Gambling Debt and Bankruptcy

People are increasingly calling me with gambling debt problems. It’s not a surprise, as online gambling and sports books have rapidly proliferated the last several years. Fortunately, bankruptcy can help with these debts. However, there are several additional issues that must be accounted for.

The first issue with gambling that is that you cannot have recent credit card usage to pay the debt, otherwise it may be considered “abuse” of the credit cards. This would allow the credit card and finance companies to object to the discharge of the debt, leaving you with the debt . It will be important to show a period of time between your last credit card usage for gambling and the filing of the bankruptcy, normally between 90 and 180 days.

Additionally, it may show clear intent if you enter a program to deal with the gambling issue, such as gamblers anonymous. Bankruptcy aside, this would be a good idea as gambling addiction is a serious addiction , that should be treated like all other addictions. Regardless, there will need to be time between your gambling losses in the filing of the bankruptcy.

The second main issue with gambling debts is that they tend to reoccur even after they’re discharged in bankruptcy. I have had several clients call not long after the Chapter 7 discharge who are in a similar predicament as they were before they filed. This is problematic because you can only file a Chapter 7 bankruptcy every eight years. Going back to my earlier thought, it really shows the importance of treating gambling as the addiction that it is and seeking help. In reality, bankruptcy is only temporary help with the problem. A longer term solution will require seeking the help of addiction specialists.

If you are facing gambling debts, contact us at 412-414-9366. I would be happy to discuss your situation, go through the details, and make sure that you qualify. It is a common problem faced by many Americans at the moment, so there is no need to judge yourself, or beat yourself up about it.

Beware of "Unsecured" Credit Union Loans

I have been speaking with a lot of potential clients who have taken out personal loans from credit unions, believing those loans to be unsecured when, in fact, they are secured by personal property. This can become very problematic in filing a bankruptcy.

These loans often seem attractive at the time because they allow people in a tight spot to consolidate several credit cards at a lower interest rate. However, do you need to be very careful when taking out any of these loans. Oftentimes, and especially when dealing with credit unions, it turns out these loans are secured by your personal property. That means if you fall behind or default on the loan, the credit union may be able to take your car or other personal property.

I have had a lot of potential clients who tell me that they are sure the loan is unsecured, until I have them get me a copy, and upon reading the loan document, see that it is secured by property. Clearview Federal Credit Union in particular will often secure a personal loan against a car loan that you have already taken out with them, and they will even secure personal loans with FUTURE car loans you haven’t even taken out!

These sneakily secured loans are a problem in bankruptcy, because unlike unsecured loans, they are not wiped out unless you are willing to turn in the secured property. For some clients this may be a car that doesn’t run and it isn’t a big deal. But I have had other clients with cars and campers and other personal property that they did not want to surrender. So, the loan ends up surviving the bankruptcy.

Be very careful in reading what you sign when you take out ANY loan, especially looking to see if any of your property is being used as a security against the debt. Regular banks, and not just credit unions, are capable of doing this as well, though most of what I see is either credit unions , or certain companies, like Mariner or Lendmark Financial.

Call us at 412-414-9366. If you want to discuss whether or not your personal loans will be discharged under bankruptcy. I would be happy to set up a free consultation to discuss your situation!

Funding Your Chapter 13 Bankruptcy

Chapter 13 bankruptcy plans require regular automatic payments to be made to the Chapter 13 bankruptcy Trustee. This can generally be done in one of two ways.

The first way is a wage attachment served directly on your employer and payroll department. A wage attachment motion will be filed in the Bankruptcy Court and signed by the bankruptcy judge. I would then take the signed order and serve it on your payroll department. In this case, payments will come directly from your paystub, before reaching your bank account, as a voluntary garnishment. If you change jobs, you will need to let your bankruptcy attorney know right away, so that a new wage attachment can be filed.  This method does not cost you any money. It is your responsibility, however, to make sure that the payments remit every paycheck.

The second method for funding your Chapter 13 bankruptcy plan is through a direct bank attachment. This is done through the website tfsbillpay.com . There is a nominal fee for the service, but it allows you to make payments directly from your bank account that are secured and easily trackable. Once again, it is your responsibility to make sure that the payments come out every month, or whatever frequency that you choose to make them. 

The method that you choose will depend on your circumstances and wishes. If you do not want to have your employer know about your case, the bank attachment is the best choice. Also, if you do not receive regular paystubs, or your income varies widely, the bank attachment is probably the best option.

If you wish to avoid any fees, or if you believe it is simplest for the money to come out before it hits your bank account, the wage detachment is the best option. You can discuss these options with your bankruptcy attorney in more detail. If you’re considering filing Chapter 13 bankruptcy and have any questions, feel free to reach out and set up a free consultation by calling me at 412-414-9366. I would be happy to discuss your situation and see if there is a good bankruptcy option for you.

Tax Refunds and Bankruptcy

Tax season is upon us, and there is only one good thing about tax season (some of the time)… tax refunds.

If you are considering filing bankruptcy, and expect to receive a refund, it will probably be protected from your creditors. When you file bankruptcy, you must list all of your assets and all of your debts in the schedules. Tax refunds, or potential tax refunds, are considered an asset, and must be exempted from your creditors.

There is no specific exemption under federal law for a tax refund. However, the “wild card” exemption allows you to protect tax refunds, among other things. The first step if you are considering filing bankruptcy this spring is to actually file your taxes and determine what your refund will be. If you don’t do this, the bankruptcy trustees may hold your case open until the amount is determined.

Once you know what your refund will be, consult with your bankruptcy attorney to determine how best to exempt it. If your refund is particularly large, you may need to spend it down naturally, over several months. If, however, your refund is more modest, it is likely just a matter of excempting it with the available exemptions under federal bankruptcy law.

A second note about taxes and bankruptcy is you must have all of your taxes for the last four years filed. If you are not required to file taxes (because you are on Social Security or have no income), this is not an issue. But, if you are required to file taxes, it must be done before you file. Otherwise, you may not receive a bankruptcy discharge. Now, the taxes must just be filed, not necessarily PAID. So, if you believe you’ll owe the IRS money (or the state or local authorities), it will not prevent you from filing bankruptcy. 

If you have any questions about your tax refund and bankruptcy, or any other bankruptcy questions, contact us at 412-414-9366. I would be happy to set up a free consultation to discuss your situation and see if I can help.

Liquidation Alternative Test

The liquidation alternative test is a somewhat confusing aspect of bankruptcy law. It requires debtors to repay unsecured creditors for any amount above the exemptions allowable for their property. Let me give a basic example.

Let’s say your house is worth $100,000 and it is owned outright with only you on the deed. With no mortgage or any other liens, you have $100,000 in equity. Under the bankruptcy code, you can exempt roughly $25,000 of this equity. This leaves $75,000 in equity that is not exempt. If you were to file a Chapter 7 bankruptcy in the scenario , the United States Trustee could theoretically liquidate your house and use this $75,000 in unexempt equity to pay your creditors! Obviously, this is not a good option.

The alternative to liquidating your home would be paying back your unsecured creditors up to the $75,000 in unexempt equity. Now, in this example , that may prove to be impossible as it is a lot of money to repay. However, in many examples the unexempt equity is much less. Let’s try a different but similar scenario.

Let’s say your home is still worth $100,000, but you also have $40,000 remaining on your mortgage. You also have a $10,000 tax lien . Finally, let’s say that you have a $15,000 home equity loan. That is $65,000 in liens on your $100,000 home. If this scenario you have $35,000 in equity of which $25,000 can be exempted. That leaves $10,000 in unexempt equity under the liquidation alternative test. In this scenario you can repay up to $10,000 to your unsecured creditors to satisfy the test.

If you owe $75,000 to your unsecured creditors, the balance of $65,000 is discharged in the chapter 13 bankruptcy.

So, it will be very important to determine several things when looking at the liquidation alternative test. The easiest thing to determine is what you owe. You can simply do that with mortgage statements and tax statements.  The trickier thing to figure out is what your home is worth. That may require a formal appraisal or a realtor assessment. Once you have both of those numbers, it will be easy to determine.

It should be noted, the liquidation alternative test does not just apply to real estate. Any property that you own that goes beyond your ability to exempt it  is potentially an issue. This may include cars that are owned outright, savings in a bank account, collectibles or antiques, or basically any other property. However, homes are the most common issue.

If you were considering filing bankruptcy, call us at 412-414-9366 to set up a free consultation , I would be happy to sit down and determine if the liquidation alternative test or anything else will be an issue with your filing.