Summertime Budgeting

With most recent days reaching the mid-90s (with humidity!) most of us are preoccupied with staying cool right now. Debt and related issues are far from our minds. My main concern right now involves not melting away in a three-piece suit when I am downtown. Bankruptcy filings often drop during the summer, and it is not surprising. However, just because these thoughts are being put off for a hopefully cooler day doesn't mean that you can't do some planning and budgeting in the meantime.

First off... take a vacation! This is usually the only time of year that a family with school-aged children will have the opportunity. Now, given circumstances, this vacation may need to be modest, but there are a lot of fun, nearby, affordable activities for a family to enjoy. Vacations don't need to be in the French Riviera. Even a "stay-cation" or a simple weekend trip in the car is feasible under a budget. Staying with friends and relatives out of town can keep down the expenses. At the very least, the city is crawling with fun and interesting things to do (take a day to go to Kennywood, or any of our great museums). Just because a bankruptcy may be in the offing doesn't mean family life needs to shut down.

A second budgeting issue for families is back to school expenses. August is generally the month of back to school spending for clothes, shoes, and school supplies. Put aside the necessary money know it is absolutely needed. If bankruptcy needs to be put off in the meantime, so be it.

As summer winds down, fall is a good time to put aside some money, including money needed to file a bankruptcy. Utility bills drop, as heat and electric bills (God bless air conditioning) go down, school is paid for, and Christmas shopping is still months away. It will be a great time to get things in order.

Of course, some debt issues and bankruptcies can not be put off. A lawsuit or home foreclosure needs to be addressed immediately. And in some cases, the stress of a large debt burden is best addressed now. However, in less extreme cases, summer can still be enjoyed with friends and family.

If you want to speak about your debt issues, contact us to set up a free bankruptcy consultation. If it is 95 degrees with 100% humidity, I will probably be wearing shorts and a light shirt!

Reviewing Your Credit Report for Bankruptcy

The primary reason to file a bankruptcy is to eliminate, or at least restructure, your debts. The best way to find out about these debts in detail is to run a three-source credit report (which I can do in my office). So, it follows that you need to review your credit report closely to make sure it includes all of your debts (which you want to discharge).

A good credit report contains a wealth of information about your credit and finances. It will list creditors, creditor addresses, amounts owed, and debt limits. It will include old debts, debts closed out, and debts transferred. It will include information about your mortgage and your car payment. And, of course, it will include the number that Americans often obsess over... their credit score.

So, what to make of it all? If you are applying for a mortgage or a loan, you should focus on the credit score. It is determined by an algorithm meant to determine your credit-worthiness. Credit score is best left for discussion in another post. My focus today is reviewing your credit score for bankruptcy purposes.

The most important information, from a bankruptcy perspective, on your credit report is the creditor addresses. These address help your attorney serve the proper creditor departments so that your bankruptcy is recognized. The address on most correspondence with creditors is often just a correspondence or collections address. A good credit report includes addresses for legal and bankruptcy departments. This helps assure that your bankruptcy is properly processed by your creditor.

The amount owed is also important information on your credit report, especially when filing a Chapter 13 bankruptcy reorganization. This information helps your attorney estimate how much a repayment will be. The amount my clients believe they owe is often much less than the amount listed on the credit score, as they often do not take interest and penalties into account.

What to look for beyond the addresses and amounts? Medical bills.

Medical bills are often NOT reported to the credit agencies, and therefore do not show up on your credit report. You will want to review the report closely, and if these bills do not appear, gather up statements showing how much you owe towards these medical debts so that your attorney can include them in your petition. Remember... if they're not included, they're not discharged. It's especially worth tracking down these medical bills (all of them) in a Chapter 7. I have seen clients literally finds thousands of dollars in medical bills when I insisted they keep looking. It's worth the time, because if you do not include them, they can attempt to collect after the bankruptcy is discharged.

Also, you will need to inform your attorney of any personal debts, or debts owed to anyone that isn't a finance company, such as attorney fees. These debts will obviously not show up on a credit report. When in doubt... find the bill!

In review... read your credit report by focusing to make sure you have listed all of your creditors, especially medical bills. Second, make sure the amounts look correct, but don't worry too much about this, as your creditors will need to file exact claims if they wish to collect from you anyways.

Review that credit report closely! Make sure everyone is included!

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.