Post-Holiday Debt

The period after the holidays and leading into Spring is normally the busiest time of year for bankruptcy attorneys.

It makes sense in a lot of ways. First of all, not many people want to deal with debt and credit issues during the holidays. Which is entirely understandable. So, it is often put off until the next year sometime after New Year’s.

Another reason it is a busy time of year is because people will make resolutions to clear up their debt and credit issues. A fresh year is a good time for a fresh start. I have many new clients during this time of year who will say as much.

A less obvious reason that this is a busy time of year for bankruptcy filings is that many people are able to use their tax refunds to pay the filing fees and costs. Some clients on payment plans are able to finish them up once they receive their tax refund. You tax refund may be earmarked for repairs, household expenses, or utilities. But, using it to file bankruptcy may make your entire year easier and less stressful.

The most unfortunate reason that bankruptcies pick up in the Spring is that foreclosure actions tend to spike during the Spring. This may be especially true in 2022 as mortgage companies are once again allowed to foreclose on homes after the lengthy COVID moratorium. A Chapter 13 bankruptcy is a great way to stop a foreclosure. It allows you to catch up all arrears and fees spread out over 3 to 5 years. Even more importantly it will stop a foreclosure or even a sheriff sale up until the final moment of the action. Your home need not be in danger.

All of these reasons tend to cause bankruptcies to increase at the beginning of the year. However, it’s no reason to despair. As mentioned earlier, New Year’s is a great time for a fresh start. With the holidays behind us it is often times a good moment to get our affairs in order. If you’ve been considering filing bankruptcy, but put it off because of the holidays, call us at 412-414-9366 to set up a free consultation and see if it’s a viable option for you. The new year is a great time to end the stress related to creditors and collection actions.

"Income" in Bankruptcy

The definition of income seems simple enough. How much money do you make? But, like most things in bankruptcy law, it is a bit more confusing than that.

First of all, there are two ways of looking at income, gross income and net income. Gross income is the money you earn before taxes, and net income is your earnings after they are removed. Both are important in bankruptcy. Your gross income will be considered in the “means test” (which is discussed in greater detail elsewhere on this blog and website) while your net income will be used in Schedules I & J in the bankruptcy petition.

While gross and net income will generally be proportional in most cases, sometimes they can differ between filers. For instance, net income can be lower if your tax withholdings are particularly high, or if you have large deductions for insurance or retirement accounts. Either way, your bankruptcy attorney will need to discuss both types of income with you in order to determine your eligibility to file bankruptcy.

The definition of income can also be confusing in bankruptcy because the court will consider certain payments to be “income” that go beyond your paycheck. For instance, any type of government benefits will be considered income. This includes Social Security, unemployment compensation, VA benefits, and even food stamps. Adding further confusion, Social Security is considered income for purposes of Schedules I & J of the bankruptcy petition, but NOT for the means test!

The court will also consider other indirect payments as “income”. This includes household contributions towards expenses, side jobs, and even one-time windfalls like lottery winnings! A contribution towards expenses from a roommate is not the traditional ideal of “income”, but in bankruptcy, it is.

This can all be very overwhelming for an individual trying to determine on their own if they qualify. But, I would be happy to discuss your situation and help you determine your bankruptcy “income”. The primary purpose of this blog is let you know you should disclose ANY type of income you may have to your bankruptcy attorney, even if your don’t think of it as “income” per se. As an experienced bankruptcy attorney, I will be happy to walk you through this confusing subject in a free phone consultation. Call me at 412-414-9366.

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.

What Happens After The Bankruptcy Meeting of Creditors?

I have discussed the bankruptcy Meeting of Creditors in some previous posts, including it's purposes and procedure. The Meeting of Creditors is very straightforward. The trustee assigned to your case reviews your petition, your income and expenses, and your property and debts. He or she verifies you are being truthful and thorough, and they also recommend (or object to) your case being discharged. But, your case is not quite complete when the Meeting of Creditors is over. There are still a few things to keep in mind.

I will mostly discuss what happens after the Meeting of Creditors in a Chapter 7 case. The Chapter 13 case typically lasts 3 to 5 years, so the time after the meeting is much greater, and the continued case is more complex. A Chapter 13 Meeting of Creditors is more of a beginning to your case than an end. There is still a lot to do.

The Chapter 7 Meeting of Creditors, on the other hand, signifies that your case is almost complete. The Chapter 7 discharge is usually official 60 days after the Meeting of Creditors. While you do not need to do anything yourself to bring about the discharge, you should keep an eye out for the notice in the mail. If you have not received it within 90 days, give your attorney a call. You should keep your discharge notice on file in case a creditor ever attempts to collect in the future. You may also need the notice of discharge in order to get student loan companies to accept your payments after bankruptcy (creditors are not allowed to attempt to collect from you while you are in bankruptcy, and some will want proof). So, keep an eye out for this discharge notice.

A responsibility you will need to remember after the Meeting of Creditors is to complete the second course, also known as the Financial Management Course. My office will order this course for you, but you will need to complete it over the phone or internet within 60 days of the Meeting of Creditors. Your case will be dismissed if you fail to do so, and you will be required to re-file EVERYTHING, with additional legal fees and costs. It's easy enough to complete, so there is no reason to take any chances... get it done as soon as possible. The consequences of not doing it are too great.

One final thing to keep in mind after the Meeting of Creditors is that you must notify your attorney of any inheritances, lawsuits settlements, insurance claims, or lottery winnings in the 6 months after your case is discharged. In some rare situations, creditors can make claims for a piece of this windfall. These situations are rare, but keep your attorney updated.

In every case, you should not transfer any property or take out any loans until your case is discharged. Your creditors will have the option of objecting to your discharge until 60 days after the Meeting of the Creditors, so it is safest to take no actions during this period, at least without consulting your attorney. I always tell my clients not to do anything there were told not to do in the months leading up to bankruptcy. Better safe than sorry.

Contact us if you have any questions about the Meeting of Creditors, or the period afterwards. There isn't much to do, but you should still be vigilant. Your case will almost be complete, there is no reason to needlessly raise an issue.