Why Are There No Creditors At The "Meeting of Creditors"?

The prospect of the Meeting of Creditors causes a lot of anxiety for many of my clients. While this is understandable (the process is new to them), it is unfounded. There is very little to worry about during the Meeting of Creditors as long as you are honest and prepared.

A major cause of anxiety is the belief that your creditors will be present, and will cross-examine and grill you. People picture a courtroom setting with a judge and prosecuting attorney. Given the aggressiveness of collection agencies that have hounded them for months and sometimes years, debtors understandably believe a similar attorney will appear in an attempt to intimidate and belittle them. In reality, nothing could be further from the truth.

First of all, there is no judge and no courtroom. The Meeting of Creditors is conducted in a normal office room, in front of a "trustee", who is an attorney appointed to review the case. While there are bankruptcy judges and courtrooms, these only become necessary in complicated and disputed cases. The Meeting of Creditors is a much less formal affair. The trustee sits in the place of the creditors who are owed money, reviews the filing, and asks the debtor some simple questions. Your attorney will be at your side to assist you.

And this brings me to the point of there being no creditors at the Meeting of Creditors. As crazy as it sounds, there is normally no reason for them to show up. First of all, they would need to either hire and attorney or in-house council to appear, which is costly and time consuming. Given the fact that they have little hope of recovering any money in a Chapter 7 bankruptcy, this would be a waste of money for most creditors.

Second, the trustee acts in their place. If the debtor appears to have assets or income sufficient to pay their creditors, the trustee will take action. The trustee will object to the bankruptcy filing if there is anything improper about it. The trustee receives a cut of the recovery, and would thus be motivated to act on their behalf if something is available. With little in the way of rights, and very little chance of recovery, and the trustee sitting in their place, it is extremely rare when a creditor shows up. 

There is also little reason for the creditors to show up in Chapter 13 cases. Once again, there is a trustee sitting in their place. Also, the amount of money there are to be repaid is determined by the claim they file, not by a personal appearance.

The only situation when creditors may (rarely) appear is when they are "unsophisticated creditors". This means they are not a credit card or finance company. An example would be someone included on a personal loan, or an ex-landlord. These individuals know very little about the process, and when they receive a notice saying their rights may be affected, they will sometimes show up. Even then, not knowing anything about the process, they normally have very little to add.

The prospect of the Meeting of Creditors is daunting to many bankruptcy filers, but it should not be! The process is very straightforward, you will be very well prepared by my office, and most importantly, you creditors will likely not be at the meeting of their very name!

Contact us if you have any questions about the Meeting of Creditors in particular, or the bankruptcy process in general.

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.