Can you pay your creditors after your bankruptcy?

You absolutely are able to do this. You may voluntarily pay any debt you wish after a bankruptcy, even if it has been discharged. You are under no obligation to do so, and the creditor can never legally request or force you to pay debts which have been discharged.

So, why would you want to pay a creditor if you don’t have to? Because all debts are discharged in bankruptcy, unless they are nondischargeable, like student loans, there is no obligation to pay. But if the debt is owed to a family member, or your family doctor, you may be inclined to pay this debt back. Not because you have to. But because you want to.

You should be careful, however, in choosing the debts that you wish to pay back after the debt has been discharged in a bankruptcy. Be especially careful if the debt is a credit card. Sophisticated creditors sometimes find ways to re-obligate you on the debt.  I have a few clever agreements that create a brand new debt, one that includes an amount that was discharged, and the new debt becomes an obligation that you have to pay, even the part of it that used to be discharged.  So, be careful what you sign, call your bankruptcy attorney if you don’t understand what will happen to the debt that was discharged.

The surprising benefits of bankruptcy

Yesterday I had the occasion to speak with fellow on the telephone. He was taking advantage of a service we offer in our office where we will conduct initial interviews by phone. These interviews are just as complete and thorough as our interviews conducted in the office. The same kind of preparation goes into the interview and our clients will frequently download our interview forms have been completed, even sometimes e-mailing them to us so that we can review them together.  (Isn’t techology great!)

This gentleman was very well-prepared. In the 40 minutes that we spent talking on the phone he informed me that he expected that he was going to lose his house and was prepared to do that if that’s what it took to get his finances under control. He had over $60,000 in credit card bills and his income has gone down because he was recently disabled. He was quite despondent.

I could literally hear the relief in his voice when I explained to him that not only could we save his house but we could eliminate his second mortgage, as well as his credit card debt, with a very modest monthly payment. This gentleman would’ve qualified for Chapter 7 due to his low income on disability.  But, because we are able to strip off second mortgages in Chapter 13 under certain circumstances, he was able to get a much better result in a Chapter 13 then he could have received a Chapter 7.

To say he was surprised at the result would be a gross understatement. Elated would be a better word.

This gentleman had done his homework. He was well-prepared. He has spent a lot of time on the Internet researching his situation. But, he had come to the wrong conclusion. Happily, the bankruptcy laws will work to his benefit and he will not only able to keep his house, but he will actually lower his housing costs.

The point of this post is simple. There is nothing wrong with researching your situation on the Internet, however, don’t come to any final conclusions until you talk to a bankruptcy expert. I have been doing this work for over 24 years and am a board certified consumer bankruptcy specialist. If you want to know your options and get straight answers, you can be confident that our office will tell you what can and cannot be done for you with a bankruptcy.

Automatic Stay – How it Protects You

When a bankruptcy case is filed the creditors are instantly stopped from taking, or continuing to take, any action against you. This is called the automatic stay. It is one of the most important elements of a bankruptcy case.

After filing, the automatic stay  state prevents creditors from calling you, attempting to collect their debts, sending you letters or other correspondence to collect the debts, filing a lawsuit against you, or continuing a lawsuit that has already been filed. Also, creditors can not start or continue a foreclosure proceeding. They are also stopped from filing any kind of garnishment against your paycheck and they cannot touch your bank account.

You can see how powerful this is!  Because creditors can be punished if they violate the automatic stay, they are generally inclined to obey the law and take no action against you in violation of the automatic stay.

Remember, however, that the stay only arises upon the filing of the case. Sometimes people get confused and think that by hiring a bankruptcy attorney they are immediately protected. This is not true. In our office we take creditor calls and correspondence from creditors just as soon as we are hired. But we also make sure that we remind our clients that the bankruptcy stay is created only upon the filing of the case. Therefore, although most of the time the creditor harassment stops once the creditor is notified to call our office to verify that we represent you, there is no official protection until your case is actually filed with the court.

Chapter 13 cases that pay only attorney fees DISMISSED!

Consumers today regularly shop for the best bankruptcy attorney.

This does not necessarily mean the best price, often meaning the lowest price, for these legal services!

Since the bankruptcy law was significantly changed in 2005, attorney fees for bankruptcy services have increased rather significantly. As a result, it is sometimes difficult for someone who needs a bankruptcy to pay for the costs associated with it. Sometimes, attorneys will offer to file a Chapter 13 bankruptcy to someone who is qualified for Chapter 7 but is having problems coming up with the fee to pay the attorney.

The reason for this is that the attorney fees in a Chapter 13 can be paid over a period of 3 to 5 years. So, one strategy that a few attorneys are using today is to allow the person to file a Chapter 13 and pay back virtually none of the unsecured creditors, which is just like a Chapter 7, and pay the attorneys fees out over 3 to 5 years. Recently, the court has disallowed such practices.

A bankruptcy Court in Massachusetts ruled that this is an abuse of the bankruptcy system. The attorney in that case was ordered to refund all of the fees charged to the consumer. The court held that the cases were not filed in good faith.

In our office, we offer a payment plan to people who need our services to file a Chapter 7 but also need time to pay. We generally advise our clients to stop make in payments to credit cards and medical bills and we take all of the creditor telephone calls, communicating with the creditor and helping our clients to not receive the abusive phone calls.

Sometimes we take these telephone calls for several months while our clients save up the money to pay for our services. This works very well and has for many years.  Its part of the service we provide.

Tax refunds and bankruptcy

I regularly receive this question: Will the trustee take my tax refund every year?  The answer is, as usual, it depends. So lets take a look at some of the factors that go into answering this question.

First, in a Chapter 7, you want to look at what time of the year you filed your bankruptcy. The trustee, or more accurately, your bankruptcy estate, only owns that part of the refund that is due to you as of the date that you file. So, if you file on July 1, then one half of the calendar year has passed and one half of the tax refund that you might receive in the following year could be considered part of your bankruptcy estate and could be taken by the trustee.

However, as usual, there is more to this. Part of your tax refund might be due to the child tax credit or due to earned income credit. The trustee is not entitled to any of this money. Also, there are exemptions which can be applied to save or protect part of your tax refund. In Ohio, there is a wild card exemption of slightly over $1000 which can be applied to any property, including your tax refund.

In Chapter 13, you’re in a bankruptcy for up to five years. Therefore, every tax refund that you receive while you are in a Chapter 13 bankruptcy may be considered by the trustee. The same rules apply. The trustee is not entitled to take any earned income credit or child tax credit. Also, you generally are entitled to apply your exemption to the tax refund.

So, you can see, the answer is not as black and white as it may seem and the application of these rules means that in one case a family might be able to keep a rather large tax refund and in another case a family may lose a large portion of the tax refund. It all depends on the circumstances of the case, and what the tax refund is based upon.

Do I qualify to file bankruptcy?

Many people wonder if they qualify to file bankruptcy. They know that they are in financial trouble. They know that they cannot pay all of their bills. Their income has dropped due to job loss or illness. Bankruptcy is an option they are considering. Do they qualify to file, and if so what will the bankruptcy do for them?

There is no minimum amount of debt that is required to qualify to file bankruptcy. Our office has filed individuals who owe less than $5000. And, we have filed bankruptcy for those who owe more than $1 million dollars. In both cases, the individual involved needed to file the bankruptcy. What may be impossible for one person to pay might be very possible for another person or family.

There are limits on what you can owe in a Chapter 13 bankruptcy. Most consumers do not have a problem with these limits. There is no such limitation in a Chapter 7. However, if you have the ability to pay all or some of your debt, then the law will probably only qualify you for a Chapter 13. This is actually good news for the consumer, because the ability to pay some of your debt much better than having no ability to pay anything at all.

Other factors to consider if you are qualified to file bankruptcy is whether or not you have filed a previous bankruptcy. If you have filed a Chapter 7 in the previous eight years, and received a discharge in that case, then you are not qualified to file another chapter 7. The waiting time between Chapter 7 cases is eight years.

This does not mean, however, that you are out of luck if you need to file bankruptcy and have filed a Chapter 7 within the last eight years. You may file a Chapter 13 and get a discharge if you have filed no previous bankruptcy and received a discharge within the last four years. In Chapter 13, you pay back only 1% to 100% of your unsecured debt. Therefore, a Chapter 13 actually may be almost identical in its result as if you had filed a Chapter 7.

Am I judgment proof?

Dear West Hurley & Malkiewicz,

I am considering making an appointment for bankruptcy protection but a friend told me about a program that makes you “judgement proof” if your only income is social security. I’m not sure if I can qualify for that because my husband is still working. (The credit cards I have are all in my name).

If I would qualify for this could your company handle this for me?

Sincerely, (name removed by Rick West)

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Great Question.

There is no such program. But, often folks who have only social security income are judgement-proof, and I frequently tell them they need not file, since creditors cannot garnish social security income.

But, this does not mean that one has nothing to fear from creditors if their income is only social security. I frequently see retired people who have savings in the bank that could be taken by creditors, or houses paid off that could be lost to creditors, or vehicles that are paid for.

Yes, creditors, even credit card creditors, can take your house and car if you don’t pay them.

So, you see, just having social security income and not looking at other aspects of your situation could be a recipe for disaster.

Always best to call us up and discuss these things. The call is free. You don’t even need to come to the office. We are happy to help you understand if you are judgement proof, – really – or not.

Do I qualify to file bankruptcy?

Many people wonder if they qualify to file bankruptcy. They know that they are in financial trouble. They know that they cannot pay all of their bills. Their income may have dropped due to job loss or illness. Bankruptcy is an option they are considering. Do they qualify to file, and if so what will the bankruptcy do for them?

There is no minimum amount of debt that is required to qualify to file bankruptcy. Our office has filed individuals who owe less than $5,000. And, we have filed bankruptcy for those who owe more than $1 million dollars. In both cases, the individual involved needed to file the bankruptcy. What may be impossible for one person to pay might be very possible for another individual.

There are limits on what you can owe in a Chapter 13 bankruptcy. Most consumers do not have a problem with these limits. There is no such limitation in a Chapter 7. However, if you have the ability to pay all or some of your debt, then the law will probably only qualify you for a Chapter 13. This is actually good news for the consumer, because the ability to pay some of your debt much better than having no ability to pay anything at all.

Other factors to consider if you are qualified to file bankruptcy is whether or not you have filed a previous bankruptcy. If you have filed a Chapter 7 in the previous eight years, and received a discharge in that case, then you are not qualified to file another chapter 7. The waiting time between Chapter 7 cases is eight years.

This does not mean, however, that you are out of luck if you need to file bankruptcy and have filed a Chapter 7 within the last eight years. You may file a Chapter 13 and get a discharge if you have filed no previous bankruptcy and received a discharge within the last four years. In Chapter 13, you pay back only 1% to 100% of your unsecured debt. Therefore, a Chapter 13 actually may be almost identical in its result as if you had filed a Chapter 7.

Chapter 13 trustee can suggest ways to save money

Of course, we are all interested in saving money, and in a Chapter 13 plan, you are on a budget.  Of course, we are all on some kind of a budget, but at a 341 meeting yesterday,  in Cincinnati, we were reviewing our budget information with the trustee’s staff attorney and got some very useful information.  My clients were paying about $180 per month in cell phone charges and did not want to reject the contract with the cell phone company because the wife used the internet service for her job.  Problem was that the husband was also on the contract and signed up for the internet services too, but no longer wanted to pay for it.  He really did not need it and it fell in the category of expenses he could painlessly cut out.

Turns out that the staff counsel  has seen this before and offered helpful suggestions that would enable us to save about $500 per year (that is $2,500 over a 5 year plan!) and put more money in our pocket!  So, not only did we get our budget approved, the trustee’s office actually helped make it better!.

Now that is a benefit that most people don’t know about, and we are all grateful for the assistance of the trustee’s office.  Thank you to Karolina Pear, Staff Counsel, for her helpful suggestions.

Chapter 13 cases can be modified

Understandably, you might worry about emergencies and unforeseen expenses that arise when you are in a chapter 13 plan. After all, these things happen and sometimes we need to borrow money, or put a few other bills to the side for a few months to deal with life situations.

Not to worry. Chapter 13 plans can often be modified, payments lowered, so that you can respond to the emergency. In fact, every winter I file about a dozen or so “heater motions.” We call them this because every winter someone’s heater needs to be replaced or repaired. And that takes money that is not in the budget.

Depending on the circumstances, we can get permission to borrow money, or, we might temporarily lower the chapter 13 payment to free up some funds to meet the family’s needs.