The Mayans were Wrong... Now what?

I woke up this morning, and noticed the sun had, in fact, come up.

Once I had finished a cup of coffee, I realized that my back yard had not been converted into a smoking hole in the ground, nor had my house been swallowed by an earthquake.  The earth appeared to be, for the most part, still here.  A brief check of the news and various social media sites confirmed what I had already suspected...the world did not end on December 21, 2012. 

The news might not be so good for everyone, though.  Over the past year, I had heard anecdotal reports that some people who believed that the Mayans accurately predicted that the end of the world on December 21, 2012 have maxed out credit cards and incurred large amount of debt under the belief that they would not have to repay.  Essentially they were counting on cosmic happenstance to intervene as a sort of galactic loan forgiveness program. 

Wishful thinking, perhaps. 

Then again, the reason others are struggling with debt they cannot afford to pay may be a bit more grounded: the loss of a job, persistent unemployment, medical expenses, foreclosure, poor spending habits, etc.    Whatever the case, Kelsey & Trask, P.C. stands ready to help.  To schedule a consultation with an attorney to address bankruptcy or debt relief, call 508.655.5980. 

We all might as well start off the 14^th b’ak’tun with a fresh financial start.

FAQ #13: What debts will bankruptcy not erase?

Even if you receive a general discharge, some particular debts are not discharged under the law. You may still be responsible for most taxes and student loans; domestic support and divorce settlement obligations; most fines, penalties, forfeitures and criminal restitution obligations; debts which are not properly listed in your bankruptcy filing; and debts for death or personal injury caused by operating a motor vehicle, vessel or aircraft while intoxicated on alcohol or drugs. Debts incurred to pay non-dischargeable debts will themselves be non-dischargeable as well. In simpler terms this means that you cannot, for instance, use a credit card to pay your student loans and then discharge the credit card.

Also, if a creditor can prove that a debt arose from fraud, breach of fiduciary duty, or theft, or from a willful and malicious injury, the bankruptcy court may determine that the debt is not discharged.

4 Facts Your Divorce Attorney Should know about Bankruptcy? Fact #3: Jurisdiction over Your Debts

The Divorce Court has the power to divide not just assets, but also debts. Just as the Court can assign the property titled to one spouse to the other spouse if the equities require, the Court can also order one spouse to pay the debts of the other spouse. But the Bankruptcy Court has the power to discharge debts. So what happens if the Divorce Court orders a spouse to pay a joint credit card debt, but the Bankruptcy Court gives that same spouse a discharge of that debt.

For purposes of this example, let's assume that the Husband and Wife were each ordered to pay half of a joint credit card debt. The Wife then files for bankruptcy and the credit card debt is discharged. Both the Husband and Wife were liable for the whole debt to the credit card company, but now only the Husband is liable to the credit card company. If the payment ordered by the divorce court is not categorized as a domestic support obligation (discussed in our next post) then the Wife no longer owes the debt to the credit card company or the Husband, and the Husband is left having to pay the entire debt.

It is possible for Separation Agreements or Divorce Judgments to avoid this problem by using assets to pay (or offset) debts, instead of trying to reassign debts. If enough assets are not available to do this then payments such as alimony, which are domestic support obligations, can be used instead to accomplish this same goal and avoid the discharge problem.

This issue can be further complicated when the debt that is at issue is a mortgage or secured debt. In order to avoid costly mistakes for divorce clients, we encourage divorce practitioners to consult with bankruptcy counsel when there is the potential that one party in the divorce will file for bankruptcy.

Click here to read Fact #2: Domestic Support Obligations.

Should damage to my credit keep me from filing bankruptcy?

Assuming your bankruptcy goes to discharge without objection, you will now find yourself with the daunting task of rebuilding your credit, post-bankruptcy. A Bankruptcy appears on your credit report and will negatively impact your credit score. Because bankruptcy negatively impacts your credit, borrowing money may be more difficult, and when possible, may be more expensive.

A bankruptcy filing remains on your credit report for 10 years, and individual debts discharged in bankruptcy for 7 years following your discharge. Therefore, whenever you apply for credit, a new loan, or undergo a background check, a previous bankruptcy will be visible to the loan officer, hiring manager or credit card company.

But what is the alternative?

If you have a significant amount of debt and can't make the payments then your credit is already damaged. If you are making the payments but can only make the minimum payments, then you may be able to save your credit but only if you are able to find a way to pay down your debts.

A good guideline for deciding if you are a potential candidate for bankruptcy is to consider how long it will take you to pay down your debts. If you make a realistic budget of all of your income and expenses and pay all of your excess income towards your debts, how long will it take you to pay them off? If the answer is five or more years, then you may be a good candidate for bankruptcy and should consult with an attorney to find out more about your options.

As long as you cannot pay down your debts you won't be able to borrow or use your credit anyway, so filing bankruptcy may be a better alternative. This is especially true if you are only paying minimum payments and have no realistic chance of paying down your debts in the foreseeable future.

How filing (or not filing) affects your credit is only one factor in making a decision about whether or not to file a bankruptcy and you should consider how your credit might be affected by your debts regardless of whether or not you file a bankruptcy.

What’s With My Credit Score? - Infographic

Reprinted from Free Credit Score – CreditSesame.com

Where's MY Bailout?!

With the economic turmoil that has well entrenched itself in the United States now starting to develop in Europe, and economic experts on both sides of the Atlantic saying something ranging from "we're not out of the woods yet" to "the worst is yet to come", it seems that we all have continued interest (and perhaps suspicion) regarding the concept of the "government bailout".

We all learned that the U.S. Government would be spending billions of dollars bailing out General Motors, Citigroup, Bear Stearns, Bank of America and AIG, and now, there are discussions of the European Union bailing out the entire government of Greece. With the billions (trillions?) of dollars at stake in these government sponsored bailouts, many people have asked, often rhetorically:

"I am overwhelmed with credit card debt; I've been out of work for months; these unexpected medical bills are piling up - I don't know what do do. Now, I'm so far behind, I can't even afford the minimum payments, and I fell behind on my mortgage - I might loose my house. Where's MY bailout?"

Surprisingly, there is a program that, if you qualify, will permit an individual, a business, or a family to seek relief of certain debts, such as credit cards, medical bills, even certain types of civil judgments so that they may be paid off for pennies on the dollar, or, often, discharged entirely. Even more surprisingly, this is not a new program: it is the Bankruptcy laws of the United States.

But wait...BANKRUPTCY? That's not a bailout. It hurts my credit!

That is true. All actions have consequences, and the government bailouts we see in corporations have their own consequences. The public trust in these businesses may be shaken, profits may be hurt, and their corporate credit will suffer. I will not attempt to equate personal bankruptcy with the Emergency Economic Stabilization Act of 2008; my comparison is only an analogy, but I will maintain that if you are in a untenable financial situation, you do have options to protect your self, your assets, and your family. For more information regarding your own personal "bailout", contact Kelsey & Trask, P.C. for an initial bankruptcy consultation. We would be happy to meet with you to discuss your situation and address the benefits and risks of bankruptcy, as well as alternatives to bankruptcy, such as debt settlement.

Should I Pay My Student Loan with a Credit Card?

Under Section 523(8) of the Bankruptcy Code student loans are excluded from discharge in bankruptcy. This means that in most cases after you go bankrupt (Chapter 7 or Chapter 13) you will still owe your student loans.

So you have a great idea, right? Why not pay your student loans with a credit card, which you could then discharge? WRONG!

Credit card debts can be discharged except for a few exceptions. For example, credit card debt is non-dischargeable when the funds were obtained with the intention of filing bankruptcy, or otherwise fraudulently (like filing a false application).

Furthermore, if a credit card is used to pay a non-dischargeable debt like a student loan or taxes, that portion of the debt will be treated the same as the original debt.

This means that even if the credit card company doesn't object to the discharge, they still might be able to pursue you after the discharge, just like a student loan company could (although best practice for the credit card company would be to object prior to the discharge).

Even worse, if the bankruptcy court found that you were attempting to commit a fraud upon the Court by moving this debt, the Court could deny your discharge altogether.

If you are looking for creative ways to pay down your student loans you should consult with an attorney regarding your options.