When You DON'T Need To File Bankruptcy

It might seem odd for a bankruptcy attorney to tell you not to file bankruptcy, but I do it quite often in my practice. Now don't me wrong, there are many situations when individuals facing large debts should absolutely consider filing bankruptcy. However, there are situations where it is not so clear. So, when should you NOT file bankruptcy?

The first situation is when your debt burden is manageable without bankruptcy. If your total debt can be handled outside of bankruptcy, you probably do not need to file. That amount will be different for every individual. For someone on a fixed budget (such as Social Security), a lawsuit judgement for even a few thousand dollars could necessitate a bankruptcy. Higher income individuals may be able to avoid bankruptcy even when they owe many times more. A good rule of thumb is to look at how much you are able to reduce your debt burden in a normal month. If you can put a healthy dent in your debt each month, you may not need to file. However, if you can only make minimum payments on your credit cards, or you can barely pay your utilities, you should strongly consider filing. I have found that people have a pretty good feel for when their debt is beyond their control, but it is often good to discuss it aloud with a professional.

A second situation where you may not need to file is when the bulk of your debts are not dischargeable. For instance, student loans are not normally discharged in Chapter 7 bankruptcy. If almost all of your debt is student loans, obviously bankruptcy will not be much help. Bankruptcy will not eliminate your debt. Taxes often raise the same issue. In rare cases, credit card debt is not dischargeable, even if only temporarily. I will be happy to discuss what types of debt are not dischargeable to see if filing is worthwhile.

Another situation where filing bankruptcy may not be in your interest is if you want to get a mortgage in the near future. Bankruptcy will not prevent you from getting a mortgage forever, but it will make the process more difficult to complete for at least a few years. I talk to people in this situation occasionally, and whether or not to file is determined by a few important factors. If your debts are large and your savings are low, getting a mortgage may be impossible anyways. If your debt is manageable, and especially if you expect an increase in income in the near future, putting off bankruptcy in order to get a mortgage may make sense.

Thoughtfully considering an individual debtor's circumstance is an important part of my job. Sometimes filing bankruptcy is inevitable. Sometimes it is avoidable. Contact us to set up a free consultation, and I will be happy to sit down and consider all of these factors with you.

Chapter 13 Bankruptcy Timeline

Every bankruptcy case is different, especially so for Chapter 13 bankruptcies. However, a common timeline runs through nearly every case. Knowing this outline helps my clients to better understand the process and requirements. Here is a brief overview of the important moments in a Chapter 13 bankruptcy.

The first important moment is the filing of the case. This occurs after all the necessary paperwork and documents have been provided, and a Chapter 13 plan and petition are filed. However, an "emergency petition" can be filed when necessary, allowing the case to be filed before everything is ready. When an emergency petition is filed, all the necessary documents and papers must be filed within 14 days. This is a very important deadline, because the case will be dismissed if it is not met. Therefore, it is important to not file an emergency petition unless absolutely necessary. When a case is filed under normal circumstances, your attorney should file everything within a few days and get nowhere near any of the deadlines.

When the case is filed, a Chapter 13 Meeting of Creditors will be scheduled for (roughly) four-to-six weeks later. The meeting of creditors is discussed in more detail elsewhere in this blog. However, it is only important to note here that appearance at this meeting is mandatory. You will generally be allowed to reschedule once. Missed appearances after that threaten the case being dismissed. It is advisable to make sure you have made the first payment in your plan by the time this meeting is held.

A second hearing, called a "conciliation conference" will be scheduled at the meeting of creditors. You will not be required to attend this hearing. Your attorney will amend your plan (if necessary) in the weeks before this hearing. This will occur if there are new claims to be accounted for or objected to, or if corrections need to be made to your plan. Assuming the amended plan is accepted, the bankruptcy case will be approved on a final basis at this hearing. If not, additional amendments can be made. After the planned is confirmed, you only need to make sure all of the payments are made on time.

Assuming all goes well with the case, the final requirements will occur at the end, or closeout, of your case. You will need to complete the second bankruptcy course, and review a motion with your attorney attesting that you have completed all of the requirements in your case. You won't need to make an appearance, but you will need to be in touch with your attorney. Once the case ends, you may need to start paying your mortgage again. Your attorney will explain the closeout procedure.

Contact us if you are considering filing a Chapter 13 bankruptcy and wish to review the process in more detail. We can set up a free consultation to discuss your situation in detail.

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.