Diamond Speaks His Mind on Bankruptcy and Related Topics

Why Some Reaffirmation Agreements Are Approved And Others Are Not?

A reaffirmation agreement is a contract that is used in a Chapter 7 Bankruptcy case that must be approved by the Bankruptcy Judge, in most cases without a court hearing.  In general, the purpose of this agreement is to agree to repay what is owed to a creditor, in almost all cases the debt is secured by something that the debtor bought and wishes to keep.  A good example would be an automobile.  If the Debtor wishes to keep the car and still owes money on the car, he/she must agree to continue to pay for the car. 

A reaffirmation agreement is sent to the Debtor's lawyer by the Creditor, who then obtains the client's signature and then must certify that the reaffirmation agreement is in the debtor's best interest and does not present an undue hardship, as set forth in the bankruptcy code.  The document is then filed with the Court and approved by the Judge without a hearing.  However, as with all things in life, there are exceptions that would trigger a hearing before the Bankruptcy Judge, at which time the client, through his/her attorney would have to justify the reaffirmation agreement. 

One example, is that the debtor's budget filed as part of the paperwork that started the bankruptcy case does not demonstrate that the debtor would have the money to pay for the car the debtor wants to retain.  In this case, the debtor would have to find a way show the Judge that the payments could be made without creating undue hardship. 

Another example, would be the debtor wishes to reaffirm an unsecured debt and the debtor's lawyer is unable to certify the reaffirming the debt is in the debtor's best interest.  In this case the Judge is going to want to know what makes this particular unsecured claim different from the other unsecured claims, that he should allow the debt to be reaffirmed.  Justifying this type of reaffirmation usually requires demonstrating to the Judge that there is something unique about either the debt or the relationship between the debtor and the creditor.  An example of a reaffirmation agreement that I presented to the court was a situation in which the debtor had a career in the military and served his country honorable for a long time and had retired in El Paso to be close to a large military base as well as a military hospital.  He had always shopped on post and had always had a military credit card allowing him to make credit purchases on post.  His argument was simple -- He had always shopped on post and always had a military credit card and that the use of this credit card was not a contributing factor to his bankruptcy.  In short, he wanted to continue to do what he had been doing for over thirty years.  When I finished arguing the debtor's position the judge did not hesitate in making a ruling.  He stated:  "I come from a military family and I understand the special relationship that exists between this person and this particular creditor.  I further understand that not to allow this debt to be reaffirmed would be a life changing event for this retired person.  The Reaffirmation Agreement was approved by the Court.     

 

 

 

  

 

Copies Vs. Originals at Your Bankruptcy's 341 Meeting

Required by law, the first request that a trustee for a Chapter 7 or a Chapter 13 bankruptcy makes of a debtor is to see his driver's license and social security card in order to establish the identity of the debtor.  The trustee is fulfilling his obligation to identify the debtor by seeing an original driver's license, because it has a picture of the debtor and then matches the social security number against the name on the card and then compares the same against the bankruptcy paperwork.  There are, of course, other forms of identification that will work just as well such as a military identification card.  What will not work is a copy of any of the items mentioned, they must be originals.

If a debtor does not have these items with him/her, at least in El Paso TX, is that, in a Chapter 13 bankruptcy case, the meeting is continued to a later date, which means you have to take another day off of work and in the case of the Chapter 7 bankruptcy you must bring the originals by the Trustee's office within several days after your 341 Meeting, not as bad as having the meeting continued, but still inconvenient.  This may seem petty, still copies vs. originals will delay your bankruptcy moving forward.

CHAPTER 7 - CAN I KEEP THE DOG HOUSE?

 

If you have lived in Texas two (2) years prior to the date you filed your Chapter 7 bankruptcy (or plan on filing) you are entitled to use Texas Law to determine what property you get to keep.  That means you may either use the property that is "exempt (free to keep)" from bankruptcy under the Texas State Statute or you may choose to use the Federal Exemption Laws.  Which law you use is up to the person(s) filing Chapter 7, which means you get to choose the statute (Texas State or Federal) that gives you the most benefit.  For most people this generally means you get to keep everything you have, with few exceptions.

Which law is most advantageous depends on whether or not you own a home and how much equity you have in your home. Equity is determined by the difference between what you owe on the house and how much the house is worth.  If your house has a lot of equity one usually finds the Texas Statute gives a person the biggest relief.  While Texas Law protects most things it does not protect cash, cash in banks or income tax refunds.  Federal Law on the other hand would allow you to apply the "wild card".  The "Wild Card" under federal exemptions is exactly the same concept as the wild card used in a poker game - it is any card you want it to be.  In a bankruptcy case, it can be used to exempt from the bankruptcy anything that the debtor wants to keep that is not otherwise exempt.  The 'Wild Card' is contained in Section 5 of the Federal Statute.

The exemption laws are designed to allow people to keep enough of their property to have a "fresh start", not to strip them of their assets or dignity.

Click on these links to see an outline of the Texas Exemption Code and an outline of the Federal Exemption Code.

The fate of your property not protected by either statute (Texas or Federal) is in the hands of the Chapter 7 Trustee. The Chapter 7 Trustee is only going to take things he can turn into a relatively large amount of cash quickly which he can then use to pay your creditors.

6. What property will I get to keep?

BANKRUPTCY COURT LEVELS PLAYING FIELD WITH IRS

 

Dealing with the Internal Revenue Service is a scary proposition, especially if you owe them money.  The Bankruptcy Court is one of the tools a taxpayer has at his/her disposal in dealing with "the tax man" in a variety of situations. 

The Bankruptcy Court can be used to:

 -Stop wage garnishments, bank account garnishments, levies, seizures of property and remove income tax liens that are in excess of the value of the property claimed as exempt;

 -Income tax and certain other types of taxes become dischargeable after a period of time ranging from two to three years after the date tax returns were filed provided certain other conditions have been met;

 -Taxes can be paid in monthly installments over a period of five years, usually without interest or additional penalties accruing in a Chapter 13 case;

 -Disputes over how much is owed can be determined quickly and inexpensively by a Bankruptcy Judge;

 -Tax liability can be determined by a Bankruptcy Judge in a setting which the Internal Revenue Service is subject to a level playing field.

This is a general outline of the options a taxpayer has in the Bankruptcy Court.  As with anything dealing with taxes and the law can have numerous complications and exceptions.