Can I Keep a Credit Card in Bankruptcy?

Clients will often ask if they can keep one or two credit cards in bankruptcy. Usually, bankruptcy clients will want to keep at least one credit card to cover emergencies or to help bridge the gap between pay periods. Sometimes, the client will have a long-standing account they don't want to close, or a favorite retail card used frequently.

Whatever the circumstances, unfortunately you will not be able to keep and maintain a credit card through bankruptcy. This is true in both Chapter 7 and Chapter 13 bankruptcies, and it doesn't matter whether or not the credit card has a large balance or no balance at all.

Why is the Bankruptcy Code so adamant about all credit card debts being disclosed and eliminated? Wouldn't a credit card company want the account to remain open rather than be discharged? The Bankruptcy Code has other ideas, and it revolves around the theory that creditors of the same type should all receive the same treatment.

This logic prevents creditors from rushing to file lawsuits and make the first or earliest claim on the debtor. It also promotes fairness in general. The debtor is not permitted to pick and choose which credit card will get paid. The credit card companies know this, and accept the treatment. This reduces adversarial motive throughout the bankruptcy process.

In practice, all credit cards are eliminated in a Chapter 7 bankruptcy (with some rare exceptions, such as credit cards used to pay taxes). In a Chapter 13 repayment plan, all credit cards are paid at the same rate, which can range anywhere from zero cents on the dollar, to full repayment.

Debtors filing a Chapter 13 bankruptcy will need to acclimate themselves to not using credit cards for the duration of the 3 to 5 year plan. This may be difficult, but it is certainly not impossible. But, more to the point, it is necessary. All credit cards will be closed out.

Once the bankruptcy is discharged, the debtor will have the opportunity to apply for new credit. Getting new credit cards may be easier than you think. It is highly recommended to get one credit card coming out of bankruptcy, paying the full balance every month. This will rebuild your credit without leading to old debt problems. 

The Importance of Pay Stubs in Bankruptcy

When you hire a bankruptcy attorney (I would humbly recommend myself for your consideration) he or she will certainly ask to review your pay stubs, and will continue to do so throughout your case.

Why the obsession with pay stubs?

Exact income information is very important in bankruptcy for a number of reasons. First, pay stubs are used to complete your bankruptcy means test calculation. This is a 6 month look-back (from the month of filing) at all sources of income. The means test will often determine if you will be a Chapter 7 bankruptcy or a Chapter 13 bankruptcy repayment plan (higher income debtors are required to file a Chapter 13). These numbers cannot be estimated, hence the request for pay stubs.

Second, two months of pay stubs are required for a required filing known as "employee income records" or "pay advices". These allow the trustee assigned to your bankruptcy to review your recent income and verify it is consistent with your bankruptcy petition. 

Finally, pay stubs help your attorney to accurately report income in Schedule I of your bankruptcy petition. This is reviewed by the trustee along with the monthly expenses you report in Schedule J.

If you are in a Chapter 13 bankruptcy, it is not required that you keep and submit all pay stubs throughout the duration of the plan. However, it cannot hurt to keep them in case your attorney needs to file an amended plan. Keep your pay stubs in a Chapter 13 bankruptcy at least until you have attended the Meeting of Creditors.

If you are scheduled to consult with an attorney, make sure you gather up all pay stubs for you and your spouse, at least going back several pay periods. This will make it more likely the first consultation will provide useful advice and information. If you do not keep your pay stubs, consult your payroll or human resources department. If you are self-employed, you will need to bring an accurate accounting of your recent business income and expenses.

Pay stubs provide important proof of your income that is need to file and verify a bankruptcy petition. Make sure your bankruptcy attorney is provided with the updated pay stubs needed for your case.

Car Accidents and Bankruptcy, Part II

As discussed in my previous post, there are three major questions that must be answered when considering whether to include an auto accident lawsuit in a bankruptcy for potential discharge.

• Was the debtor under the influence of drugs and alcohol at the time of the accident?
• Was there bodily injury to the victim, or just property damage?
• Were the actions of the debtor willful or malicious (intentional)?

These three questions will determine if the lawsuit filed (most likely by the insurance company) will be discharged, or whether it will survive the bankruptcy.

The United States Bankruptcy Code addresses bankruptcy discharge under Title 11, Sections 523, 727, and 1328, and these are the sources for most of the information to follow.

Congress has embraced a policy that personal injury and death damages caused by a driver intoxicated or under the influence of drugs should not be eligible for a discharge in either a Chapter 7 or a Chapter 13 bankruptcy.

Section 523(a)(9) prevents the discharge of a debt related to, "death or personal injury caused by the debtor's operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance."

This section applies to both Chapter 7 and Chapter 13 bankruptcies. It is most important to note what this section does NOT apply to... property damage caused while under the influence of drugs and alcohol. If an individual causes only property damage while intoxicated, for instance by running into a parked car or destroying a fence, the purely property damage claim can be discharged in either a Chapter 7 or Chapter 13 bankruptcy.

If, on the other hand, the damage claim relates to a bodily injury or death, the claim cannot be discharged, even if it was not willful or malicious. The claim and the debt will survive or "pass-through" the bankruptcy. It will be important to review the details of the lawsuit with your bankruptcy attorney to determine how section 523 will apply to your bankruptcy petition. It is entirely possible that filing a bankruptcy will remain worthwhile, if the debtor has large amounts of other debt. Filing a bankruptcy on the remaining debt may make it possible to pay damages related to an accident.

Congress has taken a hard stand against discharging debts related to driving under the influence when someone has been injured. As an experienced Pittsburgh bankruptcy attorney, I can help you determine if you are eligible for a discharge of an accident related debt.

In my next post, I will write about damages related to willful or malicious conduct of the debtor, and the (sometime) differing results in Chapter 7 and Chapter 13 bankruptcy. Willful and malicious acts will prove to be the most difficult to discharge.

The Timeline on a Chapter 7 Bankruptcy

My Pittsburgh bankruptcy clients are often very interested in knowing the normal timeline in a Chapter 7 bankruptcy, and understandably so. The process often determines when they can go on with life as normal.

The timeline begins when the bankruptcy is filed. However, the bankruptcy cannot be filed until several important steps are completed.

First, the petition must be completed and electronically filed. As your attorney, I will need to list all of your assets and liabilities, complete all of the schedules and the means test, submit your income and expenses, and disclose other bankruptcy relevant material. I will also need the information required by the court and the trustees, including paystubs, tax returns, proof of retirement and insurance accounts, and all income and asset information about a debtor-owned business.

Once all of this information is provided, I will also need time to organize it and include it in your bankruptcy petition. The faster you provide it, the faster the timeline starts.

Second, the debtor will need to complete an approved credit counseling course. This can be ordered at my office, and completed over the phone or the internet. It normally takes between 1 to 2 hours to complete. The bankruptcy petition cannot be filed until 24 hours after the course is completed.

Third, I will need to be paid in full before I can file. I will be happy to set up a payment plan, and very often do so for clients. However, if I am not paid in full, my legal fees could be discharged in the bankruptcy (not a business model that works very well to keep me in business!). But, payment plans often work out fine for clients. I time the last payment to coincide with completing the bankruptcy petition, so I am able to file as soon as possible.

Once the bankruptcy is actually filed, you will receive a case number, and roughly 6-to-8 weeks later, you will be notified by the court of a Meeting of Creditors date (the details of which are discussed elsewhere on this blog in greater detail). This will be the only official appearance you will be required to make. This appearance is mandatory, but it is not something that should cause stress or consternation. 

You will also be required to complete a second course online or over the phone. This is known as a financial management course. Once again, it is easy to do, and it takes 1 to 2 hours. You have until 60 days after the first scheduled meeting of creditors to complete the course, and it can be completed any time after your case is filed. (NOTE: if you don't complete it on time, your case will be dismissed... so get it done!)

After the meeting of creditors is completed, your case will remain open for 60 days, giving your creditors or the United States Trustee the opportunity to object to the discharge. This occurs very rarely. However, during this time, your Chapter 7 bankruptcy technically remains open. You should not use any credit during this time, take out any loans, or transfer any property. Your attorney will advise you in great detail as to what you should and shouldn't do during this time.

When the 60 day period ends, your Chapter 7 bankruptcy will officially be discharged. The bankruptcy Court will mail you a notice of discharge, which you should keep for your records. At this point, you can take any financial action that you like. The Chapter 7 bankruptcy timeline comes to a close.

In summary, once your Chapter 7 bankruptcy is prepared and filed it will normally be about 3 1/2 months before your case is officially discharged, but as little as 6 weeks until everything you are required to do is completed. Contact us today to set up a free consultation and see if you qualify for a Chapter 7 bankruptcy.

How Long Do I Need to Wait to File Another Chapter 7 Bankruptcy?

An occasional issue for someone looking to obtain debt relief through bankruptcy is a previous bankruptcy filing. Debtors are not limited to filing one bankruptcy in their lifetime, but there is a mandatory waiting period between Chapter 7 bankruptcy filings.

Section 727(a)(8) of the United States Bankruptcy Code prohibits a discharge in a bankruptcy case if, "the debtor has been granted a discharge under this section... in a case commenced within 8 years before the date of the filing of the petition."

To make a couple points clear... first, the "discharge" is an extremely important part of any bankruptcy case. The discharge is what actually dismisses your debt. Without a discharge, a debt can still be collected on, and you can still be sued by a creditor. Sometimes, it is known going into a bankruptcy that a certain debt will not be discharged, for instance a student loan obligation or some tax debts. However, a bankruptcy in which ZERO debts are discharged is pretty much worthless. A Chapter 7 bankruptcy that does not discharge your credit card debt, personal loans, or medical bills serves no purpose.

So, since section 727(a)(8) prohibits a bankruptcy discharge for cases filed within 8 years, there is no reason to actually file such a Chapter 7 bankruptcy. You could technically file the second Chapter 7, but there would be no resulting discharge.

A second major point to make clear is how the 8 year period is calculated.  727(a)(8) speaks of a previous case "commenced" within 8 years. "Commenced" is just another way of saying "started", and a case is started when the petition is filed. So, to get a discharge in a Chapter 7 (the whole point of a bankruptcy!) you must wait 8 years and a day from the date you filed your previous Chapter 7. It doesn't matter when it was discharged, only filed. If you are seeking bankruptcy relief, and have previously filed a Chapter 7, make sure you inform your attorney of the previous filing date.

If you need to file bankruptcy, but it is less than 8 years since your previous Chapter 7, you may need to consider a Chapter 13 bankruptcy, or take other actions to stabilize your finances. Your situation isn't hopeless, and often times a plan can be formulated to hold off your creditors.  Contact us to examine your options.