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In Willy Wonka and Chocolate Factory, everyone was hunting for the Golden Ticket so they could get a tour of the chocolate factory. The Golden Ticket in every chapter 7 bankruptcy in Fresno, and everywhere else, is the Discharge Order.
A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts, like credit cards, medical bills, and missed payments. In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order! No creditor of the debtor is allowed to make any collection effort with the debtor, including lawsuits, wage garnishments, telephone calls, letters, and personal contacts.
Unfortunately, the Golden Ticket, "Discharge Order", does not erase valid liens such as property mortgage liens, car liens, or even dishwasher liens if you bought them from Home Depot. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien. They are allowed to repo the car, the Kirby vacuum cleaner, and foreclose on the house.
WHEN DOES THE DISCHARGE OCCUR?
In a chapter 7 bankruptcy, the court usually grants the discharge promptly on expiration of the time fixed for filing a complaint objecting to discharge and the time fixed for filing a motion to dismiss the case for substantial abuse (60 days following the first date set for the 341 meeting). Typically, this occurs about four months after the date the debtor files the petition with the clerk of the bankruptcy court.
HOW DOES THE DEBTOR GET A DISCHARGE?
Unless a lawsuit is filed in the Chapter 7 bankruptcy, the debtor automatically receives a discharge. The debtor does not have to do anything, except wait by the mailbox. A copy of the discharge order also is mailed to all creditors named in the bankruptcy petition. The notice informs creditors generally that the debts owed to them have been discharged and that they should not attempt any further collection.
They are cautioned in the notice that continuing collection efforts could subject them to punishment for contempt.
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Debtors may be under the impression they are unable to get student loan debt discharged. While this may be the case for some, others may qualify to have this debt eliminated but don’t bother asking their attorney about it. When you file you are expected to list debt obligations you have outstanding, including those that [...]
Most people have a vision of debt settlement that doesn’t match up with reality.
I started seeing debt settlement ads on television and the radio when I first began practicing law in 1995.
What originated as a small industry became a behemoth seemingly overnight as the economy tanked and everyone started realizing they couldn’t possibly pay all their debts.
And as with so many consumer finance industries, information given to the public has long been at odds with the truth.
Time to set the record straight.
You May Be Able To Settle Your Debts – But Not By Much
Debt settlement is real occurs when you and a creditor mutually agree to reduce the balance due and treat it as payment in full.
There are laws regulating the business practices of debt settlement companies, including the disclosures they’re required to make and the fees that can charge.
That said, a 2010 letter to the Federal Trade Commission by The Association of Settlement Companies indicated that the average debt was settled for $0.88 per $1.00 owed. In other words, the average person settled for 88.1% of the balance due.
Related:
You Don’t Need Someone To Help You Settle Debts
Debt settlement involves sitting down across the proverbial table from someone else and working out a deal to repay your debt for less than you owe.
There are no courts involved, nor any judges or arbitrators.
You are not required to hire someone else to negotiate on your behalf. In fact, I’ve always been of the opinion that you’ve got a better chance at claiming poverty when you’re not paying someone to help you settle the debt.
Debt Settlement Can Result In A Tax Liability
Under the tax laws, creditors and debt collectors that agree to accept at least $600 less than the original balance are required by law to file 1099-C forms with the IRS.
You will receive a copy of the Form 1099-C, Cancellation of Debt, and must include the canceled amount in your gross income unless you meet an exclusion or exception.
Debt Settlement Will Harm Your Credit Score
Whenever you fail to make timely payments to a creditor, your credit score will go down.
Settling a debt for less than the full balance due will also harm your credit score.
That means not only that debt settlement will lower your credit score, but also that your score will decrease while you’re trying to negotiate a settlement with your creditor.
The More Creditors You Have, The Less Likely It Is To Work
It’s a matter of simple logic – the more times you need to negotiate, the more likely it is that you won’t be successful.
If you’ve got to negotiate with one creditor then you may be able to work out a deal. Add a few more creditors to the pile, however, and it may not work out quite as well.
Statistics bear out this logic – debt settlement rarely works out as well as you may hope.
A 2009 survey of U.S. debt settlement companies found that 34.4% of enrollees had 75 percent or more of their debt settled within three years.
Related:
Creditors Can’t Be Forced To Settle
As I already said, there’s no court or judge involved in debt settlement. It all comes down to negotiation between you and the creditor.
They don’t have to accept a settlement from you. And if they propose one, it need not be one you like.
You can argue that it makes sense for a creditor to settle a debt you’re not paying, and you may be right. But just because it makes sense from your point of view to settle doesn’t mean that’s true for the creditor’s side of the table.
Creditors That Don’t Settle Can Still Sue You
You can try to settle before a lawsuit is filed against you, but if negotiations break down then the creditor can still look to the court system.
If Everyone Doesn’t Settle, You’ve Got Trouble
Remember when I said that it’s more difficult to settle when you have many accounts?
And when I just told you that a creditor can decide to sue you if negotiations fall through?
Think about it – you could conceivably have 8 outstanding accounts and successfully settle 6 of them. The last two don’t settle but choose to sue you.
Now you’ve got a few choices. You can pay the judgment voluntarily, risk your bank account being frozen and your income seized in a wage garnishment, or file for bankruptcy.
All that, after working so hard to settle the debts.
How To Avoid The Pitfalls
If you’re thinking about debt settlement, beware of the risks.
Recognize the chances of success get smaller as your debt situation becomes more complicated.
Look into your options, then move ahead with your eyes open.
A Chapter 13 bankruptcy plan can help you get your finances back in order. As a court-approved repayment plan that restructures debts, you may be able to make reduced payments on obligations based on your income ability. Yet, there are certain debts you are required to pay as part of the agreement, including secured debts [...]
If you need to file for bankruptcy, Chapter 13 should be your first choice whenever possible.
There are, for the most part, two types of bankruptcy cases that people file when they want to get out of debt – Chapter 7 and Chapter 13.
Chapter 7 is deceptively simple, involving just a few months in the court system and a quick exit to a (mostly) debt-free life.
Chapter 13 seems more difficult, with repayment plans lasting 3-5 years before you get to claim freedom from debt.
Indeed, most people who file for bankruptcy opt for the Chapter 7 route. It’s less expensive and less time-consuming.
But dig deeper into the debt-relief process and you may find that what appears simple is the less attractive option.
- You Can Leave Chapter 13 – But Not Chapter 7. Let’s say you file for bankruptcy and incur more debt due to an illness or job loss. If you’re in Chapter 13, you can dismiss your case and refile to include the new debt. But if you’re in Chapter 7, you’re stuck – and will walk out owing that fresh debt.
- Chapter 13 Is A Hedge Against Future Debt Problems. If you file for Chapter 7 bankruptcy, you can’t do it again for the better part of a decade. But file a Chapter 13 and you get your choice of bankruptcy far sooner if need be.
- Chapter 13 Means You Keep Everything. When you file a Chapter 7 bankruptcy you need to worry about losing nonexempt assets and cash. If you own real estate that rapidly increases in value before the end of your case, you could find yourself packing your bags rather than being able to keep the property. No so in Chapter 13, which allows you to repay a portion of your debts in exchange for keeping all of your assets.
- Chapter 13 Repayment Can Be Tiny. When you file a Chapter 13 bankruptcy case, you’re paying back creditors based on your income and the value of your assets. For many people, that means repayments can be as low as $150 per month or less.
- Chapter 13 Is Totally Voluntary. A Chapter 13 bankruptcy case can be freely dismissed. Your repayment plan can be modified based on a change in your financial circumstances. You’re in 100% control over your life.
- Catch Up On The Mortgage Or Car Loan. Lots of people use Chapter 13 as a tool to catch up on arrears. Chapter 7 bankruptcy can’t do that.
- Lower Your Car Loan Interest Rate In Chapter 13. When you file a Chapter 13 bankruptcy, there’s a way to lower your automobile loan’s interest rate. That means you can reduce your monthly car expenses without losing the vehicle or trying to refinance.
- Wipe Out Underwater Second Mortgages In Chapter 13. If you own real estate and are upside down on your second mortgage, you may be able to eliminate it by filing for Chapter 13 bankruptcy.
- Pay Tax Debts Without Interest Or Penalties. If you owe money to the government for tax debts, you can pay them off over 3-5 years without a dime of additional interest or penalties. That could save you thousands of dollars over the life of your Chapter 13 bankruptcy case.
- Pay Your Legal Fees Over Time, Not Up Front. Yes, Chapter 13 bankruptcy fees are somewhat higher than what you’ll pay for a Chapter 7 case. But when you file for Chapter 7 you’re going to need to pay your legal fees in full before the case is filed. In Chapter 13, you can file your case more quickly because your legal fees can be paid through the repayment plan.
Still not convinced? Give me a call – maybe you’re the exception to the rule.
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With some hard work and smart planning, you can have great credit after bankruptcy.
Thinking about bankruptcy but terrified of the negative credit implications?
Don’t believe it when someone tells you that your credit will go up once you’ve gotten rid of the mountain of unpaid debts and past due accounts?
I get it – most people are convinced their credit will be terrible after bankruptcy. In fact, lots of people think they’ll never be able to get credit every again.
Let’s take a step back and talk about some really easy ways to keep your credit camera-ready and stellar in a post-bankruptcy world. It’s easier done than you think.
- Check your credit report before filing for bankruptcy. This way you’ll be in a position to list every possible debt, giving notice to all creditors and wiping out every obligation.
- Triple check your bankruptcy schedules. Make sure no creditor, debt collector, debt buyer, lawyer or other entity is left off your paperwork submitted to the court. Though unlisted debts are considered to be discharged in a no-asset Chapter 7 bankruptcy case in many places, you don’t want to deal with problems involving lack of notice.
- Check your credit report 60 days after the case is completed. Creditors may take a month or so to update their reporting, so give them enough time to get it right. Review the reports and make sure every tradeline is properly updated to show that the debt was wiped out in your bankruptcy case.
- Dispute any errors. If there’s something wrong on your credit reports, don’t grouse about it – follow the procedures necessary to get the errors into the dispute system.
Related: How To Correct Credit Report Errors - Pay remaining debts on time – every month. If you’ve got a student loan that wasn’t wiped out in your bankruptcy, the lender will keep reporting new payments. Make sure those payments are on time to build up evidence of new payments.
- Keep records of other payments. Unless you reaffirmed your mortgage or car loan, those accounts won’t report payments once the bankruptcy is over. Keeping records of your timely payments will give you ammunition when you apply for a new mortgage or car loan.
Related: How Your Mortgage Shows Up On Your Credit Report After Bankruptcy - Don’t apply for new credit for 12 months. You think you need to build new credit, and you do. But first you need to learn how to live within a budget. Take the time necessary to begin new financially sound habits.
- Set up autopay. Use your online banking system to make sure you pay all of your bills automatically. If you never miss a payment, that’s a big plus.
- Pay 90% of your credit card balance each month. Eventually, you’ll dip your toe back into the waters of credit cards. Part of your credit score involves the percent of your debt limit that’s available. Another part looks to your recent charging activity. Paying your balance in full each month means that most creditors won’t report the activity at all – but paying 90% of the balance due will show the activity as well as the fact that you’ve got lots of available credit as your disposal.
Payday loans can help you take care of emergency situations, but some find it frustrating when they have to start rolling over their loan or take out multiple loans just to make ends meet. Some debtors are worried about what may happen if they plan to file bankruptcy and want to stop payment on a [...]
Uh oh! Chase is in trouble – again? Still?
JPMorgan Chase Bank is facing charges of illegal and fraudulent tactics in over 100,000 debt collection lawsuits in California.
The lender, which went so far as to halt debt collection lawsuits nationwide last year in the face of allegations of wrongdoing, on January 7, 2014 failed in its bid to get the charges kicked out of court.
Chase argued that California legal authority precluded the In the lawsuit filed by California State Attorney General Kamala Harris. Superior Court Judge Jane L. Johnson in Los Angeles rejected that argument and denied the bank’s request that the lawsuit be thrown out.
According to the lawsuit filed by the State of California in May 2013, Chase engaged in widespread, illegal robo-signing, among other unlawful practices, to commit debt-collection abuses against approximately 100,000 California credit card borrowers over at least a three-year period.
On one day alone during the period in question, Chase filed 469 debt collection lawsuits in California. The Attorney General’s complaint against Chase alleges that, to maintain this pace, Chase employed unlawful practices as shortcuts.
Those shortcuts, the suit alleges, allowed Chase to obtain judgments, garnish wages, and place liens on property from California consumers at a rate that wouldn’t have otherwise been possible.
The state’s lawsuit seeks penalties of $2,500 for each violation of California law as well as an additional $2,500 for each violation against a senior citizen or person with a disability.
The next hearing in this case is scheduled for February 10, and it’s looking as if Chase is buckling down for a long fight.
Chase is no stranger to this sort of problem. In 2013 it entered into a Consent Order with the Office of the Comptroller of the Currency after similar allegations were made against the banking giant. There are other states with similar actions currently pending as well.
See also:
- Chase Whistleblower Suit Reveals Total Disregard For Consumer Protection
- Attorney General Kamala D. Harris Announces Suit Against JPMorgan Chase for Fraudulent and Unlawful Debt-Collection Practices (State of California)
- Consent Order Between Chase and Office of the Comptroller of Currency (OCC Website)
- JPMorgan sued by Mississippi AG over credit card misconduct (Reuters)
- California Lawsuit over Chase’s Debt Collection Practices is Still On (InsideARM)
- JPMorgan Fails To Dismiss California Debt Collection Case (Bloomberg)
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