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.

Home Appraisals and Bankruptcy

Individuals considering bankruptcy will sometimes need to obtain a formal appraisal of their home's value. Unfortunately, this is an added expense, but in most cases it is the wise and prudent thing to do.

So, why are home values so important in bankruptcy? In many cases, it is the most important variable in a bankruptcy petition. The value is so important because equity in a home can be exempted (or protected) in bankruptcy. Equity is the value of your home, minus what is owed on it. If your home is worth $100,000, and you have an $80,000 mortgage, your equity is $20,000.

This equity can be protected, but only to a certain degree. The Federal bankruptcy exemptions allow for $22,975.00 for the "Homestead" exemption. This doubles to $45,950.00 for married homeowners who file jointly. This equity in your home, and the exemption to protect it, is very important because if the equity in your home exceeds the exemption available to protect it, you must pay back unsecured (ie credit cards, medical bills, payday loans, etc.) creditors dollar-for-dollar the amount that is not exempt.

It's worth making another example to clarify. If your home is worth $100,000, but your mortgage is only $60,000, you have $40,000 in equity. $22,975 of this equity can be protected, leaving $17,025 as not exempt. This $17,025 that is not exempt must be paid back to unsecured creditors, in full. If you owed $10,000 to unsecured creditors, the full $10,000 would need to be paid, likely through a Chapter 13 bankruptcy.

Home values are so important in bankruptcy because they determine equity in the home, and differences in equity can obviously result in vastly different scenarios in bankruptcy. Bankruptcy filers with little or no equity will normally not need to hire an appraiser. Or, if the home was very recently purchased, or the value of similar comparable homes in the neighborhood is firmly established (such as in a housing plan), an appraisal will not likely be needed.

But, where a wide range of values could be reflected, it is worth having an independent, third-party appraiser value the home. (NOTE: An independent, third-party appraiser, as opposed to a friend or family member is important, as the chances of the value being challenged in Court will greatly decrease if the appraiser is a disinterested party). An appraisal may cost in the $300 to $400 dollar range, but this cost will be saved many times over if a value in your home is established that lessens the amount you pay to creditors.  When equity is fully protected, and income is below the means test threshold, clients can normally file a Chapter 7 bankruptcy and potentially save tens-of-thousands of dollars.

The appraisal itself is a quick process where that appraiser visits and inspects your home, and then does some research to compare it to other homes in your neighborhood. Once again, the minor hassle will normally be worth it financially many times over.

One last point, county tax assessment values CANNOT be used to establish home value, as the Bankruptcy Court does not allow these values in the calculation. Tax assessment values often differ greatly from actual real estate values, hence the Court's position on the matter.

If you are considering filing bankruptcy, contact us to set up a free consultation in person or over the phone. I will be happy to sit down and start the process of valuing your home, and more importantly, protecting it through bankruptcy.

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.

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.