Wednesday, October 26, 2011

FAQ #30: I Received My Discharge, but Creditors are Still Calling Me. What Should I Do?

Although you no longer owe any scheduled (and dischargeable) debts following your bankruptcy, it is important that you do not simply ignore a creditor’s efforts to collect a debt after discharge.

Call your attorney right away, and be sure to provide copies of any letters, bills or notices you received, or the name, business name and telephone number of the creditor or collection agency that has contacted you. Any creditor that received notice of your bankruptcy and was included on the creditor matrix cannot continue to collect any debt that was discharged. Any entity that does so is in contempt of an Order of the U.S. Bankruptcy Court.

Any efforts to attempt to collect a discharged debt are unlawful, and if the creditor’s actions are deemed to be a willful violation of the Court’s Order, the creditor can be forced to pay the debtor’s actual damages, and, in certain cases, punitive damages. As a practical matter, most cases of a creditor attempting to collect on a discharged debt can be resolved with a simple letter to the creditor, as well as a copy of the Discharge and Creditor Matrix. Additional bankruptcy litigation (and the costs associated with having to go to Court is usually not necessary.

Monday, October 24, 2011

FAQ #29: What happens if I forget to add a creditor to my bankruptcy?

As we discussed in response to a previous question (Do I have to include all my bills when I file bankruptcy?), every debt you owe must be completely and accurately disclosed in the documents filed to commence your bankruptcy case. Bankruptcy is not a "pick and choose" proceeding. You cannot not put some debts in and leave other debts out. Intentionally omitting debts from your bankruptcy case may result in the non-dischargability of those debts, the dismissal of your bankruptcy case, fines, or imprisonment for bankruptcy fraud.

The bankruptcy court requires that you undertake an appropriate level of “due diligence” to determine your debts and your potential creditors. This means that you need to make a concerted effort to review supporting documentation, such as a credit report, account statements, collection notices, and other information pertaining to the existence of a debt or potential claim. When you sign your bankruptcy petition, and testify at the §341(a) Meeting of Creditors, you are indicating to the Court that your petition is “true, accurate and complete”. Bankruptcy will only discharge “scheduled” debts – meaning the creditor must receive notice of the bankruptcy – and any debt not listed in your creditor matrix may not be discharged.

So, then, what happens if you unintentionally omit a creditor?

In most cases, if the mistake was unintentional (i.e., you forgot about the debt, or did not know about the claim), and you have not yet received your discharge, it is possible to file an amended schedule of your debts to include the missing items. This involves preparing a new list of debts, and preparing a Motion for Leave to Amend Schedules, which is a formal request to the Court for permission to add the new creditors. The Court will almost always allow the motion, but there is a $26.00 filing fee for the Motion to Amend. Additionally, the Court will usually give your added creditors sufficient time to object to claimed exemptions or the dischargability of the new debt. The added time will delay your discharge. Still, it’s better to wait a little extra than to owe the debt following the bankruptcy.

If you have received your discharge and your case has been closed, the process is more complex. You must first request that the Court re-open your bankruptcy case. Cases can be re-opened for any number of reasons, including “to administer assets, to accord relief to the debtor, or for other cause” (See 11 U.S.C. § 530(b)). Courts have nearly universally held that re-opening a case to include an unintentionally-omitted creditor will “accord relief to the debtor”, and will allow the request. The Court will charge a filing fee of $260.00 to re-open a closed bankruptcy case, so be sure to conduct your “due diligence” and get things right the first time.

Monday, October 17, 2011

FAQ #28: Can I file Chapter 7 Bankruptcy Even if I Have Filed Before? How many times can I file bankruptcy?

Whether or not you may re-file (and the amount of time that must pass before you may re-file bankruptcy) depends on whether or not you received a discharge under your most recent bankruptcy filing.

If you received a discharge under a Chapter 13 bankruptcy case, then you cannot file for relief under Chapter 7 unless:

1. Six (6) years have passed since the discharge in the Chapter 13 case; or
2. You paid at least 70 percent of your allowed unsecured claims in the Chapter 13 case, and your plan was proposed in good faith and represented your best effort to pay.

If you received a discharge under a Chapter 7 bankruptcy case, then you cannot file for relief under Chapter 7 unless eight (8) years have passed since the discharge in the previous Chapter 7 filing.

If you filed a Chapter 7 or Chapter 13 case that was dismissed because you failed to obey court orders or you voluntarily requested a dismissal and did not obtain a discharge, then you cannot file for relief under Chapter 7 unless 180 days have passed since the dismissal of the previous filing.

Assuming that you meet the above time restrictions for re-filing, there is no limit to the amount of times you can file bankruptcy.

Thursday, October 13, 2011

FAQ #27: What happens to my tax refund when I file bankruptcy?

Your tax refund is what the bankruptcy court would consider an “unliquidated asset”, and is treated by the bankruptcy court like other personal property. Any unissued tax refunds would need to be listed on your bankruptcy schedules as assets, and properly exempted if you want to prevent that property from being seized by the Trustee and applied to pay your creditors. If the tax refund is fully exempt or is abandoned by the trustee, you will not be required to turn it over to the bankruptcy Trustee.

Tuesday, October 11, 2011

FAQ #26: If I am not married, but living with my partner and he pays most of the bills, will that affect filing?

Having other people in your household will not implicate your cohabitant(s), inasmuch as the bankruptcy will not affect their credit or discharge any of their debts. However, the means test (for Chapter 7 eligibility or Chapter 13 plan commitment purposes) looks at the debtor’s “total household income” when considering the income available to the debtor. Therefore, it may be necessary to disclose to the court your cohabitant’s income. Some trustees will accept the argument that, in cases where the cohabitants maintain sufficiently separate finances, the debtor’s total income is not available to the debtor. However, the debtor would need to disclose, as income, the portion of income made available for the debtor’s benefit, including any amount the cohabitant pays toward the debtor’s monthly expenses.

Friday, October 7, 2011

FAQ #25: After bankruptcy, what steps need to be taken to rebuild my credit?

First and most importantly, time heals all wounds. Only time can fully repair the damage from a bankruptcy (and being significantly behind on a lot of credit card debt beforehand).

The best thing you can affirmatively do right now is to start developing a history of on-time payments to creditors that report to your credit bureaus. Pay your bills early, or at worst, pay them on time.

Because of the way the bankruptcy system works and the way creditors report reaffirmed debts, you will not get credit for on-time mortgage payments or car payments. Therefore, it is necessary to establish a new account that you can make solid, on-time payments on. We recommend applying for a secured credit card or gas card. Before you apply, take the time to confirm that the card management company reports to all three credit bureaus every month. If they don’t report every month, or if they do not report to all three, go elsewhere. Use the card, but pay it off early or on time, every month. Carrying a small balance (less than $100 is OK), but never utilize more than 50% of the available credit.

If you have a mortgage, then as soon as feasibly possible, refinance your mortgage. Paying off the current loan and keeping a new loan current will, once again, give you credit for on-time mortgage payments.

In addition, as soon as you feasibly can, refinance your car loan, or sell your car and purchase a new car. Again, the key is to obtain a new loan that will report to the credit bureaus. Post-bankruptcy, many current secured lenders will not report payments to the credit bureaus. Of course, be sure to keep that loan current.

Obtain copies of your credit reports approximately 90 days after receiving your discharge. Ensure every debt is reported as “Discharged in Bankruptcy” or something similar. If they are not, send a letter to the creditor and the credit bureau requesting that information be reflected accurately. Remember, your credit report is a list of your “debts”, and right now, you have no debts aside from your house and car (and any non-dischargeable debts). Make sure your credit reports accurately show that, although you had debts discharged in bankruptcy you should not currently owe any money to dischargeable creditors.

Besides paying the above-described loans on time there are also a number of things you should avoid doing:

1. Avoid opening credit accounts with co-signers, if possible. Having a co-signer on an account indicates you are a greater credit risk.

2. Avoid financing with finance companies or sub-prime lenders, if possible. Doing business with these companies can actually lower your credit score.

3. Avoid future financial risk. Bulk up your savings account. Develop a budget, and stick to it. That way, when emergencies or unexpected expenses come up, you can pay in cash, rather than increasing your debt.

4. Some industry experts recommend that you obtain a small personal loan, and use the funds to open a CD account. Pay the loan on time, and when the loan is paid off, you will have some funds in savings, which you can take out once the CD matures. Of course, this only works if you can fit these payments into your budget. Setting up a workable budget should be your first priority.

Wednesday, October 5, 2011

FAQ #24: If my partner is listed as an authorized user on my credit cards, will his credit be hurt?

This is an interesting question, and the answer often depends on how the information is reflected on a credit report. An “authorized user” is someone who is merely authorized to make purchases on an account, but bears no legal responsibility to repay the debt. Some credit bureaus (TransUnion in particular) often do not report credit accounts to the individual who is an authorized user only; but others sometimes do (such as Experian).

Additionally, not all credit card companies report authorized users to the credit bureaus. If you are an authorized user on a credit account, and that account is discharged, there may be a notation in your credit profile that indicates your prior access to an account, and the fact of that accounts discharge in bankruptcy. While an intelligent loan officer should understand the distinction when making a credit decision, it is important to obtain a copy of your credit report if the primary cardholder files bankruptcy in order to understand how that debt is reporting, and contact the credit bureau in writing to correct any errors.

Monday, October 3, 2011

FAQ #23: Why would I choose bankruptcy over debt consolidation or settlement?

Debt consolidation involves getting one loan to pay off multiple smaller loans. The advantages are that the debts are paid off in full, often at little to no damage to credit, and the new loan may have more favorable terms over the old loan, such as a reduced monthly payment, a larger monthly payment (that will insure the loan is paid off quickly) or a lower interest rate.

Consolidating loans takes the logistical hassle in making sure that multiple loans are paid on time and ensures that the debtor only has to make one payment, and gives the debtor the ability to “shop around” for the best deal. However, since debt consolidation requires a new loan, someone with excessive or past-due debt may not be able to obtain a consolidation loan. Additionally, depending on the debtor’s situation, debt consolidation may not provide enough relief, especially if the borrow cannot afford the payments on the new loan.

Debt settlement is the process of attempting to pay your existing debts for less than you owe. No creditor is required to settle a debt, but for financial and practical purposes many companies will compromise the amount owed. If your creditors agree to accept less than you owe, you must usually make a lump-sum payment, which may be difficult. Also, paying a debt for less than you owe has tax consequences – the “forgiven” portion of the debt is considered to be income by the IRS, and, with certain exceptions, you will be required to pay taxes on that income.

Bankruptcy, on the other hand, ultimately involves the discharge of the obligations, meaning that you are not required to pay them back. Bankruptcy also provides other legal protections that may be beneficial to someone needing financial assistance. For example, the automatic stay in bankruptcy is a useful tool in temporarily stopping foreclosure proceedings brought by your mortgage holder(s), as well as halting collection efforts, collection calls and lawsuits filed by your creditors. Click here for more information on chapter 7 and chapter 13 bankruptcy.

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