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Recent Blog Posts
Unfiled Tax Returns and Bankruptcy
If you’re considering filing bankruptcy, should you first prepare and submit any unfiled income tax returns? Should you prioritize paying them?
Our last two blog posts have been about what you should and should not do before filing bankruptcy. These are important to consider even if you hope to avoid bankruptcy but are sensibly admitting it’s possible.
So two weeks ago we focused on keeping, and not selling or giving up your:
- assets
- especially any retirement funds
- collateral on debts, such as your home, vehicles, or furniture
Last week we discussed whether to take on more debt to buy time and maybe avoid needing to file bankruptcy.
Today we look at whether you should file any unfiled income tax returns, and possibly prioritize paying unpaid income taxes.
The Quick Answer
In general you should:
More Actions to Take When Considering Bankruptcy
If you’re considering filing bankruptcy, what debts can you incur and which should you avoid? What are the possible consequences?
Two weeks ago we listed 5 crucial things you’d benefit from learning about if you’re thinking about bankruptcy:
- if bankruptcy is indeed the best option for you
- how Chapter 7, 11, 12, and 13 work, and whether one is right for you
- what actions you should take to position yourself for either a possible or definite filing
- what you should avoid doing
- the best timing for your bankruptcy filing
We covered the first 2 of these back then. Then last week we got into # 3 and #4, actions you should take and those to avoid before bankruptcy. We focused on keeping, and not selling or giving up your:
- assets
- especially any retirement funds
- collateral on debts, such as your home, vehicles, or furniture
Is Student Loan Debt Dischargeable in a Texas Bankruptcy?
Student loan debt is something that is becoming an issue in the United States. According to the latest statistics from Forbes, there are currently an estimated 45 million borrows who collectively owe about $1.56 trillion in debt for student loans. Of those, around 11 percent are delinquent on their loans, which means they are 90 days or more late on a payment. For many borrowers, student loan payments are expensive and they are struggling to make ends meet. Many have inquired as to whether or not student loan debt is dischargeable in bankruptcy, but the answer is not quite as simple as a "yes" or "no."
Is it Even Possible?
Many people believe that student loans are ineligible to be included in a bankruptcy and they would be correct -- but only in most situations. It is not impossible to discharge your student loan debt in a bankruptcy case, but it will make your bankruptcy more difficult because you will have to file an adversary proceeding to determine whether or not you are eligible to have your student loans discharged.
Paying Missed Mortgage Forbearance Payments
If you receive forbearance on your mortgage payments under the CARES Act, when do you have to catch up on those missed payments?
Last week we presented the new law allowing forbearance—skipping payments—on federally backed mortgages during the pandemic. Basically, if you’ve been financially affected by the pandemic you can request and receive a 6-month forbearance on payments. This can be extended another 6 months if the declared emergency continues at that point.
The obvious question this raises is when do these missed payments need to be paid. This is the topic of today’s blog post.
Major Confusion about Timing of Repayment
The CARES Act provided what is essentially a right to forbearance on federally backed mortgages. But CARES doesn’t say a word about the terms for payment of those payments missed during the period of forbearance.
How Are Monthly Payments Calculated in a Chapter 13 Repayment Plan?
Being unable to meet your monthly debt obligations can be a serious source of stress. Many people in this situation turn to bankruptcy as a possible solution. For some people who have a steady income, a Chapter 13 repayment plan may be the best option. Often referred to as the “wage earner’s plan,” this type of bankruptcy allows individuals to repay all or a portion of their debts over a period of three or five years. Each month, a single payment is made to the bankruptcy trustee, who then distributes the appropriate amount to each creditor.
Chapter 13 bankruptcies are popular with individuals who have secured debt attached to certain items that they want to keep, like a house or a car. This is because a Chapter 13 bankruptcy allows individuals to distribute any past due payments into the repayment plan so they can get caught up. While the draw of a Chapter 13 bankruptcy is present, most peoples’ first question is, “How much will my payments be?”
Pandemic Mortgage Forbearance
Mortgage delinquencies skyrocketed in April. One big reason: the pandemic CARES Act provided for extraordinary mortgage payment forbearance.
Epic Increase in Mortgage Delinquencies
The number of home mortgages that became delinquent in April was largest one-month increase in U.S. history. 1.6 million mortgages current in March were not paid in April, according to Black Knight, a mortgage data provider.
For some perspective, the percentage of all mortgages that became delinquent nearly doubled in that one month—from 3.39% to 6.45%. This percentage increase was also the largest in history. It broke the last record monthly percentage increase set in 2008, during the Great Recession. The April increase was nearly 3 times the monthly increase back then. This is in spite of the reality that the Great Recession was an epic mortgage crisis.
New Modified 7-Year Chapter 13 Plans
The coronavirus CARES Act temporarily allows ongoing Chapter 13 plans to be amended or "modified" to last a total of 7 years (instead of 5).
Last month we described the changes to bankruptcy law made by the coronavirus CARES Act enacted on March 27, 2020. One of those changes is the ability to extend the length of ongoing Chapter 13 payment plans. Until now these previously-approved plans could last from a usual minimum of 3 years to a maximum of 5 years. That maximum has now been extended to 7 years.
Longer Plans Can Be Very Helpful
Overall, longer Chapter 13 payment plans give you more flexibility. And greater flexibility is one of the main advantages of the Chapter 13 bankruptcy option.
Usually you want to finish your bankruptcy case as soon as possible to get on with life. But often having more time within Chapter 13 can be a huge benefit.
You choose Chapter 13 over Chapter 7 "straight bankruptcy" to meet a specific goal (or two). You’re saving your home from foreclosure, or cramming down a vehicle loan, or paying nondischargeable income taxes. You’re keeping an asset you’d otherwise lose, catching up on child or spousal support, or saving a sole proprietorship business.
What Is an Automatic Stay in a Texas Bankruptcy?
For most people, filing for bankruptcy is a last resort. It can be easy to dig yourself into a pit of debt that you are unable to climb out of. Once the bills start becoming due, it can feel like an ocean wave washing over you, with you struggling to stay above water. Not paying your bills can cause creditors to resort to collections actions, such as wage garnishment and repossession. Once you file for bankruptcy, however, all of those collections actions must stop. This is what is known as the automatic stay.
Understanding the Automatic Stay
The automatic stay is a provision in the U.S. Bankruptcy Code that temporarily halts collections attempts from all creditors. The automatic stay goes into effect immediately after you file for bankruptcy and prevents any and all creditors from contacting you about debts you may have with them. The automatic stay does not last forever. As soon as your bankruptcy case is finished, the automatic stay is lifted.
Student Loan Changes in the CARES Act
The recent coronavirus relief law includes help for some student loan borrowers—suspending payments, interest, collections, credit reporting.
The 880-page Coronavirus Aid, Relief, and Economic Security Act (“CARES”) has 4 pages of help for certain student loan borrowers. Section 3513 of CARES. It provides meaningful albeit temporary help, for those who qualify by having the right kind of student loan.
The Kinds of Student Loans Covered
First, the relief applies only to federal student loans, not to private student loans. The private loan portion of student loans has been growing but still only consists of about 8% of student loans. Nevertheless, private student loans total about $125 billion. The CARES Act does not help if you owe any of this.
How Do I Know When Filing for Bankruptcy Is My Best Option?
Bankruptcy can be a scary word and it can be even scarier if it is something you have been considering. Bankruptcy is still considered by some to be a taboo or something to be avoided at all costs. In reality, bankruptcy can be the best option for some people who are drowning in debt. Filing for bankruptcy does come with a few unfavorable consequences, which should be factored into any consideration when determining whether or not to file for bankruptcy. Speaking with a skilled Texas bankruptcy lawyer can help you understand your situation a little better.
To File Or Not to File?
It can be confusing to know whether or not you should file for bankruptcy. Every person’s situation is different, which is why every decision to file for bankruptcy is different. For the most part, you should consider filing for bankruptcy if you are unable to repay your debts after you have paid for necessities such as food, living expenses, and healthcare. However, there are a few other situations in which you may also want to consider filing for bankruptcy:
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