fbpx

What happens to my house and car in bankruptcy?

One of the most common questions attorneys at Acker Warren, P.C. are asked by potential client’s is, what happens to my house and car in bankruptcy?

The short answer to this question is that you almost always may keep and continue to pay for you home and car.  However, it depends on a multitude of factors, for instance, what state you live in, if you are current on the payments, is it your only house or vehicle, what other property do you own, etc.?

To more thoroughly understand what happens to a home or vehicle in bankruptcy an explanation as to the different types of debts, the different types of assets, and the different chapters of bankruptcy is necessary.

Secured and unsecured debts

Secured debts – These are debts where collateral is given for the loan. In other words, a creditor can come and take back something from you if you do not pay for it.  The most common secured debts are those for a home or a vehicle, where the home or vehicle that was purchased serves as the collateral for repayment of the loan.

Unsecured debts – These are debts where collateral is NOT given for the loan. In other words, there is nothing that a creditor can come take back from you if you default on the loan unless they file a lawsuit and receive a judgement lien.  The most common forms of unsecured debts are Credit Cards, Medical Bills, Payday Loans, Signature Loans, Etc.

Classification of Assets

Assets are classified in three main ways in both Chapter 13 and Chapter 7 Bankruptcy:

Exempt – Those assets that are exempt from the claims of a Debtor’s creditors under state or federal law.  In a bankruptcy context, in Texas, a Debtor may choose Federal or Texas State Exemptions. Property that cannot be taken by your creditors under the State or Federal Exemption Scheme is classified as “Exempt Property.”  This means a Debtor will most likely be able to keep this property in either a Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, presuming you can continue to make the normal monthly payments on the collateral.  In Texas, most homestead property is exempt from the claims of creditors.  It is rare that a home that you live in is non-exempt.  A vehicle is also almost always exempt from the claims of creditors presuming that you do not own more than one vehicle per driver in your household.

Non-Exempt – Those assets that are NOT exempt from the claims of a Debtor’s creditors under state or federal law. Property that can be taken by your creditors under the State or Federal Exemption Scheme is classified as “Non-Exempt Property.”

  • If a Debtor were to file for Chapter 7 it is likely that the property would be required to be turned over to the case trustee who would liquidate the property and use any recovery for repayment of debts in accordance with the Bankruptcy Code.
  • If a Debtor were to file for Chapter 13 there are two options.
    • Turnover the “non-exempt property” to the case trustee for liquidation.
    • Pay into the Chapter 13 plan the Fair Market Value of the property and retain possession of the property.

 Surrender – It may not be advantageous to keep a piece of secured property or non-exempt property.  Maybe a Debtor owes more than the property is worth on the loan or cannot cover the payments that would be required to keep the property going forward.  In this case a Debtor can elect to surrender the property to the Trustee/ Lienholder (Creditor).     This can be a very beneficial way to lift the burden of having to pay for something you no longer want or need.

The bankruptcy lawyers at Acker Warren, P.C. can help you determine how to classify your assets and chose the Chapter of Bankruptcy that fits you and your family’s needs best.

What happens to my house and car in Chapter 7 bankruptcy?

A Chapter 7 Bankruptcy is called a liquidation bankruptcy. This is a liquidation of a Debtor’s non-exempt property.  A Chapter 7 Bankruptcy, unlike a Chapter 13 Bankruptcy, provides no means for reorganization and repayment of debts.  This means that to retain a homestead or a vehicle in a Chapter 7 Bankruptcy it is necessary that the payments on any loans associated with the property are current to the lender and that the property is exempt under either the state or federal exemption scheme.  Most often in Texas, a Debtor’s homestead and vehicles, to the extent there is not more than one vehicle per driver in the household, are exempt property and not subject to liquidation.  This brings us to the answer to our question, what happens to my house and car in Chapter 7? Presuming any payments are current, and the property is exempt, the answer is nothing happens to a house or vehicle.  A debtor retains possession and continues paying off any liens against the property as if no bankruptcy were filed.  The caveat here is that the asset and the debt will be listed in your bankruptcy paperwork.  A reaffirmation may be required in certain circumstances to retain possession. A Reaffirmation Agreement is an Agreement between the Debtor and Creditor of a Secured Loan that the Debtor will retain possession of the property, continue to make the payments on the loan, and the loan will not be subject to discharge in the bankruptcy.  Our team of bankruptcy lawyers at Acker Warren, P.C. can help ensure a Chapter 7 Bankruptcy is right for you and your family ensure you understand the classification and exempt status of all of your property as well as the necessity of any reaffirmation agreement with a creditor prior to filing any case.

What happens to my house and car in Chapter 13 bankruptcy?

A Chapter 13 Bankruptcy is a repayment and reorganization plan.  The type of person who normally files for this type of bankruptcy is a Debtor who is behind on a home or vehicle loan, a Debtor who makes to much money to qualify for Chapter 7, or a Debtor who does not want to lose non-exempt property in a Chapter 7 bankruptcy, among other reasons.

Presuming a house or car are exempt and any loans against the property are current then the answer to what happens to my house or car in Bankruptcy is the same as a Chapter 7, nothing happens. A debtor retains possession and continues paying off any liens against the property as if no bankruptcy were filed.  The caveat here is that the asset and the debt will be listed in your bankruptcy paperwork.

If a Debtor is behind on a secured loan, for instance a vehicle or home loan a Chapter 13 can be used to cure those arrears and bring the loan current while retaining possession of the property.  Upon completion of the Chapter 13 Plan, the Debtor will receive a discharge, the same as in a Chapter 7, have brought any vehicle or home arrears current, and then just continue making the payments on the loan directly to the creditor until the term of the loan has been satisfied.

If a Debtor has property that is not exempt from a Creditors claims and wishes to retain that property, for instance a vacation home or a classic car that is not a daily driver, a Debtor can retain that property in a Chapter 13 by paying in the value of the non-exempt property to the Chapter 13 Plan which would be used to repay unsecured creditors.  So even a non exempt home or vehicle can often be retained in a Chapter 13 Bankruptcy, where as that asset would likely have been required to be liquidated by the Trustee in a Chapter 7 Bankruptcy.

Always consult a bankruptcy attorney.

The Bankruptcy Attorneys at Acker Warren, P.C. in Fort Worth, have helped thousands of clients find debt relief, file bankruptcy, stop repossession of vehicles, and stop foreclosures of homes through Debt Settlement/ Negotiation, Chapter 7, Chapter 13, and Chapter 11 Bankruptcy.  If you are reading this now, it is because you have decided to take the first step towards peace of mind and financial freedom.  You are just a click away from setting an appointment for a free consultation with an attorney at Acker Warren, P.C. we look forward to helping you find Financial Freedom!

Bankruptcy and Your Credit Report: How Long Will It Stay There?

When you file for bankruptcy under Chapter 7 or Chapter 13 it can stay on your credit report for up to 10 years.  Luckily for most of our clients, the bankruptcy being reported on their credit report isn’t too damaging.  Most of our clients actually see their score improve, because their debt-to-income ratio instantly improves, and because creditors are required to remove any negative reporting from the credit report.  As a result, getting a car, loan, or credit card is typically not difficult.

Additionally, there are actions you can take on top of filing bankruptcy in order to hasten the process of improving your credit score. This post details some strategies to achieve that goal.

Chapter 7

You can discharge most, if not all, of your debts after filing for Chapter 7 bankruptcy. This means that a lender cannot collect a discharged debt, and you’re no longer responsible for repaying it.

While the bankruptcy will be reported on your credit report for 10 years after the filing date, bankruptcy will automatically remove a debt on your credit report, which can help raise your credit score.

Chapter 13

Chapter 13 bankruptcy requires you to create a 3 to a 5-year repayment plan for part or all of your debts. Your unsecured debts are discharged after you finish the plan, whether or not they were paid in full.

A Chapter 13 bankruptcy can last up to seven years on your credit report, but all discharged debt will be removed from your credit report after your Chapter 13 bankruptcy is completed, which can help boost your credit score.

Improve Your Credit Score With These Tips

1-Familiarize yourself with your credit report: Everyone can access a copy of their credit report for free here. Usually, it is only provided once a year—however, in the aftermath of the Covid-19 pandemic, users can get free weekly reports until April 20, 2022.
Understanding your credit score’s components will help you make focused changes and understand why your score is growing or decreasing. You’ll be able to detect any mistakes that lower your score, such as erroneous account information or public records.

Our clients report that bankruptcy generally results in a small increase in credit score once the negative creditor reporting is removed, but it fluctuates and improves with time. Checking your credit score every month is an integral part of rebuilding your credit after bankruptcy. Once your bankruptcy debts have been discharged, re-evaluate your credit score to ensure it has been updated.

2-Healthy financial habits aren’t optional: To keep your credit score from plummeting, take steps like cutting back on your usage of credit cards, making your payments on time, and setting aside money for emergencies. The time it takes to repair your credit after bankruptcy varies from borrower to borrower, but it may take from two months to two years. As a result, it’s critical to develop and maintain appropriate credit practices, even after your score has improved.

3-Get a credit card: Reducing your reliance on credit cards might help you repair your credit after you’ve filed for bankruptcy. You can start rebuilding your reputation with lenders by strategically using credit cards.
Many credit card companies will offer you a credit card after discharge.  It is not a bad idea to get a credit card and use it for just gas, or just groceries.  Make sure to pay off the card before the balance is due.  Capital One typically will offer you a card post-discharge, so start there.

You can also get a secured credit card.  While the interest rates on these cards tend to be high, if they report to all three credit agencies, they’re a fantastic way to demonstrate responsible credit behavior until you’re better eligible for a regular card with better conditions.

If you don’t want a secured credit card, you can also ask a family member or friend with solid credit to enroll you as an authorized user. Your credit score may improve if the issuer submits the card’s good payment history to the three major credit agencies. However, your credit score may suffer if the principal cardholder misses a payment or exceeds their credit limit.

Bankruptcy Due to Medical Bills

Medical bills are a very common reason people file for bankruptcy.  For those who cannot pay their medical bills and do not file for bankruptcy, their situation likely will worsen.

If you are unable to pay medical bills, you’ll start getting late-payment notifications, and late fees will accrue. The medical provider may sue you in the future and win a monetary judgment against you, or it could also result in wage garnishment, a bank levy, or the placing of a lien against your non-exempt property.

Medical Bankruptcy

If you can’t pay the bill and it appears that the creditor will pursue you for payment, your good credit will suffer since a collection action will appear on your credit report. If they sue you and win the case, the medical provider could garnish your bank account or pursue other collection measures. When it comes to bankruptcy, filing as soon as possible could help you get back on your feet financially faster.

Chapter 7

For those with modest incomes, and assets with little or no equity, Chapter 7 bankruptcy is a great option. There is no requirement for you to have a specific amount of debt. You can apply for Chapter 7 bankruptcy if you owe a single large amount. It is possible to wipe away medical bills and most other unsecured debts in a Chapter 7 bankruptcy.

Chapter 13

If you are not eligible for Chapter 7 bankruptcy, you can apply for Chapter 13. In Chapter 13, you’ll use your repayment plan to pay back part of your medical debt based on what you can afford. At the end of the case, the court will discharge your remaining unsecured debt, even if unpaid.

Are you considering bankruptcy due to medical bills? Consult with an experienced lawyer to find out the best course of action for you. Acker Warren P.C has the experience to provide you with answers related to bankruptcy.

Can You Keep Your Car When Filing for Bankruptcy?

You may be asking, though, how you can keep your car when filing for bankruptcy.

There are two main types of bankruptcy: Chapter 7, which involves liquidating non-exempt assets (in Texas thankfully very few assets, for most people, are non-exempt), and Chapter 13, which focuses on debt repayment. What will happen to your vehicle if you file for bankruptcy is determined by the type of bankruptcy you declare and the amount of equity you have in your car. 

In case you file Chapter 7

Most of your debts are discharged, meaning your legal liability to pay the creditor/ debt has been extinguished in Chapter 7 bankruptcy. In exchange, you must surrender non-exempt property which the bankruptcy trustee will sell and use the funds to pay your unsecured creditors. In Chapter 7, the ability to keep your vehicle is determined by whether or not your equity is classified as exempt and whether or not you are behind on your car payments. (Equity = Balance of Loan – Vehicle Value) An experienced attorney can help you navigate the potential pit falls of filing for bankruptcy with a vehicle that you want to keep or surrender. It is extremely unlikely to have a non-exempt vehicle in a Chapter 7 bankruptcy.

Texas Motor Vehicle Exemption

One motor vehicle may be exempted per licensed household member up to the statutory amount. You can exempt a car if a household member does not have a license and relies on someone else to operate it. In case your equity in the vehicle is considerably greater than the appropriate motor vehicle exemption level, the trustee may sell the car, give you your exempt amount, and use the remaining profits to repay your unsecured creditors. An experienced bankruptcy attorney can help you determine BEFORE a case is filed if your property will be non-exempt, wholly exempt, or partially exempt.

What happens if you’re behind payments

Without paying the arrears or getting the lender to agree to another payment plan, you will lose your car if you file for bankruptcy under Chapter 7, even if your equity is exempt.

Here are a few options: 

  • Redeeming the Car

You can “redeem” an automobile in Chapter 7 bankruptcy by paying the lender the car’s current replacement cost. This is only possible if the vehicle is exempt or if the trustee has decided not to sell the property. However, because this entails a lump-sum payment, it is frequently out of reach for those contemplating bankruptcy. 

  • Reaffirming the Debt

As long as you and the lender agree on a new repayment plan, you can retain the vehicle. In this arrangement, you can alter the conditions of your initial contract, but the lender must agree. The disadvantage is that if you subsequently default on the loan, you will be responsible for the deficiency balance. 

In case you file Chapter 13

When you file for Chapter 13 bankruptcy, you retain your assets while repaying some or all of your debts over a three- five-year payback period. It is essential to keep your automobile/ trustee payments current during that period to keep your vehicle. If you’re behind on your payments when you file, your Chapter 13 repayment plan can help you catch up. 

  • A Chapter 13 bankruptcy can allow a Debtor to retain a vehicle that they are behind on the payments, and or is wholly or partially non-exempt. 
  • A Chapter 13 bankruptcy can reduce the interest rate on a vehicle loan to the Prime Rate on the petition date plus two percent, presuming the full vehicle is repaid through the Chapter 13 Plan. (At the time of publish of this post that rate is 5.25%)  
  • If you owe more money than your vehicle is worth, some loans are eligible to be Crammed Down to Value.  This means that you pay only the replacement value of the vehicle at the time the Bankruptcy Petition is filed, and the remaining amounts owed on the loan are converted to unsecured debts and discharged upon completion of the Chapter 13 Plan.  

A bankruptcy attorney can guide you in the right direction

In all likelihood, your car is at the top of your most prized assets list. After all, it gives you the freedom to run errands, go to work, social events, and go about your daily routine. For this reason, you should know the ramifications of Chapter 7 or Chapter 13 bankruptcy on your car before you make a decision.

If you think that Chapter 7 or Chapter 13 is the best option for you, call Acker Warren, P.C., to get started. Your initial consultation is always free.

Stopping Foreclosure in Texas With Bankruptcy

If debt has taken over your peace of mind, you may be considering filing for bankruptcy. An experienced attorney can explain your choices and help you find a solution to collection letters and harassing phone calls from creditors. Bankruptcy can alleviate your financial stress and provide a fresh start. 

If you’re considering filing for bankruptcy, you’re probably worried about losing your house, car, or other valuables. This is where the experience of Acker Warren, P.C. can help.  An experienced lawyer can assess your case and come up with a solution that is beneficial for you and helps you retain your assets. 

Filing for Chapter 7 and Chapter 13 

When choosing how to stop foreclosure proceedings in Texas, one option is to declare bankruptcy. The automatic stay is in effect immediately upon filing of a Bankruptcy Petition.  The Automatic Stay halts all collection actions against a Debtor including foreclosure.  Your mortgage creditor is prohibited by the Court from moving forward with foreclosure once the case has been filed. 

When filing for Chapter 13 bankruptcy, your foreclosure lawyer will work with you to create a payment plan that will last for a specified amount of time, usually 3-5 years. When you reach the end of the plan, your mortgage payments will be current as if you had never been behind, and you will keep your home and continue your life without the threat of foreclosure. 

If you have multiple liens securing the debt on your house, a Chapter 13 can allow you to strip wholly unsecured liens from your property, or in other words, convert those liens to unsecured debt.  Those unsecured debts will be discharged upon successful completion of a Chapter 13 plan. Since unsecured debt is only paid depending on your ability to pay through a Chapter 13 bankruptcy, this could save you thousands of dollars. 

You could also file for Chapter 7 bankruptcy, which discharges most of your debts. This is especially beneficial if you’ve chosen to sell or surrender your house.  The Automatic Stay applies in a Chapter 7 bankruptcy to the same extent as in a Chapter 13 but will not last as long as there is no ability to repay the arrears owed on the note.  Still, the Chapter 7 bankruptcy buys you time to make sure you can get the equity out of your home instead of losing that equity in a foreclosure auction.

Get the Help You Need

Individuals in Fort Worth and Arlington that are contemplating bankruptcy to stop foreclosure can find experienced assistance at Acker Warren P.C. We understand the complexities of consumer bankruptcy, and we will assess your case and advise you on the best course of action. 

Answers to Popular Bankruptcy Questions

Over many years of practicing bankruptcy law, we have found that certain questions consistently reoccur.  If you are considering filing for bankruptcy, the below questions have likely crossed your mind.  

Please remember that this is broad information that may or may not apply to your unique situation. It’s critical to discuss your specific circumstances with an attorney who has the knowledge, expertise, and experience to assess your financial situation.

Below you will find the answers to frequently asked bankruptcy questions.  These answers can help you decide whether to proceed with the bankruptcy procedure or look into alternative debt-relief options.

How does bankruptcy work?

The two most common kinds of consumer bankruptcies are Chapter 7 and Chapter 13. 

Chapter 7 bankruptcy dismisses almost all types of debts, such as credit card debt, medical bills, and loans.  In the unlikely event that a debtor has non-exempt property (vacation homes, boats, excessive jewelry), the bankruptcy trustee may sell those assets and use the profits to pay your creditors.  Qualification for Chapter 7 is largely based on income, and there is no required payment to creditors.

A Chapter 13 bankruptcy contemplates that you pay some or all of your debts via a repayment plan. Debtors can use Chapter 13 to reorganize their debts while also making up on past taxes, unpaid mortgage arrearages, auto loans, and child support payments.

What Happens if I Declare Bankruptcy?

Most, if not all of your debts, will be discharged.  This means that declaring bankruptcy will relieve you of your legal responsibility to pay on the majority of your debts. It also has the ability to:

  • Stop your home or mobile home from going into foreclosure and offer you a chance to make up for missing payments. 
  • Save a car or other property from being repossessed (or sometimes force the creditor to return property even after it has been repossessed) 
  • Stop garnishment, debt collection letters, and other creditor measures to collect a debt
  • Stop a lawsuit from proceeding
  • Reinstate or avoid utility service termination.

Will I Lose My House?

A homestead exemption preserves a certain amount of equity in your primary house in most states. In Texas, the homestead exemption is unlimited in most circumstances.  It is extremely rare for anyone to lose their home due to filing bankruptcy.  If you are in danger of losing your home to foreclosure, a Chapter 13 bankruptcy will help you save the home and make up for any missing mortgage payments.

If you have a mortgage on your house, the mortgage does not disappear when a person declares bankruptcy. You must continue to pay the mortgage, like normal, to keep the home. 

Will I Lose My Car?

The answer is contingent on the automobile’s worth and whether you have a car loan. Texas allows debtors to exempt automobiles, which means a debtor can keep their car in almost all circumstances. The trustee won’t be allowed to confiscate your automobile if it is the main car you use.

If you want to keep your automobile, you must continue to make your monthly payments. Regardless of your bankruptcy discharge, if you default on your auto loan, your lender has the right to repossess the vehicle.

How Long Is It Going to Take? 

In most cases, a Chapter 7 bankruptcy will take three to four months to complete. A Chapter 13 bankruptcy typically takes three to five years, but can end sooner in some cases.

Why Do I Need a Lawyer?

Filing for bankruptcy is a legal and financial choice that can have long term implications if done incorrectly. It is critical for the debtor to fully comprehend all the rights associated with filing for bankruptcy. All paperwork must be correctly presented, and all requested actions must be followed. If you don’t complete the required tasks, your case may be dismissed without a discharge.

If I’m Unemployed, Can I Still File for Bankruptcy?

There is no requirement that you be employed to file a bankruptcy. 

If you file a Chapter 13 repayment plan case, your ability to make monthly payments is critical. During Chapter 13, the court wants to know that you can afford a repayment plan to pay back at least a percentage of your creditors, and being jobless may be an issue that prevents your case from being accepted.

The absence of income is a common reason for filing a Chapter 7 bankruptcy.  Discharging debt accrued due to lack of income can be very beneficial for many debtors.  If you do not have a significant source of income, you will almost always qualify for a Chapter 7 bankruptcy. 

Can a Bankruptcy Stop a Foreclosure?

The automatic stay will stop a foreclosure as long as the bankruptcy case is filed before the foreclosure is completed. 

How Much Will I Pay an Attorney?

As with any legal arrangement or contract with a lawyer, you’ll want to know exactly how the attorney will charge you for their services. Your total out-of-pocket costs are determined by the Chapter of bankruptcy you are filing, and the complexity of your case.

If you file a Chapter 13 bankruptcy, Acker Warren P.C. only requires a down payment cover court filing fees and the costs subject to the complexity of the case.  Complexity of the case is at attorney’s discretion based on years of experience handling various types of cases.

In Chapter 7, you’ll usually pay the total legal fee upfront before the case is filed, including court costs and other expenses. You will have to pay a court filing fee of $338.00 in addition to your attorney’s fees. The bankruptcy legislation also requires you to attend two credit counseling sessions, each costing about $50.00. Many lawyers spend approximately $50.00 for a complete credit report from a provider.

Do you have any more bankruptcy questions that need answers? Don’t hesitate to get in contact with Acker Warren, P.C., to learn more about bankruptcy. 

 

Prevent or Avoid Repossession

One of the most common concerns among bankruptcy filers is the potential of losing their property after filing the case. Our clients obviously rely on their vehicles to go to and from work and home. Some people file bankruptcy with their vehicle loans already in default. When it comes to preventing repossession during bankruptcy, what is the best advice?

Our goal is to inform our clients about all aspects of bankruptcy. Having the correct information helps individuals to make educated decisions while avoiding potentially harmful information. There are a lot of misunderstandings about Texas repossession law. Any property encumbered by loans, like automobiles, furniture, and appliances, may be subject to repossession by a creditor if you default on your payments. If you are late or otherwise default on your loan contract, repossession may occur without warning.

If you fall behind on payments on your car or other collateral, the first step is to contact your creditor. The creditor is not required to cooperate with you, even if it’s only a temporary problem. If they do, be careful to have any arrangement in writing, as creditors may still seize your property after accepting partial payment. 

Filing bankruptcy will stop any repossession attempt, at least temporarily. Either a Chapter 7 or Chapter 13 bankruptcy will give you the opportunity to become current on your car or other collateral payments to completely avoid repossesion.

If you have missed more than one or two payments and are looking to avoid repossession, contact Acker Warren, PC, as soon as possible to learn about your options.  Your initial consultation is always complimentary.

Keeping Your Car With An Automatic Stay

When filing for a Chapter 7 or a Chapter 13, an automatic stay goes into place that stops all creditor collection actions. This is a shield for the debtor from creditors’ continuing to call and other debt collection activities including repossession. However, the debtor’s ability to keep the automobile depends on whether the repossession procedure has begun when the automatic stay kicks in.

Using Bankruptcy In Your Favor

Even if you willingly surrender your car, the creditor may sell it at auction. You may still owe them if it sells for less than the sum on your loan—plus any expenses connected with repossession and storage. Anyone who co-signs on a loan is equally liable for the debt.

Chapter 7 bankruptcy allows you to discharge that deficiency balance.  This can be extremely beneficial as these deficiency balances oftentimes reach $10,000.00 or more.

If you file a Chapter 13 bankruptcy, you may be able to avoid repossession if it has not yet been repossessed. It will allow you to restructure your loan and pay it off over time, sometimes at a cheaper interest rate or for the vehicle’s fair market value. Because timing is crucial, you should contact an attorney as soon as possible.

Bankruptcy and Student Loans: What You Need to Know

You may have heard that student loans are not dischargeable in bankruptcy. However, this is a construed and oversimplified statement. Under certain circumstances, you can get your student loans discharged, but the threshold is higher, and the process is more complicated than it is for other forms of debt.

To do so, you must demonstrate that paying the debt will cause you and your dependents undue hardship. Courts use different criteria to determine whether a borrower has shown undue hardship.  Our District, the 5th Circuit uses the Brunner Test.

The student loan will get canceled if you can successfully prove undue hardship. Declaring bankruptcy also shields you from collection actions on your debts.

Consult with a bankruptcy lawyer to understand how bankruptcy and student loans interact.

Undue hardship

In legal terms, an undue hardship is a set of situations that entirely or partially excuses an individual or group of people from performing a legal obligation to avoid an unreasonable or disproportionate burden or hindrance.

Because the U.S. Bankruptcy Code does not define undue hardship, bankruptcy courts interpret it differently. To have your student loans dismissed in bankruptcy, you must show that paying them will cause you undue hardship. The test for finding undue hardship differs with each court.

 Most courts use The Brunner Test to assess whether a bankruptcy filer’s student debts meet the undue hardship criteria. To get your student debt discharged or partially discharged, you must show that you fulfill all three components of the Brunner test:

  1. Payments on your student loans would prevent you from sustaining a minimum standard of living based on your current salary and costs. To meet this, you must have bare-bones expenses and have tried everything possible to raise your income without luck.
  2. For most of the student loan repayment period, your financial situation is likely to remain unchanged. For example, you may be able to meet this requirement if you have a substantial mental or physical disability, received a limited education, or have reached your income potential in your profession.
  3. You’ve made sincere attempts to repay your debts. This point can be met by making some debt payments, seeking to arrange a payment plan, and striving to reduce needless spending and boost income.

Is there such a thing as a student loan bankruptcy?

“Student loan bankruptcy” is not a distinct form of bankruptcy. To successfully have student loans dismissed through bankruptcy, you must first file a Chapter 7 or Chapter 13 Bankruptcy and then file an “adversary proceeding,” or AP. You must submit the AP to prove undue hardship and request that the Court discharge your Student Loans.

Are student loans your only debt?

Your student debt is most likely only one aspect of your present financial difficulties. If student debt is your sole economic issue and presuming that your Student Loan Creditors are not garnishing your wages or otherwise taking prohibitive collection actions against you, it is unlikely that a bankruptcy in our district will be helpful in resolving your Student Loan issues.  If your Student Loan creditor(s) are garnishing your wages, levying your bank accounts, or taking otherwise aggressive collections efforts, bankruptcy can be used as a tool to reset the clock and help remove those barriers and resume making reasonable monthly payments on your student loans. 

Consult with a bankruptcy lawyer to understand how bankruptcy and student loans interact.

Important things you need to know:

Are you filing for Chapter 7 or 13? There are some key factors you must know.

  • It’s possible to end up owing more: When it comes to getting student loans in order, Chapter 13 bankruptcy might have downsides when dealing with Student Loans. The bankruptcy code prohibits repayment of one unsecured creditor when another unsecured creditor is not receiving the same pro-rata share of the repayment.  Student Loans are an unsecured creditor.  This means that if you are NOT repaying a dividend to your unsecured creditors, you likely will not be able to pay on your student loans while your case is active. In that case, you may wind up paying more interest on your student loans due the accrual of the interest during the Chapter 13 Case.

The type of loan can determine the outcome: A private student debt may have a higher chance of being discharged than a federal student loan. Consult with a bankruptcy lawyer to understand how bankruptcy and student loans interact.

With Acker Warren P.C., you can get exceptional legal services that go beyond the courtroom. Through the financial system and chapter 13, chapter 11, and chapter 7 bankruptcy proceedings, we’ve helped thousands of customers get debt relief.

Facts about Bankruptcy and Taxes

There is a life after bankruptcy, and it includes taxes. Since bankruptcy and tax laws are both complex, it is critical to know how filing for bankruptcy may impact previous tax debt as well as future commitments to the IRS before you file.

The Bankruptcy Code requires a debtor to file an individual tax return or request an extension, per the IRS Publication 908 Bankruptcy Tax Guide and this return MUST be provided to your case Trustee. The bankruptcy case may convert or dismiss if this does not occur. 

Bankruptcy and taxes can make anyone feel uncomfortable, especially during hard times. In this article, Acker Warren P.C. will share some facts about bankruptcy and taxes so you can prepare for what to expect and hopefully reduce some stress. 

Will Bankruptcy Wipe Out Tax Debt?

Different bankruptcy chapters exist, and the sort of debt you owe might impact which chapter you must file and how your bankruptcy case will proceed. The bankruptcy court may compel you to sell some of your assets to pay off some of your debt. In other cases, before the remaining sum of your debt can be discharged, the court may create a payment plan with you to pay off creditors for a specific timeframe.

If your debts include tax debt, you may be eligible for some or all of the debt to be discharged depending on the type, age, and certain other criteria of tax debt. To begin with, neither taxes one deliberately sought to avoid nor the penalties incurred as a result of avoidance are dischargeable in bankruptcy. Tax debt resulting from Fraud is also non-dischargeable.  In addition, even if there is no fraud, income taxes are only dischargeable in certain instances.

Three elements need to be met for tax debt to be dischargeable: 

  • Taxes cannot be discharged in bankruptcy until three years have passed after they were due.
  • To be discharged, you must have filed a tax return for the tax you owe — and you must have submitted it timely under 5th Circuit Court of Appeals decisions.
  • Taxes must have been assessed during the previous 240 days before you filed for bankruptcy. So, if you were audited and your taxes were reassessed after Tax Day, you’d have to wait another 240 days.

Sadly, just because your taxes get discharged does not mean your tax liens are gone. If the IRS registered the tax lien before you filed for bankruptcy, it would stay on your property, making it hard to sell it until you pay off the debt.

Regardless of which chapter of bankruptcy you file, unless you request an extension, all tax returns due after you file must be filed timely. Failure to file or request an extension may result in the dismissal of your bankruptcy case or conversion to a different kind of bankruptcy.

Is there a way to avoid bankruptcy?

If you are considering bankruptcy because of unpaid tax debt, contact a competent Bankruptcy Attorney to review your options.

Engaging in an installment arrangement with the IRS, negotiating a settlement with the IRS to defer collection operations, or entering an offer in compromise are some options available in addition to bankruptcy. An arrangement between you and the IRS that permits you to pay a lower amount is an offer in compromise. The Attorneys at Acker Warren, P.C.  have a complete understanding of the various avenues available to settle your tax debt and can help you make the best decision possible to resolve outstanding tax debt.  Contact us today so that we can review your options.

With Acker Warren P.C., you can get exceptional legal services that go beyond the courtroom. Through the financial system and chapter 13, chapter 11, and chapter 7 bankruptcy proceedings, we’ve helped thousands of customers get debt relief.

Free Consultation