Financial Resolutions

New Year’s is a time to both reflect and look forward. It’s also a time of the year when people make resolutions. A pretty common resolution to clean up your finances. What are some things that you should consider when resolving to clean up your finances?

The first thing I would suggest considering is whether or not you are able to pay down the balances on your outstanding debt, especially unsecured debt like credit cards. If you are continuing to aggressively pay down these balances, great, keep it up! If, even after you make payments to your creditors every month, the balances either stay the same or even go up, you should consider whether bankruptcy is an option. Chapter 7 bankruptcy may completely wipe out your unsecured debt. If you don’t qualify for Chapter 7 bankruptcy, a Chapter 13 bankruptcy can at least help you freeze your balances and stop the high interest payments.

A second thing to keep in mind when looking ahead is your secured payments like mortgages and cars. If you have a mortgage with an adjustable interest rate, you should plan ahead. With interest rates increasing you may need to make a higher monthly payment going forward. This is something to keep in mind when budgeting. If you need a new car, you should consider your budget as well. If you’re making payments that are handling your other debts, you were probably in good position to get a new vehicle. If you’re falling behind, or struggling to keep up, it may be best to try to get one more year out of your car.

Finally, you should consider sitting down and making a detailed budget. I mentioned this previously when considering whether or not to buy a new car. It sounds simple, but it really does help to sit down and write out all of your expenses, from mortgages and car payments all the way down to small things like streaming services and daily coffee trips. It may help you realize things that you can easily cut out. It may help you look at places to tighten the budget. If your income is going to go up, it could give you the confidence to invest more money or even plan a trip you have been waiting to take.

Personally, I occasionally go through my own budget to get a better feel for my finances. I think it helps.

If bankruptcy or possibly a debt settlement are in your plans for 2023, call us at 412-414-9366. I would be happy to set up a free consultation and discuss your situation. Now is a good time to think about your financial situation and whether or not you are in a good place or if you need some help.

Joint Bankruptcy

Married couples have the option of filing a joint bankruptcy, both in Chapter 7 bankruptcy and Chapter 13 bankruptcy. This is a great option to save time and money. When is the best time to take advantage of this option?

The most important question will be who has the debts in the marriage? If only one spouse is liable for all of the debts, in almost every situation they will be the only spouse who needs to file. The most important part of any bankruptcy is the discharge of debt. If you don’t have any debts to discharge, it doesn’t make any sense to file.

Now, what about the more likely scenario where both spouses have some of the debts? If the debts of both spouses are significant, it makes sense to file jointly because the filing fees and court costs are the same whether the bankruptcy is filed individually or alone. Sometimes, one spouse does not want to file even with significant debts. I always point out that filing jointly is a great way to save money on attorney fees and court costs, because if they change their mind at a later date, everything will be filed anew, with all new costs.

It is important to remember that joint debts are only discharged as to the spouse who actually files bankruptcy. The non-filing spouse in these scenarios would become 100% liable for a credit card discharged in bankruptcy by the other spouse. This is called joint and several liability. It allows creditors to collect the entire debt against one or both of the co-debtors, in any proportion. So, if a married couple has numerous joint debts, and only one of the spouses files, it will not protect the other.

It will be important to go over all of your debts with your bankruptcy attorney to determine what is (and what isn’t) dischargeable. Filing a joint bankruptcy is something that married couples with joint debts should strongly consider. One final aside, you have to actually be married to file a joint bankruptcy. Call us at 412-414-9366 to set up a free consultation and discuss your situation.

Employment Status and Bankruptcy

I get a lot of questions about employment status and how it affects a person’s ability to file bankruptcy. There are a lot of scenarios that could come up, but I would like to at least provide a brief overview.

People will ask whether they need to be employed to file a bankruptcy, or conversely, if current employment is a problem with filing. Generally, when speaking about Chapter 7 bankruptcy, being unemployed is not a problem unless you have secured debt which you were trying to keep current. The secured debts that are most important are mortgages and car payments. If you want to keep either of these payments through chapter 7 bankruptcy, you have to be able to show the court that you can afford to do so. This normally requires you to have income and a job. However, if you have a non-following spouse or relative who is making the payments, or you have non-employment income such as Social Security, a pension, or even unemployment, you should be able to keep your secure debts such as a car or home through bankruptcy.

In chapter 13, not having employment can be a problem for the same reasons. In chapter 13 bankruptcy you are required to make a monthly payment to the United States Trustee. Just as above, this is normally more possible if you have regular employment. But if, you have the other types of household income that I mentioned above, Chapter 13 bankruptcy may still be feasible.

The bottom line for filing bankruptcy is that there needs to be money coming in to either support a Chapter 13 bankruptcy payment or to keep secure debts in a Chapter 7 bankruptcy. That money coming in doesn’t necessarily need to be regular employment.

Now, if you have too much employment (that is, you earn too much money) it could be an issue with filing Chapter 7 because it may push you above the means test threshold. I discuss the means test extensively elsewhere in this blog and won’t go over it here. But, if you are working it will be important to know exactly how much you are earning.

Finally, in some scenarios it will be important for your bankruptcy attorney to know if you will be losing your job in the near future. If you are losing your job, you may not be able to support a Chapter 13 bankruptcy that you are planning to file. Also, if you are losing your job, you may be able to get beneath the means test and file Chapter 7 bankruptcy by waiting a bit longer.

Call us at 412-414-9366 if you have any questions about bankruptcy and your employment status. I would be happy to set up a free consultation and discuss your situation!

Why "Liquidaton" Is Not Always A Concern

A common fear expressed by new callers when asking about bankruptcy is that all of their property will be liquidated. Or sometimes they believe they will lose their home, their car, or retirement or savings accounts. In most cases, this could not be further from the truth.

The problem arises because individuals do a good thing… they look for information about their problem! But, in doing so, when researching bankruptcy law you will sometimes come across references for a “liquidation” bankruptcy in Chapter 7. Even bankruptcy attorneys will sometimes use this title in shorthand. However, this can cause great confusion and misunderstanding. The reality is that very few bankruptcy cases end up involving liquidation of assets.

The only time this occurs is when you have assets that are not exempt from your creditors. Under bankruptcy law, there are exemptions that are used to protect your personal property. These exemptions are not unlimited, but they are normally sufficient for most people looking to file bankruptcy. In some cases the exemptions actually ARE unlimited. Qualified retirement accounts have an unlimited exemption. Personal injury settlements that are needed to support the debtor are also unlimited. For most other types of property there are limitations. This includes the homestead exemption for your home, the vehicle exemption for your car, in the wildcard exemption that is normally used to protect cash or savings. In most cases, at least in Pennsylvania where the federal exemption are allowed, there is enough to protect everything. So, when people call me up and say, “I don’t want to file bankruptcy because I know I’ll lose my car”, in reality it is just not a problem. Liquidation bankruptcy is an issue that normally does not come in to play.

However, what happens when the exemptions are not sufficient to protect your property? In that case there are two options. One, you can allow the property to be liquidated. Oftentimes, unless the property is of significant value, it is not even worth the time of the trustee to liquidate the asset, and they will abandon it.

The second option is to file Chapter 13 Bankruptcy and pay back your unsecured creditors dollar-for-dollar for the unexempt amount. This sometimes occurs when a debtor has too much equity in a home. Whether or not this makes sense will depend on how much you owe to your creditors and how much you will need to repay. In some cases it will still save you tens of thousands of dollars .

Call me at 412-414-9366 if you have questions about whether or not your property will be fully exempt or will need to be liquidated. As discussed above, in many cases where debtors are concerned about liquidation, in reality they will not lose anything. I would be happy to discuss your situation with a free consultation! Don’t let the word “liquidation” scare you. It is rarely a result.

The Bankruptcy Litmus Test

When a potential client is considering whether or not to file Chapter 7 bankruptcy, I will often tell them about my Chapter 7 bankruptcy “litmus test”. Should you file Chapter 7 bankruptcy, or should you not?

Or, in the most simple form this is the question: can you pay off all of your debt by continuing to do what you are currently doing?

Now, I understand that this seems hopelessly simplistic! And sometimes the answer lies somewhere in the middle, so it’s not completely helpful. But, it really is the best way to go about looking at your situation.

Let’s consider if you answer “yes”. You believe if you continue to do what you were doing, you will get out of your debt. This means that your debt load is manageable given the balance amount and interest rates. In this situation you are paying down the balances on your unsecured debt, and you are able to make your home mortgage and car payments. You’re not falling behind on your taxes, and all of your utilities should be current. If you see your credit card debt balances going down every month, you are well on your way to getting out of your debt!

Now, this does not mean you cannot, or should not, file Chapter 7 bankruptcy if you qualify. If you qualify, it is an option for getting your debt balances back to zero possibly much quicker. Also, even though you are paying your debt down now, you may know that your income will decrease in the future, possibly due to retirement or being laid off. Just because you are paying your debts down does not mean that you are required to NOT file bankruptcy. But, it is a consideration if you wish to avoid it.

Let’s look at the opposite answer to the litmus test. What if you are not paying down your debts? In this scenario you may or may not be paying on your credit cards, but either way the debt balances are not going down. Because of interest and penalties, or because you are only making minimum payments, your total balance due every month is essentially the same. In this scenario you should strongly consider filing Chapter 7 bankruptcy if you qualify. If you’re paying towards your debts and they’re not going anywhere, I call it the “hamster wheel”. Just like a hamster, no matter how fast you move your feet, you end up in the same place at the end of the month. Whatever money you are paying is essentially wasted because it is only covering interest and penalties.

If you believe your income will go up in the near future, or you stand to make a windfall from a lawsuit or an inheritance, you may be able to avoid bankruptcy in this situation. But, if your income looks to be the same going into the future, there probably is no realistic way to pay off your debts. Bankruptcy is always voluntary, of course. But, this is a situation where you should at least strongly consider it, especially if you currently qualify.

If you are not paying your debts down every month and want to consider filing Chapter 7 bankruptcy, contact us at 412-414-9366. I will be happy to go through a free consultation with you to discuss your situation. In many situations the answer will not be clear-cut. You may be lowering your debt balances by small amounts every month, but not eliminating them. I would be happy to talk over the option with you and answer any of your questions!