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Cleveland TN Bankruptcy Law Blog

Debts that cannot be discharged in a bankruptcy

When a resident of Tennessee files a bankruptcy petition, their primary object is to obtain a judicial order stating that their financial obligations have been discharged, i.e., that the debts do not need to be repaid. In most bankruptcy proceedings, the bankruptcy court will issue an order at the end of the case identifying which debts have been discharged and which remain enforceable.

Some debts are non-dischargeable as a matter of law. These debts include a tax or customs duty, a debt for money that was obtained by fraud or false pretenses. A discharge will also be denied for purchases of luxury goods for more than $500 on or within 90 days before filing of the petition. All domestic support obligations, including child support or spousal support, cannot be discharged. Fines owed to a government entity cannot be discharged. Finally, any debt incurred by fraud cannot be discharged.

Gymboree and Crazy 8 stores will close in bankruptcy

In what seems to be almost a regular weekly occurrence, another well-known retailer announced that it will be closing several stores here. According to a press release issued by the parent company, Twenty Gymboree and Crazy 8 stores in Tennessee will be affected by the company's decision to file a petition for protection under Chapter 11 of the Bankruptcy Act.

The parent company, Gymboree Group, Inc., operates 900 stores under various names. The stores sell different lines of children's clothing. The company said that it has received a commitment for debtor-in-possession financing of approximately $30 million in new loans and a "roll up" of current obligations. The roll-up will act much like a debt consolidation for an individual. If the bankruptcy court approves the loan and the restructuring of the company's debts, the arrangement is expected to provide enough capital to support the company's operations during the Chapter 11 process.

Bankruptcy filings on the rise in eastern Tennessee

People who are on their way to file a bankruptcy petition at the federal courthouse in Chattanooga often feel as if they are the only ones on this path, that no one else has hit financial rock bottom as hard as they have. The truth, however, is diametrically opposite to such feelings.

Bankruptcy filings here, including Bradley County, have increased since the Great Recession in the first decade of this century. In fact, this area of the country has led the nation for two consecutive years in the per capita rate of bankruptcy filings. The number of bankruptcy filings has increased, while the number of bankruptcy filings nationwide has decreased.

The reach and limits of the automatic stay in bankruptcy

Many people in Eastern Tennessee who are contemplating bankruptcy are aware of a legal device called the "automatic stay." The automatic stay is an order that is issued by the bankruptcy court where the petition has been filed. The stay is addressed to every creditor identified by the debtor in his initial filings, and it prohibits any attempt to collect on obligations owed by the debtor. The automatic stay can protect a debtor against attempts to foreclose a mortgage, cut off utilities, liquidate liens and pursue collection actions on credit card debt.

In this way, the automatic stay can provide significant relief from attempts to collect amounts due from the debtor. The automatic stay, however, does not provide complete protection. Some debts are not affected by the stay. Actions to collect child support or establish paternity will not be stayed. Certain tax proceedings, such as establishing a tax deficiency or demanding payment for past due taxes, are not affected by the stay. Criminal actions that involve both an obligation to pay a debt and criminal penalties will be halted as to the debt claim but not as to the allegations of criminal conduct.

How a Chapter 13 bankruptcy may save your house and car

People in Eastern Tennessee who are struggling with overwhelming debt have many questions if they are considering bankruptcy. One of the most frequently asked questions is whether they will lose their home or car in a bankruptcy proceeding. The answer to that question depends upon understanding how different bankruptcy proceeding operate.

In a bankruptcy under Chapter 7 of the United States Bankruptcy Code, the debtor's assets are sold, with the proceeds being used to pay off debts. Depending upon the debtor's financial situation, either the house or the car or both may be sold to satisfy the claims of creditors. Chapter 13, on the other hand, offers the best chance of achieving the benefits of bankruptcy and still keeping possession of the house and car.

How does bankruptcy affect a personal credit score?

Most large lenders, such as banks, credit unions and similar organizations, use a number called a "credit score" to decide whether to loan money to a particular person. A high credit score makes it easy to borrow money, whereas a low credit score makes borrowing burdensome and often impossible. People in eastern Tennessee often wonder how filing a bankruptcy petition will affect a credit score.

Filing a bankruptcy petition can have a devastating effect on a person's credit score. The exact effect will depend upon each person's individual financial situation, but the mere act of filing a Chapter 11 petition can cause a 200 point drop in a credit score of 700 (which is an excellent rating) or between 130 and 150 points in a credit score under 680. A Chapter 7 filing will diminish a person's credit score for about 10 years, whereas a Chapter 11 filing will affect a credit score for about five years.

Understanding medical bankruptcy

Bankruptcy holds many mysteries for people who have never experienced the process. One of the most common myths among residents of Bradley County is so-called "medical bankruptcy." All bankruptcies are governed by the United States Bankruptcy Code, and many people may be surprised to learn that there is no such thing as a "medical bankruptcy." Nevertheless, the bankruptcy code can help people who are struggling with heavy medical bills.

The degree of assistance in dealing with medical bills (and all other unsecured indebtedness) offered by a bankruptcy filing depends upon whether the debtor can qualify for Chapter 7 or must file under Chapter 13. A Chapter 7 bankruptcy can eliminate many unsecured debts, including medical bills, but the debtor must pass a "means" test, that is, no one can file a petition for discharge of debts under Chapter 7 unless their monthly income is lower than the median monthly income for residents of Tennessee. If a person qualifies for Chapter 7, all unsecured debts owed by that person, including medical debts, will be discharged at the conclusion of the proceeding.

Getting a bankruptcy proceeding started on the right foot

For most people in Bradley County, the decision to file a bankruptcy petition can be inhumanly stressful. There are, however, ways to minimize the anxiety that results from filing a bankruptcy petition. This post will summarize the important initial steps that are essential to a proper beginning to a bankruptcy proceeding.

The 2005 Bankruptcy Act specified that all individuals who intend to file bankruptcy on or after October 17, 2005 must undergo credit counseling within 6 months prior to filing the petition and to complete a financial management instructional course after filing the petition. The next step is to determine whether the petition will be filed under Chapter 7 or under Chapter 13.

What is an agricultural bankruptcy?

Many farmers in Bradley County and in Eastern Tennessee have shied away from filing a petition in bankruptcy. Some have found the liquidation provisions of Chapter 7 too severe for their situation; others have rejected Chapter 11 as too complex and too expensive. Congress acted to eliminate this dilemma in 1986 by adding Chapter 12 to the Bankruptcy Code. This chapter is intended to allow family farmers to reorganize their debts and continue farming without facing dissolution under Chapter 7 or the expense of Chapter 11.

To take advantage of Chapter 12, a person must be "engaged in a farming operation. The farm business must be owned and controlled by the debtor's immediate family. The total amount of debt owed by the farmer cannot exceed $4,153,150, and at least 50% of those debts must be related to the farming operation. More than 50% of the debtor's gross income for the preceding tax year must have come from farming. If the farming business has been incorporated, more than one-half of its outstanding stock must be owned by one family. The family must conduct the business of the farm, and more than 80% of the corporation's assets must be related to farming. The stock of the farming business cannot be publicly traded.

What information is required in a Chapter 7 bankruptcy petition?

When people in Bradley County consider filing a bankruptcy petition, they are usually more concerned with the outcome than with properly commencing the proceeding. Sometimes, gathering the information that must be provided with the petition can seem an overwhelming task. This post will provide a bird's eye view of the types of information that must be submitted to the bankruptcy court in order to start a Chapter 7 proceeding.

The debtor must acquire a set of the official forms specified by the Bankruptcy Court. The court will not provide these forms, but they are available online and in most stationery stores. The bankruptcy forms are intended to ensure that the debtor provides the types of information that will illuminate the debtor's financial situation and expectation for future income.

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