Chapter 13 bankruptcy is often used to “cure” mortgage defaults. Debtors can spread the amount of the default over five years to get caught up on mortgage payments and avoid foreclosure. It’s a better approach than the typical loan modification offered by mortgage lenders that attach the default balance to the end of the loan. Those modifications result in interest being paid on interest and a loss of home equity. Sometimes though, and especially during the recent pandemic and economicRead more
Stimulus Payments Safe in Bankruptcy
A common concern of people already in bankruptcy and people thinking of filing bankruptcy is the status of the stimulus payments resulting from Congress’ passage of the 2020 CARES Act and the more recent American Rescue Plan Act (ARPA). People are concerned the money will be taken by the bankruptcy trustee to pay creditors. Fortunately, Congress anticipated that concern and inserted language in the laws preventing stimulus payments from being taken by a trustee. The laws specifically say stimulus paymentsRead more
Discharging Criminal Debts in Chapter 7 Bankruptcy
Many people are under the mistaken impression that debts incurred from criminal cases can not be discharged in bankruptcy. While that’s true of some criminal debts, it’s not true of several types of debt often assessed against people who have committed or are alleged to have committed a misdemeanor or felony. State and local governments use a multitude of court fees and costs to pay for services. In some jurisdictions, court debt accounts for a large percentage of theirRead more
Attorney Fees and Support Obligations
In a Chapter 13 bankruptcy, debts given “priority” status by the bankruptcy code must be paid in full during the plan (usually 3-5 years). Priority debts include “domestic support obligations,” such as delinquent child support and alimony. What qualifies as child support and alimony is usually obvious, but what about attorney fees often ordered to be paid in a divorce decree? Are attorney fees also considered domestic support obligations? A recent decision from the 8th Circuit Court of Appeals BankruptcyRead more
Avoiding Debt Relief Scams
The federal Consumer Financial Protection Bureau (CFPB) has released important advice on avoiding the debt consolidation and debt relief programs many people use to deal with debt. According to the CFPB, debtors should avoid doing business with a company that promises to settle debt if it: Charges fees before it settles debt (this may be an illegal practice) see Freedom Debt Relief Ordered to Repay Millions; Makes representations that it can settle all the debt for a promised percentage reductionRead more
Freedom Debt Relief Ordered to Repay Millions
As millions of people struggle financially because of the pandemic and its impact on the economy, many are turning to debt consolidation and debt relief programs they see on television and the internet. Apparently wanting to not file bankruptcy, victims of these debt relief programs find they’ve only traded one debt crisis for another. In 2017 the nation’s largest debt relief program, Freedom Debt Relief, was sued by federal regulators, alleging violation of consumer protection laws. In 2019 the ConsumerRead more
Reaffirmation Myth Busted
One of the most difficult decisions for bankruptcy lawyers and debtors is whether to “reaffirm” debts that would otherwise be discharged in bankruptcy. Reaffirmation means a debtor agrees to still be responsible for debts even though the bankruptcy discharges their personal liability. Reaffirmation agreements are usually only signed on secured debts like mortgages and car loans. Secured debt against the property itself will survive bankruptcy but the personal liability for a debt is discharged unless reaffirmed. Reaffirmation is never advisableRead more
Why Can’t I Repay My Parents Before Filing Bankruptcy?
One of the most important powers a Chapter 7 bankruptcy trustee has is the ability to set aside or void certain transfers of property or payments of money. The trustee uses this power to recover money that can be distributed to all the debtor’s unsecured creditors. The two general situations where a trustee can set aside a transfer or payment are where the debtor sells or gives away property for less than its fair market value or where the debtorRead more
Credit Counseling in Bankruptcy
One of the requirements for filing Chapter 7 and Chapter 13 bankruptcy is the need to take a credit counseling course before and after filing. The credit counseling requirement was added in 2005 and is a silly and generally useless expenditure of time, but it’s not something to be feared. It can be done on a computer or over the phone and usually takes no more than 2-3 hours of time total for both courses. The cost for both coursesRead more
What Are Bankruptcy Trustees?
After someone files bankruptcy, their first (and probably last) event will be a meeting with the bankruptcy trustee assigned to their case. In Iowa these trustees are attorneys appointed to oversee and administer the case for the benefit of creditors. The trustee’s role differs somewhat depending on whether it’s a Chapter 7 or a Chapter 13 bankruptcy. In a Chapter 7 bankruptcy the trustee reviews all the court documents (called “schedules”) filed by debtors, along with tax returns and bankRead more
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