Do I Have Enough Debt to File Bankruptcy

How much debt do you need to file bankruptcy?  I am asked this question quite often.  The answer: “It depends on your situation.”  Everyone’s income and expense situation is different and so is the amount of debt they have.  A single elderly woman with a low fixed income from social security is in a completely different situation than a married couple with 2 or 3 kids and both spouses working.

Bankruptcy is a personal matter.  First of all you need to be comfortable filing for bankruptcy protection so you can receive a fresh start.  Secondly, it needs to make sense financially.

If you are an elderly woman (or man) receiving $1300.00 per month from social security, how much money do you have left over at the end of the month after you pay for the items you need to survive, such as food, shelter, transportation, and medical?  Do you have $50.00 left over at the end of the month?  How about $100.00?  Can you afford to continue making monthly payments on your credit card debt?  The answer is probably no.  You may only have $5000.00 in unsecured debt but you can’t live and make the minimum monthly payments.  Bankruptcy can help you.

Please note, in Ohio your social security benefits are generally protected from your creditors.  Your creditors will continue to call and harass you and they may even file a lawsuit against you in court.  Your social security benefits are still protected, but you have to take steps to ensure they don’t get snatch up in a bank garnishment.  I explain this issue to many clients and most of the time they decide to file for bankruptcy protection for peace of mind.

What if you’re a single parent with a couple kids.  You have a job and your making $60,0000 a year.  Your gross monthly income is $5000 per month.  Your monthly income is significantly more than the elderly woman.  But so aren’t your monthly living expenses.  Children are expensive.  In terms of the amount of unsecured debt that pushes you over the edge, well it may only be five to ten thousand dollars.  After you take care of living expenses can you make the minimum monthly payments on your credit card debt?  If the answer is no, then bankruptcy can help you.

Let’s not forget the married couple.  You and your spouse have two kids, maybe three.  Your gross income is $80,000 per year or $6700 per month, maybe more.  Your living expenses may not seem like they are that much more than the single parent, but you probably have a larger mortgage or rent payment and an additional car.  You possibly have less than $1500 in the bank.  It seems like you never have any extra money.  Here, like the examples above, it really does not take much unsecured debt to make your financial life miserable.  Can you dig out of the debt without filing bankruptcy?  Maybe, but you have to stop using credit cards, go to a cash system, and have enough money left over at the end of the month to pay more than the minimum monthly payments to your credit card debt.

Sometimes it only takes one creditor to file a lawsuit and ruin your finances.  When a creditor wins the lawsuit it can then take legal action to collect on the debt.  That creditor can now garnish your wages and/or garnish your bank account.  Both of these situations will make your life miserable.  In that instance, filing for bankruptcy protection generally makes a whole lot of sense.

So how much debt do you need to file for bankruptcy protection depends on your personal circumstances.  If you live in Central Ohio and are struggling to make end meet, feel free to give me a call.  We will discuss your situation and find out if you have enough debt to file bankruptcy.

SHOULD I HIRE A BANKRUPTCY ATTORNEY OR BANKRUPTCY PETITION PREPARER

As a general rule of thumb, if you are planning to file for bankruptcy protection you should hire an experienced bankruptcy attorney. You can hire a bankruptcy petition preparer or do it yourself, but these two options generally may not save you money in the long run and the experience may not be pleasant.

Filing a Chapter 7 Bankruptcy is not an easy task. My Chapter 7 case filings average about 50 pages in length. They contain a tremendous amount of information. But filing alone is not the end of the process. Provided that all of the required documents are filed, you still have to send copies of certain information to the Chapter 7 Trustee by a specific date. You are required to appear at the Bankruptcy Court for your Section 341 Meeting of Creditors, which is where the Chapter 7 Trustee will question you about the information filed. Even if all goes well, you still may need to file additional documents before you receive your discharge.

WHAT COULD GO WRONG

Whether you proceed on your own or hire a bankruptcy petition preparer, chances are that something will go wrong.
I witnessed “something going wrong” today during a Section 341 Meeting of Creditors at the Bankruptcy Court for the Southern District of Ohio. The debtor had hired a bankruptcy petition preparer. They paid the BPP $650.00. What the debtor got was the three page Petition and the two page Exhibit D. That’s about 1/10 of the required documents for $650.00. The debtor had to take her papers to the Bankruptcy Court and file them herself. When she got to the Section 341 Meeting, she had no-one there to help her when the trustee started asking questions. (I do commend the trustee in this case who was extremely courteous). Although the Chapter 7 trustee and the Assistant U.S. Trustee were trying to get this lady back on track, it is hard to say what will happen. The meeting of creditors will probably be rescheduled, causing her to come back to court again. It is also possible that her case will be dismissed.

And, the she still owes the Bankruptcy Court $306.00 for the filing fee.

YOU COULD LOSE YOUR PROPERTY

Keep in mind that the Chapter 7 Trustee works for your creditors. Her job is to find assets of yours that can be liquidated and paid to your creditors. Fortunately for Ohio debtors, you get to keep most if not all of your stuff. There are limits however, and I have had many clients with exposed assets. Because they hired an attorney they were aware of the risks before the case was filed.
So, the very minute you file for protection under Chapter 7, the trustee is theoretically in control of all of your assets. The Chapter 7 Trustee has a lot of power, and remember she works for your creditors. Her job is to find assets for your creditors. She is not interested in protecting you.

If you have assets that cannot be protected or you fail to assert your protection, and you file Chapter 7, the trustee is going to take your stuff. Well, maybe not everything, but things of value like cars, cash, and your home.

YOU MAY NOT GET A CHAPTER 7 DISCHARGE

As I mentioned earlier, if you don’t file all of the required documents and/or fulfill your duties, your case could be dismissed. You don’t get a discharge of your debts if your case is dismissed.

THE BOTTOM LINE

Hire an experienced bankruptcy attorney. One that will explain the bankruptcy process and answer your questions. Hire an attorney you can trust, someone that will be with you when you meet the Chapter 7 Trustee at the meeting of creditors. If you want to reduce the headaches and frustrations and get a fresh start, you should hire a bankruptcy attorney.

Buying a House After Filing Bankrutpcy

How soon can I buy a house after filing bankruptcy is a question that many people often ask.  There is no clear answer to this question.  It depends upon a number of things like how well your credit score improves following bankruptcy, what your income situation is, and what other debt you have incurred after your bankruptcy discharge.  Other considerations are whether you still are the owners of a house that is still in foreclosure.

What is the Hurry to Jump Back Into Debt?

Generally speaking, the largest debt people have is owning a home.  Not only is there the mortgage payment, but you also have homeowner’s insurance, real estate taxes, and home maintenance which can add 30% more to the actual mortgage payment.  There may also be homeowner association fees.  So why are we in such a rush to take on huge debt?

Our society has placed a premium on home ownership.  Be it good or bad, we have this notion that we have to be homeowners.  In fact, our real goal should be saving money for emergencies, future necessary purchases, education, and retirement.  If you can rent comfortable accommodations for $200 per month less than it would cost you to purchase a home, you could save $2400 per month (easy math).  Likewise you don’t have a 15 to 30 year debt obligation that may be very difficult to get out from under depending upon the real estate market.

I am not against home ownership, but I am definitely in favor of making smart financial decisions and saving for the future.  Real estate can be a good investment, but how many people actually make money when it is time to sell?

Improved Credit Score

As I stated earlier, one consideration in the equation will be your credit score if you are going to borrow money.  How quickly your credit score rebounds after filing bankruptcy all depends upon what you do.  If you want to improve your credit score, you must obtain credit sparingly and use it wisely.  You have to pay your credit accounts on time and keep your running balances low.  In other words, borrow a little and pay it off every month.  Use cash more frequently than you swipe a credit card.  There is no magical formula, but you have to live below your means.

Your Income Situation

Again, when you apply for a mortgage, assuming you are going to borrow money to purchase a house, your income needs to be more than adequate.  Following the mortgage crisis of the early 2000’s, lenders are now requiring that your mortgage payment cannot exceed about 30% of your income.  That is a huge change compared to the loose lending practices before the crisis.  So, if your household brings in approximately $40,000 a year, your mortgage payment needs to be less than $1100 a month.

Other Debt Incurred Post Bankruptcy

Another consideration lenders consider when deciding to lend money is your debt to income ratio.  As stated above, your income will be a major consideration.  Also included is the amount of debt you have.  Following bankruptcy your debt position should have improved, but over a couple of years it may be creeping up again.  You may have needed to replace a car or two.  Or you could have suffered some major medical expenses after your bankruptcy that affect your debt position.  Regardless, it is important to minimize the amount of debt you are carrying if you plan on buying a home.

New Time Limits

One of the biggest factors out there affecting how soon you can purchase a home after bankruptcy is the lenders requirements.  I have been told by many of my previous clients as well as associates in the mortgage industry that most, if not all government secured loans now require a four year waiting period after bankruptcy before they will approve a loan to purchase a house.  Obviously there are non-government backed loans that will play, but who knows what the terms will be.  And, remember the saving money talk earlier, you may have the willpower to save the money outright and purchase on a cash basis.  Wouldn’t that be great.  You can also explore rent to own options.

The Bottom Line

There is no sure answer to the question “How Soon Can I Buy A House After Filing Bankruptcy?”  Regulators are going to impose certain barriers, but most of the answer will be found in how well you manage your financial affairs after filing bankruptcy.

Stop Garnishments by Filing Bankruptcy

Bankruptcy is one of the tried and true methods for stopping garnishments. The minute your case is filed all collection actions, including garnishments, stop. Wage garnishments and bank account garnishments place a heavy burden on your monthly income. Having your paycheck reduced by 25% is not pretty. Filing bankruptcy will protect your income.

I mentioned that bankruptcy is one of the methods for stopping garnishments. There is another way to stop a garnishment. You can pay your creditor. Of course they are going to want a lump sum cash payment. And they are not going to give you a couple of weeks or months to find the money. They are going to want that payment now.

You can try to negotiate with the creditor. But chances are they will not listen and they will not care. Your creditor does not care that you have other bills to pay. They don’t care that you need to pay your utilities and put food on the table. They just do not care about you or your family.

So, you have one creditor that just does not care about you or your situation. What about other debts? When you are losing 25% of your paycheck it is going to be very difficult to pay your other creditors. Your car might be repossessed. Your home may go into foreclosure. Your utilities might be shut off. You may be evicted.

Bankruptcy is a sure bet to stop garnishments. Just one garnishment may start an avalanche that buries you further in debt. Take control of the situation. Contact a bankruptcy attorney and find out how you can stop garnishments by filing bankruptcy.

Creditors Will Put A Lien On Your Property

Many creditors will put a lien on your property.  They are trying to ensure they get paid for the debt you owe.  There are judgment liens when you lose the lawsuit.  And there are tax liens when you don’t pay your income taxes.  A lien against your property creates many problems for you.

A lien can be placed on just about anything you own.  Usually liens are placed on your home and/or cars.  They make it hard for you to sell the property.  They also give the creditor the right to take your property and sell it.

A lien on your house gives the creditor the right to foreclose on your house.  Even if the creditor does not foreclose the lien causes other problems.  If you try and sell your house the creditor gets paid.  If you try to refinance your mortgage the creditor gets paid.

Liens are very costly.  Some creditors obtain the lien and wait.  They sit back until you to try to sell or refinance.  The whole time the debt is getting bigger with interest.  That $5000.00 credit card debt is now $7000.00 five years later.

Chapter 7 Bankruptcy will prevent liens from attaching to your property.  However, once attached liens are not discharged in Bankruptcy.  A lien may be able to be removed during the bankruptcy process.  This generally requires additional procedures.  Creditors will put a lien on your property, it’s a cheap way for them to get paid.

Tired of Harassing Collection Calls

Harassing collection calls place a tremendous amount of stress on you and your family.  How the collections are handled vary greatly depending on who is collecting.  On one end you have the original creditor trying to collect and on the opposite end you have the third party collectors or debt buyers.  And likewise the collection methods change depending on who is collecting.

Most original creditors have some decency and professionally conduct their collection activities.  They will send you letters notifying you that your payments are late.  They may call you later to see if any kind of arrangements can be made.  If the account has been delinquent for some time, they usually send you a final notice that your account is being turned over to collections and that they may take legal action.

Collection companies who work for the original creditors are also generally professional.  They will typically send a letter notifying you that your account has been turned over to them for collections.  The letter will generally inform you that the account is overdue and inform you of the amount due and the methods to pay the account.  If this is unsuccessful they will generally send out additional letters and possibly contact you by phone to try and arrange payment.  They may even offer to settle the account for less than full value.  And if no payments are made, they or the original creditor may initiate legal action.

Many times the debt obligation is sold to third party collectors either before or after legal action.  When this happens, prepare yourself for harassing collection calls.  At this point, the professional conduct of the collection company can vary significantly.  Some third party debt buyers and their collection companies are very professional and follow the same type of conduct describe above, yes they may sue you but they generally don’t cause your phone to ring nonstop.  On the other hand, there are collection companies that are relentless and ruthless.  Harassing collection calls are used to try to scare and coerce you into paying them something.  They will call repeatedly.  The will tag team you with an investigator and a collection agent.  They will call your work.  They will call your relatives.  They will threaten to serve you with a summons and that the sheriff is on his way if you don’t agree to pay them now.  And believe it or not, some have threatened that they will sue you for fraud and that you are going to go to jail.

How do you stop harassing collection calls?  You have a couple options.  First of all you can pay the account.  Secondly, if it is a third party collector whose conduct is abusive, you can hire an attorney and bring a lawsuit against them for violation of the Fair Debt Collection Practices Act, but this will likely cost you more money and take many months to resolve.  And thirdly, you can file bankruptcy, which gives you Federal Court protection under the Bankruptcy Code.

If you are receiving abusive, relentless harassing collection calls, please call me to find out if bankruptcy is an option for you.

Will Filing Bankruptcy Affect Your Credit Score?

Will filing bankruptcy affect your credit score?  Yes, but chances are that your credit score is already declining or will be shortly if you are considering filing bankruptcy.  Every missed payment decreases your credit score.  Enlisting in a debt settlement or debt management program has a negative impact on your credit score.  And yes filing bankruptcy will have a negative impact on your credit score.

Will filing bankruptcy affect your credit score forever?  That all depends on what you do following bankruptcy.  Your credit worthiness, which is what your credit score is supposed to reflect, will improve to some degree because you will have discharged a significant amount of debt.  Your debt to income ratio will improve after filing bankruptcy.  Your actions following bankruptcy will determine how soon your credit score recovers.

Keep in mind that it is primarily the creditors that you obtain loans from or have a charge account with that normally report to the credit bureaus.  Making timely payments on existing loans that you have reaffirmed, like car loans, will help to improve your credit score.  Obtaining new credit, within reason and that is manageable, and paying off the balances on time will improve your credit score.  There is no magic formula for how soon or when your credit score rebounds because it all depends upon what you do personally with your financial life after you have filed bankruptcy.

History is an important part of how your credit score is determined.  Establishing good financial practices over time will improve your credit score.  Establishing a savings plan to pay for unexpected expenses or to purchase something that is needed will help you avoid the tendency to rely credit.  Learning from past mistakes and avoiding the temptation to rely on credit to make ends meet will serve you well in the future and help you improve your credit score.  Will filing bankruptcy affect your credit score – Yes, but in the long run the affects may be positive.

Will I Lose My House if I File Bankruptcy?

This is a common concern for many people who are contemplating whether or not they should file bankruptcy.  The vast majority of people who own a home have one or two and sometimes three mortgages secured by their home.  Because of these mortgages, there is generally little equity or value beyond the amount owed on the mortgage(s).

Chapter 13 bankruptcy is available to most people who have a steady stream of income.  One of the goals of Chapter 13 is to allow people to keep their property while they pay some money back on the debts they owe.  So no you will not lose your house if you  file Ch 13 as long as you have sufficient income to meet your basic living expenses and can still afford to make the mortgage payments.

If Chapter 7 bankruptcy is the option you prefer, you will generally not lose your house as long as you are current on the payments, and your income is enough to allow you to continue making the mortgage payments and cover your basic living expenses.  In Ohio you also have exemptions of approximately $20,000.00 (single) and $40.000.00 (married) that allow you to claim as exempt against any equity you have in your residence.  So unless your house is will sell for an amount far exceeding the amount you owe on it, and you can continue to make the mortgage payments, you should not lose you house if you file Ch 7 bankruptcy.

But what about the Trustee, can’t he/she take my house anyway?  The trustee works for your creditors.  The Chapter 7 trustee’s job is to find assets he/she can turn into cash to pay to your creditors.  In order for the trustee to benefit from taking your house he has to be able to sell it for a profit after he pays the mortgage(s), taxes, and you for your exemption amount.  Typically you will not lose your house because the trustee will not profit from selling your house.

Please contact me at 740-369-6812 to discuss your situation and answer any further questions.

Can I Keep My Car if I File Bankruptcy?

Generally speaking the answer is “Yes you can keep your car if you file bankruptcy.”  With a few exceptions that will be discussed later, you can keep your car if you file bankruptcy provided you have the means to continue making payments and pay for your basic living expenses.  Most people still have a loan against their car that is close to the amount the car is worth.  In Ohio, you have an exemption in the amount of up to $3,450.00 for one car.  What does this mean?  If you own a car free of any loans or your car is worth more than you owe on it, you can claim as exempt from the trustee an amount up to $3,450.00.  Keep in mind that the trustee represents your creditors and is trying to find assets that he can sell and turn into cash to pay your creditors.  The trustee has to decide if he can take your car and sell it for a profit above and beyond the amount you owe on it if you have a loan plus your exemption of $3,450.00.  The trustee will also incur expenses trying to sell your car that he has to take into consideration, such as appraisal fees, storage fees, and auction fees.  So generally speaking, most people who file bankruptcy get to keep their car.

There are a few exceptions.  If you cannot afford to continue making payments on the car, then your car loan company will be the one who tries to take your car because you cannot afford it.  If you own your car free and clear of any loans and it is worth a significant amount more than your exemption of $3,450.00, then chances are good the trustee would be interested in taking your car and selling it.  You still get your exemption amount of $3,450.00.  If you have more than one car per debtor titled in your name, and they are worth more than the loans, the trustee may pursue the car you cannot apply your exemption too.  The scenarios are many and the best solution is to call an attorney to discuss your individual situation to find out if you will be able to keep your car if you file bankruptcy.