Articles Posted in Bankruptcy Pre-Planning

Beware of swapping your domestic obligations with your former spouse.  Substituting debts or replacing property that was originally the former spouse’s obligation or asset can bring about unforeseen consequences.

Example:  The former wife was awarded the marital home, and the former husband was required to pay the mortgage until satisfied.  His business began to falter and he could not continue paying the mortgage.  In order to assist him, the former wife agreed to let him use the home as collateral for a new loan, which both parties signed.  In the former husband’s bankruptcy case, his obligation to the former wife was discharged (wiped out) because the new loan constituted a new debt that was not covered by or arising out of the parties’ marital dissolution agreement or divorce decree.  So the former wife’s choices are now to remain responsible for the debts of which the home is collateral or to discuss filing her own bankruptcy.

Please consult with a bankruptswapping moneycy attorney to discuss options to do to deal with debts that are overtaking you for whatever reason. And especially – never, never, never put your home up for collateral to deal with other debts without consulting with a bankruptcy attorney first.  It may seem backwards but there is nobody better to consult with on how to deal with debt (and to try to avoid bankruptcy) than a bankruptcy attorney.  Seeking advice early is the key. In the above example, a lot of heart ache, a home, and possibly even a business could have been spared if this advice had been followed.

 

assets2The bankruptcy code defines “property” very broadly.  If you are considering filing a bankruptcy, it is important for you to know what all is considered property of the “bankruptcy estate” and whether or not it is covered fully by the allowable bankruptcy “exemptions”.  Even the property that is “exempt” is property of the estate until the exemption claims are final (generally 30 days after the bankruptcy 341 meeting).

Property includes all of your legal and equitable interests.  For chapter 13 cases filed in Mississippi, all of the debtor’s property, including acquired property and income necessary to fund a chapter 13 repayment plan is considered property of the estate during the entire chapter 13 case.

So what are some examples of property other than the obvious assets such as house, car, clothes, etc?  The right to file and settle a lawsuit; stock Continue reading

Each one of these things can have serious consequences depending on the plan we develop for dealing with your debt, so:

1. Don’t borrow any more money. Don’t take out a second mortgage.
2. Don’t take money out of your retirement, 401k, or IRA.
3. Stop using your credit cards. Don’t use the convenience checks and don’t take cash advances. Don’t do “balance transfers” from one credit card to another.
4. Don’t keep your money in the same bank or credit union where you owe money. Stop all direct deposits into that account and redirect them to a different bank. Continue reading

The protection available to you when you file bankruptcy is immediate and automatic.  The moment you file, whether it is a Chapter 7 or a Chapter 13 bankruptcy case, the court places you under it’s protection. Both your income and property are completely sheltered from any creditor seeking to repossess, foreclose, garnish, or seize them. The court refers to this as “The Automatic Stay”.  Any and all collection attempts against your income or your property must stop.  If a lawsuit has been filed, it must cease. If a judgment has been issued and a subsequent Writ of Garnishment has gone out, it must cease.  If the repossession order has gone out, efforts must cease.  If the foreclosure date has been set, it must cease.  Also, creditors must stop calling you, sending you letters, calling your family, etc.  The Automatic Stay is known as “the protection that halts any and all creditor collection activity”.  For more reasons why you may not want to wait, click here.   Bankruptcy was created to protect you, your income, your family, and Continue reading

I have found it helpful to share this checklist with people who call asking me “Should I file bankruptcy?” In a nutshell, if more than two of the following issues apply to you, it is possible that bankruptcy would be an option worth investigating further:

  • Debt collectors are calling you at home or at work.
  • You are utilizing payday loans to make ends meet.
  • Your wages will soon be garnished or are being garnished now.
  • Your bank account has been frozen.
  • The majority of what you owe is unsecured debt like credit cards, medical bills, payday loans, etc.
  • Your facing the threat of foreclose on your home.
  • The foreclosure process on your home has already started.
  • Your facing possible repossession of your vehicle.
  • You have had a vehicle repossessed.
  • You want to give up your house or vehicle and walk away without owing any money.
  • Your bill payments are more than 30 days behind.
  • You have been sued or are being sued over debt.
  • You have a significant amount of medical debt that will not be covered by insurance.
  • You have medical insurance but can’t afford to pay your share of the bills.
  • You owe income taxes that you cannot afford to pay.
  • Your total debts (other than house & car) are more than you could pay and still live, even over five or more years
  • You have high student loan deb, cannot defer payment any longer, and the notes are more than you can pay

Continue reading

How does consumer credit counseling work? And more importantly, is there “a catch”? Consumer credit counseling can work great for someone who is just a little over extended in debt.  Consumer credit counseling agencies are the true non-profit agencies you hear about that work with your credit card companies to reduce your payments or interest rates so you can pay the debt off and be done with it.  However, this is limited to credit card debt.

How does it work?  The agency contacts the credit card companies, which will cooperate  to possibly reduce the interest rate.  The agency will then tell you the monthly payment that you must send in to pay the debt in full.  Your household budget and your ability to pay have nothing to do with the monthly payment amount.  You pay that monthly payment to the credit counseling agency and then the agency sends payments to each of your credit card creditors each month. The credit counseling agency will usually receive a fee for this service from the credit card company.

What is the catch?  Well, by the time you realize that you are in a financial bind, you are beyond the help a consumer credit counseling agency can offer.  The monthly payment you will make to the agency is not much different than the minimum payments you were making to pay the credit cards.  If your main issue stems from the lack of cash flow, which is extremely common, then consumer credit counseling doesn’t work.

As long as a bankruptcy court has not barred you from filing, you can file bankruptcy again pretty much right away. However, you may not be eligible to receive a discharge. There would be no point to filing a Chapter 7 unless you are eligible for a discharge, but there may be reason to file a Chapter 13 whether you are eligible or not. A discharge means that the bankruptcy court releases you from qualified debts. Your bankruptcy case has gone through and been completed – ie: discharge received.

Let’s assume you want to file another bankruptcy and need to be eligible for a discharge.  This table shows the time period that would need to be met in order to be eligible for a discharge in your new case:

time table
If you filed bankruptcy not that long ago and have not hit the time period for you to be eligible to file again, you could discuss with your attorney the benefits of filing a Chapter 13 bankruptcy with a waiver of discharge. This would put you under the protection of the court, allow you to stop any garnishments, repossessions, foreclosures, etc, and pay your debts under a Chapter 13 Plan.

One of the first questions that comes to mind when you are considering options is “Do I qualify to file for bankruptcy?”  Let’s look at the eligibility requirements for the two most common types of bankruptcy, a chapter 7 and a chapter 13.

Am I eligible to file a Chapter 7?  If you are an individual or a married couple who want to file Chapter 7, your lawyer will review your financial situation to determine if you qualify.  Even if you are married, you can still file by yourself.  Your spouse does not have to file bankruptcy with you.  Your bankruptcy lawyer will use your family financial information to take a test for you called the “Means Test”.  This test is designed to keep people with very high incomes from filing Chapter 7 because they have “the means” to pay their debt.  Even people with very high income can pass the test if all of their expenses and debts and allowable deductions are taken into consideration.  There are exceptions to even taking the means test.  If your income is below the established threshold, you are not even required to complete the means test but are immediately qualified to file a Chapter 7 case.  If your debts are business related rather than consumer related, this can also be an immediate qualification.   The means test is complicated, but I am an experienced bankruptcy attorney who will make sure you get all of the allowances and exclusions on the test that apply to you.  If you pass the means test or if you are exempt from taking the means test, then you can file a Chapter 7 case.

Am I eligible to file a Chapter 13?  There are two main requirements for a Chapter 13 case.  You must have money coming in each month from a job, or Social Security, or something. Then your debts must be under a certain amount. If you add up all your secured debts, like the mortgage, vehicle loans, and furniture notes, the total needs to be under approximately $1.1 million for secured debt. If you then add up what you owe on all your other debts, like credit cards, student loans, taxes, and medical bills you need to be under $383,175.00.  (These numbers are current as of April 2013 and go up every 3 years.)

 

Commonly asked questions of married individuals needing to file bankruptcy:

Do married couples have to file bankruptcy together? If you are married there are three options for filing bankruptcy: 1) file together, 2) file alone, or 3) both file separately. There are several factors to consider when deciding if you should file jointly or alone. The biggest factors being how are the debts split between you, how much does each of you make, and who owns the property.

What about joint and co-signed debts?  When a debt is joint or co-signed, both spouses owe 100% of the debt.  It makes no difference what name comes first or who the debt was actually for. If your name is on the bill, you owe the whole thing.  If you file joint tax returns then you both owe the tax debt.

Did you co-sign for your child’s car loan? Are you a co-signer on a loan for your friend? Have you co-signed for a loan for another family member? If so then you owe the loan the same as the primary borrower does.  It does not matter who has their name listed first or second on the papers.  If you signed the contract or the note then you are a co-signer and owe the full amount of the loan.  The primary borrower may be paying right now, but if something were to happen to stop payments, debt collectors will be hot on your trail for the balance.

Finance companies and banks do not release co-signers from loans.  They demand a co-signer so they will have someone to go after if the first borrower stops paying. They knew up front that the first borrower was at high risk to stop paying and they wanted you to be there so they could go after you for part of the debt, half of the debt, or all the debt. They will go after whomever is the easiest to collect from.  So think long and hard before you become the co-signer of a debt for someone – and if you do – make sure you are willing and able to pay the whole debt if something happens.