Summertime Budgeting

With most recent days reaching the mid-90s (with humidity!) most of us are preoccupied with staying cool right now. Debt and related issues are far from our minds. My main concern right now involves not melting away in a three-piece suit when I am downtown. Bankruptcy filings often drop during the summer, and it is not surprising. However, just because these thoughts are being put off for a hopefully cooler day doesn't mean that you can't do some planning and budgeting in the meantime.

First off... take a vacation! This is usually the only time of year that a family with school-aged children will have the opportunity. Now, given circumstances, this vacation may need to be modest, but there are a lot of fun, nearby, affordable activities for a family to enjoy. Vacations don't need to be in the French Riviera. Even a "stay-cation" or a simple weekend trip in the car is feasible under a budget. Staying with friends and relatives out of town can keep down the expenses. At the very least, the city is crawling with fun and interesting things to do (take a day to go to Kennywood, or any of our great museums). Just because a bankruptcy may be in the offing doesn't mean family life needs to shut down.

A second budgeting issue for families is back to school expenses. August is generally the month of back to school spending for clothes, shoes, and school supplies. Put aside the necessary money know it is absolutely needed. If bankruptcy needs to be put off in the meantime, so be it.

As summer winds down, fall is a good time to put aside some money, including money needed to file a bankruptcy. Utility bills drop, as heat and electric bills (God bless air conditioning) go down, school is paid for, and Christmas shopping is still months away. It will be a great time to get things in order.

Of course, some debt issues and bankruptcies can not be put off. A lawsuit or home foreclosure needs to be addressed immediately. And in some cases, the stress of a large debt burden is best addressed now. However, in less extreme cases, summer can still be enjoyed with friends and family.

If you want to speak about your debt issues, contact us to set up a free bankruptcy consultation. If it is 95 degrees with 100% humidity, I will probably be wearing shorts and a light shirt!

Important Assets in Bankruptcy

"Assets" in bankruptcy are quite simply your property. The common conception of property is of clothes, household goods, electronics, savings, cars, and homes. However, bankruptcy takes a broad definition of property, so it also includes things you may not immediately think of as property, such as retirement accounts, intellectual property, fractional interests in real estate, burial plots, joint bank accounts, pensions, insurance claims, and lawsuit proceeds.

So, with the definition of assets being broad and wide-ranging, what are the most important to consider when filing a bankruptcy?

If you own a home, it is without a doubt your most important asset, and under the Bankruptcy Code, you will not lose it as long as you can afford to pay for it. A mortgage is a secured debt, and under bankruptcy law it must be paid in full, at the contract rate (in most cases). In addition, home equity loans and property taxes must also be paid in full. But, as long as you can afford to make these payments, you can keep the home. The bankruptcy "exemptions" allow for equity in the home (as long as it is your primary residence) to be protected, up to $23,675.00 for each filer. So, losing your home in bankruptcy should not be a concern.

The second most important asset for most filers is their car. Once again, a car loan is a secured debt that must be paid in full. As long as you can afford it, you can keep your car. Another exemption protects your equity, thus losing this important asset should also not be a concern. Multiple car ownership may present some problems with exemptions, so it is important to discuss this situation with your bankruptcy attorney.

As mentioned above, bankruptcy has a broad definition of "assets", and this also includes pensions and retirement accounts. These are hugely important assets, and fortunately they are entirely protected under bankruptcy, assuming they are non-alienable (that is, you cannot freely take money from the account, such as you can in a savings or checking account). Almost all retirement accounts, including government pensions, 401(k)s, and 403(b)s are completely safe. Bankruptcy need not threaten your financial future.

A final important "asset" is often not thought of as an asset at all... that is joint ownership in any property you do not primarily use. An example might be a car you jointly own with one of your children that is entirely used and maintained by the child. This isn't your property in the common idea of ownership and usage. However, for bankruptcy purposes, you own a 1/2 interest that must be exempted. You will be considered as having a partial interest in any property of this type.

Listing all of your assets is an important step in any bankruptcy, therefore is important to discuss and closely review it with your attorney. There is no need to lose any of your property, but failure to disclose it could lead to your case being dismissed, or even perjury charges being brought. Contact us to speak with an experienced Pittsburgh bankruptcy attorney to set up a free consultation where we can review your assets and come up with a plan to protect them.  

The Hierarchy of Debt (Who to Repay First)

When your bills are mounting and you have limited income, but you are not quite ready to file either a Chapter 7 or Chapter 13 bankruptcy, you need to prioritize who does (and DOESN'T) get paid. While each actual situation is obviously different (contact us to set up a free consultation to discuss your debt issues), here is a short-hand collection of ideas to determine who to pay:

• Pay your mortgage first. Failing to pay your mortgage could lead to foreclosure proceedings within several months of non-payment. If you want to keep your home in a Chapter 7 bankruptcy, you will need to be current at the time of filing. I have seen clients who paid credit cards before paying their mortgage... and they almost lost their homes because of it. It is a potentially terrible mistake. I'll later explain why credit cards should be one of your LAST payments, but for now it is important to stress that your home should be your primary concern (assuming you want to keep it) because it is your most difficult asset to replace, and losing it could lead to the displacement of your family. (NOTE: if a foreclosure proceeding has begun, contact us immediately)
• Pay your car payment second: Paying your car payment is important for all the reasons that paying your home is important, only to a lesser degree. It is a difficult asset to replace, and you will probably need it to go to work, pick up your kids, get around town, etc. (NOTE: If your home or car are in arrears, it is possible to catch up in a Chapter 13 bankruptcy). Several months of non-payment could lead to repossession proceedings. Don't let it get that far, if possible.
• Pay utilities third: If you are facing a shutoff notice, you should immediately pay the utility and strongly consider filing a bankruptcy. Cable and internet can be cancelled on a tight budget, but losing your electric, gas, or water is not an option. Utility debt can be eliminated in bankruptcy, and utility providers cannot discriminate against you afterwards by not providing service.
• Pay your taxes, especially if the IRS is likely to soon garnish your wages. If not, paying the IRS could be put off, but not for too long. Tax debt is unsecured, but priority, which means it is not discharged in bankruptcy.
• Last (and least), pay credit cards, student loans,medical bills,  and other unsecured debts. Credit cards especially should not be a priority, as they are unsecured debts that can be eliminated at any time under bankruptcy. As mentioned above, do NOT prioritize credit cards over your mortgage... their collection calls may be annoying, but they are preferable to potentially losing your home. Student loans can eventually lead to garnishments, but usually in the short-term they can be deferred. Medical bills can also be paid near the bottom of your list. It should be stressed that these debts are important, but they are just not as urgent as those listed above.

Once again, each situation is unique. If you are struggling to pay most of your debt and ongoing expenses, it is probably time to consider a bankruptcy. But, until you make that decision, it is worth considering this hierarchy to buy yourself time. Credit cards, medical bills, and student loans cannot be ignored forever, and failure to pay on them can lead to lawsuits, but in the meantime make sure not to lose your home, your car, or utility service.

I will be happy to discuss the impact of each type of debt you face.

Credit Card Debt and Married Couples

Marital credit card debt is a frequent cause of strife in marriages and a major cause of bankruptcy filings. Marital credit card debt may include debts solely incurred during the time of the marriage. It may also include some debts from before the marriage. Either way, it can burden married couples to the point of destroying the relationship.

Fortunately, most marital credit card debts can be discharged in bankruptcy, including  both joint and individual credit cards. Therefore, a joint card opened before (or after) the marriage is dischargeable in bankruptcy. At the same time, an individual card opened by one of the spouses, opened years before the marriage, is also dischargeable in bankruptcy. Any and all such combinations will be dischargeable, IF the couple files jointly.

This raises a scenario that sometimes occurs... what if one spouse does not want to file bankruptcy? What will happen to the marital credit card debts? In these cases, it will be important to know who is legally obligated on the debt. If only one spouse files, debts solely in his or her name will be discharged in the bankruptcy. Simple enough. This is often sufficient in cases where one spouse entered the marriage with significant credit card debt of their own. But, what about the joint debts?

Joint debtors are "joint and severally" liable. This means their creditors can go after one or both debtors for part (or all) of the debt. This may seem unfair in situations where one joint debtor has numerous attachable assets, while the other has nothing. In any case, this is the law. The creditor can go after whoever it wants, which will almost always be the person with something to take.

So, if one spouse files a bankruptcy on a joint credit card, his or her liability on the debt is wiped out. However, due to joint and several liability, the creditor can go after the non-filing spouse for the full amount. Due to this reality, it is almost always advisable for married couples with significant joint debt to file jointly. It reduces cost (the filing fee is the same for joint bankruptcy filers) and saves time. Not filing a joint bankruptcy will do no good for the household if the creditor can still collect on and possibly sue the non-filing spouse.

In many situations, the debt is in various forms, both joint and individual between the spouses. Contact us for a free bankruptcy consultation to determine if filing bankruptcy jointly, or individually, is the best option for your family. There may be situations where the individual debt of one spouse greatly exceeds any joint debts. I will be happy to walk you through the situation and give you the best options available. 

Spring Is A Time For Fresh Starts

Bankruptcy is often described as a "fresh start", and this is true for a lot of reasons. With Spring (mercifully) on the way, here are a few ways bankruptcy can be a fresh start for you.

• Clear out lawsuits: Filing bankruptcy allows you to remove lawsuits and judgments from your financial record. A creditor judgment can stay on your record for 20+ years, putting your home, car, bank accounts, and personal property at risk, while at the same time destroying your credit. Filing bankruptcy can eliminate these lawsuits, protecting your property and allowing you to rebuild your credit in one swift stroke.
• Reset your debt ratio: High debt ratios can severely limit your ability to get credit in the future while keeping your credit score low in the present. Bankruptcy can wipe out your unsecured debt and give you a fresh start with re-establishing your credit.
• Catch up arrears on a car or home: Have you fallen behind on a car or mortgage payment due to a temporary loss of employment? A Chapter 13 bankruptcy can allow you to catch up while paying 0% interest on your arrears. Don't let your home slip towards foreclosure or your car end up repossessed. Act now with a Chapter 13 reorganization before it is too late!
• Stop creditor calls: Tired of creditors pestering you and harassing you at all hours of the day and night? Bankruptcy can stop the calls immediately with the Automatic Stay, which prevents any creditor contact with you. Bankruptcy can give you piece of mind and stop creditors in their tracks.

Spring is a time for renewal and fresh starts, so what better time to put your finances back in order? Contact us and schedule a free consultation to see if you qualify for the bankruptcy fresh start.