by Mike Wallace | May 22, 2015 | Bankruptcy
LIFE AFTER BANKRUPTCY
I frequently tell clients that have filed for Chapter 13 or Chapter 7 bankruptcy protection that there is life after bankruptcy.
Contrary to the misconception that bankruptcy ruins you for life, I often see clients in better financial condition a short time after receiving a bankruptcy discharge.
I have said it before, there is nothing honorable in dodging your creditors.
It is better to send a message to the creditors through the legal process of bankruptcy that you cannot pay them. The alternative is to have a credit report filled with charge-offs, repossessions and foreclosures.
There are some suggestions for things you can do to rebuild your credit worthiness after having filed for bankruptcy.
The most obvious is to pay those creditors that you have agreed to pay in the Chapter 13 or have reaffirmed their debt in a Chapter 7.
If you have signed a reaffirmation agreement with a creditor on a vehicle in Chapter 7 it is critical that you make your payments in a timely manner.
Other things you can do to rebuild your credit:
- Open a checking and savings account if you don’t already have them established and in good standing. Do your homework and find a bank that has the services you need and does not hit you with outrageous fees and minimum deposit requirements.
- Obtain a secured credit card after you have received your bankruptcy discharge. To obtain a secured credit card you will place a deposit with the credit card company and will use the card like any other major credit card. Maintain a small debt to credit ratio on the card and make sure that you timely make the payments. If you have $250.00 on deposit, then don’t let the balance go higher than $50.00. Don’t pay the huge start-up fees for secured cards and make sure that they report to the three major credit bureaus. One site that you might visit for secured credit card options is CreditCards.com.
- After you have established yourself with a secured card, then apply for a retail or gas credit card. Gas cards are the best idea because gas is a necessity for most people and you want be tempted to spend money that you don’t have.
- Also, once you have maintained a secured card in good standing for 12 months, then see if the bank will allow you to convert to an unsecured card. Do not use the secured card or unsecured card for any other purpose other than to rebuild your credit. In other words, pay the balance off at the end of the month. You need to learn to live within your means.
- Monitor your progress if you are trying to rebuild after bankruptcy. Wait at least three months after you have received your discharge and obtain your one annual free report at AnnualCreditReport.com. Dispute any mistakes associated with your report and use Credit.com’s free credit score to monitor your score for free on a monthly basis. I suggest that you make any disputes in writing and mail by certified mail to the bureau. The bureau has thirty (30) days to respond to your complaint.
- Put a budget together and have a place for every dollar. Dave Ramsey has an incredible number of resources available to those who want to properly manage their money. Visit DaveRamsey.com or attend one of Dave Ramsey’s Financial Peace University events being held in your area.
Because God has blessed me with the opportunity to practice law, and more specifically, to practice in an area where I help people in financial distress, I would like to share with you a few scriptures from God’s word that I believe might encourage you (all quotations from the New International Version):
- “I know that the Lord secures justice for the poor nd upholds the cause of the needy.” Psalm 140:12
- “I will repay you for the years the locusts have eaten…” Joel 2:25
- “Do not be anxious about anything, but in everything, by prayer and petition, with thanksgiving, present your requests to God. And the peace of God, which transcends all understanding, will guard your hearts and your minds in Christ Jesus.” Philippians 4:6-7
- “Better a poor man whose walk is blameless than a rich man whose ways are perverse.” Proverbs 28:6″
- “But the needy will not always be forgotten, nor the hope of the afflicted ever perish.” Psalm 9:18
As always, any opinions expressed on this website are just that, opinions. So if you have a question regarding bankruptcy or debt relief, then please give me a call to discuss your individual situation. Bankruptcy, as many other areas of the law, can be very case or fact specific. I pride myself on giving you the answers to your questions that are based on your individual circumstances.
by Mike Wallace | May 22, 2015 | Debt
By Mike Wallace, Bankruptcy Attorney, serving clients in all of East Texas, including Lufkin, Nacogdoches, Palestine, Jacksonville and other surrounding communities
One of the most frequent questions I get from clients wanting to file for bankruptcy protection is whether they than can keep a credit card out of their bankruptcy. This question assumes a couple of different possibilities that the client might be facing.
First, they owe a balance on the credit card and they want to keep making the payments on that card, so they can use it in the future. If the creditor is owed money then this scenario is impossible in a bankruptcy filing because the creditor has to be named in the schedules. Once the creditor receives notice of the bankruptcy filing they will cancel the card.
The second possible scenario is the credit card has a zero balance just prior to the bankruptcy filing. In this case the crditor is not listed in the schedules as being owed money, so they don’t receive the official bankruptcy notice that goes to all of the creditors. However, creditors regularly monitor credit databases and other public information to determine if their cardholders have filed for bankruptcy. In my years of bankruptcy practice I have never seen a situation where the creditor did not learn of the bankruptcy filing and cancel the card.
In conclusion, the answer is that you cannot keep a credit card if you file for bankruptcy protection. However, bank debit cards work just the same as a credit card, with the obvious limitation that you have to have the funds available for the charge in your bank account.
As always, any opinions expressed on this website are just that, opinions. So if you have a question regarding bankruptcy or debt relief, then please give me a call to discuss your individual situation. Bankruptcy, as many other areas of the law are very case or fact specific. I pride myself on giving you the answers to your questions that are based on your individual circumstances.
by Mike Wallace | Dec 22, 2014 | Student Loans
BANKRUPTCY AND STUDENT LOANS
Under the United States Bankruptcy Code Section 523(a)(8), student loans are generally non-dischargeable in a bankruptcy. The exception to non-dischargeability of the defined student loans under the Code arises where the exception from discharge would impose an undue hardship on the Debtor or the Debtor’s dependents.
The Bankruptcy Code does not define the term “undue hardship.”
The Fifth Circuit has adopted the three-prong test articulated in Brunner v. New York State Higher Educ. Serv. Corp., 831 F.2d 395 (2nd Cir. 1987) under which a debtor is required to show that:
(1) the debtor cannot maintain, based on current income and expenses, a minimal standard of living for himself and his dependents if forced to repay the loan;
(2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loan; and
(3) the debtor has made good faith efforts to repay the loan. See In re Gerhardt, 348 F.3d 89, 91 (5th Cir. 2003).
The Debtor must prove the factors by a preponderance of the evidence. If a Debtor can show that their monthly expenses exceed their income, then the Debtor has met the burden of the first prong. Id. at 92.
Some courts have concluded that certain monthly expenses are unreasonable for purposes of determining whether a Debtor can maintain a minimal standard of living.
For example, one court has determined that home internet service and movie rental expenses are unreasonable expenses under Section 523(a)(8). In re Buchanan, 276 B.R. 744, 751-52 (Bankr. N.D. W. Va. 2002).
Others have found that cable television was not necessary to maintain a minimal standard of living. In re East, 270 B.R. 485, 494 (Bankr. E.D. Cal.2001) and Commonwealth of Virginia State Education Assistance Authority v. Dillon, 189 B.R. 382 (Bankr. W.D. Va. 1995).
The existence of a debilitating medical condition is not a prerequisite to establishing the existence of “undue hardship” under § 523(a)(8). See, e.g., McGinnis v. PHEA (In re McGinnis), 289 B.R. 254, 256 (Bankr. M.D.Ga. 2002).
As long as a debtor can demonstrate that some condition will, in all likelihood, inhibit his long-term ability to pay the student-loan debt, the second prong of the Brunner test has been satisfied.
Nonmedical factors to consider in this regard are
(1) whether the debtor failed to derive any economic value from his educational debts,
(2) the debtor’s overall lack of education and/or training,
(3) the number and health of the debtor’s dependents,
(4) whether the debtor lacks marketable skills, and (5) the debtor’s age. Turretto v. U.S. (In re Turretto), 255 B.R. 884, 889 (Bankr. N.D. Cal. 2000).
The focus of the third prong of the Bruner test centers around the fact that the Debtor has not negligently or willfully caused his own default.
The default must be beyond the reasonable control of the Debtor. Stein v. Bank of New England (In re Stein), 218 B.R. 281, 288 (Bankr. D. Conn. 1998).
So, although it may be difficult to discharge student loans, it is not impossible given a fact specific situation that does demonstrate undue hardship on the Debtor.
As always, any opinions expressed on this website are just that, opinions. So if you have a question regarding bankruptcy or debt relief, then please give me a call to discuss your individual situation. Bankruptcy, as many other areas of the law, can be very case or fact specific. I pride myself on giving you the answers to your questions that are based on your individual circumstances.
by Mike Wallace | Dec 22, 2014 | Motor Vehicles
MOTOR VEHICLE NEGATIVE EQUITY AND BANKRUPTCY
Oftentimes when a person purchases a vehicle from a dealer they trade a vehicle for the purchase of the “new” one that has a debt owed against it. If the debt owed on the traded vehicle is greater than what the dealer provides the purchaser in trade value, then this scenario is often referred to as “negative equity.” This negative equity is often financed into the purchase of the new vehicle, so the debtor immediately owes the creditor more than the value of the new vehicle.
Under current Chapter 13 bankruptcy law a debtor is generally precluded from paying such car creditor less than what is owed on the vehicle, despite the fact that the vehicle may be worth less than what the creditor is owed.
When a debtor pays a car creditor less than what they are owed, this is known as “cram down.” For a greater explanation of this concept see the Newsletter entitled “Cram Down in Chapter 13.”
Although it is not a settled issue in all bankruptcy courts throughout the United States, the majority of bankruptcy courts have concluded that a debtor can cram down the negative equity in an automobile purchase, including most Texas courts.
See In Re Sanders, 377 B.R. 836 (Bankr. W.D. Tex. 2007) and In Re Brodowski, 391 B.R. 393 (Bankr. S.D. Tex 2008).
This ability to cram down negative equity created from vehicle trades can be very beneficial to a potential debtor in Chapter 13 cases.
If you would like to discuss this subject more, then please contact me at (903) 683-2018 or at (936) 225-1800.
As always, any opinions expressed on this website are just that, opinions. So if you have a question regarding bankruptcy or debt relief, then please give me a call to discuss your individual situation. Bankruptcy, as many other areas of the law are very case or fact specific. I pride myself on giving you the answers to your questions that are based on your individual circumstances.
by Mike Wallace | Dec 22, 2014 | Foreclosure
For a mortgage company to properly foreclose on a homestead in Texas there is generally a two-step process. First, once the mortgagee determines you are in default they will send you what is commonly known as a “Notice of Default and Intent to Accelerate.” This Notice will typically provide a thirty (30) day period for you to cure the default, but can be as short as twenty (20) days under the Texas Property Code. To cure the default, you must pay the outstanding balance that is in default, plus any additional amount that comes due during the interim time of the notice and any additional payments coming due. If the entire amount that is in default is not paid by the date certain that is stated in the notice, then step two in the process begins.
In step two, the mortgagee sends what is typically entitled “Notice of Acceleration,” and generally attached thereto will be a “Notice of Foreclosure Sale” or a “Notice of Substitute Trustee Sale.” These notices will inform you that the Note you signed with the Mortgagee has been accelerated and that your property will be sold pursuant to Texas law at a designated location at your county courthouse between the hours of 10:00 am and 4:00 pm on the first Tuesday of the month. This notice of sale must be given at least twenty-one (21) days prior to the sale. The important thing for you to remember once you have received a notice of acceleration, nothing short of a written reinstatement of your note with the mortgagee or a bankruptcy will stop your home from being sold.
Finally, it is critical that you understand that if you are being made promises that your home will not be sold because you are working with the mortgage company on a modification, you cannot rely on these promises. In recent history I have seen numerous clients that have been promised that their home will not be sold at a foreclosure sale because they are in a modification process, call me the day before the sale date and advise me that they were informed on that day that the mortgage company had informed them that they did not qualify for a modification and their home would be sold the following day.
MY ADVICE TO YOU AS A HOMEOWNER IS TO CONTACT A BANKRUPTCY ATTORNEY IMMEDIATELY IF YOU HAVE RECEIVED A NOTICE OF INTENT TO ACCELERATE OR A NOTICE OF FORECLOSURE SALE.
As always, any opinions expressed on this website are just that, opinions. Your individual situation might be different than outlined above, so it is probably best that you give me a call to discuss your individual situation. I pride myself on giving you the answers to your questions that are based on your individual circumstances.
