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Here at Shenwick & Associates, many clients, lawyers and accountants have called us regarding the discharge of taxes in bankruptcy filings. Many kinds of “old” state and federal income taxes are dischargeable in bankruptcy. In the case of income taxes, they are dischargeable in Chapter 7 if all the following criteria are met:
1. The tax is for a year for which a tax return is due more than 3 years prior to the filing of the bankruptcy petition;2. A tax return was filed more than two years prior to the filing of the bankruptcy petition;3. The tax was assessed more than 240 days prior to filing of the bankruptcy petition;4. The tax was not due to a fraudulent tax return, nor did the taxpayer attempt to evade or defeat the tax;5. The tax was not assessable at the time of the filing of the bankruptcy petition; and6. The tax was unsecured.
Section 507(a)(8) of the Bankruptcy Code provides that:
Income taxes: (i) for tax years ending on or before the date of filing the bankruptcy petition, for which a return is due (including extensions) within 3 years of the filing of the bankruptcy petition; (ii) assessed within 240 days before the date of filing the petition; (iii) not assessed before the petition date, but were assessable as of the petition date, unless these taxes were still assessable solely because no return, a late return (within 2 years of the filing of the bankruptcy petition), or a fraudulent return was filed, withholding taxes for which a person is liable in any capacity, an employer's share of employment taxes on wages, salaries, or commissions (including vacation, severance, and sick leave pay) and excise taxes on transactions occurring before the date of filing the bankruptcy petition are all not dischargeable in bankruptcy.
As part of our bankruptcy intake process, we analyze a client’s state and federal tax transcripts to determine whether their tax debts (if any) are dischargeable or not. It’s complicated by the fact that various actions by the IRS or the taxpayer can “toll” the periods of time listed above. And a recent case from the Bankruptcy Court for the Southern District of Georgia, Elkins v. IRS (In re Elkins), demonstrates the pitfalls of not calculating these dates correctly. Elkins requested an extension to file his 2001 federal income tax return. As a result, his 2001 federal tax return was due on October 15, 2002. He filed for chapter 7 relief on October 14, 2005. Both Elkins and the IRS filed motions for summary judgment regarding the dischargeability of his income taxes.
Elkins argued that a year was limited to 365 days (2004 was a leap year). He also included both the day his tax return was due and the day he filed his bankruptcy petition in his calculations. The bankruptcy court disagreed, finding that a year meant a calendar year. As a result, the bankruptcy court ruled that Elkins filed his petition one day prior to the three-year anniversary date of when his 2001 tax return was due. Therefore, the IRS's claim for Elkins’ 2001 tax liability was non-dischargeable under §§ 507(a)(8)(A)(i) and 523(a)(1)(A).
For your questions about taxes and bankruptcy, please contact Jim Shenwick.
Student Loan Debt Rises to $1.5 TRILLION in May, 2018
Life for the next 20++ years – between a rock and a hard place.
There are two types of student loans – federal and private. Federal loans have some protections for the lenders that private student loans do not. Every month lawsuits are filed by the thousands, many that are invalid, but if the borrower does not respond the court has no option but to award a judgment for the lender.
Below are five defenses may be successful in halting student loan collection cases.
The creditor cannot prove that it owns the debt.
Many private student loans are transferred by their original lender to investors through a process called securitization, in which thousands of loans are pooled together and sold as a package. Lender needs to prove that it owns the loan – Lovett v. National Collegiate Student Loan Trust 2004-1
The creditor’s business records are not admissible.
There are rules governing how business records may be used in court. In a California case, National Collegiate Student Loan Trusts v. Nohemi Macias, an appeals court ruled that an employee of a debt collection firm was not qualified to verify the creditor’s loan records and, in her testimony, “effectively conceded that she was unable to do so”, therefore the creditor had nothing to support their case.
The debt is beyond the statute of limitations for collection.
Unlike federal student loans, collection of private student loans are controlled by the state and eventually the lender may lose their right to collect the debt. In an Arizona case, National Collegiate Student Loan Trust 2004-2 v. Gallagher, an appeals court found that the creditor waited too long to sue because it was outside Arizona’s six year statute of limitations for breaching a written contract. (Note – each state has a different statute of limitations for contract obligations).
The creditor is not licensed to do business in the jurisdiction.
Some states require “foreign corporations” — those based in other states — to register to operate in their area. Failing to do so can prevent creditors from using the local court system. SLM Education Finance Corporation v. Gray and National Collegiate Student Loan Trust 2006-2 v. Cowles.
A sample form letter if find that a creditor that does not comply with the state’s Corporation Business Activities Reporting Act.
The creditor failed to comply with court requests for additional information.
When courts ask creditors to provide additional documents, or produce witnesses to testify about their claims, the creditors often simply withdraw their lawsuits, according to borrowers’ lawyers.
For full article: 5 Flaws That Kill Student Loan Collection Lawsuits, By Stacy Cowley, Nov. 14, 2017
The post Some Defenses to Private Student Loan Collections appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
Student Loan Debt Rises to $1.5 TRILLION in May, 2018
Life for the next 20++ years – between a rock and a hard place.
There are two types of student loans – federal and private. Federal loans have some protections for the lenders that private student loans do not. Every month lawsuits are filed by the thousands, many that are invalid, but if the borrower does not respond the court has no option but to award a judgment for the lender.
Below are five defenses may be successful in halting student loan collection cases.
The creditor cannot prove that it owns the debt.
Many private student loans are transferred by their original lender to investors through a process called securitization, in which thousands of loans are pooled together and sold as a package. Lender needs to prove that it owns the loan – Lovett v. National Collegiate Student Loan Trust 2004-1
The creditor’s business records are not admissible.
There are rules governing how business records may be used in court. In a California case, National Collegiate Student Loan Trusts v. Nohemi Macias, an appeals court ruled that an employee of a debt collection firm was not qualified to verify the creditor’s loan records and, in her testimony, “effectively conceded that she was unable to do so”, therefore the creditor had nothing to support their case.
The debt is beyond the statute of limitations for collection.
Unlike federal student loans, collection of private student loans are controlled by the state and eventually the lender may lose their right to collect the debt. In an Arizona case, National Collegiate Student Loan Trust 2004-2 v. Gallagher, an appeals court found that the creditor waited too long to sue because it was outside Arizona’s six year statute of limitations for breaching a written contract. (Note – each state has a different statute of limitations for contract obligations).
The creditor is not licensed to do business in the jurisdiction.
Some states require “foreign corporations” — those based in other states — to register to operate in their area. Failing to do so can prevent creditors from using the local court system. SLM Education Finance Corporation v. Gray and National Collegiate Student Loan Trust 2006-2 v. Cowles.
A sample form letter if find that a creditor that does not comply with the state’s Corporation Business Activities Reporting Act.
The creditor failed to comply with court requests for additional information.
When courts ask creditors to provide additional documents, or produce witnesses to testify about their claims, the creditors often simply withdraw their lawsuits, according to borrowers’ lawyers.
For full article: 5 Flaws That Kill Student Loan Collection Lawsuits, By Stacy Cowley, Nov. 14, 2017
The post Some Defenses to Private Student Loan Collections appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
Could the CFPB’s Complaint Database Go Dark?
Reprint from Findlaw, By Christopher Coble, Esq. on May 15, 2018 12:59 PM
In the wake of the 2007-08 financial crisis, Congress created the Consumer Financial Protection Bureau, an agency tasked with protecting consumer rights when dealing with banks, credit unions, debt collectors, mortgage servicers, payday lenders, securities firms, and other financial institutions.
Part of the CFPB’s mission is taking, compiling, and tracking consumer complaints in a massive database, a database that, as of this writing, remains publicly viewable, searchable, and even downloadable. But interim CFPB head Mick Mulvaney (Trump’s “temporary” appointee to head CFPB) has indicated the agency may shut down public access to the complaint database.
Public Peeves
The database contains more than 1.5 million consumer complaints regarding their bank accounts, credit cards, mortgages, and other financial services. And while federal law requires the CFPB to maintain the complaint database, it does not require that it be made public. “I don’t see anything in here that I have to run a Yelp for financial services sponsored by the federal government,” Mulvaney said during a speech at an American Bankers Association meeting last month. “I don’t see anything in here that says that I have to make all of those public.”
Unlike Yelp, however, the CFPB gives companies an opportunity to determine whether the person making the complaint is in fact a customer and file a written response before any of the information is made public on the database. Whether companies will have the same motivation to respond to consumer complaints if the database is made private, however, is up for debate.
Pay to Privatize?
Bribery at its finest.
Why pull the database from public view? As the Washington Post points out, eight of the 10 most complained about companies made significant contributions to Mulvaney’s political campaigns, and 19 of the top 30 donated over $140,000:
- Equifax: Subject of 83,252 complaints (the most), and contributed $5,000;
- Experian: Subject of more than 72,000 complaints, and contributed $6,000; and
- JPMorgan Chase, Bank of America, and Wells Fargo: Subjects of more than 50,000 complaints each, and contributed thousands of dollars, all according to a report by Public Citizen.
“Is it possible,” wondered Michael Tanglis, senior researcher for Public Citizen and author of the report, “that Mulvaney’s horrible idea of hiding the CFPB’s complaint database is connected to the fact that the most complained-about companies contributed to him?”
The CFPB’s database isn’t hidden from the public yet, so if you want to read complaints (or post one of your own) now’s the time to do it.
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About the Author:
Diane L. Drain is a well known and respected Arizona bankruptcy attorney. She is an expert in both consumer bankruptcy and Arizona foreclosure. Since 1985 she has been a dedicated advocate for her clients and spokesperson for Arizona citizens. As a teacher and retired law professor, Diane believes in offering everyone, not just her clients, advice about the Arizona bankruptcy and foreclosure laws. She is also a mentor to hundreds of Arizona attorneys. 
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*Important Note from Diane: Everything on this web site is available for educational purposes only, is not intended to provide legal advice nor create an attorney client relationship between you, me, or the author of any article. Any information in this web site should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state.*
The post Trump’s Lackey Trying to Hide Complaints About Banks and Other Big Businesses appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
Your bankruptcy case will make much more sense if you know the roles of the people involved, starting with debtor, creditors, and clerk. Understanding the roles in Bankruptcy can be quite confusing, but our attorneys are here to help you through the confusion.
The Debtor
This is the “person” filing the bankruptcy case. An individual can file a case, as can a married couple. The “person” can also be a corporation, partnership, or some other kind of business entity. A sole proprietor business is not legally a separate person so it cannot file its own bankruptcy case. The sole proprietor files an individual case which includes the business.
A debtor must qualify to file bankruptcy. Sometimes qualifying is very easy; sometimes it can be difficult. See Section 109 of the U.S. Bankruptcy Code on “Who may be a debtor.” Also see Section 521 on “Debtor’s duties.” Your primary duty as the debtor is to deal honestly with the bankruptcy system to get the relief the system is designed to provide you.
The Creditors
These are the businesses or individuals to whom the debtor owes a debt. A debt is money owed based on some right to payment by the creditor. A creditor’s right to payment is usually for a definite amount. It’s usually based on a contract or transaction with easily determinable dollar amounts. Likely you owe all or most of your creditors a definite dollar amount. But a creditor’s claimed right to payment can also be “unliquidated”—for an unknown amount. An example is a debt owed to the creditor based on a personal injury the debtor caused in a vehicle accident. Or the debt can be disputed. An example is that same personal injury from an accident, when it’s unclear whether the debtor was at fault.
Debts owed to the creditor can be secured by collateral such as your home or vehicle, or whatever you purchased. Debts can also be secured involuntarily, such as an income tax with a recorded tax lien. One of the biggest areas of contention in bankruptcy is how collateral is treated between debtors and secured creditors.
Debts owed to the creditor are mostly not secured by anything—they are unsecured. The creditor has no lien on anything the debtor owns. But unsecured debts of different types can be treated very differently as well. Most unsecured debts are discharged—legally written off—in bankruptcy, but some are not. Child support, some income taxes, and most student loans are not. Creditors are treated the same in bankruptcy, as long as the debts owed to them are of the same legal category. Otherwise, they can be treated very differently.
The Bankruptcy Clerk
The clerk takes care of most of the crucial but mundane operations of the bankruptcy system. The clerk’s office handles the clerical tasks within the bankruptcy court, most of which is now done electronically.
Your attorney files your case through a very secure internet connection with the clerk’s office. The clerk maintains your bankruptcy file, mails and sometimes electronically delivers most (but not necessarily all) of the important formal notices, runs the bankruptcy court calendar, and does lots other similar tasks. If you are a debtor not represented by a bankruptcy lawyer, you would deal a fair amount with the clerk. As a debtor represented by lawyer, you would likely never deal directly with the clerk.
Schedule a Free Consultation with Your Tacoma Bankruptcy Attorney
When it comes time to file for bankruptcy, you need a compassionate and skilled attorney who will be able to guide you through the process as cleanly as possible. Northwest Debt Relief Law Firm, we can help you with filing for Chapter 7, Chapter 11, and Chapter 13 bankruptcy in Oregon State. We will be there every step of the way to help navigate you through the often-complex and difficult bankruptcy process.
Give us a call (503) 912-8809 to schedule a free consultation with one of our bankruptcy attorneys. If you have any other questions about bankruptcy, one of our attorneys will be more than happy to offer advice on your particular situation.
The post Roles of The Debtor, Creditors, and Clerk in a Bankruptcy Case appeared first on Portland Bankruptcy Attorney | Northwest Debt Relief.
Using the Bankruptcy Laws to Your Advantage
One of the basic principles of bankruptcy is that you usually can’t favor one debt over your other debts. You can’t except when the law favors that debt for some reason. In various ways, creditors are recognized to be legally different. For example, secured creditors have rights over your property that you’ve given as collateral, rights that unsecured creditors don’t have. Also, bankruptcy does not discharge (write off) certain debts. These include child support, many types of taxes and many student loans, and certain other debts. These can’t be discharged while most debts can. Paying off Creditors With Chapter 13 Bankruptcy may be an option for you.
One of the huge benefits of Chapter 13 is that it turns to your advantage the ways that the law requires you to treat debts differently.
Catching up on Your Mortgage Arrearage
The law highly favors residential mortgage debts, especially your primary mortgage. Why? The idea is that these lenders should be protected in bankruptcy to lessen their risks. Arguably this encourages more investment in the residential mortgage capital markets, to make mortgages more readily available to homeowners.
So, if you were behind on your home mortgage and wanted to keep the home, you’d have to catch up. You can’t escape doing so just because the home is worth less than the debt (as you often can with a vehicle loan). You would have to catch up whether you filed a Chapter 7 “straight bankruptcy” case or a Chapter 13 “adjustment of debts.”
The difference is that in a Chapter 7 case you would have a limited time to catch up. You would usually have much more time in a Chapter 13 case. That means that your monthly catch-up payments would almost always be less. Also, because in a Chapter 13 payment plan you are usually only required to pay what you can afford, this means that catching up on your mortgage is fit within paying any other important debts that you must pay (such as income taxes and/or child support.)
If your home is one of your highest priorities, and you are behind on the mortgage payments, then consider using Chapter 13 to catch up.
Child Support Arrearage
Another kind of debt that is highly favored in the law is child support. As a result, if you get behind on support payments, the collection procedures that can be used against you are extremely aggressive. There’s the usual potential garnishment of your bank accounts and paychecks. But In most states you also face the possibility of losing your driver’s license. There’s also the possibility that your occupational or professional license could be taken from you.
Chapter 7 provides no direct help if you owe back support. The “automatic stay” that protects you from other creditors does not even apply to support debt under Chapter 7. This means that the aggressive collections can just continue; the bankruptcy filing has no effect on it.
But a Chapter 13 is very different. The “automatic stay” does protect you and your property from collection of the support arrearage. You ARE protected from support collections, as long as you follow some strict rules. After the Chapter 13 filing you must pay ongoing regular support payments, and your Chapter 13 plan payments. Through those plan payments, you have to pay off the entire support arrearage before completing the case. But you want to pay it off because you don’t want to be current when you finish the case and lose the protection it provides.
In a Chapter 13 case, you essentially take money away from your other creditors to pay off the support arrearage. Often your support arrearage is paid 100% before you pay anything to the rest of your unsecured creditors.
Schedule a Free Consultation with Your Tacoma Bankruptcy Attorney
When it comes time to file for bankruptcy, you need a compassionate and skilled attorney who will be able to guide you through the process as cleanly as possible. Northwest Debt Relief Law Firm, we can help you with filing for Chapter 7, Chapter 11, and Chapter 13 bankruptcy in Washington State. We will be there every step of the way to help navigate you through the often-complex and difficult bankruptcy process.
Give us a call at (253) 780-8008 to schedule a free consultation with one of our bankruptcy attorneys. If you have any other questions about bankruptcy, one of our attorneys will be more than happy to offer advice on your particular situation.
The post Paying Off Important Creditors With Chapter 13 Bankruptcy appeared first on Portland Bankruptcy Attorney | Northwest Debt Relief.
By Dan Rivoli and Erin Durkin
The city has indefinitely pushed off selling more taxi medallions as the market for the once-valuable medallions continues to plunge.
Mayor de Blasio's executive budget assumes no cash will come in from taxi medallion sales for the next five years.
The taxi medallions — once worth as much as a million dollars each — have fallen off a financial cliff as yellow taxis took a beating from competitors like Uber and Lyft. This year medallions have been selling for less than $200,000.
The city last sold 350 medallions in the 2014 fiscal year, and is authorized to sell 1,650 more under state law.
Since then, years of city budgets have projected revenue from the taxi sales that never materialized. As of November, the spending plan assumed $731 million would come in over five years.
Hizzoner's latest budget dispenses with the notion medallions will be flying off the rack any time soon.
"This change allows the city to continue to monitor the medallion market, and does not foreclose any medallion auctions at a future date," Taxi & Limousine Commissioner Meera Joshi (photo below) said Thursday at a City Council budget hearing.
"The prices have come down considerably," she said, adding that it's also become impossible for would-be buyers to get loans. "All the transactions are going to be without financing and all cash, which is certainly going to depress the value of it."
Matthew Daus, a former TLC chairman, said it was a smart move by the city to recognize the reality on the street.
"They'd be crazy to do a sale at this point in time," he said, noting that putting additional yellow cabs on the street amid declining ridership would have hurt already-suffering drivers.
Medallion owners have complained that they invested their savings in what they thought was a sure bet, since the law says only yellow cabs can take passengers who hail them on the street.
But that didn't account for apps like Uber, which is legally treated like a car service arranged by phone.
"The drivers are being hurt and the city is being hurt by the way this whole situation has been managed," said Carolyn Protz, a member of the NYC Taxi Medallion Owner Driver Association.
The collapse of the yellow cab industry has led to four driver suicides in recent months, industry advocates say.
The city has seen an influx of for-hire drivers, mostly for e-hail apps — doubling the number from 90,000 to 180,000 since 2011.
Officials say they're again looking to rein in the growth of Uber, both to cut down congestion and give a break to yellow cab drivers. A push by de Blasio to cap the number of cars the company could deploy three years ago collapsed.
The city also wants to find a way to bolster drivers' incomes.
"The number of licensed drivers has outstripped ... demand," Joshi said. "The administration's goal is to establish a regulatory framework to protect drivers' incomes."
Copyright © 2018, New York Daily News
Going through financial hardship is never easy, especially in our present day. For some people, incurring debt is the only way to keep their head above water. In some instances, an unexpected accident or illness can put any person under extreme financial duress. No matter the circumstances surrounding your financial situation, the results can be […]
The post Benefits of Chapter 7 Bankruptcy in California appeared first on The Bankruptcy Group, P.C..
Step 1
There are numerous Steps During a Bankruptcy. You usually start the bankruptcy process by meeting with a lawyer for an interview. Most lawyers offer a free consultation. The interview should not really be any less than one-half hour. The lawyer will usually provide you with some forms to fill out. If you are comfortable with that lawyer, you usually pay a fee deposit at that first meeting. The fee deposit can differ, depending on the type of case you are filing and the lawyer’s estimation of complexity, but recognize that most bankruptcy cases really are not horribly complex, so you should not usually have to pay a huge fee up front to retain the lawyer.
Most lawyers want your business, so the lawyer should not have any problem with you going home to think it over before putting down any deposit. If you get lots of pressure to pay immediately, perhaps you should be wary of that lawyer. At the first meeting, the lawyer is required by law to provide you with certain written disclosures if he offers to take your case. A lawyer who does not provide the written disclosures for you to take home should be avoided because that means the lawyer either does not know what he is doing, or perhaps even worse, does not respect the Federal law that strictly governs his relationship with you.
Step 2
In addition to the mandatory disclosures, the lawyer should send you home to gather information, providing you with a list. In Oregon State, a modest amount of information needs to be presented to the lawyer’s staff so that the requisite paperwork can be prepared for you to sign.
Step 3
You must complete an online mandatory pre-bankruptcy credit counseling at home. This is an easy to complete tutorial that takes about one hour and fifteen minutes to finish. It is done over the internet or over the telephone. You are not required to take the Oregon credit counseling if you are on active military duty in a combat zone or you are physically or mental impaired to such an extent that you cannot fulfill the credit counseling requirement. Once you complete the course you will receive a certificate that you must file along with your bankruptcy petition.
Step 4
After your gather the information, you call the attorney’s staff to arrange a date and time to drop of the information that is required to prepare your paperwork. When all the information is dropped off, then the lawyer’s staff works on setting a document signing date and time for you to meet with the attorney once again.
Step 5
At the signing appointment, you come to the office and review the paperwork prior to signing it. You then meet with the attorney to make any corrections or iron out any questions or problems. A signing appointment can last anywhere from 15 minutes to two hours, depending on the complexity of the case.
Step 6
Within a few days, the lawyer’s staff files the case electronically to the Court.
Step 7
About six or seven weeks after the case is filed electronically to the Federal Bankruptcy Court, you then attend Court with the attorney at what is called the 341 Meeting of Creditors. You and your lawyer meet with the Judge’s designee or assistant (called a Trustee). The Trustee and your attorney sit with you around a table and the Trustee asks you some questions to ensure that you are being honest in your documents and that you have not left out any required information. There are usually eight to 12 cases scheduled every hour at Bankruptcy Court for the 341 Meeting of Creditors, so it is rare that you would be questioned for more than four or five minutes.
Step 8
About two months after your 341 Meeting of Creditors, your case is discharged in Chapter 7. In Chapter 7, your case is usually “closed” and thus finalized about two to six weeks after the issuance of discharge.
However, if you are in a Chapter 13 case which does repay some funds to some creditors, your proposed plan of Chapter 13 reorganization drafted by your attorney is usually approved by the Court about two to three months after your 341 Meeting of Creditors because there is such a local backlog of Chapter 13 cases. In Chapter 13, you start your monthly “plan payment” to the Chapter 13 Bankruptcy Trustee about 30 days after the filing of the case, and you make payments for 36 or 60 months. How long you must pay in a Chapter 13 plan (36 months vs. 60 months) and how much debt you must repay in Chapter 13 (1.0% vs. 99.9%) are complex topics best discussed with your attorney or his or her staff, because the two items (length of plan and debt repayment) are very complex calculations based upon how much you have been earning in the six months leading up to your bankruptcy filing.
Schedule a Free Consultation with Your Tacoma Bankruptcy Attorney
When it comes time to file for bankruptcy, you need a compassionate and skilled attorney who will be able to guide you through the process as cleanly as possible. Northwest Debt Relief Law Firm, we can help you with filing for Chapter 7, Chapter 11, and Chapter 13 bankruptcy in Oregon State. We will be there every step of the way to help navigate you through the often-complex and difficult bankruptcy process.
Give us a call (503) 912-8809 to schedule a free consultation with one of our bankruptcy attorneys. If you have any other questions about bankruptcy, one of our attorneys will be more than happy to offer advice on your particular situation.
The post General Steps During a Bankruptcy Process in Tacoma appeared first on Portland Bankruptcy Attorney | Northwest Debt Relief.
Through Tacoma bankruptcy, you may be able to and want to pay a co-signed debt. If not, you need protection from that debt and from your co-signer. A friend or relative may have helped you earlier by co-signing a debt for you. But now you find yourself needing relief from all or most of your debts through either a Chapter 7 “straight bankruptcy” or a Chapter 13 “adjustment of debts.”
What happens to your co-signed debt? And what happens to whatever responsibility you may feel towards your co-signer? What if you simply can’t afford to pay the co-signed debt now or at any time soon? You may no longer want to pay your co-signer because your relationship has soured. Your co-signer may be the one who received the benefit of the debt and should pay it back. Or you may still want to pay it eventually but have no idea when. In all these situations you need legal protection against your co-signer.
Your Legal Obligations to the Co-Signer
You need legal protection from your co-signer when you file a bankruptcy case because you either have a clear legal obligation to him or her, or at least a significant risk of such an obligation. Either way you should take care of it within your bankruptcy case.
You have a clear legal obligation to your co-signer if the two of you formalized the terms of that obligation, perhaps in writing but orally may be enough. The basic terms would include who was supposed to pay the debt and what would happen if that person did not pay it.
For example, you and your co-signer may have explicitly agreed that you would be responsible for making all the payments on the debt, and that if you did not make any payment on time so that your co-signer had to pay it, then you would owe him or her however much he or she paid.
Unclear Obligations
Practically speaking often when two people jointly share a debt, the obligations between them are often not clearly agreed upon and are seldom put into writing. But even then, legal obligations could arise between them based on their common understanding.
For example, assume you needed a co-signer on a loan for your business, and your sister agreed to co-sign it. You and your business received all the benefits of the loan. Then when later you didn’t pay the loan and your sister had to pay it off, she would likely have legal grounds to come after you for the amount she paid.
Including Your Co-Signer in Your Bankruptcy
Either way, whether your obligation to your co-signer is legally clear or not, if you are filing bankruptcy and not paying the co-signed debt you need to discharge whatever obligation you do have to that other person. You do this by listing your co-signer as a creditor in your bankruptcy schedules.
To emphasize, you should do this even if you think you don’t really have legal liability. For example, you may remember the co-signer telling you that if you can’t make the payments he or she would do so and wouldn’t come after you for those payments. Well, he or she may remember it differently. It’s better to err on the side of caution and cover whatever legal liability there may be.
Protection against Your Co-Signer
Once you file bankruptcy, your co-signer—just like all the rest of your creditors—is legally prevented from contacting you to collect the debt. He or she can’t try to make you pay the underlying co-signed debt (which you’ve also included as a debt in your bankruptcy documents). The co-signer also can’t pressure you to pay him or her directly.
If your co-signer tries to do either of these, he or she would be violating the “automatic stay,” the law that prevents creditors from trying to collect during a bankruptcy case. And if you were pursued by your co-signer after the bankruptcy is completed and your obligations legally discharged, he or she would be in violation of the injunction against attempting to collect on a discharged debt. These are both serious violations of federal law.
Paying Your Co-Signer without Legal Obligation
Including your co-signer as a creditor in your bankruptcy documents takes away your legal obligation. It is up to you whether you continue to have a moral or any other kind of obligation to the co-signer. The benefit to you is that if you do decide to pay your co-signer or the co-signed debt, it will be done without legal pressure. You will instead be able to pay whenever and to whatever degree your sense of moral or personal obligation tells you to.
Schedule a Free Consultation with Your Tacoma Bankruptcy Attorney
When it comes time to file for bankruptcy, you need a compassionate and skilled attorney who will be able to guide you through the process as cleanly as possible. Northwest Debt Relief Law Firm, we can help you with filing for Chapter 7, Chapter 11, and Chapter 13 bankruptcy in Washington State. We will be there every step of the way to help navigate you through the often-complex and difficult bankruptcy process.
Give us a call at (253) 780-8008 to schedule a free consultation with one of our bankruptcy attorneys. If you have any other questions about bankruptcy, one of our attorneys will be more than happy to offer advice on your situation.
The post Bankruptcy and Your Co-Signer. What Happens Next? appeared first on Portland Bankruptcy Attorney | Northwest Debt Relief.
Updated daily, this blog will keep you informed on the latest bankruptcy news! 
Learn more about how Bankruptcy works and what you need to know.