Should I Stay of Should I Go?

Deciding on whether or not you should keep a home in bankruptcy

Bankruptcy provides the option of keeping your home or walking away from it, whether you are current on the payment, or months behind. Sometimes this is an easy decision. If you love your home and want to live there the rest of your life, and you are current on the payment... of course you will stay. If you are six months behind on a home that you only purchased to make your ex-husband happy... you can go. But, sometimes there are situations that fall between these two extremes that are not so clear cut.

The bankruptcy discharge can eliminate your personal obligation on your mortgage loan. The "mortgage" is your obligation to pay, while the "deed" lists who has ownership rights. By wiping out your personal obligation, you eliminate the possibility of the mortgage company suing you for any deficiencies and penalties. This is very important if your home is going up for sheriff sale auction. Homes often sell far below their normal value in a sheriff sale, and this can leave you with a huge deficiency on what is owed. Bankruptcy is a great way to get out from under this obligation.

At the same time, Chapter 13 bankruptcy can be used to catch up on arrears on your home when you have fallen behind on the payments. The arrears are caught up over three-to-five years, and paid without interest. This can even save a home on the brink of a sheriff sale. As long as you have the income to save it, you can catch up on large arrears.

The dilemma arises when you are somewhere in between these extremes. For instance, you may be 6 months behind on a house you like, but you were having difficulty making the payment to begin with. Or maybe your payment is current, but the home needs major repairs. Deciding whether or not you want to keep the home in these situations can be a difficult decision. Here are some things to consider:

• How much equity do you have in the home? If your home is "under water" (that is, you owe more than it is worth), you should consider surrendered more that if you have a lot of equity. If you have equity, you should be everything you can to salvage the home, even if you just want to resell it yourself (remember, sheriff auctions often fetch ridiculously low bids)
• Can you realistically afford the payment going forward? You have to think long and hard about whether making the monthly payment will be feasible over the coming decades. This can be a hard reality to face, but living in a less expensive home can make life a lot easier. You don't want to be "house poor".
• Do you have other living options? Have you considered moving back with your parents or a roommate? Do you have a good rental lined up? It is easier to walk away when your next move is planned.
• How much do you love your home? If you really love it, and you can afford it going forward, you should stay! Sometimes people fall behind their mortgage because of a temporary loss of income. Once you are earning again, you can often afford to keep your home in Chapter 13.
• Does the home need major repairs? If repairs for foundation or structural damage are too great to finance, it is often times to walk away.

Keeping their home is often a first priority for my clients. If you have the income to afford the payment, you can always keep it in bankruptcy. But, if you are questioning whether it is worthwhile, contact us to discuss your options.

Some Common Questions About the Meeting of Creditors

What do I need to bring?

You will always need to bring your Social Security card and a valid, government-issued photo ID. If you can't find your Social Security card, you can bring an original W2, but not a copy. The Trustee will not hold your meeting without these, so don't forget!

Where are the Meeting of Creditors held?

For Chapter 7 cases in Allegheny County, the meeting will be held on the 7th floor of the Liberty Center in downtown Pittsburgh. 1001 Liberty Avenue, Pittsburgh, PA 15222. For Chapter 7 cases outside Allegheny County, the locations differ. Make sure to verify with your attorney before the meeting.

Chapter 13 Meeting of Creditors are held downtown in the US Steel Building, 32nd floor. 600 Grant St., Pittsburgh, PA 15219.

What should I wear?

There are no formal requirements, but you should at least dress in business casual. No Steelers jerseys!

Am I going in front of a judge? Is this in a court room?

Nope, you will go in front of a trustee, who is an attorney who reviews your case and asks you some simple questions about your filing. The meeting is held in a conference room, not a court room. Don't imagine this as a courtroom drama right out of a television show. It is a simple, straightforward affair.

Will my creditors be there to ask me questions?

Very rarely. The trustee sits in their place. It is rarely worth the creditors effort to attend, as there is very little they can do if your case is properly filed. If they do show up in a Chapter 13, it is usually to make sure there claim is being allowed (claims are what the creditors say you owe).

I will review the questions asked by the trustee several days before the Meeting of Creditors. While this meeting is fairly informal and should not cause anxiety, it is a hearing held under oath. I always tell my clients, as long as you tell the truth and don't hide anything from the trustee, there is nothing to worry about! The meeting is mostly a review of what you have already confirmed and filed, so there shouldn't be any surprises as long as you have been thorough.

Contact us if you have any questions about your Meeting of Creditors.

Don't Transfer Property Before Filing Bankruptcy!

A big mistake people can make before filing bankruptcy is to transfer property to a friend or relative for less than full value before a bankruptcy. This could potentially be viewed as a fraudulent transfer. If you are considering filing a bankruptcy, make sure not to transfer property before speaking with a bankruptcy attorney.

Why is this an issue? Bankruptcy law allows you to exempt or protect personal property when filing. The purpose of the bankruptcy exemptions is to allow a true fresh start by permitting the debtor to keep property necessary to make a living and get back on their feet. However, these exemptions are not unlimited. While the exemptions are sufficient to protect the value of most debtor property, sometimes they do not protect everything.

This is potentially a problem for debtors who own their home outright or owe very little. This is more often the case with older clients who have been paying down their home for decades. Individual debtors may only protect $23,675.00 in equity in their home (joint debtors up to $47,350.00). If your home exceeds these limits, you would need to repay money through a Chapter 13 bankruptcy, and Chapter 7 bankruptcy will no longer be an option.

Some individuals think a way around this is to transfer the property to a friend or family member before filing. The Bankruptcy Court will not allow this. In fact, if you filed a bankruptcy after such a transfer, the Court can actually un-do the transaction. Most Trustees will ask if you have transferred property in the last 4 years before filing, and you are required to answer truthfully under the penalty of perjury. Trustees may also do property searches and look back even further. The bankruptcy petition specifically asks if you have transferred property into a self-settled trust in the last 10 years. In any case, you do not want to attempt to hide such a transfer.

It's safest to avoid all transfers of property in the months (and even years) leading up to a bankruptcy, even small, innocuous transfers. If you have transferred property, it may be transferred back before filing. Or, a Chapter 13 bankruptcy can be filed on the property as if it had never been handed over in the first place. When in doubt, hold on to the property until speaking with a bankruptcy attorney. There are options if property has been transferred, but it could make things difficult.

Contact us to set up a free consultation and discuss how to properly protect your property..

Labor Day

Labor Day may be the unofficial end to summer, but with temperatures pushing into the 80s, it sure doesn't feel that way. It's a great day to relax and forget the purpose of the day (work!).

As a bankruptcy attorney, people often ask me how many of my clients work. The answer? Virtually all of them! Bankruptcy is an option to help hardworking people more than anyone else. Hardworking people have things to lose, and people to protect, and the bankruptcy process will guard both.

The vast majority of my clients are hardworking people who hit one or two common hardships. The most common is medical bills. This country doesn't do a great job of providing reliable health care for working class citizens, and one or two major medical situations with sub-standard health coverage can push anyone into bankruptcy. Fortunately, medical bills are dischargeable in both Chapter 7 and Chapter 13 bankruptcy. With medical bills often reaching in the tens-of-thousands of dollars or more, bankruptcy is often the only option. Otherwise, these bills will stop you from moving on with your life.

Temporary job loss can also result in bankruptcy, and this can happen all too often in a fluid and recovering economy. Bills can pile up fast in a few short months, especially with interest rates on loans and credit cards well in the double digits. Missed mortgage payments can be paid through Chapter 13 bankruptcy, allowing me to even stop sheriff sales. It is a situation I have seen countless times. Someone is laid off for as little as three or four months, unemployment can't cover the mortgage or credit card payments, they go back to work (sometimes for a reduced salary) but it is too late. The bills are beyond control.

Another common scenario leading to bankruptcy for working individuals is divorce and marital separation. Expenses that were once split must now be paid in full. Two salaries become one, and sometimes all of the bills can't be paid. Divorce can also lead to massive legal bills. Living situations that were feasible while married can fall apart quickly with divorce. Divorce is bad enough on its own, but when it destroys your finances, it makes life that much more difficult. Bankruptcy can help.

Labor Day is a great time to relax and unwind. If you are hardworking and facing debt issues, related to the examples above, or caused by some other misfortune, contact us to discuss your options and see if bankruptcy may provide you with some relief. In the meantime, enjoy summer while it lasts!

Does Bankruptcy Have a Debt Limit?

Is it possible to have too much debt to file bankruptcy? Can your creditors object because you owe them an especially large amount of money? It depends on the type of consumer bankruptcy you file, but in the vast majority of the cases, the answer is "no".

It is a reasonable question to ask. Whether you owe $5,000 to a couple of credit cards, or $200,000 in medical bills seems like two greatly varied scenarios that would be treated differently. However, in the vast majority of cases there is no difference, debts large and small get discharged just the same.

So, what are the narrow situations where the debt limit in consumer bankruptcy comes into play? Only in Chapter 13 bankruptcy is there an absolute limit or cap on debts that may be included. As of April 1st, 2016 (the limits are updated periodically, so always check at a later date) the limit on unsecured debts is $394,725, while the limit on secured debts is $1,184,200. Unsecured debts are generally credit cards, medical bills, and personal loans, secured debts are generally mortgages, and car payments (which tend to be larger obligations).

Clearly, the number is quite large and will not affect most bankruptcy filers, except perhaps those with very large mortgages, or high amounts of medical or business debt.

As for Chapter 7 bankruptcy, there is no cap. You may exceed these debt limits. For most debtors, this cap will not be a concern. Even seemingly massive debts can be included in a Chapter 7 bankruptcy. Debt amounts are usually not the issue. It is when, and how, these debts are accrued that may become a problem. If debts are run up through fraud or deliberately large purchases in the months preceding filing, there will be an issue, regardless of the size. 

If you are facing the bankruptcy debt limits, there are some options available. An experienced bankruptcy attorney can help you to classify your debts, or seek other bankruptcy options. Contact us with any questions about your debts, large or small.