Non-Dischargeable Debts

When you file for bankruptcy, most of your debts will be discharged, which means the debts are wiped out. Debts that can’t be wiped out through a bankruptcy proceeding are called non-dischargeable debts. These include student loans, most federal, state and local taxes, money borrowed on a credit card to pay those taxes. child support, and alimony.

Debts that are otherwise dischargeable can become non-dischargeable if a creditor files an adversary proceeding against a debtor based on the debt being acquired by fraudulent acts,embezzlement, larceny or breach of fiduciary responsibility.

Texas Bankruptcy Non-Dischargeable Debts

The following debts can’t be discharged in either Chapter 7 or Chapter 13 Texas bankruptcies, meaning that the court always considers these debts to be non-dischargeable.

Bankruptcy Exemptions

When you file for bankruptcy, the state the debtor files in gives debtors the opportunity to keep certain assets using what are called “exemptions”. Exemption laws are designed to allow a debtor to keep property that debtors will need in order to maintain a job and household. Exemptions vary by state, and some states allow you to use state exemptions or federal exemptions.. In Texas, you get to choose between state or federal bankruptcy exemptions. However, since Texas bankruptcy property exemptions are one of the most generous in the United States, in most cases, it’s more beneficial to use Texas State exemptions over federal exemptions.

There is also property you cannot keep called nonexempt property. In a Chapter 7 bankruptcy, non exempt property will be sold to pay creditors and in a Chapter 13, you can choose to keep non-exempt property, but pay the value of said property, nondischargeable debt, and disposable income through the repayment plan for creditor benefit. It is rare for a Texas bankruptcy filer to have non exempt property.

Texas Bankruptcy Exemptions

Homestead: Texas offers unlimited homestead exemption except by the amount of acres and based on the location of the property. If your residence is on 10 acres or less in a city, town or village you’ll get unlimited homestead exemption. This is also the case if your residence is on 100 acres of less in the country or 200 acres if you have a family. If you sell your house, the proceeds are exempt for six months after the sale.

Also known as the wage earner’s plan, Chapter 13 enables those with regular income to develop a repayment plan. Debtors propose a plan to make installment payments over three to five years, though under the CARES Act it can be extended up to seven years. Most of the time, debtors must turn over any tax refund received for more than $2,000.00 to the Chapter 13 trustee but there’s a way they might be able to keep it.

What happens when a debtor is anticipating a tax refund? Under Chapter 13, debtors are pledging all their disposable income into the repayment plan and usually don’t have a cushion for unexpected expenses. Tax income is considered disposable income that could be used to pay creditors so you might be wondering how to keep tax refund in Chapter 13 of the bankruptcy code.

Why is tax refund generally considered disposable income?

Under Chapter 13 debtors must use all their disposable income to make payments to their creditors under the plan. Any income that is not used for transportation, food, shelter, or necessities under IRS standards is usually considered disposable. When tax refunds aren’t included in the calculations used to support the repayment plan trustees might consider it disposable income. However, it’s possible to keep the tax refund.

While owning a car can certainly be a luxury, in most cases it is a necessity. When you lease a car or borrow money to buy it, you must make monthly payments. With so many financial obligations, many people struggle to stay on top of car payments. This is especially true if you also have mortgage and student loan debt. If you do not make a loan payment on time, your loan is then considered to be delinquent.

Delinquent car loans could ruin your credit and end in car repossession. For this reason, it is important to understand how the repossession process works and what you can do about it.

What’s repossession and when it is allowed

When a borrower is behind on payments, they risk getting their car repossessed. This means that the bank or leasing company retrieves the vehicle from the borrower; once statutorily required notices have been given the vehicle will be taken without warning. Cars can be taken away on tow trucks, or lenders might send someone to collect the car.

The coronavirus outbreak has created an unprecedented situation that has placed the majority of people in financial hardships. Unfortunately, a lot of people have been laid off due to the pandemic which means less money to pay for their bills. And while you may be doing your part by saving as much as you can, it’s almost impossible to stop debt from accumulating.

Local, state, and federal governments are providing safety nets along with many creditors during the COVID-19 crisis. For several people increased unemployment benefits, mandated holds placed on evictions, cash payments, and utility shut-offs will help to make this situation more manageable. However, this crisis might last longer than expected so these measures won’t guarantee financial stability in the long run. The best thing to do is to be prepared and have a plan that will ensure you’ll get back on your feet during these tough times.

Qualify for Bankruptcy During COVID-19 Times

Bankruptcy may be the best route for people who can’t find a clear path through the coronavirus financially. In this case, the sooner you file for bankruptcy the faster you’ll be able to rebuild your credit. What does it mean to file for bankruptcy in COVID-19 times? Bankruptcy has the ability to discharge medical bills, credit card debts, and rent. These debts will rise during the pandemic.

Amidst the COVID-19 pandemic, there have been some temporary changes to certain bankruptcy rules under the Federal Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act aims to provide emergency assistance and health care for individuals, families, and businesses that are being affected by the 2020 COVID-19 pandemic. The CARES Act also modified certain provisions of the Bankruptcy Code which will last for one year, expiring on March 27th, 2021.

CARES Act changes to Chapter 7 and Chapter 13

Under the CARES Act, the government has been providing stimulus checks and other payments that are meant to provide some financial assistance during the crisis. These payments will not count as monthly income for debtors that are considering filing under Chapter 7. They also will not count as disposable income for those seeking to file under Chapter 13. In other words, stimulus checks will not affect your eligibility to file under either chapter or any required payments to unsecured creditors in a Chapter 13 Bankruptcy.

This Act also allows Chapter 13 debtors the chance to extend the length of the Bankruptcy Plan from five to seven years. In many cases, this would result in a longer plan term but lesser overall monthly payments. If you have a Chapter 13 plan that has already been confirmed, you can modify the plan to increase the term of the plan and lower the monthly payment. If you have not yet filed a case and you do so before March 27, 2021, a plan can be proposed with a maximum plan term of 7 years rather than the normal maximum plan term of 5 years. All changes under the CARES Act are applicable until March 27, 2021.

The Federal Cares Act allows you to delay mortgage payments for up to 6 months if you’re suffering financially due to the COVID-19 pandemic. Pausing mortgage payments can provide some relief for people who have lost work during these times. However, there’s a lot of confusion about how you’re supposed to make those payments.

The Federal Housing Finance Agency has announced that Fannie Mae and Freddie Mac are making available a new payment deferral option. This allows borrowers who are in forbearance the ability to repay their missed payments at the time the home is sold, refinanced, or at maturity.

What is Forbearance?

Forbearance is a special agreement between the lender and the borrower to delay mortgage payments. When mortgage borrowers cannot meet their repayment terms, lenders can opt to foreclose on the property. A forbearance allows the borrower to miss scheduled mortgage payments for a specific period (usually between 4-12 months). This allows a borrower to avoid a potential foreclosure for missing mortgage payments and repay those missed payments at the conclusion of the forbearance period. In compliance with the CARES Act, government-sponsored mortgage loans qualify for forbearance plans.

While the thought of filing for bankruptcy can be scary and intimidating for most people, it’s a way to get a fresh start for businesses and individuals facing overwhelming debt. If you are getting harassed by bill collectors, using credit cards to pay for your necessities, and you are unsure of how much debt you actually owe, you probably need to rethink your financial situation.

Filing for bankruptcy basically means that you have found yourself in a position that will take many years to repay in full the debts that you owe. Bankruptcy laws were created to provide people with a chance to start over. Whether you have made bad financial decisions or have had bad luck, you deserve a second chance.

What is Bankruptcy?

Bankruptcy is a court proceeding where a judge and trustee review the assets and liabilities of businesses and individuals who are unable to pay their bills and then deny or approve the discharge of those debts so the debtor is no longer legally obliged to pay them. However, the bankruptcy process has been streamlined so that very few bankruptcy filers ever actually go to court.

1). If you surrendered your vehicle and are unable to purchase a cash car or use a friend or family member’s vehicle then you will need to purchase a vehicle. We advise our clients to start looking at traditional dealerships. Try to avoid tote the note lot places. Most major dealerships can work with a Debtor post discharge to get a vehicle financed. If you do not require a vehicle move on to step two. If you can put off purchase of a vehicle for about one-year you should get a decent interest rate from any dealer presuming you follow step 2.

2). Obtain a credit card. If possible, this should be a normal credit account, not a secured card. Most of our clients find that the major banks will issue them a credit card with a small limit immediately upon completion of a Chapter 7. Pick something that you spend your money on each month – i.e. gas, groceries, utilities — pay the card off each month prior to the due date, and never have more than 30% of the credit limit outstanding at any one time. If you need to pay the credit card more often than monthly to keep from hitting the 30% we recommend that you do so. If a Debtor follows the above for approximately 1 year after the case is discharged then that Debtor would likely qualify for a reasonable auto loan less than 10% interest.

3). 90 days after a Debtor’s discharge date they should obtain a copy of their credit report from all three credit bureaus. Any unsecured debts that were incurred prior to a bankruptcy filing should show as a 0 balance and included in a bankruptcy. If an included debt shows up in any other way you should dispute these items directly with the credit bureaus. A debtor will need to show proof of the Chapter 7 Filing, Inclusion of the referenced Debt in the paperwork, and a copy of the Discharge Order entered in the case. If there are not any items to dispute on a Debtor’s credit report, then a substantial increase to the Credit Score should be seen about this time. If there are items to dispute the Debtor should see a substantial increase in credit score upon favorable resolution of the disputes.

1). Bankruptcy will haunt me forever – NOT TRUE

Chapter 7– A bankruptcy filing appears on a credit report for 10 years from the filing of a bankruptcy petition. Despite the reporting on your credit report your access to credit will come back very quickly, especially if you take some easy steps post discharge (See our blog post about steps to take post discharge to rebuild your credit).

When a Chapter 7 Case is filed your name and address are public record and notice is sent to the credit bureaus about the case filing. Car creditors especially will use this information to send you advertisements to purchase a vehicle the instant a case is filed. Our firm recommends that, if possible, you avoid purchasing a vehicle for about one year after a bankruptcy discharge. Instead you should focus on obtaining a credit card. Many of the major credit card companies will issue you a credit card with a small limit the instant a Bankruptcy is discharged.

If a Discharged Chapter 7 Debtor uses this credit line responsibly (never more than 30% of Credit Limit used, pay off in full end of the month) for approximately 1 year after their discharge, most Discharged Chapter 7 Debtors will qualify for a vehicle loan at a decent interest rate — less than 10%.

Yes.

When a Debtor files for Bankruptcy the Automatic Stay described in Title 11 U.S.C. §362 goes into effect instantaneously without further action of the Court. The Automatic Stay is an injunction that is automatically entered by the Court upon the commencement of a Bankruptcy Proceeding. The Automatic Stay disallows any further collection attempts against you that do not go through the Bankruptcy Court first. This means that all collection actions must stop including the continuation of a pending lawsuit without further order of the Bankruptcy Court.

Most of the time when a Bankruptcy is filed a Debt Collection Lawsuit is non-suited. This means essentially that the case has been dismissed because the Bankruptcy prohibits any further proceedings.

Often our office charges a down payment on a Chapter 13 Bankruptcy of as little as $565.00. This consists of the costs to file the case and an additional $155.00 to our office. The Court in our district sets a “no look fee.” This fee is $3,700.00 plus the costs to file your case or a total fee of $4,110.00.

What a “no look fee” means is that the Court allows that as a fee for our services without subsequent application for additional compensation. Almost all attorneys in our district charge a fee of $3,700.00 for a Chapter 13 Bankruptcy. The difference you will find between attorneys is what is charged as a down payment and what costs are included in that down payment.

90% of Chapter 13 cases filed with out office pay only the no look fee with little to no additional out of pocket expense. However, all time in our office is billed at $350.00 per hour for attorneys and $150.00 per hour for legal assistants. If your case is more complex than an average simple uncontested Chapter 13 case our office will apply for the additional compensation with the Court. Presuming approval of the Application for Additional Fees, our office will work out arrangements with you for repayment including possibly adding these amounts into the remainder of your plan. Again, 90% of case filings with our office do not exceed the Court’s “no look fee.”

No, you do not have to file Bankruptcy with your spouse. The Bankruptcy code allows for a married person to file and individual case, and your spouse would become what is termed a “non-filing spouse”. However, you may need to provide the Court with some of their information including all of their income received in the last 6 months. This is because the Bankruptcy Code requires you to report all household income for the 6 months prior to filing.

In other words, while a spouse is not required to file a case with another spouse, they will be required to furnish certain information for the case filing specifically their income and expenses.

Maybe, depending on the advice of your bankruptcy attorney.

When a home is foreclosed upon in Texas, it must be sold at public auction on the Court house steps. This is true for judicial and non-judicial foreclosures alike. Judicial foreclosures (rare) require an added step of receiving a Judge’s blessing before it is posted. All foreclosure sales occur on the first Tuesday of every month on the Court house steps.

A public auction usually results in a sell that is significantly less than the value of the home versus if it were sold through traditional means. This means that most Debtors who have a home foreclosed will owe what is called a deficiency balance. This balance is the difference between what the home sold for at auction and what is owed to the Creditor on the note that was signed by the Debtor. This amount can often be significant.

Maybe, depending on the advice of your bankruptcy attorney.

When a vehicle is repossessed and sold in Texas, it must be sold at public auction. A public auction usually results in a sale that is significantly less than the value of the vehicle if sold through a dealership or private sale.

This means that most Debtors who have a vehicle repossessed will owe what is called a deficiency balance. This balance is the difference between what the car sold for at auction and what is owed to the Creditor on the note that was signed by the Debtor. This amount can often be significant. In a bankruptcy proceeding this amount is treated as an unsecured claim, like a credit card.

Yes.

A Chapter 13 Bankruptcy can even help you retrieve a vehicle from a Creditor who has already repossessed your vehicle.

In order to retrieve and keep your vehicle through a Chapter 13 Bankruptcy you will need sufficient income to repay the amount that is owed on the vehicle plus interest at the LIBOR rate plus 2%. Further, the Chapter 13 Trustee, the person who collects and disburses your payments to creditors, charges a fee set by the Court at 10% of each one of your payments. This effectively makes the interest rate around 15% on the outstanding principal balance.

When a Debtor files for Bankruptcy the Automatic Stay of 11 U.S.C. 362 goes into effect instantaneously without further action of the Court. The Automatic Stay is an injunction that is automatically entered by the Court upon the commencement of a Bankruptcy Proceeding. The Automatic Stay disallows any further collection attempts against you that do not go through the Bankruptcy Court first. This means that all collection actions must stop including the collection of Student Loans through garnishment, lawsuits, voluntary payments, etc.

In a Chapter 13 Bankruptcy the Automatic stay lasts through the duration of your case. A Chapter 13 Bankruptcy lasts between 3-5 years. During this time, you are not required to pay on your Student Loan, and you are not able to be sued, garnished, levied, etc. as a result of the delinquency on your student loan. Most student loans are a non-dischargeable debt. While you are not required to pay on the student loans during the pendency of your case they will continue to accrue interest during the course of the case, and you will owe more upon conclusion of the bankruptcy than you did at the beginning due to the accrued interest. Often a Chapter 13 buys a Debtor the time necessary to plan to repay the student loans while discharging certain unsecured debt to free up capital to be able to repay Student Loans upon completion of the Chapter 13. Upon completion, you would reach out to the Student Loan creditor and make arrangements to resume regular payments on the debt.

In a Chapter 7 Bankruptcy the breathing room provided is not as profound as it is in a Chapter 13 Bankruptcy. This is due to the shorter time period that a Chapter 7 Bankruptcy lasts; typically between 4 and 6 months. However, just as in a Chapter 13, the Automatic Stay applies, and the Student Loan creditor must discontinue all collection attempts against you for the duration of the case. Just the same as a Chapter 13, the Student Loan Debt is non-dischargeable in the Chapter 7.

Maybe.

Tax debt can be very crippling. The IRS is often aggressive about collecting their debt, employing the use of liens and bank account garnishments to take what they believe is owed to them.

Some tax debt, luckily, is dischargeable in a Chapter 7 Bankruptcy.

Yes, it is often possible to purchase a vehicle while you are in a Chapter 13 Bankruptcy. In order to purchase a vehicle, it is necessary to get the Court’s permission first. There are a few things that you will need to do in order to receive the Court’s Approval.

1). The Court will not grant permission to purchase any type of luxury vehicle, i.e. Mercedes, BMW, Lexus, Etc. The Court sets limits on the amount that can be financed. This limit is $21,000.00. The Court sets limits on the amount of the monthly payment. This limit is $500.00 per month. The Court sets limits on the amount you can pay in interest on the loan. This limit is 21%.

2). Once you have picked out a vehicle that fits the above parameters, then you will need to approach the dealership about the vehicle that you are interested in. You will need to work out terms that fit within the above Court restraints. You will need the dealership to provide you with a proposed sales contract. You CANNOT sign a contract for purchase until the contract is approved by the Court.

The simple answer here is, no. In fact, most people file a Chapter 13 Bankruptcy in order to keep their home and save it from foreclosure. If you are current on your mortgage payments, the Chapter 13 typically has no effect on your home. You simply continue to make the mortgage payments directly to the Mortgage company. If you are behind on your home when you file bankruptcy, read below on how to keep your home in Chapter 13 Bankruptcy:

Chapter 13 Bankruptcy is a repayment and reorganization plan. The type of person who files a Chapter 13 Bankruptcy is someone who is behind on a house, car, IRS payments, etc. and wants to keep the collateral and repay the amounts that are past due.

In order to keep your home through a Chapter 13 Bankruptcy, you will need to be able to make your regular monthly mortgage payment in addition to repaying any arrearage owed to the mortgage company over a 36-60 month period. Our District, The Northern District of Texas, utilizes the “Conduit Program”. This simply means that your regular principal and interest payments are repaid through your Bankruptcy Payment rather than directly by you to the mortgage company.