Repaying Debts After the Bankruptcy

Sometimes I am asked by debtors if  they can pay their creditors after they received a bankruptcy discharge. My answer to them is that there is nothing in the bankruptcy law that prohibits debtors from voluntarily paying their creditors, either those creditors that are important to you, or all of them. However, for me as a bankruptcy lawyer, it can be a bit difficult to understand since debtors typically file for bankruptcy protection because they cannot afford to pay their creditors.  At the same time, I understand that under some circumstances debtors make a deliberate decision to repay someone.

In many different situations, debtors have creditors that are important to them. Those creditors may be family member who have loaned debtors money. Typically, debtors do not want to discharge the debt owed to close relatives. In those situations, my advice is to list the debt but, once the case is over, repay it voluntarily.

Another usual situation is where the debtor may have credit at a small, local store. Since it may be important for the debtor to have that access to such credit, the debtor may choose to pay that debt even after the bankruptcy case is over and the debt is discharged.

From the creditor’s side, once the bankruptcy is filed, the creditor may not contact the debtor to attempt to “persuade” him to “voluntarily” pay the debt. TIf any creditors does this, it would be viewed by the bankruptcy court as an attempt to collect a discharged debt in violation of the discharge injunction.

If the debtor decides to repay a debt after filing for either Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, he should be very careful about making payments on a discharged debt. If a creditor were to sue the debtor on a discharged debt in state court, the debtor could raise the fact that the debt was discharged in bankruptcy by raising it as an affirmative defense in state court litigation or he could remove the action to bankruptcy court and allow the bankruptcy court to enforce its discharge injunction. By making payments on a discharged debt, the debtor could create a “waiver” of the bankruptcy discharge on that particular debt.

If you are contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, New York, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.

Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and Debtor’s Credit Report

I am frequently asked by the debtors how long their bankruptcy filing will remain on their credit report and whether they would be able to obtain credit after the filing.  There is a substantial amount of confusion with respect to when a bankruptcy can no longer be reported on the debtor’s credit report and whether credit becomes available to those who file for bankruptcy relief.

The length of time a bankruptcy can be reported on the debtor’s credit report is governed by the Fair Credit Reporting Act (“FCRA”).  The FCRA orders credit reporting agencies to remove bankruptcy case information from all consumer reports ten years after “the date of entry of the order for relief.”  It does not differentiate between Chapter 7 Bankruptcy and Chapter 13 Bankruptcy.  The order for relief according to §301 of the Bankruptcy Code is entered on the filing date, so the ten year period is measured from the bankruptcy filing date, not the discharge date.

It is usually a good idea to order your credit report after the bankruptcy to make sure that the bankruptcy discharge also shows on the credit report so that potential new creditors understand that the creditors whose claims were discharged in bankruptcy have no remaining legal claims.

In my opinion, bankruptcy is no more harmful to the debtor’s credit score than the financial circumstances that lead to the bankruptcy filing. In today’s lending environment, credit is available to the recently bankrupt. It may be more expensive than prior to the bankruptcy filing, and available with lower limits, but it is likely to be offered. Similarly, according to the credit industry’s studies, 18-24 months after a bankruptcy discharge, bankruptcy debtors can qualify for a mortgage loan on the same terms as if they had not filed bankruptcy. The anecdotal experience of my clients has been that they were able to obtain mortgages within two years of filing Chapter 7 Bankruptcy.  While it takes some effort to rebuild credit after bankruptcy, it is possible to do so.

If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.

Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and Purchase of a Vehicle

I frequently meet with debtors who tell me that they are thinking about filing for bankruptcy, but have concerns since they may need a new car in the near future.  I am usually asked if a new car or used car should be purchased prior to filing for bankruptcy protection.  As a bankruptcy lawyer, the current status of the law prevents me from counseling debtors from acquiring more debt prior to filing for bankruptcy.  However, if I were in the debtor’s position, I would consider the following.

First, if you planning to file Chapter 7 bankruptcy, and you will need a different car, you should buy the car since it is easier to buy a car prior to filing for bankruptcy, assuming that your credit allows it.  If the car is financed, the loan will have to be reaffirmed, and assuming that the amount of equity does not exceed you New York exemption for a vehicle, you will be able to keep your vehicle.  At the same time, a financed vehicle on your credit report will help you rebuild credit after filing for bankruptcy.

If you are filing for Chapter 13 bankruptcy, and decide to buy the car before filing, you will be able to keep the car and payments on the loan will be a part of your repayment plan.  If anything, since in Chapter 13 bankruptcy the bankruptcy court allows only a certain amount of interest to be paid on secured loans, it is possible that your monthly payments may be reduced.  The situation becomes more complicated if the debtor suddenly needs a car after filing Chapter 13 bankruptcy.  In order to obtain new debt, the debtor would need the bankruptcy’s court’s permission to take on a car loan.  This is likely to require a motion to amend the plan that was previously approved by the bankruptcy court.  If the court approves the purchase, that may change the monthly payments made by the debtor.  A potential benefit to the debtor is that if the payments are made on time, this is likely to improve debtor’s credit.

If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.

Should You Use Credit Cards Once You Decided to File Chapter 7 or Chapter 13 Bankruptcy

If you are contemplating filing Chapter 7 or Chapter 13 bankruptcy, you should stop using your credit cards.  Once you’ve decided to file for bankruptcy, any credit card use after that point will be highly scrutinized by both the credit card issuer and the bankruptcy trustee, and is likely to be viewed with a great deal of suspicion.  The reasons for this are obvious.  If the debtor decides that he is seeking to eliminate his credit card debt through Chapter 7 bankruptcy, or pay a lesser amount though a Chapter 13 filing, then incurring additional credit card debt can be considered fraudulent.  Specifically, the credit card issuer will make an argument that the additional debt was incurred without intention to repay, then the discharge can be objected to. Also, the issuer will also look at all of the transactions to verify that the money was not spent on such things as vacation trips, or that other unnecessary spending didn’t take place.  If a credit card issuer learns that a debtor used a card without any intention of making full payment, then the credit card company has the right to object to the debtor’s discharge of that particular debt.

Also, if the bankruptcy trustee, or United States Trustee, learn that the debtor intentionally ran up his credit cards before filing, then either trustee can seek to have the debtor’s discharge denied or move to have the case dismissed.  There is also the possibility that the debtor can be found to have engaged in bankruptcy fraud, which is a criminal offense.

While consumer Chapter 7 bankruptcy allows the debtor to eliminate all credit card debts and get a fresh new financial start, the debtor should not jeopardize his ability to seek bankruptcy protection by engaging in self-serving or foolish behavior.  There is simply no reason to create problems for the upcoming bankruptcy filing.  Therefore, don’t use your credit cards once you’ve decided to file bankruptcy.

If you are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a New York bankruptcy lawyer.

Chapter 7 and Right of Redemption

A “redemption” is provided for under Section 722 of the Bankruptcy Code and is available for Chapter 7 debtors. That provision allows an individual debtor to retain personal property when that property has been used to secure a debt.  The debtor must pay the fair market value of the item to the creditor.  That fair market value determines to what extent the creditor is secured.  The second choice is to pay the amount of the secured creditor’s debt.  The third choice is to sign a reaffirmation agreement and continue to be legally obligated on the debt again.  The last choice is to surrender the item to the secured creditor.  Under Section 722, a debtor may be able to get the lien released for far less than what he owes.  So, for example, if you owe a creditor $10,000 on a car and the fair market value of the car is $5,000, the Bankruptcy Code allows you to pay you $5,000 to redeem the car.  That amount must be paid in one lump sum to that creditor.  If the creditor agrees with the value, then either the debtor or the creditor has to submit a stipulated order of redemption.  If the creditor does not agree with the value, then the debtor has to file a motion for redemption, and a hearing will be set with the judge deciding what the value of the item is. There are deadlines involved in the redemption process.  The debtor has to have the money to redeem the item and be able to pay the creditor, with many debtors turning to family members and friends.  There are also financial institutions that offer financing in such situations.

Redemption should be considered as an option in Chapter 7, if you own a vehicle that is worth thousands of dollars less than the debt on the vehicle – in other words, you are upside down on the vehicle.  It should also be considered if the debtor is behind on payments or has a spotty payment history.  In Western New York, Judge Ninfo has ruled that the standard for determining the value of a motor vehicle to be redeemed under Section 722 is its wholesale value.   See In re Barse.  You and your lawyer should carefully examine redemption as option if there is a significant disparity between the amount owed and the property’s fair market value.

If you are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a bankruptcy attorney.

Chapter 7 Means Test

Under the current version of the bankruptcy law, in order to file a Chapter 7 bankruptcy, the debtor must pass a “means test” which will determine whether debtor, or his family, is eligible to file Chapter 7 bankruptcy.

The purpose of the means test is to keep debtors from abusing the bankruptcy system by filing when they don’t have to do so.  The presumption is that if the debtor fails the means test, he/she is trying to abuse the system.

If the debtor’s income is below the median income for families in New York, based on Census Bureau statistics, the debtor will be eligible for a Chapter 7 bankruptcy. The current means test figures for New York are listed here.

The means test uses the income of the debtor for the six months leading up to the filing of the bankruptcy.  The monthly income figure for that time is referred to as the debtor’s “current monthly income”.

Even if the debtor’s income has recently decreased, the use of the six months before the filing date may make the debtor’s income for bankruptcy purposes higher than it will actually be and place him/her into an income situation where he/she may be required to file a Chapter 13 bankruptcy.

If you make more than the median income for families in New York, your income over the past six months is considered, along with mortgage and car payments, back taxes and child support obligations, and school expenses up to $1,500 per year. You won’t be eligible for a Chapter 7 bankruptcy if, after deducting these amounts, and the living expenses provided in the Internal Revenue Service’s national collection standards, you have a monthly disposable income of more than $100.00 per month.

If your monthly disposable income is more than $166.66, you have failed the means test, and cannot qualify for Chapter 7.

If your monthly disposable income is between $100.00 and $166.66, and that is enough to pay more than 25% of your unsecured, nonpriority debts (credit card bills, student loans, medical bills, and so on) over a five-year period, then you fail the means test, and Chapter 7 won’t be available to you.  If it is not enough to pay more than 25% of your unsecured, nonpriority debts over a five-year period, then you pass the means test, and Chapter 7 remains an option.

If you don’t qualify for a Chapter 7 bankruptcy, your only option would be a Chapter 13 bankruptcy.

If you are dealing with debt problems in Rochester, New York; Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation.

Debt Settlement – Does It Work?

Recently, I read a New York Times article, “Debt Settlers Offer Promises But Little Help“, that confirmed something that I already knew – debt settlement, in most cases, does not work and usually costs a lot more than a Chapter 7 or a Chapter 13 bankruptcy.  Also, most people working with debt settlement companies are likely to find themselves in the worse financial situation after entering debt settlement.  One quote summarizes how debt settlement industry does business:

Consumers who turn to these companies sometimes get help from them, personal finance experts say, but that is not the typical experience. More often, they say, a settlement company collects a large fee, often 15 percent of the total debt, and accomplishes little or nothing on the consumer’s behalf.

While I appreciate the fact that most debtors want to avoid filing bankruptcy, in my opinion, bankruptcy represents an opportunity for a fresh start for most people.  The critical difference between a bankruptcy and a debt settlement, despite what a debt settlement company may claim, is that the creditor does not have to agree to a debt settlement arrangement.  In a bankruptcy, under either Chapter 7 or Chapter 13, the creditor is obligated to follow the Chapter 13 repayment plan or accept results of the Chapter 7 discharge.

At the same time, if a debtor has a only a few debts, may have other alternatives to either filing a bankruptcy or working with a debt settlement company.

I have experience with “workouts” which is a term used to describe a non-bankruptcy negotiated modification of debt.  A workout is an out-of-court agreement between a debtor and his or her creditors for repayment of the debts between them, which is negotiated without all the procedural complications — and perhaps the stigma — of the bankruptcy process.  A typical workout takes form of either “composition”, which is a contract between the debtor and two or more creditors in which the creditors agree to take a partial payment in full satisfaction of their claims. Another option is an “extension”, which  is a contract between the debtor and two or more creditors in which the creditors agree to extend the time for payment of their claims. An agreement may be both a composition and an extension, i.e., an agreement to accept less money over a longer period of time.

There is no requirement that all of the debtor’s creditors agree to a composition or extension, but most of them must voluntarily support it for it to work. Creditors that do not agree to the workout are not affected by it and remain entitled to pursue other remedies to collect the debts owed to them. My role in this process is to negotiate such agreements on behalf of the debtor.

If you are dealing with debt problems in Rochester, New York; Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation.

Car Ownership and Bankruptcy

I am often asked what happens to the debtor’s car if he or she is forced to file for bankruptcy.  The answer to that questions depends on whether the car is owned by the debtor outright, is being financed, or is leased.

If the car is owned outright, and its value is less than the value of New York’s vehicle exemption, currently limited to $2,400, then the debtor can keep the car without any bankruptcy related consequences.  This is true for the debtor filing either a Chapter 7 or a Chapter 13 bankruptcy.   If the value of the car is greater than the allowed exemption, in a Chapter 7 case,  the bankruptcy trustee can demand that the debtor turn the car to the trustee.  Subsequently, the trustee would have the vehicle sold at an auction, and the debtor would be repaid the value of his or her exemption, and the rest of the money would be paid to the creditors.   If a car is jointly owned by a debtor and someone else (such as a spouse), then the debtor will only be entitled to 1/2 of the equity.  If debtor and a spouse file a joint bankruptcy petition, they can “double up” or stack their exemptions (i.e., $4,800 in one vehicle owned by them jointly, or $2,400 in two vehicles total).  If the car is financed, the relevant value is the value of the equity in the vehicle, that is the difference between the market value of the vehicle and the amount owed to the lender.

When filing Chapter 7 bankruptcy, you have three options for handling a car loan.  You can reaffirm your loan with the lender.  That means that you agree to continue making regular payments on your car.  In exchange, as long as your are making payments on the loan, your lender will not repossess the car.  Whether you sign a reaffirmation agreement is strictly voluntary.  Another option, although rather rare, is redemption.  The debtor agrees to make one lump payment to the lender representing the car’s fair market value, regardless of what is owed on the loan.   Any amount owed on the car in excess of its current value can be discharged as part of the bankruptcy.  The final option is to surrender the car if you cannot afford to continue making payments.  Any debts associated with the car will be discharged.

In Chapter 13, a debtor can keep his or her car even if the equity is greater than the allowed exemption amount, as long as the value of equity in excess of the exemption is distributed to creditors through the chapter 13 plan, i.e., satisfying the good-faith test.  Chapter 13 bankruptcy can effectively halt car repossession and will allow the debtor to repay any arrears on the loan over the life of the Chapter 13 plan.  In addition, in a Chapter 13, the amount the debtor will pay may depends on how long ago the car was purchased.  If the  car was purchased in the last 910 days (30 months), the debtor must usually pay the full amount owed, regardless of the car’s current value.   However, under appropriate circumstances, the interest rate on the loan may be reduced by the bankruptcy court.  If the car was purchased more than 30 months ago, the debtor is likely to have to pay the lender the amount representing the car’s present value over the life of the repayment plan.  The amount representing the car’s value is treated as secured debt, and the remainder of the debt is treated as unsecured.  This is particularly significant where the car is upside down, i.e., the amount owed significantly exceeds the car’s value.  Those situations may result in significant savings to the debtor.

If the debtor is leasing a car, he or she has two options.  The debtor can reaffirm the lease and keep the car, while continuing to make payments.  Alternatively , the debtor can reject the lease, return the car, and discharge any debt associated with the lease.

If you are dealing with debt problems in Rochester, New York, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation.

Rebuilding Your Credit After Bankruptcy

If you were in a difficult financial situation, and were forced to file bankruptcy, you should view your bankruptcy filing as an opportunity for a fresh start in your financial affairs and the first step toward rebuilding your credit. After the bankruptcy, you will be able to rebuild your credit and work toward reestablishing your financial future. After the bankruptcy, many debtors are tired of dealing with credit and debt issues that they delay reestablishing their credit. If you received a discharge in your bankruptcy, or are currently making payments pursuant to a Chapter 13 plan, you can start rebuilding your credit. The first step in doing so is obtaining your credit report and challenging any inaccurate information contained in it. If you eliminate any inaccuracies in your credit report, this is likely to improve your credit score. The next step in reestablishing your credit is to obtain a credit card, and use it responsibly. You have to make sure that you make at least the minimal charges and try to pay off the balance in full every month. Even if you have to obtain a secured credit card, it will help you establish a history of payments demonstrating your financial responsibility. The same is true with respect to any other bills you may have such as utilities, rent, mortgage, or any other form of credit. The more you demonstrate your financial responsibility, the higher your credit score will rise. If you are meeting your bills, you may begin requesting credit increase after 6 months or payments or trying to switch from a secured credit card to unsecured credit card. Since an increase in your credit limit indicates that the lender trusts you to repay the debt, your credit score will continue to rise.

At the same time, you have to be careful to avoid credit traps that may set back this rebuilding process. As you work your way to financial health, make sure you steer clear of these common post-bankruptcy dangers. One very common danger is a simple failure to plan. You will not have any debt if you receive a Chapter 7 bankruptcy discharge, however, that will stay so as long as your expenses do not exceed your earnings. While it seems obvious, many people forget that their continued financial health depends on persistent awareness of those facts.

Another solution to common post-bankruptcy problems is developing a budget and following it. Since all filers are required to take the financial management course during the bankruptcy, the suggestions given in the course should be followed to stay out of debt.

Avoid over-reliance on credit since it is what pushed you into bankruptcy in the first place. After bankruptcy, you should avoid costly sources of credit and to try to pay off any credit balances every month.

It is also important to avoid credit repair scams that promise to wipe out bad credit, erase your credit history or achieve anything else that seems too good to be true. It takes time to rebuild your credit and if you follow the steps outlined above, your credit will improve. Any quick fixes or schemes will likely cost you money and hurt your credit. Instead, pay off your bills every month, don’t open more credit cards than you need and stick with your budget. Over the course of a couple years, you should see your credit improve.

As you are working on rebuilding your credit, be careful selecting credit card offers. Make sure that you are fully aware of the interest rates and fees. You can visit a site like bestcreditcards.com to see different options available to you.

With some planning, discipline and determination, you will be able to rebuild your credit and even improve your credit score after filing bankruptcy.

If you are dealing with debt problems in Rochester, New York, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation.