What is an "Asset" in Bankruptcy?

Bankruptcy law often refers to "assets and liabilities". This seems like a simple enough idea, and for the most part it is. However, what qualifies as an asset is much broader than what many people considering bankruptcy would believe.

The simplest definition of "asset" in bankruptcy is anything you own, or have the rights to, that has value (or potential value). This certainly includes your home, rental properties, cars, bank accounts, personal property, and cash. If you can sell it or transfer it, it is probably an asset.

However, the definition of asset goes far beyond these obvious examples. Assets also include contingent and unliquidated property. Contingent property is any property that becomes yours upon the occurrence of a certain condition, such as an inheritance (which becomes yours upon the condition of someone else dying). If you file a bankruptcy, and you are the heir to a deceased person whose estate is being administered, you must list your interest in the property you are to inherent. NOTE: You are not required to list property you stand to inherent if the person granting you the property is still alive. In a Chapter 7, however, you must inform the Court of any property inherited within 180 days of your discharge.

Unliquidated property is property for which the value or amount has not yet been determined. An example of unliquidated property would be a lawsuit in which your damages or award has not yet been determined. Once again, you will need to list this property as an asset.

Assets may also includes intangible property, such as intellectual property (patents, trademarks, copyrights) and franchises. A customer list used by a sales person could be an asset. A tax return, payment, or commission due to a debtor can also be considered an asset, even though the debtor does not yet possess it.

Clearly, the definition of an asset is very broad. All assets will be listed in Schedules A and B of your bankruptcy petition. Your attorney should closely review all of your assets, so they can be disclosed and exempted. If assets are hidden from the Bankruptcy Court, your case could be dismissed with prejudice. Perjury charges could even be filed.

If you have any doubt if something is an asset, disclose it to your attorney so he or she can determine if it must be disclosed to the Court.

What Questions Are Asked at the Meeting of Creditors?

The Meeting of Creditors is commonly a cause for concern and stress for individuals filing bankruptcy. However, this concern and stress is normally misplaced... the Meeting of Creditors normally runs smoothly without the creditors even showing up, and a little preparation makes it a clear and straightforward process.

Of course, the Meeting of Creditors normally runs smoothly as long as you have hired an experienced bankruptcy attorney who has prepared your case with expertise and care. While the questions are simple, it is more important that the underlying petition is completed correctly.

The process is less mysterious and intimidating when I review with my clients the questions to be asked by the Trustee. The questions normally asked in Western Pennsylvania include:

• How did you arrive at the listed value of your home?
• Have you transferred any property to a friend or family member in the last 2 (or 4) years?
• Have you ever filed bankruptcy before?
• Have you reviewed the information sheet prepared by the United States Trustee's office?
• Do you have any claims or lawsuits against anyone else?
• Have you filed all of your taxes that are due?
• Do you have any domestic support obligations?
• Have you lived in Pennsylvania each of the last 2 years?
• Have you read and reviewed the petition? Are you personally familiar with it? Did you sign it? Are there any errors or omissions to report?
• Have you completed a credit counseling class?
• What is your reason for filing?

These questions are very straightforward. Different trustees may ask different versions of these questions, but the gist of the questions are always the same... do you have (or do you expect to receive) property that can be used to pay your creditors? Have you given away property that could be used to pay your creditors? Have you filled out your petition truthfully?

The Trustee assigned to your case asks the questions as a way of review your petition, making sure it is complete and truthful, and verifying that you are familiar with its content. The Trustee is not looking to trick or deceive you. Simple "yes" and "no" answers are appropriate for almost every question. The "reason for filing" question is asked only for survey purposes, and can be simply answered with responses such as "overspending" or "loss of income".

As long as you have been honest and thorough with your attorney during the preparation process, the Meeting of Creditors should be a simple formality. These questions normally take less than 5 minutes to ask (NOTE: different questions may be asked in more complex cases involving business assets). Thorough preparation and a short review before your hearing will assure there are no problems at all.

Keeping Your Car in Bankruptcy

One of the most common fears of people considering a bankruptcy filing is that they will lose their car. For many of my clients, this is absolutely not an option, as they need their car to get to work, pick up their kids, and run errands.

Well, good news... as long as you can afford to keep it, you will NOT lose your car! The bankruptcy code recognizes the importance of cars in everyday life, and has accounted for it. You can absolutely file bankruptcy AND keep your car.

First, Federal bankruptcy exemption law provide an exemption of $3,675.00 for each bankruptcy filer (both husband and wife in a joint filing). This protects the value in your car(s) from creditors you owe money to. If property is exempt, they can't touch it. Now, there is a very good possibility your car is worth more than $3,675.00; however, the exemption need only be used towards the equity you have in the car. Equity is the value of the car MINUS what you owe. This amount is often less than the exemption amount, as cars lose value very quickly. In addition, there is an additional "wild card" exemption that normally covers any equity above the $3,675.00 limit.

Chapter 13 bankruptcy will even allow you to keep a car that you are behind payments on. You can catch up significant arrears through a 3-5 year Chapter 13 plan, and it is quite often used to help individuals who fell behind on a car payment due to temporary loss of job or other financial issue. The arrears are caught up over the course of the plan, with is normally quite affordable, while allowing continuing use of the car.

I did mention earlier that you can only keep a car you can "afford". There are some limitations on keeping your car in bankruptcy. The greatest limitation involves Chapter 7 and delinquent car payments. You can NOT keep a car you are behind payments on in a Chapter 7 bankruptcy. I will often advise clients who qualify for a Chapter 7 bankruptcy, yet owe back payments on a car, to catch up with the payment before filing the Chapter 7. If this is not possible, we will consider filing a Chapter 13 bankruptcy reorganization. Either way, I always tell my clients I am not in the business of having them lose their car... if there is a way to keep your car (no matter how desperate your situation), I will figure it out.

All this being said, through the exemption rules and general policy, bankruptcy law is designed for you to keep your car. People often erroneously believe they will lose their car, and refuse to consider a bankruptcy that could be hugely beneficial. Don't let this misplaced belief limit your financial options.

Contact us if you are having issue with a car payment or wish to discuss your financial issues in a free consultation.

What is a Dischargeable Debt?

When considering a bankruptcy, you will often hear your attorney refer to "dischargeable" debts. It's important to fully understand what the term means, because discharging your debt is the primary purpose of filing a bankruptcy.

A debt is dischargeable when bankruptcy can essentially eliminate it, or make it go away. The most common types of dischargeable debt are credit cards, medical bills, unsecured loans, and personal loans. Federal Income Taxes are sometimes dischargeable (if they were filed on time and are more than three years old), but in most cases taxes are not dischargeable. Student loans and government fines are rarely dischargeable.

When are your debts discharged? Debts are discharged when all the steps of your bankruptcy are completed. In a Chapter 7 bankruptcy, this happens relatively quickly, within 3 or 4 months of filing. A Chapter 13 bankruptcy takes much longer... the plan itself will be 3 to 5 years long, and the official discharge will take months longer.

The good news is, as long as you are complying with your bankruptcy requirements, the automatic stay prevents creditors from attempting to collect on your debts. So, in the time between filing and discharge, you will be protected from your creditors.

Why are some debts dischargeable, while others are not? The policy of Congress, as manifested through the United States Code,  largely determines what is discharged and what isn't. Congress has determined credit cards can be discharged... usually. If you used your credit cards to pay taxes or make a large purchase right before filing bankruptcy, they are NOT discharged.

Congress has taken the policy stand that student loans, whether Federal or private, are NOT dischargeable, except under the most extreme circumstances. It can be argued that a student loan is a debt not much different than a credit card. They both can be used to purchase services or goods. Both can prevent a debtor from enjoying the "fresh start" promised through bankruptcy. But, at least for now, Congress has taken the policy stance that student loan debts will survive through bankruptcy, to the point where your wages (or even Social Security benefits!) can be garnished.

Taxes and student loans involve money originating from or directed to the Federal government. So, maybe it should be no surprise that Federal bankruptcy law demands that they be repaid in full. For debtors facing financial hardship, relief is often denied. Unfortunately, the bankruptcy "fresh start" is not a reality for may debtors.

Contact us to meet with an experienced Pittsburgh bankruptcy attorney who can discuss which of your debts can be discharged, and what to do about those that cannot.

What Can Delay a Bankruptcy Filing?

You have discussed filing bankruptcy with your attorney, and it seems like the right course of action. You're ready to go.

But, sometimes you need to wait...

Several issues can make it preferable, or even necessary, to wait before filing either Chapter 7 bankruptcy or Chapter 13 bankruptcy. Faster and sooner is not always better.

The first issue may involve securing the proper venue to file. You can only file in a location where you have lived for a majority of the past 180 days. So, if you have not lived in Western Pennsylvania for the past 91 days, you cannot file here in Pennsylvania. Oftentimes, it is worth waiting, as filing in your new home will be much more convenient than commuting to your old state. But, it is a requirement that is absolute.

It may also be advisable to wait to file for purposes of exemption planning. The Court will look back at your domicile (where you lived) for a period of 180 days starting two years back from the date of filing. Sound confusing? It is! But, it will be discussed in another post, and your bankruptcy attorney can walk you through it. The relevant point for right now is that sometimes it is advisable to wait before filing to change the available exemptions. An experienced bankruptcy attorney will help you with this "exemption planning" to maximize the protection of your property.

Means test planning will likewise play a role in the timing of a bankruptcy filing. The means test looks at your income for the six months before filing. Depending on your employment history, the means test calculation may require a delayed (or expedited) filing. The means test is also discussed in greater detail elsewhere on the website.

A previous bankruptcy discharge can delay a new filing, as well. This will most often be the case when the debtor has previously filed a Chapter 7 bankruptcy. These debtors will not be eligible to file a new Chapter 7 bankruptcy for 8 years since the previous Chapter 7 was filed. Speak with your bankruptcy attorney about strategies for dealing with creditors during this time. 

Finally, making payments to your bankruptcy attorney for legal fees and filing fees may delay your case from being filing. I am always flexible in taking payments and devising payment plans for my clients. However, bankruptcy attorneys will not file a case before being paid in full, otherwise their fees will be discharged with the other debts. But, my office will provide clients with full and professional service during the duration of the payment plan. I will have the petition ready to file at the moment of the final payment.

The timing of bankruptcy is all-important. Contact us to discuss the issue with an experienced Pittsburgh bankruptcy attorney.