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The sooner you know about your options, the better prepared you will be. Take advantage of my free consultation and learn how to position yourself for bankruptcy. Borrowing from equity in your home or from your 401K is unnecessary. We can help you save important assets from creditors and from a bankruptcy trustee. Sending your hard-earned money to a company that claims it can negotiate with your creditors rarely, if ever, works. With due respect to the very few companies that deliver a valuable service consolidating your debt, usually you will pay large fees for nothing, while credit card balances grow and your credit rating sinks.
Bankruptcy will stop the bleeding.
It is truly the last resort, but it works: credit card balances freeze, payments stop, threats, lawsuits, and garnishments stop, and you gain control over your finances again. Please listen to this general discussion of bankruptcy.
Visit my discussion of how to prepare for the possibility of bankruptcy for more information and important links.
Blog - Issues in Consumer Bankruptcy
In this space, from time to time, I will post brief discussions of bankruptcy topics that come to mind.
Jan. 11, 2022 - How do High Income People Get Away With Filing Chapter 7 Bankruptcy?
Generally: People with high incomes are forced into filing Chapter 13 bankruptcy and paying a substantial amount to their creditors; People with lower incomes can file Chapter 7 Bankruptcy and usually pay nothing to creditors, but still get a discharge of most debt.
But, wait a minute, I'm aware and you may be aware of some high-dollar celebrities that have filed chapter 7 bankruptcy. How does that happen?
Generally, everyone who files a bankruptcy must file with the court a calculation of monthly income. This calculation is based upon a formula from the Bankruptcy Code that determines monthly income as an average of the previous 6 months of gross income (gross income before deduction of taxes - see Means Test). If the calculated gross income is more than the Median Family Income for that person's family size, then a further calculation is required to determine disposable income. If a further calculation, deducting allowable expenses reveals disposable income, that personal is forced into chapter 13 bankruptcy for 5 years of monthly payments.
However, if one's debts are primarily non-consumer debts, then the calculation of income is not required and that person may file a chapter 7 bankruptcy, regardless of how much income he or she has. Incredible? Yes, but bankruptcy has always favored persons whose debt has been derived from engaging in business, recognizing that engaging in business is inherently risky, susceptible to frequent failure. The law encourages entrepreneurs to take the risk and hopefully succeed and generate employment for others. That celebrity's debts were primarily related to his investment in businesses, non-consumer debt.
Jan. 6, 2022 - It Is VERY Important that ALL PROPERTY Be Listed in Bankruptcy!
When one files a bankruptcy case, he or she is required to complete a schedule (it's just a list) of all property, real property (real estate) and personal property (everything the debtor has, except real estate), including tangible and intangible property. Tangible property is something that you can hold in your hand. Intangible property doesn't have a physical presence, but you own rights to it; for example, your bank account is intangible, also, insurance policies, social security benefits, and contractual rights (your rights as a tenant under a lease agreement or in a month-to-month tenancy).
Attorneys are peculiar in their insistence upon the details. That's because the law can be fickle and demanding. If the debtor owns a life insurance policy, but doesn't list it in the bankruptcy schedule of assets, once the bankruptcy has been closed, the debtor no longer owns that policy. You say, No Way!? I say, it's not worth the risk, as some have lost thousands of dollars in valuable assets, just because they didn't believe it was important to list all of their assets; or, because they represented themselves in bankruptcy and didn't know that a life insurance policy was an asset (even though the court-required forms specifically ask for interests in insurance policies), or they thought they could get away with it.
The logic behind the legal requirement that all assets be listed is that, in order to receive a discharge of debts and protection from creditors, one must disclose all that is owned, so that the trustee can review it and determine if there's anything there that can be used to pay creditors. If the trustee is not given that opportunity, then the debtor has not acted in good faith, by disclosing all assets. If the debtor does not disclose property that has a material value (valuable enough that it would be worthwhile liquidating for making payment to creditors), then the court can deem that asset forfeited to the benefit of the trustee and the creditors.
Moral: Don't second guess the court's forms; don't ignore your attorney when he asks for a listing of all assets - the end result can be tragic.
Jan. 6, 2022 - Chapter 13 Payment Plan Must Be Completed Within 5 Years - NO JOKE!
Chapter 13 bankruptcy is a payment plan, by which debts are paid over a period of 3 to 5 years. If annual gross income (income before taxes and other payroll deductions) is less than the Median Family Income, then a payment plan may be for as little as 3 years. If gross income is more than Median Family Income, then the payment plan must be for 5 years. Regardless of income, if one chooses to file a chapter 13 bankruptcy and a five year plan is approved, then payments must be made for five years, and no more than 5 years.
In the Colorado Bankruptcy Court, non-completion of required payments within the term of the plan has become a serious issue in recent years. Because the bankruptcy debtor is ordered by the court to abode by all provisions of the plan and because completion of the plan must, according to federal statutes, be completed within the 5-year term, the court has been denying discharges to those who fail to complete their payments on or before the expiration of 5 years from the first required payment. And, required payments include not only payments to the bankruptcy trustee, but also payments to car and home lenders, if the debtor wants to retain ownership of the collateral securing those loans.
Imagine the disappointment and horror of making payments for 5 years, but being late on some at the expiration of five years and not receiving a discharge of the unpaid balance owed to creditors. The moral: one must read and understand the provisions of the chapter 13 plan, schedule the payments in a calendar, and follow that schedule like it's religion. Otherwise, get ready to pay your attorney even more to try and rescue you from your own mistakes; and rescue is not often possible.
Nov. 17, 2021 - Once You Decide to File, It's Important to Proceed Promptly
Whether to file a bankruptcy or not is a matter of individual judgment about choices. If you can reasonably and timely meet your obligations to pay your debts and still pay for the ongoing costs of living, you should not file a bankruptcy. But, if you do not have the resources to meet those debt obligations, as well as the basic costs of living, then bankruptcy may be your best option.
Once you decide, promptly engage the services of an experienced bankruptcy attorney and, as quickly as you can, provide the attorney with the information and documents requested. As your situation will change from month-to-month, it is vital to the integrity of your bankruptcy filing that the information provided and used in your documents be current and complete. Too many mistakes can occur, when information and documents are dribbled in to your attorney over a period of weeks and months; by the time all the blanks are filled in, much of that information will be wrong or obsolete. Get the best value for the attorney's fees you are paying, by giving him or her the information requested, in a timely manner. Just as important, moving promptly will get you the relief you want and need, sooner.
Oct. 5, 2021 - Home Value - Why Is It So Important?
When a bankruptcy case is filed, all property owned is disclosed and especially the value of property, along with any debts or liens that affect the property. One's home is usually the most valuable property when filing bankruptcy. The home's current fair market value must be disclosed, along with the balance owing on any mortgage or other lien recorded against the home.
In a chapter 7 bankruptcy, the bankruptcy trustee will take and sell property that is not protected by an exemption. Exemptions are laws that protect property from seizure by creditors and bankruptcy trustees. When a creditor sues and gets a judgment, that judgment gives the creditor the right to seize unprotected property, to be sold, to pay the debt. Exemption laws protect the essentials of living, like a home, a car, furniture, clothing, food, etc. But the value protected is not unlimited: for example, the equity in a home in the State of Colorado is protected up to $75,000, for owners up to age 59; for owners age 60 and above, equity in a home is protected up to $105,000.
If a home's value is $360,000 and the balance of the mortgage debt is $150,000, an owner, age 55, will have $75,000 of exempt equity (protected from creditors), but $135,000 of non-exempt equity. If this home owner filed a chapter 7 bankruptcy, the trustee would sell the home, pay the first $75,000 to the homeowner, pay off the $150,000 mortgage, then use the $135,000 of proceeds to pay the closing costs, the Trustee's administrative fees and then pay the owner's creditors. NOT a good idea!
In a chapter 13 bankruptcy, the bankruptcy trustee will not sell the property, but in order to keep the home, the owner would have to agree to a plan to pay to the creditors the same amount as in a chapter 7, but in monthly payments over a 3 to 5 years period. Creditors get paid, but the owner keeps the home.
It all revolves around the fair market value of the home. And, the person filing bankruptcy must prove the value. It is very important, before filing a bankruptcy, that an estimate of value is obtained from someone with knowledge of the market and the expertise to give a reliable opinion. A licensed real estate agent would be the best person to do that. Most real estate agents, hoping to get a listing or to establish a relationship with the owner, will provide a current market analysis (CMA), in written form, that provides detailed information about the home and other homes in the same area that have been sold recently, as well as the agent's opinion of value, the price at which the home will sell at that time. That CMA is usually the best form of evidence of value and the most useful in a bankruptcy.
Sept. 29, 2021 - Reaffirmation of Home Loan? - Absolutely No!!
In a chapter 7 bankruptcy, your home mortgage debt will be discharged. Are you surprised? It's true; the debt is discharged, but the lender's lien is not affected. After the bankruptcy discharge, if you default on your home loan payments, the lender will foreclose and sell your home, but the lender cannot sue you for the remaining balance of the loan; because the debt was discharged. If you want to keep your home in chapter 7 bankruptcy, just keep making the payments.
However, when your credit rating has improved and you go to your home mortgage lender and ask to refinance, they won't do it. And, they might tell you that you need to reaffirm that debt in the bankruptcy. That's true. That lender cannot do anything with your loan, unless you had reaffirmed the loan. When you call me and ask, why didn't we reaffirm the mortgage?; I'll say, because it's a very bad idea for you and malpractice for me to reaffirm a mortgage debt. You don't need to reaffirm either to keep the home, to be able to refinance the loan (with a different lender), or to show a record of your faithful monthly payments. So, there's no good reason to do it.
At the time of your chapter 7 bankruptcy, when your financial circumstances are at the lowest point, it's not a good time to bind yourself to paying back the largest debt that you have. The bankruptcy court would have to find that it's in your best interests to reaffirm; and, it's not likely any judge would agree, especially when you don't have to reaffirm to keep the home.
Sept. 20, 2021 - Chapter 13 Plan is the Best Debt Consolidation Program
To my knowledge, there are three forms of debt consolidation: the worst - you engage with a firm to which you pay a monthly amount and turn over a list of your creditors, then they promise to negotiate with your creditors (We'll call this "The Negotiators"); a better way - you borrow an amount of money sufficient to pay off all your creditors, then you have one monthly payment to make to just one creditor ("The Debt Consolidation Loan"); and the best - you file a chapter 13 bankruptcy ("Chapter 13 Plan").
With the Negotiators, you are paying a monthly amount, a large part of which is a fee for their service and the rest will be accumulated for the purpose, when there's enough accumulated to be effective, of negotiating with one-creditor-at-a-time. Meanwhile, the other creditors continue to charge you interest, then charge you default interest, and then send you threatening letters and lawsuits.
A Debt Consolidation Loan is a great idea, if you can find a lender who will loan you enough to pay off everyone and won't charge you too much for interest and will keep the payment affordable. It's a great idea, if you can do it. Maybe you have a friendly relative who will make a friendly, low-interest loan.
A court-approved Chapter 13 Plan is the best, because when you have filed a bankruptcy, all of your creditors will be notified and they will stop all collection action, the amount of debt freezes, interest stops accruing, the Chapter 13 Plan will state a monthly payment which has been found to be affordable, and once you have made all required payments, the balance of unpaid debt will be discharged. And, one probable bonus - the monthly payment will likely be less than the total of all your minimum monthly payments.
Sept. 18, 2021 - Chapter 7 Discharge of Car Debt Creates Car Replacement Option
A chapter 7 discharge will include a discharge of debt secured by your car. If you want to keep your car, just keep making the payments. But, once the dust settles from the bankruptcy, you will have an opportunity to replace that vehicle. Why? You may have an auto that is collateral for debt that far exceeds value; this may have happened when you traded in a car and its loan for another car with a bigger loan. After bankruptcy, you may be able to borrow for another car, getting rid of that car with the huge monthly payment, replacing it with a better car and an affordable monthly payment. How? Just stop making payments on that car with the big payments; give it back to the lender. That lender will pick up that car and sell it, but won't be able to claim the balance of the loan from you, because that debt was discharged in the bankruptcy. And, you will find it too easy to borrow money to purchase a different car (car lenders love you after chapter 7 bankruptcy). Be sure to shop around for affordable payments; you'll pay higher interest after bankruptcy, so you'll just have to be moderate about the amount you borrow.
Sept. 17, 2021 - Importance of Completing All Plan Payments in Chapter 13
A chapter 13 plan is supported by a court order that says in order to gain the benefit of bankruptcy, preventing creditors from bothering you with collection actions and getting a discharge of all debt not paid by the plan, you must make all payments, to the Trustee, to your home mortgage lender, and to your car loan lender, within the time limit stated in the plan. Under current court interpretations of the law, if you fail to make all required payments within the period of time stated in the chapter 13 plan, you may not get a discharge. Seems harsh! Imagine: you've paid thousands of dollars to the Trustee over 5 years and thousands of dollars on your home mortgage, but at the end of the 5-year period, you are a thousand dollars short (or, maybe just $300). Presently, the courts are denying discharge, because the final payments are late.