The Problem of Rising Interest Rates

The federal reserve has raised the baseline interest rate from 0% to 3.75% in the last several months, and the rate is projected to continue to increase. This has an incredible effect on the how much it costs to service debt. Everything from mortgage payments to car payments to credit cards to personal loans will become more expensive to service or acquire. This will make it easier to accrue large amounts of debt and harder to pay the debt that you already have.

Hopefully, if you already have a mortgage, the payment has a fixed interest rate. Variable interest rate mortgages stand to increase greatly in the coming months and years. Fortunately, there are not as many variable interest rate mortgages as there once were, especially before the financial crash of 2008 and 2009. However, if you have a variable interest rate loan, you should watch your mortgage statement closely in the coming months as the payment could go up significantly. Also, if you are seeking a mortgage or any loan in the near future, you should absolutely avoid variable interest rates.

Consolidation loans will also get more expensive. This makes it harder to consolidate a collection of credit card debt under one loan. Chapter 13 bankruptcy may be a good alternative option as creditors are always repaid at 0% interest over the course of the bankruptcy plan. Therefore, increasing interest rates do not make a chapter 13 bankruptcy repayment plan more expensive. This is an important consideration because interest is often the hardest part to get under control with unsecured debt. Chapter 13 bankruptcy locks in your current amount and actually gives you a target to pay off. Your balances will actually go down when you stop having to pay high (and getting higher) interest rates.

There is no real good advice for how to deal with higher interest rates. They affect everyone and make everything more expensive. The idea is to decrease the attractiveness of taking out loans and therefore slowing down the economy. To whatever extent you can avoid taking out loans, obviously you should do so. But unfortunately that is not always an option in life. If you need to buy a home you can’t just wait until interest rates drop. One positive side effect of higher interest rates when buying a home is that it tends to decrease the actual cost of the home, sometimes greatly. If you need to buy a home now, the best case scenario would be to pay the higher interest rates in the next several years and then refinance to a lower rate when interest rates drop.

Higher interest rates are a problem for almost everyone. If you have been considering a loan consolidation but now find it less affordable, contact us at 412-414-9366 to set up a free consultation. Chapter 13 bankruptcy may be an option to step outside of the pain of higher interest rates.

Gather Up All Of Your Collection Notices

In Chapter 7 bankruptcy it is important to include all of your creditors in the schedules. This guarantees that the underlying debt will be discharged from your financial record. Discharge wipes out that debt forever, it cannot be collected on or transferred to anyone else. There are no tax implications as the debt is discharged, not forgiven. Therefore, the creditor cannot write off the debt and send you a 1099C (which would require you to pay taxes).

When I file a Chapter 7 bankruptcy for a client I run a bankruptcy specific credit report. This credit report should catch most of your major debts. However, some things are not reported and some things slip through the cracks. A common example is medical bills. Medical bills rarely are disclosed on credit reports. When you file Chapter 7 bankruptcy you want to make sure that all of your medical debt is discharged. It is important to gather up all medical statements and provide them to your bankruptcy attorney. This may require you to call your medical providers to get any bills or statements. You should also track down any collection notices you may have received from third parties who are collecting on medical debt.

It is likewise important to find any collection notices for any credit cards. While the underlying debt should be discharged in any case, it still will make your life easier if all of the collection agencies are notified when you file bankruptcy.

If you have retained an attorney to follow Chapter 7 bankruptcy, make sure to keep any collection notices in the lead-up to filing. All utility bills are also worth gathering up as they sometimes do not show up on the credit report. If you owe individuals such as old landlords (or even individual people), you should include them as well even though they will probably not be on the credit report.

If you have any doubt whether or not to provide something to your attorney, error on the side of giving them everything. If you have any questions about what can be included in a chapter 7 bankruptcy, call us at 412-414-9366. I would be happy to discuss your situation and set up a free consultation!

All Income Counts Towards The Means Test In Bankruptcy

The bankruptcy means test is a six month look-back at all sources of income used to determine whether or not you can file Chapter 7 bankruptcy. I will normally ask potential clients to provide me with paystubs for this period of time. However, the income that is considered for the means test in bankruptcy goes beyond what is in a regular paystub.

For instance, if you receive cash from an employer, or from sales or your own business, without a paystub, it still counts. If you are a 1099 employee who doesn’t receive a paystub, that counts as well. Gig economy income for jobs such as Uber or Doordash, even if very limited and used to pay bills, must be disclosed. Any income from any employer (in any form) will count towards the means test.

Sometimes, late in the filing process, a client will disclose cash income or one of the situations above. The means test will need to be redone to account for this additional income. If you have any doubt, tell your bankruptcy attorney about the income. It will alleviate problems in the future.

Also, non-employment money can sometimes be counted towards the means test. This would include unemployment compensation, child support, and household contributions. While most people would not think of these sources as “income”, they are for purposes of the test..

VA benefits, it should be noted, do NOT count towards the means test.

If you’re considering filing bankruptcy, call us at 412-414-9366. I would be happy to set up a free consultation to see if filing bankruptcy is an option for you.

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.