Spring and the Bankruptcy Fresh Start

Spring is a time for new beginnings and fresh starts. It's not a coincidence that many people undertake "spring cleaning" this time of year. After months closed windows, congestion, and clutter, the first appearances of Robins and warm breezes have everyone clamoring to clear things out, get some fresh air in the house, and get ready for summer.

The desire to do the same with personal finances is no different. Bills and expenses pile up just the same as household clutter. And spring is as good a time to clear up your finances as any other. With summer on the way, now is the time to consider some of the financial clutter that can we wiped away...

• Credit cards: Credit card debt piles up faster than any other type of debt, due mostly to the fact that the interest rates are astronomical. If you are making minimum payments, it is likely you are not reducing the balance of your debts at all. This not only clutters up your credit report, it permanently weighs down your credit score. High outstanding balances and debt ratios will keep your credit score stalled in the 400s and 500s. Bankruptcy is a way to clear these out and reset your debt-ratio balance. Your credit score will go up quickly. If your earnings are higher, Chapter 13 bankruptcy is an option for repaying your credit cards without the interest.
• Old car repo's: Car repossessions and returned vehicles will show up on your credit report and damage your credit history. They can also lead to lawsuits and judgments when the balance owed after auction is a large amount. If you are looking to get a new vehicle this summer, you'll want to account for your old vehicle this spring. These balances and lawsuits are considered "unsecured" and can be wiped out.
• Deficiencies on your mortgage. Have you been falling behind on your mortgage due to temporary unemployment or disability? You can catch up in  a Chapter 13 bankruptcy. The terms are flexible, and a plan can almost always be made to accommodate your debt. The mortgage arrears can be paid without interest, and filing immediately stops any foreclosure actions. Get back on track before it is too late.
• Medical bills: Old medical bills from a serious illness or period without insurance coverage weighing you down? Bankruptcy is a great way to discharge your obligation. One major illness without insurance can lead to six-digit medical bill totals. This would be impossible for most people to ever pay off. Bankruptcy can help.
• Utilities: Is a utility threatening you with a shut-off notice? Now is the time to act. As long as you file before the shut-off, service can be maintained and secured. Once again, don't wait until it is too late.

The idea of a fresh start is built right into the bankruptcy code. There are exemptions to protect your property and income, an automatic stay to protect you from lawsuits, and other features to make sure that bankruptcy gets you back on your feet... and doesn't destroy you. These is no reason to let old debts ruin your life, and the quality of life for your family. Take advantage of this fresh start this spring, don't let your 2017 be ruined by old worries and stresses. Contact us if you would like to discuss your own fresh start!

Updated Median Income Amounts For Western Pennsylvania

The United States Trustee has published new Census Median Income tables, effective Saturday, April 1st, 2017. These tables are used to determine whether or not a bankruptcy filer, based on household size and gross income, must file a Chapter 13 repayment. If the household income is above these thresholds, you will need to complete the second portion of the means test.

1. Household of one: $51,138
2. Household of two: $61,271
3. Household of three: $75,018
4. Household of four: $90,821
5. Household of five: $99,221
6. Household of six: $107,621
7. Household of seven: $116,021
8. Household of eight: $124,421

A couple of points of clarification. First, these amounts are for annualized gross income. But, the means test is a 6 month look-back. This can be a bit confusing. If you are the lone household earner, you will be above the threshold if you earn $25,569.00, or one-half of the annualized threshold amount listed above, in the 6 months before filing. The table is calibrated to yearly earnings, but the means test only looks at the 6 months before filing (this consistently causes confusion).

Second, these amounts are for gross earnings, that is, earnings before taxes. The amount you paid in taxes for the 6 months before filing only applies for the second part of the means test, which may reduce the amount you must repay. However, the initial determination is based on gross income.

Third, household size is generally determined by how many dependents you claim on your taxes. There are exceptions to this rule, but it is the basis in most cases. Adult children normally do not count.

Finally, it should be noted that ALL sources of income, outside of Social Security benefits, are used to calculate this income. This includes bonuses, unemployment, lottery winnings, side jobs, and business income. Make sure you report all types of income to your attorney.

If you have any questions about how the means test works, or would like to schedule a free consultation to calculate your earnings, contact us. Make sure to have 6 months of pay stubs and proof of income. I will be happy to walk you through the process.

Keep Your Bankruptcy Attorney Updated!

Whether it is a Chapter 7 or Chapter 13 bankruptcy, your interactions with your bankruptcy attorney can range from a few months to five (or more) years. A lot can happen during that time that can affect your case, so it is important to keep your bankruptcy attorney in the loop of recent developments. Here is a list of some of the most important things to keep your attorney appraised of during your case:

• Your employment. If you lose your job, or take a new job, especially one with a large increase or decrease in pay, it can greatly affect your bankruptcy. An increase in pay may mean you need to do a Chapter 13 repayment, while a decrease may allow you to file a Chapter 7 bankruptcy. A change of employment could also affect your wage attachment in a Chapter 13 bankruptcy, so let your attorney know as soon as possible (with your new employer's contact information) so the wage attachment can be amended promptly.
• Your address. Moving may mean the court, or your attorney, will be mailing important notices or paperwork to the wrong address. Ideally, you will let your attorney know about any moves beforehand. Always make sure your attorney can reach you by phone and mail. A change in address may also involve a change in expenses, so make sure to update your bankruptcy attorney if that is the case as well.
• If you inherit money, or receive money from a lawsuit or insurance. This money should be disclosed to your bankruptcy attorney for up to six months AFTER your case is discharged. Lawsuit, insurance, or inheritance money is considered property of the "bankruptcy estate" which must be exempted from liquidation by creditors. A competent bankruptcy attorney should ask about and know about these potential situations before filing, but, if you inherit money while going through the bankruptcy process, for instance, inform your attorney immediately. It could have significant consequences.
• Lawsuits filed against you. If you are served with a lawsuit while preparing to file a bankruptcy, let your attorney know right away. All creditors must be informed of the bankruptcy filing in order for you to enjoy the protections afforded under bankruptcy law, so it is very important to give your attorney the opportunity to contact anyone suing you. Lawsuits can also lead to deadlines for repossessions and foreclosures, so time may be of the essence.
• New credit or transferring property. If you wish to take out new credit or transfer a major piece of property while preparing to file a bankruptcy, contact your attorney immediately. Doing either could result in your case being delayed or possibly prevent you from filing entirely, so make sure you speak with your bankruptcy attorney BEFORE doing either!

Bankruptcy is a process with multiple steps, make sure your attorney is informed all the way through. If there is any bankruptcy information you would like to learn more about, contact us to set up a free consultation.

What is Equity in Bankruptcy?

"Equity" has many meanings in law and business. It is an important issue in bankruptcy law, so it is worth discussion. The most general meaning of equity in a legal context relates to legal doctrines and usage of law to promote fairness over rigid adherence to the rules. The law of equity seeks to set things straight, and put litigants back to where they started before the legal problem began.

This is a very important usage of the law, but it rarely applies in bankruptcy law. When your bankruptcy lawyer speaks of equity, he or she is almost always referring to your home or real estate. Equity in real estate is a very important matter in bankruptcy law.

The Merriam-Webster dictionary defines equity (among other definitions) as, "the money value of a property or an interest in a property in excess of claims or liens against it." That sounds more daunting than it really is. Equity for bankruptcy purposes is simply the value of your property minus what you owe, including mortgages, tax liens, and lawsuits.

So, let's say your home is worth $100,000.00. You have a mortgage for $60,000.00, a home equity loan of $15,000.00, and a secured tax lien of $5,000.00. That means you have $20,000.00 in equity. (100-60-15-5=20) Equity is a fancy sounding legal term, but it is really that simple. It is just the value of your home, minus what is owed on it (to the mortgage company, taxing agencies, etc.)

You'll sometimes hear of a home being "under water". This just means you have negative equity, or you owe more than the home is worth. This is pretty frequently the case when a home is first purchased and payments are going primarily towards interest. It also occurs when housing values crash. Individuals with multiple liens, including home equity loans, often face negative equity, as well. This is not really a problem in bankruptcy, as should become clear below.

Positive equity in your home is so important to bankruptcy law because the exemptions used to protect that equity is usually limited. The Federal Homestead Exemption, which is typically used in Pennsylvania to protect equity in your primary residence, is currently $23,675.00, per spouse (the number is routinely adjusted). Equity in a jointly owned marital home can not exceed $47,350.00. If it does, you will need to repay unsecured creditors dollar-for-dollar for unexempt equity. This could result in thousands of dollars of repayments.

Without going into too much detail about these circumstances, you can probably see why equity is so important to determine. The amount of your liens (mortgage, home equity, etc.) are pretty easy to prove. You just get a statement from the mortgage company or the taxing body. However, the value of your home can sometimes be a subjective task. If you recently purchased your home, the Court will often use that purchase price. The Court will also let you estimate based on other homes in your neighborhood and for what they have recently sold.

If the value is less clear, and it will potentially determine how much money you need to repay creditors, it may become necessary to get an appraisal. Real estate appraisals will usually cost several hundred dollars, but it is money well spent, as it will prevent your case from objections and unnecessary scrutiny. They should only be necessary in situations where the equity is not clear. It is the only sure-fire way to prove the value of your home to the Court.

So, when you speak with your bankruptcy attorney, and equity is the first major issue he or she asks about, it should now be clear why. If you are having credit issues and you are having trouble determining equity in your home, contact us to set up a free consultation. 

Tax Refunds and Bankruptcy

It is the middle of March, and tax season is in full swing. With only a month left to file, it's an annoyance, in the least. I'm not sure anyone enjoys preparing taxes. However, the positive side is that many of you could be receiving a tax refund. People use their refunds for different things, from splurging, to paying for repairs on their home or car, to saving for another rainy Pittsburgh day. If you are preparing to file a bankruptcy, you should keep a few things in mind this time of year.

First, if you are currently filing a Chapter 7 bankruptcy, you will need to exempt your tax refund. This is because your tax refund is considered an "asset". Under bankruptcy law, it is your property. This is confusing for some of my clients, because most people think of "property" as cars or homes or TVs. But, under the broad definition of property in the bankruptcy code, a prospective tax refund counts as well. In most case, you will have more than enough exemptions to protect your entire refund (the "wildcard" exemption is usually sufficient), but you should still let your bankruptcy attorney know. This is especially the case when you have large deductions and expect a big return.

Another important thing to remember when filing a bankruptcy during tax season is that you should NOT spend the refund until you speak with your attorney. The bankruptcy trustee could question and challenge many expenditures of your refund, especially if it is a large, discretionary purchase (electronics, TVs, etc.). Also, anything you purchase would need to be exempted. So, if you receive a return of any significance, speak with your attorney first.

If you are in a Chapter 13 bankruptcy, you should let your attorney know if you receive any return larger than a few thousand dollars. The bankruptcy trustee will probably not be interested in your return, but keep your attorney appraised just the same. Once again, the refund is an asset of your bankruptcy estate that must be accounted for.

One final note about tax refunds... they can be used to file attorney fees. If a payment plan is unfeasible for you, this may be the best time of year to file bankruptcy. My filings normally peak during this time of year. It is money well spent if it wipes out tens-of-thousands of dollars of debt, or a lawsuit. It is completely permissible to use a refund, take advantage of this option if your debt is overwhelming.

Contact us if you have any questions about your tax refund and bankruptcy.