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The Surprising Benefits: Chapter 13 Potentially Discharges Divorce Property Settlement Debts
Unlike Chapter 7, which cannot discharge divorce-related property settlement debts, Chapter 13 bankruptcy may allow you to eliminate some or all of your non-support divorce obligations. For many people struggling with debt after a divorce, this can be an appealing option.
However, the benefits of Chapter 13 come with certain risks and trade-offs that should be carefully considered. Simply owing money to your former spouse does not automatically mean Chapter 13 is your best path. Below, we explain how divorce-related debts are treated in bankruptcy, what Chapter 13 bankruptcy can and cannot do, and why you should speak to a qualified attorney if post-divorce debt is making it hard to move forward.
If your divorce decree or separation agreement left you with financial obligations — other than spousal or child support — that you cannot manage, there may be legal ways to seek relief. An experienced Boerne, TX Chapter 13 bankruptcy attorney can help you understand whether using Chapter 13 to address those debts is the right decision for your circumstances.
Good Timing Can Shorten Your Chapter 13 Case by 2 Years
Chapter 7 bankruptcy is the most popular form of bankruptcy for a few reasons, but perhaps most notably because it takes a significantly shorter amount of time to finalize. Despite Chapter 7’s many benefits, sometimes, after consulting with your attorney, you might conclude that Chapter 13 bankruptcy is the right option for you. However, Chapter 13 bankruptcy takes much longer than Chapter 7: it requires you to spend three to five years repaying your debts through a payment plan, instead of being able to "discharge", or write off, all or most of your debts within about four months as is the case in Chapter 7.
Nevertheless, it is possible to reduce the time you spend in Chapter 13. In fact, utilizing your income level and wise timing in your filing of a Chapter 13 "adjustment of debts" case could shorten your payment plan from five years to three. An experienced San Antonio, TX Chapter 13 bankruptcy attorney can advise you on ways to shorten the length of your Chapter 13 payment plan.
Adversary Proceedings in Bankruptcy
Sometimes issues or disputes arise in bankruptcy that cannot be resolved through the bankruptcy process itself. These disputes, which require a judge's input, may be resolved through an adversary proceeding. This separate lawsuit within the bankruptcy case is a way for interested parties in the bankruptcy to challenge certain actions with which they disagree. For example, a debtor can file an adversary proceeding to object to a creditor’s violations of the automatic stay halting debt collection efforts. A trustee can bring claims against a debtor objecting to fraudulent transfers of assets, or the trustee may object to the dischargeability of a debt. Creditors can also file an adversary proceeding to object to the discharge of a debt, and for other reasons, as we will discuss below. An experienced Kerrville, TX bankruptcy attorney can represent you in an adversary proceeding in bankruptcy.
What Is an Adversary Proceeding?
Simply put, an adversary proceeding is a lawsuit that is part of a bankruptcy case. Like it sounds, it is a way for adversaries to fight it out in bankruptcy court.
Secured Debt Treated Like Unsecured Debt after Collateral Surrender
One of the most painful and stressful things about bankruptcy is having to surrender your assets. Whether they include real estate, a vehicle, or other secured debts, surrendering assets to creditors can be difficult emotionally and practically. But what if surrendering collateral could be a positive thing in bankruptcy? In some instances, surrendering collateral rather than keeping the asset can actually be beneficial and may make more sense than you might initially think, as it can help you afford payments on other important assets and give you a chance to discharge that debt. That is true because when you surrender your collateral, your secured debt is treated as unsecured debt–and that makes a big difference in bankruptcy. An experienced Boerne, TX bankruptcy attorney can advise you on whether surrendering collateral to turn secured debt into unsecured debt makes sense in your case.
How Do "General Unsecured" Debts and Secured Debts Work in Bankruptcy?
Any remaining balance after surrendering the collateral is treated as an unsecured claim in bankruptcy. "General unsecured" debts are discharged, which means they are legally and permanently written off. With secured debts, you are personally liable for the loan and the lien. The lien that the creditor has on something you own is not usually affected in bankruptcy. It continues in effect, giving the creditor continued rights to your asset after the bankruptcy case is completed, and this typically includes the right to repossess or foreclose. So if you want to keep that asset, you usually have to pay the debt. However, you can effectively turn a secured debt into a general unsecured debt in bankruptcy. One of the most potentially powerful tools you have is to surrender your asset–the collateral on your debt–to the creditor.
Your Voluntary Dismissal of a Chapter 13 Case
Suppose you filed for Chapter 13 bankruptcy and have regrets. Can you simply end it? Well, according to the Bankruptcy Code, yes you can. It explicitly states that the court will dismiss a Chapter 13 case at the request of the person who filed it, and you can do so at any point during the Chapter 13 process. If you filed a Chapter 13 bankruptcy and think you may want to voluntarily request a dismissal, you could likely benefit from speaking with a San Antonio, TX bankruptcy attorney with extensive experience practicing bankruptcy law.
Where Does the Bankruptcy Code Say That You Can Dismiss a Chapter 13 Case?
Section 1307(b) of the Bankruptcy Code, which addresses the conversion or dismissal of bankruptcy, clearly states, "on request of the debtor at any time…the [bankruptcy] court shall dismiss a case under this chapter." It is important to highlight the two distinctive elements within this statement.
Can Bankruptcy Help You Avoid Foreclosure in Texas?
Facing home foreclosure can be emotionally and financially devastating. If you have fallen behind on your mortgage payments, you may be wondering whether filing for bankruptcy will stop the foreclosure process and let you keep your home. This is a complicated question and the answer depends on the facts of your case and the type of bankruptcy you file. A Kerrville, TX bankruptcy lawyer could likely suggest ways to keep you in your home, depending on your specific circumstances.
Does Bankruptcy Stop Foreclosure in Texas?
When you file for bankruptcy, the "automatic stay" comes into effect. It temporarily prevents your creditors from taking any action on your debts, including from foreclosing on your home. However, this relief only lasts for the duration of the bankruptcy case, which is usually three to six months for Chapter 7 and three to five years for Chapter 13. However, bankruptcy does not eliminate the mortgage–meaning that the lender could foreclose on the home once the automatic stay is lifted if payments are not current. While in Chapter 13 this might not be an issue as you would likely repay your mortgage through the payment plan, in Chapter 7 that is not the case, meaning that a Chapter 7 bankruptcy does not fully stop foreclosure.
Chapter 7 Buys Very Short Amount of Time to Get Vehicle Insurance
When most people consider Chapter 7 bankruptcy, they usually think about it as a tool to clear overwhelming debt and restart their financial lives. That is certainly accurate, but Chapter 7 also offers other surprising benefits. One lesser-known way that Chapter 7 can help those in financial distress is as a way to buy the bankruptcy filer time to reinstate lapsed vehicle insurance. This is thanks to the automatic stay and its ability to block creditors from repossessing a vehicle — which they can do when the vehicle’s insurance has lapsed. Although this benefit almost always has a short time frame, it can help. An experienced Texas Chapter 7 bankruptcy attorney can provide advice on the benefits of Chapter 7 bankruptcy.
Are You Required to Have Car Insurance?
Almost every state requires vehicle owners to have at least a certain dollar amount of liability insurance coverage. Several states also require personal injury protection (PIP) insurance covering medical expenses from an accident for you, household members, and your passengers, regardless of fault. Still other states require uninsured and underinsured motorist coverage covering you when you are harmed by someone with no insurance or insufficient insurance.
The Surprising Benefits: Break a Tax Payment Plan through Chapter 7
It is a common problem. You owed income taxes a year or two ago when you sent in your tax returns. Money was very tight so you could not just pay it off. You found out that the Internal Revenue Service lets you pay that unpaid tax through a monthly installment plan. So you set up the payment plan with the IRS. But your financial situation only got tighter because now you had a new monthly obligation you absolutely had to pay.
Now you are struggling to pay the monthly tax payment along with your living expenses and other debts. You wish there was a way to get out of your IRS monthly tax payment and other debts. The good news is that if a significant portion of your debt is an IRS monthly payment plan that you cannot afford, Chapter 7 bankruptcy may help. An experienced New Braunfels, TX bankruptcy attorney can provide guidance on using Chapter 7 bankruptcy to get out of an IRS payment plan you cannot afford.
Can a Debt Collector Garnish My Wages in Texas?
It is a common myth that debt collectors can garnish a person’s wages when they have not repaid their debts. While this is true in many states across the country, it is mostly not true in Texas. Under Texas law, a person’s wages can be garnished only for very specific reasons, and consumer debt collection is not one of them. If you are in debt and fear that your wages may be garnished, read on to learn more about the law in Texas and contact a San Antonio, TX wage garnishment attorney.
What Is Wage Garnishment?
Wage garnishments, also sometimes referred to as wage attachments, are court orders that are sent to a borrower’s employer when they have not repaid their debt. Once the employer receives the order, the employer is then required to withhold a certain amount of money from the employee’s paycheck. The employer must then send the amount that was withheld to the creditor.
What Are Creditors Allowed to Do During Bankruptcy?
If you are struggling with debt, the calls, letters, and threats from creditors can feel endless. Many people delay filing for bankruptcy because they fear what creditors might do. However, filing for bankruptcy actually provides legal protection that stops most creditor harassment immediately.
Bankruptcy is meant to give people a fresh financial start, but that does not mean creditors disappear overnight. They are still allowed to take certain actions, but there are strict rules about what they can and cannot do. Understanding these rules can help ease stress and prevent creditors from taking advantage of you, and our Texas bankruptcy lawyer is here to help.
Get Immediate Protection With an Automatic Stay
As soon as a bankruptcy case is filed, an automatic stay goes into effect under 11 U.S.C. § 362, halting most creditor actions. This legal order stops wage garnishments, lawsuits, collection calls, and other debt-related actions. Creditors must immediately stop contacting you about your debt. If they continue to call or send letters, they may be violating federal law, and you may have legal options to hold them accountable.
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