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Is Debt that’s Discharged Really Gone?

Can my old debt come back to haunt me?

Clients ask this constantly.  They’re scared to death that the problems they had before their bankruptcy will come back and that the relief was only temporary.

The short answer is no.

Debt that is wiped out, in your bankruptcy case is gone as a legal liability forever.

The automatic stay that stops all collection activity when your bankruptcy is filed is replaced, once your case is complete, with a discharge injunction.

But then, this is law, so nothing is quite that simple.

Personal liability

The bankruptcy discharge eliminates all personal liability for debts that can be discharged.

If you eliminate your personal liability, your former creditors can’t sue you to recover discharged debts and can’t get a judgment that allows them to place liens on your assets or garnish your wages.

Was the debt discharged

Bankruptcy law prevents some debts from being discharged in bankruptcy. If you want your debt discharged, your debts must be listed in your bankruptcy schedules in order for us to notify your creditors.  We even have to notify the creditors that can’t be discharged.

Debts that can’t be discharged include

  • Child support,
  • Student loans,
  • Recent taxes,
  • Judgments for personal injury caused by drunk driving.

Unfortunately, the discharge order that’s issued by the court once your bankruptcy has concluded doesn’t list the debts that are discharged.  It just says that debts that were dischargeable in bankruptcy are gone.

Is there a lien

The discharge eliminates your personal liability for a debt.  Some creditors have obtained liens that they have attached to certain assets before you file bankruptcy.  If they have perfected that lien it can remain as a charge against those assets.

Perfected liens are an interest in property, a claim to a piece of what you own.

Some liens survive the bankruptcy.  The lien is only a claim on what you owned at the time the bankruptcy was filed.  They can not attach it to assets you acquire after you file bankruptcy.

A lien survives unless you get a bankruptcy order that avoids the lien. Those liens can be eliminated if it impairs an exemption you claimed in the bankruptcy case.

In order to do this you must file a motion to avoid lien in your case.  This means you need to tell your attorney that a creditor might have obtained a judgment from another court and placed a judgment lien before your bankruptcy case was filed.

Do creditors know you got a discharge

Your bankruptcy filing requires that you list all your creditors with good mailing addresses. We do this so they get a notice when your discharge is entered.  Notice to creditors is also about due process because your creditors do have certain rights.

Creditors also get notified so they can participate in the bankruptcy proceedings. It allows them to exercise their rights in the case.

Once your case is discharged, the court mails a copy of the order discharging your debts to everyone on the list of creditors you provide to your attorney at the onset of your case.

If you leave creditors off the list or the debt is sold to someone else, they have no way of knowing that you’ve discharged your debts.  However, notifying creditors isn’t everything. There are rules that pertain to bankruptcy that wipe out debts, even if the creditor isn’t notified.  

So, the rule is:  the debtor’s personal liability for a dischargeable claim is wiped out forever, if the creditor got notice or if there was no payment to any creditors in the case.

If you are drowning in debt, the attorneys at Harmon and Gorove are experts in handling Chapter 7 bankruptcies. We have handled thousands of cases and helped discharge millions of dollars of debt for our clients.  If you feel the need to speak with a qualified bankruptcy attorney contact the attorneys at Harmon and Gorove to schedule a free, no obligation consultation to find out what your rights are under the Bankruptcy code.  

 

 

The Side Effect of Debt

Debt is something that is a fact of life in the modern world.  Everywhere we turn, we are forced to borrow money in order to get ahead in life.  We have to borrow money for our education, our homes, our cars, even our phones and healthcare. In an ever more expensive world, debt is a burden that we must all bear.  One thing you should keep in mind though as you take on debt is that there is a side effect and debt should be used sparingly and in ways that will IMPROVE your life.

The Consequences of Debt

Debt has several side effects.  The first side effect is that you WILL pay more for an item bought using debt.  This is called interest and virtually every lender expects to be paid some amount of interest.  The second side effect is that you can face difficulty repaying that debt. When you take out loans, lenders generally look at your income vs liabilities.  That’s called debt to income ratio. If you lose your job or face a pay cut, you could find yourself stuck owing more than you can physically pay back. The third side effect of debt is that you can end  up being a slave to that debt. You’ll always feel like you have a yoke around your neck constantly pulling against you and keeping you from achieving your financial goals. Finally, the last side effect of debt is the added pressure that debt can put on you and your relationships.  Poor financial decisions is one of the leading causes of divorces and breakups. It even causes some people to rethink whether or not they wish to marry to someone.

Some Debts can be Good, but understand reality

Like I said earlier, some debt is necessary and in fact, some debts can even be beneficial.  Having a home loan can help you buy a house and build equity. Homes are often times the biggest asset the average american can own.  Home ownership is vastly higher in the U.S. than it is in most of the developed world. Student loans, when used responsibly, can help people meet educational goals that improve their lives and help them earn more money.  The biggest thing about these debts are that they need to be used sparingly and only taken out in small doses. Just because a lender says they’ll loan you $400,000 on your home doesn’t mean you should do it. Many people who took out student loans took out more than they needed or didn’t look at ways to cut costs like attending in state public schools, utilizing community colleges and technical schools or getting degrees that won’t help them achieve their financial goals.  Having $150,000 in student loan debt for a bachelor’s degree from your dream college doesn’t feel so good when the payments come due and you’re only making $20,000 a year working as a barista.

Interest is a real drain on household resources each year as well.  A typical family in America pays an average of $10,000 per year in interest and the average person could pay hundreds of thousands of dollars in interest over the course of the life of a loan, especially mortgage loans.  Imagine what you could do with that money. Pay cash for you education, save for retirement, go on a vacation, the list goes on and on. The bottom line is, when you take out debt, make sure you always ask yourself if its worth it.  Is that $5 latte worth $8 by the time you factor in interest on your credit card? Is that fancy new $50,000 car worth the $70,000 you’ll ultimately pay after you account for interest? Asking yourself these questions while looking at the big picture can help you have a brighter financial future.

Don’t put off seeking professional help

A side effect is an unwanted outcome that often places a significant burden on the person experiencing it. If you’re already experiencing the burden of debt, you should consider contacting us for a free consultation .  We meet with clients all the time who don’t want to file bankruptcy because it would hurt their credit.  What they don’t realize is that having a credit score of 800 is useless if you are already maxed out on debt.  While repaying your debt is an admirable goal, it’s not always possible or even advisable. Starting fresh is exactly what bankruptcy is all about and why we do what we do.  Filing bankruptcy is better than spending the remainder of your life in debt, never getting ahead, and never saving for retirement. At the very least, you should speak with a qualified bankruptcy attorney about how they can help you recover your financial well being using the bankruptcy code to your advantage. Consultations with a qualified, award winning attorney, are always free at Harmon and Gorove.  We’ll be honest with you about your options and never pressure you to do something that isn’t in your best interest.

 

Is Student Loan Debt Dischargable in Bankruptcy

Student loan debt has been labeled a crisis in the United States.  The total outstanding amount of student loans in America currently stands at just over 1.5 Trillion dollars.  That’s more than is owed even to credit card companies. Needless to say, thousands of Americans are struggling with student loan debt each and every day.  They are putting off buying houses, getting married and starting families. The payments and the weight of those payments are keeping people from being entrepreneurial and taking risks. Student Loans are a yoke around the neck of American productivity and frankly, it’s causing our society a lot of trouble.

For people who find themselves unable to pay all their bills, Bankruptcy is a great way to get back on the road to financial prosperity.  Many people often come to our office asking if student loans can be discharged in their bankruptcy, as that alone is a significant contributing factor into why they can’t make ends meet.  Unfortunately, the answer to the question, are my student loans dischargeable, is often no. Student loans are nearly impossible to discharge, especially in this part of the country. In other parts of the country, appeals courts have allowed discharge in certain circumstances that are very limited and still allows only a select few to actually qualify for discharge and then it’s usually only a partial discharge. There are very few times that student loans are dischargeable and only if certain criteria are met.

In order for your loans to be discharged you must prove what the court calls and Undue Hardship.  What actually qualifies as an undue hardship is usually up to the court of appeals that is deciding your case.  In order to qualify for an undue hardship you must pass what is known as the Brunner Test. The test is composed of 3 basic things:

  1. The debtor is unable to maintain a minimum standard of living for themselves and their dependents with their current level of income and expenses.
  2. Their current financial situation appears that it will continue throughout the course of the repayment plan and finally
  3. The debtor has made a good faith effort to repay all the loans that they took out.

IF the court determines that you meet these criteria then they would cancel part or all of your outstanding student loan debt.  I will be very honest. In the decades our office has been operating we have only had 1 client actually have their student loans discharged and that client was going through a terminal disease.  Sadly, it probably isn’t going to happen. There are, however, other options available.

Filing a Chapter 13 or Chapter 7 bankruptcy can allow you to discharge many of your other debts, including medical debts and credit card debts that are taking up valuable disposable income. That income, if freed up, could allow you to get your student loans paid back very quickly and allow you to get that burden off your back for good.

If you are feeling overwhelmed by debt, including student loans, come see the experienced and friendly attorneys at Harmon and Gorove.  They have decades of experience in handling bankruptcy cases of all kinds and they can help you decide which path is best for you during our free, no obligation consultation.  Contact us today to see how we can help you become debt free.

 

Don’t “Cosign” Your Good Credit Away

So, you’ve gone and done it.  You didn’t listen when we told you not to do it.  You said to yourself, it’s OK, I know my brother won’t skip out on this loan and leave me holding the bag.  Well, you were wrong and he did. Not only that but the truck loan he convinced you to cosign on was just wrecked and your brother also didn’t have insurance.  You’ve got yourself in a mess. Here’s what happens to your credit now.

Your brother was late with his payment or he’s skipped one entirely.  This is a big red flag. It’s also a big red flag to the credit ratings companies.  Your credit score is going to get dinged, probably to the tune of 20-30 points. Honestly, even if your brother doesn’t miss his payments you’re still going to have credit problems.  

One of the thing credit ratings companies look at is something called your Debt to Income Ratio.  This is a measurement of how your income stacks up to your total debt load.  Lets say your monthly income is $10,000 and your monthly payments on all your debts add up to $6,000.  That’s a Debt to Income ratio of 60% and you’re now considered high risk. This loan you’ve cosigned with your Brother is factoring into that DTI of 60% and that’s hurting your credit score and your ability to get new loans at the best interest rates, or at all.  So your credit is taking a hit for your brother and you don’t even get the benefits of having something to show for it.

OK, so back to the issue at hand.  You’ve cosigned and now your on the hook.  Here’s the best ways to avoid massive hits to your credit or the possibility of ending up having to file bankruptcy.  First things first, monitor the borrower to make sure that their payments are on time and in full. This may mean you have to call them every month before the due date to gently remind them that the payment is due and make sure that they actually have the cash to cover that payment.  This is a hassle, and why we told you not to cosign to begin with. This will most likely pay off for you though because it will hopefully keep you from finding out the hard way (like nasty calls from bill collectors) that your brother hasn’t been making his payments and keep him from damaging your credit for years to come.

The next thing you should do is assume that your brother won’t be able to make his payment at some point and that you’ll occasionally have to step in to make the payment in order to keep your good credit score.  After you sign the loan you need to open up a separate savings account and place in that account enough money to cover payments for at least 6 months worth of payments. By doing this, you have a cushion built up in the event that your brother does what the lender thinks they’re going to do, quit paying the loan.  This also protects you in the event that your brother absconds with the truck. It’ll give you enough liquidity to call the lender and try to work out a deal. It’ll still hurt your credit but it hopefully won’t drive you into bankruptcy.

If you were convinced to cosign and now find yourself in financial trouble because of that loan, don’t worry.  We’ve given you a pretty hard time here today but in all honesty, people cosign all the time and it isn’t something that can’t be fixed.  The attorneys at Harmon and Gorove have the ability to make these issues go away using the tools provided in the U.S. Bankruptcy Code. Our attorney have decades of experience in handling cases like this and we are willing and able to help you in your time of need.  Contact us today to schedule your free, no obligation consultation with one of our attorneys.  

Your Cosigner filed Bankruptcy, What Now?

So often when someone needs to make a large purchase they must take out a loan.  The vast majority of us, myself included, have to incur debt to make these large purchases.  For many of us, getting this loan is going to require a cosigner. A cosigner is an additional person (besides you) that will agree to be liable for the debt in the event that you default on the loan and stop making payments.  The cosigner, just like you, is expected to pay back the loan in full if the other part can’t or won’t. What happens though, when your co-signer files bankruptcy? How is that going to impact your role as the primary borrower?

The best way to explain this situation is to give you an example.  Becky is looking to buy herself a new boat. Becky’s credit isn’t good enough to get the loan for the boat without a cosigner.  Becky’s cousin, Tammy agrees to be a cosigner on the loan but won’t be listed on the title as an owner of the boat. A few months later, Tammy has to file for bankruptcy and through the bankruptcy process, Tammy is remove from the loan and no longer required to pay it back.  You ask, what happens to Becky and her boat now?

Becky still has to pay back the loan.  As the primary borrower, she still owes the balance of the loan.  If Becky pays the loan back in full, the boat is hers, free and clear.  The only issue with being the primary borrower and the cosigner in a finance contract like this is that eventually the property will be titled in the primary borrower’s name.  Issues can occasionally arise if the finance company declares the loan in default due to the cosigner’s bankruptcy but these can usually be remedied by refinancing the loan in solely into the name of the primary borrower.  This can even result in lower payments for the primary borrower.

Additionally, Tammy’s bankruptcy shouldn’t show up on Becky’s credit.  Occasionally, situations arise where this is reported to credit bureaus but they can usually be resolved by filing a dispute letter with the three credit bureaus. Our advice is usually this: don’t cosign.  If you can’t afford to buy something using your own credit, maybe you need to explore less expensive options.

If you find yourself in financial trouble due to cosigning a loan with someone else, contact the attorneys at Harmon and Gorove today to see how we can help mitigate the damage of cosigning a loan.