Debts That Are Difficult To Discharge In Bankruptcy
Student loans are notoriously difficult to discharge through bankruptcy it is only possible if you can demonstrate undue hardship to yourself or your dependents, such as being unable to maintain a minimal standard of living. In some cases, a court may discharge part, but not all, of your student loan debt. If student loan debt is a major reason for your considering bankruptcy, contact your loan servicer first and see if itâs possible to negotiate a repayment plan that would work for you. In the case of federal student loans, for example, several repayment plans are available.
You cannot have income tax debts discharged without a special exemption, which can only be obtained by petitioning the bankruptcy court and explaining why you deserve relief. So if you have income tax debts that you cannot repay, then you may be better off consulting with a tax attorney to discuss your options before filing for bankruptcy.
In the case of federal taxes, for example, the Internal Revenue Service can offer several alternatives to people who are unable to pay what they owe. One is an offer in compromise, in which the IRS agrees to accept a lesser amount. The IRS may also arrange for a payment plan, or an installment agreement, that will allow you to pay your taxes over an extended period of time.
File Chapter 13 Bankruptcy To Stop Judgment
Chapter 13 is a reorganization. People who file Chapter 13 are those who failed the means test. In this type of bankruptcy, you can keep your properties and assets, and in return, you have to make a monthly payment to pay off all your debts within 60 months . You will be required to propose a monthly repayment plan, which can be determined in two ways, first, via the value of your non-exempt assets, or second, via your disposable income. Whichever will pay the most significant amount off your debts will be used as the basis for determining the amount of your monthly payment.
Can You Wipe Out The Lien In Bankruptcy
Whether you can wipe out a lien in bankruptcy will depend on whether you can protect your property with a bankruptcy exemption. Review your states bankruptcy exemptions to find out.
If a bankruptcy exemption fully or partially covers the property, you can ask the bankruptcy court to fully or partially remove the lien by filing a motion. The court will remove the lien up to the exemption amount.
For instance, suppose a creditor with a money judgment put a lien on your pop-up trailer worth $5,000. If your state has a wildcard exemption that allows you to protect any property of your choosing, and the exemption covers $5,000 or more of property equity, you can ask the court to remove the lien. If successful, the creditor wont be able to use the lien to take your trailer after bankruptcy.
A lien gives a creditor an ownership interest in your property until you pay what you owe. For instance, suppose a creditor has a lien on your car. If you sell it, you cant give the buyer the title without first paying off the loan amount because your creditor appears on the title with you. Only after paying off the car loan will the lender remove the lien and transfer the title to the new owner.
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How Does The Debtor Get A Discharge
Unless there is litigation involving objections to the discharge, the debtor will usually automatically receive a discharge. The Federal Rules of Bankruptcy Procedure provide for the clerk of the bankruptcy court to mail a copy of the order of discharge to all creditors, the U.S. trustee, the trustee in the case, and the trustees attorney, if any. The debtor and the debtors attorney also receive copies of the discharge order. The notice, which is simply a copy of the final order of discharge, is not specific as to those debts determined by the court to be non-dischargeable, i.e., not covered by the discharge. The notice informs creditors generally that the debts owed to them have been discharged and that they should not attempt any further collection. They are cautioned in the notice that continuing collection efforts could subject them to punishment for contempt. Any inadvertent failure on the part of the clerk to send the debtor or any creditor a copy of the discharge order promptly within the time required by the rules does not affect the validity of the order granting the discharge.
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Does Filing For Bankruptcy Help With Liens
First, its necessary to understand what exactly a lien is. A legal judgment could establish a lien against your real estate. If you dont repay it, its their right to seize the real estate through a foreclosure action. Judicial liens are sometimes avoidable in bankruptcy. However, it is very important to speak with a bankruptcy attorney before the judgement is issued in a lawsuit so that you have the best chance at mitigating the effects of a judgement on your property.
If you are served with a lawsuit due to owing debt, the best decision you can make is to file for bankruptcy. Creditors cant get a lien if they dont have a money judgment at the time you file for a bankruptcy case, meaning you wont have to request that the bankruptcy court remove it.
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Does Bankruptcy Clear Lawsuit Debt
Both being sued by a creditor and bankruptcy can feel like scary situations, but rest assured, filing for bankruptcy can help. Once bankruptcy is filed, whether its under Chapter 7 or Chapter 13, an automatic stay prevents debt collectors from taking further legal action. Does bankruptcy clear lawsuit debt? Read on to answer this question and more regarding your bankruptcy situation. Keep in mind that although you can file for bankruptcy if youve lost a lawsuit, its best to file in advance to simplify matters and protect your assets.
Can Filing For Chapter 7 Bankruptcy Remove A Lien In Georgia
In both Chapter 7 and Chapter 13 bankruptcy, debtors are allowed to protect a portion of their assets by using exemptions. Each state, including Georgia, has its exemptions but can also choose to use federal exemptions. Georgia bankruptcy filers must use Georgia exemptions. A writ of Fi Fa that is filed in Georgia attaches to all property that the debtor owns in Georgia. Thus, the judgment lien can be used to levy property, such as a car, or foreclose on a piece of real property. Under the bankruptcy code, a debtor may avoid that lien to the extent that his or her property is exempt.
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Bankruptcy Stops Wage Garnishments
After getting a court judgment, the creditor can have an earnings withholding order served on your employer. That document requires your employer to take 25% of every check you get and send that money to the County Sheriffs department. The Sheriff then gives that money to the creditor. The earnings withholding order continues until the debt you owe is paid in full. A bankruptcy filing stops garnishments.
How Filing For Bankruptcy Before Getting A Judgment Can Protect You Against Liens
Filing for bankruptcy as soon as you’re served with a lawsuit is almost always the right choice. If a creditor doesnt have a money judgment when you file for bankruptcy, the creditor cant get a lien, and you wont have to ask the bankruptcy court to remove it.
Example. Shyanne immediately filed for Chapter 7 bankruptcy after a creditor filed a lawsuit seeking $10,000 for an outstanding credit card account. The automatic stay stopped the litigation in its tracks. Shyanne erased the $10,000 debt before the creditor could get a judgment and file a lien against her property.
Example. Jorges medical provider filed a lawsuit against him to recover $50,000 in medical bills. After winning and receiving a money judgment, the medical provider filed the judgment with the county recorders office and a $50,000 lien attached to Jorges home. Jorge filed for Chapter 7 bankruptcy and wiped out the medical bills. Because Jorges state offered a $75,000 homestead exemption protecting $75,000 in home equity from creditors, Jorge successfully asked the bankruptcy court to remove the medical lien from his home. The motion wouldn’t have been necessary if Jorge had filed his case before receiving the judgment.
Example. Assume the same facts, but the homestead exemption was $5,000, and Jorge had $60,000 in home equity. In that case, the lien would remain in place because it wouldnt interfere with Jorges right to $5,000 of home equity.
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Why A Judgment Lien May Not Be Troubling
A judgment does not last forever. In the event that the judgment is considered a lien against your property, you may not be concerned if you dont intend to sell the property before the judgment expires.
Judgments expire in 10 years under both California and New York laws. In both states, however, the creditor can apply for an extension of the judgment to get 10 more years to collect the debt.
In addition, if youre in New York you have the option of going back to state court to seek a discharge of the judgment after a certain amount of time has passed since your bankruptcy discharge. Learn more about that here.
If you go through Chapter 7 bankruptcy and have a judgment but dont expect to need to sell your property within the time thats left for enforcement, you may decide to do nothing. Its a decision you need to make with your bankruptcy lawyer.
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Does Bankruptcy Clear Judgments
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In a Nutshell
When a creditor or debt collector gets a judgment against you, it’s dischargeable as long as the original debt was dischargeable. The question becomes a bit more complicated if the creditor gets a judgment lien on your property. Hereâs how it works.
Written bythe Upsolve Team. Legally reviewed byAttorney Andrea Wimmer
Chapter 7 bankruptcy can eliminate many unsecured debts. Some unsecured debt can even be discharged in a Chapter 13 bankruptcy case. But, what happens if credit card debt, medical bills, personal loans, or other unsecured debt is reduced to judgment?
When a creditor or debt buyer files a lawsuit and gets a judgment against you, that generally doesnât change whether the debt is dischargeable. That means some judgment debts are dischargeable and some are nondischargeable. The question becomes a bit more complicated if the creditor gets a judgment lien on your property. But, you may be able to avoid judgment liens in bankruptcy, keep your property, and discharge the debt.
Hereâs how it works.
Is It Ever Too Late To File A Bankruptcy Case
The short answer is: No, it is never too late.
But there can be consequences to waiting.
Most people wait until the last possible moment before considering bankruptcy as an option.
They make decisions and act, or fail to act, without getting all the necessary information.
The longer they wait, the more options disappear and the more problems arise.
As I discussed in my article on When You Should File Bankruptcy, it is always better to consider your bankruptcy and non-bankruptcy options earlier, rather than later.
Doing so enables you to minimize the costs and problems, and maximize the benefits of filing a bankruptcy .
However, as long as you are eligible to file under one of the bankruptcy chapters, you can still eliminate or restructure debts that are owed after a lawsuit is filed and even after a judgment has been entered against you.
The fact that there is a lawsuit or judgment does not affect affect your bankruptcy options, unless the judgement had a finding of fraud or other element that is excepted from discharge in bankruptcy .
It is, nevertheless, usually best to file bankruptcy before a judgment is entered. Because once that occurs, the creditor can garnish wages or seize bank account funds up until a bankruptcy case is filed.
The creditor can also then place a lien against property, which may or may not be removable in bankruptcy. .
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An Automatic Stay Stops Collection Activity
When you file bankruptcy, the court will issue a stay order. Once the stay order takes effect, you are automatically protected from your creditor. Your debt âstays’ but is not canceled as the stay order merely suspends any collection activity. This means that no creditors can call you or send any letters and file a collection lawsuit. If there is a pending suit, it will be suspended. If any of your creditors violate the automatic stay order, you can file contempt against them and make them pay for the fine and damages.
Filing bankruptcy will remain on your credit report for ten years and will have a significant impact on your credit score. You may have a hard time getting new , mortgages, or other loans. However, that will not last forever. Within a year after being discharged, you can already start to rebuild your credit score. Filing for bankruptcy is not necessarily a bad idea if you’ve explored all other options.
How A Judgment Or Lawsuit Works
A judgment is a court order that confirms that you owe a creditor a debt.
There are three basic steps in the judgment process:
A few other facts you should know about judgments and garnishments:
- you cant go to jail for not paying your debts
- certain income cannot be garnisheed including social assistance, employment insurance and both government and private pension
- in Ontario, a creditor can only garnishee up to 20% of your wages
- in contrast, a creditor can seize up to 100% of your bank account to enforce a judgment for outstanding debts.
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Find Out If You Can Wipe Out A Lawsuit Judgment In Bankruptcy And What Happens If The Creditor Has A Lien Against Some Of Your Property
If a creditor gets a judgment against you and the debt is dischargeable in a Chapter 7 bankruptcy, filing for bankruptcy will wipe out a creditor’s ability to collect. Judgments, however, can create a lien on your property. And liens don’t go away in bankruptcy automatically. So it’s possible to wipe out a judgment in bankruptcy and remain obligated to pay the lien.
Before determining whether you can use bankruptcy to get out from under a judgment entirely, you’ll need to learn:
- the differences between a judgment and a judgment lien
- whether you can erase the debt in bankruptcy
- if you can exempt the property securing the lien, and
- the steps involving lien avoidance in Chapter 7 and Chapter 13.
Lien removal is a tricky area of bankruptcy law that could require professional help. If you’d like to ensure that you protect valuable property to the best of your ability, it’s prudent to seek the advice of a knowledgeable bankruptcy attorney.
For step-by-step guidance through the bankruptcy process, read What You Need to Know to File for Bankruptcy in 2021.
