Bankruptcy FAQs

“The status of your security clearance can be affected, but it is not automatic. The outcome depends on the circumstances that led up to the bankruptcy and a number of other factors, such as your job performance and relationship with your chain of command. The security section will weigh whether the bankruptcy was caused primarily by an unexpected event, such as medical bills following a serious accident, or by financial irresponsibility. The security section may also consider the recommendations and comments of your chain of command and co-workers. This is an issue that can be argued both ways, so as a practical matter your security clearance probably should not be a significant factor in making your decision about whether to file bankruptcy. The amount of your unpaid debts, by itself, may jeopardize your clearance, even if you don’t file bankruptcy. In that sense, not filing for bankruptcy may make you more of a security risk due to the size of your outstanding debts. By the same token, using a government-approved means of dealing with your debts may actually be viewed as an indication of financial responsibility. Eliminating your debts through bankruptcy may make you less of a security risk. There is no hard and fast answer there, with one exception: it never hurts to have a good reputation with your co-workers and your chain of command.”

I would also add that Section 525 of the Bankruptcy Code states that:

“…(A) governmental unit may not deny, revoke, suspend or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under the “Bankruptcy Code”… solely because such bankruptcy or debtor is or has been a debtor under the “Bankruptcy Code.”

Reviewing both of these sections, I conclude that using a law that was established in the U.S. Constitution to deal with one’s financial problems is a responsible and legal way of handling one’s debt.  Not dealing with a financial problem is irresponsible.

UPDATE:

We recently represented a soldier who had such severe debt problems that his military clearance privileges had been revoked.  We filed a Chapter 7 bankruptcy for him and his wife.  We made sure that all the negative comments posted on their credit reports with Experian, Trans Union and Equifax credit bureaus were listed in this bankruptcy.  All their debts were discharged under federal law.  After they received their bankruptcy discharge, we wrote his commanding officer and explained the situation that led to his debt problems and explained that his debts were now legally and fully discharged.  His security clearance was reinstated.  He was so very happy!  We can not guarantee this result in every case because it is ultimately up to the commanding officer.  We are proud to represent our military and got the extra mile to help reinstate security clearances for our soldiers and civilian contractors.

Myth 2     Everyone will know I have filed for bankruptcy - Really, the only people that find out that you have filed a bankruptcy case are your creditors.  While it is true that bankruptcy is a public legal proceeding, the numbers of people filing are so massive, very few publications have the space, the manpower or the inclination to run all of them. If you are in the military, we do not need to tell your commanding officer that you have filed a bankruptcy case.  (For questions regarding bankruptcy and military security clearance, see this blog on our website).

Myth 3     All debts are wiped out in a Chapter 7 bankruptcy – Certain kinds of debt cannot be erased. They include child support, alimony, student loans, dwi’s and debts incurred as the result of fraud.

Myth 4     I will lose everything I have – This is the misconception that keeps people who really should file for bankruptcy from filing. While bankruptcy laws vary from state to state, every state has exemptions that protect certain kinds of assets, such as your house, your car, money in qualified retirement plans, household goods, and clothing. Texas has very strong exemptions and allows its residents to use either a long list of exemptions provided under state law or a long list of exemptions provided under federal law.  Additionally, if the property you want to keep has a mortgage on it, the chances are even better that you will be allowed to keep it if you continue to pay the mortgage.   Most people will keep everything they have.

Myth 5     I will never get credit again – Quite the contrary. It won’t be long before you are getting credit card offers again. Additionally, most of our clients report that car dealerships begin soliciting to sell them cars before we even get them discharged in a Chapter 7 case.  We do warn you to watch the interest rates on those offers and be careful.

Myth 6     If you are married, both spouses have to file for bankruptcy – Not necessarily. Whether one or both spouses file a case together is a question that is easier to answer on a case by case basis.  However, in many instances, only one spouse needs to file and we have filed bankruptcy cases for only one spouse.  However, in many instances we may still need to report the non-filing spouse’s income and examine his/her bank statements before filing for the other spouse.   Even if only one spouse is planning on filing a bankruptcy case, we like to encourage our married clients to attend the free consultation that our office gives together so that you both learn of the bankruptcy process and let us answer any questions you may have.  If your spouse is filing bankruptcy, you should come and ask us questions to learn how it may affect you!

Myth 7     Only deadbeats file for bankruptcy – Most people file for bankruptcy after a life-changing experience, such as divorce, the loss of a job, an unexpected business failure or a serious illness. They have struggled to pay their bills for months and just keep falling further behind.  The list of individuals who have filed bankruptcy include President Abraham Lincoln, President Harry S. Truman, John Wayne, President Thomas Jefferson, President Ulysses S. Grant, Merle Haggard, Jerry Lee Lewis, Willie Nelson, Doris Day, Judy Garland, Jerry Lewis, Burt Reynolds, Debbie Reynolds, Johnny Unitas and Walt Disney…so you are in good company!

Myth 8     I don’t want to include certain creditors in my filing because it is important to me to repay them back someday – Just because a debt is discharged in bankruptcy does not prohibit you from repaying the obligation at some point in the future. The discharge prevents the creditor from asking you to pay it or attempting to legally force you to pay it.  You can pay any creditor that you want to!

Myth 9     Filing for bankruptcy will immediately improve my credit rating – This sounds like an ad from a less than honest attorney seeking bankruptcy clients. Any reasonable person will understand the filing a bankruptcy does nothing to immediately improve your credit rating. However, filing for relief may start the process of credit rehabilitation.  Many of our clients have many derogatory comments on their credit report.  After the bankruptcy court grants your discharge, we write the three credit reporting agencies, send them a copy of your discharge and ask that they change your credit report to show that those “dings” on your credit report were discharged in your bankruptcy case.

Myth 10     You cannot get rid of taxes through bankruptcy – Income tax obligations older than three years past due, in which the tax was assessed more than 240 days prior to the filing of a bankruptcy and for which the tax return was filed more than two years prior the filing of the bankruptcy petition are generally discharged.  If they are not discharged, you can pay them out over time with much less or no interest or penalty in a Chapter 13 bankruptcy case.

Myth 11     You can only file for bankruptcy once – The truth is you can only be discharged in a Chapter 7 bankruptcy once every eight years.  For a Chapter 13, you can file more often than that.

Myth 12     I can max out all my credit cards, file for bankruptcy and never pay for the things I bought – Simply put, borrowing money without the intent to repay is called FRAUD and is not dischargeable. Bankruptcy relief is intended for the honest, but unfortunate debtor.  Therefore, please do not go make unreasonable charges on your credit cards before we file your bankruptcy case.

REMEMBER, YOUR CREDITORS HAVE A LAWYER…
YOU NEED ONE TOO!

“The status of your security clearance can be affected, but it is not automatic. The outcome depends on the circumstances that led up to the bankruptcy and a number of other factors, such as your job performance and relationship with your chain of command. The security section will weigh whether the bankruptcy was caused primarily by an unexpected event, such as medical bills following a serious accident, or by financial irresponsibility. The security section may also consider the recommendations and comments of your chain of command and co-workers. This is an issue that can be argued both ways, so as a practical matter your security clearance probably should not be a significant factor in making your decision about whether to file bankruptcy. The amount of your unpaid debts, by itself, may jeopardize your clearance, even if you don’t file bankruptcy. In that sense, not filing for bankruptcy may make you more of a security risk due to the size of your outstanding debts. By the same token, using a government-approved means of dealing with your debts may actually be viewed as an indication of financial responsibility. Eliminating your debts through bankruptcy may make you less of a security risk. There is no hard and fast answer there, with one exception: it never hurts to have a good reputation with your co-workers and your chain of command.”

I would also add that Section 525 of the Bankruptcy Code states that:

“…(A) governmental unit may not deny, revoke, suspend or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under the “Bankruptcy Code”… solely because such bankruptcy or debtor is or has been a debtor under the “Bankruptcy Code.”

Reviewing both of these sections, I conclude that using a law that was established in the U.S. Constitution to deal with one’s financial problems is a responsible and legal way of handling one’s debt.  Not dealing with a financial problem is irresponsible.

Erin enjoys both a consumer bankruptcy practice and a small business bankruptcy practice. In 2008, she successfully represented four Chapter 11 small business debtors in reorganization cases pending before the Waco Bankruptcy Court.

Erin credits her staff for making the firm a great place to work.

Erin – NACBA’s State Chair for the Western District of Texas – has attended every NACBA seminar for the past six years. After attending her first NACBA seminar, she decided she would never miss another one. She was a panelist at the Hollywood NACBA convention on the topic of filing Chapter 11 cases for individuals. She is also serving on a panel at the upcoming Chicago convention on Business Chapter 13’s.

Erin participated in NACBA’s Capitol Hill Meeting for the first time in 2008. She and NACBA President Carey Ebert visited Republican John Cornyn’s office and together delivered a presentation on the mortgage modification amendments NACBA was supporting to the Bankruptcy Code. After returning to Texas, Erin received a letter from Senator Cornyn thanking her for coming to see him about her concerns for the children of Tibet!

Undeterred, Erin decided to become involved in the 2008 Presidential election and became a delegate for Senator Barack Obama at the Texas Democratic Convention. She is thrilled that he was elected president and had a blast being involved in his election. Erin comes from a family of Republicans and so her support of Obama was quite controversial. However, she is convinced he will help us repeal some of the crazy changes to the Bankruptcy Code contained in BAPCPA. Erin was an enthusiastic participant at NACBA’s Capitol Hill Meeting last month and has vowed to continue working towards reforming the Bankruptcy Code.

Erin served for two years as President of the Central Texas Bankruptcy Bar Association. She also previously served on the Bankruptcy Council for the State Bar of Texas. In 2007, she was the Course Director for the State Bar of Texas Annual Consumer Bankruptcy Law Seminar. Erin taught Bankruptcy Law and Debtor/Creditor Law as an Adjunct Professor for 13 years at three different law schools, including teaching for 9 years at Baylor Law School. Erin is a frequent speaker on bankruptcy law topics.

Erin spent the first 13 years of her practice representing creditors in large Chapter 11 cases. Immediately after law school, Erin began her carrier with one of the largest law firms in the State of Texas, Baker and Botts. While at Baker and Botts, she successfully argued a Chapter 11 case before the U.S. Fifth Circuit Court of Appeals entitled In re D & F Construction, Inc., 865 F. 2nd 673 (5th Cir. 1999). That case dealt with the elements necessary in order to cram down a Chapter ll plan over the dissenting vote of a secured creditor.

While at Baker and Botts, Erin also represented NCNB Texas (which later became NationsBank which later became Bank of America) in the Chapter 11 bankruptcy cases of the holding companies of the former Republic Banks and InterFirst Banks. These two banks merged and then failed in the largest bank failure in the State of Texas. The two bank holding companies filed two Chapter ll cases. The FDIC sold the banks to NCNB Texas and the holding companies challenged those sales in the Dallas Bankruptcy Court as fraudulent transfers. Erin represented NCNB Texas in those adversary proceedings and wrote the settlement documents that settled those lawsuits. She also represented NCNB Texas before the bankruptcy court in the holding companies’ bankruptcy cases and saw that the settlement agreements were approved by the Dallas Bankruptcy Court. After the settlement was consummated, Erin became in-house bankruptcy counsel for National Bank. She created the Bank’s internal systems for handling bankruptcy filings by the bank’s customers. She also represented the Bank as a member of the creditors’ committee in several large Chapter 11 cases, included the Chapter 11 cases filed by Zales Jewelry, Gordon’s Jewelry and Compuad Computer Company.

In 1995, Erin had her first child and while on maternity leave from NCNB Texas unexpectedly became pregnant with her second child. With two babies in tow, Erin and her husband, John, decided that they wanted to raise their children in a smaller community and so they relocated from Dallas to Waco, Texas. Marriage and children convinced Erin that she should change her practice from representing creditors to representing families and developing a consumer bankruptcy practice. Erin likes to say that after having three kids, she decided that she wanted to save homes, not foreclose on them. Erin initially joined an established law firm in Waco, Texas which helped introduce her to the Central Texas legal community. In 2000, she left that firm and opened her own firm with a practice exclusively dedicated to bankruptcy law.

Erin graduated in 1979 with a B.A. degree from Trinity University in San Antonio, Texas. She graduated from Southern Methodist University in 1984 with a Masters Degree in Public Administration. In 1983, she graduated cum laude from Texas Tech University School of Law. While at Tech, Erin served on the Texas Tech Law Review. Her senior year, she was published on the Texas Tech Law Review in an article about Section 365 of the Bankruptcy Code and the Braniff Airlines Chapter ll bankruptcy case. The article was entitled The Automatic Stay in Bankruptcy: An Analysis of the Braniff Chapter 11 Proceeding and was published in the 1983 edition of the Texas Tech Law Review. While at Tech, Erin also served as a part time briefing clerk to the Honorable Bill Brister, United States Bankruptcy Judge for the Northern District of Texas, Lubbock, Texas.

Erin is happily married to the love of her life, John Shank. The couple recently celebrated their 16th wedding anniversary. They have three active children. Paul is 13, Billy is 12 and Rachel is 10 years old. Their youngest child, Rachel, has Down Syndrome. Rachel has had multiple health problems, including heart defects, epilepsy, weak lungs, and a stomach ulcer. Rachel has been hospitalized 49 times in her short 10 year life. Rachel has taught Erin how to fight with insurance companies who refuse to pay medical bills and has given Erin a new insight on how a family crisis can affect a family financially. Although life with a severely disabled child has been challenging, it has changed Erin’s life and her practice in multiple positive ways. Rachel is currently very healthy.

Erin and her husband John have restored a 105 year old historic house in Waco, Texas that they now call home. Gluttons for punishment, they have been restoring another 104 year old historic home that became Erin’s new law office in January. John is a commercial banker with a local bank, but a true artist underneath the banker’s clothing. He has a great knack for real estate restoration. Their historic home restoration took five years to complete.

Erin and her sons are actively involved in the local Waco Civic Theater and Waco Children’s Theater. Her sons have been leads in several plays at both theaters and Erin has been a loyal “back stage mom”. She has also played the piano in two Christmas shows at the local theater. Erin describes herself as a “B minus” pianist, but really enjoys playing the piano, especially for shows with her sons. One day soon, she hopes to venture back on the stage herself.