What is a "Liability" in Bankruptcy

The terms "asset" and "liability" are raised constantly in bankruptcy. The bankruptcy trustee reviewing your petition will ask if you have listed "all of your assets and liabilities" during your Meeting of Creditors. But, it is not always clear what they do (and do NOT) refer to.

I already discussed what an asset is for bankruptcy purposes, so now I want to take a little time to talk about liabilities, which are listed in Schedules D,E, and F of the voluntary bankruptcy petition.

A liability is a debt you owe, or an obligation you have incurred. This probably sounds more complicated than the simple question "what is a liability?"... and it probably is! But, for the purpose of bankruptcy, knowing what you owe and what constitutes an obligation can be very important.

The clearest examples of a liability are credit card debts, student loans, medical bills, and personal loans. You have received goods or services, consumed them, and now you have a bill. You'll want to find and disclose all of these liabilities in your bankruptcy to make they are included and discharged. These liabilities are listed on Schedule F of the bankruptcy petition as "unsecured, non-priority debts".

Taxes, child support, and alimony are also liabilities, though they are considered "priority", and therefore must be paid back in bankruptcy, or they are not discharged. These liabilities are listed in Schedule E of the bankruptcy petition. 

It is sometimes less clear to a potential bankruptcy filer that a mortgage or car payment is a liability. You certainly get to enjoy the car and live in the home. But, mortgage and car payments are ongoing debt obligations. Fortunately, bankruptcy law allows you to continuing paying on these liabilities and keep the property. Not all liabilities are discharged, nor are they required to be. So, you listed the secured car payment or mortgage (on Schedule D of the bankruptcy petition) and keep making the payment.

Leases are also liabilities. Like car payments and mortgages in bankruptcy, you have the option of continuing on the payment and obligation, or rejecting it and returning the property. Make sure to discuss your options with your bankruptcy attorney.

As an experienced Pittsburgh bankruptcy lawyer, I will help you organize, disclose, and manage your liabilities. I will run a bankruptcy-specific credit report and review it so you understand your liabilities. And I will make sure you know what liabilities are discharged (and which are NOT).

Assets and liabilities are the "stuff" of bankruptcy, make sure you are familiar with yours before meeting with your bankruptcy attorney.

Eliminating Joint Debt in Bankruptcy, Part 2

In my previous post, I discussed how joint debts can make two individuals liable, even when only one enjoyed the benefits of the loan. In this post, I will discuss when joint debts can (and cannot) be eliminated through Chapter 7 bankruptcy and Chapter 13 bankruptcy.

The easiest way to dispose of joint debts in a bankruptcy is to file a joint bankruptcy. Joint bankruptcies allow two debtors to file at the same time with one petition, adding convenience and reducing costs. Joint bankruptcy is only allowed, however, with legally married couples. Boyfriend-girlfriend, bother-sister, parent-child, BFF-BFF... none of these can file a joint bankruptcy. Only a legally married couple can file (NOTE: recent case law and practice allows this to include same-sex couples). Engaged doesn't count, you need to be married at the time of filing.

So, if you are a married couple, with joint marital debts, you can file a bankruptcy to discharge these joint debts in one filing. If this is an option, the process will be pretty simple and it is a great, efficient way to deal with your financial problems.

Where things get murky is when only one co-debtor wants to file bankruptcy, or only one co-debtor is able to file. If you have a co-signed loan on which you are liable, and you file an individual bankruptcy, your personal obligation on that debt will be discharged and eliminated. However, your co-signer will become completely liable on the loan. The debt is only wiped out as it relates to you, it is not completely eliminated. The creditor can still pursue your co-debtor.

This will sometimes lead to a situation where a non-filing parent or spouse is left on the hook with the debt. If they are unable or unwilling to file their own individual bankruptcy, this debt will lead to collections and lawsuits. In these cases, after your discharge you can voluntarily help pay back your joint debtor, though you are under no legal obligation to do so. It is up to you.

There is one scenario where a joint debt may NOT be dischargeable in bankruptcy when you file on your own. If you have agreed to assume a joint marital debt (or any marital debt) as part of a formal property settlement agreement in a divorce, you cannot eliminate this debt in a Chapter 7 bankruptcy. This marital debt can only be eliminated in a Chapter 13 bankruptcy (which may require you to repay some money to your creditors). This policy of bankruptcy law protects divorced spouses who have negotiated in a divorce from being made liable on joint debts they rightfully negotiated away as part of the settlement.

This one example aside, if you file bankruptcy on a joint debt, your obligation will be cleared away. You can also be on the other side of this scenario... if someone you share a joint debt with files without you, YOU will become wholly liable. This is important to understand, us you may in turn need to file a bankruptcy.

If you are dealing with joint debts, contact us to set up a free consultation to see if bankruptcy is an option for eliminating the debt.

Spring Is A Time For Fresh Starts

Bankruptcy is often described as a "fresh start", and this is true for a lot of reasons. With Spring (mercifully) on the way, here are a few ways bankruptcy can be a fresh start for you.

• Clear out lawsuits: Filing bankruptcy allows you to remove lawsuits and judgments from your financial record. A creditor judgment can stay on your record for 20+ years, putting your home, car, bank accounts, and personal property at risk, while at the same time destroying your credit. Filing bankruptcy can eliminate these lawsuits, protecting your property and allowing you to rebuild your credit in one swift stroke.
• Reset your debt ratio: High debt ratios can severely limit your ability to get credit in the future while keeping your credit score low in the present. Bankruptcy can wipe out your unsecured debt and give you a fresh start with re-establishing your credit.
• Catch up arrears on a car or home: Have you fallen behind on a car or mortgage payment due to a temporary loss of employment? A Chapter 13 bankruptcy can allow you to catch up while paying 0% interest on your arrears. Don't let your home slip towards foreclosure or your car end up repossessed. Act now with a Chapter 13 reorganization before it is too late!
• Stop creditor calls: Tired of creditors pestering you and harassing you at all hours of the day and night? Bankruptcy can stop the calls immediately with the Automatic Stay, which prevents any creditor contact with you. Bankruptcy can give you piece of mind and stop creditors in their tracks.

Spring is a time for renewal and fresh starts, so what better time to put your finances back in order? Contact us and schedule a free consultation to see if you qualify for the bankruptcy fresh start.

Joint Debts In Bankruptcy, Part 1

A common concern for new clients is understanding how their joint debts will be treated in Chapter 7 bankruptcy and Chapter 13 bankruptcy. This will often be a determining factor in whether or not they will even file, so it is worth taking a little time to discuss over my next two posts.

Most joint debts are "jointly and severably liable". This means if you and another person both sign on a loan that defaults, the creditor is allowed to go after one of you, both or you, or neither of you (not often!) for the full amount. The creditor is not limited to only going after half of the debt from both debtors. The creditor can collect 90% from one, 10% from the other, or any other combination.

This can be very important in situations where the joint debtors have large differences in income and assets, or are not on good terms. When there is a large difference in income and assets, the creditor is permitted to go after the assets of the wealthy signer on the loan, even if they hardly benefited from the credit. Unfair as this seems, this is entirely legal. I have had many clients co-sign on loans for their children or spouses get sued on those debts despite never enjoying any of its benefits. If you think about it, most cases with joint debtors will be unbalanced for this reason. The whole reason for applying for joint debt is that one individual has much better credit than the other.

Joint debts are also a big issue when the debtors are not getting along. This is frequently the case in divorces, where joint debts must be negotiated as part of the marital property settlement. In some cases, a joint debt you have agreed to assume through a marital property settlement will NOT be discharged in bankruptcy. I'll elaborate on this situation in my next post, but you will want to speak to an experienced Pittsburgh bankruptcy attorney to account for this situation. Regardless, when joint debts go bad, the debtors are often not willing to cooperate on dealing with the consequences.

Joint debts come in many forms. Credit cards are the most common. Cars and mortgages are also common situations. An individual wanting and needing a car will often not have the credit to finance one. This is when a parent or spouse will co-sign on the loan. "Co-signing" makes this parent or spouse jointly and severably liable. So, if further down the road, the car is repossessed, the creditor can go entirely after the co-debtor who never even used the car, but was only trying to be helpful, for the deficiency. This is actually a quite common issue.

These joint debts can be eliminated through bankruptcy. Unfortunately, there are not many legal alternatives to otherwise avoiding a joint debt, unless you can prove your co-debtor committed fraud.

The important thing to understand is that if you are a joint debtor on the loan, you are as much on the hook as your co-debtor, even if you only co-signed to be helpful. In my next post, I'll talk about how joint debts are treated in bankruptcy, which is sometimes the only way to deal with them when they have gone bad.

Contact us with any questions about your joint debt! 

How Long Does It Take To File Bankruptcy

Prospective clients often ask me, "how long does it take to file a bankruptcy?" It's a reasonable question, but impossible to answer definitively because it involves numerous factors. I will often respond to the question by asking a question of my own, "how long will it take for you to get me everything I need?"

The first factor is collecting all of the necessary paperwork and documentation. At a minimum, my clients must get me the following information:

• 6 months of paystubs
• 2 years of tax returns and W2s
• Retirement account information
• Lawsuit information
• Information about your home, such as amount owed on the mortgage, tax status, and appraised values
• a monthly budget
• bills and debts not listed in the credit report.

This information is all necessary to file a bankruptcy, and must be provided, compiled, and organized in your bankruptcy petition. Sometimes tax transcripts or appraisals must be ordered. Sometimes it is difficult to compile paystubs. In any case, it often takes awhile to collect everything.

Next, all bankruptcy filers must complete a pre-bankruptcy credit counseling course. This course can be completed over the phone or internet (you don't need to leave your living room) and only takes an hour or two to complete. But, I cannot file until it is completed, even if all of the above-mention paperwork is available. Clients are sometimes slow to complete this course, and it will always hold up the bankruptcy filing.

Finally, I need to be paid before I can file. I have many clients paying through flexible payment plans, however, the case cannot be filed before the final payment (otherwise, the legal fees are discharged with the rest of the debt). I never pressure my clients for payment, I know they want to file their case more badly than I want to get paid. If it takes awhile, then it takes awhile... I'm not going anywhere.

So, how long does it take to file a bankruptcy? I have some clients who are very prepared, ready to do the classes, and able to pay the costs and fees who file only days after meeting me. Some clients, on the other hand, are on payment plans that range over a year. The answer to the question usually somewhere in between. In depends on circumstance.

Regardless of whether it will take a day or a year, I represent my clients with the same vigor. Contact us to set up a free consultation and see if you qualify for Chapter 7 bankruptcy or Chapter 13 bankruptcy. Given you situation, I will be happy to estimate how long the process will take for you.