Cosigners typically have stronger credit than the primary borrower, and so their signature on lending papers can help the primary borrower get a better loan. A cosigner also takes responsibility to pay the debt if the primary borrower fails to pay. If you are going to file for bankruptcy, it’s important to understand how all parties involved in your finances will be affected, including any cosigners you may share a loan with.
Depending on which chapter bankruptcy you file (chapter 7 or chapter 13), cosigners may be affected differently. If you file a Chapter 7 bankruptcy, most debts are completely discharged, which means you are not responsible for payment. However, your cosigner is still responsible for making payments. If you file a Chapter 13 bankruptcy, you will be responsible for making payments according to the terms outlined in your repayment plan. As long as you make payments according to your chapter 13 schedule, your cosigners are not responsible for paying your debt.
But bottom line: any payment you fail to pay or pay late will damage both you and your cosigner’s credit. If you have a cosigner in a business loan, they are not at all protected by bankruptcy filings.
Because in many cases cosigners are close friends or relatives that have offered a helping hand, it can be very difficult to know that your bankruptcy filing will likely negatively affect them. While it is a very unfortunate consequence of bankruptcy, you need to make sure you decide which chapter of personal bankruptcy to file by choosing the one that will work best for you. Your cosigner did take on significant legal responsibility and personal risk by signing the lending papers and should understand the consequences.
Before filing, I strongly suggest speaking with a bankruptcy attorney who can help you identify the best direction to take and who can make sure that your best interests come first.
Filed under Shared Debt by 
Many times people try to avoid filing bankruptcy for as long as possible, and then file when it is the absolutely last choice. Waiting for financial desperation is not always the best way to decide when to file for bankruptcy. It’s easy for filers to dig themselves into a deeper hole and make it more difficult for themselves in the event that they actually do end up filing for bankruptcy.
To avoid digging yourself into such a deeper financial hole by not filing for bankruptcy, it is important to know signs that show that filing for bankruptcy may be better to do sooner than later:
1) If you are borrowing money to pay your debts, it is a warning sign that bankruptcy may be a better option. Using one credit card to pay another, depending on payday loans, or asking family and friends for loans can all dig you into a deeper hole.
2) If you use your retirement funds to pay your debts. Often your retirement accounts are exempt from creditors in bankruptcy court and would be heavily taxed if you take it out early.
3) If you are experiencing increased stress and pressure, bankruptcy can potentially relieve that. Debt can put tension on relationships with family and friends, as well as your state of mind.
4) If you are unable to pay minimum payments on your debts, it may be time to file bankruptcy.
5) If you are constantly selling your stuff for cash in order to pay your debt. This is another bad sign. While it can be good to sell unnecessary items you have acquired, if you are giving up things that are valuable to you, it could be a problem.
6) If you are constantly contacted by bill creditors, filing for bankruptcy can end their communication.
Every financial situation is different and it’s important to understand the best option for you. Filing for bankruptcy can give a debtor a chance to start over financially and put an end to the stress. I recommend contacting a bankruptcy attorney if you’re experiencing any of the above-mentioned warning signs.
Filed under Getting started by
In last week's post on debts that are non-dischargeable when you file for bankruptcy, we forgot to mention one very important one: credit card debt that was acquired from paying off taxes.
In recent years, some credit card companies have urged people to pay their taxes with a credit card. Don’t be tricked into thinking that credit card companies are sympathetic and acting on your behalf; this tactic is used to protect their own backs in the event that you have to file for bankruptcy. This is because when you pay taxes with your credit card, that particular credit card debt (the amount you paid off taxes with) is non-dischargeable if the credit card holder files bankruptcy. Meaning the credit card holder may not have to pay off the other credit card debt if he/she files bankruptcy, but as far as the taxes paid via credit card, the card holder is still responsible for paying that off. Congress even expanded this protection of credit card companies to include state and local taxes that are paid with credit card as well.
In Florida, property taxes are paid at the end of the year and federal income taxes for the previous year are due on April 15th. In this 4 to 6 month time frame, people are hit hard with property and income taxes, and it can be difficult to pay back the full amount with savings – so credit cards seem like a great option. But with credit card companies protected, if you are behind on your savings and use a credit card to pay your state or local taxes, then that debt may be non-dischargeable if you file for bankruptcy protection.
Many questions arise with this legislation. If someone were to take a cash advance on a credit card, and then pay their taxes with cash, would that debt be non-dischargeable? If you pay your state taxes on a credit card and then continue making payments without acquiring new debt, what part is non-dischargeable? The questions can continue, but the ultimate lesson is this: If credit card companies offer a convenient and helpful hand to their costumers, I recommend taking a second look before thinking it is too good to be true. In the case with taxes and credit cards, you may find yourself with extra debt if you are to file for bankruptcy at some point in the future.
Bottom line: It is probably not a wise idea to pay your property or income taxes with credit card. And if you think you might have to file bankruptcy, know what debt is and what debt is not dischargeable when you file.
Fortunately, if you file for bankruptcy and have these questions or issues, you talk to an experienced bankruptcy attorney at Clark and Washington. The bankruptcy court can settle disputes between all debtors and creditors, even if the creditor is the IRS.
Filed under Non-dischargeable debt, Taxes and bankruptcy by
It is important to know that when you file for bankruptcy, not all debts will be erased. Student loan debt, for example, is typically not forgiven when you file for bankruptcy (although there are exceptions). Below find a list of some of the other debts, in addition to student loans, that will not be erased by bankruptcy. Due to the student loan exceptions hinted at earlier, more detail on student loan debt and bankruptcy will follow.
These are some of the debts that will not be erased with bankruptcy:
- If you owe money for child support
- If you owe money for alimony
- Debts that you did not list on your bankruptcy petition
- If you knowingly gave false information to a creditor and received loans based on the false information
- While bankruptcy will erase your obligation to pay any additional money if your property is sold by the creditor, mortgages and other legal claims on somebody’s property which are unpaid in the bankruptcy case will not be erased.
- If you have debts that resulted from "willful and malicious" harm
- Student loans owed to a school or government body, detailed below
Student Loans and Bankruptcy: Two Student Loan Exceptions
Previously, law had allowed student loans to be discharged with bankruptcy once they had been in pay status for 7 years. This law was changed in the fall of 1998. Today, the general rule is that student loans are not discharged in bankruptcy except for two exceptions in 11 U.S.C. sec. 523(a)(8).
The first exception is that the student loan can be discharged if it is not "insured or guaranteed by a governmental unit" and also not "made under any program funded in whole or in part by a governmental unit or nonprofit institution."
The second exception is that the student loan can be discharged if paying the loan will "impose an undue hardship on the debtor and the debtor's dependents." Proving hardship would require showing that you can not provide a minimum standard of living for yourself and your dependents if you are forced to repay your student loan.
It can be difficult to erase your student loans under the undue hardship standard, but it is certainly possible. Facts on your particular case and local court decisions are all factors on determining the outcome. Even if your loan fits into an exception, discharge may not be automatic and you may need to file an adversary proceeding in the bankruptcy court to get a court order which affirms the debt is in fact dischargeable.
Remember that student loans are contracts like any other loan and are therefore at risk of fraud, and are also not enforceable when the school has closed prior to the student completing his/her education. Just like with other contracts, is possible to contest the enforceability of the loan.
Filed under Student Loans and Bankruptcy by
As you may already know, filing for Chapter 7 bankruptcy can temporarily stop your home from being foreclosed on. This is because when you file for Chapter 7 bankruptcy, an “automatic stay” will be issued immediately to prevent creditors (including mortgage lenders) from taking further actions to collect their debts. But after the automatic stay is up, how can you permanently avoid foreclosure of your home? One way to permanently avoid foreclosure under a Chapter 7 is to file a “reaffirmation agreement.”
A reaffirmation agreement is a formal contract made between you and the
creditor that states you will pay all or a portion of the money you owe in spite of the Chapter 7 bankruptcy filing. As long as the reaffirmation agreement is followed, you can keep your property or your home after the bankruptcy and the creditor gives their promise to not repossess or take back the property as long as your payments are made per the agreement.
It is important to consult with an attorney before entering into an agreement such as this to ensure that your rights are protected and that it is in your best interest. If you are not represented by an attorney, then you must have a bankruptcy judge approve your reaffirmation agreement. The judge will ask questions to make sure that the reaffirmation agreement does not impose an excessive, unnecessary burden on you or your dependents. If it is determined that it is impossible for you to pay off the debt on your mortgage, a reaffirmation agreement may not work for you.
The experienced bankruptcy attorneys here at Clark & Washington understand the laws governing reaffirmation agreements in Florida. Give us a call today to schedule a free consultation if you are interested in filing Chapter 7 but would like to keep your home in the long run.
Filed under Foreclosure issues, Reaffirmation agreements by
