Bankruptcy Law Blog

Thursday, February 18, 2016

Stopping Foreclosure with a Bankruptcy Filing

Can I save my home by filing for bankruptcy?

Since the Great Recession of 2008, many individuals have had problems keeping up with their mortgage payments. In some cases, mortgage lenders have cut deals with borrowers by modifying the loan or agreeing to a short sale. However, most homeowners are tied to the terms of the mortgage contract and the provisions regarding default and foreclosure.

What is a mortgage foreclosure?

A foreclosure occurs when a homeowner fails to make full principal and interest payments on a mortgage. If a borrower misses a payment and does not pay it within one month, he or she is in "default." The lender will notify the borrower that the payment must be made in full. If the mortgage remains delinquent after 3 to 6 months, the lender can initiate a foreclosure proceeding, which allows the lender to evict the homeowner, seize the property and sell it at a public auction.

Ultimately, a foreclosure will cause long-lasting damage to your credit rating. There are alternatives to foreclosure, including loan forbearance or a deed in lieu of foreclosure, where title to the property is signed over to the lender. However, if these arrangements are not available, a borrower may be able to stop the foreclosure process by filing for bankruptcy.

How Filing for Bankruptcy Can Stop a Foreclosure



The new bankruptcy laws make it difficult for an individual to file a Chapter 7 Bankruptcy. However, a Chapter 13 Bankruptcy petition may enable you to set up a plan to pay the mortgage payments that are in arrears. The homeowner and lender can agree to a time period for the repayments to be made, but the delinquent payments must be made simultaneously with the current payments. Provided that all of the required payments are made according to the repayment plan, you can avoid foreclosure. In some cases, a Chapter 13 filing may also eliminate payments of second and third mortgages as bankruptcy courts may deem these to be unsecured debt, depending on the amount of equity in your home.

Although a bankruptcy filing may stop a foreclosure, it is not a silver bullet, and it can seriously damage your credit score. If you fail to make payments that have been agreed upon, the lender can still foreclose on the property. Ultimately, deciding to go bankrupt is a serious decision that requires the advice of a qualified attorney. 

Thursday, January 28, 2016

Relief on the Horizon for Student Loan Borrowers

Can student loans be included in a bankruptcy petition?

Discharging student loans in a bankruptcy petition have been restricted by law. However, recent cases suggest that appellate courts could may craft a broader definition of how much distress a borrower needs to be in before discharging student loans.

As has widely been reported, the amount of outstanding student debt has risen dramatically in the last decade. In 2005, the US Court of Appeals established a standard for discharging student loan debt in a bankruptcy. Since then, lower courts have ruled on the issue opening the door to the possibility of the Supreme Court weighing in on this issue.

Currently, the law requires a borrower prove paying student loans would cause an “undue hardship” to have it discharged. But different courts have adopted different definitions of this standard. For example, the eighth circuit (which covers states in the middle of the country), applies a different, less stringent test - the totality of circumstances. This test takes “a broad-based view” about whether the debtor’s circumstances rise to the level of undue hardship,

On the other hand, most appeals court throughout the country apply “the Brunner test” to determine whether a debtor is eligible to have student loans discharged. Among other things, the test requires a debtor prove a minimal standard of living cannot be maintained if the student loan must be paid and that a good faith effort has been made to repay the loans.

A current case working its way through the first circuit, however, could see the “totality” test applied which would divide the appellate courts’ rulings. So, the Supreme Court might be compelled to intervene in order to set a national standard.

For some borrowers, discharging student loan debt in a bankruptcy could provide much needed debt relief. In fact, one-in-four student loan borrowers is in default. But the legal impediments remain as borrowers continue to resist getting student loan debt discharged in a bankruptcy petition. To obtain help in choosing the best method for handling your student loan debt, you should consult with an experienced bankruptcy attorney for advice and guidance.  

Friday, January 22, 2016

Trump Pushed to the Brink of Personal Bankruptcy in Past

Is personal bankruptcy only for the middle class?

When you think about personal bankruptcy you probably conjure up images of middle class people struggling to make ends meet.  While personal bankruptcy is available to help people in that situation, others, who are much wealthier and well known, also take advantage of this process.  Looking for a fresh financial start, celebrities and business people alike have filed for, or come close to filing for, personal bankruptcy.  Some of these individuals include entertainer Michael Jackson, Boxer Mike Tyson and businessman and presidential candidate Donald Trump.

Before considering presidential office, Donald Trump spent years amassing a fortune through real estate and other business deals.  He is estimated to be worth approximately $4 Billion.  But, in the 1990’s, Trump almost saw it all flash before his eyes.  He was even faced with a possibility of personal bankruptcy.  At this time he owned various property holdings, companies and other assets.  He and his companies owed approximately $3.4 Billion that they could not repay.  Creditors could have seized many of his assets and the worst part being that the Donald had personally guaranteed about $830 Million of the debt.  These debts forced him to the brink of personal bankruptcy.  Although Trump has filed for business bankruptcy on a number of occasions, he narrowly escaped personal bankruptcy when he struck a deal that allowed him to pay back these debts over a number of years.  He also used money from his holdings in Atlantic City, New Jersey to keep him afloat during this time.  In fact, three of his casinos filed for business bankruptcy.

Bankruptcy can be personal or business, simple or complex.  If you are facing personal bankruptcy you need experienced counsel by your side. 


Thursday, December 24, 2015

Dealing with Too Much Credit Card Debt

When credit cards first came into use, for many they seemed like a lifeline, enabling the purchase of necessary items before the money was in the bank. All too quickly, due to a combination of consumer overuse and the increasingly exorbitant interest rates charged by credit card companies, that lifeline put many in a stranglehold.

If you find yourself overwhelmed by credit card debt to the point that your financial (and perhaps even emotional) life has become unmanageable, now is the time to take some serious steps toward economic stability. It may help you to know that you are far from alone. According to debt statistics released this year, the average U.S. household now carries just over $16,000 work of credit card debt, a number that, unfortunately, continues to climb.

Measures to Help You Regain Control

The first step is usually the hardest one:

Stop Adding to Your Accumulated Debt

While it may be difficult to resist temptation, it is imperative to stop adding to your mountain of debt as you try to get out from under it. Cut expenses wherever you can. Stop using credit cards entirely. If you have been going through a rough patch during which you have needed to pay for essentials, like utility bills, with credit cards, try negotiating a payment plan with the company in question. Another possible solution is downsizing your home, car, or other expenses, or refinancing your home.

Negotiate a Lower Credit Card Interest Rate

Credit card companies don't want you to default, so they are often willing to negotiate a lower interest rate so that you can comply with their demands. Not all credit card companies will negotiate such a reduction in interest, but it may be possible to shift your current balance to a card with a lower (even a 0%) interest rate.
Work Out a Payment Plan

If you are unable to pay the minimum amount of your credit card balance even at a lower interest rate, see if you can't get a deferment on your payments for some period of time, or negotiate a new payment plan. Most companies would prefer having you pay some regular amount, even a small one, rather than defaulting altogether.

Going on a Spending Diet

As with changing any bad habit, one dramatic alteration can sometimes kick-start the process. Some people find going on a "spending diet" for a month or two can be rewarding. Deciding not to purchase anything over a certain amount can also be helpful. Make a firm decision to use the saved money to pay down the existing debt.

Earning More While You Spend Less

It stands to reason that if you find a way to earn more money, you will be able to pay off your debt more quickly. Even a relatively small addition to your income, when applied to your existing debt, can make a significant different over a period of time.

Other methods of relieving overwhelming debt include filing for personal bankruptcy. To obtain help in choosing the best method for handling your credit card debt, you should consult with an experienced bankruptcy attorney for advice and guidance.

Monday, December 21, 2015

Obtaining a Small Business Loan After Personal Bankruptcy

Will my personal bankruptcy affect my ability to get a small business loan?


You have become overwhelmed by personal debt and are considering filing for Chapter 7 or Chapter 13 bankruptcy, but, you are concerned about whether personal bankruptcy will prevent you from obtaining a small business loan in the future. This is a legitimate concern, but it is important to remember that while bankruptcy might make things more difficult, it will not make securing a loan impossible. 

 There are a few things that will make it easier for you to get the financing you need for your small business. The first of these is a thorough business plan, as detailed as possible, outlining how the business will operate and including predictions of how much it will cost to open. The plan should also include information on how much it will cost to run the business and how much profit the business is expected to make. Such data makes the lender feel more secure that the loan will be repaid.

If you already have a relationship with a financial institution to which you have fulfilled your repayment obligations, it is best to initially approach that institution. This institution already knows you as a businessperson and has confidence in you, since you already have an established a track record.

 Depending upon when you need the loan, it is usually best to wait until after your personal bankruptcy has been discharged before you apply. It is also important to note that there are nontraditional means of financing available. Asset-based financing, for example, is secured by your business property, such as real property and equipment.

 Most importantly, be persistent. Do not be discouraged if things don’t work out initially. It might take some time, but don’t give up. Your small business financing is out there, even in the wake of a personal bankruptcy.


If you are concerned about small business financing or any other matter related to personal bankruptcy, contact the Mobile and Baldwin, Alabama attorneys at Padgett & Robertson, by calling (251) 342-0264 for a consultation today.



Sunday, November 29, 2015

Student Loans and Personal Bankruptcy

Are student loans dischargeable in personal bankruptcy?

Today,   many people are struggling to pay back student loans while also struggling with other types of debt, such as credit card payments or medical bills.  This overwhelming financial burden can cause a person to seek out bankruptcy as a means of relief only to be told that they cannot discharge his or her student loan debt. 

Generally, the bankruptcy cannot free you of student loan debt, but there are limited circumstances where student loan debt can be discharged.  Under the federal Bankruptcy Code, student loans can be discharged if continuing payment would cause the debtor undue hardship.  Unfortunately, undue hardship was not defined in the statute, leaving it up the bankruptcy courts to explain the concept.  The courts have decided that undue hardship exists when a person has attempted to pay back his or her student loans, but, due to his or her current financial situation, continuing payments would cause this person to be unable to maintain a “minimum standard of living”.  It must also be found that the person’s poor financial situation will continue into the future.

If undue hardship is not the issue, there are other avenues to discharge student loan debt.  One involves the bankruptcy code’s definition of education loans.  The code defines education loans as those taken to attend a school that participates in federal student aid programs.  If you had to take private loans because your school did not participate in the federal programs, those debts might be dischargeable. Also, loans taken for things other than the “cost of attendance” (tuition and fees) may also be dischargeable.

In order to discharge student loans, an adversary proceeding must be filed in an existing bankruptcy case.  If you are trying to discharge your student loan debt, it is in your best interest to retain an attorney with experience in this area.       

Monday, November 23, 2015

What Happens When a Co-Signer Files for Bankruptcy?

I recently co-signed on the loan for my son’s vehicle, and he recently filed for bankruptcy. Should I be worried?

Co-signing a promissory note can be a helpful and productive way to assist a friend or family member in obtaining a much-needed vehicle or personal loan – however, this benevolent decision can ultimately lead to possible financial woes for both parties in the event a bankruptcy occurs. Under the terms of the promissory note, a co-signor is responsible for repayment of the debt if the primarily borrower is unable or unwilling to continue paying –often the case when a debtor declares bankruptcy.

Co-signor liability in the event of a bankruptcy is determined based on the type of bankruptcy filed by the original debtor, which is limited to Chapter 7 or Chapter 13. In a Chapter 7 proceeding, an automatic stay is issued to halt any collection efforts by creditors. However, creditors may still pursue a co-signor, notwithstanding a discharge against the original borrower. To insulate a co-signor against liability in this instance, a borrower could reaffirm the debt or pay it off completely.

On the other hand, Chapter 13 proceedings offer greater protection to the co-signor. The court will initiate a “co-debtor stay” to insulate co-borrowers from liability and collection efforts during the proceedings. However, the court may eventually lift the co-debtor stay in the event the borrower fails to repay the debt under the repayment plan, or the creditor can show it will face “irreparable harm” if the stay remains in place.

In any event, there are options available to help co-signors avoid the fallout of a bankruptcy proceeding by the original borrower, and a bankruptcy attorney can help explain the available options for borrowers in this predicament.

Saturday, October 31, 2015

Avoiding Post-Bankruptcy Lending Scams

I just went through consumer bankruptcy, and seem to receive solicitations for loans and credit cards almost daily. Is this a scam?

It is no secret that the bankruptcy process will temporary impact the petitioner’s credit rating and eligibility for new financing. In the long-run, however, bankruptcy can significantly reduce outstanding debts and liens, leading to an overall brighter financial future. Recent filers should be warned, however, that unscrupulous lenders will take very opportunity to exploit bankruptcy petitioners, primarily due to the presumption that these individuals are “desperate” for credit and will accept virtually any interest rate offered. As experienced bankruptcy practitioners, we encourage you to maintain your newfound freedom from the grips of debt, and to hone your skills in spotting a lending scam before it can ever hit home.

Signs of a Scam

Scammers in any industry rely on the psychological vulnerabilities of their targets. Scams against the elderly, for example, often rely on the notion that elderly individuals live alone, need someone to talk to, and can be easily persuaded into anything with a casual, friendly conversation.

Unfortunately, the same is true with post-bankruptcy lending scams. In the weeks and months following the bankruptcy process, some debtors may feel hopeless and out of control of their financial futures. Using this to their advantage, scammers will entice borrowers to restart the debt cycle by entering into wildly unfavorable – and sometimes illegal – credit agreements, often with unthinkable interest rates and skewed repayment terms.

Other signs of trouble include unsolicited, relentless offers over the telephone or through the mail. In addition, loans and credit products promising to improve one’s credit score are generally correlated to unfavorable repayment terms targeting those in “desperate need” of financing – again, relying on the psychology of vulnerability.

The best bet? Stay on the straight and narrow, avoid pursuing new debts, and if an offer seems too good to be true, it almost always is.

If you are considering personal bankruptcy or have questions about how the process will impact your credit rating, please contact Padgett & Robertson today: 251-342-0264.

Friday, October 30, 2015

Basics of Chapter 7 Bankruptcy

What is Chapter 7 Bankruptcy and how does it work?

If you are overwhelmed by debt, you might be considering bankruptcy as a way out.  Chapter 7 bankruptcy can provide you with a fresh start if you are eligible. Our attorneys regularly determine if clients are eligible and assist them in the Chapter 7 bankruptcy process from inception to conclusion.

In order to be eligible for Chapter 7 bankruptcy, you must pass the means test.  This means that your income must be lower than the median monthly income in your state.  There are a number of exceptions to this rule under which you might also be able to qualify. 

If you pass the means test or fall into one of the exceptions, the Chapter 7 process requires that all of your assets be sold and that the proceeds from those assets be used to pay creditors in a specified manner. The process begins by filing a Chapter 7 bankruptcy petition with the bankruptcy court. 

As a debtor, you must disclose all of your financial information, including a detailed list of your assets and liabilities as well as your income and expenses. At this point, the automatic stay kicks in. The automatic stay stops most collection efforts by creditors.  Within 40 days of the submission, the court appointed bankruptcy trustee must hold a meeting of creditors. You must be present at this meeting, where the trustee and any creditors who attend will question you under oath. The trustee has 10 days from this meeting to decide whether to accept the case or find it to be abuse.

If the case is accepted, all of your assets, except exempt property, will be liquidated and used to pay your creditors. After the bankruptcy, all of your debts will be discharged, giving the debtor the fresh start you were looking for.  There are some debts that are non-dischargeable, such as tax debts and child support payments. You will still be responsible for these, even after the bankruptcy process has been completed.

The attorneys at Padgett and Robertson have extensive experience representing individuals in Chapter 7 bankruptcy cases.  If you are in the Mobile area contact us today at (251) 342-0264 for a free consultation. 

Thursday, October 8, 2015

Timing Consumer Bankruptcy

What is the Best Time to File for Consumer Bankruptcy?

In some cases, filing for consumer bankruptcy involves a strategic component, particularly if a debtor is seeking to reduce overall liability or avoid issues with an impending life milestone such as divorce. It is also true, however, that waiting too long to file bankruptcy can end up costing you more in the long run which raises the question: when is the best time to file?

Interestingly, the summer months are the most popular when it comes to the raw data of bankruptcy filings. By contrast, January and February see the lowest number of filings – the reasons for which could be anyone’s guess.

Setting the calendar aside, there can be some real benefits to filing as soon as possible. For instance, if you are facing a foreclosure and feel that you have nowhere to turn in terms of housing, filing for consumer bankruptcy will put a stay on the pending proceedings – therefore buying you additional time to devise a future housing plan.

As well, creditors are continuing to charge interest on your secured and unsecured debts each day. In many cases, a debtor has nothing to gain by waiting – and trying – to pay down debts before filing. Often, the most toxic and costly debts (unsecured credit cards) are forgiven in the process anyway.

When should an individual delay filing? If a divorce is on the horizon, a debtor will likely fair better by co-filing with a spouse as opposed to filing alone. Likewise, if two spouses are responsible for the debts together, co-filing will be virtually necessary in order to ensure the proper outcome.

Lastly, delaying filing may be the best option if you truly believe you will be able to pay down your debts without needing bankruptcy protection. Bankruptcy will create a temporary stain on your credit rating, which could make it difficult to secure a loan for a home or a vehicle. The impact will be just as negative, however, for those who believe they can pay down debt and wind up in default.

If you are concerned about when to file for bankruptcy, please do not hesitate to contact the knowledgeable attorneys at Padgett & Robertson, Attorneys at Law, in Mobile, Alabama at 251-342-0264.

Monday, September 21, 2015

Bankruptcy & Family Law: How filing affects domestic matters

If I file for bankruptcy, can I avoid or reduce some of my alimony arrears?

Getting behind on the bills can be exceptionally stressful, and a consumer bankruptcy action can help alleviate some of the frustration that comes with overwhelming monthly obligations.  There are certain debts, however, that  are not dischargeable through the consumer bankruptcy process, and the Bankruptcy Code makes clear that most domestic matters cannot be avoided even with a total Chapter 7 liquidation.

No matter how difficult the financial landscape, child support arrears cannot be reduced, negotiated or discharged under any circumstances. However, filing for bankruptcy may help a debtor get caught up on the outstanding balance of the overdue support, and may even help reduce some of the other debts owed to unsecured creditors. When a debtor files for Chapter 13 protection, his or her debts will be prioritized – with child support arrears at the top of the list. The monthly child support payment will be amortized over the length of the repayment plan period and will be paid to the trustee, who will ensure the amount is properly distributed to the child(ren) in need of support.

Bankruptcy can also have an impact on divorce proceedings, and debtors are encouraged to seek thorough legal counsel prior to filing for bankruptcy if considering marital dissolution. In some instances, it may make sense to file for bankruptcy prior to divorce, as this can result in significantly reduced filing fees and court costs. Moreover, joint debtors may be able to have some of their debts discharged and forgiven, meaning the debts need not be distributed during the divorce action.

On the other hand, Chapter 13 consumer bankruptcy can take 3 to 5 years to complete, depending on the payment plan – which may not be feasible if a divorce is on the horizon. Likewise, those seeking Chapter 7 protection may have difficulty meeting income eligibility requirements by filing together, making it more beneficial to go through the divorce first.

If you are considering bankruptcy and are not sure how the proceeding will interface with your pending domestic matter, please do not hesitate to contact Padgett & Robertson in Mobile, Alabama today: 251-342-0264.

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Padgett and Robertson assist clients with Bankruptcy, Personal Bankruptcy, Consumer Bankruptcy, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and The New Bankruptcy Law in Mobile, Alabama and throughout southern Alabama. Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”

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Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”