Category Archives: Filing Bankruptcy

Lien Stripping in Bankruptcy

Liens can be stripped off of the debtor’s assets in Chapter 11 or Chapter 13 when the equity in the asset, after deducting senior liens from the property’s current market value, is less than the amount of the unsecured portion of the lien can be eliminated.

There is a special exception to this concept that limits lien stripping when the lien is a voluntary lien, like a mortgage, on property that is the debtor’s principal residence. Under this excedption, voluntary liens on a home can be stripped off only if there is no equity in the property at all, after totalling the senior liens, to which the lien in question could attach.
Unfortunately Congress has thus far failed to change to bankruptcy law to allowing the modification of home mortgages by reducing the amount of the lien to the current value of the property.

Section 506 of the Bankruptcy Code acknowledges that a lien is only a secured claim to the extent there is value in the asset to which it attaches. To the extent that the claim exceeds the value of the collateral, that portion of the claim is unsecured.

Contrast this procedure to lien avoidance pursuant to § 522, where only judicial liens such as judgment liens (or voluntary liens on household goods) can be avoided if the property would otherwise be exempt.

Liens Secured by Vehicles

The most common application of lien stripping is the reduction of car loan liens to the present value of the car. Thus a lender holding a $12,000 claim secured by a car now worth $10,000 has a secured claim of $10,000 and a unsecured claim for $2,000. Two thousand dollars of the lien may be stripped off the asset (the car) in a reorganization. The plan must provide for payment in full of the secured portion of the debt; the unsecured portion can be paid little or nothing along with other unsecured claims.

Recent changes to the bankruptcy law attempt to limit lienstripping on vehicles purchased within 910 days of the bankruptcy filing. The amendment says that ” §506 does not apply” to such vehicles. The intent was to compel payment of car loans made within 2 2/3 years of the filing payable in full, despite the fact that the collateral is often worth thousands of dollars less than the debt it secures. More on 910 cars.

Tax liens

Tax liens can be stripped off in reorganization proceedings (Chapters 11 and 13) to the extent that the lien does not attach to equity in property. Tax liens can’t be avoided in Chapter 7 on the grounds that they impair exemptions because they are statutory liens, not judicial liens.

If the tax underlying the lien is dischargeable in the Chapter 7, the bankruptcy court can determine the amount of the lien that is secured at the time of the filing. Payment of that sum entitles the debtor to the release of the lien.

What debts are dischargeable?

Generally, all debts listed on the petition are dischargeable. However, certain types of debt are not dischargeable. The non-dischargeable debts include, but are not limited to:

a. Certain taxes and fines;

b. Debts arising from certain fraudulent conduct;

c. Debts not listed in your bankruptcy petition;

d. Alimony, child maintenance or support, and certain other related debts arising out of a divorce decree or separation agreement;

e. Debts caused by the Debtor’s willful and malicious injury to another;

f. Government guaranteed student loans;

g. Debts caused by a death or personal injury related to your operation of a motor vehicle while intoxicated; and

h. Post-bankruptcy condominium or cooperative owner’s association fees.

What is the role of a Trustee assigned in a chapter 7 or 13 case?

Under Chapter 7 Bankruptcy, an impartial trustee is appointed to administer the case by collecting and liquidating the Debtor’s non-exempt assets in a manner that maximizes the return to the Debtor’s unsecured creditors.

Under Chapter 13 Bankruptcy, an impartial trustee is also appointed to administer the case. The primary roles of the chapter 13 trustee are to determine the feasibility of a Debtor’s repayment plan for the court and to serve as a disbursing agent, collecting payments from Debtors and making distributions to creditors.

What is a 341 meeting?

This meeting is referred to as the “meeting of creditors.” All creditors are notified so that they may attend, but their attendance is not required. Debtors have a duty to appear and testify under oath and answer questions by creditors. This meeting is presided over by the trustee assigned to the case and is held approximately 40 days after the petition is filed. Debtors are required to provide photo identification and proof of social security number to the assigned trustee. A Debtor’s failure to appear may result in dismissal of the case. If a continuance or change in the hearing date is sought, the trustee assigned to the case must be contacted.

What is a Bankruptcy Discharge?

It releases the Debtor from personal liability for discharged debts. Thus, it prevents the creditors owed those debts from taking any action against the Debtor to collect the debts. Most, but not all, types of debts are discharged if they existed on the date the bankruptcy case was filed and were listed on the schedules. Some of the debts that are not discharged are discussed in question 15. Bankruptcy law regarding the scope of a discharge is complex, and Debtors should consult competent legal counsel prior to filing.

Can a discharge be denied?
Under certain circumstances, 11 U.S.C. § 727 provides the Debtor’s discharge may be denied in a chapter 7 case. Grounds for denial exist when the Debtor: (1) failed to keep or produce adequate books or financial records, (2) failed to satisfactorily explain any loss of assets, (3) committed a bankruptcy crime such as perjury, (4) failed to obey a lawful order of the bankruptcy court, or (5) fraudulently transferred, concealed, or destroyed property that would have become property of the estate.

What is the difference between a discharge being denied and a debt being declared nondischargeable?
The court can deny the Debtor’s discharge of all debts, or determine that a particular debt or debts are nondischargeable. If the court denies the discharge of all debts, then the Debtor will still be legally responsible for all the debts as if no bankruptcy petition had ever been filed. If only certain debts are ruled nondischargeable, the Debtor will still receive a discharge order. However, the Debtor will remain legally responsible for those nondischargeable debts. For a discharge to be denied, either as to a particular debt or as to all debts, someone must file an adversary proceeding (lawsuit) with the court. That party must then prove one of the grounds for denial of the discharge or for a debt to be declared nondischargeable.

How is a Debt Classified?

How is a debt classified as secured, unsecured, priority, or administrative?

A secured debt is a debt that is collateralized by property. A creditor whose debt is “secured” has a right to foreclose or take property to satisfy a “secured debt.” For example, a mortgage loan is likely “secured” by a Debtor’s home. This means that the lender has the right to foreclose upon and take the home if the Debtor fails to make the loan payments.

An unsecured debt arises when you promise to repay someone a sum of money at a particular time, but you have not pledged any property as collateral for the debt.

A priority debt is a debt entitled to priority in payment, ahead of other debts. Please refer to 11 U.S.C. §507 of the Bankruptcy Code for a listing of such priority claims.

An administrative debt is a category of priority debt. Generally, it is created when someone provides goods or services to your bankruptcy estate after you file your petition. An example of an administrative debt is the fee charged by an attorney or other authorized professional for services rendered after the bankruptcy case has been filed.

What Chapter is Right for Me?

Your decision whether to file bankruptcy and under which chapter to file depends on your particular circumstances. In general, Chapter 7 is appropriate when the Debtor has insufficient income to pay a portion of his/her debts, and the Debtor is not seeking to keep non-exempt property. Otherwise, if the Debtor has an income or property and can afford to repay at least some of his/her debts, Chapter 11, 12 or 13 may be appropriate, depending on whether the Debtor is an individual, partnership, corporation, or family farmer. The decision whether to file a bankruptcy case and under which chapter is an extremely important decision and has tremendous financial impact. Consequently, this decision may require expert advice from a bankruptcy attorney. Thomas A. Nanna is a Board Certified Bankruptcy Attorney in Tampa, Florida.

What is Bankruptcy?

Bankruptcy is a legal process which allows a person (a “Debtor”), who owes more money than he or she can currently repay, to either (1) repay a portion of the money over time under Chapter 11, 12, or 13, or (2) have the entire debt forgiven (“discharged”) under chapter 7. Under chapter 7, a Debtor may be required to surrender assets to a trustee. Bankruptcy is also available to businesses, corporations, and partnerships. Even municipal governments can file bankruptcy (under Chapter 9).

After a Debtor has filed a case (i.e., “petition”), creditors must stop all collection efforts against the Debtor for a period of time, unless they get permission from the bankruptcy court to continue. This protection from collection efforts is referred to as the “automatic stay.”

The Bankruptcy Code and Federal Rules of Bankruptcy Procedure determine which chapter one is eligible to file, which debts can be eliminated, how long repayment must continue, which possessions can be kept, etc. A Debtor must abide by these federal laws and rules.

The Warning Signs of Bankruptcy

Are collectors calling? You can finally answer your phone after you file bankruptcy.

Is the harassment driving you crazy? Filing bankruptcy will eliminate debt problems, stop creditor harassment, lawsuits, foreclosure and repossession.

Are you having trouble sleeping? Financial troubles can cause all sorts of ailments, the most common of which is sleeplessness. The anxiety created by the inability to pay bills and the embarrassment of having to talk to bill collectors at work, make it difficult for many people to fall asleep or to sleep through the night.

Are you using one credit card to pay another? This increases your balances and will not allow you to ever become debt free.

Do your credit balances never seem to get smaller? Make bill problems go away. Learn how bankruptcy can provide debt relief.

Do you have too many bills? Take control of your finances by filing bankruptcy.

Are you being threatened by lawsuits, garnishment, foreclosure or repossession? Bankruptcy prevents or stops creditors from taking action.

Have you experienced a reduction in income, medical bills, illness, loss of job, disability, divorce or repossession? Bankruptcy can be the solution.

Do you only pay the minimum credit card payments? This increases your balances and will not allow you to ever become debt free.

Do you have to sacrifice basic necessities just to keep food on the table? Then it is time you obtain a fresh start and start to enjoy life.

Is your home threatened by foreclosure? Bankruptcy can prevent a foreclosure from being filed and can stop a foreclosure. Further, we can force the mortgage holder to allow you to cure the mortgage arrears over a period of five years.

Should You File Bankruptcy?

Bankruptcy is alive and well! Regardless of what you may have heard in the media, the new bankruptcy law that became effective in 2005 does not mean the end of bankruptcy. The substantive rights that existed under the old law still exist under the new law.

You would not be reading this unless you are in deep financial trouble. Please know you are not alone. In 2005, over two million Americans put their problems behind them by filing bankruptcy. There are many people, just like you, who can not sleep at night due to overwhelming pressure from debt.

If you need help getting your financial affairs in order, and are looking for a fresh start, you may want to consider filing for bankruptcy. While bankruptcy is not for everyone, at times it is the only way. Different bankruptcy options exist, and it is possible for you to file bankruptcy and not lose any of your possessions. Even if you are in foreclosure, it may not be too late to save your home.

Even the hardest workers and the most diligent bill-payers can find themselves with more debts than they can pay as they become due. In such cases, filing bankruptcy may provide a solution to what seems like an insurmountable problem. If you or someone you know is facing serious financial challenges, it is very important to seek the counsel of an experienced bankruptcy attorney. Bankruptcy has evolved into an accepted method of resolving serious financial problems. The bankruptcy attorney’s goals are to help debtors get out from under formidable debt, obtain a fresh start and emerge as productive citizens.

If you are unable to become debt-free in the near future, you must make an important decision. Either you can continue to keep you and your family in poverty, with no signs of financial freedom. Or, you can take immediate control of your financial destiny and take advantage of a legitimate solution to eliminate your debts and enjoy a debt-free life. This should be an easy decision.