Saturday, March 14, 2015

What is Chapter 7 Bankruptcy?

Chapter 7 is a form of bankruptcy that allows an individual to make a fresh start by legally eliminating, or "discharging", debt. Filing a Chapter 7 bankruptcy can eliminate most, if not all, or your debts. It is a quick and powerful tool to put an end to financial stress, release financial obligations for unwanted real or personal property, and stop harassing creditor phone calls.

While Chapter 7 is a liquidation bankruptcy, individuals are allowed to claim certain assets and properties as exempt. Most often the available exemptions allow individuals to retain assets and properties they wish to keep. When exemptions are insufficient for keeping desired assets, individuals can pursue Chapter 13, which allows for significant debt elimination but does not involve liquidation.

By filing a Chapter 7 you can eliminate such debts as:
  • Credit cards
  • Personal/unsecured loans
  • Debt which forms the basis of judgments and garnishment
  • Medical bills
  • Past due utility bills
  • Loan deficiency debt from repossessions and foreclosures
  • Mortgages
  • Auto loans and leases
  • Qualified income tax debt
  • Overpayment of benefits associated with social security or unemployment compensation
The above list of debts that may be subject to a Chapter 7 discharge is not exhaustive. To find out if a debt you owe is dischargeable, call our office for a free phone or in-person consultation - 616.389-0629.

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This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

Can a Probate Estate File Bankruptcy?

Rule 1016 of the Federal Rules of Bankruptcy Procedure governs what happens when a debtor is deceased. A probate estate cannot file for bankruptcy. The fresh start goal is personal to the debtor. Allowing a personal representative to substitute would allow them to accomplish indirectly what it could not directly. 

If a debtor passes after filing Chapter 7, the case will continue and the bankruptcy estate will be administered. Rule 1016 will sometimes allow a Chapter 13 case to continue after the debtor’s death, “if further administration is possible and in the best interest of the parties.”

If you or your family are going through the probate process and there were significant debts owed by the deceased individual, your questions should be directed toward a probate attorney.

Visit Law Offices of Ryan F. Beach 

This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

Friday, March 13, 2015

Pawn Loans in Bankruptcy

All debts must be disclosed and treated in a bankruptcy, including a loan with a pawnshop. It is somewhat unusual to see this type of debt in bankruptcy. I suspect that is because debtors don’t think of bringing it up to their attorney and most attorneys don’t think to ask if there are any pawn loans.

If you are filing Chapter 7, you may eliminate or "discharge" the debt owed to a pawnshop; however, if the debt is not satisfied you will lose the property used as collateral. If you are filing Chapter 13, it may be possible to treat the debt in a Chapter 13 plan and save the property used as collateral.

Property of the Estate

Under 11 USC 541(a)(1), any property in which a debtor has a legal or equitable interest becomes "property of the estate." As long as the contractual or statutory (state law) redemption period has not expired, the collateral used for a pawn loan and/or the right to redeem that collateral becomes part of the bankruptcy estate. Property of the estate is protected by the automatic stay provision of the Bankruptcy Code (see 11 USC 362).

If all applicable redemption periods have expired at the time a bankruptcy is filed, the collateral or a right to redeem the collateral is not property of the bankruptcy estate and the automatic stay does not apply. This is because once the right of redemption no longer exists, ownership of the collateral vests in the pawnshop. In other words, there is no legal or equitable interest to protect. 

Automatic Stay

If an applicable redemption period has not yet expired at the time of bankruptcy filing, the pawnshop cannot take the final action to gain ownership of the property because such action would be considered an action to enforce a lien, which would be a violation of the automatic stay.

The application of the automatic stay and its effect on redemption is not absolutely clear. However, the majority of courts have held that the automatic stay provision under §362 of the Bankruptcy Code does not toll the running of the redemption period. Assuming the majority position is correct, if the bankruptcy is filed before the expiration of the applicable contractual or state redemption period, §108(b) extends the redemption period for 60 days from the filing date of the bankruptcy. Anything beyond that 60-day extension would be an impermissible creation of a property right. Property rights are created and defined by state law. So, unless some federal interest demands a different result, the filing of a bankruptcy will have no impact.

The Bottom Line

The debt owed to a pawnshop can be discharged by filing bankruptcy, but discharging the debt does not allow a debtor to save the property used as collateral. Chapter 13 may offer some limited relief, but timing is crucial. If the applicable redemption periods for the collateral have expired, a debtor’s ability to treat the pawn loan in a Chapter 13 is most likely nonexistent. If an applicable redemption period has not expired, a debtor may treat the pawn loan over the course of the later of the end date under the applicable contract, the redemption period provided by state law, or within the 60 days following the filing of the bankruptcy. The available time to treat a pawn loan is extremely short. Being aware of the limited time to treat a pawn loan will help in coming up with a successful plan to save the property.  

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This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

Thursday, March 5, 2015

Can I Stop a Garnishment?

The laws governing garnishments are harsh. If you are being garnished, you don't need to be told that. What you need to know is that there is a way to quickly stop a garnishment and get relief from the debt that caused it. While is it not your only option, once a garnishment becomes active bankruptcy is mostly likely your best option.  

Garnishments in Michigan

Federal law places limits on wage garnishment amounts. While a state may impose stricter limits, Michigan has chosen not to. As such, federal law governs in Michigan. Creditors are allowed to garnish the lesser of 25% of your disposable earnings, or the amount by which your weekly disposable earnings exceed 30 times the federal hourly minimum wage (NOTE: different rules apply to child support). 

What Can Be Garnished

After a creditor sues you, obtains a judgment, and obtains a writ of garnishment, your wages, bank account, and state tax refunds may be garnished.  If the creditor is seeking to recover for a non-consumer debt, such as child support arrears, overpayment of unemployment benefits or social security benefits, and income tax debt, your federal tax refunds may be subject to offset or garnishment (NOTE: this is non-exhaustive list of debts that may lead to an offset or garnishment of your federal tax refund).

How to Stop a Garnishment

Once a garnishment has started, a person has very few options for stopping it. One option may be debt settlement; however, once a garnishment is in place there is very little incentive for a creditor to take less than what is owed and/or take payments at rate lower than what they will get from the garnishment. In my experience, debt settlement must be attempted prior to a writ of garnishment being entered to have any real chance of success. 

So, what other options are there beyond suffering through the garnishment, paying the debt in full, or quitting your job? Bankruptcy. Unfortunately, most non-bankruptcy options are only truly effective prior to the garnishment taking effect. Upon filing a Chapter 7 or Chapter 13 bankruptcy, an automatic stay immediately goes into effect. The automatic stay is essentially a federal court order that tells creditors that they have to stop all collection efforts, which includes harassing phone calls and letters, lawsuits, garnishment, foreclosure, repossession, seizure of property, etc. 

The automatic stay does not cause a wage garnishment or a non-periodic garnishment to stop immediately. It typically takes about 1 to 15 days for it to stop. This is because there are series of steps that must be taken before your employer, your bank or the State, can legally stop withholding funds pursuant to the garnishment order. Despite the delay in having the garnishment released, all funds taken after the date you file your bankruptcy must be returned to you in full. Bankruptcy may also allow you to recover funds that were garnished during the 90 days prior to the filing date of your case if the funds taken by the creditor exceed $600.00. 

The return of garnished funds may not be possible or may not make sense in certain situations, such as garnishment for child support arrears or garnishment for a non-dischargeable debt like student loans. Consultation with an experienced bankruptcy attorney is always necessary to determine what relief is available for your situation. 

The Bottom Line

Taking action before a judgment is entered is the best way to avoid a garnishment. Prior to a judgment being entered and a garnishment taking effect, there are many more options for resolving the debt in a way that is affordable. Consulting with an attorney that practices bankruptcy and debt settlement during the beginning stages of a lawsuit will limit your losses and give you the most flexibility on how you can resolve your debts. Unfortunately, this is not always possible. Despite legal notice requirements, many people aren't aware that they are being sued and a creditor is seeking garnishment until it is too late. However, even if the garnishment has started there is hope. Garnishment can be stopped quickly and the underlying debt can be eliminated by filing Chapter 7 or Chapter 13 bankruptcy. The faster you act, the faster you can get the relief you need.

Visit Law Offices of Ryan F. Beach

This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.