Utilities and Bankruptcy

Most utility bills are dischargeable in bankruptcy. That is the good news. Balances owed on electricity, gas, water, sewage, and cable can all be wiped out. However, depending on the utility and the situation, certain issues could pop up. It is worth discussing, because utility bills are a major part of bankruptcy filings.

Duquesne Light is the major provider of electricity in western Pennsylvania. Balances owed to Duquesne Light can always be discharged in bankruptcy as unsecured. Also, like other utilities, shut-off notices can be stopped under the bankruptcy "automatic stay". This is very important if a shut-off notice is imminent. Bankruptcy can literally keep the lights on in your home. So, if you are behind on your electricity bill (whether or not it is Duquesne Light) let your attorney know!

One other important detail about Duquesne Light... if you do include their bill in your bankruptcy petition, they (and other utilities) are allowed under the bankruptcy code to require that you put down a security deposit before getting future service. The good news is they are not allowed to deny service because you discharged their balance in bankruptcy (under the same section of the code), but the trade-off is this deposit requirement. It is worth noting because the amount can sometimes reach several hundred dollars, so it can require some planning in a tight budget.

What about other utilities, such as gas, water, and sewage? They are also dischargeable. However, there is an important distinction between electricity and gas on the one hand, and water, sewage, and garbage collection on the other. Electricity and gas are unsecured, and do not become liens against your home. Water, sewage, and garbage can all become secured liens. That is, you will need to repay those utilities if you want to keep your home. If you are surrendering your home, it is no big deal... those liens will be on the home, not you. However, if you want to keep your home, you will need to plan on paying the balances off. Otherwise, the garbage, sewage, and water company can put a lien on your home and sell it off from under you!

You should always discuss your utility situation with your bankruptcy attorney. He or she can let you know what can be wiped out, and whether you should expedite the case to stop a shut-off. Your attorney can also help you plan for any required security deposits. Contact us if you are considering filing bankruptcy and are having issues with your utility bills.

Payment Priorities

I meet with a lot of people facing financial difficulties. It's what I do. When income goes down, and the bills go up, money becomes short. I talk to people who are not sure if they want to do bankruptcy. Before they leave my office, I always explain the priority they should place on every bill. Some bills are more important than others.

The first priority is always your mortgage. If you don't pay your mortgage for three or more months, the bank can take it back. It's that simple. A mortgage can always be made current through a Chapter 13 bankruptcy, but that could potentially make your life more difficult if you could also qualify for a Chapter 7 bankruptcy. If it comes down to paying on your credit cards or your mortgage, you should always pay the mortgage first. Yes, creditor phone calls can be annoying, but protecting your home should always be the first priority. It is much more difficult to purchase a new home. Pay the mortgage first.

The second priority after your mortgage is either your car payment or utilities, depending on the circumstance. You need to keep the lights on, the water running, and the heat going, if you are going to live reasonably. So, utilities are usually the next most important priority. Of course, if you need your car to get to work, it becomes vitally important, too. Public transportation is not always an option, or getting a ride. You can generally miss two payments, but after that, your are risking repossession. Utilities can usually be several or more months late before you will face shut-off notices. But, these notices should be taken seriously.

Your last priority after your home, utilities, and car payment is unsecured debt such as credit cards, medical bills, and taxes. You can get sued for not paying these unsecured debts, you could get annoyed by calls and threatening letters, but... you won't need to leave your home or walk to work if you miss these payments. I meet too many people facing foreclosure who paid credit card debt far too long. These payments can be missed while you contemplate bankruptcy.

Where is the cut-off point where you should file bankruptcy? That depends on circumstances, but if you are having trouble paying utilities, you should be strongly considering it. If you are facing a foreclosure, you should immediately speak to an experienced bankruptcy attorney. Your home can be saved in a Chapter 13 bankruptcy, or you can buy yourself some time and walk away in a Chapter 7 bankruptcy. Also, if you are making credit card payments but the principal on the debts does not get lower, consider bankruptcy.

Contact us if you are facing financial difficulties and having trouble making all of your payments. Make sure you figure out what is most important in your circumstances, and pay your creditors accordingly.

Schedule B of the Bankruptcy Petition: Your Personal Property

The bankruptcy petition is a 40 to 60 page document submitted at the time of your bankruptcy filing. The petition provides the US Trustees and bankruptcy court with a lot of information. Specifically, you will list all of your income and expenses, all of your debt, your co-debtors, and some other financial information. You will also need to list all of your property so that it can be exempted and protected from your creditors. Property is listed on a document called "Schedule B".

Schedule B is broken down into more specific sections. In each section, you must list the appropriate property, where it is located, and an estimated current value. The Trustee will review this list at your Meeting of Creditors to verify you do not have any un-exempt property which could be distributed to your creditors. So, what type of property must you list?

Most importantly, you must list any real estate that you own, including your home and any rental properties. You must also list any burial plots or undeveloped pieces of land. The value of your real estate for bankruptcy purposes is what you would likely sell the property for in the current real estate market. It will sometimes be necessary to obtain an appraisal in order to list the value accurately. It should be noted that you CANNOT use assessed tax values to determine the value of your home. It is very important to list all real estate, as you will be asked under oath whether all of your real estate is listed. Failure to disclose all of your real estate could lead to charges of perjury.

A second category of property it is important to list is all of your vehicles. This includes not only vehicles you own outright with a title, but also vehicles with payments or leased vehicles. You must also disclose all other types of vehicles, such as motorcycles, tractors, and boats. To determine the value of a car, we will usually use its Kelly Blue Book value. Boats and tractor values can usually be determined with some online research.

Personal property is also listed in Schedule B. This includes furniture, household items, electronics, clothes, jewelry, hobby equipment, and collectibles. There is no need to worry about losing any of this property, because while it must be listed, it can also be exempted from your creditors, and thus there is no way you will lose any of it. Listing it is mostly a formality, but necessary.

Finally, you must list all financial, retirement, and business accounts. This includes, but is not limited to, retirement accounts (such as 401(k)s, pensions, and IRAs), checking, savings, and credit unions accounts, stocks or interest in a business, and life insurance policies. You must also list any potential lawsuits, inheritances, and insurance or legal claims. These things are not always typically thought of as "property". But, for bankruptcy purposes they must be thought of as such.

Your attorney will review Schedule B with you, line-by-line, helping you to list all of your property, and its value. Property is then exempted and protected from your creditors in Schedule C. When in doubt as whether or not to tell your bankruptcy attorney about a piece of property... tell them. Better safe than sorry. The more accurate you can be, the better.

Contact us if you have any questions about protecting and keeping your property in a bankruptcy. I will be happy to discuss your situation in a free consultation. 

Bankruptcy Options When You Are Behind On Your Mortgage

Many individuals end up in my office when they fall behind on their mortgage. It is a common problem. The most frequent cause is a temporary lose or reduction in employment. Several months of unemployment can quickly lead to a family facing a foreclosure, which are sometimes filed within 3 months of the first missed payment. Fortunately, the Bankruptcy Code can help, whether you want to save the home you have fallen behind on, or if you simply want to walk away from it.

What if you are behind on your mortgage, and you don't want to stay in the home? Chapter 7 bankruptcy can help. When a debtor falls several or more months behind on a mortgage, a foreclosure proceeding will often commence. A foreclosure allows the lender (usually a bank or mortgage company) after a series of court filings, to seize the home, sell it at auction, and then go after you personally if the sale price does not cover all of the mortgage and expenses. Certain lenders and law firms specialize in doing just this.

Homes often sell for very low prices in these sales, and if the mortgage was large, this could lead to a huge "deficiency judgment" against you. The lender will be able to put liens on your property (or future property) or even freeze your bank account. And these deficiency judgments do not go away. However, Chapter 7 bankruptcy can wipe out these deficiency judgments, no matter how large they become. When there is a large deficiency, bankruptcy may be the only option allowing you to go on with your financial life. The process is very straightforward, and you can even continue to live in the home until it is sold at auction. This is often months down the line. As long as you are willing to ultimately surrender the home, Chapter 7 bankruptcy is the perfect option.

On the other hand, what if you are behind on your mortgage and you want to save your home? You will need to file a Chapter 13 bankruptcy. Chapter 13 bankruptcy is more complicated, but it has many benefits. You can catch up on mortgage arrears by paying them back over 3 to 5 years, without interest or further penalties. Spreading out the amount owed over a period of 60 months can make repaying even large arrears feasible. For instance, if you are one year behind on a $1,000/month mortgage, you can catch up the arrears for $200 over 5 years. While this may not be possible if you have not started working, it is often very workable when full employment returns.

Another important feature of using Chapter 13 bankruptcy when you are behind on your mortgage is that it can stop a sheriff sale up until the very moment the gavel goes down, and it does not require negotiation with the lender. Loan modifications are often endless (and useless) endeavors. However, under Chapter 13 bankruptcy, there is no such negotiations. As long as the lender is paid under the terms of the mortgage, and all arrears are accounted for, they must accept the filing. Chapter 13 bankruptcy can help in all but the most hopeless situations.

Contact us if you have fallen behind on your mortgage and you wish to discuss your options. Whether you want to save your home, or surrender it, bankruptcy has an option for you.

Small Business Debts and Chapter 7 Bankruptcy

The bankruptcy code provides for large business debt relief with Chapter 11 bankruptcy. When Westinghouse, or the Penguins, or Donald Trump, filed for bankruptcy, it was a Chapter 11 bankruptcy. This is a very expensive and very complicated bankruptcy that allows for the restructuring of debts and/or liquidation of assets. With smaller businesses, Chapter 11 is unnecessary, and a normal consumer Chapter 7 bankruptcy can be filed instead.

Chapter 7 bankruptcy is normally filed on consumer debt (such as credit cards, medical bills, mortgages, and car payments). However, it can also be used to eliminate business debts that were personally accrued during the operation of the business. This is important because these debts are often quite large, larger than most personal debts. Fortunately, Chapter 7 bankruptcy can be used to eliminate these business debts once you decide to shut down the business.

What types of business debts can be discharged in Chapter 7 bankruptcy? Almost all types related to a small business. The most important type of debt is the remaining time on a business lease. Landlords can go after the entire remaining lease once you stop paying, and considering that commercial leases are normally for multiple years and tens-of-thousands of dollars, this can be quite significant. In most small business cases, the debtor is personally obligated on the lease, which allows the landlord to sue both the company and individual. Given the large amounts of money at stake with these leases, Chapter 7 bankruptcy may almost be a necessity. The lease can be eliminated whether there are 3 months or 3 years remaining, so there is no need to continue the business once you have decide it is best to shut it down.

Business loans and debts personally backed by debtor are also dischargeable. The range of these types of debts is as broad as the range of different types of businesses. It can include (but is not limited to) debts to vendors, service providers, or leased property. Loans used for equipment or products can be wiped out (though the items themselves could be property of the bankruptcy). It can also discharge loans that are part of a lawsuit.

Personal credit cards used in purchases related to the business can also be discharged. Debtors will often use their personal credit cards to keep a business going, often racking up tens-of-thousands of dollars of debt. These debts will be treated the same as business loans, and unless they were used to pay taxes, they will be dischargeable. These can be discharged along with personal credit card debt on consumer purchases.

Business vehicle loans can also be wiped out. A vehicle used in the business, but secured by a loan signed by the debtor can be surrendered and discharged. This is even the case if the vehicle was (or wasn't) used for personal reasons. Of course, the vehicle will need to be returned to the creditor.

One final point about Chapter 7 bankruptcies filed on business debts is that there is no means test. The means test (which looks at the last 6 months of income for a debtor looking to file bankruptcy to determine the type of bankruptcy they can file) does not apply when the debts listed are "primarily business in nature". This will be helpful for filers with higher incomes at the time of filing.

Contact us if your small business is facing large debts and you are considering bankruptcy. The bankruptcy code may allow you to avoid personal obligation and move on with your life. The end of your business doesn't need to be the end of your financial future.