Quite often we have clients who require a cosigner in order
to be approved for a loan. A cosigner is someone who can take responsibility
for the debt if you become unable to pay it. So what happens if you file for
bankruptcy and your cosigner does not?
If you file for bankruptcy, you will be protected from
creditors by the Automatic Stay of Bankruptcy. The Automatic Stay of Bankruptcy
prevents creditors from attempting to collect money from someone who has filed
bankruptcy. This Automatic Stay is like a shield that protects anyone who files
bankruptcy; however, a co-signor who does not file bankruptcy has no such
Fundamentally a co-signor is in no worse position if you
file for bankruptcy. So for example, if you are current on a car loan and file
for bankruptcy your creditors cannot pursue the cosigner. Just as if you are
current on a car loan and you do not file for bankruptcy.
Additionally, if you
fall behind on your car payments, the vehicle is repossessed and you do not
file for bankruptcy then the bank can pursue the cosigner for any losses they
sustain. Likewise, if you fall behind on your car payments, the vehicle is
repossessed and you do file for bankruptcy the bank will still be able to pursue
your cosigner, the only difference is that the bank will not be able to pursue
Your personal bankruptcy will probably have less impact on
your children than you may think because it is you, and not your child that will be filing.
Your bankruptcy will not affect your child’s credit score. A credit score is a representation of your payment history with your creditors. Therefore, your bankruptcy will have an impact on your credit score but not on theirs. Your children will be free to build their own credit history and will not have any problem getting students loans in the future.
In order to protect your child’s money from your bankruptcy
it is important to make sure that these bank accounts are set up correctly. If
a bank account is just under your name then in the eyes of the bankruptcy court
all of the money in that account is yours. The bankruptcy court doesn’t care if
the money came from your child’s birthday, Christmas gifts, Bar Mitzvah, or
mowing lawns. Also, if you have a joint account with your child, then half of
the money in that account will be considered to be yours. To ensure that the
money in your child’s bank account is protected make sure your name is not one
of the owners of the account.
529 plans are tax-advantaged saving plans designed to encourage saving for future college expenses. Most states consider these to be an asset of the child and therefore are protected when a parent files bankruptcy.
Debts resulting from child support will not be discharged by
bankruptcy. This is because debts from child support are treated differently than
most other types of debt—they are not erased in bankruptcy. So if you or an
ex-spouse is filing for bankruptcy the child support will theoretically still
Contact the Dunaway Law Group at 480-389-6529 or message us HERE to speak with an experienced Arizona bankruptcy attorney.
June 30, 2010, Arizonians could write a post-dated check to Payday lenders for
short-term loans. These Payday lenders charged interest rates of more than 400
percent on an annual basis! However, post June 30, 2010 consumer loans with
annual interest rates higher than 36 percent became illegal without exception. Arizona
law now caps the annual interest rates of Payday loans at 36 percent. Because
Payday loans in Arizona essentially became extinct these creditors developed “Registration
loans” as a way of avoiding the new cap on interest rates.
What is a Registration Loan?
Registration loan is almost identical to a Payday loan; the only different is
that you need a vehicle registered in your name in order to qualify. These
loans are exempt from the 36 percent A.P.R. and therefore they have rates as
high as 204%. The vehicle does not need
to be paid off in order to receive a Registration loan.
Default on a Registration Loan:
loans do not put a lien on your car title and therefore the creditor cannot repossess
your vehicle upon default. However, I have read some Registration loan
contracts which state that they will put a steel “boot” on your car if you
default on payments.
Now if you
file bankruptcy on a Registration loan the creditor will never be able to
contact you again in an attempt to collect on the debt. The Automatic Stay of
Bankruptcy will protect you from their collections efforts. However, this is
not the case with Title loans.
What is a Title Loan?
loans are closer to traditional loans, using the vehicle as collateral, while Registration
loans are more similar to a Payday loan. Title loans are very expensive because
they are exempt from the 36 percent cap on the annual percentage rate.
Therefore, you will pay up to 204% A.P.R. for a Title loan. In order to
obtain a Title loan you must own a vehicle that is free of any liens. Your
vehicle must be free of liens so the lender can put a lien on your vehicle.
Default on a Title Loan:
If you fall behind on a Title loan, the lender can and will repossess the
vehicle. Because technically until the Title loan is paid-off the vehicle is
there’s and they can take it back in the event there is a breach of contract.
So whether it’s before or after bankruptcy if you do not pay on a Title loan
the lender is free to come and repossess the vehicle.
Approximately 30 to 45 days after your bankruptcy case is filed, you must attend a 341 hearing in the bankruptcy court house, there are several reasons for the 341 hearing.
The first reason for the meeting is because it is required by the bankruptcy code. All bankruptcy filers are to be questioned under oath with regard to the information contained in their schedules to be eligible to receive a discharge. Because the requirement is found in section 341 of the bankruptcy code, is has has earned the nickname “341 Hearing”. (Pronounced “three-forty one”).
Second Reason for 341 Hearings
Second reason for the 341 meeting of the creditors is to provide creditors an opportunity to ask questions of you with regard to the information listed in your petition and schedules. Bankruptcy is open to the public and so anyone who wants can attend your 341 hearing. However, in most cases, only you, your attorney, and the Chapter 7 bankruptcy trustee will actually participate in the hearing.
Your trustee must see your driver’s license and social security card to verify that you are who you say you are. So bring your government issued photo I.D. as well as your social security card. Your Chapter 7 bankruptcy trustee will compare the information on your identification with the information submitted on your bankruptcy petition. The purpose of this requirement is to help curtail identity theft and bankruptcy fraud. In the past criminals had taken a fake social security number, incurred debt associated with that number and then filed for bankruptcy using that number.
Lastly, the trustee must see your driver’s license and social security card to verify that you are who you say you are. You must bring your government issued photo I.D. (driver’s license) as well as your social security card. You cannot bring a photocopy of the social security card; you must bring the actual card.
The hearing gives the trustee and creditors an opportunity to ask questions of you with regard to the information listed in your petition and schedules. Bankruptcy is open to the public and so anyone who wants can attend your 341 hearing. However, in most cases, only you, your attorney, and the Chapter 7 bankruptcy trustee will actually participate in the hearing.
Your trustee will ask you additional questions with regard to your assets, liabilities, income, expenses and statement of financial affairs. Typical questions are:
“Do you accept the oath I just administered to you?”
“Did you read, review and sign the Petition, Schedules, and Statement of Financial Affairs filed in your case?”
“Are there any amendments or changes that need to be made to your paperwork?”
“Have you filed another Bankruptcy in the previous 8 years?”
“Have you ever filed Bankruptcy using a different name or Soc. Sec. number?”
“Have you lived in Arizona for more than 2 years?”
“Have you paid back money to any family member or friend in the last year”
“Does anyone owe you money?”
“Did you list all of your assets?”
“Did you list all of your debts?”
“Do you owe anyone Spousal Maintenance (Alimony) or child support?”
“Did you read, sign, and return the letter you received from the Trustee?”
Why would a creditor appear?
Let me start off by saying that creditors appear in less than .01% of the 341 hearings. Once the trustee is through questioning you, he or she will ask if there are any creditors present who would like to question the debtor(s). If there are any creditors present they will come and sit at a specially designated table. Once they have introduced themselves and who they represent they will begin their questioning. Usually the creditor will ask you specific questions about the paperwork that was filed in your case. For instance, they might ask how you came to the value of a particular asset or why an asset they believe you still own was not listed. This is one more reason why you want an experienced bankruptcy in your corner when going through the bankruptcy process.
Creditors usually appear in anticipation of filing an Adversary Proceeding. An adversary proceeding is a form of lawsuit that transpires within a bankruptcy. Creditors typically file an adversary proceeding when they want to convince the bankruptcy court that the debt you owe should still be paid even though you’ve filed bankruptcy. So if a creditor appears at your 341 hearing there is a good chance that they will file an Adversary Proceeding.
Why do creditors rarely appear?
It’s very expensive for a creditor to hire a bankruptcy attorney to represent their interests in your bankruptcy. Often the attorneys that represent creditors charge $400 – $500 an hour. Because it is so expensive for the creditors to hire an attorney they rarely do so unless the argument is over a lot of money and they feel they have a good chance of winning an Adversary Proceeding. The whole purpose of bankruptcy is to give debtors a fresh start and so courts are not inclined to require repayment of a debt by a bankruptcy filer except in extraordinary cases.
Secondly, your creditors must have a legal argument for why you should have to repay them. For instance, American Express can’t argue—“this person owes us money and we want it back”—that’s not a legal argument. Typically, creditors don’t have a legal reason for why you should repay them and therefore they don’t show to your 341 hearing.
If you need help from an Arizona bankruptcy attorney then contact the Dunaway Law Group by phone 480-389-6529 message us HERE.
Generally speaking student loans are not dischargeable in
bankruptcy. The US Bankruptcy Code at 11 USC 523(a)(8) provides an exception to
bankruptcy discharge for education loans. However, student loans may be
discharged if you can show that payment of the debt “will impose an undue
hardship on you and your dependents”.
Bankruptcy Courts use different tests to evaluate whether a particular borrower has shown an undue hardship. But a common test is the “Brunner test” which requires a showing that: 1) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and the debtor’s dependents if forced to repay the student loans; 2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and 3) the debtor has made good faith efforts to repay the loans.
The second element of the Brunner test is the most difficult hurdle for most bankruptcy filers. The difficulty lies is proving to the court that you won’t be able to pay off the loan in the future. The burden is on you to prove that you’ll never be in a better financial situation—one where you could pay on the student loan. Unless a person has experienced some type of permanent disability it’s tough to prove that there’s no way you could find yourself in a situation to pay off your student loans. Because it’s theoretically possible that next month you’ll get a job at FaceBook making a million dollars a year.
If you are considering bankruptcy and would like to speak with an experienced Arizona Bankruptcy Attorney then contact the Dunaway Law Group at 480-389-6529 or message us HERE.