How many times in life have we wished that we could extend adeadline? Section 108 of the Bankruptcy Code, under certain circumstances,allows us to do just that.Section 108(a) extends any statute of limitation to commencean action that the debtor could have taken before the filing of the bankruptcypetition for two years after the date of the bankruptcy filing, unless it wouldexpire later under applicable non-bankruptcy law.  Section 108(b) is applicable when there is a time limit setfor taking certain actions, such as the filing of pleadings or claims, and thatperiod has not expired before the date a bankruptcy petition was filed.  Under § 108(b), a bankruptcy trustee is given60 days to take actions not covered under § 108(a), such as filing a pleading,a demand notice, or proof of claim or loss (such as an insurance claim).  Section 108(b) also extends the time tocommence an administrative proceeding or file a notice of appeal. Section 108(b) does not apply to time periods inactions against a debtor.  Such actionsare stayed by § 362 of the Bankruptcy Code and may proceed only when the stayunder the applicable sections of the Bankruptcy Code terminates.  Therefore, in a Chapter 11 bankruptcy case,deadlines that have not expired prior to the bankruptcy filing may be extendedfor an additional 60 day period.  In Canney v. Merchants Bank (In re Canney), 284 F.3d362 (2002), the Second Circuit (which includes New York) held that when thereis a foreclosure sale and the debtor has a certain amount of time by law toredeem the property, the debtor’s rights to the property are controlled by §108(b), and extend the redemption period for a maximum of 60 days. Section 108(c) provides that if a non-bankruptcy claimagainst the debtor is stayed due to bankruptcy, any deadline for commencing orcontinuing the action is extended to 30 days after notice of thetermination of the stay, if the deadline would have occurred on an earlier date(if a party does not receive notice of the termination of the stay, the 30 daysnever begins to run).  For more information about how bankruptcy affects deadlinesin legal actions, please contact Jim Shenwick.

The average student loan debt is $40,000, amortized over 30 years. Many debtors are forced to make monthly payments in excess of $1,000, which is comparable to a mortgage payment. Bankruptcy laws were enacted to provide assistance to people suffering from overwhelming financial debt, but little help is offered to those burdened with student loans.Student loans are extremely difficult to discharge through bankruptcy. Under Chapter 7 bankruptcy, essentially all debts are discharged, with the exception of student loans and other debts such as support obligations or recent taxes. A debtor seeking discharge of a student loan must prove that payment of the debt will impose an undue financial hardship.Most Bankruptcy courts apply the Brunner test to determine the discharge of student loans. The Brunner test, based on a 1987 U.S. Court of Appeals decision, sets forth three criteria to measure undue financial hardship:•             The debtor will be unable to maintain a minimal standard of living, based on current income and expenses, if forced to repay a student loan.•             Circumstances exist indicating that the debtor’s financial situation is likely to continue for a significant portion of the student loan repayment period.•             The debtor has made good faith efforts to repay or renegotiate the terms of the student loan.Since the Brunner decision was rendered, undue hardship has become the only factor considered in a bankruptcy discharge of student loans. Bankruptcy courts may interpret the criteria of the Brunner test differently. Some courts view a minimal standard of living as below the federal poverty level, which makes it increasingly difficult for a debtor to prove undue hardship. After a debtor has exhausted all attempts at increasing income and reducing expenses to a bare minimum, student loan lenders continue collection efforts.A bankruptcy discharge of student loans involves an adversary proceeding, which is separate from the bankruptcy case. During the proceeding, some courts use a “totality of circumstances” test for determining undue hardship. Under this test, the courts evaluate the following factors:•             the debtor’s current and future ability to pay the student loan;•             whether the debtor has made a good faith effort to negotiate a deferment or forbearance;•             whether the debtor’s financial hardship is likely to be a long-term situation;•             the debtor’s payment history on the loan prior to default;•             whether the debtor suffers from a serious illness or permanent disability;•             the debtor’s ability to obtain gainful employment in his or her field of study;•             whether the debtor has attempted to increase income and significantly reduce expenses;•             whether the debtor’s primary purpose in filing for bankruptcy is based solely on the discharge of student loans; and•             the ratio of student loan debt to total debts.If a debtor is able to convince the court that he or she suffers from undue hardship, student loans can be discharged in Chapter 7 bankruptcy. In the unfortunate event that a debtor’s student loans are not discharged, private lenders may be willing to negotiate a reasonable payment plan based on the debtor’s current income. Private lenders may waive penalty charges and late fees. It may be possible to negotiate a lower interest rate and extend the term of the loan, which would reduce the monthly payment.Federally-funded student loans are the most difficult to discharge in bankruptcy. Federal collection agencies have the power to seize tax refunds, garnish wages, bank accounts and federal benefits, such as Social Security. Bankruptcy courts will not discharge federal student loans unless special circumstances exist. Since there is not a statute of limitations on federal loans, collection efforts can continue throughout the life of the debtor.A debtor with a regular monthly income may be better served by filing a Chapter 13 bankruptcy. Under this type of bankruptcy, student loans are treated the same as all debts. The debtor makes one monthly payment to the court, which is distributed proportionally among all creditors. Under Chapter 13, the debtor can either continue paying his monthly payment towards the student loan or treat the student loans similar to all other unsecured debts, such as credit card debt. If the chapter 13 plan does not pay anything to unsecured creditors, nothing will be paid to student loans. Following completion of the payment plan, student loans are still owed and collection efforts may resume. After completion of a Chapter 13 plan, it may be possible to renegotiate the terms of the remaining balance. In the alternative, a debtor can attempt to discharge the remaining balance based on undue hardship. Under the Brunner test, completion of a Chapter 13 reorganization plan satisfies the good faith effort to repay the student loan.

Someone co-signed a car for me. What are my options? You were in a bind, needed a co-signer and someone (a family member or friend) was willing to co-sign on a vehicle for you. Now you are in financial trouble and will be filing bankruptcy. The last thing you want is to negative effect that person’s credit after they did a favor for you. The effect on their credit depends greatly on what your intentions are with the vehicle? Are you keeping it and paying it back as you agreed? Are you keeping it and paying it over a longer period of time through a Chapter 13? Are you surrendering the vehicle? In a Chapter 7, in order to not allow the vehicle loan to negative impact the co-signers credit, either you or the co-signer need to pay the loan as it was originally agreed on the loan agreement. If you surrender the vehicle through the bankruptcy, this makes you no longer legally liable for the debt. However, the co-debtor IS still liable for the debt meaning that the creditor can still go after the co-signer to collect the debt unless the co-debtor also files bankruptcy. Also keep in mind that if the debt is not paid, they can repossess the car. In a Chapter 13, the effect on the co-debtor is dependent on whether the credit is receiving payments through the Chapter 13 plan. If they are, then the co-debtor will not be negatively affected due to co-debtor stay so long as you are making the Chapter 13 plan payments and the creditor is receiving payment. If however, you are either not listing the creditor for the vehicle as being paid through the plan OR you are not making your Chapter 13 plan payments, the creditor can file a motion for relief from automatic stay as well as relief from co-debtor stay. If this is granted, they can then try to collect from the co-debtor.Regardless of which route you decide to take, the co-debtors credit report can show that co-debtor (you) filed bankruptcy. In short, liability of co-debtors can be complicated. If you have questions in regards to this, you will want to consult an attorney.

What happens if I get behind on mortgage payments while I am in a Chapter 13?You made the decision to file a bankruptcy and decided to keep you home. You file a Chapter 13 and are making your mortgage payments and your Chapter 13 plan payments as scheduled. Something comes up and you get several months behind on the post-petition mortgage payments. Now what? Several things will happen…First is that the attorney for the mortgage company will likely contact your attorney let you know that payments are delinquent. If this happens, the attorney should contact you advising you that payments needs to be brought current. However, this step of a “warning” from the mortgage company is not required and does not always happen. The next step (often times the first step), is that the mortgage company’s attorney will file a Motion for Relief with the court in your bankruptcy case. Essentially this is the mortgage company bringing notice to the court that you are delinquent on post-petition payments on your mortgage. They are also asking the court to grant the mortgage company relief from the automatic stay. In short, the mortgage company wants permission to be able to continue with a foreclosure process even though you are in a bankruptcy due to being delinquent. The motion for relief will set out a hearing date. 7 days prior to that hearing date a response must be filed by you or your attorney (if you are represented) stating your intentions, whether you intend to become current on the mortgage, etc. If not response is filed, the motion for relief will automatically be granted to the mortgage company 7 days before the hearing. Options1. Become Current: Respond to the motion and become current on post-petition mortgage payments before the hearing2. Stipulation Agreement: Depending on how far behind you are on your mortgage, you can ask the mortgage company to allow you to enter into a stipulation agreement. This stipulation agreement usually requires some sort of down payment and spread the delinquent post-petition mortgage payments out over 6 months. This may sound like a great option, however, be aware that you now have 1) ongoing mortgage payments, 2) chapter 13 plan payments, and 3) a stipulation payment. 3. Surrender the home: If at this point you realize you cannot maintain payments on the mortgage, you can allow the Motion for Relief to be granted and surrender the home through the bankruptcy.  The decision to file bankruptcy and the decisions related to any motion for relief in a bankruptcy are important and should not be made based on this article. You should seek legal advice before making a decision.

Why should I help my competitors? That was the query of a highly experienced bankruptcy lawyer I met at the Northern California Bankruptcy Forum last week. I heard the same push back on one of Jay Fleischman‘s listserves from a participant who didn’t want to share with others in his professional community an upcoming education opportunity. “I don’t want my competition to improve”. I can think of a number of reasons I want the lawyers around me to raise the standard of bankruptcy practice. Cross fertilization:  my skills are sharpened watching and opposing good lawyers The public is better served by a skillful bar Good lawyers don’t willy nilly make bad law The higher the quality of the practice the less likely we get petty and unnecessary rules, regulations and oversight from outside I’m confident that I can compete with those I’m helping. What do you think? Image courtesy of shaggy359.

During the three to five years that you're making payment on your Chapter 13 bankruptcy, you can incure new debt only with permission from the bankruptcy court. This provision is there to prevent the debtor to jeopardize the success of the chapter 13 plan by incurring new debt which might be to high to repay. Sometimes it is necessary to purchase a new or used car. For example, if your car breaks down and there's no other way to get to work, or you wish to trade in your current car and get a more reliable and better car. There is no requirement that one has to drive an old unreliable vehicle while in bankruptcy. As long as the new vehicle is reasonable and would not be considered a luxury vehicle, like a new Porsche, the motion to incur new debt is normally approved it it is necessary and reasonable. You can purchase a new or used car during your chapter 13 bankruptcy case. There's a process you have to follow. In most cases the car creditor requires an order from the court allowing you to purchase a new car. The process below is for the St. Louis Metro area (Eastern District of Missouri). The process might be different in other districts. The first step is to make sure you can afford the car payment. Schedule I and J, these are the schedules in your petition which list your income and expenses, must show that you can afford the new car payment. You and St. Louis your bankruptcy attorney will need to look at your current income and expenses to make sure that there is sufficient money in the budget to pay the plan payment and the new car payment. You might have to reduce expenses on other items such as clothing or miscellaneous expenses to ensure the budget is balanced. However, you cannot make up numbers, but you can reduce your expenses if it becomes necessary. Your expenses must be reasonable. Food of $30 for one person without any other income such as food stamps or contributions from family members are most likely not reasonable and will draw an objection by the trustee. The next step will be for you to find a car-dealer who will sell you a car with a monthly payment that fits your budget. Our office works with a car-dealer who has a financing partner who is specialized in providing loans to people in bankruptcy. One might think that it is difficult to obtain a loan while in bankruptcy. That is not necessarily true. It depends on your credit. If your credit was low due to delinquent accounts before filing bankruptcy, it might be easier to obtain a car loan after filing because the negative entries on your credit report stop after filing for bankruptcy. The car loan will be paid directly to the car dealer, not to the trustee. The debt is incurred after filing and not part of the bankrutpcy plan. The third step is for your bankruptcy attorney to file a motion to purchase a new or used vehicle with the court. In that motion your attorney will have to state the whole loan amount, the monthly payment and the reason why you need to purchase the new vehicle. The motion should explain why a new or used are is necessary. If you don’t provide valid reason, the trustee will object to your motion. An acceptable reason is for example that your old car broke down, or requires so many repairs that it is not feasible anymore to repair the car and that it makes more economic sense to purchase a newer or even a new vehicle. If the trustee is not objecting and the court grants your motion, your bankruptcy attorney can now submit the order to the court. Within a few days, the court will file the order and you can purchase the car.What happens if the car I wanted to purchase was sold in the meantime?The motion filed by your bankruptcy attorney should describe the terms of loan and the specifc vehicle, it also should request permission to purchase a similar vehilce if the other car is not availabe anymore. Your then, not bound to one specific vehicle and have permission to purchase another vehicle with similar terms. Can I trade in my old car?Yes, you can but it is up to your car creditor to agree to it. Your car creditor has a lien on your vehicle and does not have to agree to the release of his lien.  It will be easier if the new car creditor is the same as your old car creditor because he would have a benefit from the trade in. After trading in your old vehicle, your car creditor will be paid directly by you and will receive the contract interest rate. Before, your car creditor received only a monthly payment by the chapter 13 trustee which stretched out over the length of the plan (usually 5 years) with the courts interest rate, currently 5.04%. Paying the car loan through the bankruptcy is benficial to the debtor because it lowers the monthly car payment and reduces the interest payments. We see sometimes contract interest rates of over 20%. But even if your new car creditor is not the same lender, you might be able to offer your old lender payment terms that are more beneficial to him. Trading in your old car, the old lender would receive a lump sum now, instead of waiting perhaps years for the money to be paid in full. He would be entitled to contract interest rate and full loan balance. The offer could be to pay more to the old lender than he would receive through the bankruptcy plan.When you trade-in, you still would need permission from the court and the old lender would have to agree to release his lien.Can I sell my car that has a loan balance?Yes, but you have the same problem as with trading in your car, the lien holder will need to agree to it. If you receive money after the lien holder is paid, you either will have to turn over the money to the trustee or your attorney need to file a motion to retain the money for necessary and reasonable expenses.After you trade in your car or sell it, your bankruptcy attorney will need to object to the claim filed by your creditor in your bankruptcy case because otherwise your creditor will continue to receive monthly payments from the trustee.Trading in your vehicle before filing for bankruptcy.There is no problem trading in your vehicle before filing of a chapter 13. It can cause a problem if you file a chapter 7 bankruptcy case, when the old vehicle was titled in both of your names and the new vehicle is now titled in the non-filing spouse's name only.  By letting the filing spouse's interest of the old vehicle go into the new vehicle owned by only the non-filing spouse, the filing spouse made a possible preferential or fraudulent (548 U.S.C) transfer the chapter 7 trustee can avoid. The argument that the first vehicle was exempt by the tenancy be entirety exemption, will not matter after the Eights Circuit decided end of 2011 in Re Lubar that the trustee can avoid such a transfer. Before transferring any property, talk to your bankruptcy attorney about it. 

How Is the Non-Filing Ex-Spouse Affected by Bankruptcy?Many individuals inquire whether they will be affected by their ex-spouse's financial issues.  Often, they are not affected, but there are circumstances where the financial issues can negatively impact the non-filing ex-spouse.  For instance, the question of whether a person's ex-spouse's bankruptcy can negatively affect their credit score often arises.  Usually, an ex-spouse's credit score is not affected by bankruptcy.  However, if the debtor and their spouse still have joint accounts, this may not be the case.  The person who files bankruptcy will no longer be liable under the debt, but their ex-spouse will be completely responsible for the debt, and the bankruptcy can show up on the ex-spouse's credit report.  Any debt incurred after the divorce will no longer be the obligation of the ex-spouse.  After divorce, it is very important to separate accounts and debts so the spouses are not responsible for the other's debts. Even if debt was assigned to one of the spouses through a divorce proceeding, the other spouse is still liable for the debt if both parties are listed as debtors.  A misconception many people make in the divorce process is thinking that as long as their ex-spouse is made responsible for the debt through the divorce judgment, they are free and clear of the debt, which is unfortunately not true.  If both parties are on the debt, the creditor can go after both parties.  What that means is that if one party files bankruptcy, they will no longer be responsible for the debt, but their ex-spouse will be.  When the creditor gets notice that one party has filed bankruptcy, they can call the ex-spouse to try to collect the debt.  They can also get civil judgments against the non-filing spouse and potentially garnish their wages and levy their bank accounts to satisfy the judgment.If spouses purchase a house together, both names often are on the house.  If that is the case, an ex-spouse may want to get their name taken off the mortgage and/or deed for the house if the house was granted to the other spouse through the divorce.  If that is not done and the party retaining the house falls behind on payments, the ex-spouse who no longer lives in the house can be responsible for late payments and for the deficiency in the case of foreclosure.If you have any questions regarding this matter, please contact a St. Louis or St. Charles bankruptcy attorney.

Ex-Spouses As CreditorsMany people file bankruptcy as a way to stop a judgment or garnishment from being entered against them or to lift the judgment or garnishment if one is already in place.  Most civil judgments can be included in the bankruptcy, and the creditors can no longer make any attempt to collect on the debt in most circumstances.  Many debtors question whether this same rule applies to judgments their ex-spouses may have against them and whether their ex-spouse can file a judgment against them in the bankruptcy. The protection the automatic stay guarantees through the bankruptcy proceeding would halt any judgment or potential judgment a person's ex-spouse may have against them or may attempt to place on the debtor.  However, there are exceptions to the automatic stay with regard to ex-spouses.  An ex-spouse should be listed in the bankruptcy schedules by the debtor like any other creditor.  Their name, address, amount, and consideration of the debt should be listed.  The ex-spouse would then receive notice from the bankruptcy court like any other creditor.  The ex-spouse would have the ability to file a proof of claim and submit it to the court per the proof of claim deadline listed in the notice.In a no asset Chapter 7 bankruptcy, the ex-spouse's claim will generally be discharged.  However, in a Chapter 13 where the debtor is paying back some of their debts, the ex-spouse may be paid all or a portion of their claim along with other creditors, especially if their debt is classified as priority. Certain debts are not able to be discharged through a bankruptcy and must be paid in full by the debtor, such as child support and maintenance/alimony.  The debtor's past due and current amount for these debts must be paid in full.  In a Chapter 13 bankruptcy, pre-petition back child support and maintenance amounts would be paid through the plan over a period of 36 to 60 months.  The debtor is also expected to maintain the current monthly child support and maintenance as well.  Since child support and maintenance are considered priority debts, they are paid before other unsecured creditors in a Chapter 13.  If the debtor does not believe the ex-spouse's proof of claim to be correct, they can file an objection, and a hearing may be necessary to determine the correct amount owed to the ex-spouse.If you would like more information about this, please contact a St. Louis or St. Charles bankruptcy attorney.

A motion to dismiss can be filed by a number of parties, including the trustee, a creditor, or even a voluntary motion to dismiss filed by the parties.  Here we will focus on motions to dismiss by the trustee.  This motion is basically the trustee asserting that the debtor(s) should not be allowed to continue with the bankruptcy case for some specified reason.  Often times the reason is for failure to make plan payments.  There is no hard and fast rule of how far you can be behind before the trustee will file a motion to dismiss, however, generally, the more you fall behind the more likely a motion to dismiss will be filed. If a motion to dismiss is filed your attorney will get notice of a response date.  If you want to continue in your case your attorney will need to respond by this date.  The response may be a variety of different things, most commonly that the debtor(s) plan to become current.  If this response is filed you will generally have a little bit of time to become current.  Your attorney can advise you on the specifics. If you do not become current by the deadline your case may be dismissed.  If your case is dismissed you have 14 days to become current and reinstate your case.  After this 14 days the order is final and you will not be able to reinstate your case.  It is important to remember that because payments must be made by money order in the mail, if you are sending your payment close to the deadline you may need to appear at a hearing in person to make the payment to the trustee.  It will not be sufficient to say that your payment has been sent, it will actually need to be received and processed by the trustee within 14 days.  You may incur court costs and additional attorney's fees if a motion to reinstate your case is necessary.The best course of action is to avoid a motion to dismiss whenever possible.  You can do this by making timely monthly payments.  You can also enter into a wage order, whereby your employer will send your monthly plan payment to the trustee.  This can be split in equal parts between however many paycheck you receive monthly.If you have further questions, or would like to speak with a St. Louis Bankruptcy Attorney, feel free to contact us today!

On occasion, there are circumstances that prevent a debtor from being able to continue making their chapter 13 payments.  In very limited circumstances, the debtor(s) may qualify for a hardship discharge.  If a debtor does qualify, the chapter 13 would be discharged without making any additional payments as if the plan was completed under the original terms.  Section 11 U.S.C. § 1328(b) provides that a debtor may qualify for a hardship discharge where:1. The debtor's failure, or inability, to complete plan payments is due to circumstances completely beyond the debtors control and through no fault of the debtor.  A common example of this would be an extreme medical condition or illness that affects income or your ability to produce income.2. The creditors have received at least the amount that they would have received in a Chapter 7 Case.  This is something you will want to speak with your attorney about.  The assets you have, types of debt that you have, and what you have already paid into your plan will be the determining factors for this qualification.3. Modification of the plan is not possible.  Again, this is something you will want to speak to your attorney about.  If it is possible for you to modify the plan or covert to a Chapter 7 that may be the more appropriate course of action.It is important to note that qualification for a hardship discharge is very difficult and simple changes in employment, changes in hours, or similar issues will not qualify you for a hardship discharge.  The other important issue to note is that the hardship discharge has a very limited applicability.  The hardship discharge will not discharge any debt that would not be dischargeable by a Chapter 7 Bankruptcy, including, but not limited to, certain debts owed to governments, domestic support obligations, and student loans.If you have any questions, or would like to speak with a St. Louis Bankruptcy Attorney, please feel free to contact us.