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.
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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.
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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
With unemployment still high, personal bankruptcies continuing to rise, and the housing market remaining in a downward spiral, more individuals are changing the way they pay their bills. According to TransUnion, people are likely to pay their car payments before paying their credit card or mortgage payments, meaning that credit card and mortgage delinquencies are more common these days than car payment delinquencies.
Specifically, the national average on 60 day delinquencies for car loans is .81%, while the 90 day delinquency average for credit cards is 1.10%. Although these are relatively small percentages in this current economic situation, the most staggering number is the delinquency on mortgages at 6.25%, almost six times higher than the other loans.
Not surprisingly, the states that have been hardest hit with foreclosures, bankruptcies, and unemployment also have the most delinquencies. Nevada, which boasts the highest number of personal bankruptcy filings in the country, also has the largest number of mortgage delinquencies at 14.53%. The credit card and auto delinquencies are also higher than the national average, at 1.98% and 1.16% respectively. Florida is not far behind, with its mortgage delinquency rate at 13.34%. Florida, however, has better statistics for its auto and credit card delinquencies, at .99% and 1.47%, respectively.
Why is this trend in the way people make payments occurring? According to the Director of Consulting and Strategy for TransUnion, “Consumers recognize that their credit cards are 
their primary purchasing vehicles in this economy.” Using this logic, it appears that people, who are unemployed, want to maintain a good relationship with their credit card companies as they find themselves using these same cards for everyday necessities, such as food, paying utilities, clothing, and gas. Additionally, people find that they need their cars to go to jobs or to interviews for a job, and as such, do not want to have their vehicle repossessed. Individuals, in these situations, cannot afford to have these cards or cars taken away, as they provide for their basic needs. Their homes, however, do not hold the same weight.
Aside from individuals needing to use their credit cards and vehicles, they are also reluctant to pay their mortgages on time because of the lack of equity in their homes. People can see the value in their credit cards, paying for food, and their cars, getting to them work, but they cannot see value in a home, in which they owe 20% more than what the home is currently worth. Instead, individuals would rather have a home foreclosed on and continue to keep food on the table. Additionally, more and more individuals care less about a foreclosure remaining on their credit report for seven years. They simply rationalize that they will not own a house for a couple of years and rent instead. Until the housing markets rebounds for a number of consecutive months and unemployment reverses, it is likely that this trend will continue and even increase. It is not hard to understand, however, as people without jobs simply want to take care of their family, food, clothing, etc., and credit cards supply them with that opportunity.
Filed under Bankruptcy Statistics, Blog, Foreclosure issues, Mortgages by
Morris Publishing Group, publisher of The Florida Times-Union and over a dozen other dailies, formally filed for bankruptcy last Tuesday morning.
Morris Publishing filed a petition for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of Georgia in Augusta. Under the prepackaged plan, Morris Publishing will reduce its overall indebtedness from approximately $415 million to $126.5 million. The prepackaged restructuring plan, agreed to by approximately 93% of its bondholders, will exchange $278.5 million of its existing debt that would be due in 2013 for $100 million in new debt that matures in 2014.
Morris said the $100 million in new notes will bear interest of at least 10%, but some could be as high as 15%. Some of the interest could be paid with additional securities rather than in cash.
"This filing is the final step in the financial restructuring we announced last fall," said Morris Publishing Group Chairman William S. "We are pleased that so many of our noteholders agreed to support this move to get Morris Publishing on more solid financial ground."
Morris and its debtors own and operate 13 daily newspapers and over a dozen nondaily newspapers and other publications nationwide. Morris said operations at their papers, which had a total circulation of 450,000, will continue despite the filing.
According to a filing in bankruptcy court, when the petition was filed Morris’s newspapers had about 1,847 full-time employees and 335 part-time employees. Morris also said that all obligations to employees and vendors will be met in full.
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