The Path of Bankruptcy Debts Pt 3: How Debts Are Treated After a Bankruptcy Is Filed

Join us as we sit down with Bankruptcy Attorney, Darin Wisehart, to discuss the path of debts throughout the bankruptcy process, with a focus on how they're treated after a bankruptcy is filed.

If you would like to speak with one of our attorneys, please call our office at (503) 227-0200, or visit our website at https://www.pacificcascadelegal.com.

Disclaimer: Nothing in this communication is intended to provide legal advice nor does it constitute a client-attorney relationship, therefore you should not interpret the contents as such.

Transcript

Intro:
Welcome to Modern Family Matters, a podcast devoted to exploring family law topics that matter most to you. Covering a wide range of legal, personal, and family law matters, with expert analysis from skilled attorneys and professional guests, we hope that our podcast provides answers, clarity, and guidance towards a better tomorrow for you and your family. Here's your host, Steve Altishin.

Steve Altishin  0:32  
Welcome, everyone. I'm Steve Altishin, Director of Client Partnerships at Pacific Cascade Legal. Today we have our Bankruptcy Attorney, Darin Wisehart, here to talk about the path of how debts are treated after a bankruptcy proceeding has closed. Darin, how're you doing today?

Darin Wisehart  0:49  
I'm great. I'm great. Thanks for having me today.

Steve Altishin  0:52  
Oh, thanks for coming. So Darin, we've explored the issues of debts before bankruptcy and during a bankruptcy. So let's talk a little bit now about debts after bankruptcy, and maybe talk about debts that might not be discharged after the bankruptcy has completed.

Darin Wisehart  1:14  
There is a big category here. And here's the first part that I always want to talk about when you talk about debts that are non dischargeable, or debts that pass through a bankruptcy a normal chapter seven or a chapter 13. The first thing I always want to tell pretty much everybody is you want to make sure that you have that attorney in your corner. And it's not something that you want to jump to with a lot of these explanation videos that we give. But when we talk about complex things, anytime you have something complex and bankruptcy, you want somebody in your corner that knows what they're doing, and you want to make sure that they've got that knowledge to be able to move you around the rocks. And bankruptcy is not perfect anyway. Right. So I mean, your attorney may have the best possible plan, and a plan that could get you from here to there with some light at the end of the tunnel. But you want to make sure that you've got somebody in your corner, because most of the things we chat about today brief are definitely not legal advice, of course, but at the same time, it's stuff that really gets into the mud quick. And you want to make sure that you're not just waiting out into the mud, hoping for the best. That's something that you know, you don't you don't want you want to make sure you have an attorney now, debts that are not dischargeable, your common classifications, you've got some tax debt that doesn't fall into the dischargeable, which is kind of newer tax debt, or if you didn't file your taxes, maybe if they had a lien, those are those are non dischargeable. There's there's a bunch of categories in there. tax debt gets complicated, quick. And even even though advanced attorney, you know, you have a wrestling match, usually figuring out what to do about the taxes and how to deal with the taxes. So the tax that is one of those categories that you want to make sure that you iron out, you sit at the table with your attorney and figure out how it's going to be dealt with by looking at the years whether you file the taxes, whether there's a lien, maybe you get the tax transcript prior to filing all of these different things with taxes, another death, it's very common support, that doesn't discharge unless you do something specific about it. And that's support maybe student loans is another category that comes in now student loans is a tricky one. And that's one that we could talk about for a little while because it changes. And right now I I say we're not quite to the Wild West, but we're we're dealing with a little bit of the wild west as bankruptcy attorneys when it comes to student loans, because student loans, the rules are changing a little at a time. And I think part of that is when they changed the rules back about 1520 years ago for discharging student loans in bankruptcy. I think they did a little too much. And I think they're recognizing that they did a little too much they protected student loans too well. And so now they're starting to walk backwards on some of these cases where people have been wrestling with this student loan debt for so long that they just cannot get out from under it. And the idea of bankruptcy was, that's your golden idea is to get a fresh start. And if you have student loans at the end of this thing, you're not getting a fresh start. So those rules have been changing and ebbing and flowing to get to a spot that allows people that should discharge those two loans to be able to do that.

Steve Altishin  4:18  
The kind of upshot it sounds like though is that with an attorney, especially, I will know what debts are not discharged. And I will know what debts are discharged. I don't have to somehow figure that out for myself.

Darin Wisehart  4:35  
Yeah, the last thing you want to do is read the tea leaves, right? We don't want to have a bunch of tea leaves on the top of the water and you've got to figure out which way they're moving in any of that stuff. That's that's not what you want bankruptcy at every bank, bankruptcy attorney that does this for a living wants to have an idea of what's going to happen with his debt prior to filing. And that's where making sure that you explain all of these things to your attorney and give them the information that they need to do their job properly. Now The bankruptcy attorneys not all knowing. So there are situations where you look at a debt, you say, well, there's a chance that that might be non dischargeable. And there's a whole list of non dischargeable debts in the code, I try not to use the code because it sounds like I work for the IRS. But in the bankruptcy code, there's a whole line of non dischargeable potentials, most of them boil down to for for the normal individual misrepresentation and fraud and, and things like that. Okay. So, you know, you do have a list of, you know, certain things that that are that are in there, that will be non dischargeable, most attorneys can look at your debts and say there's a chance, some of them require that those debt, the creditor file something with the court, and if they don't file something, then the debt goes as a Discharged debt. And so there are the different categories, some are automatic, and some need them to do some work in order to make them non dischargeable. And some you can fight I mean, a lot of those, you can fight, you might be able to negotiate, you might be able to deal with them, but it costs money. And we always want to talk about the negative of having to spend good money at potential bad money, and you know, figuring out whether it's worth it. But usually, you can you can look at a debt. And you can say I'd say 95% of the time, you can look at a debt and say this is either going to be discharged or not. And this is why I feel like it might be or might not be expect this and plan for it. And that's where, you know, yes, we might file a seven still, we might get rid of that unsecured debt, maybe the credit card medical debt, that kind of stuff that might be holding you holding you down, so that we could free up enough money to grab these non dischargeable debts and pay those guys off as quick. And sometimes we can file a Chapter 13 to pay them off over time. It's kind of a there's a lot of different possibilities when you look at this. But yes, there are definitely debts that your attorney will know for sure this is not dischargeable. And they'll be able to tell you plan for this because we see this coming. And we want to make sure that you're ready so that you have success.

Steve Altishin  7:06  
Right. Does the discharge or the final termination of the bankruptcy, does the court actually tell you, Okay, these are discharged, or they are not discharged? Do they like list the discharge debts? 

Darin Wisehart  7:26  
Usually no, usually no. They do send some information, the court tries really hard to make sure that everybody understands what they did what they're doing with the bankruptcy and the normal kind of blanket statements. They have, they have sections, when you fill your petition out the schedules, there's a there's a whole section of five or six pages of explanation of different things, and it tells you where your court fee goes. And then it tells you there are some debts that are non dischargeable. And typically the categories, but of course, they don't give you legal advice, and they don't want to give you legal advice, that's not their job, their job is to make sure you're as informed as they can make you informed. And, and I can tell I tell almost everybody, the courts website is excellent for this kind of stuff. It's got information all over the place in there, you got to wade through it, you got to know what you're looking for. So of course, that's that's true about the internet everywhere you go. But at the same time, the information is there. And the idea of it is be as informed as you can with whatever is going to happen with these debts. But the court doesn't specifically say this debt is gone. It's something every once in a while that we might do as attorneys to say, Okay, we have this gray area, we have this debt that may be discharged. One may not maybe it's, you know, some form of spousal support. And you want to, you want to have the court tell you whether it's dischargeable or not, maybe you want to fight it, you want to say it's dischargeable, or you want to say it's not dischargeable, whatever your side, it happens to be. But those are things that you have to specifically file things, adversary proceedings with the court to say, we feel like this should be dischargeable. Because of this and student loans is another big one on this. You file usually to discharge student loan debt, you will file an adversary, which is that idea at the end of your bankruptcy to say I think this debt should go away. And here's why. Let me explain to the court why. And you'll have here elements that you need to prove and the things that you need to say to the court. Those are specific things, but that is extra time, effort money to get there. And so you have to wait whether it's in your interest to do that. But the court will not just grant you this idea of you know, this, these are the debts that are gone and these are the debts that are not when they have an order of discharge, they will itemize the debts that were qualifying for discharge are gone. And the debts that didn't qualify are not gone. And you know, most people will look at that and say what does that mean? I don't know what that means. And hopefully you can go to your attorney and say, Please explain this to me because I want to make sure I understand.

Steve Altishin  9:58  
Well, okay then, my question is, and please explain it to me, I want to make sure that I understand, can they be collected now? Can those people come back after me for those debts? 

Darin Wisehart  10:08  
For non-dischargeable, absolutely. The moment that case finishes, the order discharges signed, or they get a motion for relief during the case. Motion for relief is them saying, I want to go collect on this debt while the case we know the bankruptcies here, that's a conversation for another day. But if they've done something where the case is finished, then yes, they can, they'll be standing at the doorstep with their handout. We're waiting for our money now and the IRS, Oregon, you know, the state, I'm in Oregon, typically, the state, each taxing agencies, they'll usually reach out to you pretty quick, they'll send you a billing statement to say you still owe this stuff. And sometimes the attorney will get a call that every once in a while is not incredibly happy. But it's, Hey, this money is being collected, I want to understand how to do that. And usually they're ready for it. Usually they say, okay, these tax years were non dischargeable. And we need to pay him or the student loans, we need to figure out what to do with those. But a good attorney will have that already set up for you if you've given them all the information. And they'll have your game plan for what you could do about student loans. And maybe what you should do, I mean, maybe they'll give you the advice on the different pieces of where to go with that debt and what to do with it. Those are all things that that should be explained as you're getting into the case. And then as the case goes on, they should be revisited once the case the dust is settling on the end of the case. 

Steve Altishin  11:31  
I know we've talked about you can't, you know, pay your mom first, before your bankruptcy. But let's say the end of the bankruptcy, it's over. And nobody can come after me. My mom can't come after me. Maybe someone else that can't come after you. But can I just go to them and say, hey, I want to pay you?

Darin Wisehart  11:51  
Yes. I mean, there's I don't, I don't think of any prohibition any, anything that prohibits you deciding to send voluntary money to any of your creditors. Now, I always bring that back to the kind of the more comical one, which, hey, if you owe Chase credit card $10,000 And you discharged in a bankruptcy, and you decide to send them $2,000, after the case is finished, when they can't collect on you. And you don't I mean, they that debt is discharged, it's gone. You can send them $2,000. And they'll probably accept your two grand right? So they're not going to deny that. And that's true for any creditor, any creditor you can choose to voluntarily pay. Now, do you want to of course not your your attorney will probably advise that you don't do that. But that's for you to determine what's in your interest. And usually, if the case is closed, and it's finished, and your attorney has tightened up, and they've said, hey, you know, I no longer represent you, I helped you through this process, and we're done. And everything is kind of concluded, then you you're representing yourself and you determine where you want to send your money after that, you know, whether you put it in a bank or in a 401 K, or you decide to go pay these creditors the money that you don't legally have to pay them. That's purely up to you. And you can, you know, you can make that decision. But if you choose to do that, you might chat it over with your attorney at one point so that maybe they can persuade you not to.

Steve Altishin  13:14  
So that kind of leads to my last sort of post bankruptcy question, which is, well, it's kind of two part. Oh, by the way, Mr. Wise, I don't know if I should have told you, but during the bankruptcy, I ran up these debts. Or, okay, within four weeks, I got my new credit card because I got 1000 of them sent to me. And now I can't afford to pay anybody. So where are you at, debt wise, I guess I should say, immediately or within a year of ending your bankruptcy?

Darin Wisehart  14:01  
So the first one is, is it pretty straightforward, something that you learn really early in your career, and that is that when you file you push, that's your that's your slice in time, okay, that's your time, your second all the way down to you know that, that low of a time period, right. If you have a debt that is incurred, the moment you walk out after you file that case, then that is not going to be dealt with in the bankruptcy. Now there's a couple of exceptions to that. Sometimes you convert your case, or you do certain things where you can bring in debt. So it's not just a bright line black and white. There is a tiny bit of gray in there. But for the most part, that's the thing to remember is that you incur a debt next week or you take one of those car loans and they offer you this, you know, decently high interest rate, but they offer you a car you decide to take it and then you default on it. You're not going to put that into that bankruptcy. Now that's where the second part of your question comes in. What can you do if you do have those debts, because you will get a lot of credit card offers secured credit cards, car offers all that. They know it's public knowledge that you file bankruptcy. And there are certain companies that just pepper people with with, Hey, go get a card our car lot do this because they know you can't file a bankruptcy on that if you default on it, right? So it's it's predatory. It's them knowing they know the game. And maybe you do or don't know the game, who knows. But when you take those loans, those aren't going to be discharged in a bankruptcy that you've just filed. Okay, so that's pretty clear and straightforward. But now the question is, could I file another case? And the answer that is, absolutely, you can follow the case. Now, there are rules with that. So from chapter seven to chapter seven, usually eight years have to pass. And that's, you know, that's a period of time that you have to wait, but you can file a Chapter 13 and get a discharge four years after. So there's, there's different time periods that come into play. Now, a year after, let's say, you have way too much debt, they're gonna go garnish, you can file a Chapter 13, to spread that debt out, you won't get a discharge, because the discharge is what you won't get if you file a case too quickly. Okay, so if you file a Chapter Seven, after seven years of filing another chapter seven, then you can file they'll let you file and you'll get into the case if you want to, but they won't grant you a discharge on any of that debt. And so there's, you know, that's what you're looking for, usually, when you file that chapter seven, and so there's, there's reasons to file still, that might give a creditor off your back. And there's things that you can do, I do have clients, every once in a while they fall into that, that trap, and they they call me two years after, hey, Darren, you know, I can't live my life, I need to, I need to get some quiet again. And then we have to look at a chapter 13, maybe to keep people off their back. And then we come up with a plan of how to get them to a spot where they have maybe as big a good a fresh start as we can give them. But of course, you know, that's just discussing it and coming up with a game plan, being straight with your attorney. Every once in awhile, have somebody call me and they don't tell me about their bankruptcy. I asked him, Have you filed bankruptcy before they say no. And then I look it up. Before I file, of course, because every attorney has to do that. And I see that they filed a case two years prior. And I say, Well, you can't get a discharge in this current case, because you've already filed and you knew that you decided not to tell me. And that's you know, those are things that do pop up periodically, and you you kind of shrug your shoulders, but at the same time, there's ways to deal with it. As long as you get that consultation from the attorney to work through exactly and be straight with them, you know, don't tell him everything on the end of the tunnel, but you know, for the most part, given the information that they may need, because they may have an avenue that they can work you through so that they can get you to at least a normal life on the ground. And that's, that's huge. I mean, that's when I'm meeting with with potential clients and with clients. That really is the bottom line is trying to keep people's life on the ground, about the same. And that's that's kind of what that ties to.

Steve Altishin  18:09  
Yep, yep. Well, thanks again, Darin, for sitting down today and talking with us about debts and how they're treated after a bankruptcy is finally completed. Have a good day. Thanks for coming. And we are really hoping to do some more of these terrific interviews with you. 

Darin Wisehart  18:29  
Thanks for having me. 

Steve Altishin  18:30  
Oh, it was wonderful. And everyone else. Thanks for joining us today. Any further questions, we'll post them here we can get you connected with Darin, and until then stay safe, stay happy and be well.

Outro:
This has been Modern Family Matters, a legal podcast focusing on providing real answers and direction for individuals and families. Our podcast is sponsored by Pacific Cascade Legal, serving families in Oregon and Washington. If you are in need of legal counsel or have additional questions about a family law matter important to you, please visit our websites at pacificcascadelegal.com or pacificcascadefamilylaw.com. You can also call our headquarters at (503) 227-0200 to schedule a case evaluation with one of our seasoned attorneys. Modern Family Matters, advocating for your better tomorrow and offering legal solutions important to the modern family.