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Tyler Texas Bankruptcy Law Blog

What is the Chapter 11 automatic stay?

Sometimes even the best of businesses in Texas can fall on hard times. Whether it is a downturn in the economy, an increase in competition or an unexpected loss of sales, a business may find itself floundering in a sea of debt. For some businesses, the best way out of this debt is through filing for Chapter 11 bankruptcy, also known as a reorganization bankruptcy. This can especially be useful, as filing for Chapter 11 bankruptcy can put an automatic stay on creditor actions.

An automatic stay gives the debtor time in which all collection efforts, repossessions and the foreclosure processes are put on hold. In general, creditors cannot proceed on any of these actions, so long as they took place before the business filed for bankruptcy. This gives the business a "breathing spell" in which it can try to negotiate a way with its creditors to reach a resolution regarding their debts.

What is the Chapter 13 'hardship discharge'?

Sometimes, when a person's debts become overwhelming, they may find that filing for bankruptcy is the best way for them to wrest control of their financial problems and move forward with a clean financial slate. While some people in Texas may choose Chapter 7 bankruptcy (liquidation bankruptcy), others may find that Chapter 13 bankruptcy is better for them.

Chapter 13 bankruptcy allows a person to enter into a court-ordered three to five-year repayment plan. Through this plan, they can often prevent foreclosure, as it provides them with a means to catch up on their mortgage payments. A Chapter 13 repayment plan may also lower the amount a person has to pay on their debts monthly, as the repayment period is extended through the terms of the plan.

Chapter 13 debtors may face unauthorized mortgage changes

When people in Tyler have a mortgage, they expect that the terms of the mortgage will remain the same. In fact, lenders are not permitted to change the terms of a mortgage in a way that lengthens the amount of time a mortgage must be paid or change the amount to be paid each month, if the borrower has not agreed to do so. However, one lender, Wells Fargo, did just that to borrowers who were in the bankruptcy process and is now facing a lawsuit.

According to the lawsuit, Wells Fargo filed included a payment-change notification to a loan-modification notification, which are both usually filed if the borrower files for Chapter 13 bankruptcy. These forms authorize adjustments to the debtor's mortgage that have been preapproved. But, Wells Fargo reportedly did not go through the appropriate channels to bring monthly mortgage payments down and lengthening how long borrowers had to pay the mortgage. This meant that borrowers would then be responsible for paying thousands of dollars in additional interest.

What creditors can do to debtors facing debts

Millions of Americans throughout the country, including many from Tyler, Texas, and the surrounding area, finding themselves in debt and suffering from financial difficulties. Regardless of the reasoning, whether it was a lost job, a serious injury or illness, or simply poor decision-making or excessive spending, if you are suffering from financial turmoil and are being hounded by debt collectors, life can be stressful. It is important to recognize, however, that creditors, in an effort to get debtors to pay back what they owe, are still entitled to certain rights.

There are several forms of "self help" remedies that creditors may try to get debtors to pay back what they owe. Secured transactions involve documentation that allows a creditor to take back or simply collect a debtor's property in order to pay off a debt. This is generally the process used during the sale of a home or a car, but may also be obtained through paperwork where the creditor's security interest is perfected.

When your creditors cross the line

Are you in debt? Are you so behind on your payments that your creditors have passed your accounts on to collection agencies? If the answer to these questions is yes, you are not alone. This is something that numerous Texas residents are struggling with right now.

The truth of the matter is, at some point in most people's lives, financial struggles occur. A lot of times this happens due to circumstances beyond their control. Creditors do not care why you cannot pay your bills, however. They just want to get their money. This often leads to creditor harassment that gets out of hand.

How can I make sure the Chapter 13 plan works?

Any bankruptcy proceeding in Texas will end up being a fruitless endeavor if it does not yield the desired result to the debtor and help him or her to get back on stronger financial ground. For a fresh financial start to be successful, the plan must work. With a Chapter 13 bankruptcy, it is vital to understand something that is elementary: how to make the plan work.

When the provisions of a confirmed Chapter 13 have been completed, it binds the debtor and the creditors. When the court has approved of the plan, it is up to the debtor for the plan to go as it is supposed to and be successful. For this to happen, the debtor must make the regular payments to the trustee. This can be done directly or via a payroll deduction. This requires the debtor to live on a fixed budget for an extended amount of time.

Legal help can stop the repossession of certain property

Texans who are having financial problems are often concerned about the prospect of creditors repossessing certain properties. Various items can be taken as part of the collection process and those who are thinking that they have nowhere to turn should be aware of how a bankruptcy proceeding can help them. For example, a car could be vital to a person's daily life and there is a concern that it could be repossessed. Filing for bankruptcy can put a stop to this.

When a person files for bankruptcy, one of the major benefits is that it allows them to put an end to the constant phone calls, letters and emails with which they have likely been inundated since the financial struggles began and they fell behind on their payments. There are several options when considering bankruptcy and an attorney can walk a client through all of them to decide on the best possible one.

What is conversion or dismissal in a Chapter 11 case?

When a Texan is moving forward with a Chapter 11 filing, there are certain aspects that must be considered as the case is moving forward. One is the conversion or dismissal. This grants the debtor the right to convert a Chapter 11 to Chapter 7. This is a one-time right unless the following is in effect: the debtor is not a debtor in possession; the case began as an involuntary Chapter 11; or the case was previously converted to Chapter 11 in a way that was other than at the request of the debtor. With Chapter 11, the debtor cannot have the case dismissed on request as an absolute right.

It is possible that a Chapter 11 can be dismissed or converted to a Chapter 7 after the request is made by a party in interest. This must be done "for cause." Once cause has been established, the court is required to either convert or dismiss the case. It hinges on the best interests of the creditors and the estate. The court can also decide that appointing a Chapter 11 trustee or examiner is in the best interests. The party that makes the motion might establish cause by indicating that there was a continuous or substantial loss to the estate and there is a not a likelihood for it to be rehabilitated; that there was gross management of the estate; that the insurance was not maintained and it placed in jeopardy to the public or the estate; or there was an unauthorized use of cash collateral that gives substantial harm to the creditor.

Does the Chapter 7 discharge clear me from my debts?

Texans whose debts have reached the point where they decide to file for Chapter 7 bankruptcy often have a hard time believing that their debts can be made to go away through simply filing for bankruptcy and following through with the process. Those who are asking if the Chapter 7 discharge really clears their debts should know how the discharge process works and what debts are dischargeable. Individual debtors who have a successful Chapter 7 bankruptcy will be freed from liability for most debts. Subsequently, creditors can no longer act to collect on the debt.

While there are exceptions, statistically and except for cases that are converted to a different type of bankruptcy that is more suitable to their situation, more than 99 percent of Chapter 7 cases result in the discharge. A party has the right to file a complaint to discharge the motion, but if that does not happen, the discharge will come within 60 to 90 days after the first meeting of creditors.

Chapter 11 bankruptcy might be better for struggling businesses

A small business that is experiencing problems in Texas and across the United States will often consider filing for bankruptcy. One question that comes to forefront during this time is whether filing for Chapter 11 bankruptcy is better than other alternatives like Chapter 7. The reality is that for businesses that would like to continue operating, Chapter 11 is generally viewed as the better option. In fact, many believe that Chapter 7 for businesses is simply an admission that the end is near and the choice of Chapter 7 is the final concession.

An example of Chapter 7 and its faults for a business is David Barton gym. The chain had locations in several cities across the nation and was a quirky health club in its design and marketing strategy. Near the end of 2016, the gym announced it was closing indefinitely. Workers and members were caught totally off guard by the development. They filed for Chapter 7, essentially walking away from all its responsibilities - something a business generally does not do when it is having financial issues.

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