REAFFIRMATION OF SECURED LOANS

iStock_000012877485XSmallChapter 7 bankruptcy is a great way of getting rid of debt.  Debtors who successfully complete this type of bankruptcy case receive a discharge order which permanently shields them from liability for the debts discharged in their bankruptcy case.  Debts that are discharged in Chapter 7 bankruptcy include credit cards, personal loans, pay day advance loans, medical bills, and many other types of debts.

Even secured debts, such as a mortgages or car loans, can be discharged in Chapter 7 bankruptcy.  However, discharging a secured debt may not mean that you get to keep your house or your car.  The discharge order removes the filer’s personal liability for the debt, but it does not remove the lien on the property.  A lien is the mechanism that attaches a debt to real or personal property.  The basic idea is that if the loan isn’t paid then the property can be repossessed or foreclosed.  The property is then sold and the proceeds of the sale are used to repay some or all of the debt.

Many people that file Chapter 7 bankruptcy want to keep their secured property.  In order to keep the property they have to continue making payments according to the secured loans original contract terms.  The Bankruptcy Code provides a way to except secured debt from discharge.  In order to prevent a secured debt from being discharged the lender and the bankruptcy filer can file a reaffirmation agreement.  A reaffirmation agreement is a form filed with the court that states the contract terms of the obligation and proves that the debtor can afford to make the payments.

The bankruptcy judge will only approve a reaffirmation agreement if the debtor can afford to make payments as described in the agreement or explain how the payments will be made if they cannot pay themselves.  If the debtor cannot show the court that they can afford the payments under the reaffirmation agreement, then a hearing is usually held during which the debtor is given an opportunity to explain why they need to incur the debt and how they intend to pay it.  If the judge believes that the debt will be an undue hardship, then they will not allow the debt to be reaffirmed.  If the judge is satisfied with the debtor’s explanation then the reaffirmation agreement will usually be approved.

For more information on bankruptcy contact The Wright Firm, L.L.P. at 972-353-4600 or visit us on the web at www.thewrightlawyers.com

Dallas Bankruptcy 101: Chapter 7 vs. Chapter 13

iStock_000005894130XSmallAn individual filing for bankruptcy in the Dallas area has two types of bankruptcy available to them.  First, Chapter 7 bankruptcy allows the filer to discharge many types of debt, often with no repayment to creditors.  Second, Chapter 13 bankruptcy allows the filer to reorganize their debt through an affordable payment plan which lasts three to five years.  Which Chapter a debtor should file depends on their specific financial situation and eligibility.

Who Can File?

  • Chapter 7 bankruptcy is available to individuals, partnerships, corporations and other business entities.  However, only debtors who have income below the median income for their household size in the area they live qualify automatically.  Debtors whose income is above the median must pass a means test which deducts standard IRS deductions from their current income to determine whether there is any disposable income available to repay creditors.  Too much disposable income will disqualify the debtor from Chapter 7 relief.

 

  • Chapter 13 bankruptcy allows debtors to repay some or all of their debt in a repayment plan which typically will last three to five years.  Chapter 13 bankruptcy is for debtors who are behind on payments to secured lenders (like mortgage companies and car creditors) but wish to keep the property.  The repayment plan gives the debtor a way to cure the missed payments and keep their collateral.  Debtors who do not qualify for Chapter 7 relief because their income is too high may also choose Chapter 13 bankruptcy as a way to reorganize their debt.

Chapter 7: Liquidation Bankruptcy

  • Chapter 7 bankruptcy is sometimes referred to as a “liquidation” bankruptcy.  However, in Texas we have a very flexible set of exemptions, which allows the vast majority of debtors to file for Chapter 7 relief without losing any of their property.

Chapter 13: Reorganization of Debts

  • Chapter 13 bankruptcy involves a repayment plan.  Debtors filing under this chapter repay unsecured creditors (credit cards, medical bills, payday loans) to the extent they can afford to do so.  Basically, if the debtor has disposable income then they will have to pay back some or all of their debt.  However, many Chapter 13 plans are approved in which no unsecured creditors are being paid.  Secured creditors can sometimes be paid through the plan, but payments can be paid to the creditor directly.

Which Chapter Should you File?

  • The bottom line is that whether a person files Chapter 7 or Chapter 13 bankruptcy largely depends on their specific situation.  If the debtor simply wants to discharge their unsecured debt then Chapter 7 is a great tool.  However, if they don’t qualify for Chapter 7 relief because their income is too high, then Chapter 13 should be considered.  It may not be a desirable as the quick discharge available under Chapter 7 bankruptcy, but it is still a much better option than doing nothing.  Chapter 13 is also a great tool for protecting secured property, such as houses and cars, from being seized by creditors for missed payments.

If you are struggling with your financial situation, please call The Wright Firm to discuss your financial situation.  We offer free consultations.  Please call us at (972) 353-4600 or visit our website at www.northtexas-bankruptcy.com.

 

DALLAS BANKRUPTCY ATTORNEY: USING HOME EQUITY LOANS AND TITLE LOANS TO PAY OFF CREDIT CARDS MAY BE A BIG MISTAKE

Credit card debt has a way of getting out of control.  Small balances can quickly become financial burdens when a missed or late payment results in late fees and an increase in the interest rate.  One strategy for dealing with this type of problem is to refinance the debt.  If you find yourself in this situation, and are looking at ways to pay off your credit card bills, do yourself a favor and keep your eyes averted from your home and your car.

 

It might be tempting to apply for a loan using your home or car as security.  You will generally get a lower interest rate by providing security to the lender than you would with an unsecured loan.  However, by giving the lender a security interest in your house or car you are giving them the right to take your property if you default on the loan.  Before you use your house or vehicle as collateral, step back and take a hard look at your financial situation.  Are your financial troubles the result of bad spending habits?  If after reviewing your income and a realistic budget you believe you can afford your house, car and other household expenses, plus a payment associated with a home equity loan or title loan, then taking out a loan to pay off your credit cards may be a good idea.

 

However, if after reviewing your income and budget, you realize that you don’t earn enough money to meet all of your financial responsibilities, then taking out a home equity loan or title loan is going to cause your home to be foreclosed or your car to be repossessed because eventually you will default on the loan.  If you are in this situation, consider ways to reduce your monthly expenses.  This may mean selling your home and finding a less expensive place to live or downgrading your vehicle.  You are generally better off if you act proactively to resolve your financial situation before you default on your secured loans because it gives you the opportunity to extract any equity from the property rather than losing it to the lender.  If after reviewing your financial situation you realize that you cannot afford to repay your debt, consider speaking with a bankruptcy attorney.

DALLAS BANKRUPTCY LAWYER: TEXAS HOMESTEAD EXEMPTION

A homestead exemption is a statute that protects a debtor’s home from being seized by creditors.  Every state has a homestead exemption of some sort, but Texas has a very generous homestead exemption.  It allows for an individual to protect their home during bankruptcy up to the maximum value of the property.  There is no cap on the value of the homestead exemption in Texas.  However, in order to be eligible to receive this protection, you must have lived in Texas for at least two years.  Homestead exemptions only protect the debtor’s equity in their home.  The home can still be foreclosed if a mortgage secured by the home isn’t paid.

DALLAS CHAPTER 13 BANKRUPTCY ATTORNEY: WHAT IS CONFIRMATION?

DALLAS CHAPTER 13 BANKRUPTCY ATTORNEY: Debtors in Chapter 13 bankruptcy file a repayment plan with the Court that states which creditors will be repaid and the terms of the repayment.  The plan is reviewed by the Trustee and the creditors who may or may not file an objection to confirmation of the plan.  Objections to confirmation ask the bankruptcy judge to not approve the Chapter 13 plan.  Usually these objections are filed because the Trustee believes that the plan doesn’t meet the requirements of the Bankruptcy Code or the creditors don’t like their treatment in the plan.  Objections to confirmation can be resolved by a hearing in front of a bankruptcy judge but usually they are resolved by agreement before the hearing.  Once all of the objections to confirmation are resolved, assuming the plan meets the other requirements of confirmation, such as the debtor having paid all payments due under the plan at the time of confirmation, the bankruptcy judge will sign an order confirming the plan.  Confirmation makes the plan an order of the court rather than just a proposal of reorganization of debts by the debtor.  A confirmed plan changes the creditor’s rights and sets forth what the debtor must do in order to receive a discharge in the bankruptcy case.