Resolving To Have Better Finances In 2017

New Year's resolutions are nearly upon us, and along with getting in shape, cleaning up our finances is one of the most popular resolutions. Now, sometimes things are too far along and there are problems too big to fix with some belt tightening, and that is when people call me to file a bankruptcy. But, if you have not reached that stage, here are a few tips to consider in 2017:

• Stop automatic payments and write out your bills by hand. Now, this may seem like a huge pain in the butt. However, automatic payments sometimes dull us to the effects of money bleeding out of our bank account. Do you have a $40/month gym membership, but you never go? $200 for cable you never watch? When you actually write out a check, it gets you thinking whether they are worth it. You will become aware. Once you prune some dead weight, you can go back to auto-pay.
• Write out a budget. This is similar to the last tip, and the logic is the same. Calculate your income exactly after taxes and deductions. Write out every expense. When you actually write out your income and expenses, some expenses will seem pointless. The essentials will be clear.
• Pick a day of the week to write out bills. BiIls aren't much fun, I know I let them pile up sometimes. That leads to missed payments and late fees. Pick a day of the week (what are you actually doing on Thursday night, anyway?) and pay any bill sitting on your coffee table.
• Commit to a set amount of savings every paycheck. It doesn't need to be much... $100, $50, even $20. But, the act of committing to some amount (possibly into a separate bank account) will establish a good habit that should eventually snowball into large savings.
• Cut back on eating/drinking out. This is a pretty common piece of advice, everyone has read the article saying if you cut out Starbucks every day you can save $30,000/year etc etc. But, it is good advice, nonetheless. A night at the bar can easily get to $100. Eating out for lunch every day can cost $50-$70 a week, $2,500-$3,500 a year. You don't need to cut out ALL fun, just some!
• Donate to a charity. Yes, this costs money. But, it will give you a good perspective about the actual value of money. Once again, it does not need to be a large amount. $2/week even. It's more about the habit and the perspective. You'll spend money in life, you can't save everything. But, it's important what you spend it on.
• Loving vs. Liking. Do you like buying shoes like me? That's fine, buy some shoes. But, know when you have enough shoes, and the difference between "loving" something and "liking" something. Buy the things you LOVE. Pass on the things you like.

Know yourself and your budget, and your finances will start to look up in 2017 and beyond!

The Broad Definition of "Real Property" in Bankruptcy

"Real Property" in bankruptcy must be disclosed in your bankruptcy petition under Schedule A, and protected from your creditors with exemptions in Schedule C. In short, think of real property as land, and anything you would building on land. This is separate from "personal property", which includes things such as cars, household items, savings accounts, and pretty much anything else you can imagine.

The most common real property in bankruptcy is the Debtor's home. This is probably the classic definition of real estate in the minds of most people. Of course, you must disclose your primary residence in your bankruptcy petition, and exempt it using the "homestead exemption", which allows debtors to protect their equity in their home from creditors. You must actually live in the home in order for it to qualify for this exemption, hence the "homestead". If you are not living there (for instance, you want to keep the home, but you are living out of town in an apartment for work), this bankruptcy exemption is not available.

It also is not surprising to most that rental properties are considered to be real estate. Rental properties with equity must also be exempted in bankruptcy, often times using the "wild card" exemption. This exemption is limited, so you may be required to file a Chapter 13 bankruptcy in order to keep a rental in bankruptcy. Regardless, rental properties are  also clearly real estate.

What about campgrounds or undeveloped property? This is where some debtors begin to believe the property is not "real estate", but it certainly is! Fractional ownership in a camp ground or undeveloped property also must be disclosed and exempted in bankruptcy. So, if you and 3 cousins each have a 1/4th interest in a campground worth $30,000, you have a $7,500 interest in that real estate. You don't want to leave this out... the trustee will do property searches, and failing to disclose the property could lead to perjury charges. You must disclose it and exempt it.

Condos and mobile homes are also considered to be real property, and must be disclosed in bankruptcy. Once again, this leads to confusion for some filers because they think of real estate as traditional brick and mortar properties, and they don't think in terms or condos or trailers. The good news is, if you live in the condo or mobile home, you can use the more generous homestead exemption to protect the property, even though it may not be a traditional "home". If in doubt, tell your bankruptcy attorney about all property while preparing your petition, and he or she will help you determine its status.

Finally, and most confusingly of all, burial plots are considered real property. This is especially confounding for many filers, as they think of real estate as a home, a place where you live. But, keep in mind the broad definition of real property given above... land, or anything you build on land. A burial plot qualifies. Normally, this is not a problem, as burial plots have limited value. But, it is best to disclose everything and exempt it from your creditors.

If you have any confusion about what is "real property" and when it can be protected from your creditors, contact us to set up a free consultation. We'll be happy to discuss your situation and make sure you keep your real estate.

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!