Is that True?

Co-workers chatting by a water cooler

It is a shame that there is no “Snopes” service for bankruptcy myths and urban legends. There are many things that people say about bankruptcy that are simply just false. The problem is that it is hard to make an informed decision without the correct information. Many people believe the wrong things about what can and cannot happen in bankruptcy.

The first falsehood is that somehow you can have a free house or car if you just file bankruptcy. This would be great, were it true! However, a house or a car must be paid for if you plan to keep it. What is true, however, is that you get a choice. Bankruptcy may allow you to give up that vehicle or house you can no longer afford and restructure your other debts so that you can continue living an affordable life.

Many people are afraid they will lose their house, cars, bank accounts or retirement if they file. The good news is that in Texas, most people keep everything they own except the credit card debt! This is fairly logical. If people were going to lose everything, they would never file. Other people are concerned that they will lose their jobs. The good news is that it is illegal to fire someone for filing bankruptcy. The other truth is that most employers who are concerned about credit scores are concerned about employee theft. The employee who files bankruptcy is taking care of their debt situation. The employee who does not file bankruptcy is much more likely to steal than an employee in bankruptcy. Most bankruptcy practitioners have had the experience of having a bank employee come in to the office after their employer required a bankruptcy filing to keep their job. It is also true that many government jobs require a bankruptcy filing in order to maintain security clearance.

Many people believe they will never be able to buy a house or car again. In reality, if a person has extreme credit card debt, they are less of a risk after they file than before. Most clients have reported that they had little or no trouble buying a car or house a couple of years after the case is ended. We actually have clients who have to purchase automobiles while they are in a Chapter 13 repayment bankruptcy and have gotten very good interest rates.

There are many positive results which occur when a person files bankruptcy. However, bankruptcy does not work for every person. That is why a person thinking about filing a bankruptcy should seek the opinion of a professional to see if it would be beneficial. The real key is recognizing that there is a problem. If most of your waking hours are used to attempt to balance your creditors or if your sleeping hours become waking hours because of the stress, it is time to take action. If you are in debt, come see us. Book an appointment with a skilled bankruptcy attorney. At Bailey & Galyen, we would like to help you achieve your financial independence without all of the headache.


Saving Your Home: The Amazing Chapter 13 Second Mortgage Lien Strip

House for sale

If you have a second (or third) mortgage and your home is worth no more than the balance on your first mortgage, that second (or third) mortgage may be able to be stripped off your home title. This can save you a tremendous amount of money both monthly and over time, and should make saving your home much more feasible.

#1: This procedure ONLY APPLIES to CHAPTER 13 bankruptcies, the “adjustment of debts” payment plan. It can’t be done in a “straight” Chapter 7 case.

#2: It does NOT apply to your first mortgage — even if your home is worth less than your first (and perhaps only) mortgage, you can’t reduce the balance on that mortgage to the value of your home.

#3: Lien stripping only works with mortgages, trust deeds or equity lines of credit that you signed onto voluntarily. There are many other kinds of possible liens that could attach to your title — income tax liens, judgment liens, child and spousal support liens, contractors’ liens, utility liens, homeowner association liens — none of which can be stripped off the title. (On the other hand, Chapter 13 can provide good ways to deal with some of these other liens.)

#4: Your home cannot be worth a penny more than the balance on your first mortgage. The point is that there cannot be ANY EQUITY in the home beyond the first “senior” mortgage.

#5: This lien stripping does not happen automatically in a Chapter 13 case, but is a procedure your attorney has to affirmatively take care of. The affected mortgage lender will have an opportunity to object, such as by arguing that the home’s value is greater than the balance on the first mortgage and, thus, that you’re not able to strip the second mortgage.

#6: You may have to pay a portion of the stripped second mortgage during your three-to-five-year Chapter 13 case. The mortgage is treated as an unsecured creditor and so shares pro rata in whatever funds you are required to pay to your pool of unsecured creditors. But in most situations this does not increase the amount you need to pay; the same amount just gets distributed differently among your creditors. At the end of your case, you will owe nothing on your stripped mortgage and it will be removed from your title.

#7: Because you do not get a discharge of your debts in a Chapter 13 case until completing it successfully, your lien strip will not work unless you finish your case.

If you have a second or third mortgage on a home worth no more than the balance on your first mortgage, even if you are only casually considering bankruptcy, you should get competent advice about this lien stripping option. Bailey & Galyen is here to provide you that advice. Call 1-800-518-3328 or contacting us here. Thank you.


What Is a Debt Owed for “Fraud in a Fiduciary Capacity”?

You can’t discharge debts “for fraud or defalcation while acting in a fiduciary relationship, embezzlement, or larceny.” What do these include?

This is the last of our series of blogs on types of debts that might not be discharged — legally written off — in bankruptcy, and this one may sound the most confusing.

We need to start by emphasizing that for most people, all of the debts they want to discharge do get discharged when they file for bankruptcy. So we are talking here about exceptions to what is ordinary. But people in all kinds of circumstances have to think about getting relief from bankruptcy, and that may include you.

The Reason for this Exception

Bankruptcy is intended to give a fresh start to the “honest” debtor, honest both in presenting your financial information to the bankruptcy court AND honest in how you acquired your debts. So, debts or claims against you that arose as a result of your allegedly dishonest, fraudulent and wrongful behavior may well not be discharged in bankruptcy. The exception to discharge that we are covering in this blog, referred to in Section 523(a)(4) of the Bankruptcy Code, is one category of dishonest debts.

What Does “Acting in a Fiduciary Capacity” Mean?

Generally, a fiduciary has the right and responsibility to act on behalf of another, in a relationship of trust. Besides formal trustees and similar legal agents, the following are examples of types of people who have fiduciary capacity: corporate officers and directors of an insolvent corporation toward the corporation’s creditors, an attorney with client’s funds in trust account, a partner toward the partnership and the other partners, a real estate broker toward the buyer or seller she is contracted with, and the executor of a decedent’s estate toward the beneficiaries.

How Is This Different From “Fraud” or “Willful and Malicious Injury”?

This subsection of the bankruptcy Code actually does seem largely redundant. In the last few blogs we covered the exceptions for “fraud and misrepresentation” in Section 523(a)(2) and for “willful and malicious injury” in Section 523(a)(6). “Fraud while acting in a fiduciary capacity” is simply just one version of fraud. Embezzlement — the fraudulent taking of something that is not yours but is lawfully under your control or in your possession — and larceny — the taking of something not yours and not lawfully under your control or in your possession — clearly seem to be merely versions of “willful and malicious injury” to another’s property. And that odd word, “defalcation,” means misappropriating or failing to account for assets belonging to someone else that are under your care. Since that CAN include unintentional behavior — situations involving only negligence or recklessness — this addition seems to be the only expansion beyond what is already not dischargeable under the two earlier provisions.

Civil Damages vs. Criminal Penalties

Embezzlement and larceny, as well as serious fraud in a fiduciary capacity, often turn into criminal matters, with the risk of potential prison time, restitution and other criminal penalties. Bankruptcy does NOT discharge any criminal penalties — neither Chapter 7 nor 13. What it does address are the civil damages that can arise even if you are not charged with a crime, or if you are charged but are also facing civil lawsuits for the same behavior.

If you are facing allegations of or have been defending a lawsuit involving any of these kinds of behaviors, we at the Leinart Law Firm are dedicated to helping you clearly understand your pertinent bankruptcy options. Our mission is to assist you in making wise, fully-informed decisions about any of your debt-related matters. We can start to have that happen for you with a free and confidential consultation. Contact our Dallas – Fort Worth bankruptcy attorneys at Bailey & Galyen today.


What Is a Debt Owed for “Willful and Malicious Injury”?

These are so unusual you might not even think of them as debts — claims against you for intentionally hurting someone or his or her property.

Debts that might not be discharged (legally written off) in bankruptcy, including those allegedly incurred by fraud, including recent “luxury” purchases and cash advances. Today’s blog is about another category of debt that might not be able to be discharged. Although a claim “for willful and malicious injury by [you] to another entity or to the property of another entity” (Section 523(a)(6)) may be rare, if you someone is making such an accusation against you it is probably one of the main reasons you are considering filing for bankruptcy. So it’s important to understand how such a claim would be treated.

“Willful and Malicious Injury”

Unlike the part of the Bankruptcy Code about “fraud” debts, which contains 13 clauses and about 250 words, the one about “willful and malicious injury” contains only one short clause, the one quoted above. That’s all Congress said in describing this exception to discharge, so the courts have had to figure out what it means.

In the part of the country covered by the federal Fifth Circuit Court of Appeals, which includes all of Texas, a “willful injury” is one in which the debtor deliberately or intentionally caused the injury, and didn’t just deliberately or intentionally commit an act that led to the injury. A malicious injury is one “without just cause or excuse.” So we are talking about injuries that were committed with an objective substantial certainty that the act would cause harm or with an actual intent to cause harm.

Practically speaking, this includes personal injuries and property damages — on the personal side involving claims for civil damages arising from assault, rape or murder, while on property side claims arising from arson, vandalism, burglary or theft. But virtually any injury to a person or property could be included as long as it is “willful and malicious” as described above.

Dischargeable in Chapter 13?

Injuries to a person (including death) cannot be discharged in either Chapter 7 bankruptcy under Section 523(a)(6) that we have been discussing, or in Chapter 13 bankruptcy under a relatively new Section 1328(a)(4). However, injuries to property can be discharged in Chapter 13 because Section 1328(a)(4) only excludes personal injuries, while their discharge can still be challenged in Chapter 7 under Section 523(a)(6). So, if you have a significant claim or judgment against you for some sort of property damage, talk to your attorney about Chapter 13 bankruptcy as a possible solution.

If you are considering bankruptcy because of serious accusations against you of personal injury or property damage, or because you are in litigation or have had a judgment entered against you along these lines, you need the counsel and advice of a highly experienced bankruptcy attorney. If you are in the Dallas-Fort Worth metroplex, the Leinart Law Firm is here to serve you. Please schedule a no-obligation, free, confidential consultation with us by calling 1-800-518-3328 or contacting us here.


Do I Really Need an Attorney To File Bankruptcy?

In this age of internet services and self-help legal services, it is a very legitimate question as to whether you need an attorney or not for certain legal proceedings. The answer to this question would seem to be easy. All you have to do with bankruptcy is fill out some forms and appear in court and your debts are gone! While that is an extreme simplification of the process, that sort of does sum up the legal proceeding. So, this article will go step-by-step to figure out if you indeed should represent yourself.

The first question you should ask yourself is what type of bankruptcy do you need to file? If you were not aware there were many types of bankruptcy, you may already have answered the question as to whether you need a lawyer. Also, please note that the question is not what type of bankruptcy you “want” to file, but what type you need to file. If you are attempting to file a Chapter 7, you must first complete the means test. The means test takes a complicated formula that involves your last six months of income and you average daily expenses and then compares them to the IRS standards for what a person or family makes in your zip code. Make certain you take the proper adjustments for each family member and any “heads on beds” residents in your household. Next, you must look at the abuse standard. Even though you have “passed” the means test, do you have any situations that might be a standard of abuse problem? If you are filing a Chapter 13, you need to know how to apply those numbers to determine the unsecured creditor pool you are required to pay. Already feeling a little insecure? You should not feel too bad. The lawyer who works on your case goes through years of formal education to learn to do just what I am describing.

Once you figure out the numbers in the means test, you must balance that number with the case law in the district that you are filing in. Most courts have interpreted those numbers in different ways. Next, you must list any and all property you own. Once done, you must elect what exemption scheme you wish to take. There is the state exemption scheme and the federal exemption scheme. Be careful here. If you chose the incorrect exemptions, or you apply them in a way that is contrary to the case law in your state or district, you could lose everything you own. Once you file the bankruptcy, you often are stuck with the choices you made. You will appear before a bankruptcy trustee. Don’t expect much help from that person. They are there to protect your creditors and make certain they get whatever they may be entitled to. Also, the trustee gets a percentage of the assets to pay their attorney fees. Interestingly, most property lost in a bankruptcy is by unrepresented individuals. Your attorney will likely be able to protect everything you own.

Also, don’t forget about the potential adversary proceedings. Creditors are bullies. You already know that if you are having financial issues. When you try to talk to them and offer reasonable solutions, they respond by insulting you and making you feel like less of a human being. Don’t think that attitude does not follow you into the bankruptcy. If they see you do not have an attorney, they can file a lawsuit in your bankruptcy to challenge your discharge. They can file that when you have an attorney, but then they have to prove the allegations they made about you. If you do not have an attorney, it is hard to defend yourself.

So, you have guessed by now that my recommendation is that you have an attorney. With an attorney, a bankruptcy is a fairly easy legal proceeding. It is a proceeding where you get to keep virtually everything you own. Without one, it can be a nightmare. Don’t opt for the nightmare. If you are in debt, come see us. Book an appointment with a skilled bankruptcy attorney. At Bailey & Galyen we would like to help you achieve your financial independence without all of the headache.

1 2 3 11