The Difference Between Debt Consolidation and Bankruptcy

While many people are familiar with the bankruptcy process, debt consolidation is also a unique process. Debt consolidation involves combining debts into one, more manageable debt. Not only does debt consolidation simplify the repayment process for individuals, it also reduces monthly payment and interest rates. Many individuals confuse debt consolidation with debt settlement, which involves a person paying an amount lower than the total amount that is owed. Bankruptcy, however, follows a distinct process from debt consolidation. In Chapter 7 bankruptcy a person sells property to creditors to pay off debts, while in Chapter 13 bankruptcy a repayment or reorganization will be arranged with creditors. Deciding on bankruptcy or debt consolidation depends on a person’s financial goals. Advantages to Filing for Bankruptcy One of the largest advantages of filing bankruptcy is that it offers greater protection against creditors because an “automatic stay” is placed that prevents creditors from obtaining money. An automatic stay also prevents foreclosure, repossession, and shutting off utilities due to nonpayment. Bankruptcy also offers the advantage of clearing a person’s debts, which means that the process lifts financial difficulties from a person. After eliminating these debts, a person can then begin to rebuild their credit and move     Read More

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SCOTUS Ready to Settle Bankruptcy Issue

The Supreme Court recently granted certiorari to review a case that will require the Court to decide the question of whether bankruptcy courts should apply federal or state law when deciding how to recharacterize a debt claim as a capital contribution. The manner in which this case is decided will have a significant influence on how bankruptcy cases proceed. The Role of Recharacterization Recharacterization presents an important role to lenders and investors in companies facing financial difficulties. Current bankruptcy law allows secured creditors to receive top priority while equity interests have a lower priority and are frequently wiped out during bankruptcy. Applicable federal law currently results in the recharacterization of debt to equity, while state law does not always result in this type of recharacterization. The Circuit Split on Recharacterization of Debt Many circuits follow the federal rule in recharacterization of debts and apply a variety of multi-factor tests when determining whether to recharacterize debt as equity. The Third, Fourth, Sixth, Tenth, and Eleventh Circuit Courts hold the perspective that debt should often be recharacterized as equity, while the Fifth and Ninth Circuit apply state law. As a result, Oklahoma is part of the Tenth Circuit Court which characterizes debt     Read More

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Supreme Court Issues Decision on Debt Collectors

Debt collectors are known to use a variety of scare tactics to force individuals into paying a debt. A recent Supreme Court case, however, issued a decision on how to define the role of debt collectors. In the case of Midland Funding LLC v. Johnson, the Court held that a debt collector who files a claim that is barred by the statute of limitation will be considered to have engaged in deceptive, false, or misleading conduct and therefore will not be found to have violated the federal Fair Debt Collection Practices Act. The Case in Question The case in question is Midland Funding LLC v. Johnson, which arose in 2014 after Aleida Johnson filed a civil lawsuit against Midland Funding LLC on the basis that Midland had violated applicable law when it filed a proof of claim in Johnson’s bankruptcy case for a credit card debt whose state statute of limitations had already expired. The district court held that Midland’s conduct did not violate the law, but the Eleventh Circuit Court of Appeals later reversed this decision. The Supreme Court ultimately reversed the Eleventh Circuit’s decision and found that the creditor’s action was not deceptive, false, or misleading. The Supreme     Read More

United States Supreme Court to Hear Bankruptcy Case

The Supreme Court of the United States is poised to hear a bankruptcy case in Merit Management Group LP v. FTI Consulting Inc. This case has the potential to resolve a current circuit split about a section in the Bankruptcy code that protects certain types of payments made to a financial institution. In accordance with this law, individuals are unable to avoid payments made in connection with a securities contract, settlement payments, or other payments that are made to commodity brokers, financial institutions, financial participants, forward contract merchants, or securities clearing agencies. The way in which this case is decided has the potential to clarify the parties that a person who declares bankruptcy is obligated to pay. History Leading up to the Case Prior to the Merit Management case, the Eleventh Circuit was the only circuit court to hold that a financial institution must be more than an intermediary for a person who declares bankruptcy to be forced to pay. Five other courts including the Second Circuit, the Third Circuit, the Sixth Circuit, the Eighth Circuit, and the Tenth Circuit have held that a person who declares bankruptcy must pay financial institutions that are intermediaries. The Merit Management case was     Read More

Wage Garnishment

The process of wage garnishment can be very upsetting for individuals. Wages can be garnished when a creditor does not receive payment from an individual and receives an order of garnishment from a court. As a result of wage garnishment, money is directly transferred from a person’s paycheck to the creditor, which can result in significant financial obstacles. Some individuals decide to file Chapter 13 or Chapter 7 bankruptcies in an effort to prevent wage garnishment. After filing for bankruptcy, an automatic stay is placed that ends collection activity from a creditor. Provided that certain conditions are satisfied, individuals are often able to receive some of the wages that were garnished before a bankruptcy petition was filed. If an individual is over $600 in aggregate wages garnished and has a sufficient amount of exemptions to cover these debts, individuals can often successfully request a creditor to return garnished wages.   The Role of Automatic Stays   An automatic stay results in wage garnishment being stopped so long as a bankruptcy stay remains in effect. If a creditor wants to resume debt collection efforts, the creditor must ask the court to lift the bankruptcy stay. A court will require the creditor     Read More

The Role of Bankruptcy Trustee

A bankruptcy trustee is assigned to every Chapter 7 and Chapter 13 bankruptcy case. A trustee has a significant impact on a debtor’s case, but the exact role that a trustee plays in a bankruptcy proceeding is often uncertain. The Justice Department appoints a trustee for each bankruptcy who will often be a lawyer with significant experience in handling bankruptcy.   Chapter 7 and Chapter 13 Bankruptcy   The role of a trustee changes on the type of bankruptcy involved.   Chapter 7 Bankruptcy. In these types of bankruptcy filings, the trustee administers the bankruptcy estate and distributes any non-exempt property to creditors. The trustee is paid through a percentage of any funds that are given to creditors. As a result, in situations where the debtor has no non-exempt assets, the trustee is paid a small amount. Chapter 13 Bankruptcy. The trustee in Chapter 13 bankruptcies is tasked with reviewing and following the Chapter 13 payment plan and distributing any payments made by an individual to creditors. A Chapter 13 trustee collects a percentage of funds paid through the payment plan.   The Role of Trustees in a Bankruptcy Case   A trustee often has several responsibilities in a bankruptcy.     Read More

Bankruptcy for Business Owners

Operating a business creates a variety of challenges. Some business owners face great odds in launching a business or reaching the point of financial gains. With the many costs that businesses face, it is no surprise that many business owners face financial challenges. Facing personal debt in addition to financial problems with a business frequently results in individuals facing substantial challenges. Fortunately, bankruptcy offers several options for relief for business owners. Available Bankruptcy Options for Business Owners Many business owners are able to select between three bankruptcy filing options. There available bankruptcy options for business owners include the following: Chapter 7 Bankruptcy. This type of bankruptcy results in operations of the business ceasing. Creditors of the business will receive notice that the business is no longer operating and any remaining assets are liquidated by a bankruptcy trustee then divided among creditors in order of highest priority first. A business owner will still be liable for some of the business’s debt provided that there were not sufficient assets to pay creditors in full at the time that Chapter 7 bankruptcy is declared. This option is most often selected by sole proprietors, general partnerships, and even some corporations. Chapter 11 Bankruptcy. In     Read More

Chapter 13 Payment Plans

A large number of people are frightened from Chapter 13 bankruptcy due to the belief that an individual will be required to pay part of their of their debts. This type of payment plan under Chapter 13 bankruptcy is often helpful with secured debts which cannot be discharged through bankruptcy. A Chapter 13 monthly payment plan is often used to pay secured debts for collateral that a person wants to keep like an automobile or private residence. If you are involved in a Chapter 13 bankruptcy proceeding, it is often a wise idea to understand exactly how these amounts are calculated. Calculating a Minimum Monthly Payment   The amount of a minimum monthly payment plan depends on what type of debts a person owes. Some types of debts must be paid in full through a repayment plan, which means that an individual frequently must propose a plan that pays off all of these debts within 60 months regardless of one’s income or expenses. While a Chapter 13 payment plan must be large enough to make certain required payments, the payments must be large enough to satisfy certain required payments. In arriving at the amount that is likely due in a     Read More

Student Loan Debt in Bankruptcy

Most debtors are not able to discharge student loan debt by either Chapter 7 or Chapter 13 bankruptcy, but if an individual can prove that repaying student loans would cause an undue hardship for that individual then sometimes individuals are successfully able to get rid of student loan debt.   The Definition of an Undue Hardship   Law concerning student loans and Oklahoma bankruptcy states that any education loan guaranteed by the federal government cannot be discharged unless not doing so would create an extreme hardship for an individual. Successfully demonstrating an undue hardship however, can be particularly difficult for individuals. Courts are particularly hesitant to discharge an individual’s student loan debts. Individuals who have particularly low income or have loans from a for-profit trade school are often much more likely to obtain a discharge of student loan debt. Bankruptcy courts in the state of Oklahoma often use the Brunner test to determine whether an individual is able to discharge student loans debts. The Brunner test requires that an individual demonstrate three particular elements: (1) an individual cannot maintain a minimal standard of living if forced to repay loans, (2)  the individual’s financial situation is likely to continue for an     Read More

Automobile Exemptions After Declaring Bankruptcy

In Oklahoma Bankruptcy cases, individuals have the opportunity to protect certain assets through use of bankruptcy exemptions. Two of the most common bankruptcy exemptions are for an individual's home and motor vehicle. For individuals who wish to claim the automobile bankruptcy exemption, talented legal counsel often proves to be particularly helpful. In order to claim an automobile exception during bankruptcy, an individual must closely examine one’s finance and determine how much the individual is paying monthly. Individuals should remember that no party is permitted to take collective action regarding a motor vehicle between the time that an individual declares bankruptcy and during the bankruptcy process. As a result, an individual during this time period will have the ability to pursue all potential options for keeping their motor vehicle. Motor Vehicle Exemption In the state of Oklahoma, individuals are entitled to discharge $7,500 worth of debt on a motor vehicle. Individuals should note that Oklahoma’s motor vehicle exemption encompasses motor vehicle including cars, motorcycles, trucks, or vans. As a result, if a motor vehicle is worth $7,500 or less, an individual will owe nothing on the motor vehicle. If a motor vehicle, however, is worth more than $7,500, an individual will     Read More