Surrendering a Car in Bankruptcy

What to do with your car is an important decision when filing any bankruptcy. Should you keep it, or should you walk away? Chapter 13 bankruptcy can be used to save a car that is in arrears, even a car that has been repossessed (up to the moment of auction sale), by catching up the payments over a 3-to-5 year plan. This is great for situations where you temporarily fell behind, but need the car. However, there are also situations where a debtor will want to walk away from a car in bankruptcy, and the law provides this option as well.

A car can be surrendered in Chapter 7 bankruptcy by declaring it as such in the "Statement of Intentions". The Statement of Intentions is served on the finance company, and quite literally states your intentions. A surrendered vehicle will then be returned to the finance company, with the details usually worked out between the debtor and the company.

What is the advantage to doing this? In situations where the car is worth far less than what is owed, usually as the result of refinancing, it can be returned without the debtor facing any future obligation, even if the finance company sells the car for far less than is owed. The $10,000 you owe on your $1,000 Ford Fiesta that barely runs any longer doesn't need to drain your monthly budget any longer. You can give back the under-performing car and wipe out your financial obligation in bankruptcy.

This is also a great way to return a vehicle that no longer runs, or was severely damaged in an accident. Once again, a lemon or damaged car can be surrendered and returned without any further financial obligation. I often have my clients sit down and determine what their car is actually worth to them in its current condition, given their financial state.

What is the downside to surrendering your vehicle? Well, obviously you will no longer have a vehicle (of course!), and if someone can't help you finance or purchase a replacement, it may be difficult to do so on your own right out of bankruptcy. You will want to make sure you have a plan, otherwise it may make sense to keep a vehicle that is over-financed... sometimes an unfavorable car payment is better than no car at all, if it gets you to work, and school, and the grocery store, etc.

Vehicles can also be surrendered in Chapter 13 bankruptcy, but whether or not doing so is a good idea may depend on whether or not your are required to repay unsecured creditors in your Chapter 13 plan. A surrendered vehicle in Chapter 13 bankruptcy will become unsecured debt. If you are required to pay back your unsecured creditors in full, it may not make sense to surrender your vehicle.

If you are considering getting rid of an unwieldy vehicle, contact us to schedule a free consultation to determine your best route through bankruptcy.

Important Assets in Bankruptcy

"Assets" in bankruptcy are quite simply your property. The common conception of property is of clothes, household goods, electronics, savings, cars, and homes. However, bankruptcy takes a broad definition of property, so it also includes things you may not immediately think of as property, such as retirement accounts, intellectual property, fractional interests in real estate, burial plots, joint bank accounts, pensions, insurance claims, and lawsuit proceeds.

So, with the definition of assets being broad and wide-ranging, what are the most important to consider when filing a bankruptcy?

If you own a home, it is without a doubt your most important asset, and under the Bankruptcy Code, you will not lose it as long as you can afford to pay for it. A mortgage is a secured debt, and under bankruptcy law it must be paid in full, at the contract rate (in most cases). In addition, home equity loans and property taxes must also be paid in full. But, as long as you can afford to make these payments, you can keep the home. The bankruptcy "exemptions" allow for equity in the home (as long as it is your primary residence) to be protected, up to $23,675.00 for each filer. So, losing your home in bankruptcy should not be a concern.

The second most important asset for most filers is their car. Once again, a car loan is a secured debt that must be paid in full. As long as you can afford it, you can keep your car. Another exemption protects your equity, thus losing this important asset should also not be a concern. Multiple car ownership may present some problems with exemptions, so it is important to discuss this situation with your bankruptcy attorney.

As mentioned above, bankruptcy has a broad definition of "assets", and this also includes pensions and retirement accounts. These are hugely important assets, and fortunately they are entirely protected under bankruptcy, assuming they are non-alienable (that is, you cannot freely take money from the account, such as you can in a savings or checking account). Almost all retirement accounts, including government pensions, 401(k)s, and 403(b)s are completely safe. Bankruptcy need not threaten your financial future.

A final important "asset" is often not thought of as an asset at all... that is joint ownership in any property you do not primarily use. An example might be a car you jointly own with one of your children that is entirely used and maintained by the child. This isn't your property in the common idea of ownership and usage. However, for bankruptcy purposes, you own a 1/2 interest that must be exempted. You will be considered as having a partial interest in any property of this type.

Listing all of your assets is an important step in any bankruptcy, therefore is important to discuss and closely review it with your attorney. There is no need to lose any of your property, but failure to disclose it could lead to your case being dismissed, or even perjury charges being brought. Contact us to speak with an experienced Pittsburgh bankruptcy attorney to set up a free consultation where we can review your assets and come up with a plan to protect them.  

Stopping a Sheriff Sale with Chapter 13 Bankruptcy

The culmination of the foreclosure process is the sheriff's sale. It is the final step where your home is literally taken from you and sold to a third-party. The very idea is terrifying to contemplate...someone else taking possession of your home. Fortunately, right up to the moment the sale occurs, Chapter 13 bankruptcy can be used to save your home.

How does Chapter 13 bankruptcy fix this dire situation? The Bankruptcy Code "automatic stay" stops the sheriff sale from proceeding. The automatic stay prevents creditors from taking any legal action (or continuing any legal action) against a debtor. Once the actual sheriff sale takes place, it is too late. The automatic stay only stops sheriff sales that have not yet happened. But, if a Notice of Bankruptcy is properly forwards to the sheriff's office before the sale occurs, it should be stopped. (NOTE: It is important to not wait until the last moment, as the complicated requirements of Chapter 13 bankruptcy and the need to serve the sheriff may make last second filings impossible.)

But, the automatic stay alone does not save your home from sheriff sale. If you cannot submit a feasible Chapter 13 bankruptcy plan, your case will be dismissed, and the sheriff sale will again go forward. In order for your Chapter 13 plan to be considered feasible, you will need to show enough income to catch up on all of the arrears, legal fees, interest, and penalties, as well as show you will be able to make the payment going forward.

Chapter 13 bankruptcy is often a great option for individuals who lost their job or source of income for a period of time, subsequently fell behind on their mortgage, but are now at full income once again. Chapter 13 bankruptcy will allow all of the arrears, fees, and penalties to be cured (without interest) over a 3-to-5 year plan. No interest is an important key. If you are $6,000 behind on your mortgage, you can catch up on the arrears for roughly $100 per month over 5 years.

Now, penalties and fees may increase the amount owed, but they too are paid without interest. In any case, Chapter 13 bankruptcy allows many individuals to keep their homes long after they stopped believing it was possible.

An important side note about attorney fees for the banks and mortgage companies.... they are allowed by law to add-on additional fees after a sheriff has been actually scheduled. So, if possible, you will want to contact us before the sheriff sale is scheduled, to avoid as much in the way of fees as possible.

I am an experienced Pittsburgh bankruptcy attorney who would be happy to speak with you during a free consultation to discuss whether saving your home through Chapter 13 bankruptcy is an option. Don't wait until it is too late, call today to save your home.

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.