4 Important Bankruptcy Concepts to Keep in Mind
Our Dallas Bankruptcy Lawyers Are Here to Help
Filing for bankruptcy can be a complicated process. For this reason, it is best retain to experienced legal counsel if you are considering filing for bankruptcy. A skilled lawyer can help streamline the process and ensure you understand every angle of the process.
To help you understand more about how bankruptcy works, our Dallas bankruptcy lawyers have explained four important concepts, which can be found below:
1. The Ability to Pay
A debtor’s ability to pay is a crucial concept during the bankruptcy process. Before a debtor can file for bankruptcy, it is important that he examines his income. If their income is less than the state’s median, they must take the means test. The means test will determine if they are able to pay their debts. If the debtor is able to pay his debts, he can choose to file Chapter 13 bankruptcy. With this type of bankruptcy, a debtor has the ability to pay off his/her debts over a three- to five-year timespan. In addition, the means test can outline any liabilities and monthly expenses, which can determine how much disposable income remains after each month.
If you cannot file under Chapter 7 due to your income, you should know that there are also some restrictions in Chapter 13. Chapter 13 does not have an income requirement, but there are limits on how much debt you can owe. Chapter 13 must be executed over no longer than five years. So debt limitations exist to ensure that the amount owed can be repaid, at least in part, over the course of those five years. Federal law requires that you have less than $394,725 in unsecured debt and less than $1,184,200 in secured debt.
While most folks will be able to file under one chapter or the other, some folks may find themselves earning too much money for Chapter 7 and owing too much money for Chapter 13. These folks will have to file under Chapter 11.
2. The Innocent Debtor vs. The Not Innocent Debtor
An innocent debtor is a person who has not accrued debt because of illegal activity or fraud but is unable to pay certain debts. This means that any debtor who made unwise financial decisions and spent money outside of his/her means is considered an innocent debtor. On the other hand, a debtor who has lied about his/her income to qualify for a loan may not be considered innocent, according to a bankruptcy court. If a creditor can provide evidence that a debtor engaged in an illegal activity, such as fraud, when incurring debt, the creditor may be able to challenge the bankruptcy discharge. Additionally, this can apply to a debtor who intentionally concealed assets to evade repaying creditors or a debtor who transferred assets in order to deceive the court.
A number can qualify as bankruptcy fraud under federal law. These include:
Any debtor who knowingly conceals assets from the bankruptcy trustee is committing fraud against the court. This includes:
- transferring assets to someone else prior to a bankruptcy,
- failing to disclose assets that you don’t want to leave vulnerable in a Chapter 7, or
- fabricating documents to conceal the value of assets.
If a debtor conceals assets, they may have their bankruptcy dismissed outright and the debtor may be subject to criminal charges. Bankruptcy fraud is penalized by up to 5 years in federal prison, a $500,000 fine, or both.
When your petition for bankruptcy is processed, you will have to swear under oath that all of the information you provided was factual and complete. Those who lie under oath will seriously damage their credibility to the court. They could also have their bankruptcy case dismissed, and be subject to criminal charges. Learn more about how Making a False Oath Can Lead to Denial of Bankruptcy Charge.
Fraudulent conveyances refer to property transfers with the intent of defrauding a creditor. The bankruptcy trustee will take a look at any property transfers that occurred within one year of your filing for bankruptcy. Your creditors will be on the lookout for any such transfers as well. If your creditors or the trustee suspect that a transfer occurred for the sole purpose of limiting the exposure of certain assets during your filing, an adversary proceeding will take place. The creditor must be able to show that you transferred the asset with the intent of defrauding the court. In other words, they must prove intent.
Constructive fraud is an example of a fraudulent conveyance. This is when a debtor transfers a piece of property for an amount substantially lower than its value.
This is a scheme in which a debtor files under different names in various states concealing assets to protect them from liquidation.
There are other more familiar forms of bankruptcy fraud. For instance, let’s say you open up a line of credit knowing that your finances are insolvent and hope to discharge that debt in bankruptcy. The creditor can prevent you from doing so during the adversary proceeding. Again, they have to prove that this was your intent all along and not an honest mistake.
3. A Fresh Financial Start
Bankruptcy is designed to offer a fresh start for those facing serious financial issues. As a result, a bankruptcy lawyer and trustee should not allow a debtor to do anything that can jeopardize that fresh start. In some cases, a bankruptcy trustee will decline that a debtor to reaffirm a debt. This occurs if he or she does not trust that the debtor can credibly meet the debt commitment. Failing to meet the obligations of reaffirmed debts after filing for bankruptcy can ruin a debtor’s chance at a renewed financial start. So then, the trustee and bankruptcy attorney are considered the most cautious persons in regards to approving reaffirmations. Request a free consultation with the Dallas attorneys at our firm to find out more.
4. The Automatic Stay
Bankruptcy is an opportunity that gives a debtor the power and time to address financial difficulties without the threat of losing assets. This is why the automatic stay is able to help debtors. Such a concept is designed to protect a debtor from the following:
The concept of the automatic stay remains in effect until a debtor’s bankruptcy case is:
- discharged, or
- until a creditor successfully contests the automatic stay and has it removed.
Creditors may only contest an automatic stay if they can either show that:
- the bankruptcy would not affect the type of debt that is owed or
- the debtor has committed some type of fraud.
For instance, if you have filed under Chapter 7, a court may lift the automatic stay on a mortgage to allow the foreclosure process to continue. If the debtor has any intent to keep the property they may attempt to block the lifting of the automatic stay. If the debtor has no intent to keep the property, there’s no reason to block the foreclosure.
It is uncommon for an unsecured creditor to move to lift an automatic stay. In some cases, landlords will ask to lift a stay to pursue an eviction.
We Are Ready to Safeguard Your Future
If you are facing serious financial problems, we encourage you to get in contact with our Dallas bankruptcy attorneys right away. We can stand by your side from start to finish and ensure your rights are protected. We understand how difficult life can become when you’re faced with monetary-related adversities, and that is why we are here. No matter what your case may be, we have the resources and skills it takes to recover positive solutions for you!
Call Allmand Law Firm, PLLC today for your obligation-free consultation.