5 Common Misconceptions about Bankruptcy: #4 Filing is Free

Unlike other legal issues, unmanageable financial debt is a problem that many are too ashamed to discuss with their friends and family. This means that many people piece together their knowledge about bankruptcy from unreliable and confusing sources. The result is that there are a lot of misconceptions about bankruptcy. In the next 5 posts we will write about the most common misconceptions that we hear from clients in our office.

Common Misconception #4: Filing is Free

Many people believe that filing for bankruptcy means you have reached a point where you have no money left.  If you have no money left, then filing for bankruptcy must be free, right?

Actually, most people who file for bankruptcy have some assets and some income.  They simply don't have enough income or assets to keep up with their debt.

And filing for bankruptcy is not free, but it is a bargain.  The filing fee for filing a Chapter 7 Bankruptcy is $306 and for a Chapter 13 Bankruptcy is $281.  In addition, our attorney's fees range from $999 to $3,500 for a consumer bankruptcy, depending on how complicated the case is.  For clients who are concerned about paying a few thousand dollars to file for bankruptcy, we usually point out that this amount is much much smaller than the amount of debt being discharged in exchange.  If someone told you that they would settle your $50,000 credit debt for $2,000 you would probably take them up on it.

For a more specific calculation of what a bankruptcy would cost in your case, visit our Bankruptcy Cost page.

5 Common Misconceptions about Bankruptcy: #5 Picking & Choosing

Unlike other legal issues, unmanageable financial debt is a problem that many are too ashamed to discuss with their friends and family. This means that many people piece together their knowledge about bankruptcy from unreliable and confusing sources. The result is that there are a lot of misconceptions about bankruptcy. In the next 5 posts we will write about the most common misconceptions that we hear from clients in our office.

 Common Misconception #5: Picking & Choosing

Many people believe that they get to pick which debts to "bankrupt." Some clients don't want to report a debt owed to a family member, because they don't want that person knowing about their bankruptcy. Other clients only want to "bankrupt" specific debts but not all of their debts. That is not how bankruptcy works. 

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.

Visit the Office of the Future in the World of Tomorrow!

Thanks to FirmFuture presenter Gabriel Cheong for inspiring us to make better use of our iPad in the office.

Now when you schedule an initial consultation we can use our iPad, displayed on the flat screen TV (pictured above), to show you:

• how to calculate Child Support or Alimony online
• how to create Parenting Plans online
• how calculate the cost of Bankruptcy online
• or evaluate the length of time a Bankruptcy will take online.

And if you want any of the information printed out so you can take it home, our new laser HP printer can print directly from the iPad right in our conference room, using WiFi magic.

These are just some of the ways that we are trying to design our new office, at 160 Speen St, Suite 202, Framingham, MA, to be as friendly, convenient and useful to current or potential clients.  If you are interested in checking it out, give us a call at 508.655.5980 or set up an appointment online here.

Special Considerations When Surrendering Condominiums in Bankruptcy

When you file for Chapter 7 Bankruptcy, and indicate on your bankruptcy schedules that you intend to surrender your real property and discharge the underlying mortgage debt, I often recommend to my clients that they stop paying the mortgage as soon as the decision to surrender is made. Upon discharge at the conclusion of the bankruptcy, the debtor’s ongoing contractual obligation to pay will be discharged by the Bankruptcy Court, meaning that the debtor no longer has to legally pay the mortgage. Of course, the bank now may move to foreclose on the property and re-take title to protect its secured interest in the now-discharged loan, but the lender will not incur any new legal liability to the bank. This applies even if months (or even years) pass between when the debtor filed his Chapter 7 case, and when the bank finally completes the foreclosure on the surrendered property.

You should pay special attention to situations where the property you are surrendering real property that is subject to an fee or assessment from a condominium association, homeowner’s association, or cooperative corporation. Under 11 U.S.C. § 523(a)(16), pre-petition fees and assessments are dischargeable in a debtor’s bankruptcy but all post-petition condo fees, association dues, or co-op charges are not dischargeable, “for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in [the property]. This means that you are legally obligated to pay these fees (but not the mortgage) for as long as you own the property – up to and until the lender formally takes title to the property in foreclosure. Given that some lenders can take months (or even years) to foreclose on a property surrendered in a Chapter 7, 11 U.S.C. § 523(a)(16) places a significant financial burden on owners of condos, homeowner’s association members, and co-op tenants. The Automatic Stay will provide some relief to the debtor during the pendency of the bankruptcy, and the association cannot take any action to collect the fees while your case is before the court. However, the monthly charges will continue to accrue. If you do not pay the fees, the association may commence legal proceedings or make other appropriate efforts to collect the debt.

If you own property that is subject to such a fee or assessment, be sure your bankruptcy attorney is aware of these obligations. While there is no way to discharge the post-petition fees or assessments, it is possible to minimize the impact of 11 U.S.C. § 523(a)(16). Options include:

1. If possible, wait to file your bankruptcy case until after the foreclosure auction has taken place, thereby ensuring all fees are pre-petition debt.

2. If you are no longer residing in the property, consider renting out the property, and use the rental income to pay the association dues.

3. Don’t pay. However, if the debtor lives in a jurisdiction where foreclosure is taking years, the debtor risks exposure to a lawsuit for personal liability. Nevertheless, once the foreclosure is complete, the foreclosing lender must cure the deficient fees and assessments in order to pass clear title to the new buyer. This option involves a great deal of uncertainty, and risk to the debtor, but may be the only option in some circumstances.

4. Consider a short sale. Since your mortgage deficiency will be discharged (or was already discharged), a short sale can significantly shorten the amount of time the property is in your name, and can expedite the transfer of title.

New Median Income Figures Released for all Bankruptcy Cases Filed after November 1, 2011

The United States Trustee Program has released new Census Bureau data which is used for means testing calculations regarding Chapter 7 bankruptcy petitions, and for calculating the plan commitment period for Chapter 13 cases. Due to the updated figures, the various standards for the expenses in the "means test" form will change for all bankruptcy cases filed on or after November 1, 2011.

The new figures reflect a decrease in the median income, and will make it more difficult for individuals to file for Chapter 7 bankruptcy. Additionally, the decrease in the median income, coupled with amendments to the National and Local standards may require a longer commitment period for Chapter 13 cases.

In Massachusetts, the new Median Family Income figures are as follows:

Family Size of 1: $53,496
Family Size of 2: $64,174
Family Size of 3: $80,337
Family Size of 4: $99,067

In addition, add $7,500 for each individual in excess of 4.

For a list of the updated median family income figures for other states, as well the updated National Standards and Local Standards is provided here.

If your household income exceeds the median income for your state of residence, other factors are considered for means testing criteria. In addition to updated median income figures, the Department of Justice and Internal Revenue Service have also updated National Standards for Food Clothing & Other Items; National Standards for Out-of-Pocket Health Care Expenses; and Local Standards for Housing, Utilities and Transportation.

While the changes in the Median Income, National Standards and Local Standards have effectively "raised the bar" for new Chapter 7 cases, the changes are not so significant to place bankruptcy out of reach for most individuals and families requiring assistance. If you would like to know more about your options for finding financial freedom, contact Attorney Matthew P. Trask for an initial debt-relief consultation, or call 508.655.5980.

5 Contributors to Your Credit Score [Infographic]

Though credit scores play an integral role in our lives, few of us actually know which factors make up the numbers assigned to us and how they are weighted. The following credit score infographic sheds some light on this subject.

Courtesy of: Credit Card Education

Reprinted from: CreditCardEducation.com.

Kelsey & Trask, P.C. provides this graphic for informational purposes only. We do not endorse nor claim endorsement from the source site or organization. Kelsey & Trask, P.C. is not responsible for any information contained therein, unless indicated specifically on that site.

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.