What You'll Need To Complete Your Credit Counseling Course

The Bankruptcy Code requires you to complete a credit counseling course before filing your petition. Don't worry, you won't need to go to a classroom and listen to an instructor. I will order this for you and provide you the information on how to access the course online or over the phone. The course usually takes about an hour and a half to complete. So, what will you need to know?

First of all, you will need an email address. I cannot order the courses if you do not have one. I have had a few clients who did not have an email address, but I will be happy to help you set up one if necessary. If you do not have internet access, you can complete the course by phone.

The credit counseling course will ask about your assets, liabilities, income, and expenses. Assets are just a list of your personal property and real estate. You don't need to itemize everything you owe, far from it. But, you should make a list of any real estate, cars, retirement accounts, bank accounts, and insurance policies. This will also be helpful in filing out your petition, as I will need to enter this information when we meet. Keep your list. Assets are important in bankruptcy because they must be accounted for and exempted. As long as you disclose and exempt your assets, you will not lose anything in the bankruptcy.

Liabilities are your debts. I will run a bankruptcy credit report for you, but you don't need one to list your debts for this portion of the course. You will be asked about secured and unsecured debt. Secured debt is any debt "secured" by property, such as a car or a home. If you don't pay, the creditor can come and take the security (through repossession or foreclosure). Unsecured debt includes credit cards, medical bill, utilities, student loans, etc. When you don't your credit card, they can't just come and take what you bought. You will be asked to list each type of debt, so it is worthwhile to know the difference.

Once you have listed your assets (property) and liabilities (debt) , you will need to review your household income and expenses. You will basically submit a budget. For purposes of the course, you should try to determine monthly averages. For instance, your heating bills may fluctuate wildly depending on the season. It is best in these situations to try to figure out your yearly expenses, and divide that number by 12 to determine an average. The numbers will thus be estimations, but that will be sufficient. If you have set expenses (rent, car payments, etc.) determining the amount will be more simple and straightforward.

To determine your income, you should list all sources of money in the household. This includes regular and part-time work, self-employment, Social Security, child support, government assistance, unemployment, or even household contributions form those living with you. When in doubt, count it as income.

Contact us if you have any difficulty in completing your course. It should be pretty simple if you have the above-listed information.

Lottery Winnings and Bankruptcy

Bankruptcy law has a very broad definition of "income". It is very important to disclose income from all sources to the Bankruptcy Court, whether it is regular, steady income, such as a paycheck, or one-time payments such as bonuses or lottery winnings. It can effect your case in a couple ways.

All lottery and gambling winnings are considered income by the Internal Revenue Service, subject to taxation. This is regardless of whether the winnings are for $10 or $10,000,000. This income must be disclosed to the Bankruptcy Court, as well. The Statement of Financial Affairs in the bankruptcy petition requires filers to disclose "income other from employment or operation of business" for the past 3 years. This includes lottery winnings. You'll want to make sure you have total winnings calculated for all 3 years.

A form W2-G will be mailed to winners of significant lottery money. You will use this form to file your taxes, in the same way a W2 form is used to calculate your taxes. It is important to pay taxes on this money, as failure to do so may lead to a tax obligation that is not dischargeable in bankruptcy. You should also have a copy of the W2-G form for your bankruptcy attorney.

Lottery winnings are also important because they can effect your Means Test calculation. Without going into too much detail here, your Means Test calculation is a 6-month look-back at all sources of income before filing bankruptcy that determines if you must repay your creditors. Lottery winnings are considered income for this purpose, even though they are usually "one time" payments. This could result in you having to pay back creditors in a Chapter 13 bankruptcy. Therefore, it is very important use disclose recent lottery winnings with your attorney. You may be forced to wait to file (when the winnings are no longer in the look-back period), or if they winnings are very large, you may be able to file at all (at least without paying some money to your creditors).

One other important thing to note about lottery winnings... you must disclose any winnings after your case is filed. Yes, AFTER! Any lottery winnings within 6 months of filing should be disclosed to your attorney. It may seem unfair, but it is a part of bankruptcy law. So, I usually advise my clients to not play the lottery coming out of bankruptcy, as you may be required to pay winnings to your creditors.

Contact us if you are considering bankruptcy, but have recently won in the lottery. Your good luck doesn't need to end with filing bankruptcy, but it is important to have an experienced bankruptcy attorney walk you through the process.

The Presidents and Bankruptcy

It's pretty common knowledge that the current president, Donald Trump, has filed for bankruptcy multiple times. These were each business bankruptcies, not consumer. Chapter 11 bankruptcy allows businesses to reorganize their debts, and sometimes keep functioning. Trump filed bankruptcy on several failed developments and a casino in Atlantic City.

What is not common knowledge is that several other presidents had huge financial difficulties, and filed bankruptcy, as well. The greatest and most famous of all to do so was Abraham Lincoln, who had to file bankruptcy on a failed business. Lincoln assumed debts from a partner in a failed general store, which required years of difficult  repayments. Bankruptcy in the 19th century was a different burden, and Lincoln struggled for years without the benefit of modern bankruptcy laws, even as his political career rapidly ascended.

Another Civil War-era hero who faced financial difficulties: Ulysses S. Grant. Grant made numerous poor investments, and was destitute into old age. His excellent autobiography was written largely to raise money to live and pay bills. Grant, like Lincoln, was a great and humble man, but his skills as a general and writer far exceeded his acumen as an investor. Often manipulated by business cronies while in office, Grant's financed fell into disarray.

Thomas Jefferson also faced financial difficulties throughout his adult life. Jefferson was a profligate spender, sparing no expense in building his estate, Monticello. Jefferson lived a lavish lifestyle, importing goods from England while preaching American self-sufficiency. He often borrowed money and avoided creditors. At his death, Jefferson's estate was what would amount to millions of dollars in modern debt, which necessitated the sale of his estate for the benefit of creditors.

Bankruptcy is a difficult decision for many of my clients, who may feel shame and a sense of failure. But, the brief anecdotes above should be a reminder that incredible men, and Donald Trump, have faced the same burdens while enjoying immense success in their fields. The drafter of the Declaration of Independence, The Great Emancipator, and the ultimately victorious Union general each overcame financial problems, without the benefit of more generous, modern, bankruptcy laws. There is no reason to feel shame or hopelessness about your situation. 

Bankruptcy and Valentine's Day

What do bankruptcy and Valentine's Day have in common!?

Absolutely nothing!

That being the case, here are a couple far-flung things to keep in mind:

• If you are preparing to file an individual bankruptcy, don't elope right before filing. The bankruptcy court will look at joint marital income in determining how much, if anything, you must repay your creditors. The amount is adjusted for household size, but a married couple may only earn $10,007.00 more than an individual (assuming it is a household of two). So, if your dear Valentine has a job, it could push you out of a Chapter 7 bankruptcy into a Chapter 13 bankruptcy, which would result in you repaying your creditors. On the other hand, if they do NOT have a job, it could get you below the threshold. Let true love (and the median income charts) be your guide!
• Large credit card purchases in the 90 days before filing bankruptcy can also cause a problem. A large Valentine's Day gift of over $500 may be an issue, and could prevent you from filing immediately. These purchases could be challenged as "abusive". If the generosity of true love cannot wait another moment, by all means... But, if it can wait, you should!
• Valentine's Day jewelry is exemptable under the Bankruptcy Code! There is a $1,600.00 Federal exemption per filer for jewelry, which should  cover all but the most lavish Valentine's Day gifts. Seeing as the value of jewelry drops quickly once purchased, and sentimental value is not taken into account, few gifts should present a problem.
• Cheaper, less thoughtful gifts are fully exempted! Cards, flowers, candy, edible arrangements, etc., are all worthless from a bankruptcy perspective... but not for your heart! Gift away!

Have a great Valentine's Day!

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.