During the three to five years that you're making payment on your Chapter 13 bankruptcy, you can't take out any new debt without getting permission from the bankruptcy court. This provision is there to protect you from getting into further financial trouble as well as to protect new creditors from losing money if you are unable to pay them back. Sometimes it is necessary to purchase a new or used car. For example, if your car breaks down and there's no other way to get to work, or you wish to trade your current car in and get a more reliable and perhaps a nicer car. There is not requirement that you have to drive in an old clunker if you are in bankruptcy. Ok, you want to stay away from a new Porsche, the trustee might object when you propose to purchase a new car that is ten times the value of the trustee’s vehicle. You can purchase a new or used car during your chapter 13 bankruptcy case. There's a process you have to follow. In most cases the car creditor requires an order from the court allowing you to purchase a new car. The process below is for the St. Louis Metro area. The process might be different in other districts. The first step is to make sure you can afford the car payment. Schedule I and J, these are the schedules in your petition which list your income and expenses, must show that you can afford the new car payment. You and your bankruptcy attorney will need to look at your current income and expenses to make sure that there is sufficient money in the budget to pay the plan payment and the new car payment. You might have to reduce expenses on other items such as clothing or miscellaneous expenses to make the budget work. However, you cannot make up number, but you can reduce your expenses if it becomes necessary. Your expenses must be reasonable. Food of $30 for a one person without any other help such as food stamps or contributions from family members are most likely not reasonable and will draw an objection by the trustee. The next step will be for you to find a car-dealer who will sell you a car with a monthly payment that fits into your budget. Our office works with a car-dealer together who has a financing partner who is specialized in providing loans to people who are in bankruptcy. One might think that it is difficult to obtain a loan while in bankruptcy. That is not necessarily true. It depends on your credit. If your credit was low due to reports of delinquent accounts before filing bankruptcy, it might be easier to obtain a car loan after filing because the negative entries on your credit report stop after filing for bankruptcy. The car loan will be paid directly to the car dealer, not to the trustee. The contract will be outside of the bankruptcy. The third step is for your attorney to file a motion to incur debt/ purchase a new or used vehicle with the court. In that motion your attorney will have to state the whole loan amount, the monthly payment and the reason why you need to purchase the new vehicle. You do need to have a reasonable explanation. If you don’t provide a reason or the reason is that you just like cars, the trustee will object to your motion. An acceptable reason is that your old car broke down, or requires so many repairs that it is not feasible anymore to repair the car and that it makes more economic sense to purchase a newer or even a new vehicle. If the trustee is not objecting and the court grants your motion, your attorney can now submit the order. Within a few days, the court will file the order and you can purchase the car.What if the car I wanted was sold in the meantime?That happens. The motion should request to purchase permission for the car you want with the monthly payment you can afford and should add that in the case that vehicle is not available that you have permission to purchase a similar vehicle with a monthly payment not exceeding the amount stated in the motion. This way, you are not bound to one specific vehicle. Can I trade in my old car?Yes, you can but it is up to your car creditor to agree to it. It will be easier if the new car creditor is the same as your old car creditor because he would have a benefit from the trade in. After trading in your old vehicle, your car creditor will be paid directly by you and will receive the contract interest rate. Before, your car creditor received only a monthly payment stretched out over the length of the plan (usually 5 years) with the courts interest rate, currently 5.04%, that is pretty good for the debtor as we see sometimes contract interest rates of over 20%. But even if your new car creditor is not the same lender, you might be able to offer your old lender a good deal. With a trade-in the old lender would receive a lump sum now, instead of waiting perhaps years for the money to be paid in full. He would be entitled to contract interest rate and full loan balance. The offer could be to pay more to the old lender than he would receive through the bankruptcy plan.When you trade-in you still would need permission from the court and the old lender would have to agree to release his lien.Can I sell my car while I am in bankruptcy?Yes, same problem, the lien hold will need to agree to it. If you get money out of the deal, you either will have to turn over the money to the trustee or your attorney files a motion to retain the money for necessary and reasonable expenses.After you trade in your car or sell it, your attorney will need to object to the claim filed by your creditor in your bankruptcy case because otherwise your creditor will continue to receive monthly payments from the trustee.Trading in your vehicle before filing for bankruptcy.No problem when you file a chapter 13, but be careful when you file a chapter 7 and the new vehicle is now titled in the non-filing spouse and the previous car was in both of your names. Even though the previous car was exempt through the Tenancy by the Entirety Exemption, after trading in the car, receiving value for it by either receiving cash or a lower payment on the new car, you actually made a preferential or fraudulent (548 U.S.C) transfer the chapter 7 trustee can avoid. Before transferring any property, talk to your bankruptcy attorney about it. The argument that the first vehicle was exempt, will not matter after the Eights Circuit decided end of 2011 in Re Lubar that the trustee can avoid such a transfer.

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Often times debtors ask if it is possible to pay their chapter 13 plan off any earlier, either by making higher than scheduled monthly payments, or by one lump sum.  If you are in a 100% plan, meaning that you are paying back all of your debts owed to both secured and unsecured creditors, there should not be any issue with you paying off the plan early.  You can do this by increased monthly payments or a large lump sum payment.However, most often, debtors are not in a 100% plan, meaning that not all debts are being paid back to secured and unsecured creditors.  If you are in this situation you will certainly want to consult with your attorney before making any decision to try to pay off the debt early.  If you are over median income, as calculated by the means test, you are required to be in a five year plan (unless, as explained above, you are paying back 100% of creditors).  If you intend to borrow money from a bank or even a family member or friend to pay off the bankruptcy you actually need permission from the bankruptcy trustee to incur debt.  If you start making higher than required payments on a regular basis the trustee may think that you have undisclosed income, or that for some reason you are able to pay more.  If the trustee thinks you are able to pay more back to your creditors the trustee can do a motion to increase plan base and can actually request that you be required to make the higher payment.  For example, if your payment is $400 and you make several payments of $600, the trustee may file a motion to increase your payment to the $600 that you have now demonstrated that you can afford to pay.  The trustee's job is to balance you interests with the interest of the creditors of getting paid back as much as possible.If you make a lump sum payment the trustee will likely want to know where that money came from.  When you are in a chapter 13 bankruptcy some assets can become a part of the bankruptcy, even if you were not entitled them at the time of filing.  For example, as a general rule, any tax refund over $600 dollars needs to be turned over to the trustee, unless of course, you can do a motion to retain your tax refund.If you have questions, or would like to schedule a consultation, contact a St. Louis Bankruptcy Attorney today!

As the law stands now, it is difficult to get student loans discharged in bankruptcy. For many years, student loan recipients under federal government programs like, Stafford and Perkins loans, have not been able to discharge their loan debt through bankruptcy. A new portion of the law was enacted in 2005, which added the stipulation that private loans from banks would also not be eligible for discharge in bankruptcy petitions.    Sometimes, the lender has their own regulations in place under which student loans can be forgiven. A debtor should first contact the lender and describe the situation that causes the default of the debt. A Universal discharge application used for all Federally Subsidized Loans can be found here.   Even though student loan debt is difficult to discharge in bankruptcy, it is possible to do so. The borrower needs to show that payment would cause him undue hardship. Different tests by courts are used to determine if undue hardship exists for the borrower on an individual basis. The Brunner test is often used for proving this hardship. The requirement of the test is met if a bankruptcy petitioner can’t maintain a “minimal” standard of living for the debtor and his family if he has to pay his student loan payments. It must be shown that circumstances are present that will probably continue for the entire repayment period. In addition, the debtor needs to have made sincere attempts to repay the loan. These rules (Brenner v. New York State Higher Educ. Servs. Corp. 831 F.2d395 (2dCir.1987) are the standard, but courts show some flexibility. If you or your attorney can show undue hardship, you won’t be responsibility for your student loan debts.  In order to discharge student loans, the debtor would file an adversary proceeding arguing undue hardship. The court then would need to decide whether the student loan can be discharged (Rule 7001, Federal Rules of Bankruptcy Procedure). Even if you have already filed for bankruptcy, you can reopen the case to include a request for determination of undue hardship. The court is charging court cost for reopening the case, and your bankruptcy attorney might charge an additional fee for handling the adversary proceeding.   In past cases, circumstances that can lead to discharge of loan debt are varied. In some cases, circumstances such as low income and high expenses, disability, high medical costs, attending fraudulent schools, ongoing mental illness and sometimes alcoholism. Courts interpret circumstances differently so decisions vary somewhat.   The St. Louis Bankruptcy court granted in a recent decision the discharge of student loan debt in a case where a debtor was mentally ill and the doctor provided a statement from his doctor stating that the patient was not able to work anymore.   In a different case, the court denied the discharge of student loan debt in a decision involving a debtor who had income but had several dependents and was unable to pay for basic needs and pay student loans. The court stated economic hardship is not sufficient to establish undue hardship.   The leading case about hardship discharge for the St. Louis Metro area (Eastern District of Missouri) is in re Jesperson. The debtor was an alcoholic who was not able to work due to his addiction.   If the debtor receives Social Security Disability, it might be possible to obtain an agreed order from the lender to the discharge of the student loan. Otherwise a statement from a doctor or having the doctor testify about the medical condition will be beneficial to win the case.    In cases where loan debt discharge, using a plea of undue hardship doesn’t seem likely, another option is to file for Chapter 13 bankruptcy. This is a reorganization of debt in order to pay creditors over time using future income. The debtor will be able to continue to pay the ongoing student loan payments and lower or eliminate payments on other debts.    What happens with the co-borrower’s (most often the parents) liability when the borrower received a discharged of his student loan debt?   The answer depends on the student loan. When it is a Federally Subsidized Student Loan, and the Federal Student Loan guarantor determines that the borrower has a total and permanent disability, the debt will also be discharged for the Guarantor (the parents). This information is available from the Rights and Responsibility Letter the borrower signs when taking out the student loan.   It is different for Parent Plus Loans, even when the borrower becomes disabled, the parents still will be liable for the repayment of the loan. For the question whether tuition is dischargeable or is handled the same as student loans, watch my video about tuition or read the article.

People who are considering Chapter 13 bankruptcy may be able to benefit from a practice known as lien stripping. This in essence is the process of forgiving or stripping away debt that is normally ineligible to be written off. In previous years, this practice was virtually unheard of, but factors surrounding the present housing market have caused this to be a very common occurrence.   Chapter 13 bankruptcy involves setting up a schedule for the repayment of the debtor’s debt based on his income. The first debts that are normally paid are secured ones that have a piece of property attached to them. Home and car loans generally fall into this category, as the property can be repossessed in the event of non-payment. Non-secured debts are ones that do not have property attached and are among the last to be paid under Chapter 13.   People who have taken out a mortgage only to find the value of their home has fallen may be eligible for lien stripping. This happens whenever more money is owed on a primary mortgage than the real estate is worth because property values have decreased. The excess amount owed on the primary mortgage means that subsequent home loans are now unsecured and eligible to be discharged by a bankruptcy judge.   An example of an unsecured second mortgage would be this: A couple purchased a home five years ago for $250,000. Two years later they took out a second mortgage for $50,000. They now owe $220,000 on their first mortgage and $45,000 on their second mortgage. The value of the home is now only $200,000. The debtors are now under water and may apply lien stripping rules to the second mortgage.   Even if the value of certain real estate is less than the amount owed on the first mortgage, this loan is still fully secured. This is because the law requires that first mortgages be wholly secured ones regardless of the circumstances. As a result, debtors are unable to write off any of their remaining first mortgage amounts even if the amount greatly exceeds the value. In the case above, the family may not be relieved of the additional $20,000 debt on their first mortgage loan.   A second mortgage can also be fully secured even if the loan causes the amount borrowed to exceed the property value. This is because discharging mortgage loans requires an "all or nothing" application. This means that if there is even a small amount of equity left after satisfying the first mortgage, the second one is also fully secured and cannot be stripped away.   An example of this would be when a homeowner purchases a home valued at $275,000 for $200,000 and then takes out an additional mortgage for $60,000. Shortly thereafter, the value of the home plummets to $210,000. This is still greater than the amount on the original mortgage, which means some of the equity carries over to the second home loan. In this instance, neither loan is eligible for lien stripping.   Can you strip a lien when only one spouse if filing for bankruptcy or one spouse dismissed the chapter 13 case after filing? I would say yes, because the lien stripping is an in rem action. I used the term on purpose to confuse readers. This is Latin and means “against property”. If the lien is stripped of as to the property, the non-filing spouse should be able to benefit from it. I can see however, a title company making problems about this question later on when you try to sell your house. I would advise to file jointly if a lien strip is planned. If you are underwater with your mortgage, do you still have to strip the second mortgage, can’t you just file a chapter 7? First, what means being underwater with your mortgage? It means that your house is worth less than the mortgage. The question is, can the lien holder for the second mortgage do anything if they don’t get paid anymore? The answer is yes, they can, they still can start a foreclosure proceeding. The first mortgage would get paid first and the second mortgage would not get anything, but they still could start a foreclosure. The same is true by the way with Judgment liens. As soon as a judgment lien is on your house, your creditor can commence foreclosure proceedings, no matter if he will receive any proceeds from the sale of your home. You have three options: File a chapter 7, and then strip down the lien in a subsequent chapter 13 without discharge. File a chapter 13, strip the lien and receive a discharge (Fisette, decided by 8th Circuit). Or file a chapter 7 and settle with your second mortgage company the second lien. Lien stripping is done by adversary proceeding and in most cases incurs additional attorney fees which should be paid through the chapter 13 plan. The attorney would file an application for additional fees and a “Notice and Summary of Application for Compensation”. The most important question when stripping down a lien: How do you value your property? The debtor’s estimate is not good enough. You should have an appraiser and if there is a dispute with the mortgage company about the current value, your appraiser should be ready to testify in court. It that situation it is also possible to settle the dispute with the mortgage company and agree on a value. If you are in the St. Louis area, our office knows appraiser with many years of experience who can testify in court. In disputes between mortgage company and debtor about valuation, it also depends on which Judge will make the decision. Even though your bankruptcy attorney will never know the outcome of a adversary proceeding, he might be able to assess the chances considering all factors, including who is the appraiser who will testify in court, and who will be the judge to make a decision. Some Judges consider the lien stripping a loop whole that was not intended by Congress and might side with the creditors when the evidence is not supporting debtor’s valuation. However, the new bankruptcy law did not change or correct the language in the Bankruptcy Code, it is good law.

Many individuals find themselves facing a bankruptcy more than once in their lifetime.  If you are considering filing for bankruptcy and have filed in the past there are a few things you need to know.  There are waiting periods between filing for bankruptcy if you want your debt to be discharged.  Technically, you can file for bankruptcy protection at any time, but if you re-file to soon you may not get a discharge and then will be faced with another waiting period.  There time frames are as follows: If you previously filed a Chapter 7 Bankruptcy the waiting period before filing for another Chapter 7 Bankruptcy is eight years. If you previously filed a Chapter 7 bankruptcy the waiting period before filing for a  Chapter 13 Bankruptcy is six years. If you previously filed a Chapter 13 Bankruptcy the waiting period before filing for another Chapter 13 is two years. If you previously filed a Chapter 13 Bankruptcy the waiting period before filing for a Chapter 7 Bankruptcy if six years. The waiting periods are from filing to filing.  For example, if you filed a Chapter 7 Bankruptcy on March 1, 2004 you would be eligible to file again on March 2, 2012.  The discharge date isimmaterial here.  Further, the waiting periods are only applicable if you actually received a discharge.  If you Chapter 7 was not discharged you would be eligible as if you had not filed.  If your Chapter 13 was dismissed prior to completion you would not need to worry about the waiting period.  However, if you are filing for a second case and there are any unpaid court fees from a prior case they will need to be paid in full and you may not be eligible to pay your current court costs in installments.  Further, depending on when you filed, the stay in bankruptcy may not be automatic, or may be for a limited time period.  However, your attorney can file a motion to extend the automatic stay to protect your assets. If you have questions, or would like to schedule a consultation, contact a St. Louis Bankruptcy Attorney today!

I learned something new last week and it took the ***!#### means test to teach it to me. The case involved a couple where the non filing wife ran an interior decorating business.  The income and expense information we were presented with showed “lots” of money flowing through the business. Subtract the given business expenses and our figures said these folks should be paying several thousands of dollars a month. Yet the oral narrative said they were driving old cars, the house needed maintenance, and they hoped for a total payment in the $500 range. The problem We got the bookkeeper prepared income and expense statements.  My partner and I sat together huddled over tax returns and a calculator to try to find the disconnect.  Something was missing.  Why did the numbers show gobs of money, and the clients cry poor? It wasn’t until I dragged both of them in to go over what we had that I learned something new:  the sales taxes didn’t appear on an income and expense statement. Bingo!  Evidently, in bookkeeper-speak ,  taxes aren’t a business expense.  They get paid, and these clients were paying them, but the standard accounting form didn’t show them.  Subtract the sales tax, and the means test worked. And as I talked to them, I learned the freight charges paid on the goods the decorator ordered weren’t on the expense statement either. The lesson So, the narrow take-away is that some taxes don’t appear on Quickbooks income and expense statements. The broader lesson though is the need to keep digging til you’re convinced you have the numbers right. Sometimes what you see is the reverse of my problem:  lifestyle that is inconsistent with the money flowing through the bank.  You have to ask if the client is helping themselves to cash from the till or whether the business is paying some of the personal expenses. I love business cases and business people.  Add a facility with small business to your skill set and the world of clients who need you expands.  But keep asking questions til you get the answers that make sense and fill the gaps. Image:  Gorilla-Fotolia.com    

Can a school withhold school transcripts until tuition is paid? A common scenario: our bankruptcy client owes school tuition and need a transcript from the school. The school was listed on the bankruptcy petition, but is withholding the transcript because of the outstanding balance. Can they do this? Do you have to pay in order to get the transcript? The school tuition might be considered an educational loan made under a program funded in whole or in part by a nonprofit institution pursuant to 11 U.S.C. §523(a)(8). Even though the tuition might be non-dischargeable, withholding the transcript would constitute a collection effort and violate the automatic stay. In our district, the Eastern District of Missouri (St. Louis area), the court decided this issue in the decision In re Carson, 150 B.R. 228 (Bankr. E.D.Mo., 1993). Logan College of Chiropractic told the student that he could not obtain a transcript of his records and that he would be prohibited from attending the graduation ceremony unless payments were made for the payment of tuition. The court held that the action by the College to withhold confirming a degree and to withhold delivery of transcripts is an act to collect a pre-petition debt. This act is stayed by the operation of Section 362. But be aware, this decision is old and the judge is not at the court anymore. Such a case might be decided differently today. In the above case, the judge made the school provide the transcript with the argument withholding violated the automatic stay. However, if the tuition is non-dischargeable, the court is more likely to allow the school to withhold the transcript. So when is tuition dischargeable? It depends on the school. §523(a)(8)(B) talks about an educational loan. Many people think that tuition is not a loan and think §523(a)(8)(A)ii is applicable which talks about “funds received”. But the applicable section is (B) which refers to a qualified educational loan which is defined as a “qualified higher education expense”. So we get away from the word loan and are now looking at an expense which is the cost of attendance an “eligible educational institution”. The question is what is an eligible educational institution (20U.S.C. 1088). Primary school is not “higher education”, that means K through 12 grade, sorry, tuition is discharged and transcript must be released. What about trucking school, beauty school, and we even had the question whether helicopter school tuition is dischargeable? These schools might be qualified educational institutions. A school can meet the requirements with just 15 weeks of instruction or 10 weeks if an associate degree is required for admission.

  If there’s a bright spot in the midst of this recession, it’s the thrill bankruptcy lawyers get in stripping mortgage liens from underwater property. Action taken at the depths of home values will benefit clients long into the future if the client can hang on to the home til things recover. Yet I hear lawyers wrestling with  lien stripping worries revolving around mismatches between who’s on title to the property; who is liable on the debt; and whether the necessary persons are in bankruptcy. Let me suggest that the issue is simpler than that and invite you to tell me if I’m missing something It’s all about the property Put simply, my proposition is that the only one of the questions posed above that matters is: does the bankruptcy estate include all of the property from which you want to strip a lien? Or, put another way, in the affirmative, a bankruptcy court can only strip a lien from property of the estate. Lien stripping is grounded in the idea of an allowed secured claim.  Section 506(a)(1)  provides: An allowed claim of a creditor secured by a lien on property in which the estate has an interest, … is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property, Notice that secured status has no connection to whether it is the debtor who is liable on the underlying claim.  The focus is on the property which is property of the estate. Lien stripping in practice Suppose the debtor inherited the real property in question from his grandmother subject to liens in favor of her creditors.  In the debtor’s bankruptcy case, a lien securing the grandmother’s promise to pay Big Fat Bank is just as strippable as if the debtor was the borrower.  As long as the property which is collateral for the debt is before the court, the lien is subject to valuing, and stripping. Contrast a case where the debtor is a co tenant with a sibling on the same inherited house.  Both halves of the house are subject to the bank’s lien.  If only one heir files bankruptcy, only that heir’s interest in the house is property of the estate, and the court can only strip the lien from the fraction of the property that is in the bankruptcy estate. The more common fact pattern seems to be that one spouse is on title to the property and the other spouse is liable on the note.  If applicable law brings all the real estate into the bankruptcy estate, then who took the loan is irrelevant.  It’s strippable to the extent the collateral is property of the estate. Get this problem pinned down, and life as a bankruptcy lawyer is easier. Image courtesy of wikimedia and some ancient Greek.

Because bankruptcy is a legal process that is intended to help consumers and businesses deal with the debt they are unable to pay, bankruptcy fraud is considered a federal crime. Being honest and fully disclosing information and details about your situation not only helps your bankruptcy attorney understand your financial background, it helps the court in determining the best outcome for your case. Providing false details may lead to paying a hefty fine, criminal charges and even imprisonment.Bankruptcy fraud can be committed in different ways such as hiding or concealing assets, filing too many times during a short time period or making false statements in court. Withholding information about assets is the most common type of fraud. This may even include transferring of assets such as bank account funds or property title. With multiple filing there have been debtors known to file with assumed or fictitious names. They may occur in more than one state while failing to submit a complete list of assets in each filing.Concerns about assets should be discussed with your bankruptcy attorney. Some may feel the need to hide certain assets when filing bankruptcy but the concept could make your case more complicated and lead to your case getting dismissed without a discharge. In many cases, you can still retain most if not all of your assets since bankruptcy provides several exemptions depending on which chapter is filed.Working with an experienced legal counsel can help you understand your financial situation, review equity in detail, give clarity on what to expect during your bankruptcy case and ensure legal procedures are followed accordingly to avoid your case from being dismissed or, even worse, being accused of bankruptcy fraud. -->