FB LinkedIn

Bankruptcy Does Not Mean You Become Debt Free

Some people mistakenly believe that after they file for bankruptcy, their debts are wiped clean and they get a completely fresh start. Unfortunately, the federal bankruptcy code is not that kind.  If you file for Chapter 7 bankruptcy, the majority of your debt will be cleared away, but there are some debts that are “nondischargeable.” This means they stay with you even after your bankruptcy is filed and done.

Types of Nondischargeable Debt

The Bankruptcy Code lists 19 categories of nondischargeable debt. These types of debts do not require a court hearing to determine whether or not they will be dischargeable. The burden is on the debtor to show extraordinary circumstances in order to convince a court to discharge on the debts listed below. Here is a sample:

  • Student loans
  • Child support and alimony
  • Debts from a civil judgment related to drunk driving
  • Debts which are the result of fraud or criminal acts

No Right to a Debt Discharge

When you file for Chapter 7 bankruptcy, it is important to keep in mind that you do not have an absolute right to a discharge of any debt. In order to receive a discharge, you must follow the provisions set forth in the Bankruptcy Code.

Image Source (CC BY 2.0) by Jeremy Crawshaw via flickr

Image Source (CC BY 2.0) by Jeremy Crawshaw via flickr

For example, Section 727(a) of the Bankruptcy Code outlines a list of reasons why the court may deny a Chapter 7 discharge. Basically, this Section states that if you fail to follow the express rules and regulations, or do not provide the necessary information, then a creditor, bankruptcy trustee, or the U.S. trustee may object to your Chapter 7 discharge. If the court agrees, it can deny your debt discharge outright. This is a big reason why it is important for you to have an experienced Florida bankruptcy attorney by your side to help you navigate through the Chapter 7 bankruptcy process. Even an inadvertent mistake or a set of missing documents can torpedo a debt discharge.

Debts Are Not Dischargeable if a Creditor Successfully Objects

Along with near de facto nondischargeable debts like alimony and child support, there are other types of debts not automatically excepted from discharge that will need a court hearing to determine dischargeability. The burden is on a creditor to request a hearing so a judge can examine the debts and determine if they are dischargeable or not.

The types of debts subject to this type of hearing are usually those that were accrued shortly before you filed for bankruptcy. For example, if you purchased “luxury goods” via credit card totaling more than $650 within 90 days of filing for bankruptcy, the credit card company can challenge the dischargeability of this debt. The reason is that public policy wants to limit the risk that someone will go out and make lavish purchases just prior to filing for bankruptcy. The burden is on the creditor to present the facts to the court. If you prove that you intended to pay the charges back or that the goods are not “luxury” items, then the debt will likely be discharged.

The same discharge challenge can be made for cash advances totaling more than $925 within 70 days of filing for bankruptcy.

Speak to a Florida Bankruptcy Lawyer Today

As you can see, filing for bankruptcy is not a cakewalk to a fresh start with debts taken off your back. Once you file for bankruptcy, you have to navigate a complicated maze of regulations and laws embedded in the bankruptcy code. Speak to the experienced bankruptcy attorneys at Hoffman, Larin & Agnetti, PA. The firm offers free, confidential consultations so that you have nothing to lose.

STUDENT LOANS, BANKRUPTCY AND HOPE

More than $100 billion of student loans were taken out in 2010. Total loans, whether in the form of federal student aid or private student loans, exceed $1 trillion, which means more is owed on student loans than on credit cards.

Student loans are extremely difficult to discharge in bankruptcy.  The standards for discharging student loans are discussed in detail in a prior article. Under the present law, to discharge your student loan you must prove that repayment would impose undue hardship on you and your dependents, i.e., you will have to show that 1) you cannot maintain, a “minimal” standard of living if forced to repay the student loans; 2) additional circumstances show that this state of affairs is likely to persist for a significant portion of the repayment period; and 3) you have made good faith efforts to repay the loans. (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987). Not all courts use this test. Some courts will be more flexible, some less. This is a very difficult burden.

H.R. 2028, the Private Student Loan Bankruptcy Fairness Act of 2011, has been referred to the House Committee on the Judiciary. This legislation would make private student loans (as opposed to government-made or guaranteed student loans) dischargeable in bankruptcy. Referral to committee is the first step in the legislative process. This legislation, like the majority of bills, may never make it out of committee.

Below are the members of the House Committee on the Judiciary.

Rep. Lamar Smith [R-TX21] Ranking Member

Rep. John Conyers [D-MI14]

Rep. Sandy Adams [R-FL24]

Rep. Howard Berman [D-CA28]

Rep. Steven Chabot [R-OH1]

Rep. Jason Chaffetz [R-UT3]

Rep. Judy Chu [D-CA32]

Rep. Howard Coble [R-NC6]

Rep. Steve Cohen [D-TN9]

Rep. Ted Deutch [D-FL19]

Rep. Randy Forbes [R-VA4]

Rep. Trent Franks [R-AZ2]

Rep. Elton Gallegly [R-CA24]

Rep. Louis Gohmert [R-TX1]

Rep. Robert Goodlatte [R-VA6]

Rep. Trey Gowdy [R-SC4]

Rep. Tim Griffin [R-AR2]

Rep. Darrell Issa [R-CA49]

Rep. Sheila Jackson-Lee [D-TX18]

Rep. Henry Johnson [D-GA4]

Rep. Jim Jordan [R-OH4]

Rep. Steve King [R-IA5]

Rep. Zoe Lofgren [D-CA16]

Rep. Daniel Lungren [R-CA3]

Rep. Thomas Marino [R-PA10]

Rep. Jerrold Nadler [D-NY8]

Rep. Mike Pence [R-IN6]

Rep. Ted Poe [R-TX2]

Rep. Ben Quayle [R-AZ3]

Rep. Mike Quigley [D-IL5]

Rep. Tom Reed [R-NY29]

Rep. Dennis Ross [R-FL12]

Rep. Linda Sánchez [D-CA39]

Rep. Robert Scott [D-VA3]

Rep. James Sensenbrenner [R-WI5]

Rep. Debbie Wasserman Schultz [D-FL20]

Rep. Maxine Waters [D-CA35]

Rep. Melvin Watt [D-NC12]

Res.Com. Pedro Pierluisi [D-PR]

You are encouraged to contact these representatives to express your opinion concerning the proposed legislation.

TRAFFIC TICKETS, BANKRUPTCY AND FLORIDA

A question that frequently comes up at consultations in my office is whether traffic tickets can be discharged in bankruptcy. Recently, a client presented with over $7000 of fines related to going through tolls with an invalidSunPass.

11 U.S.C. § 523(a)(7)  of the bankruptcy law provides that a Chapter 7 bankruptcy does not discharge an individual from any debt that is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss, other than a tax penalty. Therefore, traffic tickets are clearly not dischargeable in a Chapter 7 filing.

There are, however, alternative approaches.

Under Chapter 13, certain fines are dischargeable. Where the fine is imposed as a criminal penalty, it will be non-dischargeable; however, non-criminal fines will be dischargeable. The key is determining whether the parking or traffic violations are deemed “crimes” under the state law where the offenses occurred.

In Florida, traffic offenses are divided into two categories: crimes and civil (non-criminal) infractions. Examples of criminal traffic offenses include DUI, reckless driving, leaving the scene of an accident and knowingly driving with a suspended license. Civil traffic offenses (i.e., non-criminal offenses) include speeding, running a red light or stop sign, illegal U-turns, failure to yield to emergency vehicles and non-moving violations.

In a Chapter 13 bankruptcy, non-criminal traffic fines will be paid as part of a plan that will decrease the amount of the ticket and allow for payment at levels that the debtor can afford by extending the debt over a period of three to five years.

So what can you do about non-dischargeable criminal fines or penalties? You can make payments for a portion of what you owe through a Chapter 13 Plan over a period of 3-5 years. The balance remaining at the conclusion of the Plan will not be discharged.