Chapter 13

Can a creditor in a chapter 13 bankruptcy case file a claim late due to ‘excusable neglect’?

In order for a creditor to have a valid interest in a bankruptcy case, they must file a claim with the Bankruptcy Court. The filing of a claim is subject to strict time limitations. Although the Bankruptcy Court may allow for the late filing of a claim under certain circumstances this does not mean that they must do so in every case. A case coming out of the Sixth Circuit is a good example of this.

Debtors filed for Chapter 13 bankruptcy in 2014 seeking to reorganize their debt and make payments according to an approved plan.

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What is being done about the wave of mortgage foreclosures in Ohio? 

The U.S. Department of Treasury recently announced that Ohio will be provided with another $96.6 million under the "Hardest Hit Fund," a federal program designed to help states recover from the foreclosure debacle stemming from the Great Recession. The state is eligible for an additional $250 million in taxpayer funds to bulldoze houses and fight housing blight.  

What is a mortgage foreclosure? 

A foreclosure occurs when a homeowner fails to make full principal and interest payments on a mortgage. A borrower who misses a payment and does not pay it within one month is in "default." After the lender notifies the borrower that the payment must be made in full, and the mortgage remains delinquent after 3 to 6 months, the lender can initiate a foreclosure proceeding. At that point, the lender can evict the homeowner, seize the property and sell it at a public auction. 

The Housing Blight in Ohio 

The additional funds from the Hardest Hit Fund will enable Ohio and other states to clean up the mess from the housing market collapse by demolishing abandoned homes in depressed towns across the state, including 158 vacant apartment buildings in East Cleveland. Ohio previously received $570 million for not only blight removal, but also foreclosure prevention programs. 

The money is used by the state, cities and nonprofit groups in Ohio to counsel or provide financial relief to homeowners who are facing foreclosure, and to tear down abandoned homes. The vacant property is then turned into green space or sold for new development. As homeowners defaulted on their mortgages and walked away from their homes, banks and other lenders were unable to sell many properties in foreclosure auctions. Lawmakers believe the additional funding will help Ohioans recover from the lingering devastation of the financial crisis. 

The White House has employed a number of tools to help Americans who were swept up in the recession and the housing downturn and views the Hardest Hit Fund as a program that will strengthen the housing recovery. Whether there has been a recovery in the housing market so far is arguable, but abandoned and blighted homes certainly have a ripple effect on the values of other homes in the neighborhood. 

Can I save my home by filing for bankruptcy? 

A Chapter 13 Bankruptcy petition may enable you to set up a plan to pay the mortgage payments that are in arrears. The homeowner and lender can agree to a time period for the repayments to be made, but the delinquent payments must be made simultaneously with the current payments. Provided that all of the required payments are made according to the repayment plan, you can avoid foreclosure. If you are having trouble making your mortgage payments, you should consult with a bankruptcy attorney to explore your options. 

Is it true that bankruptcy can stop the foreclosure process?

When it comes to consumer bankruptcy, there are more benefits to the Chapter 13 bankruptcy process than eliminating defaults and discharging unwanted debts. Under the rules of Chapter 13 bankruptcy protection, the filing of a petition opts to “stay” -- or, delay – the home foreclosure process, as well as halt the collections measures on any other secured or unsecured debts in place at the time of filing.

Under the rules, Chapter 13 debtors can enjoy an “automatic stay” of debt collections, which will temporarily put a stop to the unrelenting phone calls, letters and harassment techniques of unscrupulous debt collectors. In the context of foreclosure, this can be a much-welcomed relief for those who are struggling to make ends meet -- and fear losing their homes as a result.

Of course, Chapter 13 will not automatically relieve a debtor of his or her obligations under a promissory note and mortgage because these documents remain in place to govern the terms of the loan and encumbrance. Filing the bankruptcy petition, however, essentially “buys time” for the harried homeowner. In essence, the bankruptcy process is designed to help wipe the slate clean for overburdened debtors, which could help free up enough monthly income to resume mortgage payments and stay on the road to financial peace.

In some instances, bankruptcy can eliminate certain junior liens and mortgages in place on a property, such as a home-equity line of credit (HELOC) or similar encumbrance. As well, many unsecured debts such as credit cards or unsecured personal loans will be discharged, creating a much brighter financial future for the Chapter 13 bankruptcy debtor.

If the automatic stay seems like a viable, desirable option for you in light of your current financial situation, you should contact a highly competent bankruptcy attorney.

Will my co-signer’s bankruptcy negatively affect me?

Perhaps you are, or have been, in this situation. Here is the nightmare scenario: You are signing for a loan, and you have a co-signer, as is sometimes required. Years later, though you have been diligently making your payments as they come due, your loan provider declares you in default. The institution will no longer accept any payments from you or provide any information about the account. The reason given is bankruptcy. You panic; you know you haven’t declared bankruptcy. So what is the problem?

Perhaps the cause of the default status on the loan is that the loan servicer has learned that your co-signer has declared bankruptcy. While it is commonplace for a loan servicer to call an entire loan due if the borrower declares bankruptcy, it is generally not proper to call an entire loan due because a cosigner has declared bankruptcy. This is true of Chapter 13. For the purposes of Chapter 7 and Chapter 11, however, it can depend.

One thing you can do on your own is monitor your credit. This is a proper course of action no matter what your financial situation. You can request your free credit report and look for any reported default. Requesting your free credit report is easy. You can visit annualcreditreport.com to get one free credit report every year from each of the credit bureaus. Be careful, because there are many imitation websites out there that look similar to the real ones.

If you find a default on a report that is due to a co-signer's financial problem, you can file a complaint with the credit bureau to have the default removed from your report. It is important to diligently monitor your reports on a regular basis to protect yourself, hopefully becoming aware of such a situation before it becomes unmanageable.

It is also beneficial to consult with an experienced bankruptcy attorney in your area. This is especially true when your case involves Chapter 7 or Chapter 11 bankruptcy. The laws covering this issue differ depending on which jurisdiction’s laws apply in your situation, and can, therefore, be more complicated to resolve.

How will the Bankruptcy Court calculate my monthly income if I am 100 percent commissions-based?

Working solely for commission has its highs and lows. On one hand, employees may be able to make significantly lucrative sales deals with clients, resulting in major lump-sum cash payments each month. On the other, the sales sector can be unpredictable, leaving some of the best sales associates without significant income for weeks or months on end. For an employee whose salary is based 100 percent on commissions, this can be extremely difficult to manage – particularly as monthly bills and obligations continue to loom.

For the commissions-based employee who is struggling to make ends meet, consumer bankruptcy may be a viable option to gain financial traction. However, there are some nuances to the practice that may distinguish the commissions-based bankruptcy debtor from a traditional wage earner.

In one pivotal case, a debtor appealed a decision entered by the U.S. Bankruptcy court holding that a commission earned eight months after filing should be considered part of the bankruptcy estate – and therefore subject to disbursement to creditors. In the court’s opinion, it pointed to the language of the Bankruptcy Code that entitles the trustee to encumber the debtor’s legal and contractual interests as part of his assets – and concluded that a pending commission sale would be included in that mandate. In objection, the debtor asserted that, at the precise time of filing, the commission was not in his possession and therefore not a countable asset. The appeals court disagreed, and held that the imminent commission had “value” at the time of the filing, even if not yet realized – and should have been counted in the estate. See, In re Ryerson, 739 F.2d 1423 (1984).

In another similar case, the court held in the opposite after concluding that the debtor still had remaining “post-petition services” to render before collecting the entire commission. In other words, the debtor’s legal interest in the sum had not yet vested at the time of filing as she had not yet fulfilled the terms of the contract in their entirety. Accordingly, the commission was not counted as part of the bankruptcy estate. See, In re Wu, 173 BR 411 (1994).

If you are considering a consumer bankruptcy in Ohio and have questions about how the court will treat your commissions-based earnings, please contact a competent Miami Valley Bankruptcy today at 937.262.4789.

How does the state of Ohio compare to the nation in terms of the number of bankruptcy filings?

There are a number of factors that influence bankruptcy filing trends. Recent changes to healthcare laws, for instance, have worked to reduce the medical debt for many Americans, prompting a reduction in bankruptcies caused by major accidents or illness. While it may be too soon to tell what major factors impact 2015 as a whole, the month of August showed a consistent decline in filings, both in Ohio and nationwide.

On a national scale, bankruptcy data reveals that August has been the third-lowest month in terms of the number of bankruptcies filed, and new filings are down by 7,000 compared to August, 2014. In total, there were 67,712 new petitions for bankruptcy relief filed in the month, compared to the next lowest months of February (65,054) and January (59,087). By contrast, August 2010 saw over 134,000 bankruptcy filings, just shy of double that of August 2015.

Ohioans are similarly seeing a reduction in bankruptcy filings within the state. In the Northwest division, for instance, 346 new cases were filed in August, which is a nine percent reduction from August, 2014. Likewise, the total number of cases filed in 2015 is down by 11 percent compared to the first 8t months of 2014.

Regardless of the reasons for the fluctuations in bankruptcy filings, debt relief through Chapter 7 or Chapter 13 bankruptcy can be a welcome reprieve for those caught in the crosshairs of mounting debt and diminishing income. If you are experiencing difficulty, bankruptcy can help offer a fresh financial start, and should be considered a positive step toward freedom from the confines of debt.

If you are one of the thousands still struggling with debt in Ohio and would like to speak with a legal representative who understands the process of consumer bankruptcy, please do not hesitate to contact Miami Valley Bankruptcy today: 937-262-4789.

I am considering filing for Chapter 7 bankruptcy-- how long will the process take?

For the indebted individual, there are two types of bankruptcy to pursue: Chapter 13 and Chapter 7. Chapter 13 bankruptcy involves a reorganization of debts and assets, as well as a payment plan generally spread out over six years. Chapter 7 on the other hand involves a liquidation of assets in order to absolve and forgive debts.

The Chapter 7 timeline begins with the filing a voluntary petition, at which point the debtor will receive a case number. If there are any mandatory documents missing from the filing, the debtor will have 14 days to amend the petition, a task  with which a bankruptcy attorney can assist.

The next step for the Chapter 7 petitioner is to present tax returns for the most recent tax year. These returns are filed with the trustee assigned to the case, and are not actually filed with the court.

The first major milestone in a Chapter 7 case is the preliminary meeting of the creditors – known as the 341 meeting. This must take place between 21 and 60 days from the date the case is filed. Forty-five days after the 341 meeting, the debtor must file a Financial Management Certification stating that the required financial education course has been completed.

Approximately 60 days after the first meeting with the creditors, the Bankruptcy Court will enter an order discharging individual debts if eligible under the federal rules.

Overall, a debtor considering a chapter 7 proceeding should expect a time commitment of no longer than 3-6 months from the initial filing until the conclusion of the process. From there, the former debtor can begin enjoying financial freedom and experience the relief of having his or her financial portfolio free from the constraints of crushing debt.

If you are considering consumer bankruptcy and would like to discuss your options with a reputable, experienced  attorney, please do not hesitate to contact Brian Lusardi, Esq. at Miami Valley Bankruptcy. Serving clients throughout the Miami Valley, Ohio area, he can be reached at 937-262-4789.

What is a “proof of claim” in bankruptcy, and when must a creditor file this document?

In a consumer bankruptcy action, the debtor is required to list any and all outstanding debts, including the name of the creditor and the amount owed. The purpose of the proof of claim form is for the creditor to ensure it will be paid when it comes time to restructure or liquidate the debtor’s estate, and is generally required for all unsecured creditors wishing to receive a piece of the pie.

Like any court filing, there are a number of formal requirements that apply to the proof of claim, including timely submission to the bankruptcy court. Under current guidelines, a proof of claim must be submitted within 90 days of the first creditors’ meeting – a procedural milestone that takes place early in the process.

This timeliness requirement was recently put to the test in a case reaching the U.S. Court of Appeals for the Eleventh Circuit. In that case, the debtor owed approximately $2,000.00 to a furniture company, and the last activity on the account occurred in October, 2001, at which point the company sold the debt to a credit recovery company. In October, 2004, the three-year statute of limitations on debt collection ran out, effectively time-barring the collector from recovering the outstanding balance.

In 2013, the debtor filed for Chapter 13 bankruptcy, during which the debt collector submitted a proof of claim for the debt. In a unique move, the debtor filed a defense against the debt under the Fair Debt Collection Practices Act (FDCPA), which prohibits any misleading conduct by a debt collector that insinuates it has a legal right to recover a debt when it, in fact, does not.

After a dismissal of the defense by the U.S. Bankruptcy Court, the Eleventh Circuit upheld the defense's claim, citing that the FDCPA undoubtedly applies to the situation, and “[the] debt collector’s filing of a time-barred proof of claim creates the misleading impression to the debtor that the debt collector can legally enforce the debt.”

Since debt can easily become overwhelming and bankruptcy can be a complicated process, if you are in need of assistance with a Chapter 13 or Chapter 7 consumer bankruptcy matter, please contact Miami Valley Bankruptcy today to receive expert legal advice and attention. Serving the entire Miami Valley area of Ohio, we can be reached at 937.262-4789.

If an account is discharged in consumer bankruptcy, how will this be reflected on my credit report? 

Credit repair is one of the hallmark reasons for a consumer to consider the option of bankruptcy. While a Chapter 7 or Chapter 13 bankruptcy will be reported on a consumer credit report for a period of seven years, the consumer stands to gain significant benefits in that overwhelming revolving debts will be forgiven and erased from memory -- right? Well, not always so lawmakers have proposed a potential legislative solution. 

Under current regulations, banks and credit card companies are not necessarily required to report a $0.00 balance on an account discharged in bankruptcy. As a result, consumers’ credit reports continue to show outstanding (unpaid) balances, which unfairly indicate that the consumer has a much more extensive level of debt than is actually the case. 

Fortunately, Ohio’s own United States Senator Sherrod Brown is sponsoring a bill in Congress that would require both banks and debt buyers to report a $0.00 balance on accounts discharged in bankruptcy to the major credit bureaus. Under the proposed Consumer Reporting Fairness Act, debtors could also pursue legal action against a bank or credit card company that fails to report the zero balance in a timely manner. 

The bill has garnered significant support from groups including Americans for Financial Reform, the Center for Responsible Lending and the National Consumer Law Center. A statement by the National Association of Consumer Bankruptcy Attorneys, “estimate[s] that more than a million Americans who have gone through the bankruptcy process and have legally discharged debts find that their debts continue to appear on their credit reports. This practice of flaunting the bankruptcy discharge by some of the largest banks in this country is intolerable.”

Several U.S. banks are under investigation for debt-reporting violations, including JP Morgan Chase, Bank of America and CitiGroup. 

If you are considering consumer bankruptcy, or have questions about the process, please do not hesitate to contact the attorneys at Miami Valley Bankruptcy, serving Beavercreek, Xenia and Jamestown, Ohio, by calling (937)262-4789. 

What is the updated ‘undue hardship’ standard as published by the Department of Education in July, 2015?

With student loan debt crippling the nation, it is understandable that thousands of graduates are considering their options in bankruptcy. Historically, student loans were not considered a dischargeable debt in bankruptcy absent a showing of extreme undue hardship, which was considerably difficult to prove. 

However, the Department of Education has opted to extrapolate on its “undue hardship” concept, incorporating judicial holdings and its own interpretive guidelines to help students and bankruptcy attorneys alike better understand the threshold for obtaining relief. If you are struggling with seemingly insurmountable student loan debt, please do not hesitate to contact Miami Valley Bankruptcy to discuss your rights. 

Department to rely on formula

Essentially, the Department of Education has decided to implement a formula to help determine when not to object to an undue hardship request for student loan forgiveness. The Department’s position reads as follows: 

If [the government] determines that requiring repayment would not impose an undue hardship, the holder must then evaluate the cost of undue hardship litigation. If the costs to pursue the matter in bankruptcy court are estimated to exceed one-third of the total amount owed on the loan (including the current principal balance, any unpaid accrued interest, and current, unpaid accrued collection costs), the [government] may accept and/or not oppose an undue hardship claim by the borrower in an adversary proceeding.

Seems simple enough, right? Under the new guidelines, the government will likely not pursue an objection to loan discharge if the costs to litigate the matter would exceed one-third of the total loan balance. However, the statement does not give much detail on how the government plans to calculate its speculative litigation costs, nor does it provide students with an understanding on whether certain bankruptcy claims will involve more complex (i.e., more costly) litigation than others. Likewise, it does not offer guidance as to whether a loan servicer working on behalf of the Department is permitted to outright deny a request for discharge. 

With so many variables still in the air, we continue to recommend working closely with a Miami Valley bankruptcy attorney in order to maximize your chances of avoiding the burden of explosive student loan debt. 

For help with your student loan discharge request, please contact our Jamestown, Beavercreek and Xenia, Ohio bankruptcy attorneys right away: 937-262-4789. 

Can a debtor discharge old tax debts in Chapter 7 or Chapter 13 consumer bankruptcy?

In December, 2014, the U.S. Court of Appeals for the Tenth Circuit weighed in on an unusual tax situation involving a consumer bankruptcy proceeding and outstanding individual income tax debt. In the case, two individual taxpayers – husband and wife – failed to file a tax return in 2000 and 2001, resulting in an undisputed deficiency notice. In 2006, the IRS began collection proceedings on the debtors – who thereafter filed for bankruptcy under Chapter 13 and, later, Chapter 7. 

The U.S. Bankruptcy Code allows for the discharge of a wide array of consumer debts, including – in certain circumstances – outstanding federal tax liability. However, these discharges are only available where the taxpayer has actually filed a tax return for the tax years implicated in the bankruptcy proceedings, and are excepted if a tax return was never filed. 

Here, the debtors failed to file a tax return in 2000 and 2001, and were thereafter barred in their subsequent bankruptcy proceeding from discharging the tax debt accrued in those years. In their argument, the debtors explained that they actually filed post-assessment appeals with the IRS after the deficiency notices were sent. However, the U.S. District Court held that a post-assessment tax return is not the same as a traditional tax return due on April 15 of each year, and the tax debt was not dischargeable.  

On appeal, the debtors pleaded to the Tenth Circuit that they should not be liable for the 2000 and 2001 tax debts, as a tax return was filed (eventually). However, the Tenth Circuit sided with the IRS and U.S. District Court, holding that a timely tax return must be filed in order to benefit from the dischargeability allowances in the Bankruptcy Code. In other words, a post-assessment filing is simply too little, too late. 

The debtors have since filed an appeal with the U.S. Supreme Court, and it is unclear whether the court will grant a writ of certiorari to review this complex issue at the intersection of bankruptcy and tax law. 

If you are struggling to meet your debt obligations, are considering bankruptcy and would like to speak to a reputable attorney about your situation, contact the knowledgeable legal team of Miami Valley Bankruptcy at 937-262-4789 today.