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.
Judgment liens on your home are traps waiting to be tripped. An extra and underappreciated benefit of filing for bankruptcy is that most of the time you can harmlessly spring these traps so that they can’t ever harm you again.
What’s a Judgment Lien?
A lien is a creditor’s interest in your property. A judgment lien is an involuntary lien that usually attaches to your home whenever a judgment is entered against you in a lawsuit. This can happen even if you settle with the creditor and regardless of whether you settle before you are sued or afterward. It’s even possible to have a judgment lien against your home without being aware that you were sued. In many circumstances the judgment creditor can execute on its judgment lien, resulting in a forced sale of your home to pay the underlying debt.
Judgment Lien “Avoidance” in Bankruptcy
Such a forced sale can be prevented by filing for bankruptcy, and in many situations the judgment lien can be gotten rid of forever through the judgment lien “avoidance” procedure. See Section 522(f) of the Bankruptcy Code.
This is quite an unusual procedure. That’s because bankruptcy wipes out debts, but generally does not wipe out liens. The most conventional kind of liens — such as your vehicle loan holder’s lien on your car or truck title, or your home lender’s trust deed on your home’s title — are certainly not wiped out with a bankruptcy filing.
So Why Can Judgment Liens Be “Avoided” in Bankruptcy?
Simply stated, Congress has decided that people’s homestead exemptions should come ahead of a creditor’s rights under a judgment lien. As will be explained in a moment, this “avoidance” power is limited to judgment liens that “impair” your homestead exemption. After all, undoing a judgment lien simply puts the creditor back in the same unsecured position it was in before it sued you and got the judgment lien attached to your homestead.
The Conditions for Judgment Liens “Avoidance” in Bankruptcy:
- The real estate to which the judgment lien has attached must be real estate for which you qualify for and have claimed a homestead exemption.
- That lien can’t just be any kind of lien, but must be a “judicial lien,” defined in the Bankruptcy Code as “a lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.”
- The “judicial lien” can’t be for child or spousal support, or for a mortgage foreclosure.
- The judgment lien at issue must “impair” the homestead exemption, which generally means that it eats into the equity protected by the applicable homestead exemption. Specifically the law defines this “impairment” as follows: the value of all the liens on the house, including the judgment lien PLUS the amount of the homestead exemption that you would be able to claim if there were no liens on the house, MUST BE MORE THAN the value of the house (assuming you are its sole owner).
Most states provide a set dollar amount for its homestead exemption, but Texas has no dollar limit (the limits are instead by acreage, regardless of value). The end result is that virtually all judgment liens (as long as they meet the other conditions above) can be “avoided.”
The “Avoidance” Doesn’t Happen Automatically
One final thing: judgment lien “avoidance” doesn’t just happen in bankruptcy; it takes an additional legal procedure. That procedure — usually a motion filed by your attorney — is necessary or else the judgment lien will continue to attach to your home title. Also, that procedure must be done while your bankruptcy case is still open and active, or else your case will have to be reopened, costing hundreds more in court fees.
So, if you own a home, an important additional benefit of filing for bankruptcy is to get rid of any judgment liens against its title. These are the kinds of services that an experienced, conscientious attorney will provide for you. Bailey & Galyen will give you this kind of expertise and thorough service. Please schedule a no-obligation, free, confidential consultation with us by calling 1-800-208-3104 or contacting us here.
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.
You have been injured in a car accident that was not your fault. You have mounting medical bills, you have taken time off work because of your injuries and to go to treatment and you have experienced a great deal of physical pain and emotional drama.
You felt the insurance company might treat you fairly so you tried to settle your claim on your own, only to find that the insurance company doesn’t care about you. You hired an attorney to take you through the claims process and still the insurance company refuses to pay you what would be deemed by any moral standard to be fair. What do you know? The only answer: Welcome to Litigation.
Litigation is the process of pursing your claim against the other driver through the court system. Make no mistake, this is not an easy process nor is it a pleasant one for any of the parties involved. The first step in the process is confirming the facts of the accident, the nature and extent of your medical care and the extent of your monetary losses, including medical bills and lost wages. Once the appropriate defendant has been identified, a lawsuit is prepared on your behalf, and we begin efforts to locate the defendant so we can serve them with the lawsuit.
You are now approximately 60 days into the litigation process. The defendants insurance company hires an attorney to represent the other driver and files an answer with the court essentially denying all of your allegations. At this point, the case is at issue.
Along with filing the answer denying your claims, the defendants attorney will send you written discovery requests. These will consist of requests for disclosure, interrogatories, and request for production of documents.
The disclosures that you will have to answer will apprise the defendant of the exact nature of yours claims, the extent of monetary damages that you are claiming, and all persons whom you believe may testify on your behalf when this case eventually makes it before a jury.
The interrogatories are a series of written questions to you regarding the nature and extent of your claim, the nature and extent of your injuries, your medical history, your previous claims history, and to a certain extent much of your personal history including educational history and any criminal history that you may have.
The request for production of documents is the defendants opportunity to obtain from you any documents you intend to use at the trial of this case, including medical bills, medical records, police reports, photographs and any other written or recorded documents that you have that you think might be helpful in the trial. Of course, the litigation staff here at Bailey & Galyen will assist you every step of the way in responding to all of the defendants written discovery requests. At the same time we will have sent similar requests for discovery to the other driver which they will answer with the assistance of his or her attorney.
You are now approximately 4 months into the litigation process. At this point, some courts will allow us to request a trial date, which will generally be 9-12 months from the date of our request. In most other instances, the court will assign us a trial date at its convenience which, again, will generally be 9-12 months from the time the written discovery has been completed.
During the time leading up to the first trial setting of your case, your attorneys will be busy collecting your medical bills, records and evidence of lost wages in admissible form. You see, we can’t simply show your medical bills to the jury. The medical bills and records have to be verified by affidavit from each one of your doctors. Depending upon how many doctors you have seen, this process could take as long as 6 months and cost between $1500 and $3000.
At the same time, your case manager will be scheduling the depositions of the parties and witnesses in the case. Depositions are a process through which each party can find out what the other party is going to say at trial. You will be side by side with your attorney in one of our conference rooms, in the presence of a court reporter and you will be placed under oath to tell the truth the whole truth and nothing but the truth. You will then be interrogated by the other sides lawyer regarding anything from your past personal history to your current medical care and condition and all the facts and circumstances surrounding not only this accident but any other accidents you may have had in your entire life. You will be prepared for your deposition by your attorney shortly before that your deposition is scheduled. It is a simple yet important process in your lawsuit. Of course, the other driver will also be interrogated at length by your lawyer regarding their version of the accident. Additionally, any other persons who have claimed to have witnessed the accident will also be subject to the same interrogation so that their testimony may be read at the trial of your case.
You are now 8 months or more into the litigation process. You have a trial date sometime in the next 6-12 months. However, before the court will allow you to try your case before a jury, the court will require you to attend mediation. Mediation is simply an informal settlement conference held at the office of another lawyer, known as a mediator. The mediator, while generally appointed by the Judge does not have the power to force the parties into a settlement. The mediator will simply discuss the pros and cons of your case with you in the presence of your lawyer and will see if there is some middle ground between you and the insurance company in terms of settlement. At the end of the day, if the insurance company makes you an offer that you can live with, even though you may not be entirely happy with it, the case will be resolved and there will be no further litigation required. You will be paid in 2-3 weeks following the mediation, and all of your medical bills will be taken care of from the amount of the settlement.
Following an unsuccessful mediation, you will notice a decrease of activity in your case. That is simply because we are now waiting for our assigned trial date. Trials generally start on a Monday but unfortunately, we never know until the Thursday before the Monday trial setting whether or not we will be called to trial. The reason for this uncertainty is because the courts will set 5-10 cases for trial on any given Monday knowing that half of those cases will settle, and some of those cases will not be ready for trial. Generally, the oldest case on the courts docket that is ready for trial is the one that is called. Again, we will not know whether we are called to trial until the Thursday preceding the Monday trial setting.
There is a strong likelihood that you will not be called to trial on your first or even second trial setting. Again, this will seem to you like nothing is happening in your case and you would be correct. We are simply waiting for the next trial setting because all of the work in your case has been done and the case is ready for trial. Once the case is called to trial, your attorney will meet you on the Friday before the trial setting to prepare you to testify. The following Monday you will meet your attorney 30-45 minutes prior to the trial and the trial will begin before the assigned Judge.
Like the litigation process the trial process consists of several parts. First, the Judge and the two attorneys will have a pre-trial conference to discuss the evidence at trial and other matters about procedure. After that, the jurors for your case will be called to your court room and the lawyers will have an opportunity to question potential jurors to seat a jury of either 6 or 12 fair and impartial jurors. Once the jury is seated, normally around lunch time, opening statements are given by each side. Following opening statements, the court takes testimony, including your testimony, about the accident and the nature and extent of your injuries and damages. Often times your doctor will also be called to testify about the nature and extent of your injuries as well as any future medical expenses that you can expect as a result of the accident.
Following such testimony, the defense has an opportunity to present their side through testimony of the defendant and any other witnesses they want to call. Once they have done that, both sides rest and close their case and the courts instructions are read aloud to the jury. The jury then takes the written instructions into the jury room where the jury will deliberate and decide two questions: Were one or both of the parties negligent in causing the accident; and what are the nature and extent of the damages to which the Plaintiff is entitled. If the jury finds that the defendant, the other driver was negligent in causing the accident and awards your money, a judgment will be rendered in your favor for the amount of damages that the jury has found to which you are entitled. The insurance company will finally be required to pay whatever the jury has decided you are entitled to.
As you can see litigation is a very long process. It is a stressful process from beginning to end and it is not a pleasant process for either the plaintiff or the defendant. The bottom line is if you can resolve your case against the other driver and your insurance company for an amount of money that you can live with, even though you don’t think it is fair, it is in your best interest to do so. However, in other circumstances where the insurance company simply refuses to pay you for what you think is reasonable, our litigation attorneys here at the law firm of Bailey & Galyen are ready, willing and able to step up to the plate for you and take your case from start to finish all the way through the litigation process to get you the justice you deserve.
The filing of a bankruptcy stops a foreclosure. It can stop the foreclosure temporarily or permanently, depending on what you need and what resources you have to work with.
Buying a Little Time with Chapter 7
Filing for any kind of bankruptcy immediately puts into play the “automatic stay,” which stops all collection activity against you or your property, including foreclosure. This includes both nonjudicial trust deed foreclosures and ones involving a lawsuit. Under Chapter 7 that protection lasts only a very limited amount of time, generally about the three months or so that this type of bankruptcy case lasts. And the mortgage lender can even ask the bankruptcy court to cut short that protection if it chooses to file a motion to do so.
Given this relatively brief protection, a Chapter 7 bankruptcy is worth considering in two situations:
- You want to keep the home and, once you file for bankruptcy to write off the rest of your debts, you will have enough cash flow to make both your regular mortgage payments PLUS enough extra to catch up on the late payments within about a year. Most lenders will allow you to enter into a forbearance agreement — they agree not to foreclose as long as you continue making the agreed regular and catch-up payments. How long they allow for this depends on each lender and your individual circumstances.
- You’ve decided to let your home go back to your lender, but need just another couple of months to move. The bankruptcy filing would stop any immediate foreclosure, and even if the lender is extremely aggressive you will likely have at least an extra few weeks in your home. And in some situations, the lender may back off while the case is in bankruptcy, or may be willing to negotiate a time for you to leave that will work with your schedule.
Buying a Lot of Time with Chapter 13
Instead of buying a few weeks or at most a year, Chapter 13 bankruptcy can usually give you as much as five years to catch up on your back payments. If you are in foreclosure or anticipating that you will be soon, you may be tens of thousands of dollars behind on your mortgage. You will need as much time as possible to catch up in order to keep the monthly catch-up payment low enough so that keeping your home becomes feasible.
Beyond this, Chapter 13 gives you a more flexible and powerful package of benefits. Instead of being at the mercy of your mortgage lender for how much time you will have to catch up, you are much more in control of that process, allowing you to fit your mortgage obligations in with your other important creditors. This includes other creditors related to your home, such as property taxes, any homeowner association dues and income tax or support liens on your home. Chapter 13 also often allows you to get rid of a second mortgage, which alone could save you tens of thousands of dollars and make your home much more affordable.
A Chapter 13 case comes with a fair amount of flexibility. So your payment plan can usually be adjusted to reflect changes in your finances, within some limits. That gives you better odds for
keeping your home in the long run. And it also means that if your motivation for keeping the home changes — if you get a job out of state or your children finish at the local school so you don’t mind moving — you can change your mind and surrender the home later, in a financially more protected way.
We are dedicated to helping you clearly understand your options so that you can make wise, fully-informed decisions about your debts starting right now. We can make that start to happen for you with your free and confidential consultation. Don’t think that you should do without legal advice or that you can’t afford to have it. Contact your Dallas - Fort Worth bankruptcy attorneys at the Bailey & Galyen today.
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.
This is not an article that is designed to tell you that Bankruptcy can solve your student loan problems. Quite to the contrary, Bankruptcy cannot help much with student loans. It can eliminate all your other debt so that you can deal with your student loans when you have shed those other creditors, but beyond that it does not help much. Instead, this is an article that is going to explore the problem and present the solutions to the crises that others have suggested.
Many people are not aware there is a crisis. Many people relate their own experiences to the current situation, but they are not the same. For example, my generation largely went to college without student loans. Parents were able to fund at least the undergraduate degree so that their children did not come out of college in serious debt. Largely, that is impossible for families today. This is not because families are willing to set aside money. It is that largely because the cost of a college education has gone up with meteoric proportions. The cost of a college education increases 20% virtually every five years. As a country, we are approaching the law of diminishing returns. A person training to be a school teacher can never expect to be able to pay back $50,000 in loans. Even in the law profession, young attorneys are entering the market with $150,000 in student loan debt. The salaries of an attorney cannot justify that debt load.
A recent study by the Federal Reserve Bank of New York showed that people in 2003 left college owing about $10,649 on average. In just a few years, that number increased to $20,326. A few years later, that number is likely to be $40,000. There is not another single area of the economy where the costs exceed the education costs. Even the medical economy is not increasing as quickly. Why is this a crisis that needs to be addressed? According to Professor Daniel Austin, a bankruptcy professor at Northeastern University, we have a large part of our population who cannot get rid of these giant loan payments and therefore cannot participate in the rest of the economy. That will impact our housing market and will impact our economy generally. As he explained, they are off the economic grid and we are creating a permanent underclass.
There are many solutions to this problem. One of the obvious is to return the bankruptcy code provisions that allowed people to discharge student loan debt. Under the codes of the past, a person could discharge a student loan as long as they had made good faith efforts to pay for seven years. That kept someone from intentionally running up debt, but also allowed a person an escape valve if the education they received was not as valuable as they once hoped. At the same time, colleges and universities will have to create programs to assist college educated young people to get jobs. Further, the universities will have to find a way to contain costs. Right now, they have no incentive as long as federally backed student loans continue to fund the education machine.
If you are in a position that discharging all but your student loan debt will help you or if you have other debt issues that you need assistance with, 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. Call 800-208-3104 or email today.
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.