Tag: Chapter 7

Car Repo Options

in Bankruptcy

Bankruptcy is the fastest way to stop any type of repossession effort.  If you’re behind on your car you can stop a repo dead in its tracks in most cases.  If you’re going to file a Chapter 7 you’ll likely need to be current for the Chapter 7 to work without a hitch. Once you are current, you can reaffirm that debt and keep making payments on the car. Chapter 7 eliminates other debts that may be keeping you from making your car payments to begin with.  

The process of reaffirmation is an agreement between you and your lender on your car.  It basically makes the bankruptcy as though it didn’t happen, at least in relation to your car.  The lender gets you back on the hook for your car and you keep making payments just like before.  The only difference is, you’ve gotten rid of all the things that were keeping you from being able to make your payments to begin with.  

If you’re filing a Chapter 13, you don’t have to be current on your car.  Chapter 13 is its own solution in and of itself.  If you’re behind, the plan can be written so you can pay back the arrearage and keep making your payments.  You get to keep the car and they get what they’re really after, their money. One thing you don’t want to do though is wait.  If you know they’re looking for your car, you need to file NOW.  It’s much easier (and cheaper) to keep your car and get the case filed than it is to go back and get it back after a repo.  Once you know your car is in danger of being repossessed, you need to get in touch with us ASAP so we can stop it from ever happening.  

One thing you need to remember is, you don’t have to be 3 months behind on your car for the lender to repo it. Under a lot of contracts, if you’re even a day late you have defaulted on the contract and they can begin the proceedings.  You aren’t guaranteed anything outside the contract.  Will they repossess on day 1, not likely.  Ideally, they want you to pay, but that doesn’t mean they won’t come after the vehicle.  Once you get notification of a pending repossession or you know you can’t make payments, you need to contact us.  Remember, your rights begin to diminish with every moment you wait after you know you can’t pay anymore.  

Transparency can save the day

in Bankruptcy

Filing bankruptcy is usually considered a personal decision.  However, if done incorrectly, it can have far reaching ramifications that can sweep your entire family up in its wake.  The biggest mistake people make is transferring assets or repaying debts to family members prior to filing bankruptcy.  This type of behavior can expose your family to investigation by the bankruptcy trustee. As in all aspects of the law, transparency is key.  

Dragged in, unaware

While I was waiting my turn for a bankruptcy hearing a few weeks ago I couldn’t help but overhear the discussion going on between a local attorney (with a bad reputation), their client and the trustee.  The trustee had noticed a serious discrepancy in the petition versus the testimony the client gave.  As I watched, it unfolded much like a scene from shark week.  As the client and his incompetent attorney threw more proverbial “chum” in the water, the trustee became more and more aggressive.  

The trustee’s investigation was quickly honing in on transfers the debtor had made to family members before they filed their case.  Some of the cases involved repaying debts to their family members while others appeared to just be straight up gifts.   The worst part about the whole situation was the “sale” of an RV to a family member that appeared to be a coordinated effort to keep the RV out of bankruptcy.

By the time the trustee was done, he was calling for a horde of documents to be produced, a further examination of the finances of the debtor and appearing to challenge the dischargeability of the debts.  In other words, things went off the rails for the debtor very quickly and transparency could have potentially kept things on track.  

The long arm of the (bankruptcy) law

The bankruptcy law is there to give debtors who fully disclose their situation a wonderful break to restart their lives.  If you’re open and transparent with the trustee, you’ll usually end up coming out smelling like roses.  

The law gives the trustee an enormous amount of power to go after property and assets that debtors try to hide from the trustee and their creditors.   Bankruptcy seeks to give everyone a fair shake, debtor and creditor. When you try to hide assets, you’re denying creditors their fair shake.  

If you make a payment on existing debt to an ordinary creditor, that creditor is subject to a 90 day look back.  That means that the trustee can recover anything that is deemed preferential that was paid 90 days before the bankruptcy filing.  If the payment was made to a family member, the lookback is a full year.  

In other words, if you paid a family member off, the trustee can sue your family member to recover the money you paid them in a chapter 7 bankruptcy.  

Preferences matter

Most people find it hard to understand why payments on genuine debts can trigger trustee lawsuits to retrieve the money.  The debt is real, they say.

A lot of people can’t believe that payments on legitimate debts can trigger the trustee’s pursuit of the payments.  The issue isn’t that you’ve paid a real debt. The issue is you prioritize debts.  If you’re paying one creditor, be it a family member or your local credit union, but you’re not paying other debts, that’s called a preference.  In bankruptcy, preferences are against the law.  Every creditor must be treated the same.

Gifts cause problems

Legally speaking, a gift to a family member is called a fraudulent transfer.  You’re giving the family member something and getting nothing in return.  Technically that leaves you poorer than before and that technically damages your creditors.  If you start giving too much stuff away to family members, you’re setting them up to be sued by the trustee to recover those assets 

I’ve never seen a bankruptcy trustee try to take back ordinary birthday or Christmas gifts but if you start handing out cars, boats, houses or businesses, you’re probably going to create some issues. 

We take care of family

Everyone wants to take care of our family, that’s in our nature.  If you’re looking at filing bankruptcy, you need to wait until afterwards to start taking care of your family again.   After the bankruptcy you are free to pay back any creditor you want without consequence.  In other words, you can take care of those who are taking care of you.  Once you get your discharge, you can give anything you have away.  

Tell the truth

Transparency is key and my biggest concern as I sat there was, did the debtor tell his attorney everything? Did the attorney not list everything in the petition?  Did the trustee find out some other way.  

If the debtor didn’t believe his attorney when he was told to disclose everything, they made a terrible decision and brought the trouble on themselves.  Even if they don’t end up getting their family sued, they might not get a discharge.  

The petition you file asks lots of questions.  Many of them seek to find the truth about your finances.  They ask about payments to creditors and transfers of property to others.  If you don’t tell your attorney what’s going on, we don’t have much sympathy for you.  

However, if the problem is created by a crummy lawyer, I have to see innocent debtors face the music.  

Crummy Lawyers fail in several ways.

  1. They fail to explain how serious the issue of transparency is
  2. They fail to recognize transfers that were avoidable
  3. They fail to insist that their client fully answer questions
  4. They fail to consider a Chapter 13 for clients who could potentially expose their family to lawsuits.

 

This day in court is unusual, so don’t let that scare you.  As long as you’re open with me, we’ll find the best course of action for you. Remember, transparency is key.

8 Things Finance “Experts” get Wrong

in Bankruptcy, Credit and Credit Cards

Personal finance “experts” love to run around spouting off about bankruptcy and other issues they don’t know much about.  While many of them do promote best practices when it comes to finance, many of them share blatant falsities about bankruptcy like this guy does.  

Number one, they often don’t even know basic facts about bankruptcy.  It’s complicated, so many people just spew what they think they know about bankruptcy and pass it off as legitimate advice.  

Number two, these so called “experts” make bankruptcy sound like it should be your last choice.  We have written about why bankruptcy should never be treated as a last resort. Instead, bankruptcy should be considered alongside a number of tools to help you improve your financial position.  Instead, they just continue to spread misconceptions and myths.   

So, considering I’ve been practicing bankruptcy for 11 years and I’ve handled more than 2,000 cases, I’ve got a few things to discuss that these finance “experts” should know.  

1. In 97% of bankruptcy cases the debtor loses nothing. 

Chapter 7s are considered a liquidation bankruptcy.  In theory, if you have a valuable asset that is unencumbered by liens, the trustee can sell that asset to recover money for your creditors.  The problem is, most Chapter 7 clients, don’t have enough assets to sell for two reasons.  First, most assets either have liens on them or aren’t really worth much and second, you have generous exemptions here in Georgia.  

2. If you have any assets, you can just file a Chapter 13 and keep them. 

If you do have assets and they could potentially be at risk in a Chapter 7, you can just file a Chapter 13 and then they’re protected.  You simply repay the value of the items you wish to keep at an extremely low interest rate and then you emergen from your bankruptcy with a discharge.

3. The means test just determines which chapter you are eligible for.

The means test doesn’t keep you from filing bankruptcy. Period. It’s just there to make sure that wealthy or high income people don’t abuse Chapter 7s. Even if the means test determines you don’t qualify for a 7, you can still do a 13 and pay back only a fraction of your debt. 

4. Credit scores improve immediately. 

We have written about this and we want to state it again.  Studies by the Consumer Financial Protection Bureau have shown that your credit score starts going up the month you file bankruptcy.  Yes, a bankruptcy can stay on your credit report for up to 10 years, but as we say so often, time heals all wounds and your bankruptcy will matter less and less as time goes on. 

5. You can get a loan, even in if you’re still in your bankruptcy

Filing bankruptcy changes how much you’ll pay for credit.  It doesn’t mean you can’t get credit at all.  People in Chapter 13s routinely take out (court approved) debt to buy cars in the event of an accident.  Just because you’ve filed bankruptcy doesn’t mean you’re not able to get credit at all. 

6. Stress is a health risk

We have only recently begun taking mental health seriously in our country. Stress, particularly stress related to money, can take a substantial toll on our mental and PHYSICAL health.  Stress leads to bad choices, mental health problems and unhealthy habits like drinking or drug use to cope.  Bankruptcy can help you get your financial house in order and lowers stress, immediately. 

7. Bankruptcy frees up cash to pay debts that can’t be discharged

Some debts can’t be discharged.  It’s just the way the bankruptcy code is written.  The bright side of this is, you’re freeing up cash you can use to pay off those debts by filing bankruptcy.  

Bankruptcy isn’t the last resort. ever.

Bankruptcy offers a quick, legal and certain fix for debts that have swamped you.  Every day we see people who have spent their retirement savings or strung along debts that have kept them from being able to start over.  Bankruptcy should always be in the discussion when it comes to eliminating overwhelming debt.  After all, cutting $5 lattes is a good practice to keep yourself on a budget but it isn’t going to fix a mountain of uncontrolled debt, no matter how many “experts” try to claim it will.

7 Things Every Attorney Should Know About Bankruptcy

in Bankruptcy

The financial distress we are finding is absolutely mind numbing.  We can easily see that debt ridden small businesses and many consumers will soon be trying to find a way out of a terrible situation that they did not get themselves into.  That’s where we come in.  We have written extensively about what you should look for in a bankruptcy attorney and frankly, we tick all those boxes.  

Unfortunately we live in a world where the only attorneys who technically have to specialize are patent attorneys.  That means that anyone else can sit there and say they file bankruptcies, even if they don’t have a clue what they’re doing.  Below I list 7 things that every bankruptcy lawyer should know before they ever file a case. 

1. In 97% of Chapter 7s, the debtor gets to keep everything they want to keep. 

Everyone freaks out when they think about Chapter 7s.  They worry they’re literally going to be cast out on the street with nothing but their underpants.  That couldn’t be further from the truth.  In the overwhelming majority of Chapter 7s, most debtors walk away with everything they WANT to keep. A Chapter 7 is called a liquidation but in order to liquidate an asset, a trustee must find that there’s significant equity in an asset AND you don’t have enough exemptions to protect it.  While exemptions vary from state to state, the exemptions here in Georgia are pretty generous. 

2. Even high income people can file

The bankruptcy means test doesn’t mean you can’t file bankruptcy.  It’s simply there to to determine whether or not you have any disposable income to pay your debts back.  If you don’t pass the means test, you can still file a Chapter 13 bankruptcy in which you pay back a fraction of your debt. 

3. The automatic stay is a powerful tool

For the low cost of just a filing fee, you get to enjoy the benefits of an extremely powerful court injunction that protects you and your assets from collection.  It is broad and works even if your creditors don’t know about it.  You get to use the stay so long as you have an active bankruptcy case.  It can only be lifted in certain legal proceedings or once your case has been dismissed. 

4. Certain Taxes can be eliminated

Certain taxes can be made to disappear in bankruptcy.  If you’ve followed the law and filed a timely return on your taxes, many of them can be discharged in bankruptcy.  The formulation is very technical and involved, but done correctly,  you can eliminate a number of taxes. 

5. Support obligations aren’t dischargeable

Whether it’s child support, separate maintenance or alimony, you can’t get rid of it.  It follows you until you die or pay it.  Anyone who tells you otherwise, is a liar. Additionally, support gets first priority in a bankruptcy case.  If there is money moving through the case, it goes first to your support obligations before anyone else gets a dime. 

6. Informal notice stops collections

A creditor has rights under the bankruptcy code but most of those rights revolve around a deadline of some sorts.  Creditors have to file something called proof of claim to get paid in your case or they have to contest the dischargeability of your debts.  

However, even if a creditor doesn’t get formal notice of the bankruptcy from the court, they are still bound by the deadlines.  If they miss the deadline, their claim is toast. 

7. Bankruptcy can actually help your credit score

Yes, it sounds counterintuitive, but it’s not.  Bankruptcy doesn’t doom you to no access to credit.  You’ll probably be able to access credit within months of your case being discharged.  You know the old saying,”time heals all wounds” that’s especially true in bankruptcy.  It becomes less and less of an issue the longer it’s been since you filed.  

Filing bankruptcy does not doom the debtor to being without credit for 10 years. Instead, the proximity of the discharge affects the price of credit, and bankruptcy becomes less and less significant in the lending decision with the passage of time.

A recent government study by the CFPB shows that your credit score will actually improve the very month you file bankruptcy.  Even more important than your credit score, is your balance sheet.  That improves automatically. 

Bankruptcy is a specialty

Like I said before, you don’t want to go to a urologist if you’ve got a brain tumor.  Yes, doctors are smart, but they specialize.  Bankruptcy lawyers should too.  If you’re running around seeing lawyers that do bankruptcy, personal injury, government law, complex litigation, adoptions, immigration and 21 other things, you should probably avoid them, no matter what your need is.  The law is specialized, but bankruptcy law is very specialized.  It is no place for people who want to DIY or hire the occasional dabbler.  The 2005 revisions to the bankruptcy code threw up numerous hurdles and created various traps that can cause your case to get dismissed or cause you to lose valuable assets. Don’t make a huge financial mistake just because you saw a flashy ad.  Do your research. 

The Cure

in Bankruptcy, Credit and Credit Cards

We hear them every day and we have written extensively about get out of debt schemes and what an absolute scam most of them are.  People sit there and pitch the most unimaginable garbage to people who are struggling with debt.  They’re just like the snake oil salesmen of the wild west with all of their ridiculous cure all solutions.  “Buy my book and learn how to get out of debt fast” barks the salesman from his multimillion dollar radio perch or the best one is, “we’ll get your credit card company to settle for pennies on the dollar.” They’re selling you snake oil and without a proper diagnosis, you’ll get exactly…nothing. Except for a lighter wallet. 

You don’t treat a medical problem without a proper diagnosis.  Is it gas pains or colon cancer, a headache or an aneurysm?  You wouldn’t let someone start cutting or taking a dangerous therapy if you only needed to take a tylenol or quit eating so many beans. 

Much like medical problems, for a proper cure, your finances need a proper diagnosis too.  Do you have a temporary problem that will work itself out with a little discipline or are you throwing your hard earned money into a bottomless money pit. The answer is a big step in diagnosing and treating your debt problems. 

Rx for Debt

Any good physician needs to know things about you.  Your age, your medical history, family history, etc. 

An attorney assessing your financial situation will have similar questions.  We need to know your age, whether you have dependents, what your assets are, who and how much you owe as well as what your income is.  All those are questions we have to have answers to in order to recommend a good plan to get you out of debt.  

If you’re about to retire, you don’t have the luxury of time to get out of debt by just cutting a few frills but if you’re young and single with a good job, maybe selling that expensive car for a more frugal model and cutting back on the dinners out will help you get your financial house in order.  

The old, “cut out the lattes” line doesn’t exactly work if you’re staring retirement squarely in the face like it would for a 22 year old. Sometimes “buckling down” is:

Too little, too late

Most of the better known and more respectable “debt gurus” have advice that is better suited for how to live AFTER you cure your debt issues or if you have plenty of time and discipline and not much debt.  You have to start by comparing your income to your debt load.  Otherwise known as a Debt to income ratio.  If you’re using all your income just to service the bare minimums of your debt, you need a lot more help that someone who just spent a little too much this month.  

You have to assess your situation.  If you’re hunting squirrels, you don’t need a howitzer, but if you’re taking on a grizzly bear, you better come with some powerful options. 

How risky is the cure

The last question we need answered to give you a proper diagnosis is, how risky is the treatment.  In medicine, you don’t want to have brain surgery for a headache.  Think about the side effects of the medicine you take.  Every medicine has them and you don’t want to take something dangerous unless you have to.

When you are talking about curing debt though, you risk having to live with no safety net, especially if you’re doing it the “radio show” way. We have talked about how nearly half the country can’t cover a $1,000 emergency without having to borrow money from somewhere.  $1,000 isn’t much in this economy and don’t fool yourself into thinking that you can put your hands on a grand in a matter of minutes or that you’re not one of those people.  

One thousand dollars isn’t much in this economy.  Yet a $1,000 expense would imperil a huge swath of our citizens.  This list details more than 30 different everyday situations that could require you to spend at least $500.  None of those reasons are all that crazy or out there.  It could happen to any of us at any time.  Not long ago, we wrote about what to do when you’re in serious debt and I’ll link to that here.  It goes into greater detail and will help you understand more of your options.  

Taxes, Taxes…Taxes

in Bankruptcy

Unfiled Taxes

It’s that time again in America.  The final deadline for filing your taxes looms large. People who got extensions will have to file their taxes by October 15th and that day looms large for those who owe.  You’ve done your taxes and gotten to the bottom line.  You owe… way more than you have in your bank account.  

So…what now?

File your taxes anyways.  

The IRS, horrible as they are, won’t start harassing you for money on April 16th or July 16th or even October 16th.  They likely haven’t posted the returns that have been filed yet, especially in years like this with COVID lurking in office buildings.  

There are serious advantages to filing your return, even if you don’t have the money to pay right now.  In fact, filing your return and starting the clock has way more advantages than hiding behind the fact that you don’t have the money to pay.

Payment plans available

The number one thing you can do is send in what you can.  It lowers your tax debt and the penalties and interest that will accrue on that debt from the word go.  Look, the IRS is greedy.  They just want your money and they want all they can manage to get from you.  That’s how the government is.  Send them what you can, when you can.  You don’t have to enter into an installment agreement with the IRS.  Just make sure that when you send in your payments, you notate your social security number, name and what year you want the money to go to on your check. 

If you’re really in need (for whatever reason) of a formal payment plan with the IRS, you can set one up online so long as you owe less than $50,000. 

Additional penalties for failure to file

If you don’t file a tax return and don’t get an extension, you’ll be up the creek without a paddle. You’ll be smacked with a separate penalty for failure to file the return.  That’s on top of the penalty you’ll pay for failure to pay as required.  Trying to hid from the IRS is way more expensive than doing the right thing. 

Filing returns starts the clock

On the escape option that is.  Taxes aren’t eternal.  Yes, I said that and it’s true.  Taxes can go away after time.  There is a statute of limitations on taxes that can make them uncollectable. 

There’s also the silver bullet, Bankruptcy. 

Bankruptcy law allows you to discharge certain taxes that are of a certain age before they can even expire.

But there’s a catch.  You have to file.  The clock doesn’t start ticking until you file your tax return.  That’s why filing, even when you can’t pay, is supremely advantageous.  

You need to adjust your withholdings

The final reason why you need to get last year’s return ready is that you need to get your withholding right for this year.  Even an extension can cause problems because it delays your ability to adjust your withholding on your W-4 to account for the fact that you owed this year.  You want to adjust your withholding so you don’t have to pay out of pocket again next year when everything is said and done.  

The bottom line is, hiding from a problem isn’t going to make it go away.  Especially if that problem is with a government agency as nasty as the IRS.  If you owe back taxes and you can’t pay them, contact the attorneys at Harmon and Gorove to see how bankruptcy can help you get a handle on your tax debt.  We have a dedicated team of professionals that understand your rights under bankruptcy and how they can help eliminate tax debt.