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.

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.

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.