How Much Is Enough (To File Bankruptcy)?

I am commonly asked what is the minimum amount of debt to file a bankruptcy. Technically, there is no "minimum". The Bankruptcy Code does not require a minimum amount of debt before filing (though there is a maximum amount in Chapter 13 that rarely applies). In practice, the amount where bankruptcy becomes worthwhile is determined by the circumstances of the case. It is different for each individual, and it is worth some time to examine.

First off, the filing fees and costs (for classes and credit reports) are normally in the neighborhood of $400. So, right off the bat, it's not going to make sense to file for less than that. Not that many people are asking to file a bankruptcy on a $300 credit card. But, it is worth remembering this is the base-line cost. With legal fees added, the amount of debt necessary to make bankruptcy make sense is a bit higher. Normally at least several thousand dollars.

I usually do not recommend filing bankruptcy for less than $5,000, though that is really just an arbitrary number. If there is a creditor lawsuit, and my client has no other way of paying the underlying debt, it could be worth filing on less. Lawsuit judgments are extremely damaging to credit, and they potentially threaten your interest in your home, car, and bank accounts. Bankruptcy can also stop wage garnishments, which can be highly destructive to those on a tight budget, even if the amount owed is modest. If bankruptcy is the only way out, the amount owed isn't of much significance. A debt of only several thousand dollars could result in you losing your car or savings, believe it or not.

If your income is very low, as is the case for individuals on Social Security, filing on less debt can make sense. $4,000 or $5,000 can be a huge burden if you only bring home $800 or $900 per month. I will reduce legal fees in these cases as much as possible, though there will still be filing fees in the range of $400. Once again, the circumstances are much different if you are making $50,000 a year.

Foreclosures and repossessions change the situation. Chapter 13 bankruptcies can be used to stop foreclosure, reorganize the debt, and keep your home. If you need to stop a sheriff sale, the underlying amount is not important. The sheriff sale needs to be stopped regardless. If you don't have all the money to catch up on the missed payments, interest, and fees, bankruptcy might be the only option. The same applies to retrieving a vehicle that has been repossessed. If you need the car, you will need to file, even if the amount owed is minimal.

Bankruptcy sometimes does not make sense when you owe more than $5,000, or even significantly more. If your income is very high, or you have large amounts in savings, paying the money back directly to the creditor may be cheaper and simpler. If you want to get a mortgage in the next few years, you may also want to avoid bankruptcy if possible. While getting credit cards and car loans are fairly easy coming out of bankruptcy, mortgage standards have tightened. If you owe a large amount of money on credit cards, getting a mortgage is unlikely, and you should probably file anyways, to start rebuilding your credit. But, if the amount you owe is modest, avoid bankruptcy is something to consider.

I am happy to meet and discuss if your debts are significant enough to file bankruptcy. I frequently negotiate with creditors to reduce the amount owed and avoid bankruptcy. If this is not possible, I will look at things on a case-by-case basis. Contact us to schedule a free consultation.

What Will I Need to Know for My Meeting of Creditors?

The Meeting of Creditors is a required step in the bankruptcy process. At this meeting, a Trustee assigned to your case will review your petition and ask you a series of questions relevant to your case. It can be very stressful for bankruptcy filers. But, it shouldn't be. As your attorney, I will review the entire process with you beforehand and make sure you are completely prepared. Here are a few things that will be helpful to know.

One of the primary purposes of the Meeting of Creditors is to determine if you have any property that can be used to pay your creditors. This information should be provided in you bankruptcy petition, as a list of your property in Schedules A and B. The Trustee will verify this information under the penalty of perjury (this means if you lie, you could be arrested!) The most important piece of property the Trustee will want to know about is your home, if you have one. Therefore, it is important to know the value of your home, and how you came to the amount with your bankruptcy attorney. Typically, this will be determined by comparable homes in the neighborhood, or an appraisal. In either case, you will want to be knowledgeable about the value when testifying at your meeting of creditors.

The Trustee may also ask about other pieces of valuable property, such as a car you own outright, valuable collectibles and jewelry, or large deposits of cash. You will have discussed this with your attorney while filing the petition, but it will be helpful to review the values and how they were determined. For instance, Kelly Blue Book values are used for cars. Valuable collectibles may be appraised by a professional. Whatever the case, you will not be left unprepared by my office.

You will also want to be knowledgeable about your bankruptcy petition. You will be asked by the Trustee if you read your petition, if you signed it, and if you are familiar with the contents. You will not be expected to know every small detail in its exact amount. And you certainly are not expected to know bankruptcy law. But, you should know some important general information. You should know about your debts (who you owe, and how much) and your assets (your property). You should also be familiar with your income and expenses. Once again, you don't need to remember the exact amount you owe to Visa, or the exact amount you spend on your light bill. But, you should know the overall picture.

Since the Trustee is interested in your property, you should also be aware of any property you expect to receive, such as a tax refund, a lawsuit, or an insurance claim. Of course, your attorney should be made aware of such property before filing. But, you will need to be prepared to explain what you are expecting to receive to the Trustee.

The Trustee will also ask your reason for filing, but don't worry, there isn't really a wrong answer. The question is only asked for survey purposes, and a short answer such as "overspending" or "loss of income" should suffice.

If a detail slips your mind, the Trustee will let you review your petition, but it always looks better if you don't need to!

An experienced bankruptcy attorney such as myself will know the exact questions a specific Trustee will ask in each case. I will spend some time before your hearing to make sure you are prepared. While it is important to be thorough and honest at this hearing, you should not be stressed about it. Your creditors are very unlikely to participate. The Trustee is not looking to trick or embarrass you. You will be prepared, and there is nothing to lose sleep over.

If you have any questions about the meeting of creditors, contact us and I will be happy to address your fears.

Tax Refunds and Bankruptcy

The next few months are known as "tax season". Organizing, completing, and filing income taxes is no treat, but the positive is that you may get a nice tax refund. Some people use it to splurge. Some save it. Some live off it. But, regardless of what you do with your tax refund, it is important that you understand its significance in bankruptcy.

First, you will need to exempt your tax refund this time of year. Exemptions in bankruptcy allow you to protect your personal property from your creditors. Your income tax refund is considered "property" in bankruptcy, so it must be protected. The federal "wildcard" exemption can be used to exempt your tax refund, so it shouldn't be a problem unless you have other significant savings or cash (which often eat up much of the "wildcard" exemption). If need be, your refund can be used for living expenses over a period of time, but if the amount is too significant, you will need to discuss the situation with your bankruptcy attorney. Bankruptcy trustees are all aware of tax season and tax refunds, so they will ask about yours.

You will need to file your taxes this time of year before filing your bankruptcy so that the amount of the return can be determined and exempted. If your taxes are not filed, the bankruptcy trustee may hold open your case to see if the refund will provide money for the bankruptcy estate. This won't stop your case from being completed, but it will be a major hassle, and believe me, you'll be happy to have everything wrapped up. If the trustee is going to want to see your tax returns, you may as well do them beforehand.

Particularly large refunds can also be an issue in Chapter 13 bankruptcy. The Chapter 13 trustee may insist that very large refunds be applied to the payment to creditors. This is an unlikely scenario, but it is best to let your bankruptcy attorney know of any large refund. Typically, it is best to save your refund in a Chapter 13 bankruptcy to account for emergencies and unforeseen expenses. It is difficult to get credit in Chapter 13, and you are not allowed to use credit cards, so it is wise to keep a safety net in the bank. Keep your bankruptcy attorney informed about unusually large refunds during the course of your case.

Your tax refund may be applied to your legal fees and costs in both Chapter 7 and Chapter 13 bankruptcy. This makes it a good time of year to file. Spending your refund on a large non-essential purchase can potentially cause problems. But, using it to pay your bankruptcy fees can mean you do not need to set up a payment plan, and you can stop your creditors from contacting or suing you, or foreclosing/repossessing your property. It makes wrapping up your case quickly possible.

One final note... if you are facing the possibility of losing your federal tax refund due to a federal garnishment, let your attorney know. This situation will be the subject of another post, but it suffices to say bankruptcy may protect your refund in some of these situations.

If you are considering bankruptcy, and are expecting a large tax refund this spring, contact us to make sure you maximize what you get to keep.

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.