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Are There Debts I Cannot Get Rid of Through Bankruptcy?

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The idea behind Chapter 7 bankruptcy is that a person can discharge – or cancel – certain types of debts, relieving them of any future legal obligation to pay. Typically, individuals file for Chapter 7 because of mounting unsecured debts, such as credit cards or medical bills. After going through the bankruptcy process – in Chapter 7, this means liquidating the debtor’s nonexempt assets and repaying the creditors as much as possible – a court will issue a discharge for any remaining unpaid debts.

While many debts can be discharged in bankruptcy, not all can be. Congress establishes the rules for what kinds of debts can and cannot be discharged. Here are some of the more common types of “non-dischargeable” debts.

Unscheduled Debts

When you file a petition for Chapter 7 bankruptcy, you must include a schedule with the names and mailing addresses of all of your known creditors. This ensures the creditor is notified of the bankruptcy case and has ample opportunity to file a claim against your bankruptcy estate. If you omit a creditor from your schedule, the bankruptcy court may refuse to discharge the debt you owe, unless the creditor otherwise had “notice or actual knowledge” of your case.

Family Support Obligations

You cannot discharge a “domestic support obligation,” including alimony or child support payments ordered by a court in connection with a divorce or separation agreement. These types of support obligations are considered priority debts by the bankruptcy court. Not only can they not be discharged, but the debtor also must continue to make required payments while the bankruptcy case is pending.

Tax Debts

Most recent tax debts cannot be discharged. However, you may be able to discharge older income tax debts under certain circumstances: The due date of the tax return must have been at least three years prior to the date of the bankruptcy petition; the return itself was filed at least two years prior; the assessment is at least 240 days (about eight months) old; and the taxpayer cannot be guilty of fraudulent conduct or tax evasion.

Student Loans

This is a major problem for many debtors. Student loans are difficult, though not impossible, to discharge in bankruptcy. Unless you can prove “undue hardship” – basically, forcing you to repay the loan would keep you trapped in poverty indefinitely – a judge cannot legally cancel a student loan debt.

Personal Injury Judgments and Government Fines

While bankruptcy can wipe out many types of civil judgments, you cannot discharge any fine, penalty, or payment ordered as part of a court or administrative proceeding. Federal law also expressly forbids discharge of a judgment arising from a personal injury or wrongful death claim where the debtor was held liable based on driving under the influence of alcohol or drugs. In other words, if you are driving drunk and injure someone, any judgment that person later obtains against you in court is non-dischargeable in bankruptcy.

Recent Purchases of Luxury Items

While credit card debt is generally dischargeable, a bankruptcy judge may refuse to discharge certain credit card purchases made within the 90-day period leading up to the debtor’s bankruptcy petition. Specifically, a creditor may object to the discharge of debts incurred for “luxury” purchases totaling more than $675 during the pre-bankruptcy period. What constitutes a “luxury” purchase depends on the circumstances, but it generally refers to any item that is not “reasonably necessary” for the support of the debtor or a dependent.

Fraudulent Debts

Bankruptcy is intended to discharge only honest debts incurred in good faith. If a creditor can prove a debt was obtained through “false pretenses, a false representation, or actual fraud,” the bankruptcy court may refuse to discharge the debt. This can include, for instance, lying on an application to obtain a line of credit.

Get Help From a Las Vegas Bankruptcy Lawyer Today

This is only a brief overview of some of the kinds of debts that are legally non-dischargeable. Many other debts, however, are dischargeable. An experienced Las Vegas bankruptcy attorney can sit down with you and look at your specific debts to help identify any potential problems. One important thing a bankruptcy attorney will do is make sure your petition is complete and accurate. The last thing you want to happen is for a dischargeable debt to be rendered non-dischargeable because it was not properly listed.

The Law Office of Erik Severino has been focused exclusively on consumer bankruptcy law since 2009. If you need help with a Chapter 7 or Chapter 13 bankruptcy filing, call us today at 702-997-4149 to schedule a free consultation.

1 bankruptcyattorney-lasvegas.com/personal-bankruptcy/chapter-7-bankruptcy/

How the Statute of Limitations Can Affect Your Bankruptcy Case

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When a creditor presents a claim against a Chapter 7 bankruptcy estate, it must be legally valid. In other words, if the creditor could not normally sue to enforce the debt outside of bankruptcy, it cannot seek to collect the debt from the bankruptcy trustee. After all, bankruptcy is about giving a second chance to the debtor, not the creditor.

Time Limits on Creditor Claims

To put this in context, consider the fact that Nevada has a four-year statute of limitations on open credit accounts with a revolving balance. Let’s say you have a bank credit card with an outstanding balance of $1,000. You made your last payment in March 2013. You have made no effort to pay the balance since then and simply ignored any collection notices sent by the bank.

In April 2017, you file for Chapter 7 bankruptcy petition. The bank files a claim for the $1,000 against your bankruptcy estate. At this point, the claim is invalid because more than four years has elapsed. Even if you never filed for bankruptcy, the bank could not legally sue to collect the judgment in Nevada state court.

What Happens When State Laws Conflict in Bankruptcy?

Statutes of limitations differ between states. This can pose an issue in bankruptcy cases, which are governed by a combination of federal and state laws. The U.S. Ninth Circuit Court of Appeals, which has jurisdiction over bankruptcy cases from Nevada and other western states, recently confronted the question of how to deal with such a conflict in practice.

In this case, the debtors are a married couple living in California. In 2007, they purchased a condominium in California. There were two outstanding loans against the property. Unfortunately, the debtors defaulted on the loans, and the lender with the priority claim foreclosed.

This left the second lender with an outstanding debt of $42,000. Apparently, no action was taken to collect on this debt. The debtors filed for Chapter 7 bankruptcy protection in California in 2013, nearly six years after taking out the original loan. The lender then filed a claim against the bankruptcy estate.

Here was the problem: California has a four-year statute of limitations on the enforcement of written promissory notes like the one securing the bank’s loan. But the lender was a bank based in Ohio, which has a six-year statute of limitations. Furthermore, the note itself said it was governed under the terms of Ohio law.

If the bankruptcy court enforced the California time limit, the bank’s note was invalid and the trustee of the debtors’ bankruptcy estate had no obligation to pay off the loan. But if Ohio law applied, the note and the creditors’ claim were still valid. The debtors obviously encouraged the bankruptcy judge to apply California law since it was to their benefit. But the judge decided Ohio law should apply and overruled the debtors’ objection.

The Ninth Circuit agreed that this was the right decision. Normally, when parties sign a written contract specifying a “choice of law,” that decision is binding in any subsequent litigation. So, in the normal course of events, Ohio’s six-year limit would apply to the note.

But this was not a normal situation. The Ninth Circuit said the note did not specifically state it applied to the statute of limitations. It was therefore deemed “silent on the issue.” (One of the Ninth Circuit judges disagreed on this point and felt the note’s choice of Ohio law was binding on the bankruptcy court.)

That said, there were “exceptional circumstances” that still justified applying Ohio’s longer time limit. Basically, the Ninth Circuit said that applying California’s shorter statute of limitations would unfairly prejudice the creditor’s rights. After all, if the debtors had not filed for bankruptcy, the lender could have moved to enforce its note under Ohio law. But once the debtors sought Chapter 7 protection, the creditors had “no forum for its claim” other than the bankruptcy court in California. Therefore, it would be “unfair” to dismiss the creditor’s claim based on California’s stricter time limit.

Get Help from a Nevada Bankruptcy Lawyer

This is just one example of the highly technical legal issues that can arise in a Chapter 7 bankruptcy case. While most bankruptcies are resolved in a few months without any notable creditor objections, when something does go wrong, it can lead to more extended litigation. It is important to work with an experienced Las Vegas bankruptcy attorney who understands the legal system and how to help you avoid potential traps. Contact the Law Office of Erik Severino today at 702-997-4149 to schedule a free consultation.

 

1 bankruptcyattorney-lasvegas.com/personal-bankruptcy/chapter-7-bankruptcy/

2 https://scholar.google.com/scholar_case?case=14959371693978667337&hl=en&as_sdt=6,47

What Happens If I Have No Assets and File for Bankruptcy?

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Chapter 7 bankruptcy is designed to “liquidate” your nonexempt assets and use the proceeds to pay back your creditors as much as possible. Many assets are not liquidated, however. Federal and state laws exempt a good portion of a debtor’s assets to ensure he or she has sufficient means to support himself or herself after the bankruptcy case ends.

But in many Chapter 7 cases, the debtor has no assets or what the debtor does have is either covered by Nevada state bankruptcy exemptions or already subject to a secured creditor’s lien (e.g., a home mortgage or car loan). So, what happens when there are no assets to pay back the creditors?

Handling a “No-Asset” Bankruptcy

In a Chapter 7 case, the bankruptcy court appoints a trustee to take charge of the debtor’s estate. The trustee is the person who is responsible for collecting and liquidating the debtor’s nonexempt assets. In a typical Chapter 7 case, the trustee must file a report with the court listing the bankruptcy estate’s assets. Creditors then must file a proof of claim with the court, allowing the trustee to make distributions in an orderly fashion.

But if the debtor has no nonexempt assets, the trustee is required to file a “no-asset” report with the court. The creditors do not have to file their claims since there is nothing for them to recover. Once the bankruptcy judge confirms the no-asset report, the debtor is typically discharged from any further obligation to pay most of his or her unsecured creditors. (Some debts are not legally eligible for bankruptcy discharge, such as child support obligations and certain types of student loans.)

Of course, it is possible that the trustee will later find assets that were either accidentally omitted from the original bankruptcy filings or intentionally hidden by the debtor. In such cases, the bankruptcy court will allow creditors additional time to file claims. Of course, it should go without saying that you should never attempt to conceal assets from a bankruptcy judge or trustee. A debtor may face severe consequences, including the revocation of a previously granted discharge and possible criminal prosecution.

Is Bankruptcy Worth the Effort?

You might be wondering if there is any reason to even file for bankruptcy if all your assets are already exempt from creditor collection. Bankruptcy does involve a certain amount of time and money, and you might decide it is not worth the hassle. But here are a few things to consider when deciding if a “no-asset” bankruptcy is right for you.

First, if a creditor is threatening you with a lawsuit – or has already obtained a judgment against you – filing for bankruptcy imposes an automatic stay that prevents any further legal action until a judge decides otherwise. The automatic stay means all collection efforts must cease immediately. This includes secured creditors, so even your mortgage lender must suspend any foreclosure proceedings. And while the stay will not get you out of your mortgage obligations, it can buy you time to negotiate with the lender and possibly catch up on any missed payments.

On the other hand, you may be in a situation where your creditors have no legal recourse against you even if you do not seek bankruptcy protection. For any debt, there is a statute of limitations – a state-imposed legal deadline for filing a lawsuit against a debtor. For “open accounts” like credit cards, the statute of limitations in Nevada is four years. So, if you have a credit card that has not been paid in five years and the bank has yet to take legal action, you are “in the clear,” at least in terms of not facing a civil judgment.

Of course, any unpaid debts may be reflected on your credit report. Filing for Chapter 7 bankruptcy allows you to “wipe the slate” and start over without any prior debts hanging over your head. This alone might justify filing a no-asset bankruptcy.

Need Advice from a Nevada Bankruptcy Lawyer?

The decision to file for bankruptcy is never easy. Many people do not want to admit they have “failed” and require legal protection. But bankruptcy is not a sign of moral weakness. Often, a sudden, unexpected debt – a medical bill following an accident, for example – simply overwhelms individuals of modest means. Bankruptcy is meant to protect them from a lifetime of crippling debt obligations.

An experienced Las Vegas bankruptcy attorney can sit down with you and review your financial situation. The Law Office of Erik Severino offers personal attention to individuals facing the prospect of Chapter 7 bankruptcy. Call us today at 702-997-4149 to schedule a free consultation.

1 bankruptcyattorney-lasvegas.com/personal-bankruptcy/

Bankruptcy Basics: Filing for Chapter 13

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Chapter 13 is sometimes called the “wage earners” or “reorganization” bankruptcy. It is designed primarily for people with a regular income who may have fallen behind on their debt payments, and people who do not qualify for chapter 7 bankruptcy. In chapter 13, individuals work with a credit counselor and their attorney to develop a plan which allows them to restructure the timing of payments of most of their debts over a 3-5 year period. The debtor’s disposable net income (DNI) is used to cover a portion of their debts; this is the amount left over after all of the debtor’s monthly bills are paid. Once the debtor makes payments for 3-5 years, most remaining debts are discharged. There is no income qualification test for chapter 13, but unsecured debt must be less than $394,725 and secured debt less than $1,184,200 (these numbers are adjusted periodically).

The biggest advantage of chapter 13 is that it can prevent foreclosure and loss of home. The debtor continues to earn a regular paycheck and is able to eliminate some debts (medical bills, credit card debt) while getting caught up with past due mortgage payments. Debtors may still lose their home, however, if their mortgage company completes a foreclosure sale before the debtor’s bankruptcy petition is filed, or if the debtor does not make the mortgage payments which fall due after the petition date. Another advantage of chapter 13 is that it protects co-signers and prevents debtors from having to deal personally with their creditors.

The chapter 13 process begins with credit counseling for the debtor with an approved agency, at least 180 days prior to filing the bankruptcy petition. A payment schedule will be determined, which is submitted at the time of petition or within 14 days, along with documentation and required fees. The documentation will include lists of creditors, assets, liabilities, monthly expenditures, contracts, etc. The debtor may arrange to pay the required fees in up to four installments.

Once the petition is filed, a trustee is appointed who will oversee the process, collect DNI from the debtor, and distribute monies to creditors in a structured and timely fashion. At this point a “stay” is put in place which stops home foreclosure and prevents creditors from suing, garnishing wages, or making harassing phone calls to the debtor. The trustee will arrange for a meeting with the creditors within 21-50 days of petition; the debtor must be present to answer questions. Then a hearing is held before a judge, who will determine whether the payment plan is feasible and follows the stipulations of the bankruptcy code.

Payments of DNI to the trustee must begin within 30 days of filing for bankruptcy. Following the payment schedule, payments are made biweekly or monthly to the trustee (payroll deduction may be used), who then pays the creditors. The first claims paid by the trustee cover most taxes and the cost of the bankruptcy proceedings. They then pay the holders of secured debts, followed by unsecured debts. Creditors may receive less than what they are actually owed.

The final step of chapter 13 is the discharge, or erasure, of most remaining debts. Generally long-term debts cannot be discharged through chapter 13, such as mortgage, child support, student loans, or restitution owed for personal injury or death caused by DUI. The discharge rules for chapter 13 have recently undergone revision, and are more complex than the chapter 7 statutes.

An experienced bankruptcy attorney can help you navigate the nuances of the bankruptcy code to determine whether chapter 13 is the best solution for your financial situation. A free, 30-minute introductory appointment is available from the Law Office of Erik Severino at (702) 997-4149. Your case will be handled with his personal attention and his commitment to provide you with resolution, protection, and integrity in the process. Erik Severino has a degree in economics from the University of Nevada, Las Vegas, and his Juris Doctorate from the William S. Boyd School of Law, UNLV. He has been licensed to practice in Nevada since 2006, concentrated exclusively on consumer bankruptcy law since 2009, and in 2016 was awarded the Avvo Clients’ Choice Award. 

Making a Fresh Start with Chapter 7 Bankruptcy

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Chapter 7 bankruptcy is sometimes called the “fresh start” bankruptcy. The goal in filing for chapter 7 is to provide a clean slate for a debtor, allowing them to retain much of their property and receive a “discharge” that erases most of their debts. It is designed to help lower income wage earners (individuals, married couples, or small business owners) who have fewer assets. Some of the debtor’s non-exempt property and assets may be sold by a trustee and the money is used to pay creditors, but with skilled counsel this can usually be avoided. Chapter 7 is often a useful option for holders of upside-down mortgages (whose home is worth less than is owed) because the remaining balance of the mortgage is discharged after foreclosure.

In the vast majority of cases (about 90%), debtors will receive full discharges without losing any of their property. Most unsecured debts are discharged through chapter 7. This includes those debts which have been acquired without a lien; in other words, there is nothing for the creditor to take back from the debtor if payments are not made. Unsecured debts include things like hospital or medical bills; credit card debt; and utility bills. Back rent may be included in the items for discharge, although if the debtor is unable to continue paying future rent, the bankruptcy discharge does not prevent eviction. Most secured debts are also discharged in a bankruptcy settlement. In almost every case, our clients have assets that will be protected by exemptions allowed by Nevada bankruptcy code. If any property or assets are at risk, careful planning can alleviate the need to surrender any property.

Some debts cannot be discharged through chapter 7, including any credit or money obtained through fraudulent means.  Also ineligible for discharge are student loans, child support, alimony, cash advances obtained within 70 days of filing, and any luxury goods or services purchased within 90 days of filing. Certain fines or penalties owed to government agencies cannot be discharged, and some tax debts are also ineligible. A skilled bankruptcy attorney will be able to give you guidance on the tax stipulations. Further, any restitution due for DUI convictions cannot be discharged through chapter 7.

The process for chapter 7 generally can be completed in 4-6 months. The first step is to undergo debt counseling. Upon completion, you will receive a certificate and a debt repayment plan that you will present with your petition for bankruptcy. The next step is the means test to ascertain whether a debtor meets the requirements and prevents higher wage earners from abusing the provisions of chapter 7.

To qualify for chapter 7, you will need to show that your current monthly income is less than the median income for a household of your size. If you pass this part of the test, you can proceed with the filing; if not, you will need to complete the second phase of testing, showing that you do not have enough money left over each month to pay at least a portion of your unsecured debts. If you do not pass the means test, you will need to consider chapter 13 instead.

If you pass the means test, you may file for chapter 7. After submitting documentation about your financial situation and creditors, and paying the proper fees, a trustee will be appointed. At this point a “stay” is placed, preventing creditors from attempting to collect monies due while the proceedings are active. An estate is created and becomes the temporary legal owner of your assets. In order to retain certain items, such as a car, you will file an affirmation to show that you are able to continue making payments. At the end of the process, the debtor will finally have the fresh start they sought, released from liability and protected from creditors who can no longer take action to collect debts.

The decision to file chapter 7 is a very private matter and the process can be overwhelming. Call the Law Office of Erik Severino to arrange a free 30-minute introductory appointment. Your case will be handled with personal attention and a commitment to provide you with resolution, protection, and integrity. Erik Severino attained a degree in economics from the University of Nevada, Las Vegas, and his Juris Doctorate from the William S. Boyd School of Law, UNLV. Licensed to practice in Nevada since 2006, he has concentrated exclusively on Consumer Bankruptcy Law since 2009, and in 2016 was awarded the Avvo Clients’ Choice Award.