Car Accidents and Bankruptcy: A Summary

My last three posts have discussed the dischargeability of certain debts related to auto accidents. There are several distinctions to make... Chapter 7 or Chapter 13? Intoxicated or not? Willful and/or malicious? Personal injury or death? Or just property damage? I'll attempt to summarize the distinctions below. Please review my previous blog posts "Car Accidents and Bankruptcy, Parts I, II, and III for great detail.

Below is an attempt to summarize, in shorthand, what is (and is NOT) discharged in both Chapter 7 and Chapter 13 bankruptcy when dealing with damages in an auto accident.

Damages Discharged in Chapter 7:

• Not willful and malicious, AND;
• No intoxication or drugs influencing accident
• Intoxication/influence causing only property damage

Damages NOT Discharged in Chapter 7:

• Willful AND malicious damage to either property OR person, OR;
• Intoxication/influence causing personal injury or death

Damages Discharged in Chapter 13:

• All damages related only to property
• Damages related to personal injury/death but NOT willful OR malicious

Damages NOT Discharged in Chapter 13

• Personal injury or death resulting from intoxication/influence OR willful act OR malicious act

NOTE: Even though a debt may be "dischargeable" in Chapter 13, it may still end up paid in full or in part depending on the rate at which the debtor is required to repay unsecured creditors. More accident-related debts are dischargeable in Chapter 13 due to this being the case.

Medical Bills and Bankruptcy

Medical bills are often an important factor in seeking bankruptcy relief. The good news is that they are mostly dischargeable, no matter how large. Given the exorbitant cost of medical care, these bills often grow huge. Here are some things to keep in mind when you are considering filing a bankruptcy to deal with medical bills.

• Medical bills are normally considered "unsecured" debt. That means they are not secured by your personal property (unlike a car loan or a mortgage), and therefore they can be discharged (or eliminated) like other unsecured debt such as credit cards. In a Chapter 7 bankruptcy, medical bills are completely eliminated. In a Chapter 13 bankruptcy, you may have to repay some or all of the debt, but it will be over a 3-to-5 year plan, and without interest. In either case, bankruptcy will probably be your best option for dealing with the burden.
• Make sure you gather up all of your medical bills for review by your attorney. Many medical providers do not report the bills to credit agencies, so they oftentimes do not show up on credit reports. Find your medical bills and provide a copy to your attorney. If you cannot find the statements, call your health care provider and ask for one. This is important, because just like other unsecured debts, medical bills are NOT discharged if they are not included in your bankruptcy petition.
• Let your attorney know if your medical condition is ongoing, or resolved. While medical bills are dischargeable in bankruptcy, you may run the risk that your health care provider in non-emergency situations may stop providing service if they are included in your bankruptcy petition. Timing is important, a good bankruptcy attorney will discuss your options.

Many of my clients are not even aware of some older medical bills. It is best to round up everything when you file a bankruptcy, there is no reason to pay a bill later that can be included and discharged now.

As a Pittsburgh bankruptcy attorney, I would be happy to review your medical bills and help you determine if bankruptcy is an option for you. Contact us for a free consultation. 

Car Accidents and Bankruptcy, Part III

The last situation to discuss regarding the dischargeability of debts related to auto accidents is the situation in which the debtor's conduct was considered to be "willful and malicious".

"Willful" denotes the idea that the act was done with motive, on purpose. It could involve a level of premeditation or planning by the actor. The act must be more than merely negligent to be willful. There must be a clear intention to cause harm.

"Malicious" is defined by Merriam-Webster as, "having or showing a desire to cause harm to another person; having or showing malice." Once again, someone can act willfully or intentionally, but if there was no intent to do harm, the standard of "willful and malicious" is not met.

It should be pointed out, this standard of willful and malicious conduct will rarely be applicable to auto accidents. Most auto accidents involve either driving under the influence or negligence. Auto accidents are rarely "willful and malicious", though the possibility exists. For instance, an individual could intend to injure a victim with a car by ramming their car or chasing and hitting them.

The willful and malicious standard will more commonly apply to situations where a judgment has been entered in a civil lawsuit for physical assault. But, as discussed above, it could apply to an auto accident in rare instances.

There is an important distinction in Chapter 7 bankruptcy between intoxication damages and willful and malicious damages. As discussed in an earlier post, property damage resulting from intoxication may be discharged in a Chapter 7; however, property damage resulting from a willful and malicious act is NOT dischargeable in Chapter 7. It will be important to discuss this distinction with your attorney. -See 11 USC Sec. 523(a)(6)

There are a couple slight distinctions to the willful and malicious standard in Chapter 13 bankruptcy. In Chapter 13, the act need be only willful OR malicious to be non-dischargeable. Therefore, the act only needs to be intentional or done with malice. It will be a very slight distinction in almost every case. However, there is a major distinction between Chapter 13 and Chapter 7 related to property damages. Property damages caused by willful OR malicious acts can be discharged in Chapter 13, whereas they cannot be discharged in Chapter 7.

In my next post, I will summarize the last three posts, as it becomes quite complicated what can be discharged in Chapter 7 and Chapter 13 when dealing with auto accidents.

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.