Reaffirmations & Credit Reporting – Theory & Practice (Part 2)

Last week, we were discussing reaffirmation agreements in contrast to a “ride-through”; the latter of which is a method of keeping collateral after filing for bankruptcy without assuming the risk of liability on a deficiency balance should you default on the loan in the future, with the only risk being loss of collateral.
We were discussing the two main reasons why people would opt for a reaffirmation agreement instead of doing a ride-through, and having dispensed with the first (less common) reason, let’s continue on to the second more prolific reason…
#2 – Credit Reporting
Conventional wisdom these days suggests that secured creditors will report post-petition payments to credit bureaus if and only if a debtor enters into a reaffirmation agreement.  Creditors argue that if they report payments without a reaffirmation agreement, that they would be in violation of the discharge injunction.
While this may be conventional practice, we want to explore a little deeper to determine what legal responsibilities exist.  To do that, we’re going to try to answer two major questions.

1. If a reaffirmation agreement is not signed, are creditors violating the discharge injunction if they report post-petition payments?

I am unable to find any case law that suggests that making reports of payments to the credit bureaus – in the absence of a reaffirmation agreement – constitutes a violation of the discharge injunction.  And there’s an obvious reason for this – if a debtor makes payments on a ride-through and his payments are being reported – he is getting both the benefit of positive credit reporting AND reduced liability for not having signed a reaffirmation agreement.  Why on earth would he sue for violation of the discharge injunction?

11 U.S.C. § 524(a)(2) is the primary provision prohibiting the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor”.  It is difficult to imagine how reporting payments that a debtor makes could constitute an act to induce such payments.  The only conceivable issue here is if, during a ride-through, the debtor defaults and then – under the FCRA requirement that credit reporting be done accurately – the creditor reports a missed payment.  That could, conceivably, be considered a discharge violation if the debt was discharged in the absence of a reaffirmation agreement.  But the argument that the reporting of payments received as being a discharge violation is patently absurd.

2. If a reaffirmation agreement is signed, do creditors have an affirmative duty to report post-petition payments?

Simple answer is: NO.  There is no provision of the Fair Credit Reporting Act, nor the bankruptcy code, which imposes an affirmative duty upon any creditor to make reports to the credit bureaus.  This is true, even in cases that don’t involve a bankruptcy case.  Under FCRA, creditors are only obligated to make accurate reports, if they report at all.  There is no authority to compel them to make a report at all.

Failure to report payments does not constitute a violation of the discharge injunction.  See In re Bates, 517 B.R. 395 (Bankr. D. N.H. 2014)In re Manning, 505 B.R. 383 (Bankr. D. N.H. 2014), and In re Estrada, 439 B.R. 227 (Bankr. S.D. Fla. 2010).  (Estrada notes that language in a notice which threatens the suspension of credit reporting for failure to sign a reaffirmation agreement may be an impermissible violation of the automatic stay.)

Special thanks to Hon. Margaret D. McGarity and Atty. Michael J. Maloney for case summaries in Bates, Manning, and Estrada.

Summary

Continuing to make payments on secured loans like home mortgages or auto loans (and non-dischargeable debts like student loans) are a terrific way to reestablish credit history and rebuild your credit score after bankruptcy.  These are pre-existing loans, so there is no need to try to get financing approval despite just having filed for bankruptcy.

A ride-through is a less-risky way to proceed, in that in the event you default on a mortgage or auto loan in the future, you only stand to lose the collateral, and you cannot be held liable for a deficiency balance.

However, most secured creditors – as a policy – refuse to report post-petition payments to credit bureaus in the absence of a reaffirmation agreement (which does leave you potentially liable for a deficiency balance).  Although creditors have no affirmative duty to make reports, even with a reaffirmation agreement, they are not in violation of the discharge if they choose to condition their reporting on a reaffirmation agreement.

15 U.S.C. § 1681s-2 – Relevant Provisions
(a) Duty of furnishers of information to provide accurate information
(1) Prohibition
(A) Reporting information with actual knowledge of errors. A person shall not furnish any information relating to a consumer to any consumer reporting agency if the person knows or has reasonable cause to believe that the information is inaccurate.
(B) Reporting information after notice and confirmation of errors. A person shall not furnish information relating to a consumer to any consumer reporting agency if—
(i) the person has been notified by the consumer, at the address specified by the person for such notices, that specific information is inaccurate; and
(ii) the information is, in fact, inaccurate.
(D) Definition. For purposes of subparagraph (A), the term “reasonable cause to believe that the information is inaccurate” means having specific knowledge, other than solely allegations by the consumer, that would cause a reasonable person to have substantial doubts about the accuracy of the information.
(2) Duty to correct and update information. A person who—
(A) regularly and in the ordinary course of business furnishes information to one or more consumer reporting agencies about the person’s transactions or experiences with any consumer; and
(B) has furnished to a consumer reporting agency information that the person determines is not complete or accurate, shall promptly notify the consumer reporting agency of that determination and provide to the agency any corrections to that information, or any additional information, that is necessary to make the information provided by the person to the agency complete and accurate, and shall not thereafter furnish to the agency any of the information that remains not complete or accurate.
(3) Duty to provide notice of dispute. If the completeness or accuracy of any information furnished by any person to any consumer reporting agency is disputed to such person by a consumer, the person may not furnish the information to any consumer reporting agency without notice that such information is disputed by the consumer.
(4) Duty to provide notice of closed accounts. A person who regularly and in the ordinary course of business furnishes information to a consumer reporting agency regarding a consumer who has a credit account with that person shall notify the agency of the voluntary closure of the account by the consumer, in information regularly furnished for the period in which the account is closed.
(5) Duty to provide notice of delinquency of accounts
(A) In general. A person who furnishes information to a consumer reporting agency regarding a delinquent account being placed for collection, charged to profit or loss, or subjected to any similar action shall, not later than 90 days after furnishing the information, notify the agency of the date of delinquency on the account, which shall be the month and year of the commencement of the delinquency on the account that immediately preceded the action.
(B) Rule of construction. For purposes of this paragraph only, and provided that the consumer does not dispute the information, a person that furnishes information on a delinquent account that is placed for collection, charged for profit or loss, or subjected to any similar action, complies with this paragraph, if—
(i) the person reports the same date of delinquency as that provided by the creditor to which the account was owed at the time at which the commencement of the delinquency occurred, if the creditor previously reported that date of delinquency to a consumer reporting agency;
(ii) the creditor did not previously report the date of delinquency to a consumer reporting agency, and the person establishes and follows reasonable procedures to obtain the date of delinquency from the creditor or another reliable source and reports that date to a consumer reporting agency as the date of delinquency; or
(iii) the creditor did not previously report the date of delinquency to a consumer reporting agency and the date of delinquency cannot be reasonably obtained as provided in clause (ii), the person establishes and follows reasonable procedures to ensure the date reported as the date of delinquency precedes the date on which the account is placed for collection, charged to profit or loss, or subjected to any similar action, and reports such date to the credit reporting agency.
 (7) Negative information
(A) Notice to consumer required.
(i) In general.  If any financial institution that extends credit and regularly and in the ordinary course of business furnishes information to a consumer reporting agency described in section 1681a(p) of this title furnishes negative information to such an agency regarding credit extended to a customer, the financial institution shall provide a notice of such furnishing of negative information, in writing, to the customer.
(ii) Notice effective for subsequent submissions.  After providing such notice, the financial institution may submit additional negative information to a consumer reporting agency described in section 1681a(p) of this title with respect to the same transaction, extension of credit, account, or customer without providing additional notice to the customer.
(B) Time of notice
(i) In general.  The notice required under subparagraph (A) shall be provided to the customer prior to, or no later than 30 days after, furnishing the negative information to a consumer reporting agency described in section 1681a(p) of this title.
(ii) Coordination with new account disclosures.  If the notice is provided to the customer prior to furnishing the negative information to a consumer reporting agency, the notice may not be included in the initial disclosures provided under section 1637(a) of this title.
(C) Coordination with other disclosures. The notice required under subparagraph (A)—
(i) may be included on or with any notice of default, any billing statement, or any other materials provided to the customer; and
(ii) must be clear and conspicuous.
(8) Ability of consumer to dispute information directly with furnisher
(D) Submitting a notice of dispute. A consumer who seeks to dispute the accuracy of information shall provide a dispute notice directly to such person at the address specified by the person for such notices that—
(i) identifies the specific information that is being disputed;
(ii) explains the basis for the dispute; and
(iii) includes all supporting documentation required by the furnisher to substantiate the basis of the dispute.
(E) Duty of person after receiving notice of dispute. After receiving a notice of dispute from a consumer pursuant to subparagraph (D), the person that provided the information in dispute to a consumer reporting agency shall—
(i) conduct an investigation with respect to the disputed information;
(ii) review all relevant information provided by the consumer with the notice;
(iii) complete such person’s investigation of the dispute and report the results of the investigation to the consumer before the expiration of the period under section 1681i(a)(1) of this title within which a consumer reporting agency would be required to complete its action if the consumer had elected to dispute the information under that section; and
(iv) if the investigation finds that the information reported was inaccurate, promptly notify each consumer reporting agency to which the person furnished the inaccurate information of that determination and provide to the agency any correction to that information that is necessary to make the information provided by the person accurate.
(b) Duties of furnishers of information upon notice of dispute.
(1) In general. After receiving notice pursuant to section 1681i(a)(2) of this title of a dispute with regard to the completeness or accuracy of any information provided by a person to a consumer reporting agency, the person shall—
(A) conduct an investigation with respect to the disputed information;
(B) review all relevant information provided by the consumer reporting agency pursuant to section 1681i(a)(2) of this title;
(C) report the results of the investigation to the consumer reporting agency;
(D) if the investigation finds that the information is incomplete or inaccurate, report those results to all other consumer reporting agencies to which the person furnished the information and that compile and maintain files on consumers on a nationwide basis; and
(E) if an item of information disputed by a consumer is found to be inaccurate or incomplete or cannot be verified after any reinvestigation under paragraph (1), for purposes of reporting to a consumer reporting agency only, as appropriate, based on the results of the reinvestigation promptly—
(i) modify that item of information;
(ii) delete that item of information; or
(iii) permanently block the reporting of that item of information.
11 U.S.C. § 524 – Relevant Provisions

(a)(2) A discharge in a case under this title operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived.
(b)(2)(C) Subsection (a)(3) of this section does not apply if an agreement between a holder of a claim and the debtor, the consideration for which, in whole or in part, is based on a debt that is dischargeable in a case under this title is enforceable only to any extent enforceable under applicable nonbankruptcy law, whether or not discharge of such debt is waived, only if—
(1) such agreement was made before the granting of the discharge under section 727, 1141, 1228, or 1328 of this title;
(2) the debtor received the disclosures described in subsection (k) at or before the time at which the debtor signed the agreement;
(3) such agreement has been filed with the court and, if applicable, accompanied by a declaration or an affidavit of the attorney that represented the debtor during the course of negotiating an agreement under this subsection, which states that—
(A) such agreement represents a fully informed and voluntary agreement by the debtor;
(B) such agreement does not impose an undue hardship on the debtor or a dependent of the debtor; and
(C) the attorney fully advised the debtor of the legal effect and consequences of—
(i) an agreement of the kind specified in this subsection; and
(ii) any default under such an agreement;
(4) the debtor has not rescinded such agreement at any time prior to discharge or within sixty days after such agreement is filed with the court, whichever occurs later, by giving notice of rescission to the holder of such claim;
(5) the provisions of subsection (d) of this section have been complied with; and
(6)
(A) in a case concerning an individual who was not represented by an attorney during the course of negotiating an agreement under this subsection, the court approves such agreement as—
(i) not imposing an undue hardship on the debtor or a dependent of the debtor; and
(ii) in the best interest of the debtor.
(B) Subparagraph (A) shall not apply to the extent that such debt is a consumer debt secured by real property.
(f) Nothing contained in subsection (c) or (d) of this section prevents a debtor from voluntarily repaying any debt.
(j) Subsection (a)(2) does not operate as an injunction against an act by a creditor that is the holder of a secured claim, if—
(1) such creditor retains a security interest in real property that is the principal residence of the debtor;
(2) such act is in the ordinary course of business between the creditor and the debtor; and
(3) such act is limited to seeking or obtaining periodic payments associated with a valid security interest in lieu of pursuit of in rem relief to enforce the lien.

Reaffirmations & Credit Reporting – Theory & Practice (Part 1)

A key component to helping people rebuild credit after filing for bankruptcy are post-filing payments on reaffirmed debts.  However, there’s a lot of confusion – even among attorneys and other professionals – about creditors’ obligations to report these payments.  So today, we’re going to examine key statutes, case law, and some anecdotal evidence.  We’re going to discuss what creditors legally are and are not obligated to do, and how these obligations may differ from what we see in common, every day practice.
But first, I’m going to assume that you have not read other posts on this blog about reaffirmations, so let’s hit up some basics: What is a reaffirmation agreement?

Contrary to common belief, almost all secured debts are dischargeable.  In terms of dischargeability, they are no more or less special than other unsecured debts like credit cards, payday loans, or medical bills.  This is how and why people are able to file for bankruptcy, walk away from a home or vehicle that they don’t want, and not be liable for a deficiency balance.
But secured liens are not extinguished in bankruptcy (except in rare case of stripping unsecured mortgages in Chapter 13, judgment liens, etc.).  So while a secured creditor may not be able to pursue you for a deficiency balance, they can act upon their security interest and foreclose or repossess collateral if you default on the loan.  And of course, that right exists even if you don’t file for bankruptcy – bankruptcy just extinguishes their right to pursue you for money on the loan.  So you can’t just stop paying your mortgage and expect to be able to continue to remain in your home, even if you file for bankruptcy.
A reaffirmation agreement takes your dischargeable pre-petition obligation and converts it into a post-petition obligation that is not discharged in bankruptcy.  In other words, if you enter into a reaffirmation agreement and default, then not only can the creditor repossess the collateral, but they can also pursue you for a deficiency judgment.
Reaffirmations are NOT required.  On the contrary.  They are voluntary agreements.  A creditor can no more require you to sign a reaffirmation agreement than you can require a creditor to sign one.  In fact, some creditors – as a policy – don’t bother with reaffirmation agreements.
Strictly from a liability standpoint, I (along with most other attorneys I’ve spoken to) would prefer that our clients not enter into a reaffirmation agreement.  There is always the possibility that something will happen down the road, and you are unable to continue to make payments on your mortgage or car loan.  Without a reaffirmation agreement – the worst thing that the creditor is entitled to do is repossess the collateral.  With a reaffirmation agreement – the creditor can repossess the collateral AND seek a deficiency balance.
What I (and most other attorneys) prefer are what we refer to as a “ride-through”.  A ride-through is when a bankruptcy debtor retains collateral, continues to make normal monthly payments on a secured loan, but does so without a reaffirmation agreement.  This way, the debtor keeps their property, but minimizes their risk in case something happens down the road.
Sounds great!  Why doesn’t everyone do a ride-through?  Why don’t attorneys INSIST that their clients just do a ride-through?  Well, two reasons.
#1 – The Risk of Repossession
This almost never happens.  Many years ago, there were rumors that Wells Fargo was foreclosing on homes and repossessing vehicles, even though the debtors were current on their payments.  The sole reason they foreclosed and repossessed?  The debtors had not signed a reaffirmation agreement, which Wells Fargo considered a technical default and grounds for exercising their security interests.
11 U.S.C. § 521(a)

(6) [I]n a case under chapter 7 of this title in which the debtor is an individual, not retain possession of personal property as to which a creditor has an allowed claim for the purchase price secured in whole or in part by an interest in such personal property unless the debtor, not later than 45 days after the first meeting of creditors under section 341(a), either –
(A) enters into an agreement with the creditor pursuant to section 524(c) with respect to the claim secured by such property; or
(B) redeems such property from the security interest pursuant to section 722.

In Steinhaus, Idaho Central Credit Union argued that this language (revised under BAPCPA in 2005) limited a debtor to 3 options: reaffirm, redeem, or surrender.  Since Steinhaus had not entered into a reaffirmation agreement within the proscribed time period, ICCU demanded termination of the automatic stay, an order compelling surrender of property, and an order authorizing foreclosure.  The court agreed that 11 U.S.C. § 362(h) permitted ICCU to obtain termination of the automatic stay, but disagreed that it had authority to compel surrender of collateral or to authorize foreclosure.  In re Steinhaus, 349 B.R. 694 (Bankr. Idaho, 2006).

The right to repossess is still controlled by applicable state law, and we get a pretty good discussion of that in Henderon, a Nevada case that specifically deals with Nevada law that differs from the Uniform Commercial Code.  In this particular case, it was decided that the contract provision invoking an ipso facto right of recovery based solely on the filing of bankruptcy or lack of a reaffirmation agreement was invalid under Nevada law.  In re Henderson, 492 B.R. 537 (Bankr. Nev., 2013).

Wisconsin’s default provisions are outlined at Wis. Stat. § 425.103.  I’ll include them here for reference, but I’m not going into an analysis of the code.  The point is that since the right of recovery is an issue of state law, the bankruptcy court has no authority to compel surrender of collateral, which means you – as a bankruptcy debtor – can force this issue before a state court judge.  An informal survey suggests that most judges are not inclined to permit repossession based solely on the lack of a reaffirmation agreement.

(2) ”Default”, with respect to a consumer credit transaction, means without justification under any law:(a) With respect to a transaction other than one pursuant to an open-end plan and except as provided in par. (am); if the interval between scheduled payments is 2 months or less, to have outstanding an amount exceeding one full payment which has remained unpaid for more than 10 days after the scheduled or deferred due dates, or the failure to pay the first payment or the last payment, within 40 days of its scheduled or deferred due date; if the interval between scheduled payments is more than 2 months, to have all or any part of one scheduled payment unpaid for more than 60 days after its scheduled or deferred due date; or, if the transaction is scheduled to be repaid in a single payment, to have all or any part of the payment unpaid for more than 40 days after its scheduled or deferred due date. For purposes of this paragraph the amount outstanding shall not include any delinquency or deferral charges and shall be computed by applying each payment first to the installment most delinquent and then to subsequent installments in the order they come due;(am) With respect to an installment loan not secured by a motor vehicle made by a licensee under s. 138.09 or with respect to a payday loan not secured by a motor vehicle made by a licensee under s. 138.14; to have outstanding an amount of one full payment or more which has remained unpaid for more than 10 days after the scheduled or deferred due date. For purposes of this paragraph the amount outstanding shall not include any delinquency or deferral charges and shall be computed by applying each payment first to the installment most delinquent and then to subsequent installments in the order they come due;(b) With respect to an open-end plan, failure to pay when due on 2 occasions within any 12-month period;(bm) With respect to a motor vehicle consumer lease or a consumer credit sale of a motor vehicle, making a material false statement in the customer’s credit application that precedes the consumer credit transaction; or(c) To observe any other covenant of the transaction, breach of which materially impairs the condition, value or protection of or the merchant’s right in any collateral securing the transaction or goods subject to a consumer lease, or materially impairs the customer’s ability to pay amounts due under the transaction.

As a matter of practice, most creditors will permit a ride-through, and there are two major reasons for this.  First – if a debtor is willing to continue make payments on a secured debt, they’re going to receive more money if they permit the ride-through rather than immediately demanding turnover of the collateral.  If the debtor defaults, they still have a right of recovery and sale later on.  (For example, if collateral is worth $10k at auction and a debtor makes $500/mo payments for a year before defaulting, the creditor potentially gets $16k out of the deal; whereas they only get the $10k if they repossess immediately.)  The circumstances in which a creditor may not want to wait for a default is where there is significant risk or danger that the property will be damaged or wasted before the default, significantly devaluing the asset by the time it can be sold.

The other reason most creditors permit a ride-through is because threatening to repossess in the absence of a reaffirmation agreement would conceivably be a violation of the discharge at 11 U.S.C. § 524(c)(3)(A).

Is Bankruptcy the Best Option for Me?

Can I file bankruptcy?

Should I file bankruptcy?
Is bankruptcy right for me?

My first job out of law school was for a highly profit-driven law firm that believed that everyone could benefit from bankruptcy in some way, and that there was no excuse for an attorney to not get a prospective client to retain our services.
I won’t say who that law firm is, but you can identify firms like these pretty easily.  Many of them will have a short survey posted on their website that asks you a few questions to determine if you should file for bankruptcy.  The survey is coded and rigged in such a way that no matter how you answer the survey (or if you answer ‘yes’ to even one question, and the questions are designed that 99% of people would), then the result would be a profound warning that you needed to file for bankruptcy right away.
That law firm I used to work for – and other firms like it – are absolutely wrong.  Bankruptcy is not for everyone.  Admittedly, it is true that there are few people in the world who – if they filed for bankruptcy – would not get any benefit from it.  But those people are out there.  Sometimes they land in my office.  If someone would not benefit from bankruptcy – I will tell them, even though it costs me business.  I, as all attorneys do, have a duty and ethical obligation to look out for my clients’ (and prospective clients’) best interests.
So… rather than post a gimmicky survey, I’m going to walk you through some of the factors you should consider if you’re thinking about bankruptcy.  It won’t be as easy and fast to go through as a six question survey, but I feel that you will have a much clearer idea of what you need to do after reading this article.
Of course, since I can’t know the specifics of your financial circumstances, this article paints with very broad brush strokes.  There is no substitute for getting a consultation from an experienced bankruptcy attorney who can analyze your particular situation.  Most attorneys – including myself – offer free initial consultations.  There is no risk or commitment.  Just an opportunity for you to arm yourself with information and options.
Fundamentally, what is bankruptcy?
Declaring bankruptcy, in its most fundamental sense, is nothing more than asserting that you cannot afford to pay all of your debt obligations as they become contractually due.
Put another way, if your income is X, your ordinary living expenses are Y, and minimum payments on your debts is Z, then X – Y < Z.  The shortfall could just be a few dollars a month, or a few thousand.  Either way, the equation is unbalanced.  Ideally, you want it to look like either X – Y = Z or X – Y > Z.
But I’m not poor…
Bankruptcy is not just for poor people living off of unemployment benefits or food stamps.  In fact, many people on public benefits would benefit the least from bankruptcy protection – essentially because they have little or nothing to lose.  In Wisconsin, those receiving public assistance are protected from having what little wages they have from being garnished.
People have a tendency to look at key items of their financial circumstances in isolation.  “I make $100,000 per year, therefore, bankruptcy isn’t for me.”  “I only have $10,000 in debt, therefore, bankruptcy isn’t for me.”  Well, if you’re making $100k a year and only have $10k in debt, I might be inclined to agree.  But if you’re making $100k a year and trying to pay back $500k in taxes – then you might need some help.  And a single mother raising two kids on $30k a year might get a lot of benefit from bankruptcy even if her debt is only $10k.
It’s not just about your debt or your income, but your debt-to-income ratio.
But I have excellent credit…
Have you pulled your credit report and score?  Recently?  Most people who tell me this haven’t.  They think their credit is excellent because they have never missed a payment.  But your credit score is much more than just a record of your payment history.  Your credit score is affected by numerous factors, including your income, your assets, debt-to-income ratio, minimum monthly payments, number of active accounts, types of credit accounts, your indebtedness relative to your available credit, residential stability, occupational stability, length of credit history, and credit inquiries.
All we’re saying is – if you’re reading this article and you haven’t pulled your credit recently, it might not be as high as you think.
That being said, impact on your credit score is a valid concern.  Bankruptcy does negatively impact your credit – there’s no denying that.  If there is a feasible way to get out of debt without bankruptcy, it is something worth considering.
But bankruptcy isn’t a permanent black mark against your credit, either.  I tell my clients to think of bankruptcy as a reset button on a video game.  You start with a clean slate – just like when you turned 18.  No credit.  You start over and build a new history.  If you happen to have a preexisting debt that will survive the bankruptcy (mortgage, car loan, student loan, etc.), that will help you rebuild even faster.
I’m not in trouble… yet.
If you think you’re headed down a path where bad things are going to happen, talk to an attorney now.  Don’t wait until disaster strikes.
  • Has a creditor filed a lawsuit against you?  They may be looking to garnish your wages.  Why wait until after your wages have started to be garnished before speaking to an attorney?
  • Have you not paid your utility bills all winter?  Your services will likely be disconnected on or after April 15.  Why wait until April 14 to do something about it?
  • Are you behind on your car payment?  In Wisconsin, it doesn’t take long for a creditor to repossess a car.  If they do, you have a very short window (and limited possibilities) to get it back.
  • Are you falling behind on your mortgage payment?  Foreclosure takes a bit longer in Wisconsin, but the longer you wait, the more expensive it could be to stop the foreclosure action.  Don’t gamble with your home by waiting until the eve of the Sheriff’s Sale to speak to an attorney.

It doesn’t necessarily have to take a long time to file a bankruptcy case.  But to do it properly, you should plan on meeting with an attorney several weeks (if not months) before you need to file for bankruptcy.  Why so long?
Chances are that you are not your attorney’s only client.  Your attorney will need time to prepare a proper petition for you, to review all of the relevant documents and information you provide, and to advise you accordingly.  If you drop a case in your attorney’s lap and expect him to drop everything and file a case for you in 24 hours – you can expect the quality to suffer, and you can expect problems.  In fact, I would urge you to avoid any attorney willing to file a case that quickly.
Furthermore, you are going to have certain obligations and responsibilities in bankruptcy.  You’re going to want time to digest these, and make sure that you’re making the right decision before you commit to filing your bankruptcy petition.
Okay, I want to file bankruptcy.  Here’s some information.  Get it done for me.
Bankruptcy is a privilege, not an absolute right.  And it’s a privilege that usually confers a tremendous financial benefit.  In exchange for that benefit, the bankruptcy court is going to have some expectations of you.  They expect a full disclosure of your income, assets, and debts – to determine what, if anything, you can reasonably be expected to pay on your debts.  They also expect you to conduct yourself in a manner that doesn’t unfairly and unjustly impact your creditors (meaning not racking up a bunch of debt right before you file your case, not paying certain creditors at the expense of others, and not selling or giving away valuable assets).
Your attorney’s job – my job – is to help guide you through this intensely bureaucratic process; to advise you to avoid legal pitfalls; and to make sure that you follow the laws and procedures properly.  But that doesn’t mean you can sit back and not take an active and serious role in your own case.  If you cannot bring yourself to disclose information or to follow explicit instructions and advice from your attorney, then you may want to seek some other form of debt relief with less rigid expectations.

A side-by-side comparison of Chapter 7 and Chapter 13 Bankruptcy.


Chapter 7
Chapter 13
Generally
Liquidation of non-exempt assets, discharge of general unsecured debts.
Reorganization and repayment plan.  Debts split into categories. Some paid in full, others paid a percentage based on income and other factors.
Duration
Time between filing and discharge is approximately 4 months.
Time between filing and discharge is approximately 3-5 years.
Cost
Cheaper
More Expensive
Income
Must be below median or be able to “beat” the Means Test.
Surplus disposable income on either the Means Test or the budget.
Prior Bankruptcy
Ineligible to file if filed a prior Chapter 7 in the last 8 years or a prior Chapter 13 in the last 6 years.
Eligible to file even if not eligible for a discharge. Eligible for discharge 4 years after prior Chapter 7 or 2 years after prior Chapter 13.
Assets
If equity exceeds allowable exemptions, trustee can sell for benefit of unsecured creditors.
Assets are not liquidated, but repayment plan may require a minimum threshold paid to unsecured creditors to make them as whole as they would have been under Chapter 7.
Stay Protections
Both chapters stop collection efforts, lawsuits, wage garnishments, and utility disconnection.
Repossession & Foreclosure
Automatic stay suspends pending actions temporarily, but no adequate protection for arrears.
Arrears are cured. Foreclosure and repossession fully stayed pending successful completion of repayment plan.
Codebtor Stay
No
Yes
Other Issues
Preference payments, insider payments, transfers of assets, excessive gambling losses, and fraudulently incurred debt all pose the risk of adversary proceedings or denials of discharge.
Chapter 13 is sort of a fix-all remedy to anything that might be a problem in Chapter 7. Many issues become non-issues, or are mitigated with a floor amount paid to unsecured creditors spread out over the life of the repayment plan.
Discharge
Non-dischargeable debts simply survive the bankruptcy.
Certain non-dischargeable debts (priority debts, such as taxes and child support) are paid in full.  Other non-dischargeable debts (such as student loans) can be paid down concurrently with unsecured creditors.
Credit
Most people have improved credit scores about 12 months after bankruptcy is filed, assuming they have made payments on surviving debts (e.g. mortgages, car loans, or student loans).
Credit rebuilds a little faster in Chapter 13 than in Chapter 7.

  

Why reaffirm?

I have blogged in the past about why it is critical to disclose all of your debts on your bankruptcy schedules, even ones you don’t want to include or “file against”.  The two main things to take away from that article are:

  • Listing a debt is NOT the same thing as “filing against” or discharging a debt.
  • You have an obligation to disclose all creditors – dischargeable or non-dischargeable, secured or unsecured – as a matter of due process.

So, with that in mind, let’s move on to the topic of reaffirmation agreements.  Again, there are two main points to make in order to understand why a reaffirmation agreement may be necessary.

  • Bankruptcy wipes out debts, but it does not remove liens (with some exceptions).
  • Secured debts are generally dischargeable debts.

All right, so let’s put ourselves in an alternate reality where there is no such thing as a reaffirmation agreement, but all other bankruptcy laws are the same.  You file for bankruptcy and receive a discharge.  The discharge is good against the world.  Therefore, your mortgage and car loan are discharged.  This means that you have no obligation to pay the mortgage company and vehicle lender, and they have no legal right to pursue you for payment.
However, bankruptcy did not wipe out the security interest that existed.  In the absence of payment, the vehicle lender repossesses your car and your mortgage company forecloses on your home.
Enter the reaffirmation agreement.  A reaffirmation is a post-petition affirmation of a debt.  In a way, it converts an existing, pre-petition debt into a post-petition debt, and makes it non-dischargeable under the old bankruptcy.  (It can be discharged in a future bankruptcy, provided that enough years lapse such that you are eligible for a discharge.)
Reaffirmation agreements are voluntary and must be entered into by both parties – the creditor and the debtor.  A debtor who wishes to reaffirm cannot force an unwilling creditor to enter into a reaffirmation agreement.  A creditor who wishes to reaffirm cannot force an unwilling debtor to enter into a reaffirmation agreement.
So, what are some of the advantages and disadvantages to reaffirming?
First, reaffirming a secured debt allows you to keep the collateral so long as you continue to make payments on the loan.  A failure to reaffirm does not necessarily mean that you lose the collateral (you can make payments without a reaffirmation, which we refer to as a “ride through”), but there are some creditors who consider a failure to reaffirm as a default, and sufficient cause to foreclose or repossess.
Second, reaffirming a secured debt is an excellent way to rebuild credit after bankruptcy, because you don’t have to apply for a new loan – it already exists, and the payments you make on it after your case is filed will help boost your credit score.  In the absence of a reaffirmation agreement, however, creditors are not obligated to report your payments to the credit bureaus.
Third, if you file a reaffirmation agreement, but then default on the loan later, the creditor is not only able to repossess or foreclose, but the creditor can also sue you for full payment of the deficiency balance afterward.  Your bankruptcy discharge won’t protect you.  Whereas, if you do not file a reaffirmation agreement, but later default on the loan, you still face the foreclosure or repossession, but won’t be liable for the deficiency.
Here are a few other things to consider when making an informed decision to reaffirm a debt or not…
Creditors are generally under no obligation to repossess or foreclose a property if they do not want to.  Although this is uncommon with real estate and vehicles, if this does happen, you could remain liable for things like property taxes, liability insurance, winterization and heating costs, parking violations, and so forth.  If you cannot get a creditor to physically take the keys to real estate or a vehicle, you probably should not abandon the collateral until they actually come for it.  And don’t just sell the collateral, either.  The lender could come back later for the collateral, and if it isn’t available for collection, you could be assessed criminal penalties.  Property that has a lien on it should never be sold without the lender’s express consent and – ideally – a lien release.
For smaller secured loans (like furniture loans, appliance loans, and jewelry loans), although the creditors have the right to repossess if you default or do not sign the reaffirmation agreement, it is highly unlikely that they actually will.  The costs of repossession almost always outweigh the price the lender will realize at auction.
Creditors who claim to have security in stuff you buy might not necessarily have a valid purchase money security interest (PMSI).  Best Buy is notorious for having very vague security agreements which list as security “all of the debtor’s assets” or “all the debtor’s personal property” or “all items purchased”.  Under Wisconsin law, 409.108(3) of Wisconsin statutes indicates that generic descriptions are okay for finance agreements, but not sufficient for security agreements.  There needs to be some reasonable detail of the collateral.
If you do want to reaffirm, the agreement must be filed with the Bankruptcy Court within 60 days of the date of your 341 hearing (which is when you are scheduled to receive your discharge).  Your case cannot be reopened to get a late-filed reaffirmation approved.  (You can file a motion to delay discharge to allow more time to complete a reaffirmation agreement.  You can also reopen a case to file a reaffirmation agreement after discharge, but the court will not approve it, and at the expense of a $260 filing fee.)
Notwithstanding considerations of positive credit reporting and eliminating the risk of foreclosure and repossession, there are other things you should consider before filing a reaffirmation agreement.  Most notably – can you afford it?  Often overlooked is the budget, but what good is a fresh start in bankruptcy if you’re just going to dig yourself into a new hole with something you cannot afford.  Consider the following factors:
  • What is the monthly payment?  Can I afford to pay it?
  • What is the interest rate?  Could I get a new loan for this sort of collateral at a better rate?  How much of my payment is actually going to the principal balance?
  • What is the term of the loan?  Do I have to make this payment for 6 months or 30 years?
  • How much is the collateral worth?  Does it make sense to pay $20,000 for a car that is worth $6,000?  Might it be cheaper to finance a new car?
  • Is the collateral necessary?  Sure, I love my 72″ plasma television, but is paying $200 a month for it really worth it when I have a wife and two kids to feed?

Don’t let fear or misinformation deter you from seeking relief.

From time to time, I hear an anecdote from a client that reminds me that everywhere across the country, there are thousands of people who are not getting the fresh start they need because of misconceptions about bankruptcy.
The other day, I met with a fellow who was terrified that if he filed for bankruptcy, that he would lose his car, because a friend of his filed for bankruptcy, and she lost her car.
I explained to him that bankruptcy does not necessarily mean you will lose a car.  In fact, losing a car because of bankruptcy is incredibly rare.  Losing a car during bankruptcy (but not because of bankruptcy) is a little more common.  There are still others who choose to voluntarily give up their vehicle in the course of a bankruptcy, though there is no mandate that anyone do so.
There are only two ways that someone can lose a vehicle in bankruptcy.  And one of those ways doesn’t really have to do with the bankruptcy at all.
First, you could lose a car if there is a secured loan on the vehicle and you have defaulted on the loan, resulting a repossession.  This often occurs while someone is preparing to file for bankruptcy, but it certainly doesn’t happen because of it.  If you default on a secured loan payment, creditors have a right to repossess, whether you file for bankruptcy or not.  Thinking that bankruptcy has anything to do with repossession is the classic post hoc, ergo, propter hoc logic fallacy.  After this, therefore, because of this.  In fact, the repossession had absolutely nothing to do with the bankruptcy, the timing just happened to coincide because the bankrupt debtor was struggling on all bills, car loans included.
The second way to lose a vehicle in bankruptcy is if the equity in the vehicle exceeds the allowable exemptions.  Again, this is pretty rare.  Most vehicles don’t have equity to begin with.  Most vehicles depreciate rapidly the moment you drive them off of the lot.  Additionally, most people pay the minimum amounts on their vehicle loan.  This ensures that throughout much of the life of the vehicle, the amount owed on the car exceeds the value of the car, creating no equity.  By the time the debt is paid down enough to create equity, the car is several years old, has tens of thousands of miles on it, and is worth maybe a couple thousand dollars.  At that point, Wisconsin residents enjoy pretty healthy motor vehicle exemptions whether they elect federal exemptions: $3,450, plus any remaining wildcard exemption (up to $11,975) using federal exemptions, and $4,000, plus any remaining household goods exemptions (up to $12,000) using state exemptions – and both numbers are doubled for joint filers.
Still, there are times where there are vehicles in excess of exemptions, such as people who have purchased a new vehicle recently with cash and have no loan against it, people with expensive large vehicles, or people who have a collection of cars of high or antique value.  In these scenarios, it is possible that your exemptions will fall short of the equity you own.  But even then, the trustee has to want to sell the car.  In my experience, trustees don’t like to sell stuff, particularly in today’s economy.  They prefer to liquidate non-exempt assets that are easier to move, such as real estate, cash, and cash-like items such as tax refunds.
And by the way – both of these problems (non-exempt equity or a default on a secured loan payment) can both be fixed by filing a Chapter 13 Bankruptcy instead of Chapter 7.
The moral of the story is that no two bankruptcy cases are exactly alike.  How your bankruptcy case will unfold, how you will benefit, the extent of your relief, and the negative consequences you experience are highly contextual and dependent on the specific circumstances of your case.
It is important not to rely on the anecdotal evidence you hear from friends and family, who may not fully understand how or why certain things may have happened to them.  Consult with an experienced attorney to find out exactly what bankruptcy will mean for you, so that you can make an informed decision and weigh the risks and benefits for yourself.

Reader-Submitted Question

Someone posted a question in the comments section of an old post I wrote in 2009.  It’s an excellent question (and I welcome readers to post questions), and since it’s buried, I decided to re-post it here.
QUESTION:
I had a Chapter 7 discharged in 2009 (in Wisconsin). I recently became aware that my first and second mortgages were on my credit report as “part of the bankruptcy”, though I have always paid on time, before and after the bankruptcy. I was unaware that I needed to sign formal agreements to do so and my attorney did not advise me in this area. I certainly was never presented with the forms, and in fact, the mortgagor says they did not receive any paperwork. It is now too late to do so and, as a result, I am not getting credit for my payments through the credit bureau. When I asked Bank of America why they did not originate a request to reaffirm (which I assume they would rush to do) I was told it would now be easier for them to foreclose on me, should I ever stop making payments. Should I be concerned? What, if anything can i do at this point? Thanks!
ANSWER:
Bankruptcy is good against the world. All of your debts, whether they are listed or unlisted, presumptively dischargeable or non-dischargeable – they are all affected by a bankruptcy filing. In the case of secured loans, bankruptcy eliminates debts, but it does not eliminate liens. Therefore, in having a secured debt discharged in bankruptcy, a secured creditor can still realize their security interests via repossession or foreclosure. This is why – in extremely rare cases – certain vindictive creditors will repossess or foreclose in the absence of a reaffirmation agreement.
Secured debts like mortgages and car loans are actually dischargeable. The reaffirmation agreement is a tool that excepts those debts from discharge and prevents the lender from repossessing or foreclosing unless there is some future default in plan payments. Without the reaffirmation agreement, the debt is technically discharged. With the reaffirmation agreement, the debt survives, and the creditor can collect deficiencies against the debtor in the event of foreclosure or repossession. (Which is why it makes no sense for Bank of America to say it is easier to foreclose – the reaffirmation agreement actually gives them more protection.)
The vast majority of secured creditors will not foreclose or repossess, even if the debtor does not sign a reaffirmation agreement, so long as the debtor continues to make monthly payments. This is called a “ride through”, and it’s a pretty good deal for the debtor, because if they do default in the future, their bankruptcy still protects them from collections.
The downside to the ride through is that the lenders are not required to report payments to the credit bureaus (though some do as a courtesy). And that’s the issue you’re faced with now. Once the case is discharged or closed, the court here in the Eastern District of Wisconsin (other districts may have different policies) will not allow you to reopen the case to file a reaffirmation agreement.I would venture to say that your only two options are to contact Bank of America to see if there is someone you can talk to about having your payments reported or to file a dispute with the credit bureaus (see http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre21.pdf).
The only other option I can think of is for you to refinance. Get a new company to assume the debt, pay off Bank of America, and then – having a valid new debt with the second creditor – your payments would be reported correctly. Unfortunately, this would be a tough feat to accomplish in this economic environment.
Most of the bankruptcy attorneys I know (myself included) will not initiate drafting of reaffirmation agreements, because the lender is generally in the best position to have the details of the original loan agreement necessary to complete the forms. Also (and I’m just speaking for myself), there is no practical way of tracking whether certain creditors have submitted reaffirmation agreements for our clients (especially since it is not always in our clients’ best interest to file a reaffirmation agreement). However, because of the very issue you’re facing, I’ve made a point of informing my clients about reaffirmation agreements, their consequences (both in signing and not signing one) and what they need to do if the lender does not initiate a reaffirmation agreement. Most secured creditors will submit reaffirmation documents without being prompted.
Unfortunately, I don’t have a good answer for your situation, but I hope – at least – you find the information useful.  Although the lack of credit reporting is unfortunate, I wouldn’t be too concerned about foreclosure.  Just keep making your mortgage payments.  And in the event you do default on your mortgage in the future and the home does foreclose, you can at least rest easy knowing that they can’t come after you for more money.

Bankruptcy Mythbusting #1

Myth:  If I file for bankruptcy, I will lose my [fill in the blank].
Fact:  People are afraid that they will lose something – whether it’s their home, their car, or their tax refund.  That’s simply not true.  The purpose of bankruptcy is not to strip you of all your worldly possessions and leave you out on the streets with the shirt on your back.  Nor does bankruptcy mean a free-for-all for your creditors to come into your home and seize anything of value.
Nevertheless, in a small percentage of cases, people do lose something in bankruptcy, and that’s how these rumors get started.  People think that because they know it happened in one case, it therefore happens in all cases.  While this is false, it is fair to ask – when does someone risk losing something in bankruptcy?
There are only two ways you can lose property in bankruptcy.
First, is through foreclosure / repossession.  Bankruptcy eliminates debt, but it does not eliminate liens.  Therefore, secured creditors with liens on stuff you own can still exercise their rights to recover their collateral of their debt is not paid.  Therefore, if you are delinquent on your mortgage or car payment and file for bankruptcy, your mortgage lender or auto finance company can still take possession of your house or car.
Of course, the same is true, even if you don’t file for bankruptcy.  The role bankruptcy plays in the foreclosure and repossession process is twofold.  One, bankruptcy could trigger these proceedings if the lender hadn’t started them yet.  In my experience, lenders don’t start foreclosure or repossession proceedings until the customer is – on average – two months delinquent on their bill.  So, I caution my clients who are even only one month behind on their secured debt payments to catch-up before filing for bankruptcy.  Two, the bankruptcy does temporarily stall foreclosure and repossession by way of the automatic stay.  Before the creditor can proceed with taking their collateral, they must either file a motion with the court to be excepted from the stay, or they must wait for the bankruptcy case to be discharged and closed.
The second way to lose property is by having property that exceeds your allowed exemptions.  While you are not expected to be left out on the streets wearing a barrel, you’re not allowed to sit on the proverbial gold mine while your creditors get the shaft, either.  Therefore, each debtor in bankruptcy is entitled to “exemptions” which protect equity in assets from trustee seizure.  If your assets fit within your allowed exemptions, you keep everything, your creditors get nothing, and your case is referred to as a “no asset case”.  If the equity in some of your assets exceeds your allowed exemptions, exposed assets could be seized by the trustee and sold for the benefit of unsecured creditors – referred to as an “asset case”.
The exemptions you get to choose from vary, depending on which state you file in.  Some states are more generous than others.  Wisconsin residents may choose between state exemptions and federal exemptions – both sets of which are fairly generous.  Consequently, very few debtors filing in Wisconsin have asset cases, and those that do usually do not have very much non-exempt property.  Some other states have more favorable exemptions, and others have less favorable exemptions – leading to lower and higher rates of asset cases, respectively.
Some people have heard a myth that they can protect a certain “x” dollar amount of property because someone quoted to them a particular exemption.  What’s important to understand is that the federal exemptions, and each state set of exemptions, contain several different types of exemptions for different types of property.  For example, when using federal exemptions, you have an exemption to protect real estate, another exemption for vehicles, another for household items, another for retirement accounts…  Well, I could go on and on – there are literally several dozen exemptions.  Some of these have dollar limits.  Others, like the ones for retirement accounts, have no dollar limit.  Most can only be used for specific types of property.  Others, like the “wildcard” exemption, can be used on any asset that doesn’t have its own specific exemption (like cash, bank account balances, tax refunds) and assets that are not completely protected by their own exemption (a vehicle with $4k in equity would need a combination of the motor vehicle exemption and a little wildcard exemption to top it off).
If I haven’t yet driven home the idea that whether you lose property is fact-specific and varies on a case-by-case basis, then let me point out that everything I’ve just said assumes you are filing for Chapter 7 Bankruptcy.
Even if your attorney determines that you might lose an asset due to non-exempt equity, or to foreclosure / repossession, you may be able to avoid losing anything by filing for Chapter 13 Bankruptcy.  As I like to say, Chapter 13 Bankruptcy can fix any problem that pops up in Chapter 7 Bankruptcy.
In Chapter 13, you can cure arrears on a secured loan over the life of the plan.  So for example, say that you are six months behind on your mortgage payments and facing imminent foreclosure.  You can file Chapter 13 before the foreclosure process is complete, and propose to pay the arrears over the life of the plan.  The bankruptcy filing stops the foreclosure process, and if you complete the Chapter 13 plan successfully, your mortgage will have been brought current by the time you exit.
Similarly, Chapter 13 can alleviate the problem of non-exempt equity.  Let’s say you have $5k in exposed equity.  In Chapter 7, the trustee can seize the asset, sell it, pay you the amount you were able to exempt, and use the remaining $5k to pay to unsecured creditors.  In Chapter 13, you pay the trustee (spread out over the life of a 3-5 year plan) an amount identical to what the trustee would have gotten in Chapter 7.  The creditors are made as whole as they would have been in Chapter 7, and in exchange, you keep all of your property.
Of course, Chapter 13 only works if you can afford to do whatever you’re trying to accomplish.  For example, low income debtors who are 8-12 months behind on their mortgage might not be able to afford the necessary plan payment – even over a 5 year plan – to bring the mortgage current.  It’s a way to say that bankruptcy is not for everyone, and what happens in your case is extremely fact-specific to your particular circumstances.The good news is that an experienced bankruptcy attorney can look over the facts of your case and predict fairly accurately what you can expect in both a Chapter 7 and Chapter 13 environment before you make any commitments.
Want to find out what bankruptcy could mean for you?  Call (920) 490-6160 now to schedule a free consultation.  I can determine whether your assets might be vulnerable to foreclosure, repossession, or seizure by trustee, plus more.

Top 5 Reasons People Won’t File for Bankruptcy

Shame / Guilt / Desire to Honor Debts
Although there are some people out there who think they are entitled to a bankruptcy once every 8 years, and file every 8 years like clockwork, most people try to avoid bankruptcy. They were taught by their parents to honor contracts, and that if you incur a debt, it’s on you to pay it. This is an admirable goal, and I’d be lying if I said I didn’t share that sentiment. But my role as your bankruptcy attorney is to ensure that you do what is in your financial best interests, and that you don’t have to repeat this again in the future. Sometimes, as distasteful as it may be, bankruptcy is the most fiscally responsible thing you can do for yourself. If you feel really, really bad about bankruptcy, visit a psychologist with all the money you’ve saved from the bankruptcy. Don’t make a bad financial decision based on a bad emotion. Chances are, that’s what landed you in financial troubles in the first place. Also, consider this. Say you have $20,000 in debt. You consider bankruptcy, but decide against it because you feel obligated to pay that $20,000 back. Five years later, you have been unable to get caught up. With interest, late fees, and penalties, your debt has now mushroomed to $40,000. You finally give in and file for bankruptcy. Now, instead of discharging $20k, you have to discharge $40k. Did you do the creditors any favors? No. Sometimes, the best advice is to nip a problem in the bud before it swells into something worse.
Fear of Being Outed
A lot of people are convinced that if they file for bankruptcy, their family, friends, and neighbors will all find out about it. Generally, this is untrue. Sure, bankruptcy is a matter of public record. Of course, all of your current creditors find out when they receive notice of your case from the bankruptcy court. People who have to pull your credit report, loan officers, landlords, etc. – they will know. Your employer, on the other hand, will not know unless they are a creditor of yours, you have a current wage garnishment, or you will be under payroll deductions for a Chapter 13 Plan. Same goes for family and friends – they’ll only know if they are one of your creditors. Bankruptcy is a matter in federal courts, not state courts. Therefore, it is not listed on free, public-access court case databases like CCAP. To find a bankruptcy case, you have to search on PACER, which is a fee and account based search engine. And generally, the only people who execute PACER searches are attorneys engaged in the same kind of work I am involved in. Bankruptcy cases are not published in any newspaper that I am aware of (high-profile celebrity or corporate bankruptcies sometimes make headlines, but we don’t do newspaper notices like they do in state court). Just remember that tens of thousands of people file for bankruptcy each year in Wisconsin. Chances are, you know someone who has filed for bankruptcy. You just don’t know that they filed for bankruptcy unless they feel like sharing that with you.
Fear of Losing Property
Many people fear that by filing bankruptcy, they lose all of their worldly possessions, or some other variation on that theme. I certainly can’t promise that you won’t lose something in a bankruptcy. However, events like that are relatively rare – usually reserved for the extreme cases where someone is sitting on an oil well or a gold mine. The vast majority of my clients lose nothing, except for their debt. They don’t make enough money to need to file Chapter 13, and they don’t own anything of sufficient value to pique the trustee’s interest. Of course, which category you fall under depends on the specific facts of your case, so talk to an attorney before convincing yourself that you’ll lose it all in bankruptcy.
I can’t file due to the new bankruptcy laws.
Rubbish. I wouldn’t be practicing bankruptcy if the new laws banned new filings. In 2005, Congress attempted to make bankruptcy more difficult to file, and did create laws that force more people into Chapter 13 repayment plans. But really, they weren’t very successful. In fact, I have found people qualifying for Chapter 7 who would not have qualified under the old laws. Congress made the process slightly more annoying, but only marginally so. It literally is something to sneeze at.
Attorney’s Fees
Obviously, if you’re in a position to file for bankruptcy, you’re probably not at home, rolling around in Ben Franklins. On the other hand – like everyone else in this world, we don’t work for free. Most Chapter 7 debtors average somewhere between $20,000 to $80,000 in unsecured debt. Even on the low end, the benefit to cost ratio is extremely high, especially when you consider the interest rates on most unsecured debts. I encourage you to shop around for the best value attorney. However, I do not recommend jumping at the lowest price tag. Remember – you get what you pay for. Know exactly what you’re getting for what price. Be especially careful that you know the full price – many attorneys just quote you their own costs, and leave off the court’s filing fees to make their price sound cheapest. Make sure you know about ALL of the fees, including the court’s fees, so that you are comparing apples to apples, not apples to oranges.