How To Avoid The Means Test In Chapter 7 In Re Cherrett 873 F3d 1060 1066
In what appears to be the only outlier in American bankruptcy jurisprudence, the Ninth Circuit in In re Cherrett, 873 F.3d 1060, 1066 in a 2-1 decision affirmed a bankruptcy court finding that a mortgage debt was non-consumer based on various facts in the case. Effectively, this case chips away at the previously universal conclusion that every mortgage incurred to purchase a debtors house is consumer debt. While the opinion sets forth that it is based on unique facts in that case, the general principle is that some debtors may be able to argue that their home mortgage is not consumer debt. If they prevail, they are usually deemed non-consumer debtors not required to pass the means test since the mortgage is usually larger than other debts owed by most debtors in bankruptcy.
Managing Your Auto And Home Loans
Your debts can be unsecured or secured. Secured debts usually are tied to an asset, like your car for a car loan, or your house for a mortgage. If you stop making payments, lenders can repossess your car or foreclose on your house. Unsecured debts are not tied to any particular asset, and include most credit card debt, bills for medical care, and signature loans.
Most automobile financing agreements allow a creditor to repossess your car any time youre in default. No notice is required. If your car is repossessed, you may have to pay the balance due on the loan, as well as towing and storage costs, to get it back. If you can’t do this, the creditor may sell the car. If you see default approaching, you may be better off selling the car yourself and paying off the debt: You’ll avoid the added costs of repossession and a negative entry on your credit report.
If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you’re acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an additional amount toward the past due total. Other lenders may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly debt. Ask whether additional fees would be assessed for these changes, and calculate how much they total in the long term.
What Is A Debt Collection Lawsuit
When you fail to pay your credit card debt, the company may file a debt collection lawsuit seeking payment. If your , you have a short time to file a response to the lawsuit. If you ignore the credit card lawsuit, the company will file a motion asking the judge for a default judgment. The default judgment states that you owe the credit card debt. In most cases, the judge allows the credit card company to add attorney fees and other costs to the debt you owe.
The default judgment is recorded at your local county courthouse. The judgment accrues interest until it is paid in full. In most states, the judgment also attaches to any real estate that you own or purchase after the judgment is entered via a lien. If you sell your property, you must pay the judgment in full from the proceeds of the sale.
Actions a Creditor May Take After Getting a Judgment
State laws determine the legal steps a credit card company may take to collect a judgment debt. In some states, creditors are allowed to garnish your wages for judgments. Some states also allow judgment holders to apply for supplemental proceedings to identify any personal property the judgment holder may seize to satisfy the debt.
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Consumer Proposal Vs Bankruptcy: Whats The Difference
Many Canadians may find themselves overburdened with debt due to various factors beyond their control. This may be the result of job loss, illness, relationship breakdown, addiction and, most recently, a global pandemic.
Debt relief options can range from improved budgeting, direct repayment arrangements, debt consolidation, and debt management to legislated solutions such as a Consumer Proposal or Bankruptcy. Determining which option is best for you will depend on your personal and financial circumstances.
Lets take a closer look at how a Consumer Proposal or Bankruptcy can provide debt relief and give you a fresh financial start.
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Common Misconceptions About Bankruptcy
When You File Bankruptcy Typically You Will Lose Little or None of Your Property. People are wrong who believe that a bankruptcy filing results in the loss of most of their property. Everyone who files bankruptcy gets to keep some of their possessions, and most people get to keep all of them.
The Effect of Bankruptcy on Your Credit Report. The effect of a bankruptcy on your credit report is of understandable concern. Most often, you should not worry about bankruptcy making it harder for you to obtain credit. If you are delinquent on a number of debts, this already appears on your credit record. A bankruptcy is unlikely to make your credit rating any worse, but instead may make it easier for you to obtain future credit.
If you file bankruptcy, you usually do not need to go to court, unless something out of the ordinary occurs. You will have to attend one meeting with the bankruptcy trustee . Creditors are invited to that meeting but rarely attend. In the rare case that you do receive a notice to go to court, it is important that you go and also check with your attorney if you have one. Before your case is closed, you must also take a course in personal finances, which will last for approximately two hours.
At the end of every seven years thou shalt make a release. And this is the manner of the release: every creditor shall release that which he has lent unto his neighbor and his brother because the Lords release hath been proclaimed.
Understanding The Difference Between A Chapter 7 And A Chapter 13 Bankruptcy
Your rights are very different depending on whether you file a chapter 7 or a chapter 13 bankruptcy. In a chapter 7 bankruptcy , you eliminate most of your debts, but may lose your property other than exempt propertythat is property the law says creditors cannot reach unless they take that property as collateral. For many families most of their property is exempt. In a chapter 13 case , you keep all your property, and pay a portion or all of your debts in installments over a period of three to five years.
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Consumer Proposal Vs Bankruptcy The Difference Between Them
Consumer proposal vs bankruptcy whats the difference between the two? A lot of Canadians are wondering and for good reason. A lot of people are advertising consumer proposals. Sales people are pushing them. Are they as good as they sound? Is there something theyre not telling us? How does a proposal compare to good old fashioned bankruptcy? The answer is that it all depends on your financial situation. When used appropriately, both bankruptcy and a consumer proposal can be an effective form of debt relief. However, both can also have significant impacts on your life both in the short-term and long-term. We discuss below the major differences between the two, the costs of both options, their effects on your assets, the time each process takes, their impact on your credit, the long-term consequences, and how to figure out which option is best for you.
Consumer Debt Relief In The United States And Canada
In July, the New York Feds Quarterly Report on Household Debt and Credit reported that delinquency rates on mortgages, auto loans, and credit cards are currently similar to, or lower than, theyve been at any point since 2000. Serious delinquency for all loan types, except for student loans, which remains high, peaked during the Great Recession and are currently low or very low compared with historical levels .
As a result, the number of consumer bankruptcy filings in the United States is low. In 2016/2017, about 770,000 U.S. consumers filed non-business or consumer bankruptcy, plus 23,000 businesses. In contrast, during the peak of the Great Recession, over 1.5 million non-business, consumer bankruptcy filings were recorded .
In the United States, 1 in 8 consumers is likely to file for bankruptcy in a lifetime . In the U.S. bankruptcy legal system, consumer bankruptcy is considered a safety net that offers consumers a fresh start and initiates protection from creditors, in addition to providing an equitable distribution to creditors .
Consumers can choose between two very different sets of legislation when filing for bankruptcy: Chapter 7, debt liquidation, or Chapter 13, debt reorganization. Similar to Canada, as described below, U.S. consumers have the option of entering a debt management plan to avoid filing for bankruptcy.
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What Does Primarily Consumer Debt Mean
The bankruptcy law states that the means test applies to anyone who has primarily consumer debt. The courts have interpreted this to mean half or more. If at least half of your debt is consumer debt, you need to take the means test.
- Dollar amount standard. Most courts find that if greater than half of the dollar amount of your debt is non-consumer or business, the means test doesn’t apply.
- Number of debts. A small number of courts require that the business debt also be greater than half of your debts in number.
If more than half of your debt in dollars is business debt but it is less than half of your debts in number, you should check with an experienced bankruptcy attorney in your area to see whether you’ll be required to take the means test.
Consumer Debt And Predatory Lending
Consumer debt is often associated with predatory lending, broadly defined by the FDIC as imposing unfair and abusive loan terms on borrowers.” Predatory lending often targets groups with less access to and understanding of more traditional forms of financing. Predatory lenders can charge unreasonably high interest rates and require significant collateral in the likely event a borrower defaults.
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Now, having said this, there probably were people who put their groceries and everything else on their credit card because they didnt have any other way to get it. What I would look at, if you could get to it, and you cant, would be the composition of what people were buying on credit cards. They werent buying restaurant meals because the restaurants were closed. They werent buying airline tickets. But they could have been using their credit card at the grocery store, at the pharmacy, and in many cases, they could even pay their rent on a credit card. Only the credit card companies could tell you if there has been a change in the composition of the use of the card.
What do we have to look forward to?
First of all, I think it depends not only on the unemployment rate, but also on what happens to wages. If there is some rise in wages, that may give people a bit of a cushion.
The troubling signs to watch will be student loan defaults , foreclosures, and evictions. I would watch for any increase in homelessness recorded in the school districts this fall. And the holiday season will be important to watch, as well.
26 percent of respondents said they were having trouble paying their household expenses. Thats a red flag.
Consumer Proposal Vs Bankruptcy: Which One Is Right For Me
There are important differences between a consumer proposal and bankruptcy that must be considered. Both debt relief options are effective strategies for overcoming unmanageable debt. One is not necessarily better than the other. Making the right decision depends on a variety of factors that only a Licensed Insolvency Trustee can help you understand.
If you are experiencing financial difficulty, you can schedule an initial consultation with a Licensed Insolvency Trustee free of charge. They will explain all of your debt relief options and help you decide on the right course of action.
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Bankruptcy Code Chapter 13
Close to 300,000 U.S. consumers filed under Chapter 13 in the year ending June 30, 2017 . This choice is attractive to filers who have regular income and would like to keep their non-exempt assets. For example, most homeowners declare Chapter 13 bankruptcy in order to become current on mortgage payments and prevent losing their homes to foreclosure. Debtors commit to paying down a portion of the debt based on a repayment plan agreed to with the courts and a bankruptcy trustee. Repayments are collected and distributed to creditors. Remaining debt is discharged after the repayment plan is completed. More than half of debtors fail to adhere to the repayment plan their cases are dismissed or converted to Chapter 7. Chapter 13 bankruptcy has a high level of court involvement, higher attorney fees, and lasts an average of three to five years .
Finding Out If A Consumer Proposal Or A Bankruptcy Is The Best Option For You
There are many factors that go into deciding whether the consumer proposal or bankruptcy is the best option. It really depends on a close assessment of your overall financial situation.
Scheduling a free initial consultation with a BDO Licensed Insolvency Trustee will allow you to explore all your debt relief options, not just a consumer proposal or bankruptcy.
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Debt Advisors In Canada What Can They Help With
Posted on 17 January 2022
If you are struggling with overwhelming debt, bills that are growing out of control, and loans you know you simply cannot repay, you are probably searching for debt advisors in Canada. Whether you are struggling with tax debt, , or escalating payday loans, there are plenty of debt relief solutions out there. No matter how bad your financial circumstances, there is always a way forward you just need the right support. At Spergel, our Licensed Insolvency Trustees are legally able to file all forms of debt relief, and we have been helping Canadians gain debt relief for over thirty years. Our expert debt advisors in Canada will help you to find the most appropriate form of debt relief for your unique situation and allow you to enjoy life again, free from debt.
What Is Consumer Debt
Consumer debt consists of personal debts that are owed as a result of purchasing goods that are used for individual or household consumption. Credit card debt, student loans, auto loans, mortgages, and payday loans are all examples of consumer debt. These stand in contrast to other debts that are used for investments in running a business or debt incurred through government operations.
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Two Different Forms Of Debt Relief
How does a consumer proposal differ from bankruptcy?Both are effective debt solutions that provide immediate relief from debt as well as legal protection from creditors. But there are many important differences between a consumer proposal and bankruptcy. Understanding each solution can relieve a lot of the stress that comes with dealing with debt.
Both options require the expertise of aLicensed Insolvency Trustee. You can speak with an LIT free of charge to understand how each process works, and which one would be most beneficial for your finances.
Debt Relief Options In Canada
When you meet with debt advisors in Canada, they will review your financial circumstances and direct you to some available debt relief options. Each of the debt relief solutions out there are applicable to different scenarios, and varying levels of debt. Each also has its own advantages and disadvantages, so it is important to understand each solution before you proceed. Debt advisors can assist you with this. Here are the most common forms of debt relief in Canada:
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How Long Does A Consumer Proposal Or Bankruptcy Last
A consumer proposal offers more flexibility in its duration. As an agreement between you and your creditors, your LIT will work with you to determine the length of time it will take for you to complete payments, up to a maximum of five years.
Bankruptcies are generally shorter in length than consumer proposals. For a first-time bankruptcy, you can complete the process in as few as nine months. If you are required to make surplus income payments, the process is extended an extra 12 months.
This Story Is Part Of A Group Of Stories Called
I know were all eager to forget, but lets reflect back on spring 2020 for a moment. It was a season marked by the illogical, unharmonious totems of a looming pandemic: celebrity hand-washing videos, apocalyptic grocery store runs, waves of viral content involving windowsill singing and pot-banging. This global camaraderie might have been heartwarming, if it werent all so utterly terrifying. And in addition to the very real fear of a pandemic, many Americans also faced the looming dread of a financial crisis both sweepingly national and disarmingly personal.
In the second quarter of 2020, US unemployment reached 14.8 percent, its highest rate since the record began in 1948. Americas GDP plummeted at an annual rate of 31.7 percent in the same time period. Across a spectrum of industries mental health care, marketing, hospitality my friends and loved ones expressed a sense of financial disequilibrium and tightrope-walking economics that followed us well into summertime.
As a reliable income evaporated for a significant contingent of Americans, you might assume national credit card debt increased as those in need leaned on the lifeline but youd be wrong.
Our interview has been edited for length and clarity.
The phrase consumer debt is one that I think the public tends to misinterpret. What is consumer debt, and what does it look like in America?
What were the immediate impacts of Covid-19 on consumer debt?
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