Helping Your Elderly Parents With Bankruptcy

Adult children calling to inquire about bankruptcy on behalf of their elderly parents is a common occurrence in my practice. Several issues are usually important in this situation. If you are considering inquiring about bankruptcy on behalf of your elderly parents, here are some things to keep in mind.

The first issue will be the mental competency of your parent. This can vary greatly from case to case. Some adult children reach out on behalf of parents who are completely competent. They may be reaching out as a courtesy or to get information for their parents. But, at the end of the day the parent is capable of answering the questions themselves. In other cases, the parent is not mentally competent to answer the questions. In these situations it will be important for the adult child to get a power of attorney over their parents affairs. This would allow them to testify on behalf of the parent in any bankruptcy proceeding. In some situations, the parent may have diminishing, but not complete loss of mental capacities. It will be important for the bankruptcy attorney to speak with a parent to get a feel for whether or not they can understand the situation.

Another scenario that will be important to keep in mind is when the parent owns a home. Bankruptcy law limits the amount of equity to be exempted in a home. If you are calling on behalf of your parent, you should know what their home is realistically worth on the market, and any liens against the home such as mortgages or taxes. This will help the bankruptcy the attorney determine whether or not they will be able to file.

A final, unfortunate, situation that I am starting to see more often of is elderly parents who have been scammed. The scams vary in degree and method, but they often lead to drained bank accounts and maxed out credit cards. In these situations it is best for the adult child to help the elderly parent file a police report. Unfortunately, this will not usually lead to an arrest. However, it may be useful in ensuring that you will get a bankruptcy discharge, or in some cases forgiveness of any deaths resulting from the scam. It is also important to take control of the parents finances in these situations so that the situation does not repeat itself.

If you have questions about your elderly parent filing bankruptcy call us at 412-414-9366 to set up a free consultation. I would be happy to discuss their situation and see if bankruptcy can help.

Joint Bankruptcy

Married couples have the option of filing a joint bankruptcy, both in Chapter 7 bankruptcy and Chapter 13 bankruptcy. This is a great option to save time and money. When is the best time to take advantage of this option?

The most important question will be who has the debts in the marriage? If only one spouse is liable for all of the debts, in almost every situation they will be the only spouse who needs to file. The most important part of any bankruptcy is the discharge of debt. If you don’t have any debts to discharge, it doesn’t make any sense to file.

Now, what about the more likely scenario where both spouses have some of the debts? If the debts of both spouses are significant, it makes sense to file jointly because the filing fees and court costs are the same whether the bankruptcy is filed individually or alone. Sometimes, one spouse does not want to file even with significant debts. I always point out that filing jointly is a great way to save money on attorney fees and court costs, because if they change their mind at a later date, everything will be filed anew, with all new costs.

It is important to remember that joint debts are only discharged as to the spouse who actually files bankruptcy. The non-filing spouse in these scenarios would become 100% liable for a credit card discharged in bankruptcy by the other spouse. This is called joint and several liability. It allows creditors to collect the entire debt against one or both of the co-debtors, in any proportion. So, if a married couple has numerous joint debts, and only one of the spouses files, it will not protect the other.

It will be important to go over all of your debts with your bankruptcy attorney to determine what is (and what isn’t) dischargeable. Filing a joint bankruptcy is something that married couples with joint debts should strongly consider. One final aside, you have to actually be married to file a joint bankruptcy. Call us at 412-414-9366 to set up a free consultation and discuss your situation.

Employment Status and Bankruptcy

I get a lot of questions about employment status and how it affects a person’s ability to file bankruptcy. There are a lot of scenarios that could come up, but I would like to at least provide a brief overview.

People will ask whether they need to be employed to file a bankruptcy, or conversely, if current employment is a problem with filing. Generally, when speaking about Chapter 7 bankruptcy, being unemployed is not a problem unless you have secured debt which you were trying to keep current. The secured debts that are most important are mortgages and car payments. If you want to keep either of these payments through chapter 7 bankruptcy, you have to be able to show the court that you can afford to do so. This normally requires you to have income and a job. However, if you have a non-following spouse or relative who is making the payments, or you have non-employment income such as Social Security, a pension, or even unemployment, you should be able to keep your secure debts such as a car or home through bankruptcy.

In chapter 13, not having employment can be a problem for the same reasons. In chapter 13 bankruptcy you are required to make a monthly payment to the United States Trustee. Just as above, this is normally more possible if you have regular employment. But if, you have the other types of household income that I mentioned above, Chapter 13 bankruptcy may still be feasible.

The bottom line for filing bankruptcy is that there needs to be money coming in to either support a Chapter 13 bankruptcy payment or to keep secure debts in a Chapter 7 bankruptcy. That money coming in doesn’t necessarily need to be regular employment.

Now, if you have too much employment (that is, you earn too much money) it could be an issue with filing Chapter 7 because it may push you above the means test threshold. I discuss the means test extensively elsewhere in this blog and won’t go over it here. But, if you are working it will be important to know exactly how much you are earning.

Finally, in some scenarios it will be important for your bankruptcy attorney to know if you will be losing your job in the near future. If you are losing your job, you may not be able to support a Chapter 13 bankruptcy that you are planning to file. Also, if you are losing your job, you may be able to get beneath the means test and file Chapter 7 bankruptcy by waiting a bit longer.

Call us at 412-414-9366 if you have any questions about bankruptcy and your employment status. I would be happy to set up a free consultation and discuss your situation!

Small Business Debt

When someone calls me with a small business that is struggling I always need to find out what type of debts they have and how much they owe. Many people will say that the business had taken out some loans and they want to file bankruptcy on those debts, but they don’t necessarily want to file personal bankruptcy. In these cases it is important to find out whether or not the individual personally guaranteed the loans of the business.

In most small business scenarios, the individual probably did personally guarantee the loans, whether they realize it or not. This is especially true of SBA loans, which normally require the individual to personally guarantee the loan. Why is this important? Because if you personally guaranteed the loan, filing a bankruptcy only for the business and not for yourself will not do any good. The holder of the can still come after you personally.

Many people who reach out to me assume that the business took out the loan , but once we dig into it and look at the loan, many times they find out that they in fact did personally guarantee it. People often misunderstand the idea of limited liability for a business, and take it to mean they will not be liable for debts accrued by the business. Unfortunately, this is not the case. A personal obligation survives even if the business does not.

While the idea of only filing bankruptcy on the business, and not personally, feels less problematic for individuals, it may not do any good. If your small business is struggling and you are considering bankruptcy, you may want to go back and look at the original loan documentation. This goes for business lines of credit and credit cards. If you are a small business facing debt issues, feel free to call us at 412-414-9366. We can discuss your situation and see whether or not the business can be saved. If not, we can talk about the best way to shut down operations, account for the debt, and help to move your life forward. One of the purposes of bankruptcy is to encourage small business creation by providing an outlet for the times when the business does not succeed. The process is meant to help, not hurt. Call us with any questions.

Inflation and Bankruptcy

A lot of people have been asking me how I think the current high inflation will affect the future of bankruptcy filings. I definitely think it will be an issue with wide-ranging effects and is worth discussing, as some economists argue that it is higher than any point in the last 40 years.

Inflation makes almost everything more expensive. Food, energy, household items, and rent can all cost more, sometimes dramatically. Used cars and housing are already more expensive due to supply chain and stock issues. These all make up the bulk of most household budgets. Now, to combat the high inflation the federal reserve has increased the base interest rate which will make mortgages, credit cards, and loans more expensive as well. In short, everything is more expensive right now.

Higher interest rates are meant to encourage savings and decrease spending. However, for most people you cannot decrease spending on food, utilities, rent and mortgages, and household items, at least below a certain point. More worryingly, salaries are not increasing at a rate to match the inflation. When things cost more and people earn the same amount, it is easy to figure out what will happen. People will need to burn through savings or increase their debt. And this will lead to more bankruptcies, unless salaries begin to increase or the government provides stimulus money.

It is not clear that any more stimulus money is forthcoming, and some economist believe this would only increase inflation further by putting more money in circulation to spend. Also, even though unemployment is historically low, there has not been a corresponding increase in household income. All of these factors make it fairly likely that bankruptcies will spike in the coming year (or years).

Spending on discretionary items (think luxuries, travel) and saving towards retirement is likely to decrease. On the plus side for some people who have wanted to buy a home but have been priced out of the overheated market, higher interest rates should cool off the housing market to some degree. The question will be how much housing stock is available. If it does not increase, housing prices may stay higher than normal. As mentioned above however, higher interest rates make home payments increase dramatically . The difference between 6% and 3% on your monthly mortgage interest rate could be the difference of $600 or $700 per month in your monthly payment.

Hopefully if you are reading this you will weather this coming storm with minimal problems. However, if the toxic mix of inflation, stagnant wages, supply chain issues, and increasing interest rates begins to eat away at your household savings, or even causes your debt balances to increase dramatically, you should keep the possibility of bankruptcy in mind. The process is intended for a fresh start, and the gathering conditions discussed above are the reason that it exists. If you have any questions or wish to set up a free consultation, call me at 412-414-9366.