blank
Written by Canterbury Law Group

What Happens to Liens and Secured Debts in Chapter 7 Bankruptcy?

What Happens to Liens in Chapter 7 Bankruptcy?

In bankruptcy, your personal obligation to pay a secured debt may be discharged, but the lien remains in place.

A creditor’s lien typically endures Chapter 7 bankruptcy. If the debtor doesn’t make the agreed-upon payments while the lien is active, the creditor may seize the property once the bankruptcy process is over.

How Do Liens Work?

Nobody hates to lose money, not even lenders, and when a loan is required to make a large purchase like a house or car, the danger of loss is greater still. By forcing the borrower to acknowledge that the creditor may seize the collateralized property if the debt is not paid as agreed, lenders reduce this risk. This contract grants the creditor a “lien,” or ownership stake in the property.

When a lender recovers property, they often auction it off and apply the money to the outstanding loan sum. In most situations, the borrower will still be liable for the remaining sum, or “deficiency balance,” if the auction price is less than what is owing.

Remember that in some states, shortfall balances on particular transactions are not permitted. A deficit balance will also be eliminated in Chapter 7 bankruptcy; see more below.

“Secured Debt” is created via Liens in Chapter 7 Bankruptcy

You must classify your debts as either secured or unsecured if you have already begun putting together your bankruptcy petition. A loan with a charge against it? It is locked. No liens? It’s unprotected.

Chapter 7 Bankruptcy: Voluntary and Involuntary Liens

If the lien is voluntary, it was put on your property with your consent; if it is involuntary, it was done so against your will. Why is this important? because you might be unaware that a creditor has a secured debt against you and that you have a lien on your property.

Liberties Liens

In the course of a mortgage or vehicle note transaction, it’s typical to consent to granting a lien to a creditor. You are probably aware that the creditor’s lien could cause you to lose your home to foreclosure or your car to repossession because you agreed to those terms when you financed the property.

But when buying items like jewelry, furniture, electronics, beds, equipment, and computers on credit, many people are unaware that they are agreeing to a lien. Check your agreement or invoice.

Statutory Liens Without Consent

It’s common to have liens placed against your property without being aware of them because certain creditors have the legal authority to do so without your knowledge.

For instance, if you don’t pay your tax due, the Internal Revenue Service (IRS) may place a lien on your property. If you don’t pay your dues, your homeowners’ association may place a lien on your home. Or, if you don’t pay for repairs, a contractor could put a lien on your house.

Liens for Involuntary Judgments

By filing a lawsuit against the borrower and utilizing the money judgment to put a lien on your property, some creditors can convert an unsecured debt into a secured debt.

Medical bills, credit card balances, and other unsecured debt are all considered judicial liens.
After an unsecured creditor obtains a judicial lien and transforms into a secured creditor, many people apply for Chapter 7 bankruptcy.

By filing a lawsuit against a borrower, succeeding, and obtaining a “money judgment” against the borrower for the amount owing plus fees and costs, a creditor can establish a “judicial” or “judgment” lien. A money judgment holder may register it against the borrower’s real estate.

Any property owned by the borrower that is not real estate is considered personal property, and in some states, the money judgment immediately grants the creditor a lien on that property.

How to Obtain a Money Judgment as an Unsecured Creditor

The procedure begins when the debtor is unable to make a payment on an unsecured obligation, like an outstanding credit card amount or overdue rent. You do not provide the creditor with collateral to secure these debts, thus the creditor cannot compel payment absent a judicial ruling.

A creditor will initiate a civil lawsuit if they feel that the debt is significant enough to warrant the expense of legal action. The court will issue a “default” money judgment and the creditor will be declared the winner if the borrower doesn’t reply.

If the borrower loses after submitting an answer to the complaint in the litigation, the court will also issue a money judgment. read about litigation that bankruptcy averted.

How a Money Judgment Becomes a Lien in the Mind of the Creditor

After receiving a monetary judgment, a creditor is deemed a “judgment creditor” and is required to “perfect” or establish an enforceable lien. Perfecting the lien often happens after the money judgment has been recorded at the recorder’s office or after adhering to other state legal requirements.

Advantages of a Perfected Lien

Once perfected, the lien will be paid out of the sale proceeds if the borrower sells real estate within the recorder’s authority (often the county). Before distributing money to the house seller, the title firm managing the transaction examines whether any recorded liens exist and pays them.

Personal property may also be encumbered by judicial liens. However, the majority of people have exemptions that allow them to defend their vehicles and home goods, therefore these targets are rarely used. Most states allow persons to use the same exemptions that are available in bankruptcy to safeguard property from creditors.

Use of Money Judgments by Creditors in Other Ways

A money judgment can be used by a judgment creditor for purposes other than creating liens. Most take use of money judgements to take money from the borrower’s bank account (bank levy) or take money out of their paycheck (wage garnishment).

How Are Liens Affected by Chapter 7 Bankruptcy?

This topic can be challenging to understand, but it can be summed up as follows:

Your need to pay a secured debt, such as a mortgage or car payment, will probably be eliminated if you file for Chapter 7 bankruptcy.
If you don’t pay what you owe, the creditor can still seize the collateral (the house, car, or other property) because Chapter 7 bankruptcy won’t remove a voluntary lien.
When a judgment lien prohibits you from benefiting from an exemption, you can seek the court to set it aside. For instance, you may seek the court to remove the lien on up to $15,000 of your property equity if an exemption allowed you to keep the remaining $15,000 of equity.

Why Liens Are Not Automatically Eliminated by Chapter 7

After Chapter 7, a creditor cannot pursue you for a debt that has been discharged by your bankruptcy since filing for bankruptcy releases you from the obligation to pay. When a lien is in place and you don’t make the agreed-upon payments, Chapter 7 does not affect your obligation to return the property.

Therefore, even if the creditor cannot physically force you to pay your debt, if you refuse to do so voluntarily, the creditor may seize your property. This outcome results from the fact that a secured transaction includes two main components:

Your duty to reimburse the creditor. You are liable for paying the total debt. In the event that the debt is eligible for the bankruptcy discharge, filing for bankruptcy will discharge your personal duty for it. This implies that the creditor is prevented from subsequently filing a lawsuit against you to recover the debt and from using the judicial lien (discussed above) to garnish your earnings or deduct funds from your bank account.

The ability of the creditor to reclaim the collateral through the lien. Your creditor has the right to use the proceeds from the sale of the collateral used to secure the loan to offset any amounts you owe. If you don’t pay the loan, the lien enables the creditor to seize the property and force its sale. The lender has the right to sue you for the value of the collateral if it isn’t available. Even if you transfer ownership of the property to another party, a lien remains on it. A lien is not removed by bankruptcy on its own.
Example. Mary purchases a couch from a furniture retailer using credit. She agrees to pay for the couch over the following year by signing a contract. According to the contract, the couch has a security interest in favor of the creditor (the store), who has the right to reclaim it if any payment is more than 15 days overdue. In a secured debt of this kind, the lien is the store’s right to take back the couch, and Mary’s responsibility to pay the loan is her personal liability. She is no longer obligated to pay for the couch after filing for bankruptcy, but the creditor still has a lien on it and has the right to take it back if she doesn’t.

You might be able to take extra actions during bankruptcy to get rid of or at least lessen liens on collateral for security interests. See Avoiding Liens in Bankruptcy for further information.

Lenders Must Make Their Liens Perfect

A security interest agreement only counts as a secured debt for bankruptcy purposes if the creditor reports the lien with the proper municipal or state records office to “perfect” the lien. In order to establish a lien on real estate, for instance, the mortgage holder (the bank or another lender) normally needs to record the lien with the county’s recorder’s office.

The holder of a security interest must typically record it with the state or municipal agency that handles UCC recordings (also known as “UCC recordings”) in order to perfect a security interest in a vehicle or commercial asset. Typically, this is the secretary of state.

Why File for Bankruptcy Under Chapter 7?

Why then may declaring Chapter 7 bankruptcy be preferable than allowing the property or automobile to go through a foreclosure or repossession? It eliminates your need to repay the full loan, including any outstanding shortfall sum, is the solution.

Due to the fact that forgiven debt is treated as income, it may also occasionally preclude the assessment of a tax liability. For instance, if you permit the foreclosure of your home and the lender forgives the unpaid sum, you can be hit with a big tax payment at the end of the year.

In Chapter 7 bankruptcy, secured debts are handled differently than other debt types.

The majority of people have a loan that is backed by real estate, like a mortgage or a car loan. In Chapter 7 bankruptcy, these obligations, often known as secured debts, can be challenging. Even while the secured debt itself can be eliminated (discharged) and frequently is, the creditor will still retain the power to repossess the property if you fall behind on your payments (default).Your options in Chapter 7 bankruptcy will depend on whether you’re current on your loan payments and whether you wish to maintain any collateral for the loan, such as a house or a car.

A Secured Debt: What Is It?

Almost always, if you’re making payments on a piece of property, you’ve agreed that the asset will be used as security for the debt’s repayment. If you stop making payments, the creditor (or lender) may seize the home, sell it, and file a lawsuit against you (a deficiency judgment) to recover the difference between what you owe and what the home sells for at the auction (however, some states have laws against deficiency judgments).

A secured loan includes two components:

Personal responsibility Just like with any other obligation, you are personally liable for secured debt. You have a duty to make the required payment to the creditor. If this personal liability falls among the categories of debt that bankruptcy allows for discharge, Chapter 7 bankruptcy eliminates it. The creditor cannot file a lawsuit against you to recoup the debt once your personal liability has ended.

Chapter 7 bankruptcy options

If you qualify for Chapter 7 bankruptcy, you can do the following with property used to secure debts:

Let the bank receive the property back. By giving up the property and paying off the underlying loan, you can go with no further obligation. All filers have access to this choice.
Keep the house and keep paying the mortgage. As long as your payments are up to date and you have an exemption in place to safeguard your equity, you may continue to be bound by the terms of your contract. The debt is reaffirmed throughout this procedure.
Pay the property’s fair market value. If you can safeguard your equity with an exemption and the property satisfies other restrictions (for example, you cannot redeem real estate), you may keep the property by redeeming it (paying what it is worth in one lump sum payment).

Can You Exempt (Keep) The Equity In Your Property?

When you declare bankruptcy, you can protect some assets, but there are restrictions. The exemptions that your state permits will also determine whether you are eligible to maintain a certain asset. The bankruptcy trustee appointed to your case will sell the asset for the benefit of your creditors if you are unable to preserve all of the equity.

Example. Consider the scenario where you owe $3,000 on a car that is worth $6,000 and have $3,000 in equity, and your state’s vehicle exemption will allow you to save $1,000. Most likely, you wouldn’t be permitted to keep the vehicle. Instead, the trustee would sell it, give you your $1,000 exemption in cash, pay your secured creditor the remaining $3,000 you still owe on it, and then divide the remaining $2,000 (minus the costs of selling and the trustee’s compensation) among creditors.

Even still, borrowers of secured loans frequently owe more than the asset used to secure the loan is worth, which implies that they have no equity in the asset. The trustee won’t be able to sell the property if you don’t own any equity in it or if it is entirely protected by an exemption. By redeeming the item or reaffirming the debt, you might keep the asset.

blank
Written by Canterbury Law Group

What Happens to Liens in Chapter 7 Bankruptcy?

What Happens to Liens in Chapter 7 Bankruptcy?

In bankruptcy, your personal obligation to pay a secured debt may be discharged, but the lien remains in place.

A creditor’s lien typically endures Chapter 7 bankruptcy. If the debtor doesn’t make the agreed-upon payments while the lien is active, the creditor may seize the property once the bankruptcy process is over.

How Do Liens Work?

Nobody hates to lose money, not even lenders, and when a loan is required to make a large purchase like a house or car, the danger of loss is greater still. By forcing the borrower to acknowledge that the creditor may seize the collateralized property if the debt is not paid as agreed, lenders reduce this risk. This contract grants the creditor a “lien,” or ownership stake in the property.

When a lender recovers property, they often auction it off and apply the money to the outstanding loan sum. In most situations, the borrower will still be liable for the remaining sum, or “deficiency balance,” if the auction price is less than what is owing.

Remember that in some states, shortfall balances on particular transactions are not permitted. A deficit balance will also be eliminated in Chapter 7 bankruptcy; see more below.

“Secured Debt” is created via Liens in Chapter 7 Bankruptcy

You must classify your debts as either secured or unsecured if you have already begun putting together your bankruptcy petition. A loan with a charge against it? It is locked. No liens? It’s unprotected.

Chapter 7 Bankruptcy: Voluntary and Involuntary Liens

If the lien is voluntary, it was put on your property with your consent; if it is involuntary, it was done so against your will. Why is this important? because you might be unaware that a creditor has a secured debt against you and that you have a lien on your property.

Liberties Liens

In the course of a mortgage or vehicle note transaction, it’s typical to consent to granting a lien to a creditor. You are probably aware that the creditor’s lien could cause you to lose your home to foreclosure or your car to repossession because you agreed to those terms when you financed the property.

But when buying items like jewelry, furniture, electronics, beds, equipment, and computers on credit, many people are unaware that they are agreeing to a lien. Check your agreement or invoice.

Statutory Liens Without Consent

It’s common to have liens placed against your property without being aware of them because certain creditors have the legal authority to do so without your knowledge.

For instance, if you don’t pay your tax due, the Internal Revenue Service (IRS) may place a lien on your property. If you don’t pay your dues, your homeowners’ association may place a lien on your home. Or, if you don’t pay for repairs, a contractor could put a lien on your house.

Liens for Involuntary Judgments

By filing a lawsuit against the borrower and utilizing the money judgment to put a lien on your property, some creditors can convert an unsecured debt into a secured debt.

Medical bills, credit card balances, and other unsecured debt are all considered judicial liens.
After an unsecured creditor obtains a judicial lien and transforms into a secured creditor, many people apply for Chapter 7 bankruptcy.

By filing a lawsuit against a borrower, succeeding, and obtaining a “money judgment” against the borrower for the amount owing plus fees and costs, a creditor can establish a “judicial” or “judgment” lien. A money judgment holder may register it against the borrower’s real estate.

Any property owned by the borrower that is not real estate is considered personal property, and in some states, the money judgment immediately grants the creditor a lien on that property.

How to Obtain a Money Judgment as an Unsecured Creditor

The procedure begins when the debtor is unable to make a payment on an unsecured obligation, like an outstanding credit card amount or overdue rent. You do not provide the creditor with collateral to secure these debts, thus the creditor cannot compel payment absent a judicial ruling.

A creditor will initiate a civil lawsuit if they feel that the debt is significant enough to warrant the expense of legal action. The court will issue a “default” money judgment and the creditor will be declared the winner if the borrower doesn’t reply.

If the borrower loses after submitting an answer to the complaint in the litigation, the court will also issue a money judgment. read about litigation that bankruptcy averted.

How a Money Judgment Becomes a Lien in the Mind of the Creditor

After receiving a monetary judgment, a creditor is deemed a “judgment creditor” and is required to “perfect” or establish an enforceable lien. Perfecting the lien often happens after the money judgment has been recorded at the recorder’s office or after adhering to other state legal requirements.

Advantages of a Perfected Lien

Once perfected, the lien will be paid out of the sale proceeds if the borrower sells real estate within the recorder’s authority (often the county). Before distributing money to the house seller, the title firm managing the transaction examines whether any recorded liens exist and pays them.

Personal property may also be encumbered by judicial liens. However, the majority of people have exemptions that allow them to defend their vehicles and home goods, therefore these targets are rarely used. Most states allow persons to use the same exemptions that are available in bankruptcy to safeguard property from creditors.

Use of Money Judgments by Creditors in Other Ways

A money judgment can be used by a judgment creditor for purposes other than creating liens. Most take use of money judgements to take money from the borrower’s bank account (bank levy) or take money out of their paycheck (wage garnishment).

How Are Liens Affected by Chapter 7 Bankruptcy?

This topic can be challenging to understand, but it can be summed up as follows:

Your need to pay a secured debt, such as a mortgage or car payment, will probably be eliminated if you file for Chapter 7 bankruptcy.
If you don’t pay what you owe, the creditor can still seize the collateral (the house, car, or other property) because Chapter 7 bankruptcy won’t remove a voluntary lien.
When a judgment lien prohibits you from benefiting from an exemption, you can seek the court to set it aside. For instance, you may seek the court to remove the lien on up to $15,000 of your property equity if an exemption allowed you to keep the remaining $15,000 of equity.

Why Liens Are Not Automatically Eliminated by Chapter 7

After Chapter 7, a creditor cannot pursue you for a debt that has been discharged by your bankruptcy since filing for bankruptcy releases you from the obligation to pay. When a lien is in place and you don’t make the agreed-upon payments, Chapter 7 does not affect your obligation to return the property.

Therefore, even if the creditor cannot physically force you to pay your debt, if you refuse to do so voluntarily, the creditor may seize your property. This outcome results from the fact that a secured transaction includes two main components:

Your duty to reimburse the creditor. You are liable for paying the total debt. In the event that the debt is eligible for the bankruptcy discharge, filing for bankruptcy will discharge your personal duty for it. This implies that the creditor is prevented from subsequently filing a lawsuit against you to recover the debt and from using the judicial lien (discussed above) to garnish your earnings or deduct funds from your bank account.

The ability of the creditor to reclaim the collateral through the lien. Your creditor has the right to use the proceeds from the sale of the collateral used to secure the loan to offset any amounts you owe. If you don’t pay the loan, the lien enables the creditor to seize the property and force its sale. The lender has the right to sue you for the value of the collateral if it isn’t available. Even if you transfer ownership of the property to another party, a lien remains on it. A lien is not removed by bankruptcy on its own.
Example. Mary purchases a couch from a furniture retailer using credit. She agrees to pay for the couch over the following year by signing a contract. According to the contract, the couch has a security interest in favor of the creditor (the store), who has the right to reclaim it if any payment is more than 15 days overdue. In a secured debt of this kind, the lien is the store’s right to take back the couch, and Mary’s responsibility to pay the loan is her personal liability. She is no longer obligated to pay for the couch after filing for bankruptcy, but the creditor still has a lien on it and has the right to take it back if she doesn’t.

You might be able to take extra actions during bankruptcy to get rid of or at least lessen liens on collateral for security interests. See Avoiding Liens in Bankruptcy for further information.

Lenders Must Make Their Liens Perfect

A security interest agreement only counts as a secured debt for bankruptcy purposes if the creditor reports the lien with the proper municipal or state records office to “perfect” the lien. In order to establish a lien on real estate, for instance, the mortgage holder (the bank or another lender) normally needs to record the lien with the county’s recorder’s office.

The holder of a security interest must typically record it with the state or municipal agency that handles UCC recordings (also known as “UCC recordings”) in order to perfect a security interest in a vehicle or commercial asset. Typically, this is the secretary of state.

Why File for Bankruptcy Under Chapter 7?

Why then may declaring Chapter 7 bankruptcy be preferable than allowing the property or automobile to go through a foreclosure or repossession? It eliminates your need to repay the full loan, including any outstanding shortfall sum, is the solution.

Due to the fact that forgiven debt is treated as income, it may also occasionally preclude the assessment of a tax liability. For instance, if you permit the foreclosure of your home and the lender forgives the unpaid sum, you can be hit with a big tax payment at the end of the year.

blank
Written by Canterbury Law Group

Military Divorce

While military divorces are not more complicated than civilian divorces, there are particular divorce procedures and requirements that apply to U.S. service members and their spouses. These differences may pertain to support payment compliance, service of process, residency or filing requirements, or the distribution of military pensions. The following is an outline of the laws that govern the divorce of U.S. servicemen and women.

Military Marriage Statutes

Both state and federal laws govern military divorce. For instance, federal rules may govern where divorcing spouses end up in court or how military pensions are shared, whereas state laws may govern the issuance of alimony and spousal support. The exact state laws applicable to a divorce depend on the state in which the divorce is filed.

Jurisdiction

Before a court may award military members or their wives a divorce, it must have “jurisdiction,” or the authority to hear the case. Generally, a person’s place of residence determines the court’s jurisdiction over them. However, for military personnel, jurisdiction may be the place where the person holds legal residence, even if the service member is stationed somewhere else.

Residency, Filing Requirements, and Proceedings Stays

Numerous states have decreased or removed the residency requirement in military divorces, allowing service personnel or their wives to petition for divorce in the state where they are stationed, even if they are not legal citizens.

In general, military members and their wives can petition for divorce in one of three states:

  • The state of residence of the filing spouse
  • State in which the service man is stationed.
  • The state in which a service member asserts legal residency

The reasons for divorce, including property division, child custody, and child support, are defined by the state where the divorce is filed. As a result, the specific conditions of a divorce will change based on that particular state’s laws.

It is important to note that active-duty service members have certain protections against court proceedings. Under the Servicemembers Civil Relief Act (SCRA), for instance, service members are protected from default judgment and can apply for a “stay” — a temporary halt — of any civil action, including child custody proceedings, initiated against them during active duty or within 90 days of their release from active duty.

This stay is in place so that service members can devote their time and attention to defending the nation while still being subject to court orders or verdicts while they are unable to appear in court. If a servicemember desires a delay that continues beyond 90 days, he or she may petition the court to grant it, but the court has the discretion to grant or deny any additional extensions.

Pensions and Military Benefits

Like civilian retirement benefits, military pensions are subject to distribution between spouses in the case of divorce. Depending on the jurisdiction, the Uniformed Services Former Spouses’ Protection Act (USFSPA) permits state courts to recognize military retirement money as either sole or communal property. While the USFSPA does not specify a method for distributing retired pay, the amount is often established and distributed in accordance with state regulations.

In addition, the Defense Finance and Accounting Service (DFAS) pays the former spouse’s portion of military retirement immediately if there were at least 10 years of marriage and 10 years of military service overlap (known as the 10/10 rule).

However, regardless of the length of the marriage, a court may sanction an offset payment to a military spouse who has been married for less than 10 years. In such a case, payment would come from the retiring spouse, not DFAS.

In addition to pension benefits, spouses of former military personnel are eligible for full medical, commissary, and exchange privileges following a military divorce if they meet the following criteria:

  • The couple was married for 20 years or more
  • At least 20 years of service are credited toward the service member’s retirement compensation.
  • There was at least a 15 year overlap between marriage and military duty

Matrimony and Child Support

There are particular restrictions regarding spousal maintenance (alimony) and child support in the military. The purpose of these regulations is to ensure that a service member’s family support obligations continue after a divorce or separation.

A court may enforce spousal and child support obligations in a number of ways, including by:

  • Court-order
  • Garnishment
  • Willful or Unwilling Allotment
  • A court may also mandate the paying spouse to retain life insurance to cover child or spousal support payments for a predetermined amount of time.

Consult a Lawyer Regarding Your Military Divorce

Because a military divorce needs understanding of laws that do not apply to civilian divorces, it is prudent to consult with a divorce attorney who has experience handling military divorce matters. An expert, local divorce attorney can assist you understand the many laws that may apply to your situation, your rights as member of the armed forces, and more.

blank
Written by Canterbury Law Group

What Is Credit and Debt Counseling in Bankruptcy?

What Is Credit and Debt Counseling in Bankruptcy?

Credit Counseling: The “First” Course

Before filing for bankruptcy, you must be certain that it is the best option, as it can have serious and long-lasting effects on your credit, possessions, and income. The first course, pre-filing credit counseling, helps you determine whether bankruptcy is the best option. In this course, you will evaluate your financial situation and investigate alternative repayment options. If, after completing the course, it still makes sense to file for bankruptcy, you will submit a certificate of course completion along with your petition and schedules to demonstrate that you fulfilled the education requirement (the official paperwork that initiates the case). You can take the course online or over the phone and most people complete it in an hour or two.

Educating Debtors: The “Second” Course

You’ll take the post-filing debtor education course (or “second” class) after you file your bankruptcy. The second course will provide you with financial management tools that you’ll be able to rely on after your bankruptcy is over.

In a Chapter 7 bankruptcy, you must file your completion certificate with the court no later than 60 days after the date first set for the 341 meeting of creditors (the hearing that all bankruptcy filers must attend) (the hearing that all bankruptcy filers must attend). The court will remind you by sending a notice entitled “Notice of Requirement to File a Certification of Completion of Course in Personal Financial Management.” Chapter 11, 12, and 13 filers can submit the completion certificate anytime before making the final payment under the repayment plan.

Not only is it easy to forget to complete the coursework, but failure to submit the certificate will result in a fine. The court will dismiss your lawsuit without discharging (wiping out) your qualifying debt, and you’ll have to refund the filing fee to reopen it. Worse yet, in many courts, you won’t be able to file the certificate until you file a motion asking the court to accept the late-filed certificate and the judge grants your request (and you might have to file an additional motion asking for your discharge) (and you might have to file an additional motion asking for your discharge).

Who Must Complete the Courses?

All individuals who file a Chapter 7, 11, 12, or 13 bankruptcy must complete a credit counseling class and a debtor education training course before receiving debt relief—even if the individual’s debts are primarily business debts.

This regulation involves a husband and wife filing jointly (together) (together). Each must satisfy the condition. In contrast, business entities are exempt, including partnerships, limited liability companies, and corporations.

You might be exempt from the requirement if you must file an emergency case, or you’re in a military zone. Nevertheless, such exceptions are uncommon.

To find a course that fits the requirements of the courts in your bankruptcy jurisdiction, visit the U.S. Trustee’s website and select from a list of recognized providers.

blank
Written by Canterbury Law Group

Emergency Bankruptcy Filing

Emergency Bankruptcy Filing

A swift bankruptcy petition can prevent imminent creditor action. Find out how quickly you may file an emergency bankruptcy filing online.

Sometimes it is necessary to quickly halt a creditor’s action. Filing for bankruptcy is beneficial. When you file a case, the court automatically issues a stay prohibiting most creditors from pursuing collection efforts (exceptions exist).

However, filling all the bankruptcy forms is not an easy task. If time is of the essence, you can use an expedient online bankruptcy filing process known as an emergency bankruptcy filing (or skeleton file) to obtain the automatic stay and submit the remaining documentation later.

Online Filing of Emergency Bankruptcy Forms

Upon completion, the average bankruptcy petition can easily exceed fifty pages. When facing a foreclosure auction, repossession, wage garnishment, collection action, or another time-sensitive issue, however, it may not be possible to complete all of the paperwork.

You have alternative options.

When you need to file bankruptcy quickly, you can file your forms online quickly. In addition, you can access online filing 24 hours a day, seven days a week, and you can begin the online filing procedure by uploading a small fraction of the required forms:

  • The petition for bankruptcy (the principal document containing identifying information, the chapter you’re filing under, and other general information)
  • the names and addresses of the creditors that will be mentioned in the bankruptcy schedules (commonly referred to as a creditor mailing list or mailing matrix; verify format requirements with your court).
  • a certificate indicating that you fulfilled the credit counseling requirement or a waiver request, and
  • Statement Regarding Your Social Security Numbers on Form B121.

You should also be prepared to pay a filing fee, submit a request for a fee waiver, or submit a request to pay the filing charge in installments.

Finalizing a Skeleton Bankruptcy Filing

Your skeleton bankruptcy case will be dismissed if you do not provide the extra documents within 14 days. Also, be aware that certain courts may request alternative forms. The prerequisites are outlined in the local rules posted on your court’s website.

Emergency Bankruptcy Filing Procedures

For an urgent filing, you need take the following steps:

  • Step 1: Contact the court clerk or visit the court’s website to determine which forms are required for an emergency filing.
  • Step 2: Complete the Individual Voluntary Petition for Bankruptcy.
  • Step 3: On the list of creditors, you will include the names and addresses of everyone you owe money to, along with collection agencies, sheriffs, attorneys, and anybody else attempting to collect debts from you. Use the address that appears on the most recent billing statement or court filing.
  • Step 4: Complete the form Your Statement Regarding Your Social Security Numbers.
  • Step 5: Complete any other paperwork required by the court (for instance, in some jurisdictions you must file a cover sheet and an order of dismissal that will be executed if you fail to submit the remaining documents).
  • Step 6: Submit the originals and the requisite number of copies with your fee, a fee waiver application, or a request to pay the fee in installments, along with a self-addressed envelope, to the court clerk. Save duplicates for your records.
  • Step 7: Submit the remaining forms within 14 days to prevent case dismissal.

Obtaining and Filling Out the Bankruptcy Forms

See Forms You Must File in Chapter 7 Bankruptcy for a complete list of Chapter 7 bankruptcy forms. See Completing the Bankruptcy Forms for information on each of these forms, as well as basic instructions on how to complete them.

blank
Written by Canterbury Law Group

Divorce And Business Ownership

Eric and Ariel reached the terrible choice to divorce after 19 years of marriage. Ariel’s profession of collecting and selling various collectibles began before their marriage. However, now that she is getting a divorce, she is concerned about the future of her business. Will it be divided between her and Eric, or does she retain sole ownership as she owned it before to their marriage? Well, it depends.

A business will be evaluated as an asset in the case of a divorce. Whether it will be shared depends, among other things, on state rules, whether the business is considered marital property, and whether a prenuptial agreement is in existence. Learn more about divorce and company ownership by reading on.

Define Conjugal Property

The key determinant of whether an enterprise is subject to property division is whether it is classified as marital or separate property. The term “marital property” refers to the joint property of a married couple, which is more complicated than it may appear.

First, state rules influence the definition of marital property, which is typically community property or property susceptible to equitable division. Second, how the property is handled and even what happens to it throughout a marriage might influence how it is finally classified.

Community Property versus Equitable Distribution in Business Ownership upon Divorce

A divorcing couple must first establish whether they reside in a community property state or an equitable distribution jurisdiction. In states with community property, practically all property acquired during a marriage is considered joint property, while property owned prior to the marriage is considered separate. Obviously, the law is seldom straightforward, thus exceptions exist. Gifts and inheritances received by one spouse during a marriage are regarded separate property; however, combining them with communal property can alter their status.

In states with equitable distribution, the partition of property is less easy because a judge decides how it should be shared. Obviously, state laws establish specific standards about how property should be split. Additionally, the concept of equitable distribution is that property is divided “fairly” but not necessarily evenly.

When Is a Business Marital Property In the Context of Divorce?

The business will be considered marital property if the couples are co-owners. However, this is not the only method in which a business might be considered marital property. If a business was established after the marriage, it is likely to be regarded marital property.

Sometimes, businesses created by one spouse prior to marriage are not considered marital property. However, this is not always the case. For instance, if the non-owner spouse made contributions to the firm throughout the marriage, it may still be considered marital property. It is vital to remember that “contributed” can refer not just to direct contributions of time to the business, but also to caring for the home while the business owner ran the company.

Using a prenuptial agreement to safeguard business ownership

A prenuptial agreement is the greatest approach to ensure that a business is not subject to property division in the event of a divorce. Occasionally, a spouse may start a business after the wedding, in which case it would be impossible to include it in a prenuptial agreement. However, it is possible to obtain a postnuptial agreement to define business ownership, which is similar to a prenuptial agreement except that it is executed after the couple is married.

blank
Written by Canterbury Law Group

Collecting Business Debts

Collecting Business Debts

You can increase your chances of getting paid by contacting clients who are facing collections.

When it’s time to get paid, a small business owner may face their biggest challenge yet. Fortunately, you can reduce late payments and build a business radar that alerts you when an account is on its way to collections with a little advance planning. By maintaining open lines of communication and assisting clients who are experiencing financial difficulties as they get through a difficult time, you might gain loyal clients for life.

Customers who are slow to pay typically fall into three categories:

  • Customers who want to pay but are unable to do so on time due to legitimate financial difficulties.
  • Customers who favor to juggle or postpone payments.
  • Customers who will take any action necessary to avoid making a payment.

There is hope for the first two categories. You might be able to control these debts and persuade the debtors to pay in full or in part. Regarding the final group, you must identify it as soon as you can and take serious action, perhaps handing the account over to a collections agency (discussed below).

No matter what efforts you make to collect, the following rule is always true: As soon as you can, get to work, and continue working on the account until you are paid. Send bills promptly, and send new bills every month. There is no need to wait until the month’s end. Once an account is past due, send reminder letters as soon as possible.

More advice is offered below:

  • No harassing. Don’t bother those who owe you money, but let them know you are keeping an eye on the situation. You shouldn’t call a debtor more than once per day, and you shouldn’t ever leave messages that contain threats or disparaging remarks about the debtor.
  • Don’t get personal; be direct, listen, and direct. Calls should be brief and specific. According to Carol Frischer, a specialist in collections, your aim should be to stop the debtor from taking the call personally, or from equating the failure to pay as a failure in life. Always maintain your composure while maintaining a sense of urgency regarding getting paid.
  • Be imaginative. Ask the customer how much they can reasonably afford to pay if they are experiencing real financial difficulties. If the client accepts a new payment schedule in writing, take into account extending the payment deadline. Make sure the customer intends to abide by the agreement by calling the day before the following scheduled payment is due.
  • Write letters of demand. Send a series of escalating letters along with the phone calls. Save copies of all communications you have with the customer, and make sure to take notes during every call. If you send the case to a collections agency or take the client to court, you might need these.
  • Send letters using a collection agency. A fixed fee can be paid to a collection agency to have them send out several letters on your behalf. This is distinct from giving the debt to a collection agency.
  • Offer a substantial one-time discount. If a fairly large account goes unpaid for a prolonged period of time (let’s say six months), and you have doubts about ever being able to recover the debt, you might want to think about making a written offer for a time-limited, substantial discount to settle the matter. A mutual release and settlement, a formal document that discharges the debt, can be used to put an end to this.
  • Send the debt to a collection company. Your last resort is to send a debt to collections. Typically, a collection agency will pay you 50% of the money it collects. Of course, there are instances where half is preferable to nothing.
blank
Written by Canterbury Law Group

Inheritance and Divorce

Learn whether a court can divide your inheritance in a divorce.

Not necessarily. For purpose of divorce, the law usually categorizes property as either “marital” or “separate.” As a general rule, marital property is subject to division between the spouses; separate property isn’t. This is true whether you live in a “community property” state (like California), which divides property on a 50-50 basis, or an “equitable distribution” state (like New Jersey), which apportions property based on what the court believes is fair under the circumstances.

Is My Spouse Entitled to My Inheritance in Divorce?

That depends on a number of factors, including where you live. Each state’s divorce laws will govern how to address inheritance, in community property states and equitable distribution states as well.

In the overwhelming majority states, an inheritance is considered separate property, belonging exclusively to the spouse who received it and it cannot be divided in a divorce. That holds true whether a spouse received the inheritance before or during the marriage. But in a state like New Hampshire, for example, courts may consider an inheritance to be divisible in a divorce (unless you can persuade a judge that it shouldn’t be).

Now here’s the rub—although your state may initially view an inheritance as separate property, your actions can change it into marital property. Sometimes that happens intentionally in what is called a “transmutation of property.”

An example of an intentional transmutation of property from separate to marital is where a spouse inherits a house, then puts the other spouse’s name on the deed. The spouses move in and share the costs of living there. In that scenario, if a divorce rolls around, the inheriting spouse would be hard pressed to convince a judge that the house was never intended to be marital property.

But let’s say the inheriting spouse never puts the other spouse’s name on the deed, and neither spouse lives in the house during the marriage. At some point down the road, however, the non-owner spouse contributes to improvements which increase the house’s value. At the time of divorce, a judge might determine that—although the house itself may not be marital property—the increase in value specifically due to the improvements is a part of the marital estate, and thus subject to division between the spouses.

The most common example of converting an inheritance to marital property is when the inheriting spouse “commingles” (mixes) the inheritance with marital assets. This can be intentional, but often it happens by mistake. For example, Uncle Zeke passes on and leaves you $10,000 in his will. After you and your spouse break out the bubbly and toast the kindly gentleman, you put the money in an existing savings account that’s in both your names, and which either of you can access at will. If you did that because you wanted to share the inheritance money with your spouse . . . great! Mission accomplished.

But if you thought that putting that money in the joint account was just for convenience, and that it would always remain yours alone, you may have put yourself behind the proverbial eight-ball. By commingling the inheritance with marital funds, you’ve likely converted it into marital property. You can make an argument to the court that this was never your intention, but you’ll have an uphill climb.

Can I Claim My Ex’s Inheritance Received After Divorce?

Sharing a spouse’s inheritance after divorce is a nonstarter, unless your divorce judgment specifically addresses that topic.

That said, there is a situation where an ex-spouse’s post-divorce inheritance could come into play. If you’re receiving spousal support (alimony) or child support, you might be able to petition the court to increase the support amount, based on that inheritance or any interest income the principal is making.

Courts usually allow modification of support—both up and down—for a variety of reasons, such as a job loss, a spouse or child becoming disabled, or a spouse’s substantial pay increase (again, depending on the laws in your state).

You’d first have to see whether your state views an inheritance as a potential basis for a modification request. If it does, you may have viable grounds to seek an increase in support. Of course, this is going to depend in large measure on how significant the inheritance is. Your best bet for success is when the inheritance has substantially enhanced your ex-spouse’s standard of living.

 

blank
Written by Canterbury Law Group

What Is a Priority Claim in Bankruptcy?

What Is a Priority Claim in Bankruptcy?

It’s a common misconception that when a debtor files for bankruptcy, all of their creditors are left in the dark, but this isn’t always the case. Money is readily available to pay creditors in almost all Chapter 13 cases and some Chapter 7 cases.

However, debtors are not automatically reimbursed. A creditor must use an official proof of claim form to submit a “proof of claim” to the court before they can get paid. Additionally, not all debts owed to creditors are handled equally.

Priority claims are obligations that are eligible for special consideration and will be paid before nonpriority claims. The creditor certifies whether a priority status exists by checking the box next to it in box 12 on the proof of claim form.

All claims submitted will be evaluated by the bankruptcy trustee, who has been appointed by the court to manage the case. The trustee will distribute money to priority creditors following the resolution of objections and confirmation of the plan in Chapter 13 bankruptcy. The trustee will pay claims without regard to priority if there is money left over.

Here are some typical priority claim examples:

  • administration fees for the bankruptcy (such as accounting or legal fees)
  • obligations for child and spousal support
  • 180 days prior to bankruptcy, compensation of up to $15,150 was earned (wages, commissions, and other compensation)
  • contributions to an employee benefit plan of up to $15,150
  • deposits made by the filer to secure future personal goods, services, or housing are allowed up to $3,350.
  • a fisherman may receive up to $7,475 for unpaid fish sold to a storage or processing facility.
  • the government’s unpaid taxes, and
  • Injury or fatality claims resulting from drunk driving-related car or boat accidents.

These numbers are valid as of April 1, 2022, and they continue to be so until March 31, 2025.

In a Chapter 13 case, each creditor requesting payment is required to submit a claim. If it appears that a Chapter 7 case is a “asset case,” meaning that funds will be available for distribution, the court will order creditors to submit claims. In contrast, in a “no-asset case,” creditors won’t submit claims.

blank
Written by Canterbury Law Group

Best Effort Requirement in Chapter 13 Bankruptcy

Best Effort Requirement in Chapter 13 Bankruptcy

What is the Best Effort Requirement of Chapter 13?

The bankruptcy trustee is appointed following the filing of the repayment plan. The trustee and your creditors will review your proposed repayment plan to ensure that it satisfies all bankruptcy requirements. Before being finalized, your repayment plan must also be approved (confirmed) by the court.

Paying your disposable income to nonpriority unsecured creditors (such as credit card companies) in your repayment plan will demonstrate that you are making every effort to repay your debts. After deducting allowed living expenses and mandatory payments, such as secured and priority debt payments, your disposable income is the amount remaining. (Secured debts are backed by collateral, such as a mortgage or an automobile loan. Priority debts are those that warrant advancement to the front of the payment queue. Examples include domestic support obligations and tax debt.)

You will apply your discretionary income to your remaining debt (nonpriority unsecured debt, like credit card balances and medical bills).

What Will I Pay Unsecured Nonpriority Creditors?

  • Using the Chapter 13 Calculation of Your Disposable Income form, you will subtract the following from your income to determine your disposable income:
  • Expenses for living based on national and regional norms, as well as some actual amounts
  • secured payments, such as mortgage or auto loan payments (and any delinquent payments), and
  • Priority debts include arrears on child support and certain tax debts.
  • Over the course of five years, you will be required to pay a minimum of your monthly disposable income to your non-priority unsecured creditors.

Why Will I Be Charged More If I Own a Large Property?

The analysis continues further. In determining whether to confirm your repayment plan, the judge will also consider whether your creditors will receive the same amount through your Chapter 13 plan as they would if you filed for Chapter 7 bankruptcy.

Here is why this is important:

In Chapter 7 bankruptcy, the trustee sells all nonexempt assets (those that are not protected by exemptions). The funds are allocated first to the priority creditors, and then, if anything remains, to the non-priority unsecured creditors.

  • Chapter 13 bankruptcy, on the other hand, allows you to keep non-exempt property. However, your creditors will not permit you to receive a windfall. To ensure that your creditors receive the same amount as they would under Chapter 7, you must pay the greater of:
  • the sum of your total priority debt and your disposable income, or
  • the market value of your taxable property.

Except: If You Were Eligible for Chapter 7

If you qualify for Chapter 7 but file for Chapter 13 for another reason, such as to save your home, you will not be required to calculate a monthly disposable income figure. Your plan payment will be based on your financial situation. The bankruptcy court will typically approve your Chapter 13 plan even if you’re paying non-priority unsecured creditors little or nothing. Additionally, the duration of your plan is reduced from five to three years.

1 2 3 8