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Bankruptcy and the Required Credit Counseling and Debtors’ Education Courses
All bankruptcies are governed by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The law requires that every person who files for bankruptcy undergo mandatory credit counseling at least 180 days before they can officially file. The credit counseling must be conducted by an organization approved by the government. Besides the credit counseling, those who file for bankruptcy also need to complete a debtors’ education course before the government will officially discharge their debts.
The U.S. Trustee program is the government agency that approves the organizations that provide the mandatory credit counseling and provide the debtors’ education program. If the group’s name appears on the U.S. Trustee program’s list of approved credit counselors and educators, then they are an acceptable option, if not, then don’t waste your time or money.
Each of these programs follows a specific timeline. The credit counseling course must happen before the debtor files for bankruptcy and the debtors’ education course must take place after the debtor has filed the initial claim. When the debtor files for bankruptcy, he must include in the already mountainous pile of paperwork a certificate of completion for the credit-counseling course. The debtor must also submit evidence that he or she has completed the debtors’ education program before the debts can finally be discharged.
The credit counseling session is meant to involve a thorough examination of the debtor’s complete financial life. The credit counselor is supposed to provide the debtor with some alternatives to bankruptcy and also give the debtor an opportunity to learn how to develop a better personal budgeting system. If the debtor cannot afford the counseling session, the credit counseling organization is required to offer the counseling free of charge. The debtor is responsible for telling the organization that he or she cannot afford to pay the fee before the session begins and will then receive a fee waiver from the organization. If the debtor is able to pay for the session, the charge could be as much as $50 dollars.
Once the debtor has completed the required credit-counseling course and has received the certificate of completion, he can then submit the certificate of completion along with the bankruptcy petition and move the process one step closer to being done. The next step is to complete the debtors’ education course. This course includes instructions for the debtor on how to develop a better budget, how to use credit wisely and how to manage money effectively. There is also a fee associated with this course, but just like the credit counseling sessions, if the debtor cannot afford the fee the education provider should waive it.
In any Bankruptcy Court, not just in Dayton, Ohio, the court will protect you from student loan creditors. Once the case is filed, the court issues what is called an “Automatic Stay”, which prohibits any creditors, including student debt collectors, from taking any action to collect the debt.
In most circumstances, the Automatic Stay will keep educational loan creditors from contacting you the entire time that the bankruptcy case is pending. In Chapter 13 bankruptcies, that period could be as long as 5 years. In that sense, student loans are treated like all other unsecured debts. However, whether student loans are discharged at the end of the bankruptcy is a more complicated issue.
It is very difficult, but not impossible, to discharge student loans in bankruptcy. In order to discharge your student loans in a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, you will need to convince the Bankruptcy Court that repayment of the student loans “will impose an undue hardship on you and your dependents.”
Different federal districts have different tests that they use to determine what the borrower will need to show in order to prove “undue hardship.” These different tests and the different courts’ interpretations make it more difficult to discharge student loans in some districts. Student loan discharge in Dayton, Ohio, is very difficult.
In order to discharge the student debt, you will need to file what is called an adversary proceeding. The issue will be litigated in the bankruptcy court, costing time and money. Most bankruptcy attorneys offer free consultations, where you can get more information about the treatment of your student loans in bankruptcy.
Bankruptcy and Divorce
Lets take the following hypothetical situation:
Ryan and Lauren are married but soon to be divorced. Ryan is planning on moving from the marital residence in Miamisburg, Ohio, to Tennessee with his new girlfriend Jennifer. Lauren has already moved to Kettering, Ohio. Can they file a joint bankruptcy together in Dayton? Would it be better to wait and file their bankruptcy after the divorce is final?
Divorces breed bankruptcies. During the marriage there was one household with one set of expenses. Once one spouse moves out, there become two households and two sets of expenses, and divorce litigation can be very costly. Filing bankruptcy is often the only solution for people getting divorced. But how does separation and divorce affect a Chapter 7 bankruptcy or a Chapter 13 bankruptcy?
Ryan and Lauren can file a joint petition at any time during their marriage, even if they are maintaining separate residences. Filing joint bankruptcy is cheaper because saves the additional filing fee. However, most bankruptcy attorneys will not advise filing a Chapter 13 bankruptcy in anticipation of a divorce. Chapter 13 bankruptcies require that the debtors make monthly payments for 36 or 60 months. This is impractical to do if the individuals involved will no longer be married.
The timing of the two separate cases in Ohio is also important. Filing either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy will stall any existing divorce proceedings. The bankruptcy court issues what is called an Automatic Stay at the beginning of the bankruptcy that prohibits anyone from taking action on any debts. Therefore, the divorce court cannot divide the debts of the spouses until the divorce case is final or a Relief From Stay is obtained from the bankruptcy court. It is often considered preferable to file the joint Chapter 7 bankruptcy a couple of weeks before filing the divorce case, as the Chapter 7 bankruptcy does not generally take as long as a contested divorce.
A skilled bankruptcy attorney will be able to answer all of your questions about filing bankruptcy in the context of a divorce or separation. Many Dayton-Springfield area attorneys offer free bankruptcy consultation.
When considering personal bankruptcy, many clients ask, “Will my income tax refund be taken?” The answer to that question is that, “it depends”, regardless of whether you are filing an Ohio Chapter 7 bankruptcy or an Ohio Chapter 13 bankruptcy.
Whether an individual’s income tax refund becomes a part of the bankruptcy estate depends on when the bankruptcy is filed with the United States Bankruptcy Court. For instance, if an individual files bankruptcy after that individual has both filed and received their income tax refund, it is highly unlikely that their income tax refund will become a part of the bankruptcy estate. However, if a person files for bankruptcy shortly before or shortly after filing their income tax return, then it is very likely that a person’s income tax refund will become part of the bankruptcy estate. This is because the person is yet to have received their income tax refund, and that money can be used to pay off the person’s existing creditors.
However, if you happen to file your income tax refund in or around the same time that you file for bankruptcy that does not necessarily mean that your entire income tax refund will become a part of the bankruptcy estate for the distribution to your creditors. In Ohio, portions of your income tax refund attributed to the Child Tax Credit and the Earned Income Tax Credit cannot become part of the bankruptcy estate. O.R.C. 2329.66(A)(9)(g). For instance, if you have an income tax refund for $4000, and $2500 is attributed to the Child Tax Credit and the Earned Income Tax Credit, then the most that can become part of the bankruptcy estate is $1500.
It is best to address a qualified bankruptcy attorney with specific questions about the implications of filing for bankruptcy shortly after filing and/or receiving your income tax refund. Your bankruptcy lawyer can help you determine the timing that will be best for you. It is important to note, that you should never spend your income tax refund after it has been determined that it will become a part of the bankruptcy estate. This can result in serious consequences, such as your bankruptcy being denied.