Category Archives: Bankruptcy Filings

FILING BANKRUPTCY TO STOP GARNISHMENT OF ACCOUNTS AND WAGES

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Debtors who are having their bank accounts or wages garnished may be able to stop garnishment by filing bankruptcy.  Whether the garnishment can be stopped depends on the reason for the garnishment. Garnishments due to collection of judgments, collection of student loan debt, tax liability, and arrears due to domestic support obligations can all be stopped by filing Chapter 13 bankruptcy.  However, garnishments due to ongoing domestic support obligations that are court-ordered will not be stopped by filing bankruptcy.  In some circumstances, bankruptcy filers may even be entitled to get back funds that have already been garnished.

 

However, filing bankruptcy to stop a garnishment does not necessarily mean the debt will not have to be paid.  Domestic support obligations, income tax liability, and student loans are usually nondischargeable, meaning that they will have to be paid back eventually.  In chapter 7 bankruptcy the garnishments stop for the duration of the bankruptcy, which is usually three to four months.  In chapter 13 bankruptcy, garnishments stop for the entire three to five years, but child support arrears and income tax must be included in the chapter 13 plan, meaning they get paid back over the course of the bankruptcy in the debtors chapter 13 plan.  Usually this repayment is stretched out over a longer period of time than the repayment plan under the garnishment which allows debtors to pay less per month than they were when the debt was being garnished.  Student loan garnishments are stopped as well, and repayment of the debt may be deferred until the bankruptcy case is completed, unless the debtor has sufficient funds to pay student loan creditors in the bankruptcy.

DALLAS BANKRUPTCY: WHAT TO BRING TO YOUR FIRST APPOINTMENT

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Dallas Bankruptcy: Your bankruptcy attorney will need you to provide information so that he can determine whether you should file bankruptcy, whether you are eligible to file bankruptcy, and if you are eligible which chapter will be best for you.  In order to answer these questions, it is helpful if prospective bankruptcy debtors bring information with them to their initial consultation.  I usually request the following documents:

 

1.   Your last two federal income tax returns.  Debtors who recently moved from a state that has state income tax should provide copies of their state income tax returns as well.

2.   Pay stubs, profit and loss statements, and any other statements showing income received during the prior six months.  As a general rule, if you received any form of income during the last six months, I will need to know about it.

3.   Bills, statements, and any other attempts to collect debt.  This is not limited to just the debts you wish to discharge.  I also need to know how much you owe on debts secured by property you wish to keep.  Don’t forget to bring copies of any papers pertaining to lawsuits to which you are a party.

4.   Most bankruptcy attorneys, including myself, have a questionnaire they will ask you to fill out and bring with you to your initial consultation.

 

These documents will allow me to review your case and give you advice about your financial situation.  When my clients come prepared to their initial consultation, by the end of the meeting I usually have a good idea of what steps need to be taken to provide my clients with debt relief.

THE BANKRUPTCY ESTATE

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When a debtor files bankruptcy, an estate is created.  The estate includes all of the person’s legal and equitable interests in property at the commencement of the case, and may also include any property the debtor becomes entitled to during the 180 day period following the filing of the bankruptcy case.  However, debtors can exempt property from being included in the bankruptcy estate.  Each state has its own set of exemption.  Federal statutes provide another set of exemptions that can be used in some states.  Debtors in Texas are allowed to use both the Federal and Texas exemptions when filing bankruptcy.

 

Property that has not been exempted using these statutes is referred to as being “nonexempt” property.  The existence of nonexempt property affects bankruptcy cases in different ways, depending on which chapter of bankruptcy is filed and in which jurisdiction.  In Chapter 7 bankruptcy cases, nonexempt property is liquidated and the proceeds paid to the creditors.  Debtors are allowed to keep any property that is protected by an exemption.  In Chapter 13 bankruptcy cases, debtors have to pay the value of their nonexempt property to a trustee to be disbursed to unsecured creditors, but the trustee does not liquidate this property.  The property remains a part of the bankruptcy estate until the debtor’s Chapter 13 plan is confirmed, at which point the property vests back in the debtor unless otherwise stated in the plan or the confirmation order.  In some jurisdictions, the property stays a part of the bankruptcy estate even after confirmation of the plan.  In these jurisdictions, debtors are required to seek an order of the court whenever they intend to sell, transfer, or otherwise dispose of their property.

BANKRUPTCY:DISCLOSE YOUR CAUSE OF ACTION OR LOSE YOUR RIGHT TO SUE

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When a person files bankruptcy, they are required to list all of their assets in their bankruptcy schedules.  In bankruptcy, an asset is anything you own, but it also includes anything you may acquire contingent upon some event happening.  For example, if you are in a car wreck, you may acquire a cause of action, which is the right to sue someone to recover money damages.  A cause of action is intangible.  You can’t touch it.  You can’t easily measure its value.  In fact, it may be worthless because in order to recover money damages, you will have to file a lawsuit, and there is no guarantee of success of litigation. Nevertheless, a cause of action is an asset, and must be listed in schedules when a bankruptcy case is filed.

 

In the practice of law, there is a common law doctrine called judicial estoppel.  Judicial estoppel prevents a party from taking a position in a case which is contrary to a position they have taken in earlier legal proceedings.  Bankruptcy courts have applied this doctrine to bankruptcy cases by preventing debtors who fail to list a cause of action as an asset in their schedules from later trying to collect damages in a lawsuit.  If you are considering filing bankruptcy, remember to tell your attorney if you have been involved in a car accident, injured on the job, if you are owed money and unlikely to receive payment, of if there is any other reason you think you might be able to file a lawsuit.  If you don’t disclose your cause of action you might lose your right to sue.

FILING BANKRUPTCY MAY IMPROVE YOUR CREDIT RATING

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Many people do not file bankruptcy because they fear that it will ruin their credit score.  The reality is that by the time most people start thinking about filing bankruptcy, they already have a poor credit rating, and for those people, filing bankruptcy may in fact improve their credit rating.

There are several reasons why debtors who file Chapter 13 bankruptcy may notice that their credit rating improves soon after filing bankruptcy.  First, Chapter 13 bankruptcy reorganizes debts through a plan that allows repayment of a portion or all of the person’s debts in a way that they can afford.  By making payments on time, debtors begin to improve their credit score.  Second, many debtors file Chapter 13 bankruptcy in order to stop foreclosures.  A Chapter 13 bankruptcy filing looks much better on a credit report than a foreclosure.  It indicates to creditors that the debtor is trying to repay their mortgage arrears, rather than simply defaulting on their mortgage loan.

 

Chapter 7 bankruptcy will usually improve a debtors credit rating as well.  Chapter 7 bankruptcy cases are generally completed within four or five months after filing the case.  After the debtor receives a discharge, their credit report is largely wiped clean, and the records of unpaid debts and late payments are removed from their credit report.

 

If your goal is to improve your credit rating, bankruptcy should be considered.  I speak with dozens of people each month about their financial situation, and for many of them bankruptcy is not the best choice.  Everyone’s financial situation is different, and it is important to consult a competent bankruptcy attorney before deciding to file bankruptcy.