November 25, 2017

How to Qualify for a Car Loan While in Chapter 13

car loan for chapter 13 debtorsDoes Chapter 13 law allow a debtor to purchase a new vehicle while in Chapter 13 and to finance this car or truck purchase?

This was the issue I faced recently while representing a client whose car was totaled in an accident. My client was in the middle of his Chapter 13 case, having paid into his plan for three years, with two years left to go.

Now, with no car to drive to work, my client was spending $20 per day on a rental car and needed to purchase a replacement. Here’s how we dealt with this problem.

First, my client had to find a replacement vehicle and a lender who would agree to finance a loan despite my client’s status as debtor in an active Chapter 13. Believe it or not, this task was not a problem – my client found a two year old vehicle in the $25,000 range and his dealership was able to arrange financing. [Read more…]

How Soon After Bankruptcy Will You Qualify for a Mortgage?

Approved Real Estate Mortgage Loan Document Ready For SignatureOne of the most difficult decisions for a bankruptcy filer involves surrendering a home. Nobody wants to take this step, but sometimes there is just no choice. Home ownership involves not only a mortgage payment, but it also includes repair expenses, homeowners association dues and utility bills.

Giving up your home will be traumatic – even if you recognize the financial realities. Your family life will be disrupted, the kids may have to change schools, and you will have to sell or store furniture and other personal property that may not fit into a rental.

One of the questions that I get whenever a client has to surrender his home is “when will I be able to qualify for a mortgage so I can buy another house.” Many people are under the misconception that home ownership will be delayed five or ten years or more. The reality is much less harsh. [Read more…]

Free Budgeting Resources to Help You Recover from Bankruptcy

post bankruptcy family budgetOne of the issues that many of my bankruptcy clients have in common has to do with lack of budgeting. Most of us have a general idea about our income and expenses but very few people sit down and write out a formal budget.

When preparing a bankruptcy petition, I use my petition preparation software to create a budget, which, of course, I discuss with my clients. Many of my clients are surprised or even shocked to discover how much they spend each month and how far in the red they are.

In many cases, bankruptcy can help solve this problem by consolidating payments in a Chapter 13, or by eliminating debt (and sometime surrendering property) in a Chapter 7.

Obviously bankruptcy can function to solve an immediate problem but filing a Chapter 7 or Chapter 13 won’t help you if you revert back to the same old bad spending and savings habits after receiving your bankruptcy discharge. [Read more…]

I Never Want to See You Again….

avoid future debt problemsI enjoy meeting with my clients to discuss solutions to debt problems.  And over the years I have met some really pleasant and interesting people.  That being said, I hope that when your bankruptcy case is over, I will never see you again – at least for another bankruptcy filing.

If you win the lottery and need legal help setting up a charitable foundation or a corporate structure to organize your investments, please call me.   If you know someone who needs to file an injury claim, I can help you there too.  But I really hope that this bankruptcy case will be your last.

Here are several suggestions that will absolutely help you avoid the need to file another bankruptcy:

  • set up online access to your credit accounts – you will be able to schedule payment reminders, fraud alerts and other control reminders.
  • set up automatic payments from your checking account to cover minimum payments – most of the time your minimum payment will be $25 or $35.   When this is paid automatically, you avoid late charges and late payment downgrades to your credit score.
  • pay off your entire balance each month – if you find yourself running a balance, this means that you are spending more than you are earning.  This should be a warning sign.   Stop spending until you get your balance down to zero.  Spending more than you earn will lead you back to…..bankruptcy!
  • never, ever, ever, ever (apologies to Taylor Swift) co-sign a loan for someone else – nothing good ever arises from co-signing for someone else – your brother, your sister, your kid, your mom.  Just say “no.”
  • write out a budget – if you can use a spreadsheet, do so.  When you see your income and expenses in black and white on paper, you will have a much clearer idea where your money goes
  • set aside funds for emergencies – you are going to have to replace tires, your kid will break a tooth, you will need to make an emergency plane trip.   Start setting aside $50, $100, or whatever you can in a savings account.  Try to build up 3 or 4 months equivalent to your monthly take home pay.  Forget that this money exists for any purpose other than a true emergency.
  • start planning for retirement.  Create an IRA account.  Contribute to your company’s 401(k) or pension.  Besides bankruptcy I represent people in Social Security disability claims and I will advise you not to rely on Social Security to pay for your retirement

There is an old saying that if you fail to plan, you are planning to fail and this is especially true when it comes to personal finances.  The difference between a comfortable and manageable life and a stressful,  unpleasant life can boil down to $200 or $300 per month.  My hope for all of us as we enter 2014 is to live below our means and to prepare for the unexpected.

Reaffirmation Requires Written and Signed Contract Between You and Your Creditor

reaffirmation agreement in chapter 7I 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. [Read more…]

Can You be Sued for Non-payment of your Mortgage if You Do Not Reaffirm?

I recently received an email from a blog reader asking about his obligations to his mortgage company when he does not reaffirm:

I have read your blog and you are very through so I write you with hopes that you might answer this question for me. I file Chapter 7  in 08, and did not reaffirm my loan. I am still living in the house and did make some payments. However, i have not for the last 8 months. It is my understanding that I must sign a document to reaffirm and that continuing payment in itself is not a reaffirmation…or?  Well it gets a little more complicated.  My house is valued at $410,000 and the bank has offered me a deal that is going to be hard to refuse. They have agreed to let me do a short re-fi in the amount of 180k.  If I agree to that is that in itself a reaffirmation?

Here is my response: in most cases, when you take out a mortgage loan, you are signing two different types of agreements.  The first type is a promissory note whereby you personally agree to make the payments.  The second type of obligation creates a property lien, meaning that you, as the owner of the property, pledges that property as collateral for the loan.

When you file a Chapter 7 and receive your discharge, your personal obligations are extinguished.  However, a Chapter 7 discharge does not eliminate the mortgage company’s lien against your property.  If you “reaffirm” your mortgage, you are actually reaffirming the promissory note and your personal obligations to pay.

For years, many bankruptcy attorneys advised their clients to avoid signing reaffirmation agreements for mortgages, car loans or any other secured debt.  The reasoning – even without a personal “guarantee” lenders are protected by the property lien.  If the lender is willing to accept payments (the so-called “stay and pay” option), the now discharged debtor keeps his property, keeps making payment, but does not have personal liability on the note. [Read more…]

Forgotten Lawsuit Creates Big Problems for Prior Chapter 7 Client

Earlier this month I received a call from a Chapter 7 client that I had represented several years ago.  He is attempting to refinance his house and has discovered that a judgment creditor has a lien for several thousand dollars.  The creditor was listed on the case, but neither he no I knew that there was any judgment.

I directed him to visit the county courthouse and pull the file for this case.  He did and he reports that the return of service shows that his wife was served by a sheriff’s deputy.  His wife has no recollection of being served.  We did list the creditor on the bankruptcy petition but because we did not know that there was a judgment, we did not file a motion to avoid the judgment lien.  What can he do?

There are a number of lessons you can learn from this man’s experience.  First, you should always obtain copies of credit reports from all 3 credit bureaus prior to filing bankruptcy.   In Georgia, you can get a free credit report from each of the 3 main credit bureaus twice a year.  Online, you can go to annualcreditreport.com and download your reports.  Because credit reports obviously contain sensitive information the annualcreditreport.com system will ask several questions to identify yourself.  These are usually multiple choice questions – for example, the system may say “your credit report shows that you previously lived on one of the following streets: (a) Oak Street (b) Thompson Street (c) Ivers Road (d) none of the above.

If you are unable to answer these questions, the system will instruct you to mail away for your credit reports – here is a link to a page on my website with the credit report request letters.

Credit reports are helpful because they will usually show pending lawsuits as well as the names, address, account numbers and debt amounts for most of your creditors.  Obviously I can’t require all bankruptcy clients to bring me credit reports but it sure helps avoid “forgotten” creditors or judgments. [Read more…]

Have You Had Any Success in Recovering from Bankruptcy?

I was recently interviewed by a national magazine about how my clients recover from Chapter 7 bankruptcy.  Some of the tips I discussed during the interview included:

  • asking a friend or relative to add you as an authorized user on a MasterCard or Visa
  • opening a savings and/or checking account at a credit union and establishing a pattern of regular deposits
  • requesting a small loan from that credit union and paying back each installment on time
  • opening a credit account with a gasoline retailer
  • finding a co-signer to open an unsecured credit card account

I explained to the reporter that I am hearing from my clients that large credit card companies are soliciting them for cards as quickly as 6 months post discharge – no surprise in that successfully discharged debtor are a great credit risk, having no debt and no option to file bankruptcy

The reporter, who is a very nice and informed gentleman, would like to speak to anyone who has had success in re-establishing credit after Chapter 7.  If you would be interested in talking to this reporter, please email me using the form on this blog and I’ll put you in touch with him.

How to Repair Your Chex Systems Report After a Bankruptcy Discharge

About 25% of the bankruptcy clients I represent have bounced checks due to insufficient funds.  While there can be a criminal law violation if you bounce a check, often merchants do not prosecute unless the amount is significant.  Even if there are no criminal implications, a bad check is most certainly a debt that needs to be included in your bankruptcy filing.

Many merchants use check reporting services like Chex Systems.  Another check reporting service I see frequently is called Telecheck.    These companies are credit reporting agencies just like Equifax or Experian and merchants use these companies when deciding whether or not to accept a check from a customer.

My Bankruptcy Law Network colleague, San Diego bankruptcy lawyer Michael Doan has written a very helpful post that sets out the specific steps that you need to take when you include a Chex Systems or Telecheck debt in your bankruptcy.   You can click on the link to read Michael’s timely post.  Michael notes that the check reporting agencies sometimes do not update their databases to show a “zero balance, discharged in bankruptcy” on accounts that are included in bankruptcy.

A Chex Systems file that show outstanding debt will make it very difficult, if not impossible, to obtain a new bank or checking account after bankruptcy.  If you take the necessary steps to clear your check reporting file, you greatly improve your chances.

Michael’s advice clearly applies once you have received a discharge in Chapter 7 or Chapter 13.   This raises a question in my mind as to what a Chapter 13 debtor can or should do during a five year Chapter 13 plan.   I wonder if a Chapter 13 debtor could argue that a check reporting agency’s refusal to delete a reference to an outstanding balance could be considered as a violation of the automatic stay.  I will pose this question to my BLN colleagues and update this blog post.

Can I File a Chapter 7 By Myself, Without an Attorney

This morning, I received an email from a gentleman named Jim, who writes:

How can I file chapter 7 by myself without paying someone, anyone $ 99.00 $199.00, $299.00 etc… Three different people( with a financial intrest of course) said representation is required.

Here is my response: Jim, you certainly have the right to file a Chapter 7 case by yourself.  The forms are available either on-line or at an office supply store.  There are also several books about how to do this.  I am currently reviewing a book entitled The Complete Chapter 7 Personal Bankruptcy Guide by attorney Edward Haman that is published by Sphinx Publishing that is quite comprehensive.

Here are the issues:

1. the bankruptcy process has become significantly more complicated since October, 2005, when the BAPCPA changes to the bankruptcy laws were enacted.   I know a number of lawyers who used to file the occasional Chapter 7 here in Atlanta, but who have now given up the practice because of the complications.  In particular, you need to fully understand how the median income test and the means test works – if you do the calculations incorrectly, you could end up in a deposition at the United State’s trustee’s office, face a motion to dismiss or face a motion to convert to Chapter 13.

2. you need to understand about the pre-filing credit counseling requirement as well as the pre-discharge financial management course requirement

3. in order to actually file your case, you will need to go to the Clerk of Bankruptcy Court and scan your pages to get your case filed.  I suspect that this process is not particularly complicated, but I have not used the scanning equipment at the Clerk’s office.

4. you cannot dismiss a Chapter 7 voluntarily if you change your mind.  For example, if you file, but it turns out that you earn too much or own too many assets the judge may not let you out of your case, at least until after your assets are liquidated.

5. you need to understand how the Georgia exemption law works and how it applies in Chapter 7 to protect property that the law allows you to protect.  If you don’t properly declare property as exempt even if the law would otherwise allow you to protect it, then you could lose your property anyway.

6. do not expect to receive advice from the Chapter 7 trustees or the U.S. Trustees.  Their interest is to maximize the recovery of the estate (i.e. your creditors).

While folks contemplating bankruptcy obviously do not have a lot of money, I think that in most situations the complexity (which, no doubt is unnecessarily complex) makes a pro se filing a mistake.

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