Discharging Post-Petition Debt in Chapter 13
A lot can happen during a Chapter 13 repayment plan which generally lasts three to five years. Sometimes large debts are incurred that the debtor is unable to pay. Fortunately, a Chapter 13 debtor is able to discharge a post-petition debt, but only after certain prerequisites are met.
First, the debtor must amend the repayment plan to provide for a post-petition debt. Second, the debtor must usually obtain the approval of the bankruptcy trustee prior to incurring the debt. This is not always obtainable, especially in the case of a large medical bill. Third, the creditor must voluntarily choose to file a proof of claim. And finally, the claim must either be a tax claim, or a claim for a consumer debt necessary for the completion of the debtor’s plan.
A common situation in which post-petition debts arise in a Chapter 13 case is where the debtor needs to purchase a different automobile. Repaying a post-petition car loan through a Chapter 13 plan is easily accomplished through coordination and cooperation from the trustee, the lender, and the court. The lender agrees to be paid by the trustee, the trustee agrees to sanction the debt, and the court approves the amended plan allowing the lender to be paid through the bankruptcy plan.
In some cases it may not be practical to include a post-petition debt in the debtor’s Chapter 13 plan. In that case, the debtor may elect to convert the Chapter 13 case to one under Chapter 7. The Bankruptcy Code states that a debt that arises after the Chapter 13 filing date, but before the debtor’s conversion to Chapter 7, is to be treated as a pre-petition debt. The Chapter 13 restrictions and requirements listed in the preceding paragraph do not apply to debts in a conversion case.
The Bankruptcy Code contains many flexible options for reorganizing your finances and dealing with your creditors. Even when there is an unexpected event that results in a debt, your bankruptcy attorney can provide you with choices for dealing with a post-petition debt.
Discharging Student Loans In Bankruptcy
Recently the House of Representatives Judiciary Subcommittee on Commercial and Administrative Law held a hearing to initiate legislation to change provisions of the federal bankruptcy law that give student loan lenders an advantage over other consumer loans. Current bankruptcy law provides that student loans are generally not dischargeable under any chapter of the bankruptcy code unless the debtor can show that repayment of the loan creates an “undue hardship.” Unfortunately, Congress did not define “undue hardship” in the bankruptcy code, so this interpretation has been left to the individual bankruptcy court judges.
During the Committee hearing Rafael I. Pardo, an associate professor at the Seattle University School of Law who has studied the discharge of student loans in bankruptcy, challenged Congress “to clarify the undue hardship standard.” Many courts view “undue hardship” as a high bar that is only met by a showing of exceptional circumstances (like physical or mental disabilities, or poor or no future earning potential) that result in an inability to both repay the student loans and provide a minimum standard of living for the debtor and the debtor’s family. This is a very difficult burden for most debtors to meet, and consequently bars the discharge of student loans in most cases – even while other consumer debts like auto loans, credit cards, medical debts, mortgages, and even taxes are discharged in the debtor’s bankruptcy.
Consumer bankruptcy attorney Brett Weiss, who testified on behalf of the National Association of Consumer Bankruptcy Attorneys and the National Consumer Law Center, called the situation “unfair” when other consumer loans are forgiven in bankruptcy proceedings while student loans are not. As a result of these hearings, Rep. Steve Cohen (D-Tenn.) announced his plans to file legislation to “give private student loan borrowers more equitable treatment during the bankruptcy process.”
For the time being it remains extremely difficult to discharge student loans. However, there are other non-bankruptcy programs for debtors unable to repay their loans. In some cases debtors may qualify for reduced payments, deferment, forgiveness or cancellation. Chapter 13 bankruptcy can also provide a way to cure defaulted student loans, or pay them off during the bankruptcy. If you have student loan debt, discuss your situation and options with a qualified bankruptcy attorney.
Attention Indiana Residents: You May Have Judgment Liens On Your Property And Never Even Know It!!
According to Indiana Statute, once a Judgment is entered in a civil lawsuit (whether it be a Default Judgment, Summary Judgment or Agreed Judgment) that Judgment automatically becomes a Judgment Lien on your real property. The Judgment Creditor doesn’t have to take any action to file a lien and have it recorded in the property room of your local county courthouse. The Clerk of the Court records the lien automatically when a Judgment is entered in a state court case. Typically, you won’t even know about it until you try to refinance your mortgage or sell your home. It could cause HUGE problems for you in the future, but there is a way to protect yourself and your property from these “Judgment Liens”.
If you are currently in bankruptcy OR if you are just thinking about filing for bankruptcy relief, and are worried that you may have liens on your property, go to your local property room and do a check to see if any Judgment Liens are recorded. More than likely, these Judgment Liens are going to be recorded in the “Miscellaneous Book” and will have a stamped book and page number, just like your recorded mortgage and deed.
You are probably asking yourself this question: “What if they aren’t recorded? How can I find out if I’ve ever had a Judgment entered against me?” Well, I have an answer for you! Go to the county courthouse in which your property is located and do a search for Judgments against you. Don’t forget to provide the Clerk with any other name you may have been known by in the past or nicknames you may use. The clerk will then run a report and will be able to determine if any Judgment have been entered against you. If there are Judgments, have that clerk print out a copy of these Judgments and bring them to your attorney’s office. It can then be determined if the Judgment Lien can be avoided and ensure that the Lien is removed once your bankruptcy is discharged.
You would be surprised the amount of people that have Liens against their property and never realize it. When they do discover those liens, it’s too late and it causes additional time, stress and more importantly…more money to have them removed and paid off.
Remember…Judgment Liens don’t have to be recorded, so if you have ever had any kind of Judgment entered against you, that Judgment becomes on automatic lien on your property. This is especially important to check out for clients already in bankruptcy and even more important for those thinking about filing. Do your research and check everything out. For those of you that have already filed, don’t worry. The Judgment Liens can be added to your bankruptcy and taken care of in your case.