Credit Union Loans and Bankruptcy

Credit union loans frequently pop up when reviewing the debts of my clients. These loans can take several forms. Sometimes cars are financed through credit unions. Home equity loans can also be obtained through credit unions. Finally, unsecured bank loans, often used to consolidate other loans, are sometimes owed to credit unions. In any case, they can all be accounted for through bankruptcy. 

Credit unions are often local institutions, in the business of taking savings and issuing loans, and each differs in practice and procedure. Given their local nature, they sometimes lack sophistication in dealing with bankruptcy clients. This means they occasionally will fail to file bankruptcy claims required in Chapter 13 bankruptcy, or they will continue to contact bankruptcy filers after the case is filed. Regardless, at the end of the day, dealing with a credit union will be no different that dealing with any other creditor.

My clients sometimes feel awkward including their credit union because of the local, personal nature of the business. They know the tellers and managers at their credit union, and they have possibly done business there for years. However, these debts should, and must, be included in your bankruptcy. All debts must be treated equally, so if you include credit cards and other unsecured debts, you must also include credit union debts. So, you cannot pay back your credit union to the detriment of your other creditors.

Secured debts such as car loans and home equity loans obtained through credit unions are also treated as normal under bankruptcy law. If they are secured, they must be paid through the bankruptcy, generally under the contract terms. Once again, credit unions may ask for different information regarding the bankruptcy filing, but the results will be the same in the end. You car loan or home equity loan through the credit union will remain unaffected. 

Having a debt with a credit union can sometimes leave my clients feeling uncomfortable. But, keep in mind that I will be the one dealing with them, and that at the end of the day, they are just a normal creditor. After the bankruptcy is filed, the relationship can be re-established.

If you have a debt with your credit union and are considering bankruptcy, contact us to discuss your options.

The Means Test and Non-Consumer Debts

Individuals looking to file for relief under the Bankruptcy code will normally be subject to the "means test". The means test is a six month look-back of all income earned by the household in the period right before filing bankruptcy.

This definition of income is broad. It will not only include salaried income, overtime, commissions, and bonuses, but it will include one time payments such as lottery winnings and inheritances. It will include unemployment compensation, and it will even include money that is not taxable, such child support. This broadly defined income will be compared against household size, and if your income is above the threshold, you may be required to repay your creditors in a Chapter 13 bankruptcy. For a household of one, the threshold is about $25,000 in gross income over the previous six months. The threshold increases with household size.

The means test is very important, as the result can lead to thousands of dollars of repayments if it is failed. In the vast majority of bankruptcy filings it applies and must be completed. The vast majority of cases... but not all.

The means test does not apply when the majority of your debts are business in nature, not consumer. 11 United States Code 707(b) says the means test only applies when, "debts are primarily consumer debts." So, if you your debts are primarily from a failed business, the look-period on your income described above does not apply. This is obviously very important if your income is potentially above the threshold. You may be able to avoid filing a Chapter 13 bankruptcy.

So, when are debts primarily business? Is it the number of debts, or the dollar amount? Most courts hold that the dollar amounts of your debts is the determinant amount, and this makes sense. A handful of credit cards in the thousands with a single massive business debt in the hundreds of thousands could hardly be described as "primarily consumer" in nature. Still, it is advisable to consult an experienced bankruptcy attorney with debts of a mixed business and consumer nature, or when the amounts could be in dispute. Generally, if the debt was used to pay primarily personal, family, or household debt, it is consumer, and you will be subject to the means test.

What kind of proof will you need that your debts are primarily non-consumer? The statements themselves will often make it clear, especially if they show the purchase of business assets. The Court may want to see original paperwork related to loans from banks, so you may want to gather that information. Proof of other business statements, such as LLCs and operating agreements can also show that the debts were incurred while in business, for the benefit of the business. Any proof you can provide that show non-consumer intent will be helpful in your bankruptcy case.

Contact us if you have significant business debt. The Bankruptcy Code can be used to your advantage to eliminate these debts and give you a fresh start. We will be happy to discuss your situation in a free consultation. Don't let old business debts drag down your future.

Holiday Shopping and Debt

With Thanksgiving over, and everyone now sick of turkey, thoughts now turn to Christmas and Hanukkah. If your finances are tight, this can be the cause of a lot of stress and concern. The holidays are an expensive time of year, with the purchase of gifts, holiday parties, and travel. If you are in the midst of a bankruptcy, or considering one, there are a few things to keep in mind.

First of all, don't let it ruin your holidays! I always say financial problems are temporary, but the important moments in life are forever. You should still buy gifts if that is something you like to do, even if they must be modest gifts. It truly is the thought that counts. Gifts can be homemade, or an activity, or even a card with some kind words. The holidays really are not about money, as much as retailers would want you to believe otherwise. Don't get caught up with spending for the sake of spending.

If possible, you should avoid large credit card purchases during the holidays. Credit cards are the most common method for buying gifts. If you are in Chapter 13 bankruptcy, you should not be using credit cards. Hopefully, you will have money put aside in these circumstances. If you are planning to file a Chapter 7 bankruptcy, you should avoid large purchases of over $500, as this could cause your case filing to be delayed. Large purchases or cash advances leading up to bankruptcy could result in a creditor objecting to your filing as abusive. Keep your attorney informed to make sure there is no problem.

Holiday travel can also be tricky, as credit cards are often used in travel, especially with hotel rooms and air travel. Once again, you shouldn't completely put your life on hold because of financial difficulties. But, if you have to travel and incur significant credit card expenses, let your attorney know. Delaying your case filing is always an option if need be. Or, this may be the year to have friends and relatives come to you. Better days are ahead, you'll be able to travel again, even if you can't now.

If you feel overwhelmed by holiday shopping while facing a tight financial situation, sit down and write out a holiday budget. I always tell people it is easier to get a grasp of your finances when you actually write things out and look at them on paper. Figure out who you really need to buy gifts for, and who you really don't. Yes, buy your children and grand-children gifts. But, you probably don't need to buy gifts for your adult nephew or neighbor. When you come up with a budget, you will feel less overwhelmed. The holidays don't need to be synonymous with debt.

The holidays are a great time of year to reconnect with friends and family, and to be generous. They are also a very stressful time of year for many people. Don't let your holidays be ruined by your current situation. Hard times are temporary. Plan accordingly, and enjoy your holidays!

The Danger of Bankruptcy Petition Preparers

Bankruptcy petition preparers are non-attorneys who offer to organize and "prepare" your bankruptcy petition for very low fees. I say "prepare" because they often leave much to desire. These services may be provided locally, or exclusively through the internet. Despite the draw of potentially low fees and costs, these services should be avoided at all costs, and the reasons are numerous.

Bankruptcy petition preparers often advertise to help you prepare and file a Chapter 7 bankruptcy for as low as several hundred dollars. For individuals in financial distress, this can sound enticing. However, given the work they actually do (and more importantly, what they DON'T do) it is not even worth it. Bankruptcy is a complicated area of law that even most experienced general attorneys do not attempt to file.

These preparers are not attorneys, therefore they cannot file your case and paperwork, give you legal advice, or represent you in your hearings and meeting of creditors. These are major problems. They will only give some general advice about filing your petition and schedules, so this will leave you trying to determine how to actually file your case. You will still be required to pay all filing fees, arrange to take all of the classes, and make sure all deadlines are met. These non-attorneys will not help with any of these issues.

If your petition is filed incorrectly, all of your debts may not be discharged, and you may remain liable for some debts. If deadlines are missed, your case will need to be refiled. If your schedules are not complete, the Trustee or a creditor may object to your case. And if there is a lien or lawsuit against you, they will not file any motions to stop them. Once the bankruptcy petition preparer has taken your information and payment, their "help" will cease. People in this situation often end up hiring an attorney just to deal with these problems.

And the fact that you will give them your information to be "organized" is the greatest danger of all. A bankruptcy petition involves large amounts of sensitive information, including Social Security numbers, bank statements and account numbers, retirement information, and other important data. Many of these preparer companies are not even located in the United States. Could you even imagine taking the risk of sending your Social Security number to a call center overseas? It is as dangerous as it sounds. But, this is exactly what you will be doing. There are no amounts of low fees to make this worthwhile.

Bankruptcy attorneys are legally and ethically obligated to protect your personal and financial information. Protecting this data is an important part of my job. Not sending your personal information overseas to a faceless "preparer" should be your primary concern! You personal and financial information is just too important.

The Bankruptcy Code and the Bankruptcy Court have taken steps to regulate and control these petition preparers. They are required to disclose that they are not attorneys. They must detail the limits of their services. However, since anyone can be a bankruptcy petition preparer, and they are not overseen or regulated by state legal bar associations, it is likely they will often fall short of these requirements. Once you have paid your money, and given over your personal information to these preparers, there really isn't anything the court can do to protect you. The damage is already done.

If you have engaged with a bankruptcy petition preparer, but wish to discuss your case and get actual legal advice, contact us. I will be happy to discuss your situation and help you find a solution to your financial problems.

Be Thankful For What You Have

Thanksgiving is a great time for reflection. Sometimes, recent reflection brings some sadness and difficulty. I am especially attuned to this reality because many of my clients, perhaps even most, are going through some of the most difficult times of their lives. However, very few of their situations, from a purely financial standpoint, should be viewed as hopeless. There is always something for which to be hopeful. That should be the focus this time of year.

Financial difficulties can cause strains that bleed into other aspects of life. They can lead to arguments and disagreements. But, very few should be viewed as permanent and unchanging. Credit card debts and medical bills can be discharged. Lawsuits can be wiped away. Late mortgage and car payments can be made current. Yes, these are temporarily stressful and distressing events. But, the important thing is, they are TEMPORARY. It is not worth losing sight of the bigger events in life, the more important and lasting things.

Family relations should come before money, even when money strains these relations. Bills come and go, money comes and goes; family does not. 

Health unquestionably should come before finance in its importance to life. If your family is physically healthy, if not financially healthy at the moment, be thankful. The things I do to help people clean up their finances occur a lot more easily than fixing unhealthy bodies and minds. Be thankful for your health not just this time of year, but throughout the year.

Holidays can be made more stressful by financial concerns, but keep the holidays in perspective. Piling up the most Christmas gifts is a lot less important than piling up good memories. Don't lose perspective about what is important because of your present finances which, believe me, can clear up faster than you think.

So, while right now might not be perfect, be thankful for what you have. Most legal issues can be cleared up with only some minor inconvenience. Thankfulness transcends these temporary concerns.