The Effects of Bankruptcy on Co-signers and Guarantors

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There are many situations in which a person may turn to a co-signer or guarantor in order to secure a line of credit, loan, or another form of financing. For example, if a person is buying a house but cannot qualify for the loan on their own, they may ask a parent to co-sign. Similarly, a spouse may co-sign on a credit card, or a business partner may co-sign on a business loan. When another person guarantees to make the payments in the event that the borrower defaults, they are called the guarantor; this type of relationship is very common in financial transactions that involve borrowing money.

While relying on a co-signer or guarantor is a perfectly legitimate way to secure financing, it’s important to know that there are consequences for both the borrower and the guarantor in the event of a default. Here’s an overview of what you should know about the effects of bankruptcy on co-signers and guarantors, as well as how a bankruptcy attorney may be able to help you understand your options and put your best foot forward.

What Risks Do Cosigners and Guarantors Face?

The most important thing that co-signers and guarantors should know before they put their name next to a borrower is that regardless of what the original borrower does, they are responsible for the debt. This means that if you, the borrower, fail to make payments, then the creditor has every right to go after the co-signer/guarantor for repayment.

How Will My Bankruptcy Impact My Co-Signer or Guarantor?

When you file for bankruptcy, the “automatic stay” is triggered. The automatic stay is a legal pause on a creditor’s ability to collect on the debt, prohibiting the creditor from contacting you about collecting payments while the bankruptcy case is pending. While the automatic stay protects you, it does not protect your co-signers. So, while a creditor may be legally barred from contacting you for repayment, they do have every legal right to go after your guarantor(s). As such, your co-signers will be on the hook for any amount of money owed.

What If My Debt Is Discharged as a Result of Bankruptcy?

Depending on the type of bankruptcy for which you file, your debt may be discharged. Remember, though, that your filing for bankruptcy eliminates your responsibility to pay your debts—it doesn’t have anything to do with the debts and liabilities of any co-signers. Indeed, if you file for a Chapter 7 bankruptcy, your guarantor will receive no protection from creditors before, during, or after the bankruptcy case.

A Chapter 13 bankruptcy, also known as a wage earner’s bankruptcy, on the other hand, may provide some protection. In a Chapter 13 bankruptcy, co-signers and guarantors actually are protected by the automatic stay (although creditors can ask the court to lift these protections). Chapter 13 bankruptcy also results in a repayment plan, giving you time to pay off your debt so co-signers and guarantors aren’t impacted.

Finally, it should be noted that while a co-signer may be on the hook for your debt, your bankruptcy filing won’t have any impact on their credit report. A bankruptcy filing will significantly harm your credit score and may make it difficult to borrow money or secure a loan in the future.

What Should I Do If I Can’t Make Payments on a Debt?

If you are struggling to make payments on a debt and you have a co-signer or guarantor listed on the debt, one of the first things that you should do is talk with them. Remember, if you default on the debt, creditors can go after them and their failure to make payment could impact their credit. By providing them a heads-up, you may be able to get ahead of the problem early.

If making payments feels impossible and bankruptcy feels like the only option, you should also consider debt consolidation, credit counseling, credit negotiation, or loan modification/refinancing. Creditors and lenders want to get paid and are often willing to work with those who are struggling to make repayments to restructure payment or interest amounts.

If bankruptcy truly is your only option, then working with a skilled bankruptcy attorney is strongly recommended. An attorney can help you to exhaust all other options first and also help you to understand the types of bankruptcy and the requirements for filing for different types of bankruptcy. If your co-signers or guarantors have questions about how your bankruptcy may impact them, your attorney can help to provide answers to these questions, too.

Bankruptcy and Your Retirement Savings: What You Need to Know

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Facing financial ruin is incredibly stressful. If you are being contacted by creditors, are at risk of losing your house, or have had a lawsuit filed against you to collect on a debt, you should be thinking seriously about your options. One way to seek a clean slate is to file for bankruptcy. 

While bankruptcy has some consequences, it can also help you to gain your financial footing. If you’re thinking seriously about filing for bankruptcy, it’s important that you understand the impact that bankruptcy can have on your finances, including your retirement savings. Here’s what you should know about bankruptcy and your retirement savings—to learn more, it’s recommended that you contact a financial or legal professional.

Using Retirement Funds for Debt

When thinking about your financial options when facing bankruptcy, you may think about withdrawing funds from your retirement accounts in order to help pay down some of your bills. While this could help you to stave off creditors and alleviate your debt, remember that withdrawing retirement funds can have consequences. 

Withdrawing retirement funds before reaching retirement age can result in hefty tax penalties, which could only exacerbate your financial dilemmas. Unless withdrawing retirement funds is your only option—and even then, you should seek professional advice first—keeping funds within your retirement accounts is almost always the best thing to do.

What Happens to My Retirement Funds During Bankruptcy?

Whether you are filing for a Chapter 7 or a Chapter 13 bankruptcy, the good news is that in most cases, you’ll likely get to hold on to your retirement or/and pension funds. However, there are some exceptions to this general rule. 

When you file for bankruptcy, regardless of whether you file for a Chapter 7 or Chapter 13 bankruptcy, you get to keep exempt assets. (Other, non-exempt assets are liquidated and used to pay back creditors.) In fact, under the federal tax code, all types of individual retirement accounts (IRAs) are substantially protected from creditors during a bankruptcy filing, as are pension plans, 401(k)s, and other employer-sponsored qualified retirement plans. 

How Much Is Protected During Bankruptcy?

For ERISA-qualified retirement accounts, which stands for Employee Retirement Income Security Act, the retirement account cannot be taken from you by the bankruptcy trustee appointed to your case. ERISA plans are inclusive of 401(k)s, 403(b)s, 457(b)s, governmental plans, and plans offered to employees by tax-exempt organizations. Bankruptcy law also protects IRAs, including traditional IRAs, Roth IRAs, SEP-IRAs, SIMPLE IRAs, and other similar retirement plans. 

If you file for bankruptcy, you can protect up to $1,512,350 held in your IRA. Note that if you have more than one IRA, the $1.5 million threshold doesn’t apply to both accounts individually, but is the combined amount you can protect. 

Are There Any Retirement Savings that Aren’t Protected in a Bankruptcy Filing?

As explained above, you cannot protect amounts over $1,512,350 (adjusted for inflation every three years) in a bankruptcy filing. What’s more, if you have other forms of savings that you plan to use for retirement, these funds will likely not be protected in a bankruptcy filing. You won’t be able to protect:

  • Any funds withdrawn from a tax-benefited retirement account
  • Funds held in a savings account
  • Money held in an investment account
  • Stock option plans

Should I File for Bankruptcy?

If you’re thinking about filing for bankruptcy, it’s important that you understand all of your options and the consequences associated with a bankruptcy filing. In most cases, filing for bankruptcy is a last-case resort that should only be pursued once other options have been exhausted. Other options that should be explored first include debt consolidation, refinancing, and credit negotiation.

If you do decide to file for bankruptcy, note that any savings that you hold in tax-advantaged retirement accounts will likely be protected, up to a certain threshold. This should provide some peace of mind in the event that you file.

Working with a Professional Is Always a Good Idea

Deciding to file for bankruptcy is a big decision and one that you likely shouldn’t make on your own if you’re not a financial professional. When you consult with a financial professional or/and a bankruptcy attorney, you can learn more about the process, the risks, the benefits, and how to get started. A professional can answer your tough questions about bankruptcy, help you know which type of bankruptcy you’re eligible to file for and advise you on asset protection throughout the process. 

Bankruptcy and Tax Debt: What You Need to Know

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If you have thought about bankruptcy, chances are that your understanding of bankruptcy is that filing for bankruptcy will eliminate your debts and give you a clean slate moving forward. While it’s definitely true that bankruptcy can provide a fresh start, it’s important to understand that not all debts are forgivable in a bankruptcy filing and that for some types of debt, what you can discharge depends on the type of bankruptcy for which you file.

When it comes to tax debt, there’s a common misconception that if you have tax debt and file for bankruptcy, the government will forgive all of your debts—including your tax debt. Unfortunately, this just isn’t necessarily true. Here’s what you should know about bankruptcy and tax debt—remember, it’s always good to talk to a professional before filing for bankruptcy.

Can You Discharge Tax Debt?

If you are filing for bankruptcy and have tax debt, there are only certain situations in which you may be able to discharge your tax debt. In fact, you can only discharge tax debt if the following criteria are satisfied:

  • The tax debt is only for income tax. If you owe taxes for anything other than taxes on earned income, you cannot discharge it in a bankruptcy filing.
  • The tax debt occurred as a result of an honest mistake or debt—it cannot have occurred out of willful evasion or tax fraud.
  • You filed a tax return for the tax debt that you are trying to discharge. In some courts, you can’t discharge debt even if you filed a late return, so make sure you ask the legal professional you’re working with if this applies to you.
  • The tax debt must be at least three years old.
  • Enough time must have passed. The IRS maintains what’s known as the 240-day rule, which means that the income tax debt must have been assessed at least 240 days before you file for bankruptcy.

Only if your debts meet all of the criteria above may they qualify for discharge during bankruptcy.

What About a Tax Lien?

If you fail to pay a tax debt, the government may issue what’s known as a tax lien. A tax lien is the government’s claim against your property. If the tax debt isn’t repaid, the lien gives the government the right to seize the debtor’s property. If the debtor does repay the debt, then the tax lien may be removed.

The bad news about having a tax lien—even if you’ve repaid it or are in the process of repaying it—is that you cannot discharge a federal tax lien, even if the tax debt meets the criteria for discharge listed above. That’s because the purpose of bankruptcy is to wipe away a personal tax, not to wipe out tax liens recorded prior to the bankruptcy filing.

Discharging Tax Debt and Chapter 13 vs. Chapter 7 Bankruptcy

The primary difference between a Chapter 13 and a Chapter 7 bankruptcy is that you must pass the means test to qualify for a Chapter 7 bankruptcy. With a Chapter 7 bankruptcy, your non-exempt assets will be liquidated, and your remaining debts will be discharged; with a Chapter 13 bankruptcy, on the other hand, you will enter a repayment plan to pay back debts and, in exchange, will be able to keep more assets. So how does this apply to those who want to discharge tax debt?

With a Chapter 13 bankruptcy and tax debt, some dischargeable tax debts might be forgiven without any repayment depending on the amount of disposable income you have. In any case, you won’t incur any interest on the tax debt that you owe.

If you file for a Chapter 7 bankruptcy on the other hand, your debt will be discharged if your debt meets the qualifications listed above and if you pass the means test—an income assessment that determines whether you have enough disposable income to pay back any portion of your existing debts.

Learn More About Bankruptcy and Tax Debt

If you are in a financial situation where bankruptcy is your best option, it’s important that you understand what debts may be dischargeable and how what you currently earn will impact which type of bankruptcy you file for, and how much of your overall debt is dischargeable. If you have questions about tax debt, you should consult with a financial professional or a bankruptcy lawyer. Filing for bankruptcy is a huge decision that will have a long-term impact on your financial health. Learn as much as you can before filing and explore all of your options in advance.

How Does Bankruptcy Impact My Credit Score and Financial Future?

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When you are facing large amounts of debt, understanding all of your options for getting your finances under control and improving your financial future is important. Depending on the specifics of your situation, options that may provide economic relief include debt consolidation, refinancing, creating a budget, or working with a debt counseling or financial planning expert. When these options fail, however, filing for bankruptcy can be the best option.

Before you rush into filing for bankruptcy, it’s important to understand how the bankruptcy process works, what type of bankruptcy you may be eligible for, what debts might be forgiven, and how bankruptcy can impact your credit score and financial future. If you have questions or want information that’s specific to your case, it’s best to work with a bankruptcy lawyer or financial professional.

The Two Primary Types of Bankruptcy for Individuals

If you are an individual who is thinking about filing for bankruptcy, there are two types of bankruptcy that are most common: Chapter 7 and Chapter 13. You may be eligible for one of them, but not both. Note that the impact that bankruptcy will have on your credit score depends, in part, on which type of bankruptcy you file for.

  • Chapter 7 bankruptcy. A Chapter 7 bankruptcy, also called liquidation bankruptcy, is a type of bankruptcy where your non-exempt assets are liquidated (sold for cash) and that money is used to pay off your creditors to the extent possible; then, any remaining debts are discharged. In order to qualify for a Chapter 7 bankruptcy, you must pass the means test. The means test is a way to determine whether you have the income and assets to go through the Chapter 13 bankruptcy process instead.
  • Chapter 13 bankruptcy. If you do not pass the means test, then your other option for filing for bankruptcy is to pursue a Chapter 13 bankruptcy. Also known as a wage earner’s bankruptcy, in a Chapter 13 bankruptcy, the debtor enters into a repayment plan that lasts for between three and five years. While a debtor will repay a significant portion of their debts in a Chapter 13 bankruptcy before debts are forgiven at the end of the repayment plan, one of the biggest advantages of this type of bankruptcy is that most assets are exempt from liquidation and are therefore protected.

Note that in both types of bankruptcy, not all debts are dischargeable. For example, student loan debt and outstanding support payments from civil cases are usually unforgivable.

How Bankruptcy Will Impact Your Credit Score and Financial Future

While bankruptcy can provide financial relief and help you get the footing you need to start making smart financial decisions moving forward, it’s important to know that there are some consequences of filing for bankruptcy. Most notably, bankruptcy can have a very negative impact on your credit score.

While chances are that your credit score is already pretty low if you’re in a financial position to be filing for bankruptcy, a bankruptcy filing will drop it even further. What’s more, filing for bankruptcy will stay on your credit score for seven years for a Chapter 13 filing and 10 years for a Chapter 7 filing.

Not only will you have a low credit score for the next seven to 10 years if you file for bankruptcy, but you may also have a hard time securing a line of credit or taking out a loan, too. If you want to purchase a home, mortgage lenders will be very hesitant to work with you. This can make it hard to build backup credit after bankruptcy, and may also leave you in a position where you are forced to rent because you cannot secure a mortgage loan.

Finally, depending on the industry in which you work, your employer may have the right to do a financial background check on you and could deny you a job because of a bankruptcy filing on your record.

Always Seek Professional Help When Thinking About Bankruptcy

The specific impact that a bankruptcy filing may have on you depends on the details of your financial situation and the type of bankruptcy you ultimately file for. Before you take any further action, it’s strongly recommended that you consult with a financial professional who is experienced in bankruptcy filings. From financial planners to bankruptcy lawyers, an experienced professional can provide you with the guidance and answers you need to make a smart, informed decision.

When Should I Consider Filing for Bankruptcy?

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Managing your finances responsibly may sound like an easy task, but for many, making smart financial decisions isn’t always as obvious as it seems. From accidents and unexpected illnesses that lead to medical debt to low-paying jobs and layoffs that cut income streams, there are dozens of legitimate reasons why a person may be struggling to pay off debt.

While there is no panacea to managing or eliminating debt, there are many options depending on the details of your financial situation. One option for dealing with debt is to declare bankruptcy. However, before filing for bankruptcy, it’s important to consider your full financial picture and make sure you have an understanding of the consequences—both positive and negative—of bankruptcy.

Here’s an overview of a few things you should consider when filing for bankruptcy:

What Is Bankruptcy?

Bankruptcy is a legal proceeding that happens before a court. In a bankruptcy hearing, some debts may be discharged, assets may be liquidated to pay creditors, or/and the debtor may enter into a repayment plan with creditors.

While some debts are dischargeable in a bankruptcy hearing, it’s important to note that not all debts are forgivable. What’s more, while filing for bankruptcy may give you a clean financial slate that helps you to manage your debts, it severely impacts your credit score and can make it difficult to get approved for a loan for years in the future.

Things to Think About Before Filing for Bankruptcy

If you are drowning in debt, filing for bankruptcy may be an option that’s on the table. Before you file, however, there are multiple things you should think about first. Some of the most pressing items for consideration include:

  • Other debt-relief options. While bankruptcy can be a great option, note that it’s an intensive legal proceeding that can take time and money, and have long-term implications on your overall financial well-being. As such, it’s usually recommended as a last resort after other debt-relief options have been considered. Consider debt consolidation or negotiation, and talk to a financial professional about all of your options before filing.
  • Types of bankruptcy. If you’re thinking about filing for bankruptcy, it’s important that you understand the types of bankruptcy and which type may be most appropriate for your situation. For individuals, the two most common types of bankruptcy are Chapter 7 and Chapter 13.

Chapter 7 bankruptcy requires a debtor to liquidate any of their non-exempt assets. In order to qualify for a Chapter 7 bankruptcy, a debtor must pass a means test proving that they don’t have the income and resources to enter into a repayment plan. The alternative for those who don’t pass the means test is a Chapter 13 bankruptcy, which requires repayment of debt through a repayment plan but also allows a debtor to keep more of their assets.

  • Whether you need legal support. As you think about the bankruptcy process and the many legal documents and the court proceedings that filing for bankruptcy requires, you may consider hiring a lawyer. Before you hire a lawyer, it’s important to have a consultation first where you can ask any questions, get a feel for the attorney, and learn more about fee structures.
  • Your need for immediate relief. If you need immediate relief because you are being contacted by debt collectors nonstop and are at risk of having assets seized or having your home foreclosed on, filing for bankruptcy may be your best option. This is because when you file for bankruptcy, your filing will immediately trigger the automatic stay. The automatic stay in a bankruptcy case is an immediate pause on the ability of any creditor to contact you. This can provide you with the short-term relief and breathing room you need to take charge of your financial situation.

How to Learn More About When It’s a Good Time to File for Bankruptcy

One of the most important things to know about bankruptcy is that it’s not a decision you should take lightly. Before you file, you should learn as much as you can about all of your options, as well as what the bankruptcy process entails, whether you’re qualified to file for bankruptcy and if so, which type of bankruptcy is appropriate for you, and what the short- and long-term consequences of filing for bankruptcy will be. You should also consider whether you want to work with a legal or financial professional during your bankruptcy case.

Finally, while debt can feel terrifying and overwhelming, know that there are options available. By seeking help, you can start making smarter financial decisions that support your financial well-being long term.

 

Bills, Bills, Bills—Dealing with Debt Around the Holidays

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The urge to spend during the holiday season can be overwhelming. Not only are there dozens of holiday activities that may cost money to participate in, but you may also be trying to buy for everyone on your list. In fact, studies show that for the 2022 holiday season, about 70 percent of Americans plan to take on debt and that in 2021, approximately 65 percent of shoppers used their credit cards to pay for holiday expenditures. However, as of February 2022, only about 40 percent of those people hadn’t yet paid off their holiday debt.

As holiday marketing peaks and the desire to pull out your credit card spikes, remember that debt is not something you want to incur during the holiday season. For dealing with debt that you may already have—as well as avoiding new debt—this holiday season, consider the following tips—

Get Familiar with Your Financial Situation

Whenever you’re thinking about debt and budgeting, the first thing to do is take a good hard look at your finances. It’s critical that you understand your current debt-to-income ratio and what your current spending looks like. Review all of your current bills and assess your debts—on which debts are you currently accruing the greatest amounts of interest?

The more you know about your financial situation, the better prepared you’ll be to strategize when it comes to paying down your existing debt, setting a budget and avoiding new debts, and navigating holiday spending in a way that’s smart and responsible.

Know What You Need to Pay Down First

When it comes to managing debt that you already have, one of the most important things that you need to know is which of your debts you need to start paying down first. The debt you should pay down first is typically the debt that has the greatest interest rate or the debt with the greatest outstanding balance.

If you’re currently just paying interest, you need to think about analyzing your budget to reallocate more money to pay down your bills. Paying off your debt should be your number one priority.

If you do have credit card debt, do everything you can to avoid new debt.

Avoid Incurring New Debt

Incurring debt is never a good idea, but is especially bad when:

1) You already have debt that you haven’t been able to pay off in full, or/and…

2) You know that if you put something on a credit card, you will not be able to pay it off in full at the time that payment is due.

Using a credit card is only a good idea when you are confident that you will have the cash to pay the balance of your credit card in full and on time. Here are some ways to avoid incurring new debt that you can’t pay off in full and on time:

  • Know your budget. The first thing to do when thinking about spending for the holidays is to create a budget for yourself. How much do you realistically have to spend on gifts and other holiday purchases?
  • Come up with a spending strategy for gifts. Rather than writing down a list of everyone you have to buy for—which could lead you to spend more than you have a budget for—you should approach holiday spending by coming up with an amount that you can comfortably spend and then figuring out how much you want to spend on each person.
  • Get creative. If you have a small budget for holiday spending, don’t panic! The holidays are about family, love, community, compassion, and gratitude, not just gift-giving. Consider having an honest and open conversation with your family and friends about your financial situation this year. Or get creative with your gift-giving. For example, plan a fun and low-cost activity as a gift, or consider making something instead of buying something.

Avoid Common Debt-Entrapping Schemes

Credit card companies and brands love to prey on people during the holiday season. This time of year, you may be tempted by sales and bargain deals, as well as the urge to participate in buy-now-pay-later schemes. Credit card companies often offer great bonuses and prizes for opening a new line of credit during the holidays.

Whatever you do, don’t be tempted to open a bunch of new credit cards or fall victim to a buy-now-pay-later option if you know you can’t afford it! And while sales may be tempting—and are appropriate to take advantage of when within your budget—don’t spend money just to spend money.

Get Help with Debt

If you’re struggling with debt, working with a financial professional is a good idea. Remember, it’s never too late to take steps to improve your financial situation.

What is the Role of a Trustee in My Bankruptcy?

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If you’ve decided to get a fresh start on your financial situation and file for bankruptcy, you’re going to be interacting with several professionals throughout the process. Among these are your bankruptcy attorney, the bankruptcy judge, and a bankruptcy trustee.

Balancing the interest and rights of the debtor against those of their creditors is one of the goals of the bankruptcy process. While the judge has the final decision on these matters, a person called a bankruptcy trustee is appointed to these cases to facilitate settlements.

What is a Bankruptcy Trustee?

When you file for bankruptcy in the U.S., the court creates a “bankruptcy estate,” which consists of all your assets and financial interests. The court gets jurisdiction over this bankruptcy estate and is in charge of administering it according to the law. This is where the bankruptcy trustee comes in.

A bankruptcy trustee is appointed to your case by the Office of the United States Trustee, which is part of the U.S. Department of Justice. Your bankruptcy trustee is required to oversee your case and take a variety of actions depending on the type of bankruptcy you have filed.

What is the Role of a Trustee in Bankruptcy Cases?

If you’ve ever heard of a trust, then you are familiar with the term “trustee.” The role of a bankruptcy trustee is to act as a fiduciary to the debtor’s creditors. Bankruptcy trustees play a vital role as independent third parties between the debtor, the bankruptcy court, and the creditors. They aren’t affiliated with any of these entities.

The bankruptcy trustee’s primary role is to ensure things go smoothly. They also serve as a watchdog to prevent any unethical or fraudulent activity. The U.S. Bankruptcy Code grants broad powers to bankruptcy trustees. Judges take their opinions and actions seriously. But their roles and responsibilities can vary depending on the type of bankruptcy being filed.

Chapter 7 Bankruptcy Trustees

In a Chapter 7 bankruptcy, the goal is to discharge your allowable debts at the end of the process. The Chapter 7 trustee is called the “interim trustee,” who essentially takes over the role of the debtor so that they can administer the bankruptcy estate.

The Chapter 7 trustee will legally possess your assets until the point that they transfer any allowable assets back to you. The trustee has the power and duty to sell your assets and take other actions on behalf of your bankruptcy estate. Some of the primary powers and duties of a Chapter 7 trustee include:

  • Thoroughly review the bankruptcy petition
  • Report any signs of fraud to the Bankruptcy Court
  • Schedule and attend the 341 Creditors Meeting
  • Liquidate all non-exempt assets and pay off credits
  • Return allowable assets to the debtor
  • Report all actions to the Bankruptcy Court

It’s important to understand that you will be able to keep exempt assets in a Chapter 7 bankruptcy case. These might include a portion of our family residence, your primary vehicle, household furnishings, and tax-exempt retirement plans.

Chapter 13 Bankruptcy Trustees

Chapter 13 bankruptcy focuses on helping an individual or business create an agreed-upon repayment plan that requires the debtor to make affordable monthly payments. Some of the benefits of Chapter 13 bankruptcy are that you are not required to liquidate any assets and whatever debt is left after making three to five years of regular payments is eligible for full discharge.

A trustee’s role in a Chapter 13 bankruptcy is a bit different than in a Chapter 7 case. As the debtor, you will still meet with the trustee to help them learn more about your assets and debts. Instead of selling off assets and discharging your debts, the trustee will create a repayment plan and supervise your case from start to finish. Some of their duties include:

  • Analyzing the debtor
  • Examining the debtor’s bankruptcy filing and schedules
  • Reviewing the debtor’s proposed Chapter 13 repayment plan
  • Objecting to any terms of the plan where necessary
  • Collecting and distributing regular payments to various creditors
  • Motioning to dismiss a debtor’s case for non-compliance when necessary

Learn More About Filing for Bankruptcy Protection

If you are struggling with overwhelming debt, the U.S. bankruptcy code offers an option that can provide relief. But you probably have a lot of questions about this process. An experienced bankruptcy attorney can give you the answers you need and the peace of mind to move toward greater financial freedom. Your Gulf Coast Bankruptcy Attorney is committed to providing Gulf Coast residents with the resources necessary to make the most informed decisions.

 

What Is a 341 Meeting and How Do I Prepare? 

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Filing for bankruptcy is a huge decision. And while filing for a Chapter 7 or Chapter 13 bankruptcy can provide you with the financial relief that you need, the process requires multiple steps that can be confusing to the layperson. One of the most important parts of a bankruptcy case is the 341 meeting, which occurs after you’ve filed for a Chapter 7 or Chapter 13 bankruptcy. Consider the following information regarding what you should know about a 341 meeting and how to prepare for your own 341 meeting—

What Is a 341 Meeting?

A 341 meeting, also known as a meeting of creditors or 341 hearing, is an important part of a Chapter 7 and Chapter 13 bankruptcy case. During this meeting, a debtor and their creditors will meet; the court-appointed bankruptcy trustee is also required to attend this meeting. The purpose of the 341 meeting is to establish the facts of the bankruptcy case, facilitate the negotiation and decision regarding a repayment plan, and ensure that all of the paperwork and details of the bankruptcy case are in order. 

The 341 meeting is a good opportunity for creditors to ask questions of the debtor should they have any, such as whether the debtor has any undisclosed income or assets. For the debtor, the primary purpose of the meeting is to authenticate their identity and establish their financial circumstances. 

Do I Need an Attorney for a 341 Meeting?

Attorneys are welcome to attend 341 meetings, but they are not legally required to partake. The only parties who are legally required to be at a 341 hearing are the court-appointed trustee and the debtors; even creditors aren’t legally required to attend, although they may choose to do so. 

While having your attorney present at your 341 meeting may not be required, it is often advised. Indeed, throughout the entire bankruptcy process, working with a legal professional who understands the law and how to represent your best interests throughout the process is recommended, as these types of cases are complex and can even be contested. 

How to Prepare for a 341 Meeting

After you file for bankruptcy, your attorney can provide you with more information about how to prepare for your upcoming 341 meeting. Some steps to both expect and take include:

  • You will receive a copy of the file petition for bankruptcy, schedules, and other documents to review. You should review these in full (with your attorney) and ensure that they are accurate. If you notice any errors or discrepancies, you need to inform the bankruptcy trustee immediately. 
  • Prepare your documents verifying your identification, including your driver’s license or state I.D., Social Security card, or/and any other required identification documents. 
  • Confirm the details of the time and location of your hearing. During the COVID-19 pandemic, these hearings were often occurring by phone. Verify whether your hearing will be in person or conducted virtually. It’s important that you show up to the hearing on time and are fully present (i.e., silence your phone). 
  • Prepare for questions that you may receive from the trustee or creditors. Examples of common questions include:
    • Did you sign the petition of your own accord and will?
    • Is the address on the petition accurate? 
    • Have you read the petition and schedules prior to signing? 
    • Have all of your assets and income been listed in the schedules?
    • Have you filed for bankruptcy in the past? 
    • Do you have any support obligations, such as child support or spousal support?
    • Is there anyone who owes you money?
    • Do you anticipate receiving any assets from a civil case that have not yet been disclosed?
    • Are you involved in any other civil actions at this time? 

What Happens After a 341 Meeting?

341 hearings are fast. In fact, there may be several 341 meetings scheduled to take place within a single hour, which means that your hearing may conclude in as few as 10 minutes or less. 

What happens next will vary slightly depending on whether you are filing for a Chapter 7 or a Chapter 13 bankruptcy. 

For Chapter 7 debtors, the next step is attending the required debtor education courses. After these courses have been completed and a certificate of completion has been filed with the court, the discharge of debts should occur within approximately 60 days. For Chapter 13 debtors, the Chapter 13 repayment plan must be approved. Chapter 13 filers are also required to take a debtor education course.

In most cases, 341 meetings are fast and straightforward. Most holdups relate to misspelled names on official documents, so it’s important to ensure that the information on all documents exactly matches the information on your identification. If you have more questions, the bankruptcy trustee assigned to your case and your attorney are both great resources. 

Garnishments: How Does Filing for Bankruptcy Impact Garnishments?

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Facing large amounts of financial debt can be extremely stressful. Even if you’re earning money, you may be subjected to wage garnishments, which can add to the pressure of an already overwhelming attempt to manage your funds. 

While there are many options for managing debt and seeking debt relief, bankruptcy could be the most appropriate option for you. Here’s what you should know about how filing for bankruptcy will impact any wage garnishment orders you’re currently facing, as well as other considerations of filing—

What Are Wage Garnishments?

As defined by the U.S. Department of Labor, wage garnishment is the lawful procedure of an employer withholding a person’s earnings from their paycheck for the payment of a debt. Examples of debts for which wage garnishment may be pursued include:

  • Child support
  • Spousal support
  • Student loans
  • Medical bills
  • Unpaid taxes
  • Credit card debt

In order for an employer to withhold wages, they must first receive a writ of garnishment, which is a court order. The employer is then responsible for calculating, withholding, and submitting the requested amount of garnished wages to the appropriate agency. 

The Impact of Filing for Bankruptcy on Wage Garnishments

If you are currently subject to a wage garnishment order and part of your paycheck is currently being withheld to pay a debt, filing for bankruptcy may be one option for ending the garnishment. 

When you file for bankruptcy, an automatic injunction known as the automatic stay goes into effect. The automatic stay prevents creditors from continuing debt collection efforts against you while your bankruptcy case is in process, which includes garnishment and orders for new garnishment. The automatic stay is triggered the moment that you file for bankruptcy. 

When Can Wage Garnishments Resume?

One important thing to know about the automatic stay is that while it does put a halt on most wage garnishment orders throughout the course of your bankruptcy case, it does not apply to all types of debt, and it is not a permanent solution to managing debt or wage garnishment; the automatic stay is temporary. 

Only wage garnishment orders for dischargeable debts will be paused during the automatic stay; wage garnishment orders for nondischargeable debts will continue. Nondischargeable debts include student loans, tax debts, child support, alimony, and credit card debt that was accrued to pay taxes. 

Once the automatic stay lifts, wage garnishment may resume depending on the outcome of your bankruptcy case. If your bankruptcy action was successful, then certain debts may be discharged (note, however, that the nondischargeable debts mentioned above will not be settled by bankruptcy) or you may enter a repayment plan with your creditors. If your bankruptcy case is not successful, however, you may be in the same position that you were prior to filing. 

Should I File for Bankruptcy to Stop Garnishments?

Before you decide to file for bankruptcy, it’s strongly recommended that you seek counsel from a certified financial professional, a bankruptcy attorney, or both. Filing for bankruptcy can provide you with a clean financial slate, but it is a big decision that can also have a negative impact on your credit score and your ability to secure loans or lines of credit in the future. With that in mind, bankruptcy might be a good option if you have exhausted other debt-relief alternatives, such as consolidating debt, settling debt, or refinancing. 

It’s also important to know that filing for bankruptcy may not be the only way to stop garnishments. In addition to the automatic stay that goes into effect the moment you file for bankruptcy, other options for ending wage garnishment include protesting the wage garnishment by filing papers with the court that makes a strong case that you qualify for an exemption or need a larger amount of your paycheck to pay your debts. Another option is paying the debt for which you’re being subjected to wage garnishment in full. Rearranging your finances may allow you to do this. 

Get Help with Your Wage Garnishment and Bankruptcy Case

Understanding the laws regarding wage garnishment and bankruptcy can be very confusing and if you’re facing large amounts of debt, you may be overwhelmed and unsure of how to proceed. It’s important to know that professional help is available. If wage garnishment is something that you are dealing with and you are wondering if filing for bankruptcy is the best next step for you, your next move should be to set up a consultation with an expert who can provide you with more information about how bankruptcy may impact your overall financial picture, not just your wage garnishments. 

Will My Car Be Repossessed If I File for Bankruptcy?

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Depending on where you live, it’s often a necessity to own a car for work, school, and other daily necessities. When you’re struggling to make ends meet, you might fall behind on your vehicle payments in addition to some other credit accounts. Having your car repossessed would make a stressful situation even worse. 

Repossession of a vehicle can be upsetting under any circumstances. If you are thinking about filing for bankruptcy, can the lender still repossess your car? And, if your car has already been repossessed, will bankruptcy help you get it back? Here’s what you need to know. 

Filing Bankruptcy to Save Your Car

Car loans use the vehicle as collateral, meaning the lender has the right to repossess the property if you don’t make your payments. In fact, vehicle repossession can happen as soon as missing two car payments. 

If you file bankruptcy before a lender repossesses your car, this will put an automatic stay on debt collectors. Repossession proceedings will stop. But bankruptcy isn’t a means to get a free car. 

Bankruptcy, whether you file Chapter 7 or Chapter 13, will give you relief from unsecured debt. A car loan is considered secured debt. In most cases, the debt relief you receive will help free up cash so that you can catch up on your loan payments and save your car. But neither type of bankruptcy will help you keep a vehicle that you can’t afford. That said, the type of personal bankruptcy you file could impact how much you have to pay. 

Chapter 7 Bankruptcy

You may be able to work with your lender in some situations to refinance or modify your loan. If you can come to an agreement with your lender during the Chapter 7 bankruptcy process, you will likely need to sign a reaffirmation agreement outlining the new terms. When you sign this form after you file for bankruptcy, the lender has “refreshed” their right to repossess the vehicle if you don’t adhere to your end of the deal. 

Chapter 13 Bankruptcy

Chapter 13 bankruptcy involves a repayment plan that lasts anywhere from three to five years. Your vehicle loan can be included in this plan, giving you reduced payments at a lower interest rate. This can make your car more affordable and less likely to get repossessed. 

Using Redemption or Reinstatement After Repossession

Assuming your car has already been repossessed, you may or may not be able to get it back through the bankruptcy process. If you do nothing or wait too long, the vehicle will be sold at auction. If it is sent to auction and the lender gets less than you owe for it, you’ll be presented with a loan deficiency, which is a bill for the difference. Again, the type of bankruptcy you file can impact your situation with a car that’s already been repossessed. 

Chapter 7 Bankruptcy

If you want to get the car back and it’s still available, you will need to pay what you owe to the lender. You may also have the opportunity to reaffirm the loan and negotiate more favorable terms. 

If you don’t want the car back or it’s already been sold, you can include the vehicle loan deficiency in your bankruptcy. It becomes an unsecured debt, meaning you’ll likely be able to get it discharged. 

Chapter 13 Bankruptcy

If your vehicle has been repossessed and you want it back, Chapter 13 is also an option. But it only makes sense if you are also filing to keep your home and other valuable assets. With this type of bankruptcy, you will negotiate an affordable payment plan with your creditors over the next three to five years. 

Protecting Your Car Equity in Personal Bankruptcy

When you file for Chapter 7 bankruptcy and wish to keep your vehicle, you also have to be concerned with your car’s equity. You are only permitted to keep so much property in a Chapter 7 bankruptcy. Otherwise, the trustee will sell non-exempt items to raise cash for creditors. 

Most states have motor vehicle exemptions allowing you to keep a certain amount of a car’s equity. You may also be able to use part of a wildcard exemption to meet the requirement to keep your vehicle. 

If you have overdue payments or equity you are unable to protect, you may be better off filing for Chapter 13 bankruptcy. You can catch up on your payments with the repayment plan and maintain possession of the car. 

If you are concerned about your transportation options or have questions about a vehicle repossession, an experienced bankruptcy attorney can give you the information you need. Gulf Coast Bankruptcy Attorney is dedicated to providing residents of the Gulf Coast with the resources necessary to make informed decisions about their financial future.