What is Bankruptcy Exemption Planning?

 

The main purposes of the bankruptcy laws are to:

  • Give an honest debtor a “fresh start” by relieving the debtor of most debts, and
  • Repay creditors in an orderly manner to the extent that the debtor has property available to do so.

One of the primary ways that the bankruptcy law attains its goal of providing debtors with a “fresh start,” is by providing debtors with certain “exemptions” that protect their property from creditors and put it beyond the reach of the bankruptcy trustee.

Bankruptcy exemption planning is the process of making deliberate choices concerning a debtor’s property before filing bankruptcy, to maximize the exemption protections provided by the bankruptcy law.

Warning: Bankruptcy Exemption Planning Can Be Dangerous.

Most people who file for bankruptcy do not lose anything they own because they often file a Chapter 7 bankruptcy and everything they own is “exempt.” Or, if they have non-exempt property, they file a Chapter 13 and are able to use its “adjustment of debts” option to protect their “non-exempt” assets. But bankruptcy is not a “one size fits all” proposition, so this isn’t always the case. Sometimes a debtor may have assets that are not exempt, but cannot be protected well through a Chapter 13. That’s when exemption planning can be very beneficial.

That is not to say that exemption planning is simple. It isn’t. It consists of developing strategies for managing and positioning your assets before you file for bankruptcy so those assets are protected once you do file. Those strategies may better enable you to pay certain creditors that you want to pay, or need to pay, over others that you don’t. But there are risks associated with exemption planning. Because of the dangers associated with exemption planning, especially over-aggressive planning, bankruptcy exemption planning should always be undertaken with the assistance of experienced and informed bankruptcy counsel.

As noted above, one of the main tenants of bankruptcy law is that honest debtors should be allowed to discharge their debts, and the law provides exemptions to allow them to do so. On the other hand, bankruptcy is not meant to benefit dishonest debtors. Section 727(a)(2) of the Bankruptcy Code prohibits any debtor who attempts to defraud creditors by transfers of property, from being discharged. Clearly, then, there is a tension in the law with regard to how much you are allowed to sell or transfer before filing for bankruptcy. To properly engage in exemption planning, you will need the advice of an experienced and highly competent bankruptcy attorney to guide you as to the safest way to engage in asset protection and other strategies, and to inform you on which strategies are likely to be safe, and which are risky.

Don’t Go it Alone!

If you have assets that are not exempt but can’t be protected well through Chapter 13, or are simply considering filing bankruptcy, you may well benefit from pre-bankruptcy planning. If you are in Portland, Eugene, Coos Bay, Medford, or any other city in Oregon, we have an office near you, and we provide free initial case consultations. To schedule an appointment, give us a call or send us an email.

Can Filing a Chapter 7 Bankruptcy Stop Foreclosure?

The worst has happened. You’ve fallen behind on your house payments, and the bank has started foreclosure proceedings. First you got the Notice of Default. Now you’ve been served with the Notice of Sale, telling you that the bank has set a date for the sale of your home. What can you do? Should you file a Chapter 7 bankruptcy to stop the foreclosure?

Maybe, but then again, maybe not. Foreclosure laws differ from state to state and they are very complicated. Whether a Chapter 7 filing is right for you depends on your particular circumstances. However, if you are facing foreclosure, it’s important that you understand at least some of the basics, including the difference between a judicial foreclosure and a nonjudicial foreclosure, and:

  • how much time you have to respond to the notices,
  • what your rights are and what laws protect you in foreclosure, and
  • what happens afterwards (for example, whether you’ll be liable for a deficiency judgment).

Filing a Chapter 7 bankruptcy can temporarily stop the sale of your home (because of the “automatic stay”) but that does not mean it will ultimately save your home from foreclosure. Whether a Chapter 7 is the right option for you is something that you should discuss with a bankruptcy attorney. Here at OlsenDaines, our bankruptcy attorneys know the options and care about the outcome. That’s why we offer free consultations, so we can sit down with you and help you decide what is the best approach for you and your family.

While a Chapter 7 will give you the benefit of the automatic stay, bringing the foreclosure to a halt until discharge or the stay is lifted, unlike a Chapter 13 bankruptcy, it will not allow you to catch up on missed mortgage payments. That’s because a Chapter 7 is a liquidation bankruptcy designed to discharge (wipe out) unsecured personal debts (e.g., credit card debt and medical bills).

Chapter 7 Will Erase Personal Liability on the Note, But it Won’t Eliminate the Lien.

When you took your loan from the bank, you signed a Promissory Note (“Note”) agreeing to repay the money. And you secured that promise with a Deed Of Trust (“Deed”), creating a lien on your property. Chapter 7 will wipe out the amount you still owe on the Note, but it won’t wipe out the mortgage lien. That means that if you are behind in your payments on your mortgage, your lender can foreclose on your property. It also means that the lender can continue a foreclosure that was delayed by your bankruptcy once you are discharged or a relief from the automatic stay (“relief from stay”) is granted. The same thing applies to other liens on the property; like homeowner association liens, or condominium liens.

No Deficiency.

On the other hand, the lender cannot get a deficiency judgment against you after a nonjudicial foreclosure. (A deficiency is the difference between the amount you owe on the loan and what the house sells for at the nonjudicial foreclosure sale.) In many states, absent a bankruptcy, the lender can come after the homeowner for this amount. Oregon laws prevent a lender from getting a deficiency judgment after a nonjudicial foreclosure, a judicial foreclosure of a residential trust deed, or a short sale (if certain conditions are met). But Oregon does not have laws about deficiency judgments where a deed is given in lieu of foreclosure (“deed in lieu”). That means you need to be careful if you accept a deed in lieu of foreclosure, because the specific language of the deed in lieu negotiated between the borrower and the bank will govern whether or not the lender can seek a deficiency.

Talk to a Lawyer!

Losing your home to foreclosure is stressful and can be devastating. The foreclosure laws are complex and confusing. If you are facing foreclosure or struggling with debt, take advantage of our free consultation and talk to one of our experienced Oregon or Washington bankruptcy attorneys. We can help you decide what course is best for you and your family. Call us at 1-800-682-9568 today!

What Role Does Your Attorney Play in Filing for Bankruptcy

Bankruptcy is a complex process that begins before the time you file and goes straight through to the debt discharge and the period when you will begin the process of rebuilding your credit. An experienced bankruptcy attorney can help you navigate the maze of decisions, paperwork, procedure, and compliance that goes along with a bankruptcy filing.

From the beginning, your bankruptcy attorney is there to determine the right course for you and your specific circumstances. We assess your financial situation, help you to determine your financial goals, and discuss the options that are available and most appropriate for you. We can also begin taking collection calls and other creditor communications on your behalf.

One of the main tasks your bankruptcy attorney will undertake for you is the preparation and filing of your bankruptcy petition. These forms are exhaustive, and often run to 30-60 pages or more. The attorney will ensure that the forms are filled out completely and accurately in compliance with the applicable state law. Once you have reviewed the information, your bankruptcy attorney will file the finalized, signed version with the bankruptcy court.

A bankruptcy attorney will also help you determine whether a Chapter 7 or a Chapter 13 bankruptcy filing is right for you. This involves you and your attorney assessing the size and makeup of your debt, what assets you are willing to risk in a bankruptcy, and your ability (if any) to repay your debts. When you have an initial consultation with a bankruptcy attorney, here are some of the key points to go over:

  • How you can leverage bankruptcy to achieve your financial goals
  • What you can expect during the bankruptcy process
  • Any difficulties or issues specific to your case
  • Whether you should file for Chapter 7 or Chapter 13
  • What can be done to make the bankruptcy process easier for you

 

 

What You Should Not Do Before Bankruptcy

Before filing for bankruptcy, there is a significant amount of preparation that you should take to ensure that nothing adversely affects the bankruptcy process. An experienced bankruptcy attorney is an invaluable resource when determining what steps you should take to prepare. Some actions can have a negative, or even irreversible, effect on your bankruptcy. Here are some common mistakes to avoid.

When you’re filling out the bankruptcy paperwork, and at the creditors meeting, it’s essential that you provide complete and accurate information about all assets, debts, income, expenses, and anything else pertaining to your financial history. You are doing so under the penalty of perjury. To knowingly misrepresent any of this information is to risk criminal prosecution. Fill out the paperwork carefully. Make sure you answer all the questions and include all the information requested; only leave something blank if you’re sure it doesn’t apply to you. If you leave something out that should have been included, it can cause problems later on in the bankruptcy process.

It’s also crucial to have filed your income tax returns. If you have not filed your returns for a minimum of two years prior to filing for bankruptcy, it makes completing your petition, schedules, and statement of financial affairs extremely difficult. Furthermore, it can effectively bring the bankruptcy process to a halt. Your tax returns are necessary to determine your past and current earnings and asset holdings, and to satisfy potential priority tax claims.  Under chapter 13 the court and trustee will require all returns that you were required to file within the previous four years be filed within the first couple of months of the case.  If you fail to do so the court can dismiss the case.

Do not run up any additional debt within the 70 to 90 days prior to filing for bankruptcy. If you do, the creditor(s) can object to your discharge on the grounds that you ran up the debt fraudulently (that is, without any intention of paying it back). A possible exception is if you took out a payday loan as part of a cycle of cash advances and repayment. An experienced bankruptcy attorney can help guide you through the process of preparing for bankruptcy to ensure that your filing goes smoothly.

 

 

Can Bankruptcy Keep You From Getting a Personal Loan?

After filing for bankruptcy, many people despair that they’ll never be able to get a personal loan. The good news is that this is by no means the case. In fact, while the bankruptcy can stay on your credit report for up to ten years, you can still begin the process of rebuilding your credit immediately after you file. There’s no reason why you can’t get back into a position to qualify for a personal loan after your bankruptcy. Here are some important steps you can take to make this process as fast and efficient as possible.

  1. Keep track of your credit reports

There is no question that a bankruptcy will hurt your credit. However, your credit can begin to rebound right after you file. In fact, the debt discharge might make you more credit worthy from the get-go by improving your credit-to-debt ratio. To ensure that this process is underway, check that the three major credit reporting agencies are correctly showing your bankruptcy. Make sure that all accounts involved in the bankruptcy process show a zero balance and are labeled as “discharged.”

  1. Rebuild a positive payment history

It’s crucial that, following the bankruptcy, you pay all your bills on time every time a payment is due. A good strategy is to keep one account open, but maintain it with a zero balance. Once a month, make a few purchases; then promptly pay off the balance.

  1. Try a secured credit card

If you’re having trouble opening a credit account following your bankruptcy, you might consider a secured credit card. These are cards designed for people with poor credit to begin the credit rebuilding process. They require you to deposit cash as collateral which then becomes the credit line. When applying for any new credit post-bankruptcy, be careful that you don’t overdo it. It’s crucial to avoid the past behaviors or patterns that may have contributed to the bankruptcy.

 

 

Bankruptcy and Divorce

Divorce is one of the big three reasons people file for bankruptcy (medical and job loss are the other two).  The interplay between these two areas of law can be complicated.  To make the right decision in terms of if and when to file for bankruptcy in the context of divorce, you need to know how bankruptcy can affect divorce and vice versa.

Generally, it makes the most sense to file for bankruptcy before getting a divorce. Since bankruptcy fees are the same for both joint and individual filings, you and your spouse can save money on fees by declaring bankruptcy while still married. Furthermore, attorney fees will likely be lower if you file jointly (make sure your bankruptcy attorney is aware of the upcoming divorce to avoid any conflict of interest).

Regarding Chapter 7 vs. Chapter 13, it is usually a better idea to file for a Chapter 7 bankruptcy before a divorce. A Chapter 7 bankruptcy filing will usually take only a few months to receive the debt discharge. A Chapter 13, however, will run for three to five years. Since this process drags on, if you want to file for Chapter 13 it is usually better to do so after the divorce.

Filing for bankruptcy before also simplifies the property division process that will take place during the divorce. However, this is only the case if you live in a state that allows for enough exemptions to protect all of your joint property. Some states allow you to double the exemptions if you file for bankruptcy jointly. If you can’t double the exemptions, it might be a better idea to file individually after the divorce. Check with your bankruptcy attorney to clarify what your state will allow.

Also, when deciding when and if to file for bankruptcy before/after a divorce, keep in mind that certain debts are not dischargeable. Non-dischargeable debts include: alimony, child support, student loans, and attorney fees related to child custody or support cases.  If possible, consult with a bankruptcy attorney before starting the divorce proceedings to get the best course of action (if the petition for divorce has already been filed then each party will need to consult with their own bankruptcy attorney).

Pros and Cons to Chapter 13 Bankruptcy

For people who are ineligible for Chapter 7 bankruptcy, or wish to repay their debts using a repayment plan, filing for a Chapter 13 bankruptcy can be a great option. The following are some pros and cons to declaring a Chapter 13 bankruptcy.

Pros:

  • While under Chapter 13 the repayment of debts generally take place over a longer term, it’s often an advantage to have more time to budget and make disciplined payments; there can also be more flexibility on the payment terms in the context of Chapter 13. Furthermore, once you have successfully completed the Chapter 13 repayment plan, creditors cannot then obligate you to pay them in full.
  • While you can only file a Chapter 7 bankruptcy once every eight years, you can file for Chapter 13 repeatedly (every two years) if you need to (though each additional filing will show up on your credit report).
  • A Chapter 13 bankruptcy is noted on your credit score for up to seven years, while a Chapter 7 bankruptcy will remain for ten years.
  • If during a Chapter 13 repayment plan you experience a sudden and significant financial hardship like losing your job or accumulating medical bills, your bankruptcy trustee can modify the repayment plan. The court may even allow a debt discharge due to hardship.

Cons:

  • You limit your Chapter 7 options. You cannot file for a Chapter 7 if you previously filed under Chapter 13 within the last eight years.
  • A Chapter 13 repayment plan can take a long time (up to five years in some cases).
  • Since you will be repaying your debts out of your post-bankruptcy disposable income, you will have cash tied up throughout the duration of the repayment plan.

Your debts could be too high to qualify for Chapter 13. If your secured debts exceed $1,184,200, you will be ineligible for a Chapter 13 bankruptcy.

How Do I Get Credit After Filing for Bankruptcy?

One of the fears many people have over filing for bankruptcy is that they won’t be able to get credit afterwards. This is simply not the case. While declaring bankruptcy will hurt your credit score, there are strategies for rebuilding your credit immediately after filing.  Most chapter 7 clients begin receiving credit offers within 30 days of filing the case!

Right from the start you might be a more attractive prospect to a lender, since you have just dramatically reduced your debt-to-income ratio (at least in the case of Chapter 7; in a Chapter 13 this process will take longer, but it will happen). Those who have filed for a Chapter 13 bankruptcy will benefit from the discipline of being on a repayment plan. This will also help in the long-term process of rebuilding credit.

It is important after filing for bankruptcy that you closely monitor your credit reports and credit score. Make sure you get a copy of your credit report from the three main credit reporting agencies: Equifax, Experian, and TransUnion. Go over the reports and look for errors and omissions regarding your current residence, employment and contact information. Some experts recommending avoiding credit repair agencies. Not all of them are above board, and even the reputable ones may not be able to do much that you cannot do yourself.

Another way to immediately begin rebuilding your credit score following a bankruptcy is to open a secured credit card account. A secured card is a credit card that requires a cash collateral deposit which then becomes the credit line for that account. After a period of timely payments, the bank will sometimes reward you by increasing your credit line without you having to make an additional deposit. The best way to utilize a secured credit card is to make a few purchases every month and then pay them off in a timely manner. Don’t carry a balance around on the card. OlsenDaines provides all our clients with a free credit rebuilding program, an invaluable resource in helping you make a plan for rebuilding your credit.

 

 

5 Myths About Bankruptcy

There are many myths and misconceptions surrounding the bankruptcy process. When making the decision whether to initiate the bankruptcy process, it’s important to be able to separate fact from fiction. Here are 7 of the most common myths surrounding bankruptcy.

  1. Bankruptcy will ruin my credit.

For many people considering filing, this may be a moot point as they likely already have a low credit score. In any event, filing for bankruptcy can actually sometimes improve your credit score. As far as your credit report goes, a Chapter 7 bankruptcy will show on the report for 10 years. Again, this may not be a bad thing. Borrowing opportunities may actually increase when prospective lenders see that you filed and are in the process of rebuilding your credit.

  1. I make too much to file for bankruptcy.

Even if you’re taking home more than your state’s median income, you may still be eligible for Chapter 7 bankruptcy. To qualify for Chapter 7, you need to pass a mean test. Basically, this entails that if you have a certain amount of cash left over after subtracting your expenses from income you will be denied. However, you may very well have significant expenditures that outweigh your income. This is where a good bankruptcy attorney comes in; your attorney can prove your need for bankruptcy relief in spite of your income.

  1. I’d be better off paying all of my debts.

While filing for bankruptcy is undoubtedly a serious financial step to take, it may still be the right one. The easing of financial stress and the sense of “wiping the slate clean” can provide a huge sense of relief. According to Time’s Money column,

“If your debts are more than 50% of your annual income and you see no way to pay them off within five years, bankruptcy is likely your best path toward living debt-free.”

  1. Filing for bankruptcy means I’m lazy or a deadbeat.

Many people buy in to the myth that bankruptcy is a personal failing. In fact, bankruptcy is simply a tool that can help people regain control over their financial state. Many people who file for bankruptcy have exhausted all other options in trying to resolve their debt problems. With stagnant wages and medical costs that continue to sky rocket, the truth is that bankruptcy is nothing more or less than a remedy for a specific set of financial conditions that can happen to anyone.

  1. If I file, I’ll lose everything.

The truth is you may be able to keep a lot more than you think. The majority of Chapter 7 bankruptcies are no-asset cases where the debtor doesn’t have to give up any possessions. In these cases, you are allowed to carve out exemptions for basic assets that are necessary for your daily life. This can vary depending on the state; for people in Oregon or Washington, your best bet is to contact a reputable bankruptcy attorney in your state to learn more.

What Debts Do You Still Owe After Bankruptcy?

Filing for Chapter 7 bankruptcy is a way for people overwhelmed with debt to get a fresh start on their finances. A debt discharge under Chapter 7 releases the debtor from personal liability for most debts. However, there are some debts that do not fall into this category. Depending on the circumstances, there are some bills that you must (or should) continue to pay.

The basic Chapter 7 timeline is as follows:

  • Mandatory credit counseling
  • Filing of papers to begin the bankruptcy process
  • Creditors’ meeting held about a month after the papers are filed
  • Mandatory budge counseling within 60 days of the creditors’ meeting
  • 60 days after the creditors’ meeting the court will send a written discharge of your debts

For most debtors the discharge order wiping out debts will be entered automatically. Once the discharge has occurred, creditors cannot initiate or continue any actions against the debtor to collect a discharged debt. This includes telephone calls, letters, and any other personal contact.

The following debts may not be discharged under Chapter 7:

  • Alimony and child support
  • Educational loans made or guaranteed by the government
  • Debts for willful or malicious injuries to another person or another person’s property
  • Debts involving death or personal injury resulting from the debtor’s operation of a motor vehicle while intoxicated
  • Debts for certain criminal restitution orders
  • Debts the debtor did not set forth in the bankruptcy filings to the court
  • Debts owed to certain tax-advantaged retirement plans
  • Debts for certain condominium or cooperative housing fees

It’s worth noting that the debt discharge under a Chapter 13 bankruptcy is slightly broader than Chapter 7. The following debts may be dischargeable under Chapter 13, but not Chapter 7:

  • Debts for willful or malicious injury to property
  • Debts involving property settlements in divorce or separation proceedings

If you would like to discuss your situation with one of our licensed bankruptcy attorneys, our doors are wide open. We offer free consultations to people throughout the state of Oregon, and we also have offices in Vancouver, and Tri-Cities in Washington. To schedule an appointment, send us a message through our contact page.