Nathan Borris's blog

When someone files for bankruptcy, he or she is required to disclose all assets to which that individual holds title. The reason for this disclosure is to allow creditors and the trustee to see what the debtor is holding, and whether some or all of those assets will become part of the bankruptcy estate, i.e., liquidated for the benefit of the debtor's creditors. While state and federal laws allow for exempting certain types of property and certain amounts of value, whatever cannot be exempted from the estate becomes fair game for creditors.

These days, the non-dischargeability of student loans is a well known fact; many prudent graduates who are burdened with significant student loan debt have at least sought the possibility of filing bankruptcy to relieve student loan debt, only to discover (rather quickly) discharge as a distant pipe dream. Student loans have not always been non-dischargeable, though. Beginning in 1976, Congress began to chip away at 11 U.S.C. 523(a)(8), the discharge exception to student loans, eventually and for all practical matters making student loan debt non-dischargeable by 2005.  

The automatic stay is an injunction that protects a debtor from the actions of their creditors. The stay is imposed immediately upon the filing of a bankruptcy under any chapter. Its purpose is to protect debtors from collection actions of their creditors, either by statute or agreement. The most common example in consumer bankruptcies is where a debtor files bankruptcy to stop a foreclosure (non-judicial) sale. The authorization allowing the bank to foreclose on a property is most commonly found in the power of sale clause of the deed of trust securing the loan. Other types of collection actions include repossessions, levies, garnishments, and imposition of judgment liens.

A mortgage is simply a creditor's lien against a piece of real property whose purpose is to secure larger loans, most often purchase money loans. A mortgage is only valuable to the extent there is equity in the property, factoring in any senior liens/mortgages against the property. Depending on the type of mortgage and when it was recorded against the property, a creditor may have different remedies in the event of borrower default.

One of the primary purposes of the requirement that the debtor list all known liabilities in his schedules is to ensure that his creditors receive notice of case. If no notice is received by the creditor, it really has no way of protecting its interests. Once the creditor receives notice of the case, it has the option to file what is a called a "proof of claim", basically a declaration of what the debtor owes the creditor, substantiated with proof of a loan or indebtedness. If the creditor wishes to be paid, it is incumbent upon the creditor to file a claim.

Chapter 13 bankruptcy is limited to individual filers, and is essentially a streamlined version of chapter 11 bankruptcy, which is mostly reserved for businesses, though individuals may file under chapter 11 as well. “Individuals” even includes self-employed individuals and those operating unincorporated businesses. Chapter 13 allows an individual with a modest amount of debt to seek reorganization. However, eligibility in chapter 13 depends on the debtor’s total secured and unsecured debt.

The Home Affordable Modification Program (HAMP) is a federal program designed to help homeowners who are currently struggling to make their mortgage payments. In a nutshell, the program seeks to modify loan repayment to be no more than 31% of a borrower's gross monthly income.

Many people who file for bankruptcy do not have the financial means to hire an attorney or bankruptcy preparer. There are a couple of options available to the insolvent debtor, but all require self-teaching, time, and patience.

Anytime an individual is sued by a creditor and the creditor prevails in that suit, either by default judgment or after a hearing, i.e., trial, on the merits of the case, the now "judgment creditor" may seek to execute its judgment in any fashion. Most commonly, if the defendant against whom the judgment is entered does not pay the judgment in full to the judgment creditor, the latter may seek to garnish the defendant's wages, up to 25% of the defendant's net income, until the debt is paid off. Assuming the debt is dischargeable, filing bankruptcy will indefinitely stop the wage garnishment, pursuant to the automatic stay. However, the judgment creditor is not required to disgorge the funds it had already successfully garnished. The remaining dischargeable debt would be accordingly discharged in the bankruptcy.

Before 2005, debtors could qualify for a chapter 7 bankruptcy if they could establish on paper that their actual monthly expenses exceeded their monthly income. This was changed in 2005 with the Bankruptcy Abuse Prevention and Consumer Protection Act, which enacted an objective "means test" to determine chapter 7 eligibility. The problem was that too many chapter 7 filings were presumed abusive because debtors were inflating their actual expenses to yield negative disposable income, or were living too extravagantly while seeking to discharge their debt obligations.