February 23, 2018

Bankruptcy Myths Debunked: Part 1

There are many myths about bankruptcy floating around.  Some are based on a kernel of truth, while others are flat-out incorrect.  I will dedicate several posts to debunking some of the most common misconceptions and myths about bankruptcy.

MYTH 1:  The “Medical Bankruptcy”:  There is no specific bankruptcy for medical debt per se. Medical debt is general unsecured debt similar to credit card debt. This debt is eliminated through bankruptcy.  Now, one of the main reasons some people file for bankruptcy relief is medical debt.  Some studies have found that medical debt is the biggest reason for filing bankruptcy, but there is no special bankruptcy carved out specifically for medical bills.

MYTH 2:  Medical Bills Are Not Covered By Bankruptcy:  This myth is basically the opposite of Myth #1.  Medical bills are covered by bankruptcy, and by some accounts, medical bills form the basis of most bankruptcy filings.  This myth is a persistent myth, but it is completely untrue.  A variation of this myth is that credit card debt or even pay-day loans are not covered by bankruptcy, which is also false.  I have a sneaking suspicion that this type of myth may be spread by certain debt collectors trying to collect on medical debt or other types of debts.

MYTH 3:YouWill Never Get Credit Again:  This is completely untrue.  Filing bankruptcy, in some ways, may improve your credit-worthiness.  For example, after filing for bankruptcy your debt-to-income ratio dramatically improves.  In fact, credit card companies and car lenders will mine the bankruptcy database, and a few days after a consumer files bankruptcy he or she will receive a deluge of applications for credit cards and car loans (which probably is a good idea to avoid due to some of the high interest rates).  As I have discussed in prior posts, a consumer who files bankruptcy may be eligible for an FHA Mortgage Loan two years from filing, and in some circumstances, only one year from filing.  Now, bankruptcy will be reported on your credit report for up to 10 years, but a consumer’s access to credit is fairly immediate after he or she files for bankruptcy.

MYTH 4:  Everyone Will Find Out That I Filed For Bankruptcy:  This is also false. If you file bankruptcy, the people who will know you filed will be your attorney, the court, any co-debtors (co-signors on loans), any claimants of child/spousal support, and any one you choose to tell. Who files bankruptcy is public information, but only a very small group of people know how to access this information.  Your name will not be printed in the newspaper.  In fact, you probably know several people who have filed for bankruptcy, yet you may be unaware that they filed for bankruptcy.

MYTH 5: There Is A Minimum Amount Of Debt Required To File Bankruptcy:  This is false.  There is no minimum amount of debt a consumer must have to file for bankruptcy relief.  If you cannot pay your current debt with you current income, then bankruptcy may be a very good option to consider, despite your debt-load.

This wraps up Part 1 of “Bankruptcy Myths Debunked.”  If you would like to learn more about bankruptcy and how bankruptcy may improve your financial situation, please call today to schedule your free in-office bankruptcy consultation in Eugene.

Can Student Loans Be Discharged in Bankruptcy?

Yes, they can.  But it is a very difficult, and expensive process.  This blog entry discusses student loans in the context of both a chapter 7 and chapter 13 bankruptcy case.

Student loans can only be discharged in bankruptcy if the debtor can show that the student loans cause “undue hardship.”  To show “undue hardship,” the debtor must meet three criterion (known as the “Brunner Test”).  These criterion are:

1.  Repayment of the loan would prevent the debtor from maintaining a minimal standard of living;

2.  The debtor’s financial situation is likely to continue for the foreseeable future; and

3. The debtor has made a good faith effort to make payments on the student loan in the past.

If a debtor successfully meets all criteria listed above, the debtor can show that there is undue hardship, and the student loan can be discharged in bankruptcy (this usually requires litigation, though).  However, it is extremely difficult to meet all three criterion.  Often, the federal student loan creditors (government) may make the argument that the loans can be repaid through an income based repayment plan, and be stretched out over several years.  The aim of this approach is to show that the debtor can make payments, especially given the different repayment options available.

There are other ways to approach student loans outside the context of bankruptcy.  This consists of different programs available, especially for federal student loans, such as the income-based repayment plan.   Alternative methods for addressing student loans outside of bankruptcy will be discussed in future posts.

If you have questions about student loans and bankruptcy, please call today to schedule your free in-office bankruptcy consultation in Eugene.


Bankruptcy in a Nutshell

Bankruptcy is a federal procedure that allows a debtor (the person who files bankruptcy or a business) to discharge his or her debts, or repay those  debts under a supervised bankruptcy plan.  For consumers, there are two primary types of bankruptcy: Chapter 7 bankruptcy and Chapter 13 bankrutpcy.  Chapter 7 bankruptcy will allow a consumer to discharge or eliminate most classes of debt, and generally lasts about 90 days; a Chapter 7 bankruptcy is generally known as a “liquidation” bankruptcy.  On the other hand, a Chapter 13 bankruptcy is a “reorganization” bankruptcy, whereby a debtor makes monthly payments into the bankruptcy plan for 3-5 years, based on what the debtor can afford. In a Chapter 13 bankruptcy, some debts must be paid in full, while other debts may be partially paid or paid not at all depending on a debtor’s specific circumstances.

As soon as a debtor files either chapter of bankruptcy, an “automatic stay” is triggered, which essentially is a restraining order against most of the debtor’s creditors from continuing to collect a debt, pursuing a lawsuit, or garnishing the debtor’s wages or bank accounts. In certain circumstances the bankruptcy stay may be lifted, or may not apply at all depending on the type of creditor.

Most debts will be discharged as a result of a bankruptcy, such as medical debt, credit card debt, and so on.  Some debts may not be discharged as part of a bankruptcy, meaning these debts continue.  Such debts may include student loans, child support, certain tax debts, and so on.

If you would like to learn more about how bankruptcy may improve your financial situation, please call today to schedule your free in-office bankruptcy consultation here in Eugene.

Mortgages, Modifications, and Bankruptcy: Some Practical Considerations

Often I will meet homeowners who have fallen behind on their mortgage payments and are facing a potential foreclosure, or who may even be in the middle of a foreclosure.  Often, it is my job to perform triage with the situation; and depending on the situation, there are several options available to the homeowner.  This post will address some of these options, and focus on practical solutions.

Foreclosures in Oregon often are conducted judicially.  This simply means that the foreclosure is an action completed through the court.  If a foreclosure lawsuit is initiated, the homeowner will receive a summons and complaint, and be provided 30 days to answer.  Often, it is when the homeowner receives a copy of the complaint and a summons that he or she will contact my office for a free appointment to discuss options.  These options range from foreclosure defense to bankruptcy to, even in some cases, walking away from the property or placing the property up for sale.  This post will focus on saving the property either through foreclosure defense or filing a Chapter 13 bankruptcy case.

1.  Foreclosure Defense: Foreclosure defense is just that; defending against a foreclosure action. If the homeowner is facing a foreclosure yet is not ready to consider bankruptcy (discussed below), foreclosure defense is a valid option.  Often, this takes the form of filing an answer in the foreclosure lawsuit, which provides additional time for the homeowner to reinstate the mortgage loan (and therefore brings the loan out of foreclosure, usually with a payoff of the arrears), or sell the house to recoup any equity in the house, or short-sell the house, or to seek a modification.  Usually, the latter option is chosen: the homeowner needs additional time to obtain a mortgage modification through HAMP or other modification programs.  At this point, I will have my clients go to NEDCO (Neighborhood Economic Development Corporation) or other housing counseling agency while I deal directly with the court and opposing counsel; NEDCO and other such agencies are a free resource to homeowners seeking help to avoid a foreclosure.  Sometimes, with the aid of NEDCO or other housing agencies, clients may be able to obtain a modification of the mortgage, and, as a result, the foreclosure case will be dismissed (and the house is saved from foreclosure).  But what if the client is unable to obtain a modification, yet wants to still keep the house?  We consider bankruptcy.

2. Bankruptcy as a Practical Tool to Stop a Foreclosure & Save the Home:  If foreclosure defense and mortgage modification do not pan out, we can file a Chapter 13 bankruptcy case (or we may just start by filing a Chapter 13 case and avoid foreclosure defense altogether).  A Chapter 13 bankruptcy will allow a homeowner to place the arrears (or amount of mortgage payments that are behind) in a plan to be paid down over 5 years at zero-percent interest rate.  At the same time the arrears are being paid, the homeowner must also pay current mortgage payments.  For example, a Chapter 13 bankruptcy to stop a foreclosure and pay down arrears may be used by a homeowner who lost a job, could not make payments on the house, but has since become gainfully employed and can now make payments on the mortgage and catch up on the arrears over time.  A Chapter 13 bankruptcy, therefore, is a very useful tool for saving a house from foreclosure.

At my meetings with clients, I discuss options available to saving a home from foreclosure.  This includes a discussion of Chapter 13 bankruptcy as well as foreclosure defense and mortgage modification.

If you are behind on your mortgage and are facing foreclosure, or if you have been served with foreclosure papers, please call for your free bankruptcy and foreclosure defense consultation here in Eugene.




Bankruptcy & Financial Education

You’ve taken the credit counseling course (“pre-bankruptcy” course) and filed either your Chapter 7 bankruptcy case or your Chapter 13 bankruptcy case.  And you may have gone to the meeting of creditors already (or completed most of your plan payments in a Chapter 13 bankruptcy case). But before you can receive your bankruptcy discharge, there is one more piece of the puzzle that must be completed: the financial education course.

The Bankruptcy Code mandates that every consumer who seeks a discharge in either a Chapter 7 bankruptcy case or a Chapter 13 bankruptcy case must first complete a course in personal financial management, and that this course shall last 120 minutes (or two hours).  Since the government does not provide this course, the private sector has answered the call.  There are many providers of this financial education course, and  the United States Trustee Program publishes a list of approved course providers.

But what is the financial education course and how is it different from the credit counseling course that is required prior to filing bankruptcy?  While a purpose of the credit counseling course (“pre-bankruptcy” course) is to determine if other options exist to a person considering bankruptcy (i.e. a repayment plan); the purpose of the financial education class is to help build skills for a consumer who is about to receive his or her bankruptcy discharge.  Simply put, the financial education course focuses more on your life after bankruptcy.  The financial education course covers such topics as money management and using credit wisely.  The course provides tools to help the consumer make good financial decisions going forward, such as developing a sound budget based on income and expenses., and making sound financial choices.

Once the course is completed through an approved financial education course provider a certificate will be issued by the course provider.  This certificate must then be filed with the Bankruptcy Court prior to the consumer receiving his or her bankruptcy discharge in either a Chapter 7 bankruptcy case or a Chapter 13 bankruptcy case. For example, I have my clients complete the financial education course and provide me with the certificate of completion.  Once I receive this certificate of completion I file it with the Bankruptcy Court on behalf of my clients.   Once this certificate of completion is filed with the Bankruptcy Court, and all other requirements of the bankruptcy are met, the consumer will receive his or her bankruptcy discharge.

If you have questions regarding Chapter 7 bankruptcy or Chapter 13 bankruptcy or the educational requirements that must be met as part of a bankruptcy filing, please feel free to contact my office for a free bankruptcy consultation in Eugene.

Bankruptcy & Credit Counseling

Before you file for either a Chapter 7 bankruptcy case or a Chapter 13 bankruptcy case, a credit counseling class from an approved credit counseling agency must first be completed. Commonly referred to as the “pre-bankruptcy class,” the credit counseling class is mandated by the bankruptcy code. A certificate is issued once the class is completed, and the certificate is filed along with your bankruptcy documents with the court. The certificate, however, is only good for 180 days. As a result, I usually have clients take the class and obtain the certificate shortly before they plan on filing either their Chapter 7 bankruptcy case or Chapter 13 bankruptcy case, to ensure that the clients do not take the class too early; if the 180 day period passes and a bankruptcy has not yet been filed, clients will be required to take the class again.

The Bankruptcy Code mandated that the credit counseling class is completed as part of a bankruptcy case filing (both Chapter 7 and Chapter 13 bankruptcy cases), yet the government does not offer these classes. The private sector has answered the call, and now there are many providers of this class. A list of providers is published by the United States Trustee Program.

What is the purpose of the credit counseling class as part of either a Chapter 7 or Chapter 13 bankruptcy filing? The stated purpose is to provide the consumer with an idea if bankruptcy is right for him or her, or if there are alternative routes that can be taken, even when it is clear that bankruptcy is the best or, possibly, only option available for the consumer.

The credit counseling course generally takes an hour to complete, and can be taken over the internet, by phone, or in person depending on the course provider. As part of the course, the consumer will list items such as income and expenses and debts. The credit counseling agency will then analyze the information supplied by the consumer and propose options of repaying the debt, outside of bankruptcy, if such options make sense.  Often, the conclusion of the course provider is that bankruptcy may be the best option.  And despite a proposal for a non-bankruptcy repayment plan by the counseling agency, the consumer can still choose the route of bankruptcy, if this proves beneficial.

If you are interested in learning more about Chapter 7 bankruptcy and Chapter 13 bankruptcy and the educational requirements leading up to filing a bankruptcy case, please call for your free in-office bankruptcy consultation in Eugene.

What is a Deficiency Balance and How Can Bankruptcy Take Care of It?

A deficiency balance is the remaining balance due to a lender after the lender repossess and sells the collateral in which it has a security interest in (i.e., a car), and the proceeds from the sale is not sufficient to pay the complete debt owed the lender.

A common example of a deficiency balance is with a car and the credit union that lent the money to purchase the car.  The credit union retains a security interest in the car.  If a borrower defaults on making payments on the car, the credit union can repossess the car, sell the car at auction (for usually a lot less than the car is worth on the private market), and apply the proceeds of the sale to its loan.  If an amount is still owing after the sales proceeds are applied to the loan, this creates a deficiency, and the credit union can sue in court to obtain a deficiency judgment against the borrower.  For example, a borrower owes $15,000 on a 2011 Ford.  The borrower defaults on the loan, and the credit union repossesses the car and sells the car at auction for $8,000.  The credit union applies the sales proceeds of $8,000 to the total amount owed ($15,000), and this leaves a deficiency balance of $7,000.  The credit union can then sue the borrower for the $7,000 deficiency balance.  Once the credit union obtains a deficiency judgment, the credit union can then garnish wages and bank accounts of the borrower.

HOWEVER, bankruptcy can take care of deficiency balances and deficiency judgments.  By filing bankruptcy, the borrower in the above example will no longer be liable for the deficiency balance or judgment, if obtained.

If you have a deficiency balance or judgment due to a car repossession, please call today to schedule your free in-office bankruptcy consultation.


Bankruptcy Filing Fees Set to Increase

The Judicial Conference has announced that filing fees for bankruptcy will increase.  This increase will affect all new bankruptcy cases filed on and after June 1, 2014.  Chapter 7 bankruptcy and Chapter 13 bankruptcy filing fees will increase by $29 each.


  • The Chapter 7 bankruptcy filing fee will increase from $306 to $335.
  • The Chapter 13 bankruptcy filing fee will increase from $281 to $310.

These fees can still be paid on installments after the bankruptcy is filed.  

Please note that my attorney fee will remain the same.

If you have any questions regarding bankruptcy or the court fee for filing bankruptcy, please contact my office for a free consultation.  




Do I Really Need to List all My Creditors in Bankruptcy?

YES!  The simple answer is: Yes.  Some clients will want to file bankruptcy on a select group of creditors (such as credit cards, lines of credit, etc.), yet want to keep a second group of creditors out of their bankruptcy (such as primary physicians, friends, and family).  This post details why it is absolutely necessary to list all creditors when filing for bankruptcy relief.

The primary reason to list all known creditors is to avoid perjury.  The bankruptcy petition is signed under penalty of perjury, which includes declaring that all creditors are listed.  If a consumer knowingly fails to list a creditor in his or her bankruptcy filing, this is tantamount to committing perjury. Additionally, a consumer should list all creditors, particularly if an unlisted creditor decides to try and collect on a debt later on.  If a consumer deliberately fails to list a creditor in the bankruptcy, the creditor could essentially survive the bankruptcy process intact.

What types of creditors, generally, are people hesitant about listing?  Family, friends, and family doctors are the top three categories.  I reassure my clients that they must list all creditors known to them, but they can voluntarily repay any creditor after the bankruptcy is completed.  Often, clients may opt to voluntarily repay a long-time family physician (or opt not to, per the bankruptcy).  This is true for family and friends, too.  Nothing stops a client from voluntarily repaying any one creditor he or she chooses.  But the crucial point is that all creditors, despite who they are, must be listed in a client’s bankruptcy schedules.  If a client deliberately fails to list a creditor, this amounts to perjury.

If you have questions regarding bankruptcy and how it may affect family, friends, or even doctors for which you may owe a debt to, please feel free to call today to schedule your free consultation in Eugene.

Pursuant to 11 U.S. Code § 528: "I am a debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code."

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