Eliminating Joint Debt in Bankruptcy, Part 2

In my previous post, I discussed how joint debts can make two individuals liable, even when only one enjoyed the benefits of the loan. In this post, I will discuss when joint debts can (and cannot) be eliminated through Chapter 7 bankruptcy and Chapter 13 bankruptcy.

The easiest way to dispose of joint debts in a bankruptcy is to file a joint bankruptcy. Joint bankruptcies allow two debtors to file at the same time with one petition, adding convenience and reducing costs. Joint bankruptcy is only allowed, however, with legally married couples. Boyfriend-girlfriend, bother-sister, parent-child, BFF-BFF... none of these can file a joint bankruptcy. Only a legally married couple can file (NOTE: recent case law and practice allows this to include same-sex couples). Engaged doesn't count, you need to be married at the time of filing.

So, if you are a married couple, with joint marital debts, you can file a bankruptcy to discharge these joint debts in one filing. If this is an option, the process will be pretty simple and it is a great, efficient way to deal with your financial problems.

Where things get murky is when only one co-debtor wants to file bankruptcy, or only one co-debtor is able to file. If you have a co-signed loan on which you are liable, and you file an individual bankruptcy, your personal obligation on that debt will be discharged and eliminated. However, your co-signer will become completely liable on the loan. The debt is only wiped out as it relates to you, it is not completely eliminated. The creditor can still pursue your co-debtor.

This will sometimes lead to a situation where a non-filing parent or spouse is left on the hook with the debt. If they are unable or unwilling to file their own individual bankruptcy, this debt will lead to collections and lawsuits. In these cases, after your discharge you can voluntarily help pay back your joint debtor, though you are under no legal obligation to do so. It is up to you.

There is one scenario where a joint debt may NOT be dischargeable in bankruptcy when you file on your own. If you have agreed to assume a joint marital debt (or any marital debt) as part of a formal property settlement agreement in a divorce, you cannot eliminate this debt in a Chapter 7 bankruptcy. This marital debt can only be eliminated in a Chapter 13 bankruptcy (which may require you to repay some money to your creditors). This policy of bankruptcy law protects divorced spouses who have negotiated in a divorce from being made liable on joint debts they rightfully negotiated away as part of the settlement.

This one example aside, if you file bankruptcy on a joint debt, your obligation will be cleared away. You can also be on the other side of this scenario... if someone you share a joint debt with files without you, YOU will become wholly liable. This is important to understand, us you may in turn need to file a bankruptcy.

If you are dealing with joint debts, contact us to set up a free consultation to see if bankruptcy is an option for eliminating the debt.

How Long Does It Take To File Bankruptcy

Prospective clients often ask me, "how long does it take to file a bankruptcy?" It's a reasonable question, but impossible to answer definitively because it involves numerous factors. I will often respond to the question by asking a question of my own, "how long will it take for you to get me everything I need?"

The first factor is collecting all of the necessary paperwork and documentation. At a minimum, my clients must get me the following information:

• 6 months of paystubs
• 2 years of tax returns and W2s
• Retirement account information
• Lawsuit information
• Information about your home, such as amount owed on the mortgage, tax status, and appraised values
• a monthly budget
• bills and debts not listed in the credit report.

This information is all necessary to file a bankruptcy, and must be provided, compiled, and organized in your bankruptcy petition. Sometimes tax transcripts or appraisals must be ordered. Sometimes it is difficult to compile paystubs. In any case, it often takes awhile to collect everything.

Next, all bankruptcy filers must complete a pre-bankruptcy credit counseling course. This course can be completed over the phone or internet (you don't need to leave your living room) and only takes an hour or two to complete. But, I cannot file until it is completed, even if all of the above-mention paperwork is available. Clients are sometimes slow to complete this course, and it will always hold up the bankruptcy filing.

Finally, I need to be paid before I can file. I have many clients paying through flexible payment plans, however, the case cannot be filed before the final payment (otherwise, the legal fees are discharged with the rest of the debt). I never pressure my clients for payment, I know they want to file their case more badly than I want to get paid. If it takes awhile, then it takes awhile... I'm not going anywhere.

So, how long does it take to file a bankruptcy? I have some clients who are very prepared, ready to do the classes, and able to pay the costs and fees who file only days after meeting me. Some clients, on the other hand, are on payment plans that range over a year. The answer to the question usually somewhere in between. In depends on circumstance.

Regardless of whether it will take a day or a year, I represent my clients with the same vigor. Contact us to set up a free consultation and see if you qualify for Chapter 7 bankruptcy or Chapter 13 bankruptcy. Given you situation, I will be happy to estimate how long the process will take for you.

Property Taxes and Bankruptcy

Property taxes and municipal fees can accumulate rapidly in a few years when a homeowner falls behind. Between the taxes, the interest, and attorney fees, the amount can quickly become unmanageable. Fortunately, Chapter 13 Bankruptcy provides an opportunity to square up with these debts over a 3-to-5 year Chapter 13 Plan.

Not paying property taxes is a serious matter. Municipalities and taxing agencies can, and will, get judgments against the homeowner and the property. Once these court judgments have been obtained, the taxing agency is within their rights to sheriff sale the property out from under you to pay the debt. You can absolutely lose your home over property taxes, and I have seen many clients in this danger. This takes many people by surprise, but it is a real possibility.

Chapter 13 bankruptcy can stop these lawsuits in their tracks, and even stop a sheriff sale. The Bankruptcy "automatic stay" under the Bankruptcy Code effectively stops any lawsuit related to property taxes from proceeding. However, the taxing agency will only be permanently stopped from collecting against your home if they are paid in full, with interest, in the Chapter 13 Plan. (If your Chapter 13 plan fails, they can reinstate the lawsuit).

Once again, paying these property taxes through Chapter 13 bankruptcy can occur over a 3-to-5 year period, during which you will receive Court protection from any property tax lawsuits or collections. This is a major advantage, as you are not required to provide all of the money at once. This is often the only way a debtor would be able to keep their property while facing large property tax obligations.

Interest must also be paid to the taxing agencies. This rate ranges from 10% for many local municipalities, to 12% for Allegheny County (NOTE: rates can vary by county and municipality). The ability to spread out payments over the Chapter 13 bankruptcy plan can certainly make re-payment possible.

Finally, it should be noted that Chapter 13 bankruptcy filers will need to keep their ongoing property taxes current. If current taxes are not paid while catching up property taxes in arrears, the debtor will be left in the same position as before filing.

If you are having difficulty catching up on property taxes, contact us to speak with an experienced Pittsburgh Chapter 13 bankruptcy attorney. The initial consultation is always free, and I will be happy to speak with you at length to determine if Chapter 13 bankruptcy is an option.

Paying the Chapter 13 Trustee

While most Chapter 13 payments will be made to the Chapter 13 Trustee via wage attachments or bank attachments, some payments will be made directly by the debtor on their own.

Typically, this occurs at the beginning of the case before the wage attachment takes effect, or when the debtor is transitioning between jobs. This post describes how to make these direct payments.

All payments to the Chapter 13 Trustee must be mailed via normal mail to the following address (NOTE: Do NOT use any form of mail that requires a signature from the Trustee, such as certified mail, as the Trustee will NOT accept it.):

Ronda J. Winnecour

P.O. Box 1132

Memphis, TN 38101-1132

Payments will only be accepted by the Chapter 13 Trustee if they are money orders or certified checks... personal checks and cash will NOT be accepted. 

Your money order or certified check should include your bankruptcy case number, which will be in the form of 16-12345 (year the case was filed, dash, and then five digits). Keep a record of your payment in case it is lost in the mail or otherwise mishandled.

Your first payment will become due 30 days after your case is filed (otherwise, your case will be dismissed). Typically, you will stop making the payment directly when you see the wage attachment come out of your paycheck, or the bank attachment come out of your bank account. But, always verify this with your attorney. Missed payments could result in the need to increase your plan payment to catch up, or in a worst case scenario, the dismissal of your case.

So, to summarize, here is everything you need to know about mailing your payment directly to the Chapter 13 Trustee when your attorney advises you to do so...

• Mail (regular mail)  to Ronda J. Winnecour, P.O. Box 1132, Memphis, TN 38101-1132
• Money orders and certified checks ONLY, no personal checks or money orders
• Remember to write your case number on your certified check or money order
• The first payment is due 30 days after the filing of your case

If you have any questions about your bankruptcy payment, contact us immediately.

Keeping Your Car in Bankruptcy

One of the most common fears of people considering a bankruptcy filing is that they will lose their car. For many of my clients, this is absolutely not an option, as they need their car to get to work, pick up their kids, and run errands.

Well, good news... as long as you can afford to keep it, you will NOT lose your car! The bankruptcy code recognizes the importance of cars in everyday life, and has accounted for it. You can absolutely file bankruptcy AND keep your car.

First, Federal bankruptcy exemption law provide an exemption of $3,675.00 for each bankruptcy filer (both husband and wife in a joint filing). This protects the value in your car(s) from creditors you owe money to. If property is exempt, they can't touch it. Now, there is a very good possibility your car is worth more than $3,675.00; however, the exemption need only be used towards the equity you have in the car. Equity is the value of the car MINUS what you owe. This amount is often less than the exemption amount, as cars lose value very quickly. In addition, there is an additional "wild card" exemption that normally covers any equity above the $3,675.00 limit.

Chapter 13 bankruptcy will even allow you to keep a car that you are behind payments on. You can catch up significant arrears through a 3-5 year Chapter 13 plan, and it is quite often used to help individuals who fell behind on a car payment due to temporary loss of job or other financial issue. The arrears are caught up over the course of the plan, with is normally quite affordable, while allowing continuing use of the car.

I did mention earlier that you can only keep a car you can "afford". There are some limitations on keeping your car in bankruptcy. The greatest limitation involves Chapter 7 and delinquent car payments. You can NOT keep a car you are behind payments on in a Chapter 7 bankruptcy. I will often advise clients who qualify for a Chapter 7 bankruptcy, yet owe back payments on a car, to catch up with the payment before filing the Chapter 7. If this is not possible, we will consider filing a Chapter 13 bankruptcy reorganization. Either way, I always tell my clients I am not in the business of having them lose their car... if there is a way to keep your car (no matter how desperate your situation), I will figure it out.

All this being said, through the exemption rules and general policy, bankruptcy law is designed for you to keep your car. People often erroneously believe they will lose their car, and refuse to consider a bankruptcy that could be hugely beneficial. Don't let this misplaced belief limit your financial options.

Contact us if you are having issue with a car payment or wish to discuss your financial issues in a free consultation.