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Appeals Court: Debtors must be income eligible to convert from Ch. 13 to Ch. 7

When a federal appeals court recently ruled that Chapter 13 debtors must meet the income eligibility requirements of section 707(b) before their case be converted to a Chapter 7, it joined an increasing chorus of cases with similar holdings. However, the court left an important question unanswered: Which six months of look-back income will the Court require for the purposes of calculating the debtor’s Means Test?

In the consolidated appeal of two Iowa and Minnesota cases, In re Chapman and In re Cruse, Nos. 10-6046 and 10-6047 (8th Cir. BAP Mar. 11, 2011), the debtors had filed a Chapter 13 after the 2005 Bankruptcy Reform Act was enacted. However, a change of circumstances, they converted their chapter 13 cases to chapter 7s, requesting a discharge of their debts prior to the completion of their respective chapter 13 plans. The U.S. Trustee objected, arguing that based on the income they claimed to earn in their chapter 13 plans, they could afford to repay at least part of their debts.  The debtors countered that section 707(b) of the U.S. Bankruptcy Code governing the Means Test only applied when debtors initiated their cases as chapter 7s, not when cases were converted to chapter 7s from chapter 13 filings. Further, they contended that since their changed circumstances inhibited their ability to continue paying into their chapter 13 plans, they should not be subject to the Means Test.  The bankruptcy courts agreed with the debtors, ruling that section 707(b) only applied to cases originally filed as chapter 7s, not conversions. The U.S. Trustee appealed, and the bankruptcy appellate panel ordered the two cases consolidated for the appeal.  In ruling against the debtors, the appeals court held that under long-standing Eighth Circuit federal appeals court precedent, the term “conversion to chapter 7” is synonymous with “filed under chapter 7.” However, since the appeals court did not address the income look-back requirement of section 707(b), future litigation on the matter is likely.

To discuss your bankruptcy matter with a Texas Bankruptcy Lawyer to determine whether you qualify for a Chapter 7 bankruptcy, please call us toll free at 877.345.6767 (DFW area), 866.715.1529 (Houston area) or 866.678.1900 (South Texas).

We provide affordable payment plans for fees. For additional information about personal bankruptcy, please visit our Personal 7 Bankruptcy Information page as well as our General Bankruptcy Information page.

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Understanding bankruptcy’s automatic stay

When individuals or businesses file bankruptcy, something invisible yet incredibly resilient occurs. It serves to deflect the attempts by creditors and bill collectors to collect money owed by a debtor for services rendered or goods received.

An important aspect of bankruptcy law is known as the ‘automatic stay.’ The ‘stay’ basically acts like Teflon against attempts to collect debts allegedly owed by a debtor. In the standard bankruptcy, the automatic stay remains in effect during the entire pendency of a bankruptcy. However, exceptions to that norm were enacted when Congress overhauled the U.S. Bankruptcy Code in 2005.

A major component of the Bankruptcy Abuse and Creditor Prevention Act of 2005, which served to overhaul the U.S. Bankruptcy Code, referred to automatic stays. As Congress contemplated how to tweak the laws about automatic stays, the general consensus was to write a law that would deter debtors from filing and dismissing a bankruptcy just to benefit from the protections afforded by the automatic stay.
So now, when a debtor files for bankruptcy, if it’s the first time that case was filed, the bankruptcy receives a complete automatic stay.

However, say a debtor (business or individual) filed for bankruptcy within the last year and the case was dismissed prior to discharge, whether that occurred because the debtor requested it or the court ordered it. If that case is refilled within a year, it will enjoy an automatic stay of 30 days.

If a debtor files and dismisses the same case several times, the case will not benefit from an automatic stay at all. Congress wanted to ensure that debtors are not abusing the privilege of the automatic stay, so it decided there are situations when a bankruptcy filing does not benefit from an automatic stay, at all.

Contact a Texas Bankruptcy Attorney – If you would like to obtain additional information about Texas bankruptcy, explore your options, learn about the bankruptcy process or discuss your particular situation with an experienced Texas Bankruptcy Attorney, please schedule a free initial consultation by calling us toll free at 877.345.6767 (Dallas – Fort Worth area), 866.715.1529 (Houston area) or 866.678.1900 (South Texas). If you prefer, you can also fill out our intake form and we contact you to schedule a consultation.

Bailey & Galyen Attorneys at Law – Free Initial Consultations -Multiple Office Locations – Flexible Payment Plans -After-Hours and Weekend Appointments – Se Habla Español

Watch our Video – Should I File Bankruptcy | Texas Bankruptcy Law Firm

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Common Bankruptcy Myths

Many people who could benefit significantly from the federal bankruptcy laws fail to do so because of mistaken beliefs about the process. This page dispels many of the common myths surrounding bankruptcy.

1. Myth: Your credit will be ruined and your credit score will fall dramatically if you file for bankruptcy.
Reality: You can do as much, if not more, damage to your credit rating by having your credit cards maxed out and paying all your bills late. You can even bring your score down by having too much credit, even if you are paying it all in a timely manner. Most creditors will consider you a better credit risk after a bankruptcy because you have a clean slate, with significantly less debt.
2. Myth: You will lose everything if you file for bankruptcy protection.
Reality: Most states allow you to keep some value in your home, as well as your vehicle and other personal items. There is also a federal exemption amount for interest in a home.
3. Myth: You must be destitute to file for bankruptcy protection.
Reality: You don’t have to wait until you have been sued for non-payment or face repossession, garnishment or foreclosure to file for bankruptcy protection. Under the revised bankruptcy laws, you cannot file under Chapter 7 unless you can show the court that you lack the means to repay your creditors over a three-to-five-year period. But you can initiate bankruptcy proceedings if you can demonstrate that you have no way to repay your creditors.
4. Myth: You can max out your credit cards and discharge the debt in a Chapter 7.
Reality: You cannot discharge certain types of credit card charges or cash advances made in proximity to your filing. If it can be shown that you intentionally charged items or took cash advances knowing you would be filing for bankruptcy protection, you can be charged with criminal fraud. The bankruptcy court may also decide to dismiss your petition as fraudulent.
5. Myth: Filing for bankruptcy protection can cost you your job or your apartment.
Reality: Even if your employer or landlord found out that you had filed for bankruptcy protection, they will likely prefer that to your prior status. Your employer would rather have someone focused on the job instead of personal financial problems. Your landlord would rather have you paying them than your creditors.
6. Myth: Everyone will know that you filed for bankruptcy protection.
Reality: Even though the bankruptcy records are public, few people ever see them. These records are generally viewed only by potential creditors. If you have filed for bankruptcy, they will need to be notified anyway.
7. Myth: Bankruptcy is a sign of failure.
Reality: Bankruptcies result from many factors, including the loss of a job, health issues or divorce. Some of the most successful people in history have filed for bankruptcy protection, including Donald Trump.

At Bailey & Galyen, our bankruptcy lawyers have extensive experience handling all types of bankruptcy issues, including the following:

We will take the time needed to listen to your situation, understand your concerns and answer your questions. You should obtain the information you need to make an informed decision about bankruptcy and your future.

Contact a Texas Consumer Bankruptcy Specialist and Business Bankruptcy Lawyer

If you would like to obtain additional information about Texas bankruptcy, explore your options, learn about the bankruptcy process or discuss your particular situation with an experienced Texas bankruptcy attorney, please schedule a free initial consultation by calling us toll free at 877.345.6767 (Dallas – Ft. Worth area), 866.715.1529 (Houston area) or 866.678.1900 (South Texas). If you prefer, you can also fill out our intake form and we contact you to schedule a consultation.

Free Initial Consultations
Multiple Office Locations
Flexible Payment Plans
After-Hours and Weekend Appointments
Se Habla Español

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Can bankruptcy save my home from foreclosure?

Can bankruptcy save my home from foreclosure?

Under current bankruptcy laws, an individual or family may be able to stop foreclosure of their family home. Many families who are facing foreclosure find that either their mortgage company will not work with them to stop a foreclosure, or want a very large cash payment in order to modify their mortgages.

Many individuals and families are able to save their homes from foreclosure by filing a Chapter 13 bankruptcy, which is a debt reorganization under bankruptcy law. In most cases, filing Chapter 13 stops the foreclosure process, preventing eviction and giving the homeowner time to file a plan to reorganize debts. Without the looming threat of foreclosure and eviction, homeowners can work with their attorney to create a plan that allows them to affordably reorganize their debts and save their home.

Chapter 13 allows the homeowner to create a plan to repay the house payments that were missed prior to bankruptcy over three to five years. If the homeowner has fallen behind on property taxes, the property taxes can be paid over time in the Chapter 13 plan as well. Normally the homeowner makes one payment to a court appointed trustee, who pays debts included in the plan from the payment. After filing Chapter 13, the homeowner then resumes making the regular monthly payment on the home, while the arrears are paid to the mortgage company by the trustee.

Chapter 13 can make it easier for the homeowner to resume making their house payments by restructuring their other debt as well. Credit cards, medical debt, personal loans, and other unsecured debts are paid through the plan, but may not have to be paid in full, depending on the homeowner’s income and family size. Many chapter 13 filers pay only a small percentage on these debts with the balances being “discharged” or forgiven by the court when the plan is successfully completed. Some car loans can be restructured to reduce the balance of the loan to the value of the vehicle, and to reduce the interest rate.

A homeowner who is facing foreclosure may be able to use the protections of bankruptcy to allow them to catch up missed payments over a reasonable period of time, and protect the equity they have in their home.

Call our nearest Texas office for prompt HELP:

Bedford Ph 817.868.5500 | Dallas Ph 214.252.9099 : 866.378.4705 | Ft. Worth : Ph 817.263.3000 | Houston : Ph 281-335-7744 : 866-715-1529 | Arlington : Ph 817.276.6000 : 817.276.6020 | Grand Prairie : Ph 972.642.7900 : 866.380.3369 | Irving Ph 972.256.6300 | Weatherford: Ph 817.594.5428 | Harlingen: Ph 956.440.0534 Brownsville 866-678-1900 | Mesquite: Ph 972.682.7868 | McAllen: 956.686.8500

Texas Bankruptcy Attorneys : J. C. Bailey III : Fred Jones : Albert Rodriguez : James Ince

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Student Loans Are Burying Me. What Can I Do?

Many Americans have borrowed tens or even hundreds of thousands of dollars in student loans, only to find that the education they received has not helped them achieve an income level that allows them to pay their student loans. Many others pay their student loans but are unable to purchase homes, or new cars, or even dinners out, because their student loans are such a burden on their budget.

The numbers clearly show this burden is large and growing. In 2004, 66% of graduates of 4 year universities had student loan debts. The average debt was $19,200, which was a 108% increase from ten years earlier. For those with graduate degrees, the numbers are much higher, ranging from $32,858 for those receiving Master’s degrees, to over $125,000 for medical school graduates. For many people, student loans are a crippling financial burden.

Can bankruptcy help? The short answer is yes and no.

First the bad news, bankruptcy will almost certainly not discharge, or eliminate, student loans. In 1998, Congress changed the bankruptcy laws to make most student loans non-dischargeable, and in 2005 all other student loan were made non-dischargeable. There is an exception to the rule, but almost no one qualifies for the exception. In short, bankruptcy almost never wipes away student loans.

Where bankruptcy can help is to give an individual a break from student loan repayment and harassment from student loan collectors. If a borrower is in default on student loans, and receiving phone calls, threatening letters, being sued, or having their wages garnished for student loans, the automatic stay in a Chapter 13 bankruptcy can stop all of these collection tactics for the duration of the case. This allows the borrower time to “catch their breath” and reorganize their debts, without the burden of student loan collection efforts or wage garnishment.

While not eliminating student loans, a bankruptcy discharge may allow an individual to eliminate other debts, such as credit cards, medical bills, foreclosure or repossession deficiencies or personal loans, so that the individual can dedicate the money from these payments to pay their student loans.

There may be non-bankruptcy alternatives to eliminating student loans as well. Many Federal student loans can be cancelled by the U.S. Department of Education if the borrower dies or becomes totally and permanently disabled. In addition, under some circumstances a student loan may be cancelled if the school the borrower attended closed while the borrower was enrolled or soon thereafter, or if the school improperly certified the student’s ability to benefit from the training provided by the school.

Finally, state and Federal governments have several programs to forgive student loans of individuals in certain fields and professions, such as teaching, social work, medicine, and military service.

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