Bankruptcy and Divorce

Originally published by The Law Office of Bryan Fagan, PLLC Blog.

Filing for
Bankruptcy is a decision that you should make only after balancing it against all
of the other circumstances and issues related to your divorce. Bankruptcy
is a federal matter and is not covered by state law or the Texas Family Code.

The reason why you would want to file for bankruptcy is to discharge some
or all of your debts or to reorganize the payments on debt that you will
still retain after the completion of the bankruptcy. If successful in
your bankruptcy proceeding a judge would issue you a discharge that absolves
you from having to make future debt payments on that loan. I should note
that federally insured student loans are not dischargeable in bankruptcy
proceedings. If a debt is discharged then that debt collector may not
contact you in order to collect the debt.

The types of Bankruptcy proceedings

As an individual you can file for bankruptcy under Chapters 7, 11 and 13
of the bankruptcy code. Let’s break down each according to its specific
attributes.

Chapter 7 Bankruptcies

Chapter 7 bankruptcy means that you as the debtor have to turn over any
property that is not exempt (your home) for the purposes of paying back
to your debt(s). A trustee will be assigned to your case to collect and
hold this property. Household goods, vehicles and retirement accounts
are among those assets that are exempt from the collection requirements
under a Chapter 7 bankruptcy.

Once the non-exempt property is collected, the trustee will then take your
property and convert it to cash. That cash will be used to pay as much
of your debt as possible. Debtors favor Chapter 7 bankruptcy on the whole
because a remedy is arrived at quickly (relatively speaking) in roughly
six months. Due to the fast turn around time you would be able to move
on with the rest of your life and begin to take steps towards rebuilding
your financial affairs post-bankruptcy.

Chapter 13 Bankruptcies

A Chapter 7 Bankruptcy involves you submitting a plan to the judge in your
case that relays a reorganization of your debts either partially or in
full. There is a trustee involved in Chapter 13 cases as well and you
will be obliged to make regular payments to this trustee who will in turn
send those payments on to those creditors who are due money from you.

If you earn an income that is above the national average you may have to
file a Chapter 13 bankruptcy instead of a Chapter 7 Bankruptcy. The reason
is that you have the ability financially to pay creditors back to an extent
that those folks who file Chapter 7s are not. There is more to the analysis
of which bankruptcy type you qualify and you should speak to a bankruptcy
attorney in order to learn more.

Credit cards and medical bills usually do not figure into Chapter 13 bankruptcies
because these are unsecured lenders who do not have the ability to reclaim
property or put liens on your home or assets. Secured lenders like your
mortgage lender or your vehicle financier are among those debts commonly
handled in Chapter 13 bankruptcy.

The impacts of bankruptcy on individual persons

An immediate concern of most people when faced with the decision of whether
to file for bankruptcy is what effect the proceedings will have on their
credit. If you are in this position I would point out that your credit
is probably not in the best shape already considering the fact that you
are considering bankruptcy as a viable option. Your having missed payments
previously tells me this.

On the plus side, bankruptcy offers a fresh start for you and your future
life. It is available to us as citizens to allow us to get some relief
from debt collectors and a past that you would probably like to move away
from as much as possible.

Be aware that many debts can simply be negotiated upon by you directly
with either the lender or the third party debt collector working on behalf
of the lender. In fact, many companies exist who buy debt accounts from
lenders for pennies on the dollar. These businesses will typically accept,
you guessed it, pennies on the dollar to settle your debt. To do so it
is a good idea to get the settlement offer in writing and then to never
proceed to give the debt collector access to your checking account.

Get a prepaid debit card or send a check to the company to pay off the
debt once you have it confirmed in writing. Once a letter confirming your
having paid off the debt is sent to you it should be kept for a good long
while. You can verify that the debt has been paid in full by checking
your credit report a few months after the debt was paid.

What good can a debt consolidation company do you?

If you are a stay at home parent or are feeling ill and are at home during
any given weekday I’m sure you have seen commercials on television
for multiple debt consolidation companies. These businesses make it seem
like they are the cure to all that ails you. Your credit card debt, car
note and other loans can all be rolled into one neat little package with
a single interest rate to pay on. If you’re not careful you will
sign up for a program like this with the false knowledge that you actually
did something to better your situation when you really haven’t let.
Allow me to explain why.

First of all debt consolidation companies will often involve you allowing
these folks to put a lien on your vehicle or your home that are not exempt
in a bankruptcy. This puts you in a tough position in this regard. Secondly-
unless the debt consolidation lowers your overall interest rates on the
loans you haven’t actually done anything productive other than rearranging
the deck chairs on the Titanic. Finally, the companies operate by not
paying on your debts at all until the lenders contact them directly. They
will negotiate on your behalf but it won’t be for months and months.
All the while you are paying them for the privilege to do so. These are
services you could perform yourself.

Can you solve your debt problem(s) without bankruptcy? Talk to an attorney

If you are going through a
divorce and are considering bankruptcy you are best left to speak to both a family
law attorney and a bankruptcy attorney about how the processes of one
legal case affects the other. These attorneys may actually be able to
guide you into a situation where you can resolve your debt problems while
not going through what is sometimes a long and difficult bankruptcy.

After you have had an opportunity to discuss your situation with these
folks about the viability of a bankruptcy given your situation the next
thing you need to decide upon is which form of bankruptcy to file under.
These decisions can have a lasting impact on your life moving forward
and can cause delay in your divorce being decided as well.

Wondering about when to file a bankruptcy or how a short sale of your home
would work? Come back to our blog tomorrow to learn more

If you owe more on your house than its market value you are known as being
“under water” on your home. People in your position have spoken
to me on previous occasions on whether or not it would be a good idea
to attempt to do a short sale on their home as opposed to letting it become
foreclosed upon. If you have questions on this subject then you should
come back to our blog tomorrow to read up on the subject in greater detail.

Questions on divorce or family law in general? Contact the Law Office of
Bryan Fagan

The attorneys with the
Law Office of Bryan Fagan, PLLC appreciate your having taken the time to read through today’s blog
post. If you have any questions about it or seek clarification on any
number of family law issues we invite you to
contact our office today. We would be happy to schedule a free of charge consultation for
you where you can meet with one of our licensed family law attorneys to
ask your questions.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

from Texas Bar Today http://bit.ly/2COsTbU
via Abogado Aly Website