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What is an Emergency Bankruptcy Filing?

On some occasions, debtors must act quickly to stop a creditor’s collection action such as garnishment, foreclosure, or repossession. In that case, quickly declaring bankruptcy may be beneficial. When a Debtor files a case, the court issues an automatic stay, which prevents most creditors from pursuing recovery efforts against you. However, completing all the bankruptcy forms takes time. If time is of the essence, you can file an emergency bankruptcy to obtain an automatic stay and file the remaining documents afterward.

An emergency bankruptcy filing is filed without any of the requisite paperwork to avoid a collection proceeding that is about to happen, such as a foreclosure, repossession, or wage garnishment. With an emergency bankruptcy filing, the automated stay is activated, halting all collection actions. The filer gets some time to complete the remainder of their bankruptcy forms. If the filer does not meet the deadline, the bankruptcy is dismissed, lifting the automatic stay.

What Will You Need?

When completed, the average bankruptcy petition will likely exceed fifty pages. However, if you are undergoing a foreclosure auction, repossession, wage garnishment, collection lawsuit, or a similar time-sensitive issue, completing all of the paperwork before the action can be impossible.

When you need to file a quick bankruptcy, you can get your bankruptcy forms filed online fast. You will need the bankruptcy petition, which contains general information about yourself, the creditor mailing list, a certificate of credit counseling, and the court filing fee.

Notify the Creditors

If you are using this method, you’ll probably need to halt a collection proceeding. Since it can take over a week for a bankruptcy notice to go out, you cannot rely on the Court to notify your creditors. As a result, whether you need to avert a foreclosure, repossession, wage garnishment, or lawsuit proceeding, you should contact the creditor right away. Include the court where you filed, the case number, and the date you filed.

What Does Life After Bankruptcy Look Like?

Some people find themselves in a situation where they are unable to repay all their accumulated debts. Whether it is due to medical emergencies or a job loss, these dire situations put some people in a position where they have no choice but to max their cards and deplete their savings. Unfortunately, making the minimum monthly payments on credit cards and loans remains challenging even with unemployment checks or a temporary job.

Filing for bankruptcy can be a viable approach if you have financial issues. All collection actions are halted, including phone calls, wage garnishments, and certain lawsuits. It also eliminates various debts, such as credit card accounts, medical bills, and personal loans. However, it does not eliminate all responsibilities. For example, you still need to pay your student loans (most filers will NOT qualify for student loan discharge) as well as arrearages for child support, alimony, and most tax debts.

Life after bankruptcy means a new beginning. Your credit score will likely improve immediately upon discharge of your case. This is due to a large portion of one’s credit score stemming from the Debt-to-Income Ratio. The bankruptcy filing will stay on your credit report for ten years.  However, it will only affect you for about two years.  Most filers find that they can purchase a vehicle the instant a case is discharged.   Additionally, debtors can expect a reasonable interest rate on a vehicle approximately a year after discharge.  Most filers find that they are able to receive a credit card as soon as the Bankruptcy has been discharged. The reason for the rapid recovery of one’s credit is because you are viewed as a lower risk post discharge. You have legally written off at least some of your previous debts thus lowering your debt-to-income ratio. The largest affect stemming from a bankruptcy filing is a filers ability to qualify for a mortgage.  Most filers find that they can qualify for a mortgage 2 years after a Chapter 7 discharge.

What happens after you file?

First and most importantly the Automatic Stay is put in place by the Bankruptcy Court the instant that a case is filed.  The Automatic Stay is what protects you from your creditors collection attempts while you are in bankruptcy.  The next step will be your Section 341 Meeting of Creditors.  You will be required to attend this meeting, likely by phone or video conference.  Your Trustee will ask you a series of questions to ensure that your paperwork is accurate and that you have disclosed all of your assets and debts.  This meeting is typically very short.  Creditors have the opportunity to appear at this meeting and question a filer about their filing.  It is very uncommon for creditors to appear at these meetings. You will get to keep your furniture, vehicle, and personal belongings up to a certain amount. If you have non exempt property, the trustee may ask you to turn that property over to them.  It is very uncommon for filers in Texas to have non-exempt assets that will need to be turned over.  A competent bankruptcy attorney can inform you as to how your property will be treated long before the filing of your case.

Once your bankruptcy requirements are complete, you will obtain a discharge.

Once you complete all your duties in bankruptcy, you will obtain a discharge. The discharge is the end goal of a Bankruptcy filer.  The Discharge means that your legal liability to pay pre-petition dischargeable debts has been extinguished by the Court. Your Appointed Trustee will also be discharged from the bankruptcy process once all of their duties have been fulfilled. The Trustee’s duties are to ensure applicable income tax returns have been properly filed and assessed, review creditors’ claims, compile a final accounting, and distribute money to creditors.

You can slowly but surely get back on track.

Bankruptcy does not leave a lasting mark on your credit report, and your credit score will drastically improve in the two years after your discharge. Most Chapter 7 debtors receive their discharge in about 4 months, but the bankruptcy will remain on their credit record for ten years. You do not have to wait to start establishing and enhancing your credit score.

In order to rebuild credit, it is recommended to start by applying for a Credit Card as soon as your case has been discharged.  Further, you have to make sure you pay all your bills—even small phone bills—on time.  If you are unable to qualify for a traditional Credit Card a Secured Credit Card can be a good option to rebuild credit.  A secured credit card is a credit card that requires a cash deposit from the cardholder. This deposit serves as account collateral, ensuring that the creditor is covered if the cardholder cannot make payments.

It is essential to keep an eye on your credit report daily to ensure that all discharged debts get removed. Post-bankruptcy, your life will be whatever you want it to be. The Bankruptcy “rewards the Honest Debtor” with a fresh start.

Get professional legal advice from experienced bankruptcy attorneys in Dallas/Fort Worth with Acker Warren P.C.

Filing for Divorce and Bankruptcy

Financial struggles are a common source of marital difficulties that lead to divorce. Going through a tough divorce during the COVID-19 pandemic is difficult enough. Still, the struggles will be exacerbated if you lose your job or have to pay for extensive medical attention. Even if you don’t get sick or lose your job, divorce hurts most peoples’ finances and is the leading cause of bankruptcy in the United States.

Divorce and bankruptcy are two of the most stressful and mentally draining experiences a person can go through. Nonetheless, planning ahead will make both your bankruptcy and divorce less complicated and less expensive. The amount of property and debt you have, as well as the form of bankruptcy you intend to claim, determine if you can file for bankruptcy before or after a divorce.

In addition, applying for divorce and bankruptcy at the same time is not a smart option. Filing for bankruptcy when divorcing will confuse property separation, make each spouse’s living arrangement less predictable, and cause both the bankruptcy and the divorce to be prolonged.

Filing a Joint Bankruptcy

Debts, like assets, can be separated into two categories: shared and independent. Debts incurred through the marriage, such as a house mortgage, shared credit card balances, child-related bills, and joint loans, are all considered joint debts. Individual debts can include student loans and other debts incurred prior to the marriage.

If the couple has many shared debts, they may want to discuss filing for bankruptcy together. More considerable joint assets, such as a house with a mortgage on both partners’ names, may be protected in this way. If a couple of divorces and only one partner inherits the estate, the equity may be too high for a single bankruptcy filing to cover, and the home may not be secured. 

However, married couples are not required to file together. Individual bankruptcy filings can make sense if one partner requires bankruptcy protection right away. Alternatively, due to a joint reduction in income, each partner can find it easier to file for bankruptcy after the divorce. However, while it is possible, several couples find that filing together simplifies the divorce process.

Getting Divorced First

The main reason for filing for divorce first is to fit the criteria for Chapter 7 bankruptcy. In comparison to Chapter 13 bankruptcy, which discharges some forms of debt but allows creditors to negotiate a multi-year recovery agreement, Chapter 7 discharges all eligible debts. To qualify for Chapter 7, your salary must be less than the state median. When one spouse receives the majority of all of the household income, completing a divorce before filing for bankruptcy can allow both parties to file for individual Chapter 7 bankruptcies.

Filing for Bankruptcy First

Suppose you and your spouse have agreed on filing a collaborative divorce. In that case, it’s best to apply for bankruptcy first so you will split the cost of all legal fees and get extra protection from shared debts. Consequently, some states apply for double property deductions by claiming joint bankruptcy. This means that if the sole exemption for a house is $75,000, a person applying for bankruptcy together will benefit from a home exemption of $150,000. Furthermore, the bankruptcy court can split your assets for you, making the divorce process more manageable.

It’s never easy to get through bankruptcy or divorce, but with a good plan and some good faith in both parties’ sides, it’s possible to move on and start regaining a stable financial basis in a couple of years. Dealing with divorce and bankruptcy at the same time can be overwhelming; before deciding how to proceed, speak with a reliable bankruptcy attorney.

Coronavirus and Bankruptcy

Bankruptcies track the financial climate as companies and consumers pursue relief from macro-economic disruptions. During the COVID-19 crisis, though, this relationship has flipped around. Despite media reports and many experts’ expectations on how the coronavirus and bankruptcy would interact, consumer and small business filing have sharply declined since mid-March 2020.

Despite accounting for a limited proportion of all bankruptcies, the number of Chapter 11 filings by major companies has risen since 2019. Consumers, small companies, and multinational firms have had different financial experiences during the COVID-19 crisis. Large companies have pursued and obtained bankruptcy protection as they would in a typical recession. Comparatively, affluent households have benefited on average from the fiscal stimulus and housing moratoria mandated by the CARES Act and other initiatives. Non-homeowners and small companies, on the other hand, may face financial, physical, and technical obstacles to filing for bankruptcy, especially in areas where unemployment is high.

Bankruptcy Overview

Chapter 7. Small businesses and consumers file for Chapter 7 to discharge debts. 

Chapter 11. Generally used by larger corporations, chapter 11 is known as the reorganization bankruptcy to pay creditors over time.

Chapter 13. Allows the filer to keep their property and repay debts over a period of three to five years.

How COVID-19 Changed the Economy

The COVID-19 pandemic has devastated daily life in the United States and caused a significant economic decline, with drastic losses in consumer spending and the highest unemployment rate since the Great Depression.

Congress and the Federal Reserve responded swiftly in response to the recession, including a $600 weekly rise in unemployment rates through the Federal Pandemic Unemployment Compensation (FPUC) program, $1,200 stimulus checks, and over $1.2 trillion in loans through the Paycheck Prevention Program (PPP) and Main Street Lending program.

Have Bankruptcy Filings Increased?

During this year’s economic crisis, caused by COVID-19, bankruptcy filings in the United States were predicted to skyrocket. Instead, they plummeted by 27% due to a dramatic decline in customer and small business filings.

The findings are contrary to modern economic trends. Employment failure is the primary source of customer bankruptcy filings. The rate of job loss in 2020 was the largest since the Great Depression. Around the same time, we saw a significant drop in the number of people filing for bankruptcy.

The fact that many people were spared from filing for bankruptcy may be construed as comforting. However, there might be explanations why people didn’t. For example, they didn’t have access to the court system or couldn’t afford to file at the time.

Many unemployed people likely avoided bankruptcy due to federal assistance from the $1.2 trillion recovery bill known as the CARES Act. State and municipal governments briefly suspended evictions and foreclosures, federal authorities, and corporations.

The Takeaway

While experts expected an unprecedented rise in bankruptcy filings, the opposite has happened. Big companies are not reluctant to take advantage of the generous debt forgiveness and reorganization opportunities that the US bankruptcy scheme offers. For this reason, small companies and customers shouldn’t be reluctant to take advantage of such benefits if they are appropriate for them.

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. 

How long is bankruptcy listed on your credit report?

How long a bankruptcy is listed depends on which chapter you file. Chapter 7 and 11 bankruptcies will appear on your report for up to 10 years after filing. In Chapter 13 cases, it remains on the credit report for up to 7 years 

What’s a FICO Credit score, and how it affects you

FICO Score is a three-digit score calculated with the information found on your credit report. It allows lenders to assess how likely you are to repay the loan. As a result, the score impacts how much you can borrow, how long you have to pay back, and its cost.

Your FICO credit score is also the most significant indicator of whether you receive credit, how much, and the interest rate. The higher the score, the lower the interest rate. A bankruptcy filing will typically cause your score to increase. Reasons for this are because creditors must remove all negative information from your credit score when you file bankruptcy.  This causes your debt to income ratio to increase, and stops negative marks from decreasing your score.

Recovering your credit

Your credit isn’t ruined after you file for bankruptcy.  In fact, almost all of my clients experience the opposite effect.   As long as you maintain a good payment record for current creditors, only taking out the credit lines that you can afford and paying back the loan as negotiated, you should see your credit score grow.

 

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.

The CAA amends the Bankruptcy Code to authorize PPP loans to some debtors. That being said, the law also specifies that certain PPP loans would only be available if the SBA Administrator sends a request to the Executive Office Director of the United States Trustee to issue PPP loans in bankruptcy. As a result, the current law transfers the authority to the SBA administrator to accept PPP loans through bankruptcy. For this reason, it’s not known yet if these PPP loans will be available.

Given that the SBA Administrator accepts PPP loans in bankruptcy, the loans will be eligible in two cases. The first would be in cases pending on, filed on, or after the date the SBA sends the request mentioned above to the Office of the United States Trustee. The second case concerns certain types of debtors, notably Subchapter V small business debtors, Chapter 12 family farmer debtors, and Chapter 13 self-employed debtors. 

CHAPTER 13 availability of discharge even if certain plan pavements haven’t been made

The CAA allows the bankruptcy court the power to grant a discharge to a Chapter 13 debtor. Even if they defaulted on or after March 13, 2020, on no more than three monthly payments under a residential mortgage due to material financial distress related to COVID-19.  The court can also award a discharge to a debtor whose established repayment plan provides for curing on the faults on a mortgage, and the debtor has entered into a qualifying loan adjustment or forbearance agreement with the lender. This does not mean that the debtor will be discharged from the mortgage debt. Instead, it means they will be eligible to receive a plan of discharge of other debts even though the debtor did not pay all mortgage payments when due under the plan. 

No bankruptcy filing discrimination

 No one may be denied relief under three of the CARES Act clauses simply because the person is or has been a debtor in a bankruptcy case. The provisions are as follows: 

  • Foreclosure moratorium and the right to seek forbearance 
  • Forbearance of mortgage payments on multi-family homes 
  • A temporary suspension on eviction filings

CARES forbearance claims; adjustment of Chapter 13 plans

Under the CARES Act, mortgage holders under federally-backed residential and multi-family mortgages can request forbearance payment due to COVID-19 hardships. In the case of federally backed residential mortgages, the forbearance period can last up to a year. By the end of the foreclosure period, the mortgage holder must pay the unpaid mortgage payments as a lump sum. In Chapter 13 cases, these missed mortgage payments created major procedural and logistical problems.

To address these complications, the CAA requires eligible servicers to file proof of claim for delayed payments even though the claims bar deadline has expired. The CAA also authorizes debtors to update the confirmed Chapter 13 agreement to address the delayed payment plan. Suppose the debtor fails to adjust his plan. In that case, the bankruptcy court, the U.S. Trustee, the trustee of Chapter 13, or any involved party will modify the plan.

 

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.

Child Support Obligee (Owed Support) & Chapter 13 Bankruptcy

If a child’s parent filed for Bankruptcy and you are owed child support your rights to receive this support are unaffected by the bankruptcy.  The obligor will be required to repay any arrears through the Bankruptcy plan and is required to continue to keep up the monthly obligation owed under the support order.  The Obligee will receive a letter from the case Trustee outlining their rights as it relates to child support and bankruptcy.

Noncustodial Parents & Chapter 7 Bankruptcy

Noncustodial parents who owe Child Support and file for Chapter 7 Bankruptcy will still be required to fulfill their responsibilities under the support order.  Any child support arrears are a non-dischargeable debt, meaning that the obligation will survive the Bankruptcy filing.  The obligor will be required to provide the case Trustee with the name and address of the obligee.

What you need to know about Bankruptcy and child support

 

  • The automatic stay will not stop child support from accumulating.
  • The automatic stay does not delay child support proceedings.
  • The Bankruptcy trustee has child support reporting requirements.
  • Child Support Arrears are paid a fixed monthly payment repaid over the life of a Chapter 13 Plan.
  • In Chapter 7, you will remain responsible for child support and child support arrears after the case closes.
  • In Chapter 13, child support arrearages are repaid in a span of three to five years. 

Filing for Bankruptcy prevents creditors from collecting dischargeable debts from you including continuation of lawsuits. This, however, does not apply to most child support proceedings, including:

  • Proceedings to establish or modify a child support order.
  • Collection of child support from property that is not part of the bankruptcy estate. 
  • Income withholdings to pay child support under an administrative or court order.

 

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.

Foreclosure

An automatic stay can stop a foreclosure proceeding. Further, depending on the chapter of Bankruptcy a Debtor files, the Debtor may be able to repay arrears and save the property. If the Debtor is filing for Chapter 13 and can afford their monthly obligations in addition to repaying the mortgage arrears they can likely stay in their home while repaying the arrears over the life of the Chapter 13 Plan. However, if you file for Chapter 7, the relief might only be temporary if you do not have another mechanism that lets you keep your home, such as a refinance, loan modification, repaying arrears directly, etc.

Utility Shutoffs

Suppose a company is threatening to disconnect a service (gas, electric, phone, or water) because you are behind on your bill. In that case, an automatic stay will prevent the shutoff for at least 20 days. While the amount of the bill itself usually does not justify a bankruptcy filing, it makes sense to file if you have other debt that you can discharge. 

Wage Garnishments/ Bank Levies

When you file for bankruptcy, you can expect garnishments and bank levies to stop. A wage garnishment or bank levy are legal procedures where your earnings are required to be withheld by a court order or the funds in your bank account are frozen by a court order to pay off a debt or debts. Besides taking home a full salary, it is also possible to discharge the underlying debt that precipitated the garnishment or levy in addition to other qualifying debts like personal loans in bankruptcy. Remember that commonly garnished debts, such as child support, and alimony will not be removed. 

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.

How Chapter 13 Could Help You Keep Your Home

It’s recommended you file Chapter 13 if you have a regular and stable income, since it gives you the opportunity to come up with a repayment plan for your debts, including your mortgage. This chapter provides a more permanent solution to help you keep your home.  Through the repayment plan, you’ll be able to pay your mortgage over 3 to 5 years. Keep in mind you’ll still have to cover the monthly mortgage payments. 

It’s important to know that creditors can still file a motion to lift the automatic stay, allowing them to go ahead with the foreclosure. This type of motion is usually granted if it looks like you won’t be able to pay off the mortgage debts. To learn more about your options, don’t hesitate to call Acker Warren P.C. for expert legal advice on bankruptcy and foreclosure. 

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