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.

Credit Card Lawsuits, Part IV.5: The Hearing Date

A quick interlude about your credit card lawsuit hearing date...

When you are served with a complaint by the sheriff, it will show a hearing date, usually on the cover sheet. This date often becomes a point of obsession for clients, and understandably so. It's not a routine experience to be served a complaint by a sheriff, and it is terrifying to think about missing a hearing date.

However, this hearing date is only important if you intend to formally respond to the complaint. I discussed these responses in an earlier post. It will require a formal answer to the complaint, exerting a valid legal defense (statute of limitation, for instance), and filed in the proper court using its forms and practices. If you make this full answer, the hearing will go on as scheduled and you will need to attend.

If you do NOT file a full, formal response, a default judgment will be entered against you around 30 days after you have been served by the sheriff, and the hearing listed on the complaint will be cancelled. The hearing date can be safely ignored, because no hearing will be held. The sheriff will not come looking for you, and you will not be held in contempt.

This is also true if you are filing a bankruptcy or negotiating a settlement through a lawyer. The bankruptcy automatic stay will automatically stop the credit card lawsuit from proceeding. Once again, there will be no lawsuit hearing to attend. If your attorney is actively negotiating with the creditor's law firm, they will routinely agree to hold off on proceeding (but make sure to verify this with your attorney!)

If you have any confusion about what hearing you need to attend and what hearing you can ignore, speak with your bankruptcy lawyer. But, the hearing listed on the cover sheet of the complaint will rarely be of concern in most instances.

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. 

Can I Keep My Car In Bankruptcy?

Yes!

Now, that short, emphatic answer will need to be qualified in a bit, as you must be able to afford your car and continue making payments. But, as long as you can make the payments, you can keep a car in Chapter 7 and Chapter 13 bankruptcy.

The Bankruptcy Code is premised on the idea of giving debtors a "fresh start". This means giving bankruptcy filers the opportunity to go on with their lives and work as normal, and get back on their feet. Having a car is vital for many filers, so the Code protects their ability to keep their car. You need your car to go to work, pick up your kids from school, and run day-to-day errands. The law recognizes this, and makes it fairly easy to protect your vehicle.

The Federal bankruptcy exemptions allows debtors to protect $3,675 in equity for one car (two cars if the bankruptcy is a joint, marital filing). This $3,675 need only be applied to the amount of equity you possess, that is, the value of the car minus what is owed on it. Since cars depreciate so quickly, equity is normally quite small in a car. This is good news for bankruptcy purposes, as it allows most debtors to exempt their car.

A problem may arise if the debtor has multiple vehicles in their name. However, even this should not be an issue if the "wildcard" exemption is available to protect the second vehicle. The wildcard exemption can also be used if the automobile exemption is exhausted. An experienced bankruptcy attorney will be able to help you properly exemption plan.

The second issue in keeping your car is whether you can afford to continue making payments. When filing a Chapter 7 bankruptcy, you must be completely current on your payment at the time of filing if you wish to keep your car. Otherwise, the finance company can (and will) repossess the vehicle. If you are behind and want to file a Chapter 7 bankruptcy, it will normally be advisable to wait to file until after your payment is caught up. If you are behind on the payment and wish to abandon the car, Chapter 7 bankruptcy allows you to do so, while your obligation on the remaining payment will be dismissed. It is something to consider if your car payment is prohibitively high, or your car is a "lemon".

Chapter 13 bankruptcy allows you to not only keep your car if you are current on your payment, but also to catch up on arrears over the course of the bankruptcy plan. This is extremely important if your car payments are past-due and you are facing repossession. The Chapter 13 plan allows you to catch up over the course of the 3 to 5 year plan, and at its conclusion you will receive the title of the car. The Chapter 13 plan allows the arrears to be spread out over the full term of the plan, so even if you are multiple months behind, it is possible to catch up.

Misinformed debtors often believe they will lose their car in bankruptcy, but as long as it can be exempted (and it normally will be) and your payment is current, you can keep your car in bankruptcy. 

If you have fallen behind on payments and want to consider filing a Chapter 13 bankruptcy, contact us to set up a free consultation.

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.