Category Archives: Bankruptcy Law

Filing An Emergency Bankruptcy

Filing An Emergency Bankruptcy

Sometimes you need to stop a creditor’s action fast. Filing for bankruptcy can help. When you open a case, the court puts an automatic stay in place that prohibits most creditors from continuing collection actions against you (exceptions exist). But, completing all the forms isn’t a quick process. If time is running short, you can use a fast online bankruptcy filing process known as an emergency bankruptcy filing (or skeleton filing), get the automatic stay in place, and submit the remaining documents later.

Filing Emergency Bankruptcy Forms Online

The average bankruptcy petition can easily consist of upwards of fifty pages once completed. But when you’re facing a foreclosure auction, repossession, wage garnishment, collection lawsuit, or another time-sensitive situation, getting all of the paperwork done might not be feasible.

You have another option.

When you need to file a quick bankruptcy, you can get your bankruptcy forms filed online fast. Plus, you can access online filing at any time of the day, any day of the week, and start the online filing process by uploading only a small percentage of the required forms:
• the bankruptcy petition (the primary document containing identifying information, the chapter you’re filing, and other general information)
• the names and addresses of the creditors that will be listed in the bankruptcy schedules (often referred to as a creditor mailing list or mailing matrix—check with your court for format requirements)
• a certificate showing that you completed the credit counseling requirement or a request for a waiver, and
• Form B121 Your Statement About Your Social Security Numbers.
You’ll also want to prepare to pay a filing fee, submit a request for a fee waiver, or a request to pay the fee in installments.

Finalizing a Skeleton Bankruptcy Filing

If you don’t file the additional documents within 14 days, your skeleton bankruptcy case will be dismissed. Also, be aware that some courts require other forms. You’ll find the requirements in the local rules posted on your court’s website.

Steps in an Emergency Bankruptcy Filing

For an emergency filing, you’ll want to follow these steps:
 Step 1: Check with the court clerk or the court’s website to find out exactly what forms you must submit for an emergency filing.
 Step 2: Fill in the Voluntary Petition for Individuals Filing for Bankruptcy.
 Step 3: On the list of creditors, you’ll include the names and addresses of everyone you owe money to, as well as collection agencies, sheriffs, attorneys, and others who are seeking to collect debts from you. You’ll want to use the address on the most recent billing statement or court filing.
 Step 4: Fill in Your Statement about Your Social Security Numbers form.
 Step 5: Complete any other papers the court requires (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: File the originals and the required number of copies with the court clerk, accompanied by your fee, a fee waiver application, or a request to pay the fee in installments, along with a self-addressed envelope. Keep copies for your records.
 Step 7: File the remaining required forms within 14 days to avoid dismissal of your case.

Emergency Circumstances in Bankruptcy

It is rarely a good idea to file an emergency bankruptcy if you can avoid it. Bankruptcies are paper-intensive, and bankruptcy law requires you to fully, accurately, and honestly disclose all of your assets, debts, income, expense, and various financial information.

Filing a petition also triggers deadlines you’ll be required to meet. If you file a bankruptcy too hastily, you might make mistakes that could cause you difficulty later, including the dismissal of your case or a denial of your bankruptcy discharge. There are even criminal penalties if the court finds you were intentionally evasive or less-than-truthful in your statements and paperwork.

However, you might not be able to avoid filing an emergency bankruptcy petition. An emergency petition can help prevent the following:
 the sale of your home through foreclosure
 car repossessions
 eviction
 garnishments, and
 lawsuits.

When you file for bankruptcy, the court puts in place the “automatic stay.” The automatic stay is an order that prevents most creditors from moving forward with collection actions against you. Keep in mind that the stay will be temporary when it comes to foreclosure, repossession, and evictions in Chapter 7. A Chapter 7 bankruptcy doesn’t have a mechanism to fix those problems. In Chapter 13, you can catch up on delinquent mortgage and car payments if you can afford it. You might be able to fix an eviction if you can bring your payments current in a reasonable period (which is shorter than most people need).

Filing Requirements for an Emergency Petition

An average bankruptcy filing can contain 50 or more pages of documents that list all of your assets, debts, income, expenses, and detailed statements concerning your financial history. Sometimes you don’t have the time to complete all of the necessary paperwork. Here is a basic breakdown of the minimum that you must complete, sign, and file to start your bankruptcy case.

Minimum Forms

The following documents are the minimum that you must file to start your Chapter 7 case (often called the skeleton petition):
 The bankruptcy petition. The first document includes identifying information and tells the court which bankruptcy chapter you intend to file.
 Creditor matrix or mailing list. You’ll include a list of the names and addresses of all your known creditors. Some courts might let you file it a few days later. Your local bankruptcy court dictates the format of this form. Look for details on your court’s website or call the court clerk. You can find your court’s website using the Federal Court Finder tool.
 Statement of Social Security Number. You’ll provide your Social Security number on a separate form that the court will not make public.
 Certificate of credit counseling. You’re required to receive credit counseling during the 180 days before filing, with few exceptions. Some bankruptcy courts may also have additional requirements, such as written disclosure statements or electronic copies of your documents.

Notifying Creditors about the Emergency Bankruptcy

You likely need to stop a collection proceeding if you’re using this process. You can’t depend on the court to alert your creditors. Why? It the court clerk about a week to send out a notice of bankruptcy.

Here’s what you do: You or your attorney should immediately send notice of your bankruptcy filing directly to the creditor if you need to stop a foreclosure, repossession, wage garnishment, lawsuit proceeding, or some other action. Be sure to include the court in which you filed, your case number, and the filing date.

When Can an Emergency Bankruptcy Filing Be Used?

There are certain scenarios in which filing for an emergency bankruptcy may be necessary. Examples of these are when an automatic stay is required immediately to help prevent the following collection actions from occurring, such as:
• Foreclosure of a home;
• Eviction;
• Car repossession;
• Creditor lawsuits; and/or
• Wage garnishments.

Although it is not necessary to point to a specific emergency, it does help to prove that there is a real case and that the debtor genuinely needs relief from debt and is not simply abusing the court’s powers.

In general, bare bones bankruptcy cases typically involve filing the following items:
• An emergency bankruptcy petition;
• A list of the names and addresses of all creditors (this requirement may vary depending on the jurisdiction);
• A “Statement of Social Security Number” form;
• A “Certificate of Completion” of credit counseling (or waiver request); and
• The debtor will need to either pay the mandatory filing fee, request to pay the fee in installments, or request a fee waiver.

A debtor must still comply with the remaining requirements found in all bankruptcy cases, but a skeleton filing will buy them some time and keep creditors at bay while they are compiling the rest of the documents.

Benefits and Limitations of Emergency Ban

Before filing a petition for an emergency bankruptcy, a debtor should be aware of the benefits and limitations involved in the process. Some benefits of filing for emergency bankruptcy may include the following:
• It can be used to stop certain collection acts from occurring against the debtor immediately, such as repossession of property, foreclosure of a home, and being sued by a creditor for debts owed (note that this does not mean that these acts will not happen eventually);
• In certain instances, it may give the debtor some time to reclaim possession of property while bankruptcy proceedings are currently underway; and/or
• Once filed, it will allow the debtor to receive the protections granted by an automatic stay.
On the other hand, some limitations of filing for emergency bankruptcy can include that:
• Not all debtors may qualify to file for emergency bankruptcy. For instance, debtors who have filed for bankruptcy in the past may be restricted from filing for emergency bankruptcy altogether or will have to abide by stricter limitations than they normally would if this had been their first time filing for it;
• A debtor must still complete the mandatory credit counseling sessions and receive a certificate of completion within 180 days before filing, even in emergency bankruptcy cases;
• After the bankruptcy hearing is over, a debtor may still have to pay off certain non-dischargeable debts (e.g., spousal support); and
• Despite the fact that it is an emergency filing, a debtor must comply with the majority of procedural requirements like providing any and all documents requested by the bankruptcy court. In other words, a debtor cannot simply request an emergency bankruptcy, reap the benefits of an automatic stay, and then abandon the case.

Do I Need to Hire a Lawyer for Help Filing for Emergency Bankruptcy?

Handling a bankruptcy matter without the assistance of a legal expert can be very stressful. These types of cases require strict attention to detail, thorough knowledge of the law, and proper compliance with necessary procedures.

For many, bankruptcy cases can also be unsettling due to the subject matter involved, namely, your finances.

Therefore, if you need to file for emergency bankruptcy, it may be in your best interest to contact a local bankruptcy lawyer as soon as possible. An experienced financial lawyer will already be familiar with the relevant bankruptcy laws and legal processes, will be able to determine whether or not you are eligible to file for emergency bankruptcy, and can relieve some of the stress that filing for bankruptcy may cause.

In addition, your lawyer can assist you with any supplemental bankruptcy filings, inform you about the risks and benefits of filing for bankruptcy in general, and provide representation in court during your bankruptcy proceedings.

What Is a Bankruptcy Lawyer?

A bankruptcy lawyer specializes in giving legal advice to a client about bankruptcy, prepares legal documents for the client and represents the client in court. An attorney must hold a law degree and be licensed in the state where they do business.

As your guide through the bankruptcy process, a lawyer can advise you about matters such as:
• Whether to file for bankruptcy
• Which type of bankruptcy to file
• How the bankruptcy process works
• Which court-provided forms need to be completed
• What kinds of debts can be reduced or eliminated
• Whether you’ll be able to hang on to your home, car or other property after the bankruptcy case is finished

Overall, a bankruptcy lawyer can steer you in the right legal direction. If you handle a bankruptcy case without a lawyer, you may make legal mistakes that carry long-term financial consequences.

What To Expect From a Bankruptcy Lawyer

If you hire a bankruptcy lawyer, here’s what to expect:
• A written agreement, or contract, between you and the lawyer. The agreement will likely include an overview of the lawyer’s work for you.
• A description of payment arrangements. For example, will the lawyer charge an hourly or a flat fee? How much will the fees be?
• Ongoing discussions. You’ll talk about how the lawyer is handling your case.
• An agreement. You’ll agree on how and how often the lawyer will update you about your case.
• A list of documents. The lawyer should provide you with a complete list of documents needed for your bankruptcy case.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
Ascent Law LLC

4.9 stars – based on 67 reviews

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Chapter 12 Bankruptcy For Farmers And Fishermen

Chapter 12 Bankruptcy For Farmers And Fishermen

Chapter 12 bankruptcy is a relatively new addition to bankruptcy laws. It allows “family farmers” and “family fisherman” to restructure their finances and avoid liquidation or foreclosure. It’s very similar to Chapter 13 bankruptcy, but provides additional benefits to debtors.

For much of our nation’s history, there were few bankruptcy laws specifically designed to protect family farmers and fishermen. Congress enacted Chapter 12 bankruptcy in 1986 as an emergency response to the tightening of agricultural credit and the pressure that it placed on family farmers and fishermen. Chapter 12’s provisions were temporary for many years and did not become permanent until 2005.

Eligibility for Chapter 12 Bankruptcy

Despite its important purpose, Chapter 12 bankruptcy has very limited application. Few debtors are eligible to file bankruptcy under Chapter 12. Of the 1.4 million bankruptcies filed in the United States in 2011, only 637 were Chapter 12 cases. Under the bankruptcy laws, only a family farmer or fisherman with “regular annual income” may seek protection under Chapter 12. “Regular annual income” may be seasonal as long as it is stable and regular enough to allow the debtor to make payments under a Chapter 12 plan.

Debtors under Chapter 12 may be individuals (married or single), corporations, or partnerships. Individual Chapter 12 debtors must:
• be engaged in a farming or commercial fishing operation
• have total debts of not more than $4,153,150 if they are farmers or $1,924,550 if they are fishermen (as of April 2016)
• owe 50% of their total debts on account of farming operations or 80% of their total debts on account of commercial fishing operations (in both cases excluding home mortgages), and
• derive over 50% of their gross income from farming or commercial fishing operations.
Similar restrictions apply to farms and fishing operations owned through family partnerships and corporations. Partnerships and corporations cannot file bankruptcy under Chapter 12 unless a single family owns more than 50% of their stock or equity interests.

How Chapter 12 Works

A Chapter 12 case begins when the debtor files a voluntary petition for relief. Most Chapter 12 debtors continue farming or fishing operations after they file bankruptcy. A bankruptcy trustee is appointed, but generally, his or her duties are limited to reviewing documents, monitoring the debtor’s operations, advising the court, and collecting and disbursing plan payments. Chapter 12 debtors must propose a repayment plan within 90 days of the date that they file bankruptcy. The bankruptcy court can extend the plan deadline in certain circumstances.

The Chapter 12 Repayment Plan

The plan process in Chapter 12 is similar to that in Chapter 13. Under Chapter 12, debtors propose a plan to pay creditors over three to five years. Three years is the minimum plan period in Chapter 12 unless the debtor can pay all amounts owed sooner. The plan period can be extended to five years with court approval. The plan period must be five years if the debtor owes domestic support obligations (child support or alimony) that he or she does not pay in full sooner.

Confirmation of the Chapter 12 Plan

Chapter 12 plans are subject to bankruptcy court approval, or “confirmation.” The hearing on confirmation is supposed to be held within 45 days of the date that the plan is filed. Before the confirmation hearing, the Chapter 12 trustee reviews the proposed plan and other documents filed by the debtor and makes recommendations to the bankruptcy court. The bankruptcy court is responsible for deciding whether to confirm a proposed Chapter 12 plan, but most judges rely heavily on the trustee’s recommendations.

Elements of a Chapter 12 Plan

Required plan payments. During the plan period, the debtor must turn over all of his or her “disposable income” to the Chapter 12 trustee. “Disposable income” in a Chapter 12 case is the difference between the revenue generated by the debtor’s farm or fishing operations and the amount reasonably needed to cover:
• business expenses, and
• expenses incurred in the maintenance and support of the debtor’s family.

The trustee retains a fee from the plan payments and disburses the balance to creditors.

Mortgages and other secured claims. One of the advantages of Chapter 12 is that it allows debtors to “cram down” secured debt, like farm mortgages and boat loans. Mortgage lenders and other secured creditors must be paid at least the value of the collateral pledged for the debt. Any balance owed in excess of the collateral’s value can be treated as unsecured debt, which is often paid little or nothing in Chapter 12 cases. Payments on secured debt can be stretched out even beyond the term of the plan, and interest can be reduced to a current market rate.

Discharge of debt. Chapter 12 plans have to meet the “best interests of creditors” test. Under the “best interests” test, creditors have to be paid at least as much under a Chapter 12 plan as they would receive in a Chapter 7 bankruptcy liquidation. As long as the “best interests” test is met, unsecured creditors can be paid pennies on the dollar or even nothing at all.

After the confirmation hearing, the case remains open until the debtor makes all required payments to the Chapter 12 trustee. Once all required payments have been made, the court grants the debtor a discharge, and the case is closed. A discharge, with some exceptions, eliminates a debtor’s liability for obligations not covered by its Chapter 12 plan. Most obligations are dischargeable. There are, however, some obligations, such as child support and alimony that are nondischargeable even under Chapter 12.

A Chapter 12 case can be dismissed if the debtor cannot obtain plan confirmation or make required payments. A debtor also can elect to dismiss a Chapter 12 case or convert it to a Chapter 7 liquidation.

How Chapter 12 Bankruptcy Works

Gather all of your financial information if you want to file for Chapter 12. The procedure works similarly to those of other bankruptcy chapters. You must submit a voluntary petition, the schedules, the statement of financial affairs, a complete list of your debts and creditors, and any other documents the court requests. These documents and any required fees must be filed with the clerk of the bankruptcy court in the area where you live or conduct your business.

Types of Chapter 12 Provisions and Relief

Filing for Chapter 12 bankruptcy protection provides relief from creditors, but it also comes with numerous rules.

The Automatic Stay

An automatic stay goes into effect when a farmer or fisherman files for Chapter 12 bankruptcy, just as with all other bankruptcy cases. The stay prohibits creditors from taking collection actions without the permission of the bankruptcy court. In addition to protecting the debtor, the automatic stay in a Chapter 12 case also protects anyone who is also liable on any of the Chapter 12 debtor’s consumer debts. These are debts incurred for personal, family, or household purposes rather than business debts associated with the farming or fishing operation.

Trustee and Creditors

The court will appoint a trustee to work with the debtor and their creditors. The Chapter 12 trustee will hold a meeting of creditors at the beginning of the proceedings. The trustee and creditors may ask you questions about your petition and financial affairs during the meeting. This information will be used to set up your payment plan.

Eligibility for Individuals and Married Couples

Only one person or married couple can file for Chapter 12 (you and a business partner cannot file together). Other eligibility requirements include:
• You or your relatives must actively engage in farming or commercial fishing
• Total debts must be $4,153,150 or less for farmers
• Total debts must be $1,924,550 or less for commercial fishermen
• 50% or more of your total income must have come from farming or fishing in the previous year

Eligibility for Businesses

A corporation or partnership may be eligible to file for Chapter 12 bankruptcy if it is closely held by a family and does not have publicly traded stock. Other requirements include:
• One family (or a group of relatives) needs to own more than half the stock or equity
• One family (or a group of relatives) must be the workers or on the staff at the farming or fishing operation. They can’t own from afar and have it managed or worked by others.
• 80% of more of the company’s value must be in assets related to farming or fishing. Examples are boats, equipment, buildings, etc.
• Total debt is capped at $4,153,150 for a farm and $1,924,550 for a commercial fishery or fishing business (as of 2020). This debt amount does not include debt from owning a home.
• At least 50% of the total business debt must be for the farming business ($2,076,575 as of 2020)
• At least 80% of the business debt must be for the fishing business ($1,539,640 as of 2020)
• Stocks can’t be publicly traded

“Regular Annual Income”

To qualify for Chapter 12, you must receive regular annual income from your family-owned or family-run fishing or farming operation (this can be seasonal). The income requirement is necessary to ensure your yearly income is stable. This helps during the reorganization and repayment phase because you can accurately predict what you can make in a year. This allows you to make each payment.

Other Eligibility Considerations

You can’t file for any bankruptcy chapter if:
• You failed to appear in court for bankruptcy in the last 180 days. This results in your bankruptcy being dismissed. This does not apply to legal reasons or accidents that led to you missing the court date.
• You failed to follow all court orders in the last 180 days. This will also dismiss your bankruptcy case.
• Your creditors asked the bankruptcy court for your property because they hold liens on it. Bankruptcy cases can be voluntarily dismissed at this point if the debt no longer exists.
• You failed to get court-ordered credit counseling in the past 180 days.
You will need to submit all forms and information about:
 Your business’s creditors or lenders
 The amount of each creditor’s claim and what was purchased with the money
 Your total annual income and the frequency of your income (for seasonal operations)
 Your assets and property
 Your expenses per month (i.e., utilities for buildings, taxes, transportation of workers or products, medicine and food for fish or animals, fertilizer, etc.)

Even if you file together, each spouse needs to provide this information. If just one spouse files for bankruptcy, the other spouse needs to show their income and expenses so the courts can understand your household’s entire financial picture.

Appointment of Bankruptcy Trustee

Your case will have an impartial trustee assigned, called a bankruptcy trustee. This person will oversee the case, administer tasks and debt repayments, and be there to answer your questions. They will evaluate your case and decide whether it is approved or not. While this person may be helpful, they represent the bankruptcy case’s interests and not yours. Hiring a bankruptcy attorney is the only way to make sure your interests are upheld.

When you file the Chapter 12 petition you will get an automatic stay. This will stop most collection agencies and debt collectors from taking action against you. These creditors and agencies generally can’t:
 Sue you (and current lawsuits must stop)
 Take your salary through wage garnishments
 Make calls to your or your family asking for information or payments

The bankruptcy court will automatically give notice of the case to all your creditors. During the process, you will provide their names and addresses. Make sure to include them all so they will stop calling you!

Protecting Co-Debtors with an Automatic Stay

The automatic stay will also protect your co-debtors. Creditors can no longer call them and hold them responsible for the debt they signed on to unless the court authorizes them to. This protects:
 Co-debtors who signed paperwork with you
 Any person liable for the debt

Meeting of Creditors in Chapter 12 Bankruptcy

Your bankruptcy trustee will hold a “meeting of creditors” between 21 to 35 days after you file the petition and it is approved. Some areas do not have trustees or administrators on staff. In situations like this, the meeting can take up to 60 days to take place.

During the meeting, you can expect to:
• Take an oath to tell the truth
• Answer questions from your trustee or creditors (often creditors do not show up to these meetings)
• Attend the meeting (both spouses must attend if you filed together)
• Answer questions honestly about your finances
• Have a debt repayment plan and discuss the timeline and terms

Talk to an Attorney to Learn About Chapter 12

Depending on your unique situation and your financial goals, bankruptcy just might be the best option for you. But making the right decision as soon as possible can make all the difference. It’s a good idea to talk to Ascent Law Firm attorney if you have questions about bankruptcy or would like some guidance through the bankruptcy process.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
Ascent Law LLC

4.9 stars – based on 67 reviews

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Bankruptcy Case: Dismissed Without Prejudice

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Bankruptcy Case: Dismissed Without Prejudice

A bankruptcy dismissal happens when something goes wrong and the bankruptcy court rejects your case. There are many reasons this can happen and many consequences. The word “dismiss” shouldn’t be confused with discharge, which is when certain debts are eliminated. Instead, dismissal means that the bankruptcy case has been thrown out. The petition has failed. There is no longer a case. With almost all dismissals, the petitioner has wasted their time, although usually, one can try again soon, or after a waiting period. A bankruptcy attorney can help you rectify the issue.

Filing for bankruptcy is a complicated process with many steps, forms, rules, and criteria for eligibility. The stresses of declaring bankruptcy can contribute to easy mistakes. One single mistake with any aspect of the bankruptcy process can be grounds for dismissal, so there is a lot of room for error. Also, because bankruptcy provides a much-desired relief, some candidates attempt to misrepresent their situation. This is grounds for a type of dismissal that has more serious consequences than dismissals related to honest mistakes.

Causes of Bankruptcy Dismissal

Here are some specific reasons your bankruptcy case might be dismissed:
• Failure to comply with court rules
• Procedural violations
• Failure to fulfill credit counseling or pass a means test
• Jurisdiction or residence issues
• Lack of timeliness in filing documents and forms
• Insufficient documentation
• Fraud against creditors, lenders, or courts
• Failure to make court appearances or attend creditors meetings
• Failure to pay the court filing fee or installment payments
• Prior cases, prior dismissals, and prior discharges
• Failure to make timely plan payments in a Chapter 13 bankruptcy case

Effects and Consequences

 When a bankruptcy petition is dismissed, all the time, money, and effort that went into the filing is lost, including the lawyer’s fees. Your debts are not discharged, or your payments are not restructured.
 Filing bankruptcy grants you an automatic stay against creditors, but when your bankruptcy case is dismissed, this is lifted and you’re back where you started. It’s important to note that despite a dismissal, just merely filing for bankruptcy can remain on your credit report and further hurt your credit scores.

 After a dismissal, creditors and collection agencies can come after you again with all the power of the law. This could result in lawsuits, foreclosure, and repossession of vehicles, wage garnishment, and nagging collections calls. In addition, depending on the circumstances of your dismissal, you may not be able to file again for half a year, or in the same court.

Types of Bankruptcy Dismissal

There are several types of dismissal, each with different consequences. Among them is dismissal with or without prejudice, voluntary dismissal, and dismissal for abuse. In many cases, as long the details of your petition were made honestly and in good faith, you can either reinstate a dismissed petition or file again right away. Sometimes a voluntary dismissal is sought because one’s circumstances change. Usually, this means you are able to pay back your debts and no longer need bankruptcy relief.

However, a request for voluntary dismissal isn’t always granted. If your bankruptcy case was dismissed and you still wish to file, mistakes are not taken lightly. Anyone wishing to cheat the system could claim it was an accident; therefore, many mistakes will be cause for a dismissal that cannot be reinstated. Dismissals with or without prejudice imply that cases were either dismissed for a good reason, such as fraud or because of unforeseen circumstances or honest mistakes. A dismissal for abuse or with prejudice means the bankruptcy case can never be filed again.

However, after a waiting period, usually half a year, a new bankruptcy case can be filed. Issues related to types of dismissals can be very different, so a great deal depends on your own particular circumstances.

Taking Action after a Dismissal

In cases of involuntarily dismissal or dismissal without prejudice, you can try to get your bankruptcy case reinstated if you move quickly and proactively. You’ll often have a small window to continue pleading your case before it’s thrown out, so you have to pursue the issue immediately. An honest mistake, or administrative dismissal, can sometimes be rectified by a “motion to reconsider” the bankruptcy case. This is your first step, combined with ascertaining and resolving the reason for the dismissal.

A reinstatement is always an option, even if your mistake was an accident. There is also sometimes the option of filing an appeal. If a dismissal is final, sometimes you can immediately file a new one. But any case of dismissal with prejudice, or for abuse, involves a waiting period, usually 180 days. After that time you can file a new case, but your automatic stay might be limited to one month, making it more difficult to get approved.

Worth repeating a final time is the fact that a bankruptcy filing will be recorded on your credit report as soon as you file it, and it could remain on your report even if your case is dismissed. Filing a second time will drop your credit scores further.

What should you do after a dismissal?

There is a chance to get your case reinstated if it was dismissed without prejudice, but you must act quickly. At first, dismissals are rarely final, and courts typically provide a small window of time where you can continue to plead your case or put forward a motion to reconsider. By putting forward this motion, you will also need to rectify the reason for the dismissal. When the motion to dismiss is final, you can either appeal or pay to file a new case immediately as long as your case was dismissed without prejudice. If it was dismissed with prejudice, however, you will need to wait six months before applying again.

How to avoid dismissal

If you are honest, there is no reason, apart from human error, for your case to get dismissed. As such, one of the best things you can do is to invest your remaining money into a successful bankruptcy lawyer. Not only will they file the paperwork on your behalf, but a good lawyer will also make sure that you meet all of the eligibility criteria for bankruptcy before applying and that there are no other factors that could lead your case to be dismissed.

Your case will most likely to be dismissed without prejudice if debtor:
• Failed to file a form with the court
• Failed to pay court fees
• Failed to provide all necessary paperwork
• Failed to attend a hearing
• Failed to follow any of the procedures

Refiling May Limit Your Automatic Stay

When you file for bankruptcy, you will get an automatic stay to prevent your creditors from collecting their loans or garnishing your money. However, when you file for a second bankruptcy within a period of time, then that automatic stay is limited to 30 days. After the 30 days, the creditors may begin to collect again unless you petition to the court to continue the automatic stay. The purpose of this limited automatic stay is to prevent bad faith bankruptcy filings.

You Won’t Have the Same Protection from Creditors If You Refile

When you file for bankruptcy, an automatic stay goes into effect that prohibits most creditors from starting or continuing collection activities. Bankruptcy laws impose certain limits on the automatic stay if you file multiple bankruptcy cases. The rules discourage debtors from filing for bankruptcy simply to delay or hinder their creditors.
Here’s how it works.

If the court dismisses your bankruptcy case and you file another case within one year, the automatic stay in your new bankruptcy will expire 30 days after your filing date. If you had two or more pending bankruptcies that the court dismissed within the past year, you wouldn’t get any automatic stay benefit if you refile. However, it’s possible to get the court to put the stay in place. If you have a good reason for the new filing or why the previous filings occurred then you can file a motion with the court asking for the automatic stay. The court will grant your motion if you prove that you filed the case in good faith.

Why Do Chapter 13 Cases Get Dismissed?

There are several reasons why a Chapter 13 case can be dismissed. Some are the same as for Chapter 7 cases. Things like not paying the court filing fee, not properly preparing for and attending the meeting of creditors, and not filing all required bankruptcy forms. Other reasons why a Chapter 13 bankruptcy case may be dismissed are:
• Failing to pay the Chapter 13 payments.
• Failing to meet certain deadlines.
• Failing to propose a Chapter 13 plan that complies with bankruptcy law.
• Failing to submit the required documentation to the Chapter 13 trustee.
• Failing to file tax returns every year; not submitting a copy to the trustee.

As you can see, the reasons for a dismissed Chapter 13 usually involve the debtor failing to do something the debtor is required to do under the bankruptcy rules. However, sometimes, a dismissed Chapter 13 case is due to something beyond the debtor’s control.

For instance, if a debtor loses his or her job or becomes ill, the debtor may not have enough money to pay the Chapter 13 plan payments. If changing the plan payment or converting the case to a Chapter 7 case is not an option, there may be no choice but to let the Chapter 13 case be dismissed.

Protecting the Petitioner During the Bankruptcy Process

As you move through the bankruptcy process, you are protected from your creditors by an injunction that is referred to as an ‘automatic stay.’ This injunction is used to protect you from nearly all the collection activities that your creditors use. The automatic stay goes into effect the day that you file your case. If your case is successful and you obtain a discharge, you are not required to pay back any of the debts that were discharged in your bankruptcy case.

However, if you are not successful and your case is dismissed, it is deemed void, which means that you are still liable for all your debt. In addition, directly following the dismissal, your creditors are permitted to initiate or continue any litigation to garnish your income or foreclose on your property.

Once you have filed for bankruptcy, you are required to follow certain procedures to obtain a discharge and be relieved of your debts. If these procedures are not followed, your case may be dismissed.

Typically, the majority of Chapter 7 and Chapter 13 bankruptcy cases are dismissed because the debtor fails to:
• file the necessary forms with the court;
• meet the established deadlines for documentation, as set forth by the court;
• provide the bankruptcy trustee with the required supporting documentation for his or her case;
• appear at the meeting of creditors;
• make timely plan payments (in a Chapter 13 bankruptcy case); or
• successfully complete a financial management course (debtor education).

When a Chapter 7 or Chapter 13 bankruptcy case is dismissed without prejudice, the petitioner can immediately refile. Most of the bankruptcy cases that are dismissed without prejudice occur due to issues related to procedure. For example, if the petitioner fails to file the necessary forms with the court. Although the petitioner can refile immediately following this type of dismissal, he or she may need to file a motion to extend or impose the ‘automatic stay’ in the refiled case. Otherwise, collection activities will resume.

Limits on Automatic Stay

Even when a bankruptcy case is dismissed without prejudice and the petitioner refiles right away, there may be limits placed on the automatic stay. For example, if a case is refiled within 12 months of dismissal, the automatic stay is limited to 30 days; however, if the petitioner had two or more bankruptcy cases dismissed within 12 months of the current re-filing, automatic stay will not be granted. Whereas a case dismissed without prejudice can be refiled immediately, the opposite is true when a bankruptcy case is dismissed with prejudice. A petitioner whose case is dismissed in this manner may not re-file for a specific length of time or, in some cases, prohibited from ever filing bankruptcy on the debts that existed at the time of the initial filing.

Possible reasons that lead to a bankruptcy case being dismissed with prejudice include, the debtor:
• filed his or her case in bad faith to delay creditors;
• tried to hide assets;
• willfully disregarded orders from the court; or
• abused the bankruptcy system in some other way.

According to bankruptcy law, a debtor whose case was dismissed with prejudice cannot file another bankruptcy case within 180 days of the prior case if:
• the debtor requested that the case be dismissed after he or she filed a motion for relief from an automatic stay; or
• the debtor willfully failed to follow the court’s orders.

Do I Need a Lawyer?

Correctly filing a bankruptcy case is very important and complex. Hence, it is imperative to use an experienced Ascent law firm lawyers to help you file. Otherwise, your bankruptcy case will be dismissed and/or delayed.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
Ascent Law LLC

4.9 stars – based on 67 reviews

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Bankruptcy And The Personal Guarantee

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Bankruptcy And The Personal Guarantee

Bankruptcy And The Personal Guarantee

A personal guarantee is a contract wherein an individual agrees to pay a business debt. A business owner will often sign a personal guarantee if a company needs to make a purchase on credit for things such as real estate, inventory, supplies, or services. By signing the agreement, the owner commits to paying the debt with personal (nonbusiness) funds if the company can’t satisfy the obligation.

Personal guarantees are standard in the business world; primarily because opening a business can be a risky endeavor. New business ventures rarely have much in the way of value or assets. Additionally, many businesses fail, leaving creditors with unpaid invoices. As a result, most creditors won’t agree to extend credit for product or enter into a property lease with a new, unestablished business without requiring more. The supplier or landlord will seek to protect payment of the debt by asking the owner to agree to pay the debt on behalf of the company, if necessary. If the financed amount is significant, a lender might ask an owner of an established business to do the same.

A business owner who consents to the arrangement will sign a contract called a personal guarantee. Once the personal guarantee is in place, the creditor can seek payment from the business owner’s personal assets if the business fails. When a company goes under, it’s common for someone who has signed a personal guarantee to wonder if there’s a way to get out of it. However, unless the lender agrees to waive it (which would be unlikely), or some fundamental flaw exists in the agreement, the personal guarantee will remain binding.

In many cases, a business owner can file a consumer bankruptcy to discharge (wipe out) the personal guarantee. Filing bankruptcy has the added benefit of wiping out other qualifying debt, as well. If the proprietor doesn’t qualify for a Chapter 7 discharge, Chapter 13 might be a possibility; however, this chapter will require the debtor (bankruptcy filer) to make payments to creditors for three to five years before the balance of a dischargeable debt will get wiped out. Also, it’s important to understand that filing a Chapter 7 bankruptcy on behalf of the business will not get rid of a personal guarantee. To wipe out the debt, the actual signer of the guarantee must file for bankruptcy.

What Happens to a Personal Guarantee in Bankruptcy?

When you guarantee a loan for your business, friend, or family member, you make yourself liable for it. Luckily, you can usually wipe out your personal liability for debt through bankruptcy; including a personal guarantee entered into for your business.

Why You Might Sign a Personal Guarantee

Most new companies don’t have much in the way of assets. To increase the odds of getting paid, a lender will require a personal guarantee before extending a property loan or another obligation, such as a lease contract or extension of credit for goods. If the business fails, the lender has two remedies to satisfy an outstanding balance: It can go after the business assets if any, and your personal assets.

How to Eliminate a Personal Guarantee with Bankruptcy

It’s relatively common for a business owner to file individual bankruptcy to get rid of a personal guarantee and most personal guarantees will qualify for discharge. If it’s a non-dischargeable debt, however, bankruptcy won’t help. Also, keep in mind that filing on behalf of the business won’t get rid of your personal obligation to pay back the guaranteed loan. In fact, in that situation, the personal guarantee will work against you. The trustee appointed to oversee the case will likely view the personal guarantee as a business asset and look to you and your assets for money to pay creditors. Similarly, if you signed a personal guarantee for a friend or family member’s loan, you’ll still be on the hook if they file for bankruptcy. You’ll have to file individual bankruptcy to get rid of the obligation. The exception is if the friend or family member pays off the debt in Chapter 13.

Liens Remain in Bankruptcy

Some personal guarantees include a security interest in your personal assets. In that case, the lender will typically have a lien on your property. A bankruptcy discharge will only wipe out your personal obligation to pay back debts not the lien. The lien will allow the lender to foreclose on or repossess the collateral regardless of your bankruptcy discharge. Even so, remedies exist depending on the chapter type you file.

Personal Guarantees in Bankruptcy Chapters 7 and 13

Each bankruptcy case is different. It’s common to have a lot of moving parts and considerations, so it’s best to meet with a bankruptcy attorney. In the meantime, here are a few things to consider.

Chapter 7 Bankruptcy

If you don’t have much in the way of income or property—primarily debt—Chapter 7 will likely be your best option. You can wipe out (discharge) qualifying debt, such as credit card debt and personal guarantees, in approximately four months. If you have non-dischargeable liability, such as a domestic support or tax obligation, you might be able to pay it over time by filing Chapter 13 immediately afterward. This strategy is known as Chapter 20.

Chapter 7 also works well if you have a substantial income, and the majority of your debt is business debt. Here’s why. The means test prevents many people from filing for Chapter 7. However, when most of your debt is business-related as opposed to consumer debt, you aren’t subject to the Chapter 7 means test income qualification. This can be a huge benefit for someone with a personal guarantee liability.

For instance, suppose that you still owe a significant amount of debt due to a personal guarantee from a failed business. However, now you’re making a sizeable income working for someone else. You might be able to discharge your debt quickly using Chapter 7 despite a salary that would generally preclude you from filing. Assuming, of course, that you aren’t concerned about losing property in Chapter 7. Find out if you’re exempt from the means test.

In Chapter 7 bankruptcy, you might be able to avoid a non-possessory, non-purchase-money lien. To qualify, the creditor can’t have possession of the collateral, and you must have owned the asset before you pledged it as collateral. This applies only to certain types of property to the extent the lien impairs your exemptions.

Exemptions are the laws that allow you to protect property in bankruptcy. Non-possessory, non-purchase-money liens can be avoided on assets such as tools of your trade, household goods and furnishings, jewelry, and professionally prescribed health aids. You can’t avoid a lien on your house or car (unless the vehicle qualifies as a tool of the trade like a delivery truck).

Chapter 13 Bankruptcy

Many business people find this chapter helpful in several situations. You, as an individual, not the business, would be filing Chapter 13—companies can’t file. Unlike Chapter 7, you can keep all of your property, and in most cases, you’ll pay a smaller portion of your personal debt over time.

Here are a couple of examples that illustrate how Chapter 13 can help.

 You’re still operating as a business, and you’re worried you could lose the company if you file for Chapter 7. It’s possible to improve your financial situation by getting out from under debt that you’re responsible for paying individually, such as credit card balances and personal guarantees. Chapter 13 lets you spend less on that debt for three to five years, and wipes out qualifying debt after completing the Chapter 13 repayment plan. Some business people find this approach helps free up assets and in turn, keeps the business going.
 The business is no longer operating, and you want to keep assets that you’d lose in Chapter 7. You can keep all property in Chapter 13. The tricky part is that you must pay creditors the value of your nonexempt property in your three- to five-year plan. But you’ll eliminate all dischargeable debt through your repayment plan. Learn more about property in bankruptcy.
 Chapter 13 has a few other benefits that aren’t available in Chapter 7. If you’re like many business people, you might have fallen behind on a house or car payment while trying to keep the company afloat. You can catch up on these payments through the Chapter 13 repayment plan and keep the home, car, or other secured property. You can also get rid of a wholly unsecured mortgage on your home using a lien strip, or reduce a 910-day old car loan balance. Also, you might be able to reduce the amount you’d have to pay on some collateral through a cram down in Chapter 13 bankruptcy. For instance, you can reduce the balance owed to the property’s actual value on some personal property, or even a business or rental property. The catch is that you’d have to pay off the reduced loan amount through your plan.

What Happens When the Borrower Defaults on a Guaranteed Loan?

If you default on your loan (usually by missing a payment), the lender has the right to ask the guarantor to take up the payments or to pay off the loan. At that point, the guarantor is subject to the same collection activities you would face under state law: telephone calls, letter demands, lawsuits, and even garnishment and property seizures. Just because the bank turns to the guarantor doesn’t mean that you will be off the hook, however. The lender can pursue you until the loan is paid in full (or you discharge it in bankruptcy). Also, if the guarantor pays the debt, the guarantor can also seek reimbursement from you. However, filing for bankruptcy will likely cut off the guarantor’s right to recover against you, as well.

Who Can Be a Guarantor?

Just about any willing person can agree to guaranty a loan taken out by someone else. In reality, most of the time when the borrower is an individual and the money is for personal or educational purposes, the guarantor is a parent, another relative, or a good friend. Additionally, creditors often require someone to personally guarantee a loan taken out by a business (primarily because of the frequency in which small businesses fail). The guarantor will have to submit to a credit check at least as rigorous as the borrower’s, have sufficient income and resources to pay the loan back if that becomes necessary.

In some institutional lending programs, like student loans and small business loans, banks and other financial institutions make the loans, but the guarantor is the federal or state government. If you default, the government agency pays off the bank and takes ownership of the loan. You will then have to deal with the government agency to rehabilitate the loan or to pay it off.

Even with a government guaranty, the lender can still request that you supply a person to provide additional surety. When the borrower is a small business, the lender will routinely expect the owners or principals of the business to personally guarantee the business loan. Doing so offers the bank and the institutional guarantor added security in the event the company falters. In fact, when the loan is guaranteed by the Small Business Administration, anyone with an ownership interest of 20% or more must personally guarantee the loan. In some cases, the lender might ask spouses of guarantors to sign also to ensure that the parties most affected are aware of their responsibilities and of the consequences they could face.

Effect of a Guaranty on a Loan

Obtaining a guarantor can save a borrower money because banks sometimes will reduce the interest rate on guaranteed loans if it lowers the bank’s risk of loss. It’s not always the case, though. Lenders often ask for guarantors when the original borrower has credit issues, which may mitigate in favor of a higher interest rate. Some financial institutions will let you borrow more if you have a guarantor. For mortgages, the lender might let you finance 90% of the value of the house or make a smaller down payment.

Considerations for the Guarantor

If you’re considering whether to guarantee a loan, you might want to answer these questions before you sign on the dotted line:
 Will agreeing to be a guarantor affect my credit score?
 If the bank forecloses on the borrower’s property, will it appear on my credit report?
 Why is the bank requiring a guarantor?
 Do I have the resources to pay the entire loan back, if necessary?
 If the borrower is a good friend or relative, am I prepared to suffer the friction that could result if the borrower can’t make payments?

Can a Guarantor Wipe Out a Guarantee in Bankruptcy?

In many cases, yes (but not all—for example, a guarantee for an educational loan won’t go away unless you can show undue hardship). In fact, it’s a common reason that people file for bankruptcy.

For instance, suppose that you took out a business loan to pursue your lifelong dream of opening a cupcake bakery. Because your business was new, the bank asked you to execute a personal guarantee. By signing the guarantee, you agreed to use your personal assets to pay off the loan if the business was unable to do so. If the cupcake business dried up and the bakery closed, you’d likely be able to wipe out the guarantee in Chapter 7 or Chapter 13 bankruptcy.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
Ascent Law LLC

4.9 stars – based on 67 reviews

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Understanding Bankruptcy Reorganization Plans

Understanding Bankruptcy Reorganization Plans

According to the Federal U.S. Bankruptcy Code, Chapter 11 bankruptcy is referred to as a type of bankruptcy that involves reorganization of an entity or consumer’s debts. This is in direct contrast to a liquidated bankruptcy, such as Chapter 7 bankruptcy, which requires a debtor to sell their assets for money to pay off their existing debts.

In general, a petition for Chapter 11 bankruptcy is typically filed by a corporation or partnership that is struggling to pay off their debts. While individual consumers and other persons in business may seek relief under Chapter 11 bankruptcy, it is not the standard.

Chapter 11 bankruptcy cases require the debtor to form a bankruptcy reorganization plan. The purpose of this plan is to give a business more time to reorganize their finances in a structured manner, so that they may pay off any debts still owed to creditors without having to either shut down their business or sell off large amounts of assets (e.g., equipment).

A debtor’s bankruptcy reorganization plan will then need to be approved by the bankruptcy court. The court will evaluate the plan and consider whether any debts must be paid off in full or in part, while other debts may be approved or included as part of the plan. Once the bankruptcy court approves a debtor’s Chapter 11 bankruptcy reorganization plan, the debtor must follow it accordingly. In addition, if a debtor seeks to modify any portions of their reorganization plan, those changes must also be approved by the bankruptcy court.

Bankruptcy Reorganization Plan

It is very important that a Chapter 11 bankruptcy reorganization plan be written in clear terms and with unambiguous instructions. As such, a debtor may want to consider hiring a bankruptcy lawyer to draft and review the final version of their plan before submitting it to the bankruptcy court for approval.

Some common issues that a bankruptcy reorganization plan should address in advance may include:
• Identifying the types of debt as well as the amount of each debt that still needs to be paid;
• Identifying the names and types of creditors associated with each identified debt (e.g., secured creditors, unsecured creditors, etc.);
• Determining whether the identified debts need to be paid in full or in part (note that this is often left up to the bankruptcy court’s discretion);
• Citing the methods being used to pay off each of the various debts (e.g., whether debts will be paid off using a company’s future earnings or if the company may need to sell off some business assets for funds to satisfy remaining debts);
• Providing instructions on how an indebted business organization will proceed or operate in light of their newly restructured debts; and
• Determining whether a special committee will be formed to manage and execute the bankruptcy reorganization plan.

It should be noted that each bankruptcy reorganization plan will likely be tailored to the needs of an individual business. Thus, such plans will often vary by business and in accordance with the nature of a particular business’s debts. For instance, a business may need to create a bankruptcy reorganization plan that involves paying off multiple, non-dischargeable debts. In such a scenario, the plan will be centered on how all of those debts will be repaid by the business.

Other plans may focus on distributions of a business’s assets instead. However, this type of plan will act more like a liquidation bankruptcy than a reorganizational one and will require a business to sell off assets for cash. A plan can help a business to keep track of which assets they intend to sell to pay down their debts.

As is evident from the above information, a plan may contain instructions for a wide variety of issues that need to be addressed in order to fully pay off an organization’s debts. This is why those filing for Chapter 11 bankruptcy should work with a bankruptcy lawyer when drafting a bankruptcy reorganization plan. A lawyer can help ensure that it is not only legally valid and enforceable, but also that it covers all scenarios related to a business’s debts and obligations.

What If a Bankruptcy Reorganization Plan Is Violated?

As previously discussed, a Chapter 11 bankruptcy reorganization plan must first be approved by a bankruptcy court before it goes into effect and becomes legally enforceable. In other words, a bankruptcy court will not permit an organization to declare Chapter 11 bankruptcy without having a valid bankruptcy reorganization plan in place. Once the bankruptcy court approves this plan, it is considered to be legally enforceable in the eyes of the law. As such, a violation of a Chapter 11 bankruptcy reorganization plan can lead to serious legal consequences.

For instance, if the indebted business organization does not follow the guidelines laid out in their reorganization plan, such as paying off portions of debt by a certain date, then a creditor may be allowed to place a levy on the indebted business organization’s property and/or assets. This may include items, such as inventory, equipment, and bank accounts associated with that business.

If the indebted business organization fails to comply with the terms of the lien as well, then the creditor who placed the lien on the business’s property will be legally permitted to seize those assets. This may be done in order to satisfy the remaining balance of debt still owed to them by the business. This could result in the debtor losing their company, which is what they were trying to avoid when they initially filed a petition for Chapter 11 bankruptcy.

Some other consequences may include a dismissal of their Chapter 11 case, being ordered to immediately pay off all leftover debts in full, and potential penalties. If a debtor is simply unable to fulfill some condition of their plan, they should discuss the issue with an attorney who will be able to advise them on whether they will be able to amend or modify the plan.

On the other hand, it is also possible for a creditor to violate an indebted business organization’s Chapter 11 bankruptcy reorganization plan. For example, if a creditor tries to collect more money than the amount that was originally agreed upon during the creation of a specific bankruptcy reorganization plan, the business can use this plan as proof to avoid having to pay the inflated amount that the creditor is now demanding. Thus, it is in the best interest of both a creditor and an indebted business organization to cooperate and come up with a bankruptcy reorganization plan that suits both parties. This can help prevent more money, time, and other resources from being spent in the future due to a legal dispute.

Lastly, in order to ensure compliance and that both parties understand their legal obligations under such a plan, each party should retain their own separate bankruptcy attorney to help them negotiate for favorable terms as well as to assist them with drafting the plan and submitting it to the appropriate bankruptcy court for final approval.

The Four Reorganization Bankruptcy Chapters

Debtors choose to reorganize under either Chapter 9, 11, 12, or 13, depending on the particular circumstances. An overview of each appears according to filing frequency.

Chapter 13: Individuals and Couples

This chapter allows single and married people (but not businesses, other than sole proprietors) to pay discretionary income (the amount remaining after paying living expenses) into a plan for three to five years. If your family income is above the average for your state (called the median income), your plan will be 60 months long. When income falls below the median, 36 payments are required, but you can propose a plan that spreads out what you need to pay over 60 months, if necessary.

How Debts Get Paid During the Plan Period

Bankruptcy law assigns a higher priority to some debts and requires the filer to pay them fully over the course of a three- to five-year plan. Examples of priority claims include the following:
• recent income tax debts
• past due child support and alimony payments, and
• overdue payments on secured debts like house notes (you don’t have to pay off the entire mortgage within the plan, however).

Most of your other debts—like credit cards and medical bills will fall into the category of general unsecured debts and won’t necessarily be paid anything. They’ll receive something only if you have disposable income after all your higher priority claims get paid. Even then, the unsecured claims might be paid pennies on the dollar. The remaining debt gets discharged at the end of the case.

Using the Plan to Make a Secured Debt More Affordable

Another interesting feature of a Chapter 13 plan is its ability to cram down (reduce) a secured debt (other than the mortgage on your residence or a recently purchased vehicle). If the collateral (the property securing the debt) is worth less than what you owe, you can propose to pay just the value of the asset plus interest at one or two points above prime. For high-interest loans that are under water, this can save you thousands of dollars. Unfortunately, not all secured loans are subject to cram down. It’s not available for the mortgage on your residence or on car loans that are less than two and one-half years old when you file your case. Also, you must be able to pay off the entire cram down amount over the course of the plan, something many people aren’t able to do for high-value property, such as vacation rentals. Although you can’t cram down your home mortgage, you can use a Chapter 13 plan to strip off a junior mortgage if your property value has dropped so far that it’s no longer enough to cover your primary mortgage. (This was commonly used during the housing crisis; however, its availability is limited due to rising property values.)

Chapter 11: Businesses and Individuals

Chapter 11 bankruptcy is best known for helping prevent large corporations from closing their doors. Because of the expense involved in filing a Chapter 11 case, it’s used by small businesses to a lesser extent, and, on a rare occasion, by individuals whose debt balances exceed the Chapter 13 debt limitations. In many Chapter 11 cases, creditors actively work with the debtor to evaluate the debtor’s financial health and determine the best way to tackle the debtor’s debt. This collaboration will include more than renegotiating loan terms, although that accounts for an important part of the plan.

During the first months of a Chapter 11 case, the parties look carefully at many aspects of the business. Decisions might be made to do one or more of the following:
• change leadership
• sell underperforming assets, or
• reorganize operations to make them more efficient.

The debtor then proposes a plan for paying its debts. A Chapter 11 plan must be approved not only by the bankruptcy court but by the creditors owed the most money. If a debtor fails to propose a confirmable plan, a creditor (or the trustee, if one has been appointed), can offer a plan that will be submitted to the creditor body for a vote. Once a plan is confirmed, the debtor can spend years carrying out its terms.

Chapter 12: Farms and Fishing Operations

If your primary business is farming or fishing, you’ll likely choose to file for Chapter 12 bankruptcy. The procedural aspects of Chapter 12 and Chapter 13 cases are similar; however, Chapter 12 bankruptcy provides more flexibility because it allows for the seasonal nature of the farming and fishing industries. The Chapter 12 debtor has 90 days after filing the case to propose a plan lasting from three to five years. Instead of making monthly payments as required by Chapter 13 bankruptcy, the Chapter 12 plan can allow for seasonal payments. The plan can also provide for a cram down of virtually any secured debt, including homes and farmland, and allow for the modified secured debt payments to extend beyond the five-year plan limit.

Chapter 9: Municipalities

Chapter 9 bankruptcy is reserved exclusively for municipalities and governmental units like utilities and taxing districts. The plan and the plan approval process in Chapter 9 bankruptcy are similar to Chapter 11 bankruptcy.

Creditors in Chapter 9 are not allowed to propose a plan, but taxpayers and creditors can file a plan objection.

Do I Need a Lawyer for Assistance With a Bankruptcy Reorganization Plan?

Given the complexity of the laws and procedures required when filing for Chapter 11 bankruptcy, it may be in a debtor’s interest to consult a local bankruptcy lawyer in Utah preferably Ascent Law Firm for further legal advice.

An experienced bankruptcy lawyer will be able to draft, edit, and review a Chapter 11 bankruptcy reorganization plan to ensure that it is legally valid and enforceable.

Your lawyer can also make sure that you understand your rights and legal obligations under your Chapter 11 bankruptcy reorganization plan and other laws. Having your lawyer review your plan can also help to prevent legal disputes from arising over the plan in the future.

In addition, hiring Ascent Law Firm lawyer may make it more likely that the bankruptcy court will approve the first plan without any need for changes since your bankruptcy lawyer will already be familiar with the types of provisions to incorporate in the plan. Finally, should you encounter any legal issues that require you to appear before a bankruptcy court, your lawyer will be able to provide legal representation and defend your interests as well.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
Ascent Law LLC

4.9 stars – based on 67 reviews

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Types Of Creditor Claims In Bankruptcy: Secured, Unsecured And Priority

Types Of Creditor Claims In Bankruptcy: Secured, Unsecured And Priority

Filing for bankruptcy involves disclosing your debts, or “creditor claims,” on official bankruptcy paperwork. But as easy as that might sound, classifying claims can get a bit tricky.

First, you’ll list the debt as either a secured or unsecured claim. Then, you’ll divide the unsecured claims into priority and non-priority unsecured claims.

Listing Creditor Claims in Your Bankruptcy Paperwork

A bankruptcy case gets started after you complete and file official bankruptcy forms. The cover document, called the petition, is where you’ll disclose identifying information, such as your name, address, and the bankruptcy chapter you’re filing. You’ll provide details about your income, creditor claims (debts), and assets on forms called schedules.

Creditor claims will appear on one of two schedules:
• Schedule D: Creditors Who Hold Claims Secured By Property. Here you’ll include secured claims, such as a mortgage, car payment, or another collateralized obligation.
• Schedule E/F: Creditors Who Have Unsecured Claims. You’ll list unsecured claims on this form. Priority unsecured claims, such as unpaid taxes and child support, belong in Part 1. You’ll list your non-priority unsecured claims (all remaining debts) in Part 2.

Secured Claim

A creditor with a secured claim in bankruptcy has two things: a debt that you owe and a lien (also called a security interest) on a piece of property you own. If you don’t pay according to the terms of your contract, the lien allows the lender to recover the property, sell it at auction, and apply the proceeds to the account balance. For instance, a mortgage lender with a lien can recover real estate in a foreclosure action, and a vehicle loan lender with a lien can recover a car through repossession.

Secured claims are often voluntary. For instance, if you agree to pledge an asset as collateral for the loan (a common practice when buying a house or car), you voluntarily give the creditor a security interest in your property.
Creditors can also obtain an involuntary lien against your property without your consent. For instance, a credit card company can get an involuntary lien after suing you in a collection lawsuit and winning a money judgment. When you fall behind on your taxes, statutory law gives the IRS the right to a tax lien against your property.

Common examples of secured bankruptcy claims include:
• Mortgages
• car loans
• unpaid real estate taxes, and
• other property liens.

What Happens to Secured Claims in Bankruptcy?

A creditor with a secured claim is in a good position. A bankruptcy discharge (the order that wipes out debt) won’t get rid of a lien on your property. It only eliminates your liability to pay the debt.

Since the lien remains, the creditor can still foreclose or repossess the property if the loan doesn’t get paid. So if you file for bankruptcy and want to keep property securing a loan, you’ll have to continue making payments to the lender until you pay off the debt.

However, if there is significant equity in a house or car, a Chapter 7 trustee will likely sell it. But, because of the lien, the trustee must get enough to pay off the loan, return any exemption amount to you (the amount of equity you’re allowed to protect), and use the remaining funds to pay off creditors. If there isn’t enough equity to pay something meaningful to creditors, the trustee won’t sell the property.

If a property you’d like to keep has significant equity, a Chapter 13 case will likely be a better option. But you’ll have to have enough income to pay a hefty monthly payment for three- to five-years (you must pay the value of the nonexempt equity in the plan).

Eliminating Liens in Bankruptcy You can eliminate certain types of property liens in bankruptcy. For instance, you might be able to ask the court to:
• get rid of a judgment lien that impairs your bankruptcy exemptions, or
• wipe out a wholly unsecured junior lien from your property in Chapter 13 bankruptcy.

Unsecured Claims

A creditor with an unsecured claim doesn’t have a lien. There are two types of unsecured claims:
• Priority unsecured claims. These debts aren’t dischargeable in bankruptcy and, if money is available, the claim will get paid before non-priority unsecured claims.
• Non-priority unsecured claims. Most of these obligations are dischargeable in bankruptcy (except student loans). All priority debts must be satisfied before these debts can be paid with bankruptcy funds.

Nonpriority Unsecured Claims

The bankruptcy discharge will eliminate most types of nonpriority, unsecured claims, but not all. Some of the most common nonpriority unsecured claims you can discharge in bankruptcy include:
• credit card debt
• medical bills, and
• personal loans.

Although student loans are unsecured debts, you can’t discharge them unless you can prove that it would be an undue hardship to pay them (which is a difficult standard to prove).

Priority Unsecured Claims

Priority unsecured debts aren’t dischargeable and receive special treatment. Priority creditors get paid before other creditors in bankruptcy.

The following are some of the most common types of priority claims:
• alimony
• child support
• certain tax obligations, and
• debts for personal injury or death caused by drunk driving.

Because you can’t wipe out priority debts in Chapter 7 bankruptcy, you’ll be responsible for paying any balance that remains after your Chapter 7 case (the bankruptcy trustee might sell some of your property and apply the funds to the debt). If you file for Chapter 13 bankruptcy, you’ll have to pay off priority unsecured debts in full through your three- to five-year repayment plan.

Proof of Claim in Bankruptcy

A proof of claim is the paperwork that a creditor must file before getting paid in a bankruptcy case. Under the bankruptcy payment system, some debts—like income tax and domestic support obligations—have “priority” status and are paid before other claims.

The proof of claim tells the bankruptcy trustee about the type of claim, as well as how much a creditor is owed, so the trustee can determine the amount to pay the creditor if anything.

Who Must File a Proof of Claim?

All creditors who wish to be paid out of bankruptcy funds must file a proof of claim. On December 1, 2017, the law was amended to make clear that in Chapters 7, 12 and 13 bankruptcy cases, a secured, unsecured, or equity secured creditor (with a few exceptions) must file a proof of claim to receive money from the bankruptcy estate. Of course, if funds aren’t available for distribution—such as in a Chapter 7 “no-asset” case—a creditor won’t be told to file a proof of claim. That status will change if the trustee finds undisclosed assets during the review period. Then the trustee will instruct creditors to file a proof of claim.

Secured Creditors and Liens

Like all creditors, a secured creditor—such as a mortgage or vehicle lender must file a claim in order to receive money through the bankruptcy estate (with a few exceptions). However, even if the secured creditor doesn’t file a proof of claim, the creditor won’t lose its lien.

This rule can be problematic for a debtor in a Chapter 12 or 13 case. Why? When a lien is in place, the debtor can keep the property securing the debt only if the debtor remains current on the loan. If the debtor doesn’t pay as agreed, the creditor will be able to take back the property, sell it at auction, and use the funds to pay down the loan. As a practical matter, if a secured lender doesn’t file a proof of claim in a Chapter 12 or 13 case (and won’t receive monthly plan payments), a debtor who wants to keep the property securing the claim (such as a house or car) has a couple of options.

• Pay outside of the plan. The debtor can make the payments directly to the creditor (instead of through the plan). However, if the debtor arranged to make the payment directly, it likely won’t be possible. Most of the debtor’s funds go into the plan leaving nothing left for a hefty payment.
• File a proof of claim for the creditor. The debtor can file a proof of claim on behalf of the creditor. Doing so will allow the trustee to use bankruptcy plan payments to maintain the secured payment.

When Must a Proof of Claim Be Filed in Chapter 7, 12, and 13 Bankruptcy Cases?

The deadline for filing a proof of claim for non-governmental creditors in a Chapter 7, 12, or Chapter 13 bankruptcy case is 70 days after the petition filing date. (On December 1, 2017, the previous deadline of 90 days after the first meeting of the creditors was shortened to the current period). Government entities have additional time. They must file a proof of claim within 180 days after the date of the order for relief (the bankruptcy filing date).

The first notice sent to creditors includes the deadline for filing proofs of claim. This notice informs creditors that a petition has been filed and indicates the date set for the meeting of creditors. This notice also sets the last date on which they can file objections to the discharge. Although the court doesn’t usually permit extensions once the deadline has passed, the court has the power to extend the filing time if a creditor shows extenuating circumstances.

What Must the Creditor Include in a Proof of Claim?

Here’s what the creditor must include in its proof of claim.

Formal Proof of Claim

A proof of claim must conform substantially with the official bankruptcy form, Proof of Claim (Form 410). You can download all of the official bankruptcy forms, including Form 410 from the U.S. Courts Bankruptcy Forms page.
The information a creditor will need to include is as follows:
• the debtor’s name and the bankruptcy case number
• the creditor’s information, including a mailing address
• the amount owed as of the petition date
• the basis for the claim (such as goods or services purchased, a loan or credit card balance, a personal injury or wrongful death award), and
• the type of claim (secured or unsecured).

The creditor should attach supporting documentation, such as the contract, as evidence of the claim. Official attachment forms are available. Also, the creditor or an authorized representative must sign the proof of claim.

Informal Proof of Claim

Some courts will accept an informal proof of claim from a creditor if it meets five requirements:
• the proof is in writing
• the writing includes a demand against the bankruptcy estate
• the writing demonstrates the intent to hold the estate liable
• the writing is filed with the bankruptcy court, and
• allowing the claim would be fair under the circumstances of the case.

Although a bankruptcy judge will consider these requirements, the decision about whether an informal proof of claim will be allowed is ultimately within the discretion of the bankruptcy judge.

Objecting to a Proof of ClaimWho Can Object to a Chapter 7 Bankruptcy Claim?

Only a “party in interest” can object to a claim in a Chapter 7 bankruptcy case. A “party in interest” is a person or entity that has a financial stake in the outcome of the claim at issue. Generally, in a Chapter 7 bankruptcy case, the Chapter 7 trustee will object to proofs of claim. But a Chapter 7 debtor might need to object to a claim, too. A Chapter 7 debtor will do so if the existing claims, as they stand, will cause the debtor to lose more property than necessary or cause the debtor to owe more than the debtor should after the closure of the bankruptcy case. This will usually happen only if an issue exists with a nondischargeable priority claim, such as taxes or a domestic support obligation.

Additionally, the majority of bankruptcy courts have held that a Chapter 7 debtor can object to claims if he or she shows:
• the debtor had a financial interest in the result because there is likely to be money left over once all claims are paid (this is rare in a Chapter 7 case)
• the trustee unjustifiably failed or refused to object to the claim or claims in question, or
• the debt owed by the debtor is not dischargeable.

The objecting party has the burden of presenting sufficient evidence that demonstrates the creditor’s claim should not be allowed. If the objecting party produces such evidence, the burden of proof shifts back to the creditor to prove their claim.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
Ascent Law LLC

4.9 stars – based on 67 reviews

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Should I File For Bankruptcy Before Or After Foreclosure?

Should I File For Bankruptcy Before Or After Foreclosure?

Many people living in Utah fall behind on their mortgage payments. Some lenders and mortgage companies may be willing to work out deals with homeowners, such as a short sale or loan modification. Most lenders are not. Here’s how bankruptcy can help when lenders begin the foreclosure process. When someone falls significantly behind on mortgage payments, a lender will most likely begin the foreclosure process, as set out in the mortgage contract. The foreclosure process involves the creditor repossessing and usually selling the house at a public auction. The proceeds from that auction are used to repay the mortgage and any legal costs.

The foreclosure process takes time. Most creditors do not begin foreclosing until the homeowner is two to three months behind on their mortgage payments. This gives the homeowner some time to consider alternatives to foreclosure, such as loan forbearance, short sale, or deed in lieu of foreclosure. Should all of these alternatives fail (or not be ideal), bankruptcy may help in several different ways. So would contacting a qualified foreclosure attorney for a consultation.

Foreclosure vs. Bankruptcy

You may decide to declare bankruptcy or to go through foreclosure depending on a few factors, including your income, debts, and living expenses. The main difference, of course, is that through bankruptcy, you may be able to keep your home.

Here are some other differences between the two:

1. Who Initiates the Case
In cases of bankruptcy, you will be the one starting the process by filing a bankruptcy petition. In foreclosure, the lender is the one who initiates the proceeding to repossess and sell the property.

2. What Happens After the Case?
There is a chance you can keep your home after bankruptcy, but this isn’t always the case. If you don’t have the income to continue paying your mortgage after bankruptcy, you may need to let go of your home.

So why file bankruptcy instead of just accepting the foreclosure?

The main difference between the two is what happens after the sale of the property. In a foreclosure, there is a possibility that you will still owe money to the creditor after the sale if the proceeds of the sale don’t cover the debt. In a bankruptcy, however, all debts will be discharged after the case is closed.

3. Who Controls the Property?
Once a foreclosure proceeding is initiated, your creditor will have control over the home. But in a bankruptcy, you may be able to retain control of the property until the bankruptcy case is finalized through the “automatic stay” order.

How to Delay Foreclosure With an Automatic Stay

One of the most commonly asked questions is “can filing bankruptcy stop a foreclosure?” If you are facing foreclosure, bankruptcy can become a tool to help you keep your house. Once you file bankruptcy, either Chapter 13 or Chapter 7, the court automatically issues an Order for Relief. This order grants you an “automatic stay” that directs your creditors to immediately cease their collection attempts, no matter what. So, if a foreclosure sale has been scheduled for your home, it will be postponed, by law, until the bankruptcy is finalized. This usually takes about three to four months.

There are two exceptions to this buying-time rule:
1. If the lender files a motion to lift the stay: The lender can file a motion to lift the stay, which asks permission from the bankruptcy court to continue with the foreclosure sale. If this is granted, you may not receive the extra three to four months of time. However, bankruptcy normally still postpones the sale by about two months or more, or even longer if the lender does not act fast in filing the motion to lift the stay.
2. If the foreclosure notice has already been filed: Most states have laws that require lenders to give homeowners a certain amount of notice before selling their property. A bankruptcy’s automatic stay will not stop the clock on this advance notice.
For instance, Utah law requires a lender to give the homeowner at least three months’ notice before selling the home. If a Utah resident receives this three-month notice and then files for bankruptcy two months later, the three-month period would have passed after being in bankruptcy for only one month. As a result, the lender could file a motion to lift the stay and ask the court’s permission to schedule the foreclosure.

How to Use Chapter 13 Bankruptcy to Help You

Chapter 13 bankruptcy allows you to set up a repayment plan to pay off the past-due payments, or “arrearage.” You can propose the length of time for repayment, but keep in mind that you’ll need sufficient income to pay both your past-due payments and your current mortgage payments at the same time. So long as you make all of the required payments for the length of the repayment plan, you will avoid foreclosure and be able to stay in your home.

2nd and 3rd mortgage payments: Chapter 13 can also help eliminate payments on second or third mortgages. Typically, Chapter 13 entitles bankruptcy courts to re-categorize second and third mortgages as unsecured debt. Under Chapter 13, unsecured debt takes last priority and usually does not have to be paid back. This re-categorizing process is possible if your first mortgage is secured by the entire value of your home since this means there is no remaining equity in your home to secure the second and third mortgages.

How to Use Chapter 7 Bankruptcy to Help You

Chapter 7 bankruptcy also cancels all the debt secured by the home, including mortgages and home equity loans. Furthermore, Chapter 7 goes a step further. Chapter 7 also forgives the homeowner for tax liability for losses the mortgage or home-improvement lender incurs as a result of the homeowner’s default. This law initially applied to the years 2007-2010. But it has been extended five times and now applies to debts forgiven in the years between 2007 to 2020.

However, this tax law does not cancel the homeowner’s tax liability for the lender’s losses at foreclosure if:
• The loan is not a mortgage or was not used for home improvements (like a loan used to pay for a vacation or automobile).
• The mortgage or home equity loan is secured by property other than your principal residence (like a vacation home or rental property).

Cautionary Notes About Chapter 7

You could still lose your home. All of this debt and tax liability forgiveness is great, but note that Chapter 7 will not keep you from losing your home.

Chapter 7 forgives your debt, and that is all it does. When you enter into a mortgage, you are agreeing to use your home as a type of collateral in case you default on your payments.

Chapter 13 enables you to pause action on that lien while you catch up on your payments; hence, you may save your home. Chapter 7 forgives your debt, but it will not lift the lien, and hence will not lift the foreclosure on your home. Therefore, you can still lose your home.

You could lose other valuables: Because the courts typically want to make the creditors whole again from their loss, the bankruptcy trustee may award money from the sale of certain other valuables of yours to the creditors. For example, if you have a valuable wedding ring that’s value exceeds the dollar amount you are allowed to keep during bankruptcy under the jewelry exemption, you could lose your wedding ring.

You may not be eligible: The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 provides that anyone whose average gross income for the six-month period before the bankruptcy filing exceeds the state median income for the same sized household is ineligible for Chapter 7 bankruptcy. Additionally, if your income is sufficient enough for you to pay your living expenses and fund a reasonable Chapter 13 repayment plan, you are also ineligible for Chapter 7.

How Bankruptcy Will Affect Your Credit

Although bankruptcy and foreclosure are both damaging to your credit, sometimes filing bankruptcy can be a wise choice when trying to rebuild credit. A foreclosure not only damages your credit score for years, but you are still left with the mortgage debt. Most mortgage creditors will not consider you for future mortgages if you have a foreclosure on your credit history.

In contrast, bankruptcy lets you start fresh. It still damages your credit, but because you are debt-free, you begin rebuilding good credit sooner. Although bankruptcy has a few negative consequences, and may not save you from losing your home, it can be the best option in starting fresh with no debt, getting back on your feet, and saving money.

Worst Case Scenario: Losing the House, but Also the Debt

Sometimes bankruptcy can’t prevent the loss of your home, so you may start to think that a bankruptcy filing is pointless. There are other benefits to filing for bankruptcy besides the interplay between bankruptcy and foreclosure, however. Even if you can’t keep your home, bankruptcy can help to shovel out from under mortgage debts and tax liability. This is an important first step towards getting back on your feet. Bankruptcy can also help you to put away money for the tough times ahead.

Filing Bankruptcy to Avoid a Deficiency Judgment

If your lender comes after you for the deficiency, and you later file for bankruptcy, bankruptcy will discharge (eliminate) the deficiency debt. But for many people, it makes more sense to file bankruptcy before foreclosure to discharge the mortgage debt preemptively. Then you don’t have to worry about the possibility of a deficiency judgment. This tactic can provide peace of mind because once the mortgage debt is discharged, you know you won’t have to face a lender’s lawsuit to recover the deficiency after the foreclosure. Of course, if your state’s laws prevent the lender from getting a deficiency judgment, you don’t need to take this approach.

Filing Bankruptcy to Avoid Tax Liability for Forgiven Debt

Another reason to file bankruptcy before the foreclosure is because if your lender forecloses and cancels the deficiency debt rather than seeks a deficiency judgment, you might have to include the canceled amount as income on your tax return. If that happens, you generally must pay tax on that forgiven debt unless you qualify for an exception or exclusion such as:
The Mortgage Debt Relief Act of 2007 (Qualified Principal Residence Indebtedness Exclusion)
The Mortgage Debt Relief Act of 2007 and its various extensions exclude forgiven debt from your taxable income if the loan:
• was taken out to buy, build, or substantially improve your principal residence (or refinanced a mortgage taken out to buy, build, or substantially improve your principal residence), and
• is secured by your principal residence.

This “Qualified Principal Residence Indebtedness (QPRI) Exclusion” applies to debt forgiven in calendar years 2007 through 2025. The exclusion can also apply to debts forgiven as the result of a written agreement entered into before January 1, 2026, even if the actual discharge happens later. If your forgiven mortgage debt qualifies, as of December 31, 2020, you can exclude up to $750,000 ($375,000 if married and filing separately). Before this date, taxpayers could exclude $2 million ($1 million if you’re married and filing separately).

The Insolvency Exception

If you were insolvent when the debt was canceled, some or all of the debt might not be taxable to you. You’re considered insolvent if your total liabilities (debts) are more than the fair market value of your total assets.

Bankruptcy Cancels Other Mortgage Debt

If you have any other mortgage debt, like a second mortgage or a HELOC, it could be wise to file bankruptcy before the foreclosure to wipe out your personal liability for those debts. When the first mortgage lender eventually forecloses, any junior mortgage lenders (second mortgages and HELOCs, for example) will also be foreclosed and lose their security interest in the real estate. Generally, if a junior mortgage lender has been sold-out in this manner, that junior mortgage lender could potentially sue you personally to collect the debt. But a bankruptcy will eliminate any debt secured by a second mortgage or a HELOC, and you can avoid future lawsuits from these lenders.

Bankruptcy Buys You Time in the Property by Delaying Foreclosure

If you file for bankruptcy before your home is sold at a foreclosure sale, you’ll get more time to live in the home. When you file bankruptcy, an “automatic stay” goes into effect. The stay acts as an injunction, or bar, against any attempts by creditors to collect debts or enforce liens, including taking any action related to a pending foreclosure.Because the automatic stay prevents the foreclosure case from moving forward, you get some extra time in the home. The lender does have the right to ask the bankruptcy court to lift the automatic stay, which would allow it to continue with the foreclosure, but this process will still take some time. In the meantime, you get to remain in the home.

You Can Save Money During the Foreclosure Delay

You can live in your home without making any mortgage payments during the bankruptcy—at least until the lender obtains relief from the stay and completes the foreclosure. Or the lender might forgo this right and simply wait for the bankruptcy case to conclude before continuing with the foreclosure. Either way, you’ll probably get a few extra months to live in the home without making payments, which would allow you to build up your savings. For instance, if your mortgage payment is $1,000 a month, you could end up saving several thousand dollars by staying in the home and not making payments during this time.

Facing Foreclosure? Have a Local Attorney Review Your Legal Options

If you’re facing a foreclosure and concerned about your financial future, remember that a bankruptcy filing may help you keep your home or at least soften the blow. You can learn more about your options by meeting with Ascent Law Firm attorney, who will understand your financial needs and work to make the process as painless as possible. Find a local bankruptcy attorney today.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
Ascent Law LLC

4.9 stars – based on 67 reviews

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Wage Garnishments-The Law In Utah

Can You Make Payment Arrangements On A Garnishment

A wage garnishment, sometimes called a wage attachment, is an order requiring your employer to withhold a specific amount of money from your pay and send it directly to one of your creditors. In most cases, a creditor can’t garnish your wages without first getting a money judgment from a court. For instance, if you’re behind on credit card payments or owe a doctor’s bill, those creditors can’t garnish your wages unless they sue you and get a judgment. Some creditors, though, like those you owe taxes, federal student loans, child support, or alimony, don’t have to file a suit to get a wage garnishment. These creditors have a statutory right to take money directly out of your paycheck.

But creditors can’t seize all of the money in your paycheck. Different rules and legal limits determine how much of your pay can be garnished. For example, federal law places limits on how much judgment creditors can take. The garnishment amount is limited to 25% of your disposable earnings for that week (what’s left after mandatory deductions) or the amount by which your disposable earnings for that week exceed 30 times the federal minimum hourly wage, whichever is less. Some states set a lower limit for how much of your wages are subject to garnishment. Utah wage garnishment laws protect the same amount as the federal wage garnishment laws. The creditor will continue to garnish your wages until the debt is paid off, or you take some measure to stop the garnishment, such as claiming an exemption with the court. Your state’s exemption laws determine the amount of income you’ll be able to retain. Depending on your situation, you might be able to partially or fully keep your money. You can also potentially stop most garnishments by filing for bankruptcy.

Limits on Wage Garnishment in Utah

In Utah, the most a creditor can garnish from your wages is:
• 25% of your disposable earnings for that pay period
• the amount by which your disposable earnings for the week exceed 30 times the federal minimum hourly wage, or
• 15% of the individual’s disposable earnings for that pay period if the judgment relates to an education loan.
• “Disposable earnings” are those wages left after your employer has made deductions required by law.

Limits for Child Support, Student Loans, and Unpaid Taxes

If you owe child support, federal student loans, or taxes, the government or creditor can garnish your wages without getting a court judgment for that purpose. The amount that can be garnished is different than it is for judgment creditors.

Garnishment Limits for Unpaid Child Support

Since 1988, all court orders for child support include an automatic income withholding order. The other parent can also get a wage garnishment order from the court if you get behind in child support payments. Federal law limits this type of wage garnishment. Up to 50% of your disposable earnings may be garnished to pay child support if you’re currently supporting a spouse or a child who isn’t the subject of the order. If you aren’t supporting a spouse or child, up to 60% of your earnings may be taken. An additional 5% may be taken if you’re more than 12 weeks in arrears.

Garnishment Limit for Federal Student Loans in Default

Under federal law, the U.S. Department of Education or any entity collecting for this agency can garnish up to 15% of your pay if you’re in default on a federal student loan (the same as Utah state law). This kind of garnishment is called an “administrative garnishment.” But you can keep an amount that’s equivalent to 30 times the current federal minimum wage per week.

Garnishment Limits for Unpaid Taxes

The federal government can garnish your wages (called a “levy”) if you owe back taxes, even without a court judgment. The weekly exempt amount is based on the total of the taxpayer’s standard deduction, and the aggregate amount of the deductions for personal exemptions allowed the taxpayer in the taxable year in which such levy occurs. Then, this total is divided by 52. If you don’t verify the standard deduction and how many dependents you would be entitled to claim on your tax return, the IRS bases the amount exempt from levy on the standard deduction for a married person filing separately, with only one personal exemption. States and local governments may also be able to garnish your wages to collect unpaid state and local taxes.

How to Protect Your Wages from Garnishment

If you receive a notice of a wage garnishment order, you might be able to protect or “exempt” some or all of your wages by filing an exemption claim with the court or raising an objection. The procedures you need to follow to object to a wage garnishment depend on the type of debt that the creditor is trying to collect, as well as the laws of your state. You can also stop most garnishments by filing for bankruptcy. Your state’s exemption laws determine the amount of income you’ll be able to keep.

Restrictions on Job Termination Due to Wage Garnishments

Complying with wage garnishment orders can be a hassle for your employer; some might prefer to terminate your employment rather than comply. Federal and sometimes state laws provide some protection for you in this situation. According to federal law, your employer can’t discharge you if you have one wage garnishment. Utah law provides the same protection. Under state law, no employer may discharge any employee because the employee’s earnings are subject to garnishment in connection with any one judgment. But federal and state law won’t protect you if you have more than one wage garnishment order.

Types of Wage Garnishments

Government agencies and court orders can require employers to garnish an employee’s wages to collect unpaid debts or financial responsibility. Government agencies and court orders can require employers to garnish an employee’s wages to collect unpaid debts or financial responsibility. Federal and state tax agencies will impose a levy on an employee’s wages for outstanding tax balances.

There are five types of wage garnishments that employers can receive.

Federal Wage Garnishments

Wage garnishments are ranked in order of importance. Federal debts must be paid first, except if there is a Child Support garnishment in place. State wage garnishments are issued after all federal debt is repaid.

Child Support

Child support is the first priority for wage garnishments. As a federal tax obligation, employment income must first satisfy child support requirements. The law orders automatic wage withholding for family support orders, spousal support, and alimony. Employers must notify the employee once a wage garnishment is issued. They must also state the amount that will be withheld from each paycheck.

Federal Student Loans

If an individual defaults on a federal student loan, the government has the right to garnish up to 15 percent of the student’s wages. Since the U.S. Department of Education issues federal student loans, they are treated as other federal debts. The borrower will be notified 30 days prior to garnishments. Federal student loans are next in importance after child support.

State Wage Garnishments

After all federal debt is settled, state tax agencies are eligible to collect any unpaid debt.

State Income Taxes

If you fail to file a tax return or incorrectly report income, you may be subject to wage garnishments. Citizens who do not pay owed state taxes can face garnishments up to 15 percent of wages until the debt is repaid varies by employee’s work state.

Credit Cards and all Other Debt

Once federal and state tax levies are taken care of, private organizations have the right to garnish a borrower’s wages. This typically comes in the form of credit card and other debt.

Other liabilities may include medical bills, personal loans, or other unpaid consumer obligations. When it comes to consumer debt, the order in which it is retrieved is based on the date the debt was acquired. The earliest debt must be paid first. Garnishments continue in order of the time received. The amount that can be garnished from the employee’s wages varies by the employee work state.

Wage Garnishment Protections for Employees

There are a number of protections in place for employees whose wages are garnished. The federal government and many states have policies in place that prevent debtors from becoming impoverished while repaying their debts. Two of the most important protections are:
• Only a certain amount of work income may be garnished. Under the Consumer Credit Protection Act (CCPA), a garnishment sought in federal court may not exceed 25 percent of the debtor’s disposable earnings each week. However, if the garnishment is for back payment of child support it could be as high as 60 percent of disposable income. Alternatively, the court order could garnish the amount by which the debtor’s disposable earnings for the week exceed thirty times the federal minimum wage whichever is lower. For the purposes of this law, “disposable income” means all of your income, even if it’s from multiple jobs, with the required tax deductions subtracted. Other payments that are necessary to your daily life, such as rent, food, and health insurance, aren’t included in this calculation. If you have more than one debt to repay, but not enough income to cover them all at the same time, the later creditors must wait until your earlier debts have been repaid.
• Employees cannot be fired because their wages are garnished. Federal law protects you from being fired simply because your wages are being garnished for a single debt. However, if your wages are being garnished for two or more debts, your employer can fire you if it decides to do so.

How to Avoid a Wage Garnishment Order

The best way to avoid a wage garnishment order is to keep up with your debt payments. Ideally, you should pay your debts on time and in full, but this is not always possible. If you know you may have trouble paying all your bills on time, you should contact your creditors. Most student loan administrators have a variety of ways for you to avoid default. Child support, on the other hand, may be modified by court order if you can show that you can no longer afford the payments.

In addition, the IRS and some state tax departments can help you schedule structured payments to repay your back taxes. Finally, some banks and other private debts may be able to work out more affordable payment arrangements. If you‘re unable to work out an alternative arrangement and you see the notice for the wage garnishment hearing in the mail, don’t ignore it! Attend the hearing with an attorney if possible. Bring along any documentation you may have about the debt, including proof of attempted payments and attempts to negotiate a different payment schedule, as well as proof of your income and expenses.

If you were unable to attend the garnishment hearing and the garnishment takes effect, you should ask your employer for a copy of the court order. You may be able to request that the court review the garnishment order.

Stopping Wage Garnishment without Bankruptcy

Respond to the Creditor’s Demand Letter

Once a creditor has obtained a judgment against you, many states require that it send you one last warning letter before the garnishment begins. This is usually called a “demand letter.” If you get a demand letter from your creditor, don’t ignore it. Many creditors prefer to get voluntary payments from debtors rather than deal with the cost and time-consuming paperwork involved with garnishments. Use this opportunity to negotiate a payment plan with the creditor before it begins the garnishment process.

Seek State-Specific Remedies

Some states offer their own additional protections against garnishment. For instance, in Salt lake, Utah, you can request that the court appoint a trustee. In a trusteeship, you make payments to the trustee, who will then distribute those payments to your other creditors. As long as you are in a trusteeship, a creditor cannot garnish your wages. In Utah, you can make a claim of exemption. You can reduce or eliminate the garnishment if you can show economic hardship and that your income is needed to support your family. You should contact the clerk of your municipal or county court, or consult with a local attorney, to see what options are available in your state.

Get Debt Counseling

A consumer credit counseling service (CCS) may be able to help you stop a garnishment. Not to be confused with debt repair companies, a CCS is a non-profit agency that can help you negotiate and reach an agreement with your creditors to pay them over time. If your creditors agree to participate in this group payment plan, then they cannot garnish you as long as you make your payments.

Object to the Garnishment

If you do nothing after receiving the demand letter, you will then likely receive from your employer copies of the garnishment order and notice of the garnishment. You should file any objections you have to the garnishment, in writing, with the court and request a hearing. The garnishment papers might contain forms that you can fill in and request a hearing. If not, you’ll have to complete and file something separately.

Some of the more common objections you can make include:
Under federal law, your creditor can only garnish the lower of:
• 25% of your disposable earnings (gross pay less taxes and mandatory deductions), or
• your disposable earnings less 30 times the federal minimum wage
If you are being garnished for child support or alimony, then up to 50% or 60% of your disposable earnings are subject to garnishment. Garnishments for student loan debts and IRS taxes are also subject to a different computation. The laws of your state may set even tighter restrictions. If the amount of money proposed to be garnished from your wages exceed what federal and state law allows, you should object to the garnishment immediately.

The Creditor Did Not Follow Proper Procedures

If the creditor did not follow garnishment procedure, then the court may terminate the garnishment order. An example of improper garnishment would be for the creditor to fail to give you timely notice of the garnishment.

The Creditor Was Paid

If you already paid the judgment, or if the creditor received full or partial payment toward the judgment through other means (bank attachments, prior post-judgment voluntary payments, etc.) then you obviously need to object so that the creditor doesn’t receive more than what it is legally entitled.

Attend the Objection Hearing (and Negotiate if Necessary)

Once you have filed your objection, then you need to attend the hearing. If you file an objection, but do not go to the hearing, then the court may overrule your objection and the garnishment will begin. Even if you attend the hearing and the court denies your objection, you can still use this as an opportunity to meet with the creditor and negotiate a payment plan. It may not be too late to stop the garnishment if you can get the creditor to agree.

Challenge the Underlying Judgment

If you have a legal basis to dispute the judgment (for instance, you were never properly served with the complaint and subsequent legal papers), it may not be too late to stop the garnishment. You will not be able to dispute the judgment at the garnishment hearing, so raising any of your defenses or objections will fall on deaf ears. However, you may be able to vacate the judgment by filing a separate motion, posting a bond (usually) and attending a different hearing. This can be a very difficult process, so you should speak to a local attorney to discuss this further. You must also do quickly, as you may have only a limited period of time to pursue this remedy.

Continue Negotiating

Even after a garnishment has started, you can still try and negotiate a resolution with the creditor, especially if your circumstances change. For example, if you have an income tax refund that could pay off some of the judgment, then you may be able to get the creditor to agree to cancel the garnishment in exchange for a lump sum payment to settle the rest of the judgment. If none of the above options are sufficient, you may want to consider using bankruptcy.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
Ascent Law LLC

4.9 stars – based on 67 reviews

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What Happens If I Declare Bankruptcy?

Payday loans and Bankruptcy
What Happens If I Declare Bankruptcy?

If you have large debts that you can’t repay, are behind in your mortgage payments and in danger of foreclosure, are being harassed by bill collectors or all of the above declaring bankruptcy might be your answer. Or it might not be. Bankruptcy can, in some cases, reduce or eliminate your debts, save your home and keep those bill collectors at bay, but it also has serious consequences, including long-term damage to your credit score. That, in turn, can hamper your ability to borrow in the future, raise the rates you pay for insurance, and even make it difficult to get a job.

Types of Bankruptcy

Bankruptcy cases are handled by federal courts, and federal law defines six different types. The two most common types used by individuals are Chapter 7 and Chapter 13, named after the sections of the federal bankruptcy code where they are described. Chapter 11 bankruptcy, which is often in the headlines, is primarily for businesses.

Chapter 7 bankruptcy, the type most individuals file, is also referred to as a straight bankruptcy or liquidation. A trustee appointed by the court can sell some of your property and use the proceeds to partially repay your creditors, after which your debts are considered discharged. Some types of property can be exempt from liquidation, subject to certain limits. Those include your car, your clothing, and household goods, the tools of your trade, pensions, and a portion of any equity you have in your home. You should list the property you are claiming as exempt when you file for bankruptcy.

Chapter 13 bankruptcy, on the other hand, results in a court-approved plan for you to repay all or part of your debts over a period of three to five years. Some of your debts may also be discharged. Because it does not require liquidating your assets, a Chapter 13 bankruptcy can allow you to keep your home, as long as you continue to make the agreed-upon payments.

Certain types of debts generally can’t be discharged through bankruptcy. Those include child support, alimony, student loans, and some tax obligations. There are a number of legally required steps involved in filing for bankruptcy. Failing to complete them can result in the dismissal of your case. Before filing for bankruptcy, individuals are required to complete a credit counseling session and obtain a certificate to file with their bankruptcy petition. The counselor should review your personal situation, offer advice on budgeting and debt management, and discuss alternatives to bankruptcy. You can find the names of government-approved credit counseling agencies in your area by calling the federal bankruptcy court closest to you or by visiting its website. Filing for bankruptcy involves submitting a bankruptcy petition and financial statements showing your income, debts, and assets.

You will also be required to submit a means test form, which determines whether your income is low enough for you to qualify for Chapter 7. If it isn’t, you will have to file for Chapter 13 bankruptcy instead. You will also need to pay a filing fee, though it is sometimes waived if you can prove you can’t afford it. You can obtain the forms you need from the bankruptcy court. If you engage the services of a bankruptcy lawyer, which is usually a good idea, they should also be able to provide them. Once you have filed, the bankruptcy trustee assigned to your case will arrange for a meeting of creditors, also known as a 341 meeting for the section of the bankruptcy code where it is mandated.

This is an opportunity for the people or businesses that you owe money to ask questions about your financial situation and your plans, if any, to repay them. Your case will be decided by a bankruptcy judge, based on the information you have supplied. If the court determines that you have attempted to hide assets or committed other fraud, you may not only lose your case but also face criminal prosecution. Unless your case is very complex, you generally won’t have to appear in court before the judge.

After you have filed for bankruptcy but before your debts can be discharged, you must take a debtor education course which will provide advice on budgeting and money management. Again, you will need to obtain a certificate showing that you have participated. You can obtain a list of approved debtor education providers from the bankruptcy court or from the Justice Department. Assuming the court decides in your favor, your debts will be discharged, in the case of Chapter 7. In Chapter 13, a repayment plan will be approved. Having debt discharged means that the creditor can no longer attempt to collect it from you.

Consequences of Bankruptcy

Both types of individual bankruptcy have some negative consequences. A Chapter 7 bankruptcy will remain on your credit record for 10 years, while a Chapter 13 bankruptcy will generally remain for seven years. Note, too, that there are limits on how often you can have your debts discharged through bankruptcy. For example, if you have had debts discharged through a Chapter 7 bankruptcy, you must wait eight years before you can do so again. Unlike corporations and partnerships, individuals can file for bankruptcy without an attorney. It’s called filling the case “pro se.” But because filing for bankruptcy is complex, and must be done correctly to succeed, it’s generally unwise to attempt it without the help of an attorney experienced in bankruptcy proceedings.

After Declaring Chapter 7

If you are an individual considering filing for bankruptcy, Chapter 7 bankruptcy will likely be the type of bankruptcy that can give you the relief you are looking for.

Automatic Stay

As soon as your bankruptcy is filed with the Court the automatic stay will go into effect. The automatic stay is a part of the Bankruptcy Code that prohibits your creditors from trying to collect money from you. Once the automatic stay is in effect, your creditors can’t call or otherwise contact you, and any collection actions that they might have pending against you must stop. If you’re subject to a wage garnishment at the time your case is filed, this has to stop starting with your first payday after filing.

Filing Fees

Unfortunately, bankruptcy relief doesn’t come free. The Bankruptcy Court charges $338 to file for Chapter 7 bankruptcy. In addition to court filing fees, filers typically pay approximately $10 – $50 for each one of the two mandatory credit counseling courses. If your income is less than 150% of the federal poverty guidelines, you may be able to have both the court filing fee and the credit counseling course fee waived.

Bankruptcy Forms

When filing for bankruptcy relief, you will have to fill out a number of different forms to provide all required information about your debts, assets, income, and expenses to the Court. These forms are the same across all of the United States and can be found online for free. Depending on the state you’re filing in, you may have to complete certain local forms required by the Court in your district as well.

Creditors’ Meeting

You will be required to attend a meeting of creditors about 21 – 40 days after your case is filed. During the meeting, the bankruptcy Trustee handling your case will ask you basic questions about your bankruptcy petition and financial situation.

Treatment of Assets

Once you have filed for Chapter 7 bankruptcy, your assets will be evaluated by the Trustee. Any unprotected assets may be sold by the Trustee to pay your creditors. Many assets are exempt from being used by the Trustee to pay your creditors. In 96 % of all Chapter 7 bankruptcy cases, no property is sold by the Trustee and no money is paid to creditors. Once you’ve filed for Chapter 7 bankruptcy, it will take approximately 3 – 4 months for your discharge to be entered. If your Trustee tells the Court that there are no funds to distribute to your creditors, the case will be closed shortly thereafter. If your case is an asset case, because the Trustee is planning to sell a non-exempt asset, the case can stay open for more than a year while the Trustee completes the administration of your case.

Consequences of Bankruptcy

As with any legal process, bankruptcy is a complex issue with both positive and negative consequences. Anyone considering filing for bankruptcy should consider all the possible outcomes before taking this step. Whether one is considering a Chapter 7 straight bankruptcy or a Chapter 13 repayment plan case, consulting with a qualified consumer bankruptcy attorney is paramount to ensuring that the process runs smoothly and advantageously. Before you schedule an appointment with an attorney, you can familiarize yourself with a few basic consequences for any bankruptcy case.

Personal Discharge

On a positive note, declaring bankruptcy typically results in discharge. Discharge is when a bankruptcy court hands down a permanent order that forever prevents creditors from collecting on debts you previously incurred. Credit card debt is one common form of debt that can be discharged by a bankruptcy court. Courts have decided that credit card companies can afford to take the financial hit of forgiving debt the companies won’t go out of business over an individual’s debt. That individual will be much more productive if they aren’t drowning in debt. There are exceptions, such as recent tax liabilities and alimony and child support obligations. These debts are considered too important to wipe clean, but a Chapter 13 bankruptcy may help you establish more feasible payment plans. Furthermore, the discharge does not extend to real estate property. Therefore, any liens a home loan lender has on your house will remain in effect after bankruptcy. Consequently, lenders may foreclose on your home if you default on a loan.

Automatic Stay

Another positive aspect of filing for bankruptcy is the automatic stay. This feature is essentially a preliminary court decree. When the bankruptcy case enters the court, it immediately protects the bankruptcy filer from creditors seeking to collect on a debt. Consequently, creditors may not call you on the phone or send collection notices in the mail. In most cases, the automatic stay remains in effect until the bankruptcy court decides which debts will be wiped clean and which debts must be honored. This process is known as issuing a discharge. However, there are other instances in which an automatic stay will be lifted. An automatic stay that protects your property, for instance, might be lifted if the value of the property is less than the debt owed.4 Divorce proceedings may also complicate what the automatic stay protects.

Credit Score

A bankruptcy filing typically depresses a person’s credit score. Also, bankruptcy won’t erase the history of your past debts, even if the debt itself is discharged. Lenders will take all this as a sign that you’re a risky borrower, and you could end up with high-interest rates for loans if you even qualify for them at all. While this is a legitimate concern, one may slowly rebuild their credit after the bankruptcy. The bankruptcy will remain on your credit report for many years, but the net effect of bankruptcy on credit scores is typically positive. That’s because, while bankruptcy takes a bite out of your credit score, as does growing debt. If bankruptcy is your only way to stop debt from growing, it may be worth taking the hit to your credit score, to build it back up over time.


A negative consequence of filing for bankruptcy is that everything you file with the court—including all of your bankruptcy schedules, which contain your personal financial information, can be accessed by the public. That means friends, family, employers, and clients could find out the details about how much money you owed to who. For some individuals, this is a deal-breaker. For others, the benefits of declaring bankruptcy outweigh the privacy factor—especially because certain sensitive information is protected. For instance, only the last four digits of Social Security and taxpayer-identification numbers are public, and any minors involved will be listed by their initials.

Possible Loss of Property

Those who declare bankruptcy may lose property to the bankruptcy trustee. The point of filing for bankruptcy is to have the court step in and decide how much debt you can afford to pay off, and how much should be forgiven. If you own property with significant value such as luxury cars, you may be forced to sell that item to pay off some debt.

However, if you can successfully exempt your property, the trustee will not be able to sell it. Even if you are unable to exempt some properties, it may not be economically advantageous for your trustee to sell a particular item out from under you. For example, if it costs $1,000 to auction off a car that’s worth only $850, the trustee is likely going to let you keep that vehicle. As mentioned above, this point becomes complicated when a piece of property, such as a home, has been put up as collateral. That gives the creditor greater leverage in attempting to seize the property. Once you are a bankrupt your unsecured creditors will cease to contact you. If you want this to happen then you must list all your unsecured creditors in your Statement of Affairs. This will also include debts which you have taken out with another person, that is joint debts, and even money you may owe to your family and friends. Most legal action which an unsecured creditor had taken against you must stop once you file for bankruptcy.

This also applies to a garnishee from your income or bank account or any recovery action by a sheriff or bailiff. If any of your unsecured creditors continue to contact you then you should notify your trustee. They will contact the creditor. There are some debts which you must continue to pay during bankruptcy and these include:
• Penalties and fines imposed by the court
• Unliquidated damages from accidents e.g. car accidents may be an exemption
• Student assistance/supplement loans and HELP debts

When you become a bankrupt some of your assets can be retained because they are protected property and some may be recovered by your trustee and sold. An asset is defined as anything of value you own when you become a bankrupt and anything you buy or receive before the end of your bankruptcy. When you become a bankrupt what you may keep includes:
• Most of your ordinary household or personal items
• Tools of trade used to earn an income up to a set limit
• Vehicles (e.g. cars or motorbikes) up to a set limit
• Most funds in a complying superannuation fund
• Life insurance policies
• Compensation for a personal injury
• Centre link payments are also protected

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
Ascent Law LLC

4.9 stars – based on 67 reviews

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When Is A Bankruptcy Claim Contingent, Unliquidated, Or Disputed?

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When Is A Bankruptcy Claim Contingent, Unliquidated, Or Disputed?

In most cases, a bankruptcy claim is an amount that a creditor hopes to recover from bankruptcy funds. The claim is unliquidated if the creditor doesn’t know how much the debtor (bankruptcy filer) will eventually owe. Some factor prohibits the creditor from establishing the final amount.

Before the bankruptcy trustee; the official responsible for overseeing the case can pay a creditor in bankruptcy, the creditor must prove several things:
• the amount of the debt
• the debtor legally owes the debt
• the creditor has a right to payment
• the debtor doesn’t have a good faith dispute about the amount owed, and
• there aren’t any unresolved contingencies.

Many debts, like loans and credit cards, are based on contracts between the parties. The contract explains the duties, liabilities, and terms, such as payment amount and interest rate. A balance usually isn’t difficult to figure out at any given time. It’s a relatively simple calculation of principal amount borrowed, plus fees and interest, minus payments. However, sometimes something must occur before the creditor will know how much is owed.

Example. Suppose you’re involved in an automobile accident and the other driver’s insurance company sues you. The monetary cost to the injured person (damages) can’t be determined because the other party’s medical treatment is ongoing. Those costs won’t get finalized until the treatment ends. You also won’t know the total cost that your attorney will charge for defending you. Both the insurance claim and your attorney’s claim are unliquidated. The amounts will be liquidated (known) after the case settles or goes to trial and the court enters a judgment.

Unliquidated Claims in a Chapter 7 Bankruptcy Case

When the trustee finds money to pay claims, the unsecured creditors will usually only receive a pro rata share (a percentage of the funds available). The trustee can’t calculate the pro rata share if unliquidated claims exist. The trustee must know each creditor’s claim amount. Therefore, a Chapter 7 bankruptcy case can’t end before the claims get liquidated. The same holds true for claims the trustee might have against other parties. Trustees often enter into litigation to recover money owed to the debtor (the bankruptcy filer) by people not involved in the bankruptcy. The trustee’s claims must be liquidated so that the trustee knows how much money will be available to distribute to creditors.

Filing for bankruptcy involves filling out numerous bankruptcy forms. On them, you’ll explain your financial situation so that the court, trustee, and creditors know:
• how much you make and owe
• what property you own
• your monthly budget, and
• whether you’ve transferred any property recently.

Of course, listing debt called a claim in bankruptcy—is a pretty important part of the process. Not only will you disclose the creditor name and amount you owe, but you’ll explain whether an issue needs resolving before paying the claim. You’ll do this by labeling the claim contingent, unliquidated, or disputed.

Most Bankruptcy Claims Are Straightforward

In most cases, you won’t run into a problem when listing your bankruptcy claims. There won’t be any outstanding issues you could raise to get out of paying the debt. You simply owe the money.

For instance, if you’re behind on your car loan, the claim would be for the total amount you owe. Similarly, if you owe credit card debt, the claim would be for the total balance.

When the Claim Amount Isn’t Straightforward

Sometimes the amount you owe to a creditor isn’t easy to figure out. Perhaps the amount you owe could depend on what someone else does or might not be determined yet. Or, you and the creditor might disagree as to how much you owe. If any of these is the case, you’ll indicate it when listing that claim on your bankruptcy papers (the form has checkboxes).

Here’s what each term means.
• Contingent claim. Payment of the claim depends on some event that hasn’t yet occurred and might never occur. For instance, if you cosigned a secured loan (such as a car loan or mortgage), you won’t be responsible for paying it unless the other person on the loan fails to pay (defaults). Your liability as cosigner is contingent upon the default.
• Unliquidated claim. Sometimes you owe money, but you don’t know how much yet. The debt might exist, but the exact amount hasn’t been determined. For instance, say you’ve sued someone for injuries you suffered in an auto accident, but the case isn’t over. Your lawyer has taken the case under a contingency fee agreement—the lawyer will get a third of the recovery if you win, and nothing if you lose. The debt to the lawyer is unliquidated because you don’t know how much you’ll owe the lawyer if anything, until the case settles or gets resolved at trial.
• Disputed claim. A claim is disputed if you and the creditor don’t agree about the amount you owe, or if you owe anything at all. For instance, suppose the IRS says you owe $10,000 and has put an involuntary tax lien on your property. By contrast, you believe you owe only $500. You’ll list the full amount of the lien, not the amount you think you owe and indicate that the claim is in dispute (you can explain how much you think you owe in the notes).

Priority Unsecured Claims

Priority unsecured claims are claims that are not secured by collateral but that have priority over other debts under federal law. These debts have priority typically for public policy reasons that is, the well-being of the public depends upon these debts being paid. Priority unsecured debts in a personal bankruptcy case might include child support, spousal support, and any other domestic support obligations; certain income taxes; and any amount you owe if you caused the death or serious injury of another person because you were driving while intoxicated.

Priority unsecured debts are non-dischargeable, which means that any amounts that do not get paid in your bankruptcy are still outstanding. Bankruptcy does not wipe out your obligation on priority unsecured debts unless they are paid in full through the case.

General Unsecured Claims

General unsecured claims are claims that have no priority and are not backed by a security interest in property. General unsecured debts include credit card debts, student loans, personal loans, some utilities and medical bills. General unsecured claims have the lowest priority of all claims. After the bankruptcy estate pays administrative expenses, priority unsecured claims and secured claims, general unsecured creditors will receive a pro rata distribution of the remaining funds.

General unsecured debts are generally dischargeable, which means any amount that is not paid through the bankruptcy is wiped out and no longer your responsibility. There are exceptions to this rule; student loan debt is only dischargeable if you can demonstrate extreme hardship. Also, if you obtained a debt fraudulently, the creditor can ask the court to deem it nondischargeable. For more information about nondischargeable debts, see Bankruptcy Discharge: Which Debts Are Wiped Out?

Example. Anne files Chapter 13 bankruptcy. She owes the IRS $10,000, which is a priority unsecured claim. She also owes $100,000 in general unsecured claims. Over the course of Anne’s Chapter 13, she will make $55,000 in Chapter 13 plan payments. Of those payments, $8,000 will go toward administrative expenses, such as trustee fees and attorney fees. The IRS will receive $15,000 for the tax debt plus interest. The remaining $32,000 will be distributed pro rata to the general unsecured creditors. $32,000 is 32% of the total $100,000 debt, so each general unsecured creditor will receive 32% of the amount owed, and the rest will be discharged.

Example. Ben files Chapter 7 bankruptcy. He owes back child support in the amount of $12,000. He also owes $25,000 in credit card debt. He owns an RV that he cannot exempt, so the trustee sells the RV for $10,000. The trustee’s expenses, including fees, for the sale of the RV total $1,500. The remaining $8,500 of the proceeds will be paid to the state for the child support arrears; the credit card companies will receive nothing, and the credit card debt will be discharged. Ben will still be responsible for the remaining $3,500 in back child support.

Example. Kyle was sued by the family of a man he killed in a drunk driving accident. The court awarded the family $500,000 in wrongful death damages, and Kyle is responsible for the full amount. He also owes $25,000 in credit card debt. Kyle is unemployed, so he files Chapter 7 bankruptcy. His estate has no assets, so none of Kyle’s creditors will receive payment. The credit card debt will be discharged; however, Kyle will still be responsible for the $500,000 wrongful death judgment.

Secured Claims

Secured claims are claims for debts that are secured by an interest in property. A secured creditor can take that property, the collateral, if you default on the debt. The most common secured loans are car loans and mortgage loans, but you may also have secured loans for furniture, jewelry, watercraft, and other types of property. In a bankruptcy case, secured claims must be paid in full if you want to keep the property that secures the loan. If you choose to surrender the property (give it up), the loan is treated as a general unsecured debt.

Example. Dave owes $10,000 on his car; the car is worth $8,000. Dave files Chapter 7 bankruptcy; his estate has no assets. He cannot afford the car, so he chooses to surrender it. The dealership repossesses the vehicle and sells it for $4,000. The remaining $6,000 of the loan is discharged in Dave’s bankruptcy.

Example. Sue files Chapter 13 bankruptcy to save her car. Her Chapter 13 plan proposes to pay the full balance of the loan, which is $8,000, plus interest. Two years into her Chapter 13 case, Sue suffers a pay cut at work and can no longer afford the car. She modifies her Chapter 13 plan to surrender the car. The current balance due is $5,000. The creditor repossesses the car and sells it for $2,000. The creditor must then amend its proof of claim with the bankruptcy court to reflect a general unsecured claim in the amount of $3,000, which will be paid pro rata along with all other general unsecured creditors.

Example. Joanne is underwater on her house; she owes $150,000 to the mortgage company, but her latest tax appraisal gives a value of $100,000. She has fallen behind on her mortgage payments. She files Chapter 7 bankruptcy and decides to surrender the house. She does have an investment account that she cannot fully exempt, and the trustee seizes $8,000 from the account. The mortgage company forecloses and sells the home for $60,000, leaving a deficiency of $90,000. The mortgage was Joanne’s only debt. The trustee’s fees for the seizure of the investment account total around $1,500, leaving $6,500 for creditors. The mortgage company receives the $6,500 and the remaining $83,500 deficiency balance is discharged.

You Must List All Claims in Bankruptcy

It’s common for someone to want to omit a claim from the bankruptcy paperwork for one reason or another. You can’t do it. You’re required to list all claims both the claims you think you owe, and those others think you owe. It’s in your best interest to do so. If you fail to list a claim, the claim might not be erased (discharged) in your case—even if it qualifies as a dischargeable debt.

Paying Claims in Bankruptcy

If money is available to pay creditors, here’s what will happen next:
• The bankruptcy trustee appointed to the case will send out a notice alerting creditors that the case is an “asset case.”
• A creditor will file a proof of claim form by a particular date to share in the available proceeds.
• The trustee will review the claims and pay them according to the priority payment system in bankruptcy law.
Keep in mind, however, that each situation is unique. If you aren’t clear what will happen to claims in your bankruptcy case, you’ll want to meet with a knowledgeable bankruptcy lawyer.

What are Contingent, Unliquidated and Disputed Debts?

In bankruptcy, not all debts are straightforward. Sometimes it may be difficult to determine how much you owe and when you owe it. Typically, these kinds of imprecise debts are either contingent, unliquidated or disputed:
• Contingent debt. These are debts that you may owe in the future, but they depend on a certain event that has not yet happened. The most common example of a contingent debt is if you cosign someone else’s loan. You only owe money if the other person defaults. Since that may never happen, you may never actually owe the debt. Therefore, if the primary borrower is not in default when you file bankruptcy, then the loan is your contingent debt.
• Unliquidated debt. Like contingent debts, an unliquidated debt is an obligation you may owe now or in the future, but the monetary amount is currently incalculable. For example, you may be in the midst of a personal injury lawsuit. Your attorney in that matter may collect contingency fees, which means the lawyer gets a percentage of the settlement or verdict at the end of the case. You will owe your attorney’s fees, but you cannot know how much you owe until your case concludes. Therefore, personal injury attorney fees are typically unliquidated debt, if the case is still in progress.
• Disputed debt. Sometimes, a creditor may claim you owe a certain amount, but you disagree with the sum or with the claim altogether. This is a disputed debt, which can involve virtually any kind of creditor. However, you must have a legal reason why you disagree with the amount due. For example, if a credit card company charged you 30 percent interest for missed payments, but your original contract stated that this penalty would only be 15 percent, then this may be a disputed debt.

Why Should I List Debts I Disagree With or Do Not Owe Right Now?

Listing a contingent, unliquidated or disputed debt does not mean you are agreeing to or will have to pay those debts. Including a list of all claims simply means that everything you owe or might owe is considered for discharge. In many cases, this means you can eliminate your liability for these debts.

For example, while you do not technically owe a contingent debt at the time of your bankruptcy filing, you may be able to discharge your future obligation. Similarly, some unliquidated debts are also dischargeable in bankruptcy, even though the exact dollar amounts are unknown.

If you have a disputed debt, then you should take care to list the amount the creditor claims you owe, not what you believe you owe. The exact amount you owe may or may not matter since a discharge eliminates the liability regardless of amount. This is true for both a Chapter 7 liquidation and a Chapter 13 repayment plan. However, if you do not list a certain creditor or debt when you file for bankruptcy, then you may not receive a discharge for that debt. This means the creditor may be able to bring collection actions against you even after you receive a bankruptcy discharge. The fact is that you must list all debts, even ones that are not subject to discharge.

Questions About Confusing Debt? Contact Ascent Law Firm Bankruptcy Attorneys

The rules for filing bankruptcy can be confusing, especially if you owe or may owe many different types of debt. If you are considering bankruptcy, then contact Ascent Law Firm bankruptcy attorneys for legal advice before you file. In a free initial consultation, we can gather information about your debts and advise you whether bankruptcy is right for you. If so, then we can assist in filing all the necessary paperwork, including generating a comprehensive list of all creditors. Whether you owe contingent, unliquidated and/or disputed debt, we will work to ensure the bankruptcy process goes smoothly.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews

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