Articles Posted in Discharge

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Student-Loans-150x150The Bankruptcy Abuse Prevention Act of 2005 made student loan debts non-dischargeable through bankruptcy. Why do you ask?

The federal student loan program was initially created with the goal of making a college education affordable for all children. Originally student loans were only meant to help fill the bridge between grant money and the cost of tuition, books, and housing. In other words, student loans were only supposed to supplement education costs. Student loans were never meant to completely cover the full costs of receiving a higher education.

Instead of being based on your creditworthiness like most other types of debts, student loans are only based on your need. Due to this need v. creditworthiness approach, Congress did not feel that student loans should be dischargeable through bankruptcy except under very extreme circumstances that are completely out of your control. Specifically, Congress did not want to put the burden of unpaid student loans onto the taxpayers. Continue reading →

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home_under_waterMany people over the last several years have been forced to file bankruptcy because they faced foreclosure. In many of these bankruptcies, the homeowner chose to surrender their home because it did not make financial sense to try and keep it. Years later they find out that the home is still deeded in their names and are understandably shocked as they further learn they have also remained financially responsible for the property taxes, homeowner associations dues, etc. associated with that home. This is because even though you elected to surrender your home through bankruptcy and receiving the discharge relieved you from the liability of the mortgage debt, the bankruptcy did not automatically take the property out of your name and put the deed to the home in the name of your mortgage holder. So what can you do? The answer to this question is not going to be what you want to hear.

There are 2 ways in which the deed of your surrendered home can be transferred out of your name. The first is for your mortgage holder to agree to a deed-in-lieu of foreclosure. A deed-in-lieu of foreclosure is where the bank agrees to take back possession of the home and you simply sign the deed over to your mortgage holder and provide them with the keys. In order to get a deed-in-lieu of foreclosure, you must reach out to your mortgage holder and ask them if they will agree to a deed-in-lieu. If your mortgage holder refuses to accept a deed-in-lieu, your only other option is to wait for your mortgage holder to foreclose on the home. When your mortgage holder begins the foreclosure process, it is important to make sure they are only foreclosing “in rem.” This means they are only asking the court for possession of the home and not suing you personally for the debt, since the debt was discharged through your bankruptcy.

Unfortunately, it may take your mortgage holder years to begin foreclosing on the home. It is important to know that as long as the property remains deeded in your name, you will remain responsible for the property taxes, homeowner association dues, the upkeep of the property, etc. If it does take your mortgage holder years to foreclose, it could also mean you will have to wait even longer after you received your discharge in order to purchase a new home. This is because the foreclosure judgment will most likely be reported on your credit report.

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You have already filed and completed a Chapter 13 Bankruptcy. All of your unsecured debts have either been paid off or discharged and all of your secured debts (such as your mortgage) are current. You found the light at the end of your financial debt tunnel. In addition to your mortgage, you have been approved for a couple of new credit cards and a personal loan. You are able to make all payments very easily. Then, very unexpectedly, you are laid off from your job or are forced to take a pay cut. You can no longer afford to continue to pay your mortgage along with the credit cards and personal loan. Your creditors are already sending you harassing letters in the mail and calling your phone multiple times a day. You are devastated. You worked so hard to get out of your financial crisis only to find yourself in another one. You need bankruptcy protection NOW. You find out that your income is now low enough to qualify for a Chapter 7 Bankruptcy. So you think you’ll just file a Chapter 7 Bankruptcy, reaffirm your mortgage, and be ok. Right? You meet with a bankruptcy attorney to get the process started only to find out you cannot file a Chapter 7; at least, not yet.

The good news is that you can definitely file bankruptcy again, but there are very strict time limits that must be followed if you have already received a Chapter 13 discharge. In order to file a Chapter 7 Bankruptcy, you must wait 6 years from when you filed your Chapter 13 Bankruptcy, but you only have to wait 2 years from when you filed your Chapter 13 in order to file another Chapter 13. Therefore, you can usually file for another Chapter 13 immediately after receiving a Chapter 13 discharge, since Chapter 13 Plans generally last between three and five years.

In the above scenario, you filed your first Chapter 13 Bankruptcy on August 15, 2013. Today is October 29, 2015, just over 2 years later. Therefore, you cannot yet file a Chapter 7, but you can file another Chapter 13 in order to receive bankruptcy protection now from your harassing creditors.

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You filed a Chapter 7 Bankruptcy and have received your discharge. Among the debts included in your Chapter 7 Petition was your first and second mortgage. You reaffirmed your first mortgage (you elected to remain financially liable for your first mortgage) because you wanted to keep your home, but did not reaffirm your second mortgage. Therefore, you are no longer financially liable for your second mortgage. This seems like fantastic news! You get to keep your home, but no longer have to pay your second mortgage. Right? Unfortunately, this is not the case.

Although you no longer have to pay your second mortgage because you are no longer financially liable for the debt, your second mortgage still has a lien on your home. When you received your first and second mortgage, they each placed a lien on your home in order to secure their interest in your home. These liens allow each mortgage to foreclose on the home in the event you default on your payments. Unfortunately, the bankruptcy only removed your financial liability for your second mortgage. It did not remove the lien the second mortgage placed on your home. Consequently, your second mortgage maintains the right to foreclose on your home if you default on your payments.

So what do you do? You must payoff or settle your second mortgage before your second mortgage forecloses on your home or before you sell your home, whichever comes first. However, when you need to settle your second mortgage largely depends on how much your home is currently worth and how much you owe on your first mortgage. If your second mortgage chooses to foreclose on your home, then your second mortgage must payoff your first mortgage in order to hold the home free and clear. In other words, if your home is only worth $200,000, but you owe $250,000 on your first mortgage, then your second mortgage is not likely to foreclose at the current time because they would have to pay your first mortgage $50,000 more than what the house could be sold for. If you are currently in this situation you have the luxury of not having to try settling your second mortgage immediately. You can take time to save as much money as possible in order to try to settle your second mortgage for a lower amount in one lump some. You also have the option of simply continuing to make your normal monthly payments if you are current on your payments. Regardless of what you decide to do today, it is important to know that if and/or when you decide to sell your home, your second mortgage will have to be settled in order to complete the transaction.

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Filing for bankruptcy can be a very smart decision, but it is not a smart decision for everyone. Many different factors must be taken into account before making the decision to file for bankruptcy and it is a decision that should not be taken lightly.

First you should consider all possibilities that could get you out of your current debt situation. One possible alternative is to come up with a repayment plan based on your current income. This approach basically allows you to make a little progress with each paycheck you receive. You will most likely be living paycheck to paycheck, but if you are in a lot of debt, you are probably already doing this. If you think this approach is possible for you, you must then consider whether you can emotionally deal with the lingering debt and harassing telephone calls you most definitely receive from your creditors until you have paid everything off. This could last for years and take a toll on your mental and physical health. If you think you can do this financially, but do not believe you can handle the mental or physical stress that comes with it, then this approach may not be a good one for you.

If the above approach is not for you, then you might want to consider filing for bankruptcy, but you must first fully understand which chapter of bankruptcy you are eligible to file and how bankruptcy will affect your debts, assets, future, and health. There are generally two types of bankruptcies an individual files. The first is a Chapter 7, which is a strict liquidation of your assets and a wiping out of your debts, and the second is a Chapter 13, which is a reorganization of your debts. Which chapter you are able to file mostly depends on your household income and family size.

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The most common type of summons received after filing bankruptcy and obtaining a discharge is a foreclosure summons. When received, it can be very alarming. You filed bankruptcy, surrendered a home, and received a discharge. You moved out of the home and on with your life thinking you are no longer liable for the home. However, when you elected to surrender the home in your bankruptcy petition, this only took care of your financial responsibility regarding the home. The bankruptcy did nothing about the deed for the home being in your name. Therefore, the bank still has to foreclose on the property in order to get the property out of your name and to take legal possession of the property. When a foreclosure is purely to take legal possession of the home and not for any money damages, it is called an in rem foreclosure action. You do not have to answer the summons unless you believe you were incorrectly served or they are suing for money damages as well. The mortgage holder must serve you because you are an interested party due to your name being on the deed.

If the summons you received after bankruptcy is for a credit card or another kind of debt you believe was discharged in bankruptcy, then you need to respond to the summons stating that the subject debt was part of a bankruptcy. Before doing so, make sure the debt was properly listed on your bankruptcy schedules and it is a debt that can be discharged. If it was properly listed on your schedules and you received a discharge, then assert this in your response/answer to the summons. Once you show the debt was discharged, the action should be dismissed.

If you are unsure of what type of lawsuit you have been served with or whether the debt was properly included in your bankruptcy, you should consult with an experienced bankruptcy attorney. A simple review of the summons, accompanying complaint, and your bankruptcy petition by an attorney can help you determine what action, if any, you need to take. Contact the Law Office of David M. Goldman, PLLC by calling (904) 685-1200 to speak with an attorney today.

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Recently, I have been receiving inquiries from clients regarding filing bankruptcy after having already filed a Chapter 7 Bankruptcy and receiving a discharge. If you have already received a Chapter 7 Discharge, you can most definitely file bankruptcy again. BUT, you must obey some very specific time limits.

If you filed a Chapter 7 Bankruptcy and received a discharge, you:

  • CANNOT file another Chapter 7 for eight (8) years from the date of your Chapter 7 filing.
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child_supportFiling for bankruptcy can be a great way to finally get out of debt and start your financial life over. However, there are some debts that bankruptcy does not eliminate. For instance, a bankruptcy will not remove a debtor’s student loans or owed child support payments.  The good news is that a Chapter 13 Bankruptcy repayment plan may help a debtor bring their missed child support payments current.

Why are child support payments not included in a bankruptcy?

The federal government has decided that some debts are too important to be erased by bankruptcy.   Congress decided that it would be too fundamentally unfair to allow a person to get out of their obligation of paying child support by filing for bankruptcy. A child support payment is court ordered and the money is spent on a child’s welfare.

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A person who cosigns, or acts as a guarantor on a debt may be affected when primary debtor declares bankruptcy. There are a few ways to protect a cosigner or guarantor during a bankruptcy, but it is important to understand each person’s roll in the process.

A guarantor, or a cosigner, is essentially a person who is responsible for paying back another’s debt if he or she is unable to. Creditors will often require a person to have a cosigner or guarantor if they feel skeptical of the person’s ability to repay the debt. This is why most young adults and those with bad credit scores are required to have a cosigner.

Further, there is a difference between a cosigner and a guarantor. A creditor can pursue a cosigner at any time if payments are not being made. With a guarantor, creditors must usually attempt to collect from the primary borrower first before going after the guarantor. If bankruptcy is declared, there is no longer a distinction and both classifications will be obligated to pay back the debt.

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bankruptcy-photo-thumb-250x219-6996Most debts can be liquidated through a Chapter 7 bankruptcy, or reorganized through a Chapter 13 bankruptcy. However, there are a few debts that can altogether be non-dischargeable.

Some types of debts are always non-dischargeable, unless a debtor can demonstrate extraordinary circumstances to convince a court otherwise. One such debt includes any debt the debtor fails to list on his or her bankruptcy petition; unless the creditor had actual notice or knowledge of the bankruptcy.

Other debts that are generally always non-dischargeable include certain taxes, such as federal tax liens, payroll taxes or fraud penalties. Child support debt and other debts owed to a former spouse that arise from divorce are also non-dischargeable. Student loans, injury caused by DUI, and homeowner association fees are also included in this list.

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