A reaffirmation is an official way to “reobligate” yourself on the loan. This involves the lender sending us a reaffirmation contract to be signed by you.
Does the Kind of Debt Have Any Impact on A Bankruptcy?
The answer is yes and no. You do not have to have a certain amount of debt in order to qualify for bankruptcy. In bankruptcy court, the laws are not set up to consider the debt as part of your bankruptcy case. So it does not matter if you have credit card debt, medical bills, lawsuits or judgments against you or the amount of the debt. There are a couple of exceptions to that. The one exception where the court sometimes looks at the debts is if there is large amounts of debt connected to gambling. It is not that you cannot discharge debts that involve gambling, but for example, if you have $80,000 of gambling losses on your previous year’s tax returns that is going to send a red flag to the court.
If that is the case, the court might determine that before a bankruptcy discharge is granted that the underlying gambling issue is being addressed, either by going through gamblers anonymous, or at a minimum to make sure that a period of time has passed since the person last gambled before a discharge is granted. Now, that does not happen often though. That is something that could potentially happen. Whenever I meet with somebody who has some gambling losses, the one thing I recommend is before we file your case, we want to make sure that there has been no gambling activity for at least six months before the bankruptcy is filed.
In those situations, I would recommend regardless of whether they felt that there was a gambling issue or not, that it would be a good idea for them to attend some gamblers anonymous meetings. Because if that objection is made after your case is filed, it is going to be a lot easier to convince the court that you recognize the issue and you are addressing it. Your bankruptcy will go a lot smoother rather than if you were in a casino the weekend before we filed your case. That is a situation where the debts or rather, the reason for the debts, can come into consideration in bankruptcy.
Taxes can be dischargeable, but they have to meet certain criteria. If the whole reason you are filing is because you have $70,000 of tax debt, we then have to make sure that we go through that tax debt carefully and make sure that either all of it or a significant portion of it is going to meet this criteria. The criteria for taxes to be discharged in bankruptcy are:
A) the tax debts have to be at least three years old;
B) the tax returns for those tax years have to be filed at least two years prior to the bankruptcy;
C) there cannot be any assessments on your tax debt for at least 240 days prior to the bankruptcy filing;
D) no tax liens have been filed by the taxing authorities; and
F) there is no fraud involved with the tax debt. To analyze all of those criteria require us to pull account transcripts.
I had a client, she was divorced and discovered much to her dismay, that her former spouse who was self-employed had not paid taxes for nearly 10 years. Because they were married for most of those 10 years, the IRS was holding her jointly liable for her former spouse’s $125,000 tax debt. She was a lunch lady at school and had a modest income and was just completely distraught on how she was going to be able to pay $125,000 to the IRS.
Unfortunately, her former spouse was not the most reputable character. He went into hiding and the IRS could not find him. He was not making payments on anything and so she was left responsible for everything. We were able to pull her account transcripts and went through them and we were able to determine that she could discharge all $125,000 of debt through a chapter 7 bankruptcy. We filed her case, the entire tax debt was discharged and she was able to protect her home from the IRS. It was a huge benefit for her. So, that can be a situation where the type of debt can matter.
The only other time the debt matters is when a potential objection might be made from a creditor. When your bankruptcy is filed, all of your creditors have the opportunity to object to you getting their particular debt.
Those objections are actually pretty rare and if you have retained a good bankruptcy attorney, you should either,
A) take steps to avoid any objections; or
B) if you cannot avoid it your attorney should be able to help you by understanding what to expect and how you can resolve the objection.
There are certain debts that you might receive an objection on. For example, one is unemployment compensation. If you received unemployment compensation, but were actually employed either full or part-time while you were receiving the unemployment compensation and did not report that employment to the state, then they basically argue that the unemployment compensation you received during the time you were employed was received fraudulently and therefore, it is required that you to pay it back.
When you file bankruptcy that debt is included and can be discharged, but very often the state will file an objection and say, “This debt was obtained fraudulently because this person was employed while they were receiving employment compensation.” We can deal with that and what we do is settle the debt and work out a payment plan with the state. You can discharge your other debts and then work on a payment plan that works within your budget to get the unemployment debt paid off.
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Chapter 13 is essentially a payment plan that you organize through the court system. Think of it as a consolidation loan with teeth.
There are 2 things you must do after your case is filed: (1) attend the meeting of creditors (aka the 341 hearing); and (2) complete a debtor’s education course via phone within 75 days from the date your case was filed. The 341 hearing is sometimes referred to as the meeting of creditors because your creditors can attend the meeting and ask you questions about the information contained in your petition.