Judgments are a result of someone being sued and a court deciding that a debtor owes money. Once issued, a judgment can result in collection and enforcement actions being taken, including removing funds from a bank account, garnishing wages, or possibly even foreclosure of real estate. Therefore, it is important to evaluate a lawsuit before a judgment is entered.
Where real estate assets are concerned, a judgment can become a lien against a debtor’s real estate. However, if the debtor has filed for bankruptcy, he/she has a largely unqualified right to avoid any judicial lien that impairs an exemption, with the exception of certain family related debts. Exemptions are available to individuals under either state or federal statutes with eligibility determined under federal law based on a person’s domicile. The exemption statutes allow a person to protect property to the limits available under state or federal law whichever applicable.
A bankruptcy discharge resolves a debtor’s personal debt liability for most debts, but liens against a debtor’s property typically pass through bankruptcy and remain enforceable against property. Certain liens that impair an exemption to which the debtor is entitled may be subject to avoidance. These include most types of judgment liens and nonpossessory nonpurchase money security interests in household goods and items held for personal use. Liens arising out of a domestic support obligation, liens for taxes, consensual liens, and statutory liens such as HOA dues or mechanic’s liens are not subject to avoidance.
The avoidance of a lien essentially permits a debtor to strip the interest that a creditor has in particular items of property if the debtor’s interest in that same property is exempt but for the creditor’s lien or interest. Lien avoidance actions are usually brought by motion and there is generally no set time line for the filing of such motion by a debtor.
Additionally, a judicial lien is avoidable to the extent that the lien, plus all other liens on the property, plus the amount of the exemption that the debtor could claim if there were no liens on the property, exceeds the value that the debtor’s interest in the property would have in the absence of any liens. This means that a debtor who has no equity in a property, but can claim an exemption, may still avoid a lien. Where a lien only partially impairs an exemption, only that part may be avoided. Hypothetical costs of sale are not to be deducted when evaluating whether a judicial lien may be avoided.
A debtor may want to record a copy of the Bankruptcy Court’s order avoiding judicial lien with the County Auditor’s office where his or her property is located.
Once a Chapter 13 bankruptcy is filed, a secured creditor cannot repossess its collateral as a result of the protection that occurs through the Bankruptcy Code’s automatic stay while the automatic stay remains in place.
If behind on vehicle payments, those missed payments typically do not have to be caught up when a Chapter 13 bankruptcy is filed and a new payment schedule through a Chapter 13 plan commences within 30 days of the bankruptcy filing.
Chapter 13 allows for the interest rate on a vehicle loan to be altered. Depending on the contract rate of interest, there may be a significant reduction in interest available through a Chapter 13 plan. Additionally, it is possible to alter or reduce the amount of the monthly installment payment that is distributed monthly to the vehicle lender.
Where a vehicle was financed more than 910 days before filing, Chapter 13 plans can modify the overall amount that has to be repaid a secured creditor depending on the vehicle’s value. If the vehicle is worth less than what is owed on it, it may be possible to repay only the fair market value of the vehicle (which is commonly referred to as a “cramdown”) plus reasonable interest. The vehicle lender’s claim is split to be repaid as secured to the extent of the vehicle’s value plus interest and the balance of the claim is treated as unsecured. Whether the unsecured portion of the claim is repaid any specific amount, depends on the terms of the plan, and the unpaid balance is dischargeable at plan completion. Even where vehicles were financed within 910 days of bankruptcy, a portion of the secured creditor’s claim may be objectionable and subject to reclassification depending on the circumstances.
Chapter 13 plans often repay secured creditors ahead of other creditors and plans can rank or prioritize disbursements that occur to creditors.
Chapter 13 can help someone who has been struggling with vehicle payments because the plan can change the repayment terms on payment amount and interest rate to more affordable amounts, payments that may have been missed before bankruptcy do not have to be made up, and in many cases, it is possible to reduce the overall amount that needs to be repaid based on a vehicle’s value. Basically, Chapter 13 can give someone a way to repay less than a vehicle contract would otherwise require.
In comparison, because a Chapter 7 is not a reorganization bankruptcy, it does not offer as many options to someone struggling to keep a vehicle unless reducing a person’s unsecured debt load through a Chapter 7 bankruptcy is enough for a person to then be able to afford car payments. Otherwise, the options available to a person filing Chapter 7 are to surrender the vehicle, redeem the vehicle, or reaffirm the vehicle loan. By surrendering, a person gives up the vehicle but has no financial liability to the creditor assuming a successful discharge, redeeming requires a one-time lump-sum payment equivalent to the vehicle’s fair market value following Court approval, and reaffirming requires an agreement be filed with the Court before discharge. When a vehicle loan is reaffirmed, if payments are not made in the future and the vehicle is repossessed, the debtor remains liable for any deficiency. Chapter 13 may offer more flexibility to someone struggling to retain a vehicle than a Chapter 7 or other options might offer.
Not only will a bankruptcy filing stop a creditor from being able to continue a garnishment, but a bankruptcy filing enables a debtor to recover certain funds that were garnished before the bankruptcy. When a creditor has garnished more than $600 from a debtor in the 90 days before a bankruptcy filing, that can be viewed as a preference and the Bankruptcy Code may allow a debtor to seek return of the garnished funds.
With the filing of a bankruptcy, a debtor should disclose, in the personal property schedules, the amount of garnished funds that were received in the 90 days before bankruptcy and claim an exemption under federal or state law as to those garnished funds. Often, creditors will return garnished funds following notice of a bankruptcy filing, a telephone call, and/or demand letter.
If such requests for return of garnished funds are unsuccessful, a debtor can file an adversary proceeding with the Bankruptcy Court to seek avoidance of the creditor’s lien rights and to recover the preferential transfer (the garnished funds). Depending on where the garnishment action is in the process, it may be possible for a debtor to receive a return of garnished funds of less than $600 through a lien avoidance action. Transfers of more than $600 in the 90 days before filing can be recoverable when the debtor exempts those funds, i.e. the transfer was not a voluntary transfer by the debtor, the property was not concealed by the debtor, the trustee has not attempted to avoid the transfer, and the transfer is otherwise avoidable by the trustee.
Bankruptcy trustees typically do not avoid transfers of exempt funds for the benefit of the debtor and allow debtors to do so instead. Depending on the amount at issue, the recovered garnished funds can go a long way toward helping pay for the related bankruptcy fees and costs.
You pick up the phone and someone on the other end says they are with the IRS. Don't panic. Hang up the phone immediately! Over the past several years, thousands of victims have lost millions of dollars to scammers purporting to be the IRS. If you receive an unexpected phone call from the IRS, it is probably not actually a representative of the IRS calling. Thieves who claim to be calling from the IRS continue to try to get people to provide personal information over the telephone. The scammers then use personal information to gain access to the victim’s bank or other account.
Taxpayers should be careful to not fall for a scammer’s tricks. The scammers make urgent unsolicited calls, use scare tactics and threats, utilize caller ID spoofing, and offer other false information in attempts to trick victims.
There are several tips from the IRS to help taxpayers avoid becoming a scam victim.
The IRS will not:
Taxpayers who think they might actually owe taxes should follow these steps:
Taxpayers who have received a fraudulent call should follow these steps:
Scammers are not only using the telephone, but are also utilizing email and other methods trying to impersonate the IRS and taxpayers should be careful of other communications as well. Taxpayers can visit IRS.gov to explore their rights and the agency’s obligations to protect them.
When someone owes multiple mortgages on a property, even where the property is residential property, it is worth considering whether a Chapter 13 bankruptcy might provide that person the ability to strip off a junior mortgage lien. This requires evaluating whether the property value is insufficient to secure the junior mortgage(s). A debtor in a Chapter 13 proceeding may strip off a junior mortgage lien when the debt owed on a senior mortgage lien exceeds the value of the collateral. The gross value of the property without deduction for hypothetical costs of sale or other deductions must exceed the amount owed to the senior position lien holder. For lien stripping of a residential mortgage relief to be available, there cannot be a dollar in equity for the junior mortgage to attach to so that the junior position mortgage is wholly unsecured.
When a Chapter 13 debtor has stripped a junior mortgage lien, a claim for a stripped off mortgage is treated as an unsecured obligation to be repaid per the terms of a Chapter 13 plan along with similar unsecured claims such as medical debt or credit card claims (sometimes repaid at 0% if that is what the Chapter 13 plan provides to unsecured creditors). The Courts have ruled that even a Chapter 13 debtor who may not be eligible for a Chapter 13 discharge due to a prior filed discharged bankruptcy within relevant time periods may utilize Chapter 13 for lien stripping of a wholly unsecured mortgage if other eligibility and requirements of plan confirmation are met.
However, no such junior mortgage relief is available to a debtor in a Chapter 7 case because the Supreme Court in Caulkett has confirmed that Dewsnup v. Timm does not permit lien stripping in a Chapter 7 bankruptcy. But, Dewsnup is inapplicable to Chapter 13, according to In re Enewally, 368.F.3d 1165, 1170 (9th Cir. 2004). Lien stripping is permitted in Chapter 13 and the operative authority includes 11 USC §1322(b)(2), Nobelman v. American Savings Bank, 508 U.S. 324 (1993), In re Zimmer, 313 F.3d 1220 (9th Cir., 2002), and In re Lam 211 B.R. 36 (9th Cir BAP, 1997). Therefore, Chapter 13 bankruptcies can provide a valuable tool to some individuals which will allow them the ability to retain their property without being saddled long-term with a junior mortgage on a property that lacks value to secure that junior mortgage.
Criminal fines or restitution debts are not dischargeable in either Chapter 7 or Chapter 13, but Chapter 13 can provide a way to propose a plan to repay all or a portion of criminal fines over three to five years and it may be possible to specially classify such debts to repay criminal fines ahead of other unsecured claims under certain circumstances.
If a driver’s license has been suspended or revoked because of the failure to repay fines, the filing of a Chapter 13 bankruptcy will allow a driver’s license to be reinstated. If a license has been suspended or revoked as a result of DUI, Habitual Traffic Offender, or for some criminal sentence, although the filing of a Chapter 13 may not be effective to reinstate a license there still may be benefits to filing as to other debts.
If Court or traffic fines have resulted in a driver’s license suspension or revocation, it will be important to obtain a copy of a complete driving transcript report from the DMV so that all fines or obligations that are causing a problem with a driver’s license can be included and listed on the Bankruptcy schedules.
A successful Chapter 13 plan allows a Debtor to reinstate a delinquent mortgage as if no default had occurred. The Chapter 13 Trustee will verify the status of a mortgage as reinstated before the completion of a plan. When a Chapter 13 debtor receives a discharge, a permanent injunction against collection on amounts addressed through the Chapter 13 plan goes into place. The willful failure of a creditor to have properly credited payments received under a confirmed Chapter 13 plan where there has been no default by a Debtor constitutes a violation of the discharge injunction if such action causes material injury to a Debtor. A party who knowingly violates a discharge order can be held in contempt and sanctions awarded. The Ninth Circuit has applied a two-part test for a Debtor to prove in determining whether sanctions are justified: (1) the creditor knew the discharge injunction was applicable and (2) the creditor intended the actions which violated the injunction.
As to the first prong, the Court must find actual knowledge in the context of contempt before a finding of willfulness can be made. Meaning, the Court must find evidence that the creditor was aware of the discharge injunction and that it applied to its claim. As to the second prong concerning a party’s intent, the focus is not on a party’s belief or intent, but on determination of whether a party’s conduct complied with the order at issue. If the Court finds a party has willfully violated the discharge injunction to a Debtor’s detriment, the Court may award compensatory damages, punitive damages, and attorney’s fees to the Debtor. Therefore, a Chapter 13 Debtor has protection to know once a delinquent mortgage has been cured through a confirmed Chapter 13 plan, that a Debtor is absolutely entitled to a fresh start going forward.
For tax liability to be dischargeable in bankruptcy, i.e. no longer considered a personal liability, at least the following three rules must be met:
Please note that if taxes are not dischargeable in a Chapter 7 bankruptcy, a Chapter 13 bankruptcy may provide meaningful protection to a person owing tax debt. There has been much litigation across the country in the past several years concerning discharge of tax liability in Chapter 13 cases and recent court decisions have changed the interpretation of tax claim treatment in Chapter 13 cases. The US Supreme Court was asked to hear such a case but recently declined to do so.
A successful Chapter 13 Plan can provide for repayment of secured and unsecured priority tax liability to the IRS and allow for discharge of penalties, interest on penalties, and other eligible general unsecured tax debt. In addition, priority taxes paid through a Chapter 13 Plan will not accrue additional penalties.
Liability on late-filed tax returns are very likely never dischargeable without a very good reason. However, the debt can still be managed through a Chapter 13. Where there is non-dischargeable tax liability, the accruing interest is also non-dischargeable but a Chapter 13 plan may be able to provide to pay that interest to the IRS in some circumstances.