July 27, 2010

Bankruptcy and the "co-debtor" stay

If someone "co-signs" a contract in order to help a friend or family member get a loan, that co-signer is legally liable to pay the debt and his or her credit report will reflect that.

What if the borrower files for bankruptcy? A few important points:

1. The cosigner is considered a codebtor both inside and outside of bankruptcy.

2. The creditor can legally pursue the codebtor for payment even if a chapter 7 bankruptcy is filed. There is no automatic stay protection for the codebtor in a chapter 7 bankruptcy.

3. The creditor can only pursue a codebtor if the borrower files a chapter 13 bankruptcy case in certain circumstances, as follows:

a. The case is over and the debt wasn't paid in full during the plan.
b. The codebtor is the one who received the consideration for loan i.e. actually owns the car.
c. The loan isn't being paid back during the plan.
d. The creditor can convince the Judge that it's interests will be "irreparably harmed" by continuation of the codebtor stay.
e. If the debt arose in the ordinary course of business and is not a consumer debt.

If you are considering bankruptcy and have a codebtor, you should speak to your attorney about the effect the bankruptcy filing will have both on the codebtor's credit and requirement to pay the debt.


Posted by Michael S. Anderson | | Email This Post

Posted In: Bankruptcy Basic Questions , Bankruptcy Discharge

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September 17, 2009

What is a bankruptcy discharge?

The typical consumer files a bankruptcy case in order to obtain a "discharge" of overwhelming debt. An unfortunate word that is used to describe what for many is a life changing "event". Why?

When a debt is "discharged", the obligation of the debtor to pay it, no longer exists. The obligation is simply gone...poof. It is government intervention in the realm of private contract relationship at it's "finest", and with some careful planning and preparation, it works like a charm.

Having said that, this powerful discharge has it's limits.

1. It doesn't deal with every debt. Some debts cannot be "discharged" by statute, like child support, newer income tax debt, spousal maintenance etc.

2. Even though the personal liability may no longer exist as a result of the "discharge", liens recorded against the debtor's property, may survive the bankruptcy unless they are modified or removed.

3. You can't get very many of them too close together. There are time limits that prevent "serial" bankruptcy filings and thus too many discharge "events". The creditor has to have some time to collect the debt between discharge dates.

4. Not everyone needs bankruptcy for purposes of obtaining a discharge. Some need it for other reasons, like saving a home from foreclosure or restructuring the repayment of debt. These people don't care as much about the discharge as others.

For those debts like credit card, repossession related, old income tax and medical bill debt that are typically governed by it, not only are they "gone", the discharge acts as a "permanent injunction" or a court order at the close of the case, against those same creditors. It replaces the "automatic stay".

If the creditor continues, post discharge, to attempt collection, that order is being violated, and can result in "punishment" for the offending creditor. Possibly even "punishment" in the form of money to the debtor.

If you have overwhelming debt, have been losing sleep consistently over it, and see no way to pay it in a reasonable amount of time, you probably need to "aquaint" yourself with the "discharge" provisions of the U.S. Bankruptcy Code.

Posted by Michael S. Anderson | | Email This Post

Posted In: Bankruptcy Basic Questions , Bankruptcy Discharge

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February 17, 2009

Can I File For Bankruptcy in Arizona and Discharge a payday loan?

Debts owed to payday lenders can be wiped away in bankruptcy.

The real issue is not the fact that they can. It is that once the consumer reaches a point that a very high interest payday loan is necessary, there is usually a serious income and budget problem. A problem that if it hasn't already done so, will lead to other debt, repossessed car(s) and even foreclosure.

If you feel like a payday loan may become necessary, do everything you can to avoid it. Payday loans and credit cards, for that matter, should only be used in emergency situations.

If it is too late and you are in over your head, talk to an experienced bankruptcy attorney.

Posted by Michael S. Anderson | | Email This Post

Posted In: Bankruptcy Discharge

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January 31, 2009

What is a Chapter 13 Bankruptcy "Discharge" in Arizona

The goal of most bankruptcy cases, be they of the chapter 7 or chapter 13 variety, is reduction in debt. Reduction of debt occurs in a bankruptcy at the end of the successful case and is called a "discharge".

If a debt is "discharged" legally, the debtor's obligation to pay is ended.

In a chapter 13 bankruptcy there are two types of bankruptcy discharge.

1. A "completed plan discharge" which is granted to a debtor who has...completed the plan. Surprising to many as well, is that a chapter 13 plan does not require that all debt be repaid. More often than not, the chapter 13 debtor in Arizona, only ends up paying a small fraction of unsecured debt during the plan and the rest is...discharged.

and

2. A partial discharge. This type of discharge is granted to the debtor who does not complete the plan. What??? you ask. I can file a chapter 13 bankruptcy, not complete the plan and still obtain forgiveness of debt? Yes. If the debtor is unable to complete payments for reasons for which they "shouldn't be held responsible".

This type of discharge is more commonly called a "hardship" discharge. This hardship discharge gets rid of fewer types of debts than does the full discharge.

Posted by Michael S. Anderson | | Email This Post

Posted In: Bankruptcy Discharge , Chapter 13 Bankruptcy

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