February 23, 2018

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.

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.

The Chapter 13 Bankruptcy Debt Limit

I meet with clients almost daily.  During my free in-office bankruptcy consultation, I conduct an in-depth analysis of a client’s legal issues as it pertains to bankruptcy. Most often, a client will choose to file a chapter 7 bankruptcy, provided he or she meets the eligibility requirements for a chapter 7.  If the circumstances warrant a chapter 13 bankruptcy filing, I will discuss with a client how a chapter 13 operates and, given the facts, how this chapter of bankruptcy may be the best option.  But sometimes a client may not be eligible to file a chapter 13 bankruptcy, although this chapter may be the most preferable given a client’s particular set of facts.   One reason a chapter 13 bankruptcy filing may not work is that a client may have too much debt.  This post discusses the chapter 13 restriction of debt load in-depth.

A chapter 13 bankruptcy, or a “restructuring bankruptcy,” is a bankruptcy that lasts between 3 to 5 years, with monthly payments being made by the consumer for the benefit of creditors.  A chapter 13 bankruptcy does have certain restrictions, however, particularly when it comes to how much debt a consumer can have to be eligible to file a chapter 13 bankruptcy.  Currently, a consumer must have less than $360,475 in unsecured debts (not attached to collateral, such as medical bills, credit card bills, etc.) and less than $1,081,400 in secured debt (such as mortgages on a house, car loans, etc.).  These numbers adjust periodically.

Most people who consider filing a chapter 13 bankruptcy fall below these total debt thresholds. But what if a consumer exceeds these thresholds?  What options does he or she have?

I recently wrote a post on “Chapter 20” bankruptcy (chapter 7 + chapter 13) detailing one strategy to combat the debt ceiling.  If a consumer’s debt is higher than the allowable thresholds for a chapter 13 bankruptcy, one option is to file a chapter 7 bankruptcy, eliminate the unsecured debt, and then file a chapter 13 bankruptcy on the heels of a chapter 7 bankruptcy.  Often times, by eliminating the dischargeable unsecured debt first in a chapter 7 bankruptcy filing, this may qualify a consumer for a chapter 13 bankruptcy filing since the debt load may substantially decrease.  Using a “Chapter 20” approach applies in a very narrow set of circumstances, though.

The other option we always consider before looking at a chapter 13 bankruptcy, is a chapter 7 bankruptcy filing.  A chapter 7 bankruptcy will eliminate most debts and contains absolutely no debt ceiling.  But to file a chapter 7 bankruptcy, certain eligibility requirements must be met first.  For example, a consumer must not have filed a chapter 7 bankruptcy in the previous 8 years.  The second eligibility criteria for a consumer is to be able to pass the chapter 7 bankruptcy “means test” which is based on income and household size.  If a consumer’s income is too high based on household size he or she may be ineligible to file for a chapter 7 bankruptcy.  Therefore, in some instances a consumer may not even qualify for a chapter 7 bankruptcy.

Now, what if a consumer is above the debt threshold of $360,475 in unsecured debt and/or $1,081,400 in secured debt, and he or she does not qualify for a chapter 13 bankruptcy? And what if that same consumer’s income is too high to be eligible for a chapter 7 bankruptcy? Where do you turn?  Chapter 11 bankruptcy.

Chapter 11 bankruptcy is mainly for business reorganization, but can be a useful bankruptcy tool for some consumers who do not qualify for a chapter 7 bankruptcy because of too high of income and does not qualify for a chapter 13 because of too high of debt load.  Chapter 11 is a very complicated form of bankruptcy.  The situation that necessitates the need to file a chapter 11 bankruptcy for an individual consumer is rare.

If you are interested finding out more about bankruptcy, please call today to schedule your free in-office bankruptcy consultation in Eugene.



Chapter 13 Bankruptcy & Inheritance

If you are in a Chapter 13 Bankruptcy, where you pay monthly payments for the benefit of your creditors, and you receive an inheritance or life insurance proceeds, this can complicate matters, somewhat.

The Chapter 13 Trustee (the official who administers your chapter 13 bankruptcy) will either view this as an asset of the bankruptcy estate, to be paid over time into your chapter 13 bankruptcy plan for the benefit of your creditors, or view it as disposable income, that must be paid into the chapter 13 bankruptcy plan for the benefit of your creditors.  Depending on how your chapter 13 bankruptcy is structured, most, if not all, of the proceeds may be paid into the bankruptcy for the benefit of your creditors.  If there are emergency or necessary expenses, sometimes we are able to retain some of the funds in order to cover these expenses, with the remaining funds being paid into the chapter 13 bankruptcy.

If your chapter 13 bankruptcy is a 100% plan, meaning you are paying back all your creditors through the bankruptcy, there will be the ability to retain the inheritance to a greater degree.

Now, if you receive a substantial inheritance while you are in the middle of a chapter 13 bankruptcy, there are a few options to consider.  First, you can send the funds to the chapter 13 trustee to distribute to your creditors (with the possibility of retaining some for necessary expenses). Second, if the inheritance is substantial enough, you may decide to exit the chapter 13 plan, as you have an absolute right to exit your chapter 13 bankruptcy, and deal with your creditors outside of the bankruptcy context.

Chapter 13 bankruptcy lasts from 3-5 years generally.  It is very hard to plan for all contingencies during this period.  If you are interested in finding out more about how inheritance may interact with either a chapter 13 bankruptcy or a chapter 7 bankruptcy, please call for a free in-office bankruptcy consultation.

Judgment Liens and Bankruptcy

If you are sued by a creditor and the creditor obtains a judgment against you, that judgment automatically becomes a lien on any real property (house, condo, or land) that is located in the county for which the judgment was entered.  For example, if you are sued in Lane County and you also own a house in Lane County, the resulting judgment from the lawsuit would also become a lien on your real property.  The judgment creditor could also file what is known as a lien abstract in other counties in Oregon, and if you own property in such a county, then the creditor will obtain a judgment lien against that property also.  Judgment liens are not created, however, by small claims judgments of $3,000 or less.

So, now you have a judgment against you, and the judgment has become a lien on your real property – What can you do?   By filing bankruptcy, you will be released of any personal liability under the judgment (provided it is a civil judgment), but your property will still have the lien attached.  But if the property is your homestead (the place where you live), under certain circumstances you can strip the judicial lien(s).

In order to strip a judicial lien in your homestead, first you must live at the property to qualify for a homestead.  Second, you must file bankruptcy, chapter 7 or 13. Third, the lien must impair your homestead exemption (Under Oregon: $40,000 for individual, $50,000 for married couple filing; Under Federal: $22,500 for individual, $45,000 for married couple filing).  Therefore, if you have a house worth $200,000, and you owe $170,000 against it with a mortgage, this renders $30,000 in equity, which is less than the $40,000 (individual) or $50,000 (married couple) homestead protection amount – and therefore, since the lien impairs your homestead, you would be able to avoid it in bankruptcy.  If you choose Federal homestead, the lien would have to impair the individual homestead exemption of $22,500 if filing alone, or $45,000 if filing jointly.

Stripping judicial liens can be a complicated matter, and requires additional work in your bankruptcy.

If you are interested in finding out more about bankruptcy and judgment-liens, please contact me for a free in-office consultation.



What Determines the Length of a Chapter 13 Bankruptcy?



A chapter 13 bankruptcy, or “wage-earner’s” bankruptcy, lasts between 3 and 5 years.  But what determines this length? Several factors consider the length of a chapter 13 bankruptcy.  This article addresses some of the most prominent factors.

1.  Applicable Commitment Period:  The applicable commitment period is either 3 years or 5 years for a chapter 13 bankruptcy, based on whether the consumer is above-median income or below-median income.  If the consumer is below median-income, the commitment period will be a minimum of 3 years; if the consumer is above-median income, the commitment period will automatically be 5 years.  What is median-income and how do you determine this number?  Median-income is based on the U.S. Census Bureau’s calculation for each state and updates every 6 months; theoretically, half of households are below this dollar number in income, and half the households are above.  To determine if you are above or below median-income, you must look at both your household size and income.

Currently, the breakdown for median-income and household size follows:

Oregon:   Household of 1: $44,779; Household of 2: $55,568; Household of 3: $60,693; Household of 4: $70,812.  For each member of the household above 4, and additional $8,100 must be added.

Therefore, if you have a household of 2 (Husband and Wife with no kids), the median-income is $55,568.  If your household income is $40,000, then your applicable commitment period in a chapter 13 bankruptcy is 3 years; if you make $95,000, then your applicable commitment period is 5 years.

Household income is based on the prior six months of income multiplied by 2 for an annualized income.

2.  Below Median-Income with Three Year Commitment Period with Extenuating Circumstances:  If you are a below median-income consumer and qualify for a 3-year commitment period for a chapter 13 bankruptcy, you may want to extend the 3 years to up to 5 years, depending on your circumstances.  For example, if you filed a chapter 13 to stop a foreclosure and you are in arrears by $20,000 on the mortgage, if you agreed on a 3 year chapter 13 bankruptcy, the average payment on the mortgage arrears amounts to $556 per month.  However, even though your minimum applicable commitment period is 3 years, you can extend the bankruptcy out to 5 years to render a lower monthly payment to catch up on the arrears, or $20,000/5 years = $334 per month.

Above are some of the main factors that help determine the length of a chapter 13 plan.  Below median-income households must be in the chapter 13 bankruptcy for 3 years but can extend this period out to 5 years; and above-median income households must automatically be in the plan for 5 years.

If you are interested in learning more about chapter 13 bankruptcy, please call for a free in-office bankruptcy consultation.

Chapter 7 Bankruptcy & Financed Vehicles You No Longer Want

In recent posts, I have discussed options available regarding financed cars in the context of a chapter 7 bankruptcy, such as reaffirmation and redemption.  This article sets forth the third main option available: surrendering a financed vehicle through bankruptcy when it does not make financial sense to hold on to the vehicle.

IN BANKRUPTCY: Surrendering a vehicle through bankruptcy absolves any financial liability of the borrower to the lender.  In the bankruptcy schedules, the borrower or consumer indicates that he or she will be surrendering the vehicle through the bankruptcy process, and we make arrangements to deliver the car or have the car picked up by the lender (usually about 60 days out from the bankruptcy filing date or before).  If there is a co-borrower on the secured loan, that co-borrower will still be financially liable for the car despite the primary borrower filing bankruptcy.  Of course, at this point, the co-borrower can file bankruptcy for himself or herself.

OUTSIDE OF BANKRUPTCY:  If a car were to be repossessed or surrendered due to non-payment and the borrower has not filed bankruptcy yet, the secured lender, once in possession of the vehicle, would most likely sell the vehicle at auction for generally a lot less than is owed, rendering a deficiency, or an amount owed by the borrower (amount of loan minus what the car was sold for at auction).  The lender could then sue the borrower for the deficiency, and obtain a deficiency judgment.  This deficiency judgment could of course be included in a bankruptcy.

If you are interested in finding out more about bankruptcy and how you can surrender a vehicle (and absolve any financial liability) or obtain relief from a vehicle deficiency judgmemt, please contact me to set up a free in-office bankruptcy consultation.

Chapter 7 Bankruptcy & Reaffirmation Agreements for Cars

Yesterday, I wrote an article on redemption of a vehicle through bankruptcy.  Aside from redemption, there are two other main options to consider: surrendering the vehicle through bankruptcy or reaffirming the vehicle through bankruptcy.  This article addresses reaffirmation of a vehicle in the context of a chapter 7 bankruptcy.

Reaffirming a debt through bankruptcy usually takes the form of a secured debt, such as a car.  By entering into a reaffirmation agreement with the lender on your car during the pendency of your bankruptcy, you essentially re-obligate yourself to the loan, but you also get to keep the collateral, or the car.  Vehicle loans have what is known as an ipso facto clause in the fine print, which essentially states that if you file bankruptcy this is a default of the loan.  Since this a default, the lender can then, at its election, repossess the vehicle.  However, if you are current on your car payments, and do not reaffirm a debt, the lender will most likely not repossess the vehicle as the lender continues to make money off the borrower, provided the borrower continues to pay on the vehicle loan.  By not reaffirming the debt, a borrower is no longer personally responsible for the loan; however, the lender’s security interest is still intact in the vehicle – if the borrower stops paying on the vehicle, the lender will be able to repossess the vehicle, but cannot seek a deficiency against the borrower because the vehicle was never reaffirmed through the bankruptcy.  If a debt is not reaffirmed through the bankruptcy (even if the borrower retains the vehicle and continues to pay), the account will appear on the borrower’s credit reports as discharged in bankruptcy.

So, what benefits are there to reaffirming a debt?  In my mind, it benefits the creditor more than the borrower in most instances.  However, if the vehicle loan is reaffirmed, this will help build credit post-bankruptcy for the borrower, as the account will be treated as a normal account, and if payments are timely, this will improve the borrower’s credit score.  However, if the debt is reaffirmed, and then the borrower loses his or her job 6 months after the bankruptcy, for example, the lender can repossess the car, sell if at auction, and seek a deficiency against borrower.  Therefore, if a borrower is current on payments, I discuss with the borrower if it is really necessary to reaffirm a car loan, and the potential risks involved in reaffirming the car loan.

But reaffirmation of a car loan is one option to consider when filing bankruptcy.

If you are interested in finding out more about bankruptcy and how it may affect secured debt, such as a car loan, please contact me to set up a free in-office bankruptcy consultation.


Chapter 7 Bankruptcy & Vehicle Redemption

If you have a secured loan, such as a financed car, and you file a chapter 7 bankruptcy case, you have a few options available.  You can surrender the car to the lender and you will not be liable for any deficiency, you can reaffirm the debt through bankruptcy, or you can redeem the vehicle.  This article addresses redemption in the context of a chapter 7 bankruptcy.

Simply stated, redemption is paying a lump-sum amount after you file your bankruptcy to pay for the fair market value of an encumbered vehicle.  For example, if your vehicle is worth $8,000 but you owe $16,000 (due to negative equity, etc.), redemption allows you to pay the lender a lump sum amount of $8,000 for the vehicle, as the lender, technically, is secured only up to the value that the vehicle is worth.  Often times, however, the fair market value of a vehicle is contested between the lender and the debtor/borrower who filed bankruptcy; the lender will find a high-value for the vehicle quite frequently.  Kelley Blue Book or Nada Guides are a good starting point to value a vehicle, also using a appraiser is helpful in establishing the value.  If the fair market value of the vehicle cannot be agreed upon, a hearing may be required before a bankruptcy judge to establish the value of the vehicle.

The process to redeem follows:  1) Client files bankruptcy and indicates in his or her schedules that he or she will redeem the vehicle; 2) A motion is filed with the court regarding the redemption; and 3) if there is no objection to the motion, Client pays off lender in a lump-sum payment the fair market value of the vehicle and the lender transfers title to Client.

Redemption, therefore, is a powerful tool in our bankruptcy tool box.  It provides a means to strip negative equity from a vehicle.  The only hitch is that a lump-sum amount must be tendered to the lender to pay for the vehicle.  Clients may be able to obtain new lending for this lump-sum payment in some circumstances.

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


Chapter 7 Bankruptcy: What If I Miss A Creditor?

The goal of your bankruptcy is to list all creditors.  We are able to achieve this by relying on any bills or collection notices, credit reports (free credit reports can be found at Annual Credit Report), and from memory.  Once you file bankruptcy, there is a finite time to add additional creditors.

Occasionally, relying on bills/collection notices, credit reports, and memory alone, a client will miss a creditor.  What happens then?  It all depends on the outcome of your chapter 7 bankruptcy.

If your bankruptcy case is an “asset” case, meaning there is money to distribute to your creditors, then if you miss listing a creditor in your bankruptcy and you have already received your bankruptcy discharge, you will be liable for this debt.

HOWEVER, if your case is a “no asset” case, meaning there are no funds to distribute to your creditors (the vast majority of chapter 7 cases are “no asset” cases), and if you accidentally missed listing a creditor (and not by fraud), then this debt is discharged in the bankruptcy.  Even though this creditor did not receive notice through the bankruptcy (due process), there is no harm, no foul as there are no funds available to any creditors in a “no asset” case.

Very infrequently, I will have a client who forgot to include a medical bill or some other bill, and their bankruptcy case was a “no asset” case.  In this case, I write a letter to the creditor, letting the creditor know that the debt owed to them is covered by the bankruptcy.

In summary, whether an unlisted debt is dischargeable or not in bankruptcy hinges on whether the case is an “asset case” (which means it will be non-dischargeable via the bankruptcy) or a “no-asset” case (which means it will be dischargeable via the bankruptcy, provided that it was omitted by mistake and not by fraud).

How do you determine if your case is an “asset” case or a “no-asset” case?  The trustee usually makes this determination at your bankruptcy hearing.  Also, you can always call me to review.

If the case is a “no asset” case, I will usually send a variation of the following letter to the creditor, along with notice of my client’s bankruptcy filing and bankruptcy discharge order:


To Whom It May Concern:

CLIENT filed a chapter 7 bankruptcy on DATE, Case No. XX-XXXXX.  The bankruptcy trustee declared CLIENT’s bankruptcy a “no asset” case, which means there were no assets to liquidate and pay creditors a dividend with.  Since the bankruptcy was a “no asset” case, by operation of law, any debt inadvertently not scheduled in the bankruptcy, whereby a creditor does not receive actual notice of the bankruptcy, is discharged. See In re Beezley, 994 F.2d 1433. 

While your company may have been inadvertently omitted from the CLIENT’s bankruptcy schedules, by operation of law this debt was discharged due to the bankruptcy being declared a “no asset” case.

Please note, however, that any debt incurred subsequent to DATE is not covered by the bankruptcy.  All debt incurred prior to DATE is discharged, though.

Please contact me if you have any questions or concerns.


Tom Butcher

Attorney at Law

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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