Considering Bankruptcy? Make a Budget...

Deciding whether or not to file a bankruptcy is a difficult choice for many individuals and families. Sometimes, it is an obvious decision when facing a lawsuit or a foreclosure. Sometimes it is more unclear. Do I need to file? Is it necessary? If you are asking these questions, it is always a good idea to sit down and write out a budget.

If you decide to file a bankruptcy, either Chapter 7 or Chapter 13, you will need to submit a budget (on schedules "I" and "J"). This allows the Court to analyze whether you qualify. But, it is a good idea to write out a budget even if you are not sure. It is important to have a strong grasp of your finances before filing. Actually sitting down and writing down your budget will help. Seeing the numbers in front of you is a lot more effective than trying to calculate in your head.

When you look at your budget, you can sometimes catch expenses that are draining your bank account that you do not think about. It is easy to lose track of expenses, especially when they are automatically deducted from your bank account or credit card. Cable and internet bills often grow and grow. Seeing the number in pencil or ink will often really let the number settle in.

When you see the numbers in front of you, it becomes easier to determine what can be cut back, or cut out. Auto-deductions for things like gym membership, Netflix, or other online services that are not being used are easy cuts. Without a budget, you might forget about them, or other month-to-month bills. High maintenance on a car might mean you should take more public transportation, or get a better car. Large utility bills could mean you need to winterize your home. A big food expense could mean cutting back on eating out. It is easy for even frugal people to lose track of expenses.

Bankruptcy should be strongly considered when you go through a budget, cut out all of the fat, and there is still not enough money to pay credit cards, past-due payments, and other expenses. Honestly, most of my clients have already cut back on every expense before speaking to me. But, if you are not sure whether bankruptcy is an option, go through the numbers on paper. The numbers won't lie.

Chapter 13 bankruptcy can be an option when you are behind on a mortgage or a car payment. You might not be able to make a lump sum payment to cure these arrears, but spreading the payment out over 3 to 5 years might be an option. It is important to know how much you can realistically afford. A budget can help.

What is the best way to go through this information? Have a recent bank statement and credit card statement(s) ready in order to review your automatic deductions. Next, go through home expenses, such as rent, mortgage, utilities, or maintenance. Do the same for your cars, with monthly payments, gas, maintenance, and insurance. Go through your bills, such as credit cards, student loans, and bank loans. And finish up by reviewing expenses for food, activities, health care, and special expenses. Be thorough.

You might be able to balance your books. When you can't make the budget work in order to pay the bills, you should strongly consider a bankruptcy. Contact us if you would like to review you budget and expenses. We'll be happy to meet you for a free consultation.

Helping Those With Disability File Bankruptcy

While filing bankruptcy is not a physical process, helping individuals with disabilities to file may require some additional steps. My office has helped numerous individuals with physical disabilities. Vision, hearing, and other physical disabilities may cause some small challenges when filing bankruptcy, but it is very little trouble to make sure everything goes smoothly.

Individuals filing bankruptcy are required to read and sign their petition, and other information related to their bankruptcy filing. If a filer is vision impaired, this can be an issue. I will make sure that a close family member or friend is present throughout the process to assist the filer in understanding the material. Also, I will take the extra step to read all bankruptcy materials to my vision impaired clients. This will insure that there are no questions or doubts about what they are signing. Every client needs to understand everything they are signing. It may take a little extra time, but it is time well-spent. When the Trustee asks if the filer has read and reviewed the bankruptcy petition, the answer needs to be a clear and affirmative, "yes".

Bankruptcy filers with hearing loss will need to be prepared for the bankruptcy meeting of creditors. At the meeting of creditors, the trustee will ask a series of questions under oath. A sign language interpreter will need to be requested beforehand. In addition, it would be best if a sign language interpreter is available throughout the preparation process to make sure that all information being submitted is true and correct. While I gather extensive information via e-mail and regular mail with many clients, it will still be necessary to speak at some point before the hearing. The more information that can be conveyed, the better.

My office and the meeting of creditors location are both accessible to disabled persons. If the disability is particularly severe, a telephonic meeting of creditors can be requested beforehand, though I will need time to prepare and file the motion. Make sure to request early. I will also make in-home visits in these cases, so there is no reason a disabled person should be unable to file, just because of their physical disability. The additional challenges involved are minor.

If you or someone you know is disabled and is considering bankruptcy, contact us to discuss the situation and schedule a free consultation. I'll take any step possible to help them through their financial situation.

Closed Financial Accounts

Bankruptcy filers must disclose a wide range of information about their finances when submitting their bankruptcy petition. This includes information about current financial accounts and recently closed accounts. The Bankruptcy Court reviews this information to make sure the debtor has no assets that could be used to pay their creditors. The look back at recently closed accounts assures that nothing is being hidden from creditors, either. So, what does this requirement entail?

The bankruptcy petition "Statement of Financial Affairs" asks filers to list, "within 1 year before you filed for bankruptcy, any financial accounts or instruments held in your name, or for your benefit... (that) were sold, closed, moved, or transferred." This includes, "checking, savings, money markets, certificates of deposit, shares in banks, credit unions, brokerage houses, pension funds, cooperatives, associations, and other financial institutions."

Whew! English translation? "Tell us about any bank accounts or retirement funds you closed in the year before filing." Simple enough? Yes, and no.

I'll start with the most important of closed financial accounts, and finish with the simple situations. It is very important to disclose with detail any retirement accounts closed in the last year. This includes pensions, 401(k)'s, 403(b)'s, and IRA. Closed retirement accounts are important because they can involve lots of money, and the bankruptcy court and trustee will want proof that this money was not used to pay back preferential creditors, such as friends, family, and business insiders.

Closed retirement accounts are also important because they could be considered "income" for means test purposes. I won't go into the means test in too much detail, as it is discussed elsewhere on my website, but it suffices to say that a recently closed financial account within 6 months could affect your ability to file a Chapter 7 bankruptcy. This would count as income during that period. You will need to provide the court with the date the retirement account was closed, the amount withdrawn, and possibly with information on how the money was used.

You will also need to make sure your bankruptcy petition is consistent. If you withdrew $20,000 two months ago, but in your list of personal property (Schedule B) you do not account for where this money went, it could be a big problem. Consistency and accuracy are very important in filing.

If you have simply closed a checking or savings account, or a money market or credit union account, you will need to provide the same information. There is usually a simple explanation for closing accounts of these types. Sometimes they are accruing fees while not being used. Or, the money in the account was needed to pay bills. Disclosure should be made for complete accuracy, but the court is unlikely to inquire aggressively.

As I often tell my clients, if you tell the complete truth in your petition and testimony, there will be no issues in your case. Disclosing your closed financial accounts is a part of this process. The Court simply needs to verify recently closed accounts to make sure they were not dispersed of improperly. 

Contact us if you have any questions about bankruptcy, or recently closed financial accounts. I can help you determine if they will affect your ability to file bankruptcy.

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.