Category Archives: Chapter 13 Bankruptcy in Kansas City

Discharging Debts In Bankruptcy From Drunk Driving Cases

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DUI and DWI cases are some of the more common criminal offenses.  People who have the bad luck to become involved in drunk driving cases quickly find out that these cases carry with them a significant financial burden.  And at the conclusion of the case, it often happens that there are fines, restitution, or other forms of court-ordered payment that need to be made.  Can these debts be discharged in a bankruptcy filing?

The answers are complex, and provide a good example of the intersection between criminal defense and bankruptcy.  At Phillips & Thomas LLC, we practice in both of these areas and are experienced in dealing with the nuances of bankruptcy and drunk driving cases.

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The Supreme Court’s Recent Ruling On The Homestead Exemption In Bankruptcy

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The homestead exemption in bankruptcy is one of the most well known exemptions in bankruptcy law.  The ability to file a bankruptcy case and not have creditors tamper with one’s real property is a major advantage to debtors seeking a fresh start.  The homestead exemption varies from state, and in Kansas it is one of the most generous in the country.  A recent Supreme Court decision reaffirmed the commitment of the courts to ensuring that this exemption will continue to be absolute and unqualified.  

At the same time, the decision restated the power that bankruptcy courts enjoy under Section 105(a) of the code.  This section has applicability in business bankruptcy cases, when it is used routinely by debtors in possession to facilitate their reorganization and for selling assets free and clear of liens under Section 363.

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Myths And Misconceptions About Bankruptcy

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One of the downsides of living in the media age is the fact that there are too many voices in the echo chamber.  Many of these voices are people who are not informed on the subjects that they are speaking about.  Worse yet, some of these voices have presences in the media and are in a position to offer “advice” and “guidance” on complicated subjects that plays to peoples’ fears, guilt, and shame.

We see this phenomenon sometimes when we meet with distressed and anxious people for the first time.  Some people have been listening to information peddled by media financial celebrities who are selling books, audio products, or “financial advice.”  Sometimes people have been listening to rumors from random friends and acquaintances.

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The Credit Counseling Class And Financial Management Class In Bankruptcy

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One of the requirements that was instituted in bankruptcy cases in 2005 was the need for debtors to take two separate “classes” as part of their bankruptcy case.  These classes can be completed through private companies specifically designed for the purpose of offering them.  They typically cost between $25 to $40 to complete.  The first class is called the “credit counseling class”, and it is supposed to be completed before the bankruptcy case is filed.

It can be done over the phone, or on the internet, and it typically takes about 45 to 60 minutes to complete.  Once it is finished, the debtor and the attorney are provided with a completion certificate.  This certificate is filed with the court when the case is filed.  Basically, the debtor is asked a series of questions about his or her income and expenses.

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Homeowners Dues, Homes Association Dues, And Timeshare Dues In Bankruptcy

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One issue that sometimes arises in a bankruptcy case is the treatment of homes association dues, homeowners’ dues, and timeshare dues.  Some property owners live in neighborhoods or developments that charge them a monthly fee for various services, such as grounds maintenance, snow removal, maintenance of public areas, and related things. Not all homes have these, of course.  But some do, and it is important to understand how the treatment of these dues interact with bankruptcy law.

If a debtor files bankruptcy, any homeowners’ or association dues that are in arrears at the time of the filing are handled within the bankruptcy case.  However, any post-petition dues that arise after the case is filed will need to be paid until the debtor’s interest in the property is terminated.  For example, suppose a debtor files a Chapter 7 case and the monthly homeowners dues are $90 per month.  At the time of filing there is $850 owed to the homeowners association.  Also suppose that the debtor wants to surrender the property.  The arrearage amount that existed at the time of filing ($850) is handled like the other unsecured debts (assuming there is no lien on the property), and would normally be discharged along with the other unsecured debts.  However, the debtor technically still would be responsible for the ongoing monthly homes association dues until his rights in the property were terminated (normally, when the foreclosure sale is completed and any redemption period has run).

This issue can get complicated.  The key questions that normally need to be asked are:

1.  Has the homeowners association put a lien on the property?  If so, lien avoidance or lien stripping issues can come into the picture.

2.  Does the debtor want to stay in the property?

3.  What chapter of the bankruptcy code has the debtor filed under?  Things can change depending on if someone is in a Chapter 7, 11, or 13 case.

A common problem that can arise is when a debtor wants to surrender a timeshare or home in a bankruptcy case, but the mortgage company takes a long time to complete the foreclosure.  The debtor has filed the case, but the mortgage company delays the foreclosure.  Technically, the debtor is still responsible for the monthly homeowner dues from the filing of the bankruptcy until the termination of his or her rights in the property (after the foreclosure sale).

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Fortunately, in the real world, this problem often has a way of working itself out.  Homes associations are often willing to work out resolutions to these issues when they arise.  Municipal governments are becoming more sensitive to the problem of abandoned properties sitting idle and awaiting foreclosure.  It’s all part of the continuing fallout from the mortgage and financial crisis of the past few years.  Make sure you consult with your attorney about any homeowners, homes association, or timeshare dues that you may have, so that you aren’t hit with any surprises.

Read More:  Converting A Chapter 11 Bankruptcy Case In Kansas City

Secured Debts In Bankruptcy

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When a bankruptcy case is filed, the various types of debts are classified into various categories:  secured, priority unsecured, general unsecured, or administrative claims.  This post will discuss secured debts and how they are often treated in a bankruptcy case.  What is a secured debt?  A secured debt is a debt in which the lender has some sort of collateral as a “security” for a loan.

In other words, the lender has the ability to repossess some collateral if the debt is not paid.  Typical secured debts are home loans, car loans, boat loans, and furniture loans.  In order for a creditor to claim secured status, they are required to do certain technical things, such as record their lien, and do a few other things.

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Creditor Claims In A Bankruptcy Case

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When a bankruptcy case is first filed, notices are mailed out to all of the listed creditors. The notices contain information about deadines for filing “proofs of claim”, and lists objection deadlines for issues a creditor may have with a case, or for the filing of an adversary proceeding (these are not common).

It is the creditor’s responsibility to see that its proof of claim is filed on time and in the right format with the bankruptcy court.  Its failure to do so can mean that it will not share in any assets of the bankruptcy estate.  If a claim is not timely filed, a creditor would have to show the court that its failure to file on time was due to some “excusable neglect.”  This is not easy to show.

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Cramdowns In A Chapter 13 Bankruptcy In Kansas City

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In a Chapter 13 bankruptcy, secured and unsecured loans are treated differently.  In a Chapter 13 bankruptcy, secured debts (i.e., loans with a security interest, such as a loan on a house, car, boat, trailer, etc.) are treated in different ways.

In some circumstances, a debtor will not have to pay the full loan balance of the asset in question, such as a car, boat, or piece of investment real estate.  In these circumstances, a debtor would only have to pay what the the collateral is worth, not what is owed on it (unless, of course, what is owed is less than the value of the collateral).  

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Stripping Away An Unsecured Mortgage In Chapter 13 Bankruptcy

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Chapter 13 bankruptcies deliver many benefits to debtors.  By electing to be in a voluntary plan, the debtor receives more rights than in, say, a Chapter 7 case.  One of these rights is the ability to strip away wholly unsecured mortgages.

Many properties have more than one mortgage or secured loan against the property.  These secured loans are ranked in a priority, depending on when they were recorded.  Properties only have so much equity.  That is, if the value of the property is greater than the lien(s) against the property, the property is said to have equity.  Sometimes, a second or even a third lien on property has no equity in which it can attach.  This is a situation where the lien is completely unsecured.  In a Chapter 13 bankruptcy, this wholly unsecured lien can be stripped away from the property and treated as a general unsecured debt.  Lien stripping allows you to get rid of the “wholly unsecured” liens on your property.

Suppose you own a house worth $150,000 and you have a $160,000 first mortgage.  In this situation, you have no equity in the house, because the loan is greater than the fair market value of the house.  Now suppose you had a second mortgage (or line of credit, or other judgment lien) against the house.  This second lien could be stripped away from the property and treated as an unsecured debt in a Chapter 13 (or Chapter 11 case).

The stripped liens will receive the same treatment as your other unsecured debts (such as credit cards, medical bills, payday loans, etc.) in your bankruptcy.  In many or most Chapter 13 cases, the unsecured creditors get very little, if anything.  So, the end result is that at the conclusion of the Chapter 13 case, the lien go away and the lender will be required to remove it.

Read More:  Tax Debts In A Chapter 13 Bankruptcy In Kansas City

Student Loan Debts In Bankruptcy In Kansas City

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It is often heard that “student loans can’t be wiped out in a bankruptcy.”  This is not strictly correct.  Although it is not the norm, student loans can be discharged in a bankruptcy as long as certain conditions are met.  Bankruptcy law is complicated, and involves an interplay of federal and state law, as well as local procedures, and only an attorney knowledgeable in the case law of your location can truly help you.

In the first place, what is an “educational loan” or a “student loan”?  An educational loan under Section 523(a)(8) is a loan:  for an educational benefit or loan that was made, insured, or guaranteed by a governmental unit, or made under a program that is funded in whole or in part by a governmental unit or nonprofit institution; or it is a debt for an obligation to repay funds that were received as an educational benefit or scholarship.

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