What To Do If You Need To Wait On Filing Bankruptcy

There will sometimes be occasions when filing a bankruptcy is not possible at the moment. Whether it be due to a means test timing issue, the need to make payments on legal and filing fees, or an exemption issue, sometimes waiting to file is preferable or even necessary.

What should you do in the meantime?

The first question should be, "Is there a lawsuit against me?" If the answer is "yes", you will need to plan accordingly. A lawsuit that has become a judgment will allow the creditor to put a lien on your bank account, home, or vehicle. A lien on your bank account can happen without your knowledge, so the first thing you will probably want to do it stop automatic deposits into your bank account and severely limit the money you hold.

Speak directly with your attorney about planning for the possibility of a bank account lien, it is very important. Marital accounts will be protected against the lien of a creditor of only one spouse, but once again, make sure to discuss this possibility with your attorney. Stopping direct deposit and operating day-to-day without a bank account may be a huge hassle and generally annoying, but losing a paycheck or two in a frozen bank account is worse, especially considering it is an avoidable problem. Discuss the issue with your bankruptcy attorney.

Also, keep your attorney informed if you are served with any additional paperwork related to a lien being place on your home or car. This is a call you should make on the same day. A lien on a home or car may require moving up the filing date or your bankruptcy so that the automatic stay can be used to protect your property.

While waiting to file bankruptcy, you should also avoid taking out any new loans (car payments, home equity loans, personal loans, credit cards, etc.) The bankruptcy court will closely scrutinize your financial activity for YEARS before filing, so make sure you discuss any large financial plans with your attorney. Avoid large purchases and cash advances, especially as you move closer to your anticipated filing date.

Finally, you should also avoid transferring property or the title of property in the time you are waiting to file bankruptcy. Once again, the Court will closely scrutinize your financial activity. Transferring the title of property gives the impression you are try to avoid paying your debts and may even make it appear you are trying to defraud the bankruptcy court. In most cases, these transfers will serve no purpose other than preventing you from filing a bankruptcy... you can usually exempt and protect your property without transferring it.

In the time between retain your attorney and actually filing, which may be several months or longer, make sure you stay in touch with your bankruptcy attorney about your financial activity. An experienced bankruptcy attorney can help you protect your assets and avoid pitfalls that can undo a filing. Proper planning is essential. Make sure you don't sabotage your bankruptcy filing or lose assets because you didn't take the proper precautions.

The Hierarchy of Debt (Who to Repay First)

When your bills are mounting and you have limited income, but you are not quite ready to file either a Chapter 7 or Chapter 13 bankruptcy, you need to prioritize who does (and DOESN'T) get paid. While each actual situation is obviously different (contact us to set up a free consultation to discuss your debt issues), here is a short-hand collection of ideas to determine who to pay:

• Pay your mortgage first. Failing to pay your mortgage could lead to foreclosure proceedings within several months of non-payment. If you want to keep your home in a Chapter 7 bankruptcy, you will need to be current at the time of filing. I have seen clients who paid credit cards before paying their mortgage... and they almost lost their homes because of it. It is a potentially terrible mistake. I'll later explain why credit cards should be one of your LAST payments, but for now it is important to stress that your home should be your primary concern (assuming you want to keep it) because it is your most difficult asset to replace, and losing it could lead to the displacement of your family. (NOTE: if a foreclosure proceeding has begun, contact us immediately)
• Pay your car payment second: Paying your car payment is important for all the reasons that paying your home is important, only to a lesser degree. It is a difficult asset to replace, and you will probably need it to go to work, pick up your kids, get around town, etc. (NOTE: If your home or car are in arrears, it is possible to catch up in a Chapter 13 bankruptcy). Several months of non-payment could lead to repossession proceedings. Don't let it get that far, if possible.
• Pay utilities third: If you are facing a shutoff notice, you should immediately pay the utility and strongly consider filing a bankruptcy. Cable and internet can be cancelled on a tight budget, but losing your electric, gas, or water is not an option. Utility debt can be eliminated in bankruptcy, and utility providers cannot discriminate against you afterwards by not providing service.
• Pay your taxes, especially if the IRS is likely to soon garnish your wages. If not, paying the IRS could be put off, but not for too long. Tax debt is unsecured, but priority, which means it is not discharged in bankruptcy.
• Last (and least), pay credit cards, student loans,medical bills,  and other unsecured debts. Credit cards especially should not be a priority, as they are unsecured debts that can be eliminated at any time under bankruptcy. As mentioned above, do NOT prioritize credit cards over your mortgage... their collection calls may be annoying, but they are preferable to potentially losing your home. Student loans can eventually lead to garnishments, but usually in the short-term they can be deferred. Medical bills can also be paid near the bottom of your list. It should be stressed that these debts are important, but they are just not as urgent as those listed above.

Once again, each situation is unique. If you are struggling to pay most of your debt and ongoing expenses, it is probably time to consider a bankruptcy. But, until you make that decision, it is worth considering this hierarchy to buy yourself time. Credit cards, medical bills, and student loans cannot be ignored forever, and failure to pay on them can lead to lawsuits, but in the meantime make sure not to lose your home, your car, or utility service.

I will be happy to discuss the impact of each type of debt you face.

Getting Your Repossessed Vehicle Back In Bankruptcy

If your car has been repossessed, and you want to retain it, it is not necessarily too late in Chapter 13 bankruptcy. However, you won't want to wait too long to file, as you can only recover the vehicle if it has not been auctioned off.

When your car is repossessed, you can file a Chapter 13 bankruptcy to catch up all the arrears on the vehicle. The arrears will be paid at 0% interest, which will make the repayment significantly easier. However, you will be required to pay any fees and costs related to the repossession. The finance company will be compelled to return the vehicle to you if you file in time. As mentioned above, you won't want to wait too long, as the vehicle will be lost if it is actually auctioned before filing. Chapter 13 bankruptcy is a great way to keep the vehicle in these situations.

A repossessed vehicle cannot be retained in Chapter 7 bankruptcy, unless you can pay all of the arrears on the vehicle at the time of filing. Chapter 7 bankruptcy works differently than Chapter 13 bankruptcy... while it has many advantages, the ability to catch up on arrears on a vehicle is not one. In most Chapter 7 bankruptcies where a vehicle has been repossessed, it is surrendered though the bankruptcy, with the debtor's obligation and liability being wiped out. If you can't afford to retain the vehicle (or don't want to) Chapter 7 bankruptcy is the way to go.

Contact us to set up a free consultation to determine if it feasible to file a Chapter 13 bankruptcy to save you repossessed vehicle (or whether it is best to walk away in a Chapter 7 bankruptcy). I have helped numerous clients in this situation, and I will be more than happy to discuss it with you.

Credit Card Debt and Married Couples

Marital credit card debt is a frequent cause of strife in marriages and a major cause of bankruptcy filings. Marital credit card debt may include debts solely incurred during the time of the marriage. It may also include some debts from before the marriage. Either way, it can burden married couples to the point of destroying the relationship.

Fortunately, most marital credit card debts can be discharged in bankruptcy, including  both joint and individual credit cards. Therefore, a joint card opened before (or after) the marriage is dischargeable in bankruptcy. At the same time, an individual card opened by one of the spouses, opened years before the marriage, is also dischargeable in bankruptcy. Any and all such combinations will be dischargeable, IF the couple files jointly.

This raises a scenario that sometimes occurs... what if one spouse does not want to file bankruptcy? What will happen to the marital credit card debts? In these cases, it will be important to know who is legally obligated on the debt. If only one spouse files, debts solely in his or her name will be discharged in the bankruptcy. Simple enough. This is often sufficient in cases where one spouse entered the marriage with significant credit card debt of their own. But, what about the joint debts?

Joint debtors are "joint and severally" liable. This means their creditors can go after one or both debtors for part (or all) of the debt. This may seem unfair in situations where one joint debtor has numerous attachable assets, while the other has nothing. In any case, this is the law. The creditor can go after whoever it wants, which will almost always be the person with something to take.

So, if one spouse files a bankruptcy on a joint credit card, his or her liability on the debt is wiped out. However, due to joint and several liability, the creditor can go after the non-filing spouse for the full amount. Due to this reality, it is almost always advisable for married couples with significant joint debt to file jointly. It reduces cost (the filing fee is the same for joint bankruptcy filers) and saves time. Not filing a joint bankruptcy will do no good for the household if the creditor can still collect on and possibly sue the non-filing spouse.

In many situations, the debt is in various forms, both joint and individual between the spouses. Contact us for a free bankruptcy consultation to determine if filing bankruptcy jointly, or individually, is the best option for your family. There may be situations where the individual debt of one spouse greatly exceeds any joint debts. I will be happy to walk you through the situation and give you the best options available. 

Wage Attachments in Chapter 13 Bankruptcy

A Chapter 13 bankruptcy is funded by the income of the debtor. Income can take many forms, including Social Security, unemployment, or worker's compensation payments. Income can even be a contribution towards the household expenses from a third-party such as a parent. But, income is generally in the form of paychecks from steady employment.

The Western District of Pennsylvania trustee's office requires all regular pay to be "wage attached". This means it is required that your Chapter 13 payment comes directly from your paycheck as a deduction, much like taxes or deductions for insurance or retirement. Each paycheck, your Chapter 13 payment is sent from your payroll department directly to the Trustee.

This is sometimes initially off-putting for bankruptcy filers. However, it is actually quite beneficial and convenient. First, it makes things simple. All payments must be made for a Chapter 13 plan to succeed. This being the case, it's easier if these payments are done for you. There is no requirement to mail in money orders every month. There is no forgetting to make a payment.

A second advantage is it removes the possibility of error or lost payment. The Chapter 13 Trustee office is the administrative wing of the Federal Bankruptcy Court system. They don't screw up, and they don't lose payments. If there are any issues with a payment, it is professional office dedicated to fixing the problem.

How does the wage attachment work? Your attorney will file a motion with the Bankruptcy Court to attach your wages, which is then signed by a bankruptcy judge, and served on your employer's payroll department. As soon as the payroll department processes the Court order, the wage attachment begins. It's that simple. The whole process sometimes takes less than a week.

Some filers worry that their employer will be angry or potentially even fire them for filing bankruptcy, and they fear the wage attachment will tip the employer off. This is just not the case. Employers have no reason to care... you are not filing bankruptcy on them! My clients have had no issues with employers and wage attachments. It is just not a problem.

If you have questions about Chapter 13 bankruptcy, or wage attachments, contact us to set up a free consultation.