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Scura, Wigfield, Heyer, Stevens & Cammarota Blog

Why Debt Consolidation is a Bad Idea (or Worse, a Scam)

There is a huge stigma that goes along with filing for bankruptcy.  The word bankruptcy invokes a feeling of failure and immorality. People dread the thought that bankruptcy may be in their future.  But debt consolidation, debt resolution, credit management, debt relief, etc.; these terms invoke a completely different emotional response.  These concepts are marketed as an alternative to bankruptcy: a way out of financial hardship, but not shirking one’s responsibilities. 

Don’t be The Next Victim

Debt relief agencies are great at marketing, but are a poor choice in most circumstances.  Debt relief agencies promote that their services are an alternative to bankruptcy, but in truth they are praying on people’s emotions, spouting a false narrative, and creating false expectations.

Court Appearance Obligations & the Public Nature of Filing for Bankruptcy

For many people, the final obstacle in deciding whether they are going to file for bankruptcy is dealing with the feeling of shame. The questions that often mount include: Will a judge yell at me? Will I have to face my creditors? Will my whole community know? There are many myths about the bankruptcy process. Therefore, it is important to understand your appearance obligations during the bankruptcy process when contemplating bankruptcy. 

What Actions are Prohibited by the Automatic Stay?

The moment a bankruptcy petition is filed, an event known as the Automatic Stay is triggered and the bankrupt debtor is protected from continued collection activities[i].  The Automatic Stay encompasses a wide array of prohibited activities. Commonly, a bankruptcy petition is filed to stop a foreclosure, to prevent a creditor from garnishing wages, or just to stop the harassing phone calls. But, the filing of a bankruptcy petition also mandates that a creditor take corrective action when inaction infringes on the rights of a bankrupt debtor. And when corrective action is not taken, it is the creditor that may end up paying the price.

Avoiding Judicial Liens

Generally, a lien will pass through a bankruptcy unaffected, that is, unless it is specifically avoided.  If competent bankruptcy counsel is not retained, an unsuspecting debtor may think that they are completely free from the burden of a lien by simply obtaining a bankruptcy discharge.  Unfortunately, if the lien is not specifically avoided, the creditor will still have an in rem claim against the property of the debtor.  That is to say that a bankruptcy discharge only relieves the debtor of the personal liability for a debt.  In sum, lien avoidance is not automatic, and the debtor (through counsel) has the burden of avoiding liens under 11 U.S.C. §522(f). 

Debt Settlement: The Truth about What to Expect

Most individuals who find themselves in financial difficulty feel that bankruptcy is their last option. Unfortunately, this misconception often leads individuals to be preyed upon by the pseudo-legal debt settlement industry believing it to be an “alternative to bankruptcy”.  These services, which may seem like the better choice, in truth, leave individuals believing that the creditors are stopped from collecting and that they are on the path to recovery.  Nothing is further from the truth. The reality is this: in comparison to most debt settlement services, bankruptcy is almost always the best long-term option.

Supreme Court of the United States Upholds Priority Scheme in Structured Dismissals

At Scura, Wigfield, Heyer, Stevens & Cammarota LLP our attorneys take pride in ensuring that they are well-versed in the most recent case law and legal arguments that assist our clients in obtaining their desired results. As Chapter 11 experienced practitioners, our firm pays close attention to new legal arguments that can assist our corporate clientele. One such case was decided on March 22, 2017. In Czyewski et al. v. Jevic Holding Corp. et al., the Supreme Court of the United States held that bankruptcy courts cannot bypass the priority distribution scheme in Chapter 11 bankruptcy matters without the consent of affected creditors. See Czyewski et al. v. Jevic Holding Corp. et al., March 22, 2017.

Know Your Options – Treatment of Income Tax Debt in Bankruptcy

Many individuals are saddled with income tax debt and seek help from the Bankruptcy Code to solve this issue in their life.  Each provision of the bankruptcy code treats taxes differently and it is important to understand your options prior to filing for bankruptcy.

Fight Back – Make the Creditor Pay

A primary relief of filing for bankruptcy protection is to obtain the benefit of the Automatic Stay.  The Automatic Stay keeps creditors at bay while the bankruptcy case is administered.  It prevents a variety of actions from commencing or continuing, including any judicial proceeding that could have been commenced before the petition was filed. This breathing space is critical in enabling a debtor to reorganize or a chapter 7 trustee to administrate the liquidation of the bankruptcy estate.

It is not unusual that a creditor continues its efforts to collect despite knowledge of the bankruptcy filing.  Sometimes the creditor may believe that the stay is not applicable, or it may claim ignorance that the stay prevents a certain act from occurring.  Fortunately for the debtor that is harmed by the Automatic Stay violation, bankruptcy courts are quick to enforce the Automatic Stay and are not bashful about penalizing an offending creditor. An aggrieved debtor may seek redress with the Bankruptcy Court and request the Bankruptcy Court to impose sanctions for violations of Section 362 of the Bankruptcy Code, and, in appropriate circumstances, invoke civil contempt for the purposes of putting an end to a continuing violation.

Can a Creditor Lift the Automatic Stay to Pursue a Chapter 13 Debtor?

Not all debts go away in a bankruptcy. Certain types of debt are nondischargeable. Potentially nondischargeable debts, those for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by false pretenses, a false representation, or actual fraud are dischargeable until the bankruptcy court determines otherwise.  Similarly, a debt resulting from willful and malicious injury by the debtor. These types of debts (which are the most commonly litigated in bankruptcy proceedings) are dischargeable until a bankruptcy court rules that it is not dischargeable pursuant to Bankruptcy Code §523(a), §523(c), and Fed. R. Bankr P. 7001 (6).

The Debtor’s Personal Guarantee and Confirmation of a Chapter 11 Plan

Any small business owner knows the importance and difficulty in obtaining credit. Whether the need for financing is to purchase real estate, inventory, or to obtain terms with vendor, the small business that has cash reserves sufficient to meet all day to day operations is few and far between. Typically, obtaining credit for a small business, particularly one that has not been operating for decades, will require an individual or individuals to personal guarantee the debt.

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