November 21, 2017

The Many Chapters of Bankruptcy

As a consumer bankruptcy attorney, I limit my practice to chapter 7 bankruptcy and chapter 13 bankruptcy filings.  Most individuals and small businesses fall into either one of these two types of bankruptcies.  But there are many other chapters of bankruptcy beyond just a chapter 7 bankruptcy and a chapter 13 bankruptcy.  This article discusses chapter 7 and chapter 13 bankruptcy along with the lesser known chapters of bankruptcy, and when and why these chapters may be appropriate.

Chapter 7 Bankruptcy: A chapter 7 bankruptcy is the most common bankruptcy for consumers.  Also known as a liquidation bankruptcy, chapter 7 eliminates most, if not all, consumer debts.  The time frame, from start to end, is usually about 90 days.  When people think about bankruptcy, they usually think of chapter 7.

Chapter 9 Bankruptcy: A chapter 9 bankruptcy is a bankruptcy specifically tailored for government municipalities to reorganize debt.  For example, both Stockton, California, and Detroit, Michigan are currently in chapter 9 bankruptcy proceedings.

Chapter 11 Bankruptcy:  A chapter 11 bankruptcy usually applies to businesses and is used as a restructuring tool.  A few of the major car manufactures have entered into a chapter 11 bankruptcy, and have come-out of the process as a restructured company (such as Chrysler); however, other companies have attempted a chapter 11 restructuring, but failed, and ultimately converted to a chapter 7 bankruptcy (Hostess, for example).

Chapter 12 Bankruptcy: A chapter 12 bankruptcy is exclusively available to family farmers and fishermen.  This form of bankruptcy is similar in substance and procedure to a chapter 13 bankruptcy.

Chapter 13 Bankruptcy:  A chapter 13 bankruptcy is the second most common type of bankruptcy, following chapter 7.  A chapter 13 bankruptcy allows for the restructuring of a consumers debt over 3-5 years, where the consumer makes monthly payments to the plan for the benefit of creditors.  Often, a chapter 13 bankruptcy is used to stop a foreclosure and catch up on mortgage arrears, pay down tax debt and domestic support obligations, cram down vehicle loans in terms of a principal reduction of loan amount and interest rate,avoid second liens on properties (in some instances) such as home equity lines of credit, and so on.  In some instances, a consumer may not be eligible to file for a chapter 7 bankruptcy due to high income or a prior chapter 7 bankruptcy filing, and therefore must file a chapter 13 bankruptcy instead.

Chapter 15 Bankruptcy: A chapter 15 bankruptcy is designed for ancillary or cross-border claims; this includes debtors, assets, and claimants involving multiple countries.

Chapter 7 bankruptcy and chapter 13 bankruptcy are the most well-known of the bankruptcy chapters in the United States.  However, there are other chapters available for a debtor (individual, business, municipality), provided the right circumstances exist.

If you are interested in learning more about bankruptcy and how it may benefit your financial situation, please call today for a free in-office bankruptcy consultation in Eugene.

Emergency Bankruptcy

There is a bankruptcy known as an emergency bankruptcy.  This is not a special type of bankruptcy, but takes the form of either a chapter 7 bankruptcy or a chapter 13 bankruptcy.  An emergency bankruptcy deals more with process than substance.  This article discusses what an emergency bankruptcy is and when it is appropriate.

An emergency bankruptcy simply is the filing of an incomplete bankruptcy.  The minimum documents that are required to be filed with the court, which form the basis of an emergency bankruptcy, are:  1.) the Voluntary Petition; 2.) Mailing Matrix; and, 3) Statement of Social Security Number.  By filing the minimum requirement for documents in your bankruptcy, you have just filed an emergency bankruptcy case.  This applies to both a chapter 7 bankruptcy case and a chapter 13 bankruptcy case.  Additionally, for a chapter 7 bankruptcy you can pay the filing fee on installments (the first installment is due within about 30 days) and for a chapter 13 bankruptcy an initial filing fee of $185 must be paid.

Now, why would a person file an emergency bankruptcy? Sometimes, as a bankruptcy attorney, I am not called until the 11th hour by a potential client who needs to file a bankruptcy to stop a garnishment, foreclosure, or other civil law matter.  As soon as we file the emergency bankruptcy, the bankruptcy’s automatic stay is triggered, which stops foreclosures and most collections activities.  I have helped clients before whose home was to be foreclosed within a few short days.  Although we did not have all the documents gathered for a complete bankruptcy, we had enough to file an emergency chapter 13 bankruptcy and stop the foreclosure.  This can also be a common case when someone needs to stop a garnishment, right before his or her wages will be garnished.

Once an emergency bankruptcy is filed, the debtor has 14 days to file all deficiencies, or documents that need to be filed to complete the chapter 7 bankruptcy or the chapter 13 bankruptcy.  Usually, we are able to gather and file all missing documents within the 14 day period.  Occasionally, however, we must file a motion with the court to seek an extension of the 14 days in order to have enough time to file all missing documents.

Ideally, it is better to plan and file a complete chapter 7 bankruptcy or chapter 13 bankruptcy from the beginning.  But sometimes circumstances necessitate the filing of an emergency bankruptcy.

If you are facing foreclosure or are about to be garnished at work, please contact me to set up a free in-office bankruptcy consultation in Eugene.  If we need to file an emergency bankruptcy, I can accommodate your schedule. My turn-around time can be extremely fast.

Oregon’s Family Expense Statute, Separate Property State & Bankruptcy

Oregon is a separate property state surrounded by community property states (Washington, Idaho, Nevada and California).  There is, however, an exception to the separate property concept with Oregon’s “Family Expense Statute.”  This article details the Family Expense Statute in the context of a separate property state and also discusses how bankruptcy interacts with this statute. But first, a few definitions are in order.

Separate Property State (Oregon)

A separate property state, which Oregon is,  simply means that your property is your property, and your spouse’s property is your spouse’s property.  If your name is on the car or the house, but your wife’s name is not, you own the house or the car and not your wife (although your wife may claim an equitable interest in the property, in some instances).  This applies generally to debt as well; if your name is on the credit card and your wife’s name is not, you are liable for the credit card, not your wife.

Community Property State (California, Nevada, Idaho, Washington, etc.)

In a community proper state, such as California, a husband and wife own property, equally, obtained during the marriage, despite only one spouse’s name being attached to the property.  For example, a married couple in California: if the husband purchases a house without the wife’s name during the marriage, the wife will be considered owner of the house, as well. Income and debts, in a community property state, are owned by the other spouse as well.  Therefore, if the wife has a bank account with wages in it but without the husband’s name on the account, the husband also owns the wages in the account (in a community property state).  Additionally, in a community property state, if the husband takes out a credit card during the marriage in his name only, this debt becomes the wife’s debt as well.    Oregon is a separate property state; therefore the rules of community property do not apply.

Oregon: A Separate Property State

Since Oregon is a separate property state, debts incurred during the marriage by one spouse is not the other spouse’s responsibility, with the exception of the Family Expense Statute.  Also, property acquired by one spouse in Oregon is not the other spouse’s property, unless the other spouse’s name appears on title (the other spouse may have an equitable interest in the property, nonetheless, if the other spouse’s resources went to obtaining that property).

Oregon’s Family Expense Statute

Therefore, the general rule is: debts incurred by husband are husband’s debts in Oregon, not wife’s; and, debts incurred in Oregon by wife are wife’s debts not husband’s.  This concept, however, is turned on its head with Oregon’s Family Expense Statute (ORS Sect. 108.040), which states: “The expenses of the family and the education of the minor children are chargeable upon the property of both husband and wife, or either of them, and in relation thereto they may be sued jointly or separately.”  This statute usually comes up with medical debt.  For example, if a husband incurs medical debt only in his name, the provider of the medical service can ultimately pursue the husband and wife for this bill.  Often, when the medical provider is seeking a judgment in such a case, the medical provider will sue both the husband and the wife, despite the fact that only the husband incurred the debt.  With a judgment in hand, the medical provider can garnish both the husband’s and the wife’s wages and bank accounts.

Oregon’s Family Expense Statute & Bankruptcy

What are the ramifications of the Family Expense Statute and bankruptcy?  Often, if I have a client who has incurred substantial medical debt, and whose wife is relatively debt free, I will have a discussion about Oregon’s Family Expense Statute, and how the wife may be liable for the husband’s medical debt.  I discuss the possibility of including the wife in the bankruptcy filing, and thereby filing a joint bankruptcy.  Since I generally do not charge more for a joint bankruptcy (husband and wife) than an individual bankruptcy, the other spouse may easily join the bankruptcy.  If one spouse files bankruptcy first, and then the other spouse is later sued by the medical provider under Oregon’s Family Expenses Statute, a second bankruptcy may need to be filed.  In many cases, then, it makes sense to file a joint bankruptcy (husband and wife) rather than potentially two bankruptcies.

If you have questions about bankruptcy and how Oregon’s Family Expense Statute may apply to your situation, please contact me today for your free in-office bankruptcy consultation in Eugene.

 

 

 

Credit After Bankruptcy

Bankruptcy is not the end-all of credit many people believe it to be.  When used wisely, credit is an important part of our economy and financial lives.  This article details aspects of credit and building credit after filing a bankruptcy.

It goes without saying that filing bankruptcy negatively impacts one’s credit.  For example, a chapter 7 bankruptcy filing stays on a person’s credit report for 10 years while a chapter 13 bankruptcy stays on a person’s credit report for 7 years.  I never quite understood this difference in reporting other than people, somehow, are being rewarded for filing a chapter 13 bankruptcy over a chapter 7.  I do not have empirical evidence to support how much of a person’s credit score may be negatively impacted by the filing of a bankruptcy, but often times a person’s score dips below a 550.  FICO, or the main organization that mathematically determines a person’s credit score, indicates that the effect of a bankruptcy on a person’s credit score is determined by the person’s complete credit profile; therefore, depending on many factors, a credit score may be affected differently from one person to another when filing for bankruptcy relief.

But you can rebuild credit fairly fast after you file bankruptcy.  For example, I have written on the subject of reaffirmation agreements and secured debt, such as a car loan.  By reaffirming a car loan through bankruptcy, this will help rebuild credit after bankruptcy.  Reaffirmed debt (usually secured debt) will be treated as normal debt on your credit report, as opposed to debt discharged in a bankruptcy.  And continued timely payments on a reaffirmed debt will help bolster your credit score.

Clients are often surprised that when they file bankruptcy they receive many offers for credit cards and car loans; usually at very high interest rates, though.  The lenders mine the bankruptcy database to send newly-filed bankruptcy debtors credit card and car loan offers for two main reasons: 1) the debtor’s debt-to-income ratio has vastly improved (as the old debt was discharged in bankruptcy); and, 2) people can only file chapter 7 bankruptcy every 8 years and therefore the lenders feel more secure in lending.

I alluded to the debt-to-income ratio above.   By filing bankruptcy, you will get rid of most, if not all, of your debts.  As a result, your debt-to-income ratio (or how much debt you have compared to how much you earn) vastly increases.  This will make you more credit-attractive to lenders.

Now, what is the best way to rebuild credit after you file bankruptcy?  The number one thing is to pay current bills on time.  Second, you can open a secured credit card at a bank, where you secure the credit card with your own funds.  For example, you have $500 in an account, and you are issued a secured credit card for $500.  This secured credit card will be reported to the credit bureaus; so all payments made on time will have a positive impact on your credit score.  This type of credit card, however, will have an interest rate attached and often an annual fee.  The idea will be to use this card and pay it off every month; this strategy will help boost a person’s credit score.

There is also ample opportunity for unsecured credit cards as discussed above.

The bottom line, however, is this: if you use credit wisely and pay your bills on time, you can rebuild credit fairly fast after bankruptcy.

If you have questions about bankruptcy and how it may impact future credit, please feel free to call me today for a free in-office bankruptcy consultation to discuss this matter further.

Over Payment of Government Benefits

I meet clients from time to time who have received an over payment of government benefits, such as unemployment compensation or Social Security benefits.  Under particular circumstances, such over payment of benefits may be dischargeable in a bankruptcy.  But in other circumstances, such an over payment of benefits may become a non-dischargeable debt in bankruptcy.  This article details over payment of benefits and when such benefits may be eliminated through a chapter 7 bankruptcy or a chapter 13 bankruptcy.

If you got over-paid  with a government benefit and the government realizes this over payment, the government may try to pursue this over payment by wage garnishment (distraint warrant through the State), filing a lien in some instances, offset of current benefit (Social Security, for example), or denial of a benefit for a period of time (unemployment benefit through the State).  Facing these methods of recourse, people often look toward bankruptcy for some relief.

Generally, over payment of government benefits are dischargeable in bankruptcy. But, there are some exceptions to this.  If the over payment of the benefit was the mistake of the government (State or Federal; unemployment compensation; Social Security benefits, etc.), this will be a dischargeable debt in bankruptcy.  If the over payment was a result of fraud or misrepresentation by the recipient of the benefit, this over payment may not be dischargeable.

Like any other creditor, Oregon and the Federal government have only a certain amount of time (about 90 days) to file an objection with the bankruptcy court to determine that the over payment is a non-dischargeable debt in the bankruptcy.  Often, the State and the Federal government will file this objection if there is clear evidence that there was fraud or false pretense involved in obtaining the benefit or the level of benefit originally. If the State and Federal government have received proper notice of the bankruptcy yet fail to file an objection, this debt will be discharged through the bankruptcy.

For example, if the government makes a mistake in calculating a benefit amount and over pays a person, by no fault of that person, this debt should be dischargeable in bankruptcy.  However, if a person, for example, is collecting unemployment compensation and is also working and collecting wages (when they should not be doing both), the government can argue the person continued to receive unemployment compensation through fraud and/or false pretense by continuing to claim unemployment compensation when he or she had a job.  In this case, if the government files an objection in the bankruptcy, this over payment may become a non-dischargeable debt; meaning it will not be eliminated in the bankruptcy.  If the government files such an objection and there are grounds to fight this objection, litigation in the bankruptcy court may pursue to determine if this debt is dischargeable or non-dischargeable through the bankruptcy.

If you have an over payment of benefits, and Oregon or the Federal Government is trying to collect on this over payment, please call me today to discuss what options you may have and if this over payment will be dischargeable in bankruptcy or not.

 

If I am Married, Can I File Bankruptcy by Myself?

If you are married, one spouse can file bankruptcy individually.  This will leave the other spouse out of the bankruptcy, entirely.  This post details this option, and when this option may prove more appropriate than filing bankruptcy jointly, as a married couple.

Oregon is a separate property state (with a few exceptions) when it comes to a person’s debt.  If a husband incurs credit card debt in his name only, his wife will not be liable for this debt.  Therefore, sometimes it makes sense to file bankruptcy for only one person in the marriage instead of both people.  This is particularly true if the husband or wife came into the marriage with substantial debt and needs to file bankruptcy, but does not want to pull the other spouse into his or her bankruptcy; or, if one spouse incurs substantial debt during the marriage (such as a failed business, etc.), while the other spouse is relatively debt free, and so on.

Married couples can file a joint bankruptcy together, two individual bankruptcies separately, or one spouse can file bankruptcy and the other spouse does not file bankruptcy.

I generally charge the same amount for individual bankruptcy as I do for a joint bankruptcy (which includes both husband and wife).  I even had one case where a couple who were engaged to get married, moved their marriage date up so that they could file bankruptcy and only pay for one bankruptcy (as a joint married couple) rather than paying for two separate bankruptcies.

Now, there are also some credit reporting concerns clients raise regarding only one spouse filing bankruptcy: How will if affect the non-filing spouse?  Usually the bankruptcy filing of one spouse does not affect the non-bankruptcy filing spouse’s credit, except if there is joint debt involved.  For example, if a husband and a wife are jointly liable for a debt and the husband files bankruptcy, the non-bankruptcy filing wife will still be liable for this debt, and her credit report may even show that the co-borrower (husband) filed for bankruptcy on this debt.

Despite only one spouse filing bankruptcy, the other spouse’s income must be calculated in the bankruptcy’s “means test.”  This simply means that wage information will have to be provided from the non-filing spouse to determine if the spouse filing bankruptcy is eligible for a chapter 7 bankruptcy.  The non-filing spouse’s name will not appear in any of the documents, only a number representing his or her income.

If you have concerns about filing bankruptcy and how it may affect a spouse who does not want to (or does not need to) file bankruptcy, please call today to schedule a free bankruptcy consultation.

Exemptions & Bankruptcy – What State’s Exemptions Apply & Why?

I have written several posts on exemption law and bankruptcy, because exemptions are such an important part of the bankruptcy process.  Exemptions simply are laws that protect a client’s property when he or she files for chapter 7 bankruptcy and even chapter 13 bankruptcy.

Oregon has two exemption schemes: 1) exemptions based on Oregon law, or 2) exemptions based on federal law.  Generally the Federal exemptions are much more advantageous to use, as they contain a powerful wildcard exemption that can protect assets that may not be protected using Oregon exemptions.

But what are the requirements to be eligible to use Oregon exemptions or Federal exemptions? Can another state’s exemption scheme apply to your bankruptcy if you file in Oregon?

To be eligible for Oregon exemptions or eligible to elect the Federal exemptions in Oregon, you must have lived in Oregon for the past 2 years.  If you moved from another state to Oregon a year ago, for example, another state’s exemption laws may apply.

The rule, simply stated, is: a debtor in bankruptcy can use the exemptions available in Oregon provided that the debtor lived in Oregon for the past 2 years.  If the debtor lived in more than one state in the past 2 years, then you look at what state the debtor predominantly lived in the 6 months prior to the last 2 years (or where the debtor lived predominantly between months 24-30).

An example of the above principal is in order: Client has moved to Oregon from Arizona a year ago, and had lived in Arizona for 5 years.  Client, therefore, has lived in more than 1 state in the past 2 years.  Since the client lived in more than 1 state during the past 2 years, then you must look at where the client lived predominantly during the 6 months before the 2 years (or lived between 24 – 30 months ago).  In this case, since client moved to Oregon less than 2 years ago, and lived in Arizona for the 6 months prior to the 2 years, Arizona exemption law applies despite the client filing bankruptcy in Oregon.

Now, some state’s exemption laws only apply to residents of that state.  This is usually clearly written into the state’s exemption laws.  What happens when, based on the above analysis, a state’s exemption laws apply to a person, but only if that person is a resident of that state? Federal exemptions then will apply.

Why is this convoluted system in place?  To deter “forum shopping,” or moving to a state that has better exemption laws to protect assets and then filing bankruptcy in that state.  By making it more difficult to forum shop, Congress intended to help deter abuse of the bankruptcy system.

Determining what exemption law applies is not always a simple process.

If you have lived in more than one state in the past 2 years, another state’s exemption laws may apply (other than Oregon).  If you have questions about bankruptcy, exemptions, and what laws may apply, please feel free to contact me today for a free in-office bankruptcy consultation.

 

When Can I File Bankruptcy Again?

Time for Bankruptcy

Time for Bankruptcy

Based on circumstances, often outside of our control (medical debt, failed business, etc.), the need to file another bankruptcy may be present.  This article details the time requirements between successive bankruptcy filings.

A consumer is only eligible to file a chapter 7 bankruptcy and receive a discharge every 8 years, provided the consumer is otherwise eligible for a bankruptcy discharge (i.e. is able to pass the chapter 7 “means test”) .  Therefore, if all other eligibility requirements are met, a consumer who filed a chapter 7 bankruptcy January 21, 2006 will be eligible to file another chapter 7 bankruptcy  by January 21, 2014.   The key event is when the prior bankruptcy was actually filed; the clock counts down from this point.

What if you need to file bankruptcy, but you filed a chapter 7 bankruptcy less than 8 years ago?  A chapter 13 bankruptcy may be available as an option.  A consumer can file a chapter 13 bankruptcy 4 years after he or she files a chapter 7 bankruptcy for which a discharge was granted.

What if you filed a chapter 13 bankruptcy and received a discharge, and you are considering filing a chapter 7 bankruptcy after?  The wait period to file a chapter 7 bankruptcy and obtain a discharge is 6 years from the time a consumer filed a chapter 13 bankruptcy for which a discharge was granted, unless a consumer paid 100% of all debt in a chapter 13 bankruptcy, or at least 70% of all claims and the bankruptcy was filed in good faith.

Under certain circumstances, filing back to back chapter 13 bankruptcies or a chapter 7 bankruptcy followed immediately by a chapter 13 bankruptcy (known colloquially as a “chapter 20 bankruptcy”) may prove beneficial, despite a consumer not receiving a discharge in the second bankruptcy.  This strategy will be discussed at greater length in a future post, and only applies to some unique situations.

There have been many times where a client needs bankruptcy relief but filed a chapter 7 bankruptcy less than 8 years prior.  Often, I work with these clients and we file a chapter 13 bankruptcy.  My clients will receive the immediate relief they may seek (stop wage garnishment, seizure, etc.), and my clients will enter into a restructuring of their debt through the chapter 13 bankruptcy process.

If you have filed a chapter 7 bankruptcy less than 8 years ago, and you currently need bankruptcy relief, please feel free to call me today to set up a free in-office bankruptcy consultation to discuss your options.

“Medical Bankruptcy”

Occasionally, I am asked about a “medical bankruptcy.” “Medical bankruptcy,” or a special type of bankruptcy solely for medical bills, simply does not exist.  Medical debt, however, is easily eliminated through both a chapter 7 bankruptcy and chapter 13 bankruptcy as general unsecured debt.

Medical debt is a huge factor for people who consider bankruptcy.  With skyrocketing healthcare costs, bankruptcy cases that I file often contain a good portion of medical debt. But clients generally have two options when filing bankruptcy, a chapter 7 bankruptcy or  a chapter 13 bankruptcy.  There is no carve-out in the bankruptcy code for a “medical bankruptcy,” though, as medical bills are covered in both chapter 7 and chapter 13 bankruptcy cases.

Chapter 7 bankruptcy, as discussed in earlier posts, is a liquidation bankruptcy and lasts about 90 days.  Most debts, including medical bills will be discharged as part of the bankruptcy process.  Chapter 13, or “wage-earner’s” bankruptcy, where a client makes monthly payments for 3-5 years, covers medical debt as well.

Therefore, “medical bankruptcy” is a myth in terms of a special type of bankruptcy.  However, medical debt is included as a dischargeable debt in both chapter 7 bankruptcy and chapter 13 bankruptcy.

If you are interested in learning more about bankruptcy and how medical debt may be eliminated through bankruptcy, please contact me for a free in-office bankruptcy consultation.

Buying a New Vehicle while in Chapter 13 Bankruptcy

Transportation is such a necessity, especially for making money to fund a Chapter 13 Bankruptcy.  What if you are in a Chapter 13 Bankruptcy, and your current vehicle no longer is operational or needs replacing?  This article details the process of obtaining a new vehicle while you are in Chapter 13 Bankruptcy; this process is very similar despite who your trustee may be, but I focus on Fred Long’s process, as he is the Chapter 13 Bankruptcy Trustee here in the Eugene area.

The first thing that you must do is obtain a copy of the vehicle request form (Vehicle Request – Fred Long) and  bring it with you when you are looking for a vehicle.  If you have found a vehicle, and found financing, you will want to complete this form, and send it to me to forward to the Chapter 13 Trustee for approval.  Generally, the Chapter 13 Trustee will approve the purchase of reasonable cars, not luxury cars (such as a Hummer, or a Mercedes-Benz).  If the vehicle is priced under $14,000 and the monthly payment is around $350 or less, and your budget can afford this payment and there is a real need for the vehicle, the Chapter 13 Trustee should approve the purchase.

The approval of the vehicle request is good for only 60 days.  If you do not obtain the vehicle within the 60 day period, you will need to re-submit a new vehicle request form to the Chapter 13 Trustee for approval.

As part of the process, new budget schedules must be submitted to the Chapter 13 Trustee to demonstrate that you can afford the vehicle in your current budget.  The turn around time for the Chapter 13 Trustee to approve a vehicle purchase once the form is submitted can be as little as 2-3 days from my experience; sometimes this period is longer, though.

 

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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