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| 11271 Ventura Blvd. |
| Suite 473 |
| Studio City, CA 91604 |
| Phone: 877-479-7970 |
| Fax: 888-509-8864 |
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| Warner Center Towers |
| Phone: 877-479-7970 |
| Fax: 888-509-8864 |
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| Watt Plaza |
| Phone: 877-479-7970 |
| Fax: 888-509-8864 |
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| Fashion Island |
| Phone: 877-479-7970 |
| Fax: 888-509-8864 |
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Debt Settlement and Bankruptcy
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Frequently Asked
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Q: What is a secured debt?
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A: A secured debt is the type of debt where the debt is backed by the property that secures the debt. If the debtor does not make payments on the debt when due, the creditor can take back the property that secures the debt, sell it, and apply the proceeds to pay off the debt. Often times this type of debt includes, but is not limited to: home mortgages; motor-vehicle loans; store purchases that are charged on a credit card; or finance company loans. If the sale price is not enough to cover the full amount owed, the debtor may still be liable for the remainder.
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Q: What disclosures must a collection agency provide to a debtor?
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A: Typically, a collection agency begins its efforts with an introductory letter. This letter usually contains the required legal disclosures, which include: The amount of the debt, The name of the original creditor, The period of time in which the debtor may dispute the validity of the debt (thirty days), and The obligation of the collection agency to send the debtor verification of the debt if its validity is disputed.
In the original correspondence, the collection agency must also inform the debtor that it is attempting to collect a debt and that any information it gathers from the debtor or other sources will be used for that purpose. If this information is not included in the initial contact letter, the collection agency must provide it within five days.
Most lawyers recommend that debtors request verification of the debt because, in that case, a collection agency may not resume collection efforts until the information is confirmed with the original creditor. The collection agency may not, especially by threat, make a statement in the initial correspondence that overshadows the right for a debtor to dispute the debt for thirty days.
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Q: What actions must a collection agency avoid?
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A: Under the Fair Debt Collection Practices Act, a collection agency may not act in the following ways:
Third-party communications. The collection agency cannot contact third parties other than a representative of the debtor or a credit bureau for any reason other than to locate the debtor. Collection agents who contact third parties must state their names, and may only add that they are confirming or correcting information about the debtor. They cannot give the name of the collection agency unless asked directly. They cannot state that they are calling about a debt. Collection agents may not contact a third party repeatedly unless they believe an earlier response was wrong or incomplete and that the third party has revised information. Further, collection agents cannot communicate with third parties by postcard or by correspondence that uses words or symbols that betray their collection motive.
Attorney-represented debtor. A collection agency cannot contact the debtor directly if counsel represents him or her unless the debtor gives the collection agency specific permission to do so.
Debtor communications. Collection agents may not contact debtors before 8:00 a.m. or after 9:00 p.m., or at another inconvenient time or place. Collection agents also may not contact a debtor at work if he or she knows that the employer bans receipt of collection calls while on the job.
Harassment or abuse. Agents cannot threaten or use violence against the debtor or another person. They cannot use obscene or profane language. They cannot publish the name of a debtor on a blacklist or other public posting. Agents cannot call repeatedly or contact the debtor without identifying themselves as bill collectors.
False or misleading statements. Agents may not lie about the debt, their identity, the amount owed, or the consequences for the debtor. They cannot send documents that resemble legal filings or court papers. Agents cannot offer incentives to disclose information.
Unfair practices. Agents may not engage in unfair or shocking methods to collect, including adding interest or fees to the debt, soliciting post-dated checks by threatening criminal prosecution, calling the debtor collect, or threatening to seize property to which the agency has no right.
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Q: Are there any alternatives to filing bankruptcy?
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A: Debtors who have faced obstacles to paying off their debts when due have no doubt received more than their fair share of demanding letters and phone calls, and the thought of getting rid of their debts, and thus the constant demands, through bankruptcy can be quite appealing. Before making a decision to pursue that route, which can have long-term effects on credit rating and the ability to make large purchases, like a home, debtors should consider other, less drastic alternatives.
If the debtor has financial problems that are only temporary, he or she may want to ask creditors to accept lower payments or that payments are scheduled over a longer period of time. Creditors may be receptive to these ideas if the debtor has been a prompt payer in the past, or if the specter of bankruptcy is raised, since creditors know that once a bankruptcy proceeding is initiated they will probably collect only a portion of what is owed. In addition, creditors may wish to avoid the difficulties of a court proceeding to collect on the debt, which can be time-consuming and expensive.
Consumer credit counselors can also help creditors work out a repayment plan. Some of these advisors work for non-profit agencies, so they charge no fees. Many credit-counseling services charge a fee for their guidance, however, and it may not appeal to an already over-stressed debtor to add another debt to the stockpile.
If the debtor has financial troubles which are long-term, or if the creditors will not agree to an alternative payment plan informally, bankruptcy may be the best way for the debtor to get out from under an insurmountable debt load. Although it is not without its adverse consequences, bankruptcy can be the right option to enable debtors to make a fresh start.
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Q: Are student loans discharged in a bankruptcy proceeding?
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A: Educational loans guaranteed by the United States government are generally not discharged by a Chapter 7 or Chapter 13 bankruptcy. They may be dischargeable; however, if the court finds that paying off the loan will impose an undue hardship on the debtor and his or her dependents.
In order to qualify for a hardship discharge, the debtor must demonstrate that he or she cannot make payments at the time the bankruptcy is filed and will not be able to make payments in the future. The debtor must apply before the bankruptcy discharge is granted. Application for a hardship discharge is not included in the standard bankruptcy fees, and must be paid for after the case is filed.
The Bankruptcy Code does not specifically define the requirements for granting a hardship discharge of a student loan. Courts have applied different standards, but they often apply a three-part test to determine eligibility: (1) income-if the debtor is forced to pay off the student loan, the debtor will not be able to maintain a minimum standard of living for himself or herself and his or her dependents; (2) duration-the financial circumstances that satisfy the income test in (1) will continue for a significant portion of the repayment period; and (3) good faith-the debtor must have made a good-faith effort to repay the loan prior to the bankruptcy.
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Q: What effect does a bankruptcy filing have on the collection of alimony and child support?
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A: A Chapter 7 filing should have no effect on such collections.
Although filing bankruptcy stops, or stays, all efforts to collect debts, the Bankruptcy Code excludes actions to collect child support or spousal maintenance from the stay unless the creditor attempts to collect from the property of the estate. In a Chapter
7 proceeding, property of the estate includes all possessions, money, and interests the debtor owns at the time he or she files. Money earned after the bankruptcy is filed, however, is not property of the estate. Since most child and spousal support is paid out of the current income of the debtor, the bankruptcy should have little impact.
A debtor under Chapter 13 must pay all domestic support obligations that fall due after the petition is filed. Failure to do so could result in dismissal of the case.
Neither a Chapter 7 nor a Chapter 13 discharge affects future child or spousal support obligations. In other words, even at the conclusion of the bankruptcy proceeding, these on-going obligations remain.
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Q: Does a bankruptcy discharge eliminate all debts?
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A: The rules on which debts are discharged, or eliminated, are different depending on which type of bankruptcy is filed. A Chapter 13 discharge affects only those debts provided for by the plan. Additional exceptions to a Chapter 13 discharge include claims for spousal and child support; educational loans; drunk driving liabilities; criminal fines and restitution obligations; and certain long-term obligations, such as home mortgages, that extend beyond the term of the plan. In a Chapter 7 proceeding, the following debts are not discharged: Debts or creditors not listed on the schedules filed at the outset of the case; Most student loans, unless repayment would cause the debtor and his or her dependents undue hardship; Recent federal, state, and local taxes; Child support and spousal maintenance (alimony); Government-imposed restitution, fines, or penalties; Court fees; Debts resulting from driving while intoxicated; and Debts not dischargeable in a previous bankruptcy because of the fraud of the debtor. In addition, the following debts are not discharged if the creditor objects during the case and proves that the debt fits one of these categories: Debts from fraud, including certain debts for luxury goods or services incurred within sixty days before filing and certain cash advances taken within sixty days after filing; Debts from willful and malicious acts; Debts from embezzlement, larceny, or breach of fiduciary duty; and Debts from a divorce settlement agreement or court decree, if the debtor has the ability to pay and the detriment to the recipient would be greater than the benefit to the debtor.
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Q: Will a debtor lose his or her home by filing bankruptcy?
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A: This is a major concern of most debtors. Although that is possible in some cases, loss of the debtor home need not always result from a bankruptcy filing.
If the debtor in a Chapter 7 liquidation bankruptcy is behind on his or her mortgage payments, the home could be lost. The mortgage lender in such cases usually asks the bankruptcy court to lift the automatic stay so that it can institute foreclosure proceedings, in which case the home will be sold and the proceeds used to pay off the debt. Whether a debtor who is not behind on mortgage payments will lose his or her house depends on how much equity the debtor has in the property and the amount of the state homestead exemption. If the amount of debt owed on the home is less than the market value of the home, the debtor could lose the house unless the homestead exemption entitles the debtor to most of the equity.
In a Chapter 13 proceeding, however, even if the debtor is behind on mortgage payments, if the wage-earner plan includes paying back any missed mortgage payments and current payments are paid when due as well, the debtor should not lose his or her home. If the debtor is current on his or her house payments, the home will not be lost if the debtor continues to make payments when due.
If the debtor is a renter rather than a homeowner, and if the debtor is current in his or her rent payments, it is unlikely that the lessor would even become aware of the bankruptcy proceeding. If the debtor is behind, however, he or she could be evicted. Even after the automatic stay is triggered by the bankruptcy filing, the landlord is likely to ask the court to lift the stay on its behalf, and the court is likely to grant that request.
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Q: How long are bankruptcy and other credit information included on a credit report?
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A: A consumer credit report may include Chapter 7 and Chapter 13 bankruptcy information for ten years from the time the case is filed. One major consumer credit reporting agency is said to remove Chapter 13 information after only seven years, but it is not legally required to do so.
Most other credit information can be included in a consumer credit report for seven years. Civil suits, civil judgments, and arrest records, however, can be reported for at least seven years, and longer if the information is relevant for a longer time period. For example, if the civil judgment against the debtor is valid for ten years, it can be reported for credit-rating purposes for the same time period.
These time limits on reporting credit information do not apply to reports for credit transactions that involve or are reasonably expected to involve a principal amount of $150,000 or more, the underwriting of life insurance involving or reasonably expected to involve a face amount of $150,000 or more, or the employment of a person at salary that is or is reasonably expected to be at least $75,000 annually.
Because both the Fair Credit Reporting Act, which controls what a credit-reporting agency may include in a consumer credit report, and the Bankruptcy Code are federal law, the same rules apply in all states. There may be some differences, however, in relation to the more-than-seven-year information, since most of the relevant time periods or statutes of limitations are found in the laws of the individual states.
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Q: What happens if the debtor gets a raise after filing a Chapter 13 plan?
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A: The Bankruptcy Code requires that the debtor contribute his or her projected disposable income toward the plan payments for the duration of the plan. Although the code imposes this requirement only when the trustee or a creditor demands it, in reality the trustee always requires it, at least at the beginning of the plan. Whether changes in salary will change the payment plan depends on a complete consideration of all of the circumstances.
If the debtor has a change of income after the case has been filed but before the court has confirmed the plan, making it binding on the creditors (which can take as much as six months), the trustee will closely scrutinize the disposable income of the debtor to make sure that the payments and the income are consistent and will incorporate any necessary changes into the plan. If the debtor income changes during the duration of the repayment plan, changes in income may not necessitate any changes in payments. However, the trustee may ask that payments be adjusted if the debtor income increases significantly. The trustee does not closely monitor the income of the debtor, and it may actually be outside the scope of a trustee duties to do so.
The trustee will consider not only the salary increase, but also whether there has been a corresponding increase in disposable income, on which the payments are based. Disposable income is the amount of salary that the debtor has left after deducting all reasonable living expenses. If the debtor gets a faise, but also experiences a raise in their expenses, there may be no increase in disposable income and therefore no change in the payment plan. If there is a significant increase in disposable income, the trustee may ask for an increase in payments. In cases in which the plan extends over more than 36 months, the increased payments may actually reduce the length of the plan, so that the debtor pays off the debts and receives a discharge sooner.
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Q: Do I have to go to the 341 meeting to have my claim paid?
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A: No. The first meeting of creditors is a fact gathering event. Allowance and payment of your claim is not tied to being at the 341 meeting. However, claims must be filed by the time established by the court, and usually set out in the notice of the 341 meeting, to be paid.
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Q: What can I do if my account debtor is fraudulently disposing of assets?
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A: Creditors can file an involuntary bankruptcy against a debtor who is not generally paying his undisputed debts as they come due. 11 U.S.C. 303. The petitioning creditors must hold at least $11,625 in undisputed, unsecured claims. If the court finds that the petitioning creditors have met their burden of proof, an order for relief in bankruptcy is entered, and a bankruptcy case is commenced.
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Q: Can my judgment be discharged?
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A: The discharge of any debt depends on the kind of claim which underlies the judgment and the chapter of bankruptcy involved. Just because your debt is reduced to judgment does not necessarily insulate it from discharge. If the judgment is for a contract debt, such as a promissory note or trade account, it is likely dischargeable. If the judgment is one for fraud, it cannot be discharged in Chapter 7, if you file a non dischargeability action, but can be discharged in Chapter 13.
Remember, that if the judgment is secured by a perfected judgment lien which attaches to value owned by the debtor, you are a secured creditor, an exalted being in the bankruptcy realm! Liens generally survive the bankruptcy as a charge on the property of the debtor. The lien may be avoided if it impairs an exemption or stripped down to the present value of the collateral in a Chapter 13.
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Contact us at 1-877-479-7970, or e-mail us at info@law-thomas.com, to arrange for a confidential complimentary consultation to discuss your family law needs.
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