The Wright Firm's Weblog

DON’T FALL FOR THE PAYDAY LOAN TRAP!

Payday loans are short-term, high-interest loans given as an advance against your next paycheck.  Usually the lender will require that the customer leave a predated personal check which can be cashed on the date of the customer’s next payday.  Lenders charge $15 to over $20 per $100 borrowed for a two-week loan, which translates into an interest rate of 520 percent per year or more.

 

Customers also have the option to pay only the interest on the loan, and to carry the principal to the next paycheck.  The result is predictable.  If someone needs to borrow $500.00 today for an unexpected expense, or to pay their bills, it is unlikely that they will have $600.00 to repay the debt in two weeks.  Many customers don’t have the money to pay the entire principal on time, so they start a cycle of paying the interest only each payday, never making any gain on the principal, and in this way they stay in debt to these lenders for years.

 

In my bankruptcy practice, I see these types of loans regularly.  My clients often follow the same progression of indebtedness.  First, they get behind on their regular bills, mortgage, or car payments.  Next, they use credit cards to make up their financial shortfall.  When they have reached the limit on their credit cards they sometimes turn to payday loans.  If you see yourself heading down that path, contact me to discuss your financial situation.  My clients can often resolve their financial troubles simply by changing their strategy for repaying their debt or by making some minor changes to their budget.  If bankruptcy is needed, I can help my clients file and advise them on how to protect their assets.

 

The attorneys at The Wright Firm offer free initial consultations to clients in need of help with their financial situation.  Call Nathan Graham, a bankruptcy attorney at The Wright Firm, at 469-635-6000 or visit the firm’s website at www.thewrightlawyers.com for more information.

 

FIVE REASONS TEXANS FILE BANKRUPTCY

There are literally dozens of good reasons for debtors to file bankruptcy when faced with a tough financial situation.  These are the most common reasons why people declare bankruptcy:

 

1.   End garnishments from paychecks.  In Texas, creditors can’t garnish your paychecks to collect on a judgment.  But there are two government agencies that can garnish your wages.  The Attorney General can garnish wages to collect child support arrears.  Filing bankruptcy will stop the garnishment of arrears but will not prevent garnishment of ongoing child support payments.  Similarly, the Internal Revenue Service can garnish wages to collect taxes.  Sometimes these garnishments will leave the debtor with very little money to live on.  Filing Chapter 13 bankruptcy may allow debtors to repay their taxes and child support arrears over a longer period of time, reducing what they are required to pay each month, leaving them with more money to live on.

 

2.   Stop harassment from creditors and collection agencies.  Filing bankruptcy puts into affect a stay against creditors.  This means that once a creditor or collection agency receives notice that a debtor has filed bankruptcy they have to stop all attempts to collect debt.  That means that all of those annoying phone calls, threatening letters, and harassment will end soon after filing bankruptcy.

 

3.   Discharge debt.  Debtors in bankruptcy may be eligible to discharge part or all of their debt.  Discharging debt means that the debtor is no longer responsible for repaying the debt.  There are some debts that are not eligible for discharge.  The three most common types are student loans, domestic support obligations and income tax.  There are other exceptions as well, so prospective bankruptcy filers should discuss with their attorney how bankruptcy will affect their debts.

 

4.   Prevent foreclosure or repossessions.  One of the most common reasons people file bankruptcy is to stop foreclosure of their home and prevent repossession of their vehicles.  Chapter 13 debtors who are behind on their house payments and/or car payments can elect to cure these arrears in their Chapter 13 plan, which gives them an opportunity to get caught up on their payments.  Also, the automatic stay will stop the foreclosure and/or repossession of the collateral.

 

5.   Stop lawsuits.  If you have been sued, filing bankruptcy will stop the lawsuit in most cases.  If the lawsuit has already resulted in a judgment, bankruptcy may allow you to discharge the debt so that the judgment can’t be attached as a lien against your property or collected upon through levying your bank account.

 

Everyone’s financial situation is different.  Before pursuing bankruptcy you should speak with an experienced bankruptcy attorney about your specific situation.  Phone consultations and your first meeting with an attorney to discuss bankruptcy are free at The Wright Firm.  Call Nathan Graham, a bankruptcy attorney at The Wright Firm, at 972-353-4600 or visit the firm’s website at www.thewrightlawyers.com for more information.

 

CHAPTER 13 BANKRUPTCY AND THE HARDSHIP DISCHARGE!

Chapter 13 bankruptcy requires that a debtor make payments to a trustee for three to five years under a repayment plan filed by the debtor at the beginning of their bankruptcy case.  At the end of the plan the debtor receives a discharge of any remaining dischargeable debts.  Sometimes a debtor files chapter 13 bankruptcy, makes payments for awhile, but then their circumstances change and they are unable to continue making payments.  When this happens there are a few options.  First, the debtor can convert the bankruptcy case to a case under chapter 7.  Conversion requires that a debtor file new schedules and statements with the court and attend another 341 meeting with a trustee.  Second, the debtor can  file a plan modification and lower their plan payment.  This option is only available if the debtor’s plan provides for payments to unsecured creditors.  If this is the case, the debtor can modify their plan to reduce payments to unsecured creditors, provided they can show that they can still afford payments to the secured and priority creditors listed in their plan.

 

There is a third option,  known as the “Hardship Discharge” which is much simpler, quicker, and less costly than a plan modification or conversion.  Section 1328(b) of the Bankruptcy Code allows chapter 13 debtors who have not completed their plan to receive a discharge if they meet three requirements.  First, the debtor’s failure to complete their plan must be due to circumstances for which the debtor should not justly be held accountable.  For example, if a debtor is laid off from their job or becomes sick and can no longer work.  Second, the value, as of the effective date of the plan, of property actually distributed under the plan on account of each allowed unsecured claim is not less than the amount that would have been paid on such claim if the estate of the debtor had been liquidated under chapter 7.  This means that if the debtors had nonexempt property when they filed their chapter 13 case, they must have paid enough money during their chapter 13 case to provide the unsecured creditors payments equal or greater than the value of the nonexempt property.  Third, modification of the plan is not practicable.  Generally this means that the debtor is not earning enough to support a chapter 13 plan payment, or the debtor does not have disposable income to be paid to the unsecured creditors and there are no secured or priority claims to be paid in the plan.

 

Use of the hardship discharge is limited to very specific circumstances.  Most chapter 13 debtors will resolve changes in their financial situation by filing a plan modification or a conversion, but for those debtors that meet the above requirements, the hardship discharge provides a quick and inexpensive way to petition the court to receive a discharge without completing their chapter 13 plan.

 

Bankruptcy is a very complex legal field.  Before making the decision to file bankruptcy you should consult an experienced bankruptcy attorney.  For more information about filing a bankruptcy in north Texas, contact The Wright Firm, L.L.P. at 469-635-6900 or visit our websites at www.thewrightlawyers.com or www.northtexas-bankruptcy.com.