So it goes with student loans and bankruptcy.

Option Number One:  Pay the student loan debt now when you can’t afford it.

Option Number Two:  File Chapter 13 bankruptcy now and pay the student loans later.

Most people know you can’t eliminate student loans by filing bankruptcy, but you can put off paying on them for up to 5 years by filing Chapter 13 bankruptcy.

I recently met with a potential client who is in her 5th year at UCF.  She works part time while finishing up her degree. She, like so many other people in college these days, took out a huge amount of student loans to allow her to go to college.  Colleges and the government make it real easy to do.

There is no way she can repay her loans on her current income and her loans will become due only 6 months after graduation.  She really doesn’t have a lot of other debt, maybe $10,000 total of credit card debt she racked up while in school.

By filing a Chapter 13 bankruptcy she can put off having to pay her student loans for up to 5 years.  During that time, on her current income, she would only have to make about a $75/month Chapter 13 Trustee payment.  Yes, she would have to file bankruptcy, and that sucks.

But…

Consider the alternative of having the equivalent of a mortgage payment to make on a student loan debt when you’re only 6 months out of college making about $30,000/year.

The idea here is that you pay what you can afford while camping out in a Chapter 13 bankruptcy.  After 5 years, hopefully your income has increased to the point where you can handle the student loan debt and, by the way, the credit card debt is wiped out.

Is this a perfect answer?  No, it’s not.  But it’s something to consider.

I understand the reason for the question, even if I have explained how the filing process works to my client already.  As time passes from the initial meeting with me, it is natural for my client to become impatient, to forget everything that was explained at the first meeting, and really, who wants to re-read the material I hand out to my clients at the first meeting explaining how the process works and when the case will be filed?

The fact is, the answer to the question is not the same for every case.

There are reasons why I may advise a client to intentionally delay filing his or her bankruptcy case so that a successful outcome can be reached.  Specifically, if there is a timing issue with regard to discharging IRS debtor “passing” the means test, it may not be in my client’s best interest to file the case as quickly as he or she would like.

That being said, in the majority of cases, the issue of when to file the case is really settled by my client doing two things:

-Providing me the information I need to complete the Petition, and

-Paying the fee.

That’s it.

At the first meeting with my client, I will evaluate the case and describe in detail exactly what information the client must provide to me before I can fully prepare the bankruptcy Petition and I will explain if there is a reason to delay filing bankruptcy.  Generally,  the faster the client gives me the information requested, the faster I can have the case prepared.  It also helps when the client provides ALL of the information requested.

So, what am I looking for?

In most cases, the following items are requested:

-6 months of pay stubs covering the time immediately before filing bankruptcy,

-6 months of bank statements covering the time immediately before filing bankruptcy,

-3 years of tax returns covering the time immediately before filing bankruptcy,

-Copies of vehicle titles/registrations,

-Copies of lawsuits filed against you by creditors,

-Drivers License and Social Security Cards, and

-Completion of Credit Counseling Course.

This list may be different if your case is more complicated, if you own your own business, are unemployed, are not required to file tax returns, or are receiving social security income or disability incopme but generally these items are required in every bankruptcy case.

Secondly, a client must pay my attorney fee and court filing fee in full before his case is filed.

I like to get paid for the work I do, but besides that, the bankruptcy law has a problem with me representing a debtor in bankruptcy at the same time the debtor owes me money for legal services.  If you really think about it, there is a big conflict of interest there.

In Chapter 7 cases, this means paying all fees charged prior to filing the case.

In Chapter 13 cases, I routinely provide for payment of the majority of my legal fees to be made by my client in his Chapter 13 plan.  Any portion of my fee that I charge prior to filing the case must be paid in full before the case is filed.

So, if you want to know when your bankruptcy case will be filed, make sure you have provided all requested information to me, and make sure you have paid the fee I charge you in full.

Then, so long as there is not a legal reason to delay the filing of your case, your case will be filed.

 photo credit: backseatstreet

In his case, he could.  Here’s why:

I practice bankruptcy law in the Middle District of Florida, Orlando Division.  Each bankruptcy district in Florida has a set of local rules that determine where a person can file his or her bankruptcy case.  These rules can vary from district to district throughout the state and Country.

I looked to Local Rule 1071-1(c) to answer my client’s question.  That rule explains that if my client lived in the district where he wants to file his case for the 180 day period before filing the case, then even if he lives out of state at the time of filing, he can file his case here in Central Florida.

But it doesn’t stop there.

Let’s say you miss that 180 day window but you have a house that is located here that you left  when you got that fantastic out of state job offer.  You are renting where you live now in the new state.  The house you left in Orlando is now in foreclosure and you do not want to be liable for the debt.

Can you still file bankruptcy in Orlando?

Yes, because according to the local rule if your “principal assets” are located within this division, even if you have lived outside of the Division for the last 180 days, you can still file your case here in Central Florida.

My client’s case was a little more simple than that example because he had not yet moved out of state.  Fortunately, he kept in contact with me and thought to call me as soon as he got the job offer to see how that may affect his plans to file bankruptcy here  with me as his lawyer.

I was able to form a strategy and a plan that would allow him to file bankruptcy in Orlando rather than to have to start the filing process all over with a new attorney out of state.

He was happy to have one less thing to worry about with his upcoming move and new job on his mind.

photo credit: akeg

Yes, if you want to keep seeing those “bars”.

When you file Chapter 13 bankruptcy or Chapter 7 bankruptcyand you owe a debt for an ongoing service, like a cell phone, a utility, insurance, pest control, alarm monitoring, etc., and you want to keep that service uninterrupted, you must continue to pay the bill.

Now, if you have a cell phone bill that has gotten out of control and has gone unpaid for a number of months, or years, or decades, then you can eliminate your liability for that debt by filing Chapter 13 bankruptcy or Chapter 7 bankruptcy.

So, if you want to continue receiving that great reception you’re getting on your cell phone, keep paying the bill even though you’ve filed for bankruptcy.

However, if the debt collectors are calling you on your land line to collect on that past due cell phone bill, go ahead and file Chapter 13 or Chapter 7 bankruptcy to silence them and eliminate the debt.

 photo credit: sdventures

It’s a frustrating question to have to confront because the question is borne out of a mistaken belief, perpetuated by the credit industry, that one’s credit score is inextricably linked to the way one lives life or conducts normal, everyday activities, or even builds wealth.

It’s NOT.

A credit score is a made up number.  It’s a work of fiction.  And, it’s only relevant when you are seeking to get yourself more in debt. A credit score will affect the amount of interest you pay on a new loan.

The interest rate you pay on your exisiting credit card, for example, is influenced by the way in which you pay the credit card, not your credit score.  An existing car loan or mortgage is in no way affected by your current credit score.

So, your credit score will be evaluated when you are applying for that new car loan, or mortgage.  But a steady stream of income, assets, and a nice down payment are far more important to a potential lender who is more concerned about your ability to repay the loan for which you are applying.  When you bring these things to the table, your credit score takes on less importance.

Besides, most of my clients already have a car or house and don’t need new credit.  In fact, they need less credit.  They need to get out of debt.

They need to start worrying about paying themselves, not their creditors.  They need to focus on building up their 401(k)’s, IRA’s, and savings accounts.

Their focus, in other words, needs to be on following a path to wealth, not continuing on a path of dependence on the credit industry and a fictional number given highly inflated importance by the very people to whim they are dependent.

 photo credit: Casey Serin

Back in April of 2010, Laurie K. Weatherford, the Chapter 13 Trustee for the Orlando Division, rolled out a program designed to allow Chapter 13 debtors to undergo a Court Ordered mortgage modification as part of their bankruptcy case with the oversight of the Trustee and the Bankruptcy Judge.  This was, and remains, a very ambitious effort as well as a very unique effort, as there are very few programs like it in the country.

How Successful Is Mortgage Modification in Bankruptcy?

When we are discussing the success or failure of a mortgage modification, it helps to compare the success of the program offered in Chapter 13 bankruptcy in Orlando to other programs available and to have a clear definition of “success”. There are really two other avenues where a person can modify his mortgage:

The Court Ordered Mediation in State foreclosure cases, and;

The HAMP program, afforded to all individuals even if they are not in foreclosure or bankruptcy, so long as their lender is participating, and most are.

By all accounts, the State Court mediation and the HAMP program in general have been abject failures, with only about 4% or 5% (at the time of this writing) of homeowners applying for a loan modification actually receiving one.

The new Chapter 13 bankruptcy modification program, however, boasts a 46% completion rate.

Meaning, 46% of the applicants receive a mortgage modification.  This is according to numbers provided to me by the Chapter 13 Trustee.

Notice I use the word “completion” rather than “success” to describe the rate of people receiving mortgage modifications.  Success is a more subjective term and requires a more in depth analysis of the applicant’s overall financial situation and long term goals.

For example, I have seen many Debtors who receive mortgage modifications that do them no good.

How Can This Be?

Well, let’s say you modify your mortgage and drop your monthly payment by $300 or $400.  That’s nice, no doubt.  But what are the rest of the terms of the loan?  Did the lender agree to a principal reduction on your loan?  Probably not.  As of this writing, according to a local mediator, out of the 710 attempts to modify a loan since the Chapter 13 mortgage modification program started, only 9 debtors received a principal reduction on their loan through HAMP and traditional loan modifications.

What Does This Mean?

This means that the vast majority of debtors agree to be liable for a new loan balance that is still far greater than what their home is worth today.  Sure, the monthly payments are lower, and that’s good, but if the end result is that you are simply trying to dig out of a different negative equity hole than the one you were in before you filed bankruptcy can we really say that you “successfully” modifed your mortgage?  I would say “No”.  If you define success as staying in your home, then yes, you successfully modified you home loan.

Don’t get me wrong, if you are thinking about modifying your home loan, you should strongly consider doing so through a Chapter 13 bankruptcy filing.  Nowhere else can you completely strip off a second mortgage, eliminate credit card debt, save money on car loans, AND modify a mortgage.  And the percentage of people actually receiving a modification in bankruptcy as opposed to other alternative venues is much higher.

However, the devil, as always, is in the details.  It is a good idea not to just “jump in” to a mortgage modification until you have discussed all of your option and your individual financial situation and goals with an experienced bankruptcy lawyer.

 photo credit: TheTruthAbout

Short Sale.  Debt Consolidation.  Many times the decision to file bankruptcy is the better option.

I just got off the phone with a client who retained my services 2 years ago to file a Chapter 13 bankruptcy.  They never actually filed.  Now, they have an offer on a short sale and have hired a debt consolidation company.

He and his Wife make a good income (just over $105K/year between them) and therefore do not qualify to file Chapter 7.

Over the last two years they made a decision, before consulting with me, of course, to attempt a short sale on their house and to pay off their $30K of credit card debt by enlisting the services of one of those “debt consolidation” companies that advertise all over TV and radio.

My clients want to be able to purchase a new home in the next couple of years and were afraid of the negative impact they thought filing bankruptcy would have on their credit worthiness in the eyes of a potential lender.

So, they decided to do a short sale.  It’s taken a long time, nearly two years, but they finally have an offer.  During that time, they have not made mortgage payments.  Their credit, as a result, has taken a huge hit.  And, of course, they are still in massive debt.  They owe $400K on the first mortgage and $125K on the second.

To make matters worse, the lender who holds the second mortgage will only agree to release the lien (so that the short sale can take  place) after my clients pay a lump sum of $13,500.  Then, my clients will remain liable for the rest of the loan, or $111,500.  My clients have no way of paying off that amount of debt in 2 years.

Does that sound like a good deal to you?  Do you think that my clients will be able to get a new home loan in 2 years with a short sale on their credit AND nearly $150K owing in unsecured debt?

No and No.

Now, what if they had filed bankruptcy 2 years ago when they hired me for a Chapter 13?  I submit to you, as I did to my clients today, that they would be in a far better position to accomplish their goal of buying a home 2 years from now.

How?  Keep reading…

If they had filed Chapter 13 2 years ago here’s what would have happened:

1.  They would have surrendered their home through the bankruptcy and not be held liable for the balances owed on the 1st and 2nd         mortgages.

2.  They would have moved out of the home and become renters while they make their way through the Chapter 13 payment plan.

3.  Even though they make a decent income, it is very probable that their payment in the Chapter 13 would still be less than the                  $423/month they are paying now to the debt consolidation company because they would not be paying on the house they                       surrendered and not all of the unsecured creditors would have filed a proof of claim, or I would have successfully objected to ones       who did file a proof of claim to get those debts thrown out.

4.  Unlike with a debt consolidation company, there is a guarantee that if you successfully complete your Chapter 13 payment plan,           you will not owe anything to your unsecured creditors at the end of the plan.  I see so many people who come to me only after               paying huge sums of money a debt consolidation company only to find out that certain creditors were not included in the                       repayment plan and they still owe them money.

So, had my clients filed Chapter 13 2 years ago, today they would only have 3 years left on the Plan.  They would probably be looking at paying the case off early at this stage in the Chapter 13 and obtaining an early discharge.

With that early discharge, they are debt free, only 2, maybe 3 years after filing bankruptcy, and they are able to turn their attention to purchasing that new home 2 years from now.

Lenders are likely to view them much more favorably, even after filing bankruptcy, because they are debt free, with a good income, as opposed to still being in debt to the tune of $150K, making a $423/month payment to a debt consolidation company, and with a short sale on their credit report.

The lesson…File Bankruptcy Already!  It’s probably going to be a far better option for you than the other alternatives of a short sale or debt consolidation.

P.S.

Call your bankruptcy lawyer before you make any big financial decisions like doing a short sale or paying a debt consolidation company!!!

One post I found very interesting, was on Jonathan Ginsberg‘s blog and dealt with how Facebook is changing the practice of law.  Jonathan is an Atlanta bankruptcy lawyer.

In previous posts I have explained the requirement that a debtor must disclose all of his or her assets in the petition filed with the Bankruptcy Court.

What if a Chapter 7 Trustee decides to check out your photos on your Facebook page and discovers you have some “toys” that weren’t listed in your Petition?

What about pictures from a vacation you took just prior to filing your petition?  The Trustee, the Court, or your creditors just might be interested in how you were spending your money in the months before you filed your case.

What if you are in a Chapter 13 bankruptcy and get a new high paying job?  One of the requirements of a debtor in a Chapter 13 is to disclose any additional income the debtor receives while making payments under the plan.  Generally speaking, the higher your income, the higher amount you must pay to your unsecured creditors.  If you don’t disclose this new income to the Chapter 13 Trustee, and she finds out about it on your Facebook page, I have an idea the consequences will not be pleasant for you.

Of course, you can prevent all of these bad things from happening to you by simply disclosing them to your lawyer.

I can usually protect all of your assets when you file bankruptcy, so long as I know what those assets are.

I can usually lessen the amount you must pay to your unsecured creditors if your income increases after the case is filed if I know what that income is and when you start earning it.

Disclose, disclose, disclose:  the three most important words in bankruptcy for a debtor.

You’ve talked to a bankruptcy lawyer and the whole thing sounds too good to be true.  You start getting nervous.

You wonder if someone can put a stop to your debt-free plans by objecting to your bankruptcy.

Only if they have a legally valid reason to do so.

Section 523 of the Bankruptcy Code lists all the reasons a party may object to a particular debt being discharged in your bankruptcy case.  It’s a long section, and there are several reasons a debt may not be discharged.  Notice I say, “a debt”, because it’s not like your entire bankruptcy case can be thrown out just because a creditor doesn’t like or agree with your decision to file bankruptcy.

No, unless you intentionally failed to disclose assets or income, in which case you really shouldn’t be entitled to a discharge of your debts, you will only have to deal with the possibility of certain debts not being discharged in your case, not that your whole case will be thrown out.

There are some more common objections, found in Section 523, that creditors can raise.  In this post, I’ll focus on the one I see most often:

A Credit Card Company Objects Because You Charged on a Card Close to the Filing Date

I advise clients to stop using credit cards as soon as they decide that they are going to file bankruptcy.  The reason for that advice is simple, and really born out of common sense.  Think about it, if someone owed you money and ran up his line of credit with you days before filing bankruptcy you wouldn’t be too happy about that right?

You would want that person to be required to pay you back.

And that is essentially what the law requires the debtor to do.  If a debtor incurs over $750 in debt for the purchase of “luxury” items or services, within 90 days of filing bankruptcy, there is a presumption under the law that the debtor acted fraudulently and he or she will be denied a discharge of that particular debt should the creditor bring an objection.

“Luxury” items can mean cash advances on a credit card, clothes shopping, a quick pre-bankruptcy trip to Vegas, you get the idea.  Any bankruptcy lawyer worth the fee he charges will ask you the right questions during the pre-filing consultations to determine if there is a reason for one of your creditors to object.  And then, plan accordingly.

While it is possible for a creditor to object to a debt that was incurred over 90 days from filing the case, this a more difficult case for the creditor to prove.  A fraudulent intent on the part of the debtor must be shown in acquiring the debt.  Most creditors are unwilling to go through the time and expense involved in proving such a case unless the debt incurred is a very large one.

So, use common sense, and don’t use your credit cards once you have decided to file for bankruptcy, and you can avoid having a creditor object to your bankruptcy filing.

Of course, contacting an experienced bankruptcy lawyer couldn’t hurt either!

In Florida, a person may exempt up to $1,000 of personal property, $1,000 of equity in a vehicle, and a $4,000 wild card exemption, which may be applied to any property the debtor owns.  A non-exempt asset is an asset that exceeds the amount of the exemptions that the debtor is entitled to claim.

For example, a common non-exempt asset in a Chapter 7 bankruptcy case is a car.

Let’s say that you own a car that is worth $10,000, all you have to exempt is the $1,000 vehicle exemption and the $4,000 wild card exemption; assuming that you apply all of those exemptions to the $10,000 value of the car, you will see that $5,000 is left over.  That left over amount is a non-exempt asset and becomes property of the bankruptcy estate.  At that point the trustee appointed to your Chapter 7 Bankruptcy case can take that car and sell it at auction and use the $5,000 of non-exempt assets to help pay off your creditors.

However, just because you have a non-exempt asset in your bankruptcy estate does not mean that you will lose the property.  There are various ways that you can keep the property such as by entering into a buyback agreement with the Chapter 7 trustee, or by filing a Chapter 13 Bankruptcy.

So, a non-exempt asset is property whose value exceeds the value that you are allowed to claim or protect as exempt in a bankruptcy case.  You may or may not lose that property when you file bankruptcy, so it is a good idea when you are considering bankruptcy and you think you have a non-exempt asset to contact an experienced bankruptcy lawyer who can help devise a strategy to allow you to keep that property, even if it is non-exempt.