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Recent Blog Posts
Objecting to a Proof of Claim to Defeat a Creditor
If your liability dispute with your creditor spills into your Chapter 13 case, the bankruptcy court may be a good forum to fight it out.
Our last three blog posts were about objecting to a creditor’s proof of claim in a Chapter 13 case. Today we look at situations when this is the most important part of your case.
Bringing a Liability Dispute to the Bankruptcy Court
It’s not unusual that a dispute with a single creditor forces a person into bankruptcy. Often it’s just one otherwise ordinary creditor which is more aggressive than the others, suing you ahead of the others, and then garnishing your paycheck or bank account.
Sometimes it’s not just any extra-pushy creditor, but rather one that you’ve been fighting for quite a while. The fight you are having with that creditor may be the main reason why you filed bankruptcy.
Maybe you were in a serious vehicle accident, and did not have enough insurance coverage. You are being accused of causing the accident but don’t believe you were its primary cause. Because of major injuries to others you potentially owe hundreds of thousands of dollars.
Objecting to a Creditor's Proof of Claim in Chapter 13
If you object to a creditor’s proof of claim in your Chapter 13 case, and prevail in that dispute, you pay nothing on that debt.
Our last blog post was about what happens to creditors who fail to file a proof of claim on time in a Chapter 13 "adjustment of debts" case. The creditor’s debt receives no payment through your Chapter 13 plan, and the debt is discharged—written off.
There’s another way to achieve this same result. Your bankruptcy lawyer can object to a creditor’s proof of claim if you don’t owe the debt as stated.
If the Creditor Does Not Respond to the Objection
Creditors sometimes file proofs of claim that are clearly not legally valid. Your debt may no longer be collectable because the statute of limitation has expired. An ex-spouse may owe the debt on which you’re not liable. Someone with the same name as you may owe the debt instead of you.
In these and similar situations your lawyer would likely file an objection to the proof of claim. Otherwise the legally invalid debt would be treated as a legitimate one. That illegitimate claim could share in whatever you are paying other similar debts under your Chapter 13 payment plan.
Potentially Pay Nothing to Most Creditors in Chapter 13
In some jurisdictions you can pay nothing to your "general unsecured" creditors, if all your money goes to paying higher priority ones.
We’re in the middle of a series of blog posts about the discharge of debts through Chapter 13. We’re specifically talking about Chapter 13 cases in which you’d pay nothing to some or even most of your creditors.
A Conventional Chapter 13 Plan
The U.S. Bankruptcy Code’s official name for Chapter 13 is "Adjustment of Debts of an Individual with Regular Income." In most cases that "adjustment" means you must pay something to all or most of your creditors.
Here’s the way it usually works. You and your bankruptcy lawyer put together your budget. It shows your monthly income, expenses, and the remaining "disposable income." That remaining amount is usually what you pay into your Chapter 13 plan each month.
In many cases much of that plan payment first goes to pay special debts in full—such as a home mortgage arrearage or income taxes. Your "general unsecured" debts get what’s left over.
"Pre-Petition" and "Post-Petition" Assets in Chapter 7
Pre-petition assets are “property of the bankruptcy estate,” part of your Chapter 7 case. Post-petition assets are not.
Chapter 7 Timing
In our last blog we talked about the importance of the timing of your Chapter 7 “straight bankruptcy” case filing. We looked specifically at “pre-petition” vs. “post-petition” debts. Pre-petition debts are those that existed at time of your bankruptcy filing and so are included in the case. Post-petition debts did not exist until after filing and so are not included.
There is a similar distinction between your pre-petition and post-petition assets.
Pick a Point in Time
A Chapter 7 bankruptcy case is a financial snapshot in time. The bankruptcy system has to pick a specific time to look at your financial life, including your assets, your property. That point in time is the moment you file your case.
An Example of Surrendering Your Home Later in a Chapter 13 Case
Here’s an example of how Chapter 13 can allow you to hold onto your home but then change your mind about it later.
Our last blog post introduced the option of saving your home through Chapter 13, while keeping open the possibility of surrendering the home later if your circumstances change.
Advantage of Keeping Your Options Open
Sometimes it’s hard to know whether hanging onto your home is worth the money and effort. For example, if you were about $10,000 behind on your mortgage and property taxes, and could get that money by borrowing from a relative or from a retirement account, would that be worthwhile? What if the home had no equity—the mortgage loan balance was higher than the value of the home? What if you were not confident you could afford to pay back that $10,000 loan? What if the main current reason to stay in the home now would no longer apply in a couple years?
If you filed a Chapter 7 “straight bankruptcy” case you would have to make that decision quite quickly. If your mortgage lender was in the process of foreclosing your home, or was threatening to do so, a Chapter 7 filing protects your home for only about 3 months, sometimes less. You effectively have about that much time to decide whether to keep your home, and to figure out how.
Addressing a Child or Spousal Support Lien through Bankruptcy
A support obligation is a very special kind of debt, and the resulting lien on your home has to be dealt with in a very special way.
Support—A Very Special Debt
If you are behind on child or spousal support then you owe a debt that is treated differently both outside and inside bankruptcy.
Before you file bankruptcy, your ex-spouse and support enforcement agencies have very aggressive tools they can use against you, your income, and your assets to try to make you catch up on unpaid support.
If you own a home, those tools include a lien that is very likely imposed on your home’s title in the amount that you owe.
Some of the support collection tools that can be used against you, including the support lien on your home, are affected when you file bankruptcy and some are not. It depends on the circumstances and especially on whether you file a Chapter 7 "straight bankruptcy" or a Chapter 13 "adjustment of debts." Chapter 13 gives you a much more powerful way to fight back.
Dealing with Statutory Liens on Your Home in Bankruptcy
Bankruptcy cannot remove contractor’s liens or other statutory liens from your home, but both Chapter 7 and 13 can help you deal with them.
A bankruptcy “discharge” legally and permanently wipes out your personal liability for most debts.
But it doesn’t automatically remove liens from your home. Each different type of lien is dealt with differently in bankruptcy, so it can certainly be confusing. The blog posts of the past three weeks have been about these difference, regarding liens securing first and second mortgages, property taxes, income taxes and judgments.
Today we’re talking about a category that does not get much attention on bankruptcy lawyer’s websites, “statutory liens.”
What’s a “Statutory Lien”?
The Bankruptcy Code defines a statutory lien as a lien “arising solely by force of a statute.” See Section 101(53).
Dealing with a Recorded Tax Lien FULLY Secured by Home Equity
A tax lien fully encumbered by the equity in your home is dangerous. Chapter 13 may be your best option.
Today we finish a short series of blog posts on income tax liens recorded against your home. Last time we explained how to use Chapter 13 “adjustment of debts” to get the release of a tax lien when there is SOME equity in your home to secure the tax debt. The time before we got into what happens when there’s NO equity in your home to which the tax lien can attach. Today is about tax liens that secure the entire tax debt because the amount of home equity is enough to cover the ENTIRE tax.
Scenarios
To make better sense of this, here are three scenarios to illustrate the three above situations.
All of them involve a homeowner who owns a home worth $190,000 while owing an income tax debt of $20,000. Assume that this tax debt meets the conditions for “discharge”—legal write-off in bankruptcy. That usually just means that the tax return for that income tax debt was due more than 3 years ago and the tax return was submitted to the IRS/state more than 2 year ago.
Resolving a Recorded Tax Lien Partly Secured by Home Equity
Chapter 13 forces the IRS/state to accept only partial payment on an income tax debt that is only partially secured by a tax lien.
We’re in a short series of blog posts on income tax liens recorded against your home. Last time we explained how to use Chapter 13 “adjustment of debts” to get the release of a tax lien when there is no equity in your home securing that tax lien. That happens when the mortgage(s), property taxes, and other prior liens soak up the whole value of the home.
But what if there is enough equity in the home to cover part of the tax lien but not all of it? That is, the prior liens soak up most of the home’s value but leave SOME equity for the tax lien but not enough to cover the full tax debt.
An Example
This situation will make much more sense with an example.
Take a home is worth $200,000, with a mortgage of $195,000, leaving equity of $5,000. This home equity is increasing over time as the neighborhood home values increase and the mortgage is paid down.
Beating a Recorded Income Tax Lien on Your Home
Once an income tax lien is recorded, Chapter 13 gives you a tool that may enable you to pay no more and yet get a release of that tax lien.
Our last blog post was about using bankruptcy to prevent the IRS or state income tax authority from recording a tax lien on your home. But what if a tax lien has already been recorded?
The Challenge of a Tax Lien
In our last blog we also focused on how bad it is for you if the IRS/state records a tax lien 1) on an income tax debt that could otherwise be discharged (legally written off) 2) against a home that has equity against which that tax lien can attach. Then the problem is that the tax can no longer be discharged since it’s now secured by your home.
But what if the home has no present equity for the tax lien to attach to?
Dealing with a Tax Lien with No Home Equity to Attach
Maybe the IRS/state didn’t know that there was no equity when it recorded the tax lien, or maybe it just didn’t care. A recorded tax lien is a matter of public record. It hurts your credit record and your ability to sell and refinance the home. It puts you under pressure to pay the underlying tax debt. The IRS and state know this and that lien hurts you regardless that your home may have no present equity.
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