There is no perfect time to file for bankruptcy. Ideally, you should wait to file at a point when you have not touched your credit cards for several months and your credit card charges over the past year have not taken a big jump. Further there is less chance that you will face any objection if you have made at least the minimum payment over the past 6 months or longer.
Section 523 of the Bankruptcy Code sets out a number of situations in which credit card debt will not be discharged. Section 523(a)(2)( c) makes non-dischargeable consumer debt totaling more than $500 for luxury goods and services owed to any one creditor that are incurred within 90 days of filing, or cash advances totaling $750 or more owed to any one creditor made within 70 days of filing.
Section 523(a)(2) makes non-dischargeable debt owed to a creditor that was incurred by false pretenses or by fraud.
Basically, then, Section 523 gives credit card lenders at least two arguments to challenge a debtor:
- recent credit card use (within 3 months) for anything but necessities like food, clothing and shelter
- any credit card use in the recent past (in my experience this can be up to a year prior to filing) if a debtor makes charges where there is no reasonable expectation of repayment. More on Will Recent Use of Credit Cards for Necessities Like Food and Clothing Prevent me from Filing Bankruptcy?
USA Today recently reported that student loan debt in the United States, which totals $850 billion, now exceeds outstanding credit card debt in the U.S., which totals $828 billion.
USA Today gets its numbers from a web site publisher named Mark Kantrowitz, who publishes two scholarship matching services called FinAid.org and FastWeb.com. I was unable to independently verify Mr. Kantrowitz’ numbers but if you Google “total credit card debt in U.S.” and “total student loan debt in the U.S.” you will get numbers in the range quoted in the USA Today article.
I actually thought that a more interesting element of this issue has to do with the monthly repayment numbers facing borrowers. The USA Today article suggests that $30,000 of student loans, payable at 6.8% interest over ten years would amount to $350 per month. At this level of debt, the average person would need to earn at least $42,000 per year.
In my practice I have frequently seen student loan debt far in excess of $100,000, with monthly payments over $1,000.
In a bankruptcy context, student loan debt is not dischargeable except in cases of “undue hardship.” In the Northern District of Georgia, “extreme hardship” has essentially been limited to student loan debtors who have a medical issue that prevents them from working. At this point in time, debtors in the Northern District have not been successful in arguing for hardship discharge on the grounds that they cannot find a job that pays enough to support their student loan obligations. There was a recent Supreme Court decision involving student loans and bankruptcy, but that case did not address the substantive issue of what constitutes “undue hardship.”More on Student Loan Debt may be a Bigger Problem than Credit Card Debt
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A typical Chapter 7 or Chapter 13 petition requires you to submit well over 50 pages of documentation, including:
- your schedules – which includes a detailed budget, a list of all creditors including addresses and account numbers, a detailed list of assets with estimated valuations, detailed information about sales, transfers, losses and recent payments to creditors, information about your and your spouse’s income over the past 3 years
- your plan (in a Chapter 13)
- a credit counseling certificate
- pay advices documenting income for the past 6 weeks
In my experience, even the most organized bankruptcy filers will need around a week to 10 days to put all this information together. For those less organized, it can take longer.
What happens, then, if you need bankruptcy protection immediately – perhaps to stop a pending repossession, wage garnishment or foreclosure? In such an instance, the Bankruptcy Code does allow you to file an “emergency” petition consisting of only the first two pages of your petition + the credit counseling certificate.
You then have 15 days to complete the remainder of the paperwork and get it filed.More on Beware of “Emergency” or “2 Page” Bankruptcy Filings
Filed under General consumer bankruptcy info, Georgia Bankruptcy by
As a debtor’s attorney, one of my goals is to help my client protect as many of their assets as possible when filing for bankruptcy. The Bankruptcy Code allows us to shelter certain assets by declaring them as exempt.
Interestingly Georgia law, not federal bankruptcy law, determines which assets you may exempt in a case filed in Georgia (there are some limited exceptions to this for filers who have recently moved to or from Georgia). The Georgia exemption statute may be found at O.C.G.A. 44-13-100.
An asset that frequently needs to be protected is one’s federal and/or state income tax refund. Because your refund comes in the form of cash, it is not surprising that bankruptcy trustees will try to find a way to grab your refund. For this reason, I advise my clients to adjust their tax withholdings so that their future tax returns will not show either an overpayment (and thus a refund) or a liability (which will create future budget problems when the tax debt comes due).
If you have a refund due you for the past year, you can use the Georgia “wildcard” exemption to declare that refund as exempt – to a point. Under the Georgia exemption statute, you can use half of your unused real estate exemption for any property + you get an additional $600 wildcard exemption. Thus, an individual can declare up to $5,600 of his income tax refunds as exempt.More on How do Georgia Residents Protect Joint Tax Returns in a Joint Bankruptcy Filing?
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Usually, when I meet with a prospective bankruptcy client, the first question I get is “how long will it take me to recover after filing bankruptcy” and the second question I get is “will I have to give up my personal items like furniture and jewelry?”
The “recover from bankruptcy” question is the subject of a different blog post, but I can tell you that in my experience of over 23 years, I rarely, if ever, see anybody lose any of their personal property when they file bankruptcy.
Let’s take jewelry, for example. In Georgia, you can protect or “exempt” up to $500 worth of jewelry. This means that you may have $100,000 of credit card debt and you can wipe all of that debt out and still keep your $500 worth of jewelry because under the Georgia exemption statute, this jewelry is exempt.
But wait – there’s more. If you file jointly with your spouse, each of you gets to claim the $500 exemption, making a total of $1,000. Further, the exemption law allows you an extra $600 of “wildcard” exemption that can be applied to jewelry, and you can take up to $5,000 of your real estate exemption and apply it to jewelry as well.
Thus, an individual can exempt $500 + $600 + $5,000 = $6,100 worth of jewelry. A couple filing jointly can protect up to $12,200 worth of jewelry.
What if your jewelry is worth more than $6,100 (individual) or $12,200 (married couple)? I would advise you to get that jewelry valued. As Charleston bankruptcy lawyer Russ DeMott points out on his blog, people buying used jewelry want a deal–a really good deal. That heirloom ring you think is worth $15,000 may fetch only $2,500 from a wholesale jewelry buyer.More on Will You Lose Your Jewelry if You File Chapter 7?
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When I am meeting with clients, I get a lot of questions about retirement plans. Often, I see clients who have very little equity in property, and even less cash, but they may have $25,000 or $30,000 in an IRA or a 401(k). How does having several thousand dollars in a retirement plan impact your options regarding a bankruptcy filing?
To answer this question, I am going to point you to a very helpful series of articles written by my colleague Damon Duncan, a bankruptcy lawyer in Charlotte. Although Damon is writing for the benefit of North Carolina bankruptcy filers, the principles he discusses are applicable to Georgia filings as well:
- If I file bankruptcy will I lose my retirement?
- What is an ERISA qualified retirement plan?
- How do I know if my 401(k) plan is ERISA qualified?
- Can I take out a 401(k) loan after filing Chapter 13?
Generally, funds in an ERISA qualified retirement plan are considered “exempt” assets. This means that your retirement plan is protected from the claims of creditors and these funds are protected from the reach of the trustee. To put this another way, in most cases you could file a Chapter 7 and wipe out $100,000 of credit card debt, but you would exit bankruptcy with your $30,000 IRA intact.More on Retirement Plans and Bankruptcy
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Social Media sites, and Facebook in particular, have changed the practice of law. Divorce lawyers regularly review the opposing party’s Facebook profile for evidence of adultery or hidden assets. Prosecutors present online photos to juries as evidence of guilty behavior. Bill collectors troll social media sites looking for assets and debtors.
And don’t think that limiting access to your profile to “friends” only will help. Facebook information can easily be subpoenaed – do not assume any right to privacy for your online materials.
How has Facebook and similar sites impacted the world of consumer bankruptcy. In this guest post, Charlotte bankruptcy lawyer Damon Duncan, identifies three situations where your careless use of Facebook could have serious bankruptcy implications:More on Can Facebook Ruin Your Bankruptcy?
Filed under Chapter 13 issues, Chapter 7 issues, Protected property issues by
Yesterday, my son graduated from high school. His class selected a math/environmental sciences teacher named Nicole Brite to deliver the faculty address to the senior class. Ms. Brite delivered a spectacular address which was meaningful, witty and thoughtful (and she received a well deserved standing ovation from both the students and the audience).
In one part of her speech, Ms. Brite turned to the graduates and said “now I am going to offer you some words of advice that I wish someone had said to me when I was leaving high school.” One of the points she made I think is applicable to everyone, not just high school students.More on Words of Wisdom for High School Graduates
Filed under Consumer protection, General consumer bankruptcy info, Georgia Bankruptcy by
I have written before about the pros and cons of entering into a reaffirmation agreement with one or more of your secured creditors. On the plus side, reaffirming a secured debt gives you a degree of certainty – you are once again in a contractual relationship with your creditor. You know how much you are supposed to pay each month and you know the payoff balance, interest rate and terms of the agreement.
Further, you may be able to negotiate a more favorable deal when you reaffirm. Other than cars, secured creditors are often not set up to liquidate used merchandise and since you already have possession of the property (collateral), many lenders are happy to negotiate more favorable terms with you so they can avoid the hassle of recovering and disposing of property. This negotiation option is less true with motor vehicles, because there is an active used car market, but the negotiation option can work well when you are dealing with furniture or electronics.More on Reaffirmation Requires Written and Signed Contract Between You and Your Creditor
Filed under Post bankruptcy credit rebuilding, Reaffirmation and negotiation by
Because I handle both personal bankruptcy cases and Social Security disability cases, I frequently get questions about the interrelationship between these two areas of law. A question I get at least once a month has to do with whether a Social Security disability overpayment is dischargeable in bankruptcy.
The short answer to this is “yes,” a Social Security overpayment is treated like any other unsecured debt. There are exceptions to the dischargeability of a particular debt under Section 523 of the Bankruptcy Code and exceptions to the discharge as a whole under Section 727 of the Code.
Specifically, this means, however, that fraudulent behavior can result in a finding that this Social Security debt is not dischargeable.
Overpayment issues typically arise in disability cases when a claimant continues to accept and receive disability payments even after returning to work. The question then becomes – “did the debtor/claimant knowingly and with intent to deceive the Social Security Administration continue to accept disability payments even when not entitled to do so?”More on Are Social Security Overpayments Dischargeable in Bankruptcy?
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