Category Archives: Irving Bankruptcy

UTILITY SERVICES AFTER FILING BANKRUPTCY

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My clients often ask me if their utilities will be cut off after unpaid bills to these companies are discharged in bankruptcy.  For most of us, loss of electricity and water services would be devastating.  This issue is addressed in section 366 of the Bankruptcy Code.  Utilities “may not alter, refuse, or discontinue service to, or discriminate against” a debtor because they filed for bankruptcy, even if the debtor has discharged debts owed to the utility.  But a utility may require that a debtor provide adequate assurance of payment in the form of a security deposit.

 

It is important to determine what exactly qualifies as a utility when applying section 366.  The Bankruptcy Code does not define “utility.”  However, the Fifth Circuit ruling in Darby v. Time Warner Cable, Inc. (In re Darby) provides an explanation of what is meant by utility for the purpose of applying section 366. 470 F.3d 573 (5th Cir. 2006).  In Darby the court restricted the definition of “utility” to only providers whose services are “essential” and “necessary”.  The court held that a cable company was not a utility and could discontinue service to a debtor who discharged its claim.

 

It is safe to say that the term utility can be applied to natural gas, water, sewage, and electricity.  In my experience cable, satellite and internet providers are generally reasonable when dealing with debtors in bankruptcy.  Most follow the rules set out in section 366, and continue to provide services after discharge if the debtor provides a reasonable security deposit.

CHAPTER 13 BANKRUPTCY: WHEN IS MY FIRST PAYMENT DUE?

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Under the Bankruptcy Code, your first payment is due “not later than 30 days after the date of the filing of the plan or the order for relief.”  11 U.S.C. § 1326(a)(1).  This means that once a case is filed, the trustee must have a payment in hand within 30 days.  A payment mailed on the thirtieth day is considered late.  Debtors should be aware that many trustees use out of state banks, so it may take several days for the payment to reach the trustee.

 

Some courts are very strict about the deadline for the first payment.  In the Northern District of Texas, if a debtor is late making their first payment, the trustee will file an NOI (Notice of Intent to Dismiss Case).  An NOI states that the debtor’s case will be dismissed after the seventh day following the deadline to make the first payment if no payment is received by the trustee.  An NOI does not require a hearing.  Debtors who know their first payment is going to be late should let their attorney know.  Sometimes trustees will hold an NOI if a debtor’s attorney contacts them to let them know a payment is going to be late.

STUDENT LOANS -YOU MAY WANT TO PAY IN YOUR BANKRUPTCY CASE

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Student loans are a peculiar sort of debt in the context of a Chapter 13 bankruptcy case.  They are unsecured which entitles them to low priority for repayment in Chapter 13 plans, yet they are nondischargable, meaning the student loan debt survives the bankruptcy discharge.  Because of these two traits, it is very important to pay special attention to student loan debt in Chapter 13 plans.

 

To understand why, we need to consider how unsecured claims are paid in Chapter 13 plans.  In Chapter 13 bankruptcy cases, unsecured creditors aren’t always entitled to receive payment.  If and how much an unsecured creditor will be paid depends on the disposable income available to the debtors.  Unsecured creditors do not automatically receive payment in Chapter 13 bankruptcy.  Rule 3002 of the Federal Rules of Bankruptcy Procedure states that in order to receive payment, creditors have to file a proof of claim, which basically is documentation proving what they are owed and why.  If the creditor doesn’t file a proof of claim, they don’t get paid.

 

In my experience, student loan creditors are especially lazy about filing proof of their claim.  Their claims are nondischargeable, so even if they don’t file a proof of claim they will get paid eventually.  However, whether or not a student loan creditor files a proof of claim can be very significant to a debtor.  Let me give you an example.  John owes $100,000 in unsecured debt.  $40,000 of that debt is student loan debt.  Based upon his disposable income, he potentially will have to pay back $60,000 (60% of the total) to his unsecured creditors in his Chapter 13 plan, depending on how many of them file proof of claim.  If all of his creditors file proof of claims, he will pay back 60% of his total unsecured debt.  The student loans will be paid back 60% ($24,000) of their claim in the plan, and the remaining creditors will be paid back 60% ($36,000) of their claims, for a total of $60,000.  After his bankruptcy he will still owe $16,000 of student loan debt (the amount of student loan debt not paid in the bankruptcy) because this debt is nondischargable, but the remaining $24,000 of other unsecured claims will be discharged, meaning John will not have to pay back those debts.  John’s total payments to his creditors will be $60,000 in the bankruptcy case and $16,000 afterwards, for a total of $76,000.

 

But look what happens if the student loan creditors don’t file a proof of claim.  The student loan creditors will receive nothing, but the other unsecured creditors are paid in full, meaning that John will have paid $60,000 in the bankruptcy case to his unsecured creditors, and still owe $40,000 to the student loan creditor after bankruptcy, for a total of $100,000.  So, how can we make student loan creditors file a proof of claim?  We can’t.  But Rule 3004 of the Federal Rules of Bankruptcy Procedure allows debtors to file a proof of claim on behalf of creditors when they fail to do so.  So as you can see, attorneys should pay special attention to student loan debt in Chapter 13 plans.

Sources Say Borders prepares to File For Chapter 11

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The Wallstreet Journal is reporting that Borders Group Inc. could file for Chapter 11 bankruptcy-protection as early as Monday or Tuesday.  Many of us know Borders because we shop for books in their stores.  The Wallstreet Journal further reports that, if Borders does file, filing for Chapter 11 will no doubt be followed by widespread job loss and store closings at its 674 stores around the country. http://online.wsj.com.

“Borders is not prepared at this time to report on the course of action it will pursue,” Borders said in a statement.  This story is as much about debt as Borders failure to adapt to the digital changes in book sales.   Many of us now purchase our books online at Amazon or e-books on Kindle.  The Wallstreet Journal also states that Borders is preparing for a costly and time-consuming trip through bankruptcy court, where it will seek to close about a third of its 674 Borders and Waldenbooks stores, the people familiar with the matter said. Borders also would cut swathes of its 19,500 staff as it attempts to reinvent itself to compete with Amazon and its hot-selling Kindle reader, and Barnes and Noble Inc., the nation’s largest bookstore chain and maker of the Nook e-reader.  Borders is one of our favorite places to purchase books so we hope that their use of the bankruptcy courts will help the company emerge as a stronger entity.  If not,  your choice of walk in books stores may get smaller.

Thank you to Dave Dugdale for the use of the picture. http://www.rentvine.com/

How does filing Chapter 7 Bankruptcy affect my credit score?

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Many people know that filing bankruptcy will negatively affect their credit score.   However, many people fail to recognize that creditors use other criteria for determining their credit score.  We have clients who have received credit offers within a short time after they have completed their bankruptcy.  It is possible to have a higher credit score one year after completion of their Chapter 7 bankruptcy than if the person had not filed a Chapter 7 Bankruptcy at all.  Filing a Chapter 7 Bankruptcy may help your credit scores in the following ways:

First, your past payment history will be gone and your credit report will show “Discharged in Bankruptcy.” In the past, this negative payment history such as non-payments and failing to pay  on time have affected your credit score.

Second, if you are making payments on the items that you have elected to keep such as a house or a car, you will improve your credit score.   The bankruptcy discharge will appear on your credit report for up to ten years after you are discharged.  However, the fact alone may not mean that you cannot get credit.

Third, all of your eligible unsecured debt will be discharged.  One of the factors that is used to figure your credit score is your debt to income ratio.  Also your credit to the amount of debt that you have is also used as a factor.  Therefore, after your discharge, your debt to income ration should be much improved.