy and foreclosure. Bankruptcies are filed to eliminate or establish repayment plans for debts and to keep property.
The law recognizes that the debtor and mortgagee have legitimate interests to protect in the property. So you might be wondering how exactly will bankruptcy and foreclosure interact in this process. There is the possibility of halting foreclosure and keeping your home if you file for bankruptcy. This is mostly achieved by filing for Chapter 13 bankruptcy which enacts an automatic stay, meaning that you get to keep your home. For this, you’ll need steady income to keep paying monthly mortgage payments along with the repayment plan.
Non-Dischargeable Debts
Non-Dischargeable Debts
When you file for bankruptcy, most of your debts will be discharged, which means the debts are wiped out. Debts that can’t be wiped out through a bankruptcy proceeding are called non-dischargeable debts. These include student loans, most federal, state and local taxes, money borrowed on a credit card to pay those taxes. child support, and alimony.
Debts that are otherwise dischargeable can become non-dischargeable if a creditor files an adversary proceeding against a debtor based on the debt being acquired by fraudulent acts,embezzlement, larceny or breach of fiduciary responsibility.
Texas Bankruptcy Non-Dischargeable Debts
The following debts can’t be discharged in either Chapter 7 or Chapter 13 Texas bankruptcies, meaning that the court always considers these debts to be non-dischargeable.
Bankruptcy Exemptions in Texas
Bankruptcy Exemptions
When you file for bankruptcy, the state the debtor files in gives debtors the opportunity to keep certain assets using what are called “exemptions”. Exemption laws are designed to allow a debtor to keep property that debtors will need in order to maintain a job and household. Exemptions vary by state, and some states allow you to use state exemptions or federal exemptions.. In Texas, you get to choose between state or federal bankruptcy exemptions. However, since Texas bankruptcy property exemptions are one of the most generous in the United States, in most cases, it’s more beneficial to use Texas State exemptions over federal exemptions.
There is also property you cannot keep called nonexempt property. In a Chapter 7 bankruptcy, non exempt property will be sold to pay creditors and in a Chapter 13, you can choose to keep non-exempt property, but pay the value of said property, nondischargeable debt, and disposable income through the repayment plan for creditor benefit. It is rare for a Texas bankruptcy filer to have non exempt property.
How to Keep Tax Refund in Chapter 13
Also known as the wage earner’s plan, Chapter 13 enables those with regular income to develop a repayment plan. Debtors propose a plan to make installment payments over three to five years, though under the CARES Act it can be extended up to seven years. Most of the time, debtors must turn over any tax refund received for more than $2,000.00 to the Chapter 13 trustee but there’s a way they might be able to keep it.
What happens when a debtor is anticipating a tax refund? Under Chapter 13, debtors are pledging all their disposable income into the repayment plan and usually don’t have a cushion for unexpected expenses. Tax income is considered disposable income that could be used to pay creditors so you might be wondering how to keep tax refund in Chapter 13 of the bankruptcy code.
Why is tax refund generally considered disposable income?
Under Chapter 13 debtors must use all their disposable income to make payments to their creditors under the plan. Any income that is not used for transportation, food, shelter, or necessities under IRS standards is usually considered disposable. When tax refunds aren’t included in the calculations used to support the repayment plan trustees might consider it disposable income. However, it’s possible to keep the tax refund.
Repossessed Car? Here’s What You Need to Know
While owning a car can certainly be a luxury, in most cases it is a necessity. When you lease a car or borrow money to buy it, you must make monthly payments. With so many financial obligations, many people struggle to stay on top of car payments. This is especially true if you also have mortgage and student loan debt. If you do not make a loan payment on time, your loan is then considered to be delinquent.
Delinquent car loans could ruin your credit and end in car repossession. For this reason, it is important to understand how the repossession process works and what you can do about it.
What’s repossession and when it is allowed
When a borrower is behind on payments, they risk getting their car repossessed. This means that the bank or leasing company retrieves the vehicle from the borrower; once statutorily required notices have been given the vehicle will be taken without warning. Cars can be taken away on tow trucks, or lenders might send someone to collect the car.
From our office in Arlington, we serve clients throughout Tarrant County, Dallas County, Parker County, Denton County, Wise County, Dallas, Fort Worth, Irving, Grand Prairie, Bedford, Keller, Euless, Richland Hills, North Richland Hills, Mansfield, Coppell, Kennedale, Las Colinas, Burleson, Azle, Saginaw, Haltom City, Watauga, Southlake, Benbrook, Colleyville, Grapevine, Crowley, Aledo, Roanoke, Trophy Club, Carrollton, Farmers Branch, Richardson, and Hurst, as well as other communities across North Texas.
Results listed are not a guarantee or indication of future case results.
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