Determining Your Debt

The main purpose of bankruptcy is to discharge your debt and get a fresh start. The first step should always be determining what are your debts exactly. This sounds simple enough, and for the most part it is. However, it should not be overlooked. When you meet with an experienced bankruptcy attorney, you will want to have a firm grasp of your debt for a couple reasons.

First, your bankruptcy attorney will need to know what type of debt your have so that they can determine whether or not it can be discharged. Not all of your debts can be wiped out in bankruptcy. For instance, credit cards and medical bills can be discharged, but most student loans and taxes cannot. Your attorney will need to know all of your debts in order to advise you as to what can be included. Remember, your attorney will not know your debts, it's up to you to make sure they have the complete picture of your situation. 

Second, all of your debts must be disclosed in order for them to be discharged. Debts not included in your bankruptcy petition will survive the filing. That means creditors can collect on these debts, even if they should have been discharged. Now, in most cases, your attorney will be able to amend your bankruptcy filing to included these debts. However, that will cost money and take time. It is better to have everything up front for your bankruptcy attorney to review.

So, how should you go about organizing all of your debt for your attorney? The first step in determining your debt should be running a credit report. These will give you a list of most creditors who claim you owe money, though sometimes not all, as I will discuss later. A good credit report should show all of your reported credit card debts, bank and car loans, and mortgages. It should also include old, closed out accounts. Review this credit report closely to make sure nothing is missing. You can order your free yearly credit report, or my office can order a bankruptcy specific report for a fee. It is worth the money and time.

Next, you will want to gather any bills that do not show up on your credit report. Credit reports agencies will not show debts that are not reported to them. Medical bills are often not reported, therefore you should make sure you gather up all medical statements. Medical bills can grow large, and fast, so make sure you find them all, even if you need to call and ask for a statement.

You should also gather any utility statements and payday loans, as these are also often not reported. If you don't have statements for everything the first time you meet your attorney, that's OK. But, make sure your attorney knows everything you know. He or she can determine if the information is important and relevant to bankruptcy. It is better to share too much than too little. I have had numerous clients, for instance, who have had far more medical debt that they initially assumed. Once they started looking for medical statements, they unearthed more and more.

Finally, take an expansive view of "debts" when you speak with a bankruptcy attorney. It is not just credit cards and medical bills. It can also be money owed to an old landlord, a family member, or an insurance company. It can include relatively new debt, or old debts from years ago. And there are sometimes exceptions for debts that are not normally discharged, such as school tuition and taxes. If in doubt, tell your bankruptcy attorney.

Contact us if you would like to set up a free consultation to review your debts. We can discuss whether or not your debts can be discharged, and look at all of your options.

When You DON'T Need To File Bankruptcy

It might seem odd for a bankruptcy attorney to tell you not to file bankruptcy, but I do it quite often in my practice. Now don't me wrong, there are many situations when individuals facing large debts should absolutely consider filing bankruptcy. However, there are situations where it is not so clear. So, when should you NOT file bankruptcy?

The first situation is when your debt burden is manageable without bankruptcy. If your total debt can be handled outside of bankruptcy, you probably do not need to file. That amount will be different for every individual. For someone on a fixed budget (such as Social Security), a lawsuit judgement for even a few thousand dollars could necessitate a bankruptcy. Higher income individuals may be able to avoid bankruptcy even when they owe many times more. A good rule of thumb is to look at how much you are able to reduce your debt burden in a normal month. If you can put a healthy dent in your debt each month, you may not need to file. However, if you can only make minimum payments on your credit cards, or you can barely pay your utilities, you should strongly consider filing. I have found that people have a pretty good feel for when their debt is beyond their control, but it is often good to discuss it aloud with a professional.

A second situation where you may not need to file is when the bulk of your debts are not dischargeable. For instance, student loans are not normally discharged in Chapter 7 bankruptcy. If almost all of your debt is student loans, obviously bankruptcy will not be much help. Bankruptcy will not eliminate your debt. Taxes often raise the same issue. In rare cases, credit card debt is not dischargeable, even if only temporarily. I will be happy to discuss what types of debt are not dischargeable to see if filing is worthwhile.

Another situation where filing bankruptcy may not be in your interest is if you want to get a mortgage in the near future. Bankruptcy will not prevent you from getting a mortgage forever, but it will make the process more difficult to complete for at least a few years. I talk to people in this situation occasionally, and whether or not to file is determined by a few important factors. If your debts are large and your savings are low, getting a mortgage may be impossible anyways. If your debt is manageable, and especially if you expect an increase in income in the near future, putting off bankruptcy in order to get a mortgage may make sense.

Thoughtfully considering an individual debtor's circumstance is an important part of my job. Sometimes filing bankruptcy is inevitable. Sometimes it is avoidable. Contact us to set up a free consultation, and I will be happy to sit down and consider all of these factors with you.

Summer Is Here

Summer is all too brief in Pittsburgh, but with Memorial Day in two days, it is finally (almost) here. Summer has great associations of family, friends, fireworks, cookouts, and baseball (or, in Pittsburgh, playoff hockey and Steelers training camp). However, for families facing debt, it can cause a few issues. Here are a few tips if summer is causing more worry for your budget than you care to think about.

• Seasonal employment. It can either help or hurt your budget. If you are a teacher or work in the education field, summer can mean a major decrease in income. If you are in Chapter 13 bankruptcy, this can negatively impact your plan payment. If you are facing a summer decrease in income, or even unemployment, let your bankruptcy attorney know as soon as possible. He or she may need to alter your bankruptcy plan to account for the reduced income. On the other hand, summer may mean an increase in income if you work in construction or the service industry. Warm weather may be your best opportunity to put some money aside, or catch up on a Chapter 13 bankruptcy plan. Be sure to let your attorney know about any large increases, as well. An increase in income could prevent some people from filing Chapter 7 bankruptcy.
• Increased childcare costs. No school is great... to kids. However, parents may face daunting day care and babysitting bills while the kids are home. This is another major stress on Chapter 13 bankruptcy plans. It's best to plan ahead, but if school lets out without a plan in place, you may need to wing it, or even delay a bankruptcy filing. This is a short-term problem, but no doubt a problem for some.
• Vacation costs. Vacations are another stress on tight budgets. It's hard to say "no" to kids wanting to go to the beach, or even to deny yourself after a hard year of work. But, if you are facing financial difficulties, it may mean taking a more modest vacation. One week instead of two, and driving instead of flying (especially with kids) can make budgeting a vacation much more manageable.
• Moving. Summer is the time of year where most people will move to new apartments and rentals. If you are considering bankruptcy, moving beforehand may be a good idea. Most landlords will not care about a bankruptcy on your credit history, but for the few who do, filing after signing your lease may be prudent.

I always tell my clients that debt and finance problems are temporary and fixable. They should not ruin your summer, let alone you life. If you are considering filing bankruptcy this summer, contact us to set up a free consultation.

The Presidents and Bankruptcy

It's pretty common knowledge that the current president, Donald Trump, has filed for bankruptcy multiple times. These were each business bankruptcies, not consumer. Chapter 11 bankruptcy allows businesses to reorganize their debts, and sometimes keep functioning. Trump filed bankruptcy on several failed developments and a casino in Atlantic City.

What is not common knowledge is that several other presidents had huge financial difficulties, and filed bankruptcy, as well. The greatest and most famous of all to do so was Abraham Lincoln, who had to file bankruptcy on a failed business. Lincoln assumed debts from a partner in a failed general store, which required years of difficult  repayments. Bankruptcy in the 19th century was a different burden, and Lincoln struggled for years without the benefit of modern bankruptcy laws, even as his political career rapidly ascended.

Another Civil War-era hero who faced financial difficulties: Ulysses S. Grant. Grant made numerous poor investments, and was destitute into old age. His excellent autobiography was written largely to raise money to live and pay bills. Grant, like Lincoln, was a great and humble man, but his skills as a general and writer far exceeded his acumen as an investor. Often manipulated by business cronies while in office, Grant's financed fell into disarray.

Thomas Jefferson also faced financial difficulties throughout his adult life. Jefferson was a profligate spender, sparing no expense in building his estate, Monticello. Jefferson lived a lavish lifestyle, importing goods from England while preaching American self-sufficiency. He often borrowed money and avoided creditors. At his death, Jefferson's estate was what would amount to millions of dollars in modern debt, which necessitated the sale of his estate for the benefit of creditors.

Bankruptcy is a difficult decision for many of my clients, who may feel shame and a sense of failure. But, the brief anecdotes above should be a reminder that incredible men, and Donald Trump, have faced the same burdens while enjoying immense success in their fields. The drafter of the Declaration of Independence, The Great Emancipator, and the ultimately victorious Union general each overcame financial problems, without the benefit of more generous, modern, bankruptcy laws. There is no reason to feel shame or hopelessness about your situation. 

How Much Is Enough (To File Bankruptcy)?

I am commonly asked what is the minimum amount of debt to file a bankruptcy. Technically, there is no "minimum". The Bankruptcy Code does not require a minimum amount of debt before filing (though there is a maximum amount in Chapter 13 that rarely applies). In practice, the amount where bankruptcy becomes worthwhile is determined by the circumstances of the case. It is different for each individual, and it is worth some time to examine.

First off, the filing fees and costs (for classes and credit reports) are normally in the neighborhood of $400. So, right off the bat, it's not going to make sense to file for less than that. Not that many people are asking to file a bankruptcy on a $300 credit card. But, it is worth remembering this is the base-line cost. With legal fees added, the amount of debt necessary to make bankruptcy make sense is a bit higher. Normally at least several thousand dollars.

I usually do not recommend filing bankruptcy for less than $5,000, though that is really just an arbitrary number. If there is a creditor lawsuit, and my client has no other way of paying the underlying debt, it could be worth filing on less. Lawsuit judgments are extremely damaging to credit, and they potentially threaten your interest in your home, car, and bank accounts. Bankruptcy can also stop wage garnishments, which can be highly destructive to those on a tight budget, even if the amount owed is modest. If bankruptcy is the only way out, the amount owed isn't of much significance. A debt of only several thousand dollars could result in you losing your car or savings, believe it or not.

If your income is very low, as is the case for individuals on Social Security, filing on less debt can make sense. $4,000 or $5,000 can be a huge burden if you only bring home $800 or $900 per month. I will reduce legal fees in these cases as much as possible, though there will still be filing fees in the range of $400. Once again, the circumstances are much different if you are making $50,000 a year.

Foreclosures and repossessions change the situation. Chapter 13 bankruptcies can be used to stop foreclosure, reorganize the debt, and keep your home. If you need to stop a sheriff sale, the underlying amount is not important. The sheriff sale needs to be stopped regardless. If you don't have all the money to catch up on the missed payments, interest, and fees, bankruptcy might be the only option. The same applies to retrieving a vehicle that has been repossessed. If you need the car, you will need to file, even if the amount owed is minimal.

Bankruptcy sometimes does not make sense when you owe more than $5,000, or even significantly more. If your income is very high, or you have large amounts in savings, paying the money back directly to the creditor may be cheaper and simpler. If you want to get a mortgage in the next few years, you may also want to avoid bankruptcy if possible. While getting credit cards and car loans are fairly easy coming out of bankruptcy, mortgage standards have tightened. If you owe a large amount of money on credit cards, getting a mortgage is unlikely, and you should probably file anyways, to start rebuilding your credit. But, if the amount you owe is modest, avoid bankruptcy is something to consider.

I am happy to meet and discuss if your debts are significant enough to file bankruptcy. I frequently negotiate with creditors to reduce the amount owed and avoid bankruptcy. If this is not possible, I will look at things on a case-by-case basis. Contact us to schedule a free consultation.