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Bankruptcy Warning Signs


When most people think about bankruptcy, they think it must apply to the other person. They have been responsible for their finances and the general belief has been that only people who are careless file a bankruptcy. Actually, that is about as far from the truth as anyone can get. In most situations, bankruptcy is a result of a series of events that happen to people that is beyond their control. True, just as in any situation in life one can look back and say maybe they ought to have done something differently, but that is actually asking to have the ability to see the future. None of us has an accurate crystal ball.

Many people have lost income as a result of the “Great Recession” of the last few years. In order to survive, savings have begun to dwindle as most of their money needs to go towards the day-to-day expenses. One of the earliest indicators that a person is in financial trouble is that they don’t have savings. What often results after the depletion of savings is that people begin using credit cards to cover the usual emergencies that hit every household. Also, there is no room even for the maintenance items we all need in life.

The next sign is that you are not able to make it to the next pay day without running out of money. That is a sign of two things. Either you are spending too much money or you do not make enough money or both. One has to be able to make it to the next pay check on a regular basis or there is a collapse in the future. Usually it is because our credit card payments begin to creep upwardly until we are actually paying for items we bought some time ago. An interesting statistic says that the average American is paying debt on items that they have long since broken or outgrown. That leaves nothing for future purchases.

If your charges exceed the amount you pay every month, you are heading toward trouble. The long term cannot be sustained. Normally, one can continue with this pattern just long enough to get into trouble. If you are reduced to paying just the minimum on your cards, be ready for some depression. If you have a significant balance at all, it can take as long as 39 years to pay off debt if all you are doing is paying the minimum.

Another trick people often use to delay the final inevitability of bankruptcy is to ask for an increase in credit so they can continue charging more than they need. This is obviously going to get you into trouble, but people do what they have to do to survive. It is only when credit cards are “maxed” out that people truly realize what they have done to themselves financially. The depression leads to avoiding creditors and buying impulsively because deep down you know you can’t pay anyway.

The final sign that you need to file bankruptcy is the willingness to do business with payday loan companies. In the writer’s opinion, this is legalized organized crime. It is almost a certainty that if you cannot quickly extricate yourself from the use of these loans, you will need to file bankruptcy. Dealing with these companies is such a desperation move that it almost equals a cry for help.

We ALL make mistakes in our investments, debts and lives. Bankruptcy very often lets us get back on our feet without shutting down everything we have built. If you have made mistakes or even if life has taken directions that cannot be predicted, talk to a qualified bankruptcy attorney. At Bailey & Galyen, we care about the situation you are in and will try very hard to help you out. Will bankruptcy work for everyone?

Absolutely not. That is why we offer a free, no-obligation appointment. We will go over the facts of your individual case and let you know what options are available. We will give you non-bankruptcy options as well.

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Why Creditors Very Seldom Try to Collect a Debt after It’s Been Discharged in Bankruptcy

Creditors do not usually chase a debt once it has been discharged in bankruptcy because they can be, and have been, punished if they do.

The Court Order Discharging Your Debts

In most Chapter 7 and 13 bankruptcy cases, the primary goal is to get a discharge — a legal write-off — of your debts. This happens near the end of a successful case, when the bankruptcy judge signs a formal court order declaring that your debts are discharged. This court order makes illegal any attempt whatsoever by your creditors to collect on a discharged debt.

Effect of a Creditor’s Violation of the Discharge Order

But sometimes creditors do disobey the law. As a gross example of this, a couple of years ago Capitol One Bank admitted to trying to collect on about 15,500 debts totaling more than $24 million that had been discharged earlier in bankruptcy.

The Bankruptcy Code gives its judges the open-ended power to “tak[e] any action or mak[e] any determination necessary or appropriate to enforce or implement court orders or rules. . . .” Under this power, the bankruptcy judge can respond to a creditor’s violation of the discharge order by holding the creditor in contempt of court and then punishing the creditor.

The nature of the punishment would depend on whether the creditor’s collection efforts intentionally violated the discharge order, did so recklessly or negligently, how aggressively it acted and what damages it caused. The creditor can be ordered to pay compensatory damages to compensate the debtor for any damages it caused by pursuing the discharged debt. The compensatory damages often include the debtor’s attorney’s fees incurred for fixing the problem. The violating creditor may also have to pay punitive damages, intended to teach the creditor not to violate discharge orders.

Violations of the Discharge Order Do Not Happen Often

Most people filing for Chapter 7 or Chapter 13 bankruptcy do not have their creditors chasing them after their debts have been discharged by the bankruptcy judge. But it does sometimes happen. One of the many benefits you get from hiring the attorneys at Bailey & Galyen is that you have us in your corner if it does actually happen.

So if you live in the Dallas-Fort Worth metroplex, please schedule a no-obligation, free, confidential consultation with us today at 800-208-3104. Or you can reach us here. You can then decide for yourself whether you want to have us in your corner for this and all the other aspects of the bankruptcy process.

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PlentyofFish CEO blasts Texas Attorney General for Blocking Sale of Bankrupt True.com

Texas Attorney General Greg Abbott objected to the proposed sale of True.com, saying the sale would violate a privacy pledge the site made to its 43 million members when they signed up for the dating service. The founder of the online dating site PlentyofFish made an offer to purchase the bankrupt Plano-based online dating site True.com for $700,000. However, after the attorney general said the transfer of all of the personal data to another company would create privacy risks and violate True.com’s privacy policy, the founder of PlentyofFish pulled his offer and, reportedly, lashed out at the attorney general of Texas for torpedoing his company’s plans to purchase True.com.

True Beginnings, the company that owns the database and website True.com, filed for Chapter 11 bankruptcy protection more than a year ago and is in the process of selling its assets. Bankruptcy is a legal action for debtors to deal with insolvency. Title 11 of the United States Code establishes and sets the guidelines for bankruptcy procedure. The common belief that a business is lost after filing Chapter 11 is false. The difference between filing Chapter 11 and Chapter 7 is in the way the bankrupt company solves the problem of debt. With Chapter 7 a company liquefies its assets and pays off debt. With Chapter 11 the company keeps assets and reorganizes the debt in a more manageable way.

At Bailey & Galyen, we represent individuals and commercial clients in bankruptcy proceedings throughout Texas. We assist debtors who are seeking to completely discharge their debts or to restructure their debt through reorganization and repayment plans. If you are facing a bankruptcy, schedule a time to meet with an attorney at Bailey & Galyen to discuss your options. To set up an appointment, contact us by e-mail or call 1-800-208-3104. We will take your call 24 hours a day, seven days a week.

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Is a Chapter 13 Discharge of Debts Better Than a Chapter 7 One?

Chapter 13 bankruptcy can discharge more debts than a “straight” Chapter 7 bankruptcy case. But not much more.

When the Bankruptcy Code first became law in the late 1970s, Congress wanted to give debtors some extra incentive to file Chapter 13 payment plans instead of straight Chapter 7s. So the Code at that time allowed the discharge (legal write-off) of many categories of debts under Chapter 13 that could not be discharged under Chapter 7. The broader discharge of debts under Chapter 13 informally came to be called a “super-discharge.” But in the decades since then Congress has amended the law many times, steadily reducing the categories of debts discharged only under Chapter 13. Now only two are left.

1. Nonsupport Obligations

A divorce usually results in two kinds of obligations: support and nonsupport. Under neither Chapter 7 nor Chapter 13 can you discharge support obligations like child and spousal support debts. You can’t discharge nonsupport obligations either in a Chapter 7 case. But you can discharge nonsupport obligations in a Chapter 13 case.

What are nonsupport obligations? They include all the financial obligations arising out of a divorce (or legal separation) that are not support obligations. You may hear them referred to as “property settlement” obligations. They tend to be obligations ordered by the court in the divorce decree stating that one ex-spouse pay a certain amount of money to the other ex-spouse in compensation for having received more than his or her share of the marital property. Sometimes it is instead formulated as an obligation to pay a joint debt or one of the ex-spouse’s debts, again intended to even out the split of property.

These property settlement obligations are the nonsupport ones that can be discharged in the Chapter 13 super-discharge.

2. “Willful and Malicious Injury” Obligations

If someone has a debt for “willful and malicious” injury, that means the debtor is alleged to have hurt someone or someone’s property, and done so either intentionally or at least with a reckless disregard for the safety of that person or property. Sometimes the allegations have been resolved in a trial and resulted in a judgment for damages for the injury before the “judgment debtor” files for bankruptcy. Other times the bankruptcy is instead filed before a judgment has been entered.

A debt for “willful and malicious injury” cannot be discharged under Chapter 7 if the injured party objects to its discharge. Section 523(a)(6) makes clear that a Chapter 7 discharge “does not discharge an individual debtor from any debt . . . for willful and malicious injury by the debtor to another entity or to the property of another entity.”

However, part of such a debt can be discharged under Chapter 13. Section 1328(a)(2) lists the categories of debts that are not discharged in a Chapter 13 case, and that list excludes from discharge “willful and malicious injury” “that caused personal injury to an individual or the death of an individual.” Notice it does not mention injury to a person’s property. So a debt arising from “willful and malicious injury” to another’s property can be discharged under Chapter 13 (but not under Chapter 7).

What ARE “Nonsupport” and “Willful and Malicious Injury” Debts?

These two categories of debt included in the Chapter 13 super-discharge are not always straightforward in what they cover. “Support” obligations CAN include those that the divorce decree does not call by that name, but that the bankruptcy court determines are “in the nature of support.” As a result, a debt that may appear to be a nonsupport obligation might actually not be. And the line between damage to property that arose out of “willful and malicious” behavior and damage that did not is certainly not always clear.

So the decision to use Chapter 13 bankruptcy to take advantage of the super-discharge involves delicate legal, human and tactical considerations. You need to weigh these considerations carefully with an experienced bankruptcy attorney. So if you live in the Dallas-Fort Worth metroplex, the attorneys at Bailey & Galyen can help you with these decisions. Please call us for a free, no-obligation, confidential consultation at 800-215-9089. Or you can reach us here.

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To Discharge Your Debts, Be Honest with the Bankruptcy Court

Bankruptcy law allows you to discharge (write off) most or all of your debts, but you must be candid and accurate in the documents you file with the court and with what you tell the bankruptcy trustee.

Through Bankruptcy You Can Usually Discharge Most of Your Debts

If you file a Chapter 7 “straight bankruptcy” case, the Bankruptcy Code says that the bankruptcy “court shall grant the debtor a discharge” with only certain limited exceptions. See Section 727(a). If you file a Chapter 13 case, the Code states that “the court shall grant the debtor a discharge of all debts,” again with only certain limited exceptions. See Section 1328(a). As long as those exceptions don’t apply to your debts, they will be discharged and you’ll have a fresh start.

There are two sets of exceptions. The first set applies to specific debts. For example, some debts aren’t discharged because of the nature of the debt; child support and some income taxes are examples. On the other hand, some debts may not be discharged because of the debtor’s inappropriate behavior related to the debt, such as the embezzlement of funds or fraudulently incurred loans. But both of these kinds of exceptions apply on a debt-by-debt basis and are not the topic of today’s blog.

The Risk of Not Discharging ANY of Your Debts

The second set of exceptions doesn’t just relate to a specific debt or two, but rather to the debtor’s ability to receive a discharge of ANY debts. This exception is based on the simple rationale that for a person to receive the benefits of bankruptcy, he or she must be honest in going about it.

The type of dishonesty that would risk you losing your right to an overall discharge usually involves either property or financial records. Here are the kinds of behavior that can potentially result in you not being able to discharge your debts:

  • Hiding or destroying your assets within a year before filing for bankruptcy
  • Hiding or destroying assets that are under the legal right of the bankruptcy case after the bankruptcy case is filed
  • Hiding, destroying, falsifying or failing to keep records about your financial condition
  • Failing to satisfactorily explain a loss of assets before the filing of bankruptcy
  • Making a false oath

Bankruptcy is an unfamiliar and potentially uncomfortable process to go through without some experienced guidance. The written and oral questions that you’re asked can be very confusing. Even assuming you are completely honest, it’s easy to wonder if your answers are going to cause problems. If you live in the Dallas-Fort Worth metroplex, the attorneys at Fuller & Eason can help you discharge your debts. Please call us for a free, no-obligation, confidential consultation at 214-516-6187. Or you can reach us here. Thank you for visiting our website and blog.

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