credit – Rochester Bankruptcy and Debt Relief – Rochester, NY Bankruptcy Attorney

Can Debtor Keep a Credit Card After Filing Bankruptcy

I am often asked if debtor can keep a credit card after the bankruptcy is filed, especially if the credit card does not have a balance. Generally, debtors are always interested in trying to keep a credit card after the bankruptcy is filed whether as a means of having credit for emergencies or renting a car or hotel room.

My answer to these questions as follows. Initially, the debtor is required to disclose to the bankruptcy court everyone the debtor owes money to. So, if there is money owed to a credit card issuer, this debt would have to be disclosed and listed in the petition, and, ultimately, discharged.

If the card does not have a balance, it does not need to be listed. However, that card is still going to be closed by the issuer after the bankruptcy is filed, both for Chapter 7 and Chapter 13 bankruptcy cases. Essentially all credit card issuers subscribe to an automatic monitoring service such as AACER or one of AACER’s competitor. Those services will notify the bank even if a particular credit card is not listed in the petition.

In my experience, in nearly every case, all credit cards will be cancelled within days of the bankruptcy filing. Thus, it makes no difference if the card with zero balance is listed, but I usually list it anyway.

Once the debtor completes his or her Chapter 7 bankruptcy, the debtor is likely to be able to obtain new credit cards within 1 to 2 years after receiving the discharge. At the same time, my advice to the debtors is not to open new credit cards or if a credit card is necessary, to open one with a low credit limit or a secured credit card. There is always a risk that debtor will become overextended once again, and it is prudent to avoid it.

If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.

Should You Use Credit Cards Once You Decided to File Chapter 7 or Chapter 13 Bankruptcy

If you are contemplating filing Chapter 7 or Chapter 13 bankruptcy, you should stop using your credit cards. Once you’ve decided to file for bankruptcy, any credit card use after that point will be highly scrutinized by both the credit card issuer and the bankruptcy trustee, and is likely to be viewed with a great deal of suspicion. The reasons for this are obvious. If the debtor decides that he is seeking to eliminate his credit card debt through Chapter 7 bankruptcy, or pay a lesser amount though a Chapter 13 filing, then incurring additional credit card debt can be considered fraudulent. Specifically, the credit card issuer will make an argument that the additional debt was incurred without intention to repay, then the discharge can be objected to. Also, the issuer will also look at all of the transactions to verify that the money was not spent on such things as vacation trips, or that other unnecessary spending didn’t take place. If a credit card issuer learns that a debtor used a card without any intention of making full payment, then the credit card company has the right to object to the debtor’s discharge of that particular debt.

Also, if the bankruptcy trustee, or United States Trustee, learn that the debtor intentionally ran up his credit cards before filing, then either trustee can seek to have the debtor’s discharge denied or move to have the case dismissed. There is also the possibility that the debtor can be found to have engaged in bankruptcy fraud, which is a criminal offense.

While consumer Chapter 7 bankruptcy allows the debtor to eliminate all credit card debts and get a fresh new financial start, the debtor should not jeopardize his ability to seek bankruptcy protection by engaging in self-serving or foolish behavior. There is simply no reason to create problems for the upcoming bankruptcy filing. Therefore, don’t use your credit cards once you’ve decided to file bankruptcy.

If you are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a New York bankruptcy lawyer.

Chapter 13 Bankruptcy and Property Tax Arrears

Because most mortgages contain real estate tax escrow provisions, there are not as many Chapter 13 debtors who have unpaid real estate taxes due when they file their Chapter 13 plans as there are debtors who have mortgage arrearages. However, Chapter 13 debtors frequently do have significant unpaid real estate taxes due on their residences, and in many cases, the need to pay these unpaid real estate taxes over time in order to save their homes is one of the primary purposes of the Chapter 13 filing.

If you are filing Chapter 13 bankruptcy, and you have real property tax arrears, a typical plan will provide for a payment of such arrears in full over the life of the plan. Local municipalities, to whom such taxes are owed, will be treated as secured creditors under the plan and will receive full payment of taxes owed. In addition, any such municipality will be entitled to interest on the money owed.

Here in Rochester, local municipalities usually receive 18% interest rate on the real property tax arrears. Once the bankruptcy is filed, any such arrears will be subject to the New York State judgment interest rate of 9%. Judge Ninfo has previously addressed this issue in In re Clark, holding that the statutory rate is an appropriate post-confirmation interest rate under Section 1325(a)(5)(B)(ii) to be paid.

In view of the above, a bankruptcy lawyer must make sure that the proposed plan allows for full repayment of property tax arrears, together with appropriate interest, and that the debtor is able to afford payments under the plan.

Chapter 7 and Right of Redemption

A “redemption” is provided for under Section 722 of the Bankruptcy Code and is available for Chapter 7 debtors. That provision allows an individual debtor to retain personal property when that property has been used to secure a debt. The debtor must pay the fair market value of the item to the creditor. That fair market value determines to what extent the creditor is secured. The second choice is to pay the amount of the secured creditor’s debt. The third choice is to sign a reaffirmation agreement and continue to be legally obligated on the debt again. The last choice is to surrender the item to the secured creditor. Under Section 722, a debtor may be able to get the lien released for far less than what he owes. So, for example, if you owe a creditor $10,000 on a car and the fair market value of the car is $5,000, the Bankruptcy Code allows you to pay you $5,000 to redeem the car. That amount must be paid in one lump sum to that creditor. If the creditor agrees with the value, then either the debtor or the creditor has to submit a stipulated order of redemption. If the creditor does not agree with the value, then the debtor has to file a motion for redemption, and a hearing will be set with the judge deciding what the value of the item is. There are deadlines involved in the redemption process. The debtor has to have the money to redeem the item and be able to pay the creditor, with many debtors turning to family members and friends. There are also financial institutions that offer financing in such situations.

Redemption should be considered as an option in Chapter 7, if you own a vehicle that is worth thousands of dollars less than the debt on the vehicle – in other words, you are upside down on the vehicle. It should also be considered if the debtor is behind on payments or has a spotty payment history. In Western New York, Judge Ninfo has ruled that the standard for determining the value of a motor vehicle to be redeemed under Section 722 is its wholesale value. See In re Barse. You and your lawyer should carefully examine redemption as option if there is a significant disparity between the amount owed and the property’s fair market value.

Chapter 13 and Payment of Student Loans Under the Plan

Unless the bankruptcy debtor can satisfy the daunting legal standard of “undue hardship,” student loans are not dischargeable in a bankruptcy case. However, the mere fact that student loans will not be discharged does not mean you should give up on the bankruptcy process. For a chapter 13 debtor, the question might be, how should the chapter 13 payment plan propose to treat the student loan debt?

Some attorneys try to distribute more of the debtor’s income to student loan debts than to other debts by simply inserting a provision into the chapter 13 plan which says that the debtor will continue to pay the student loan out of his or her own pocket, rather than have the chapter 13 trustee pay toward the student loan. This would have the important advantage of paying more (usually) toward the student loan than would be paid if the trustee made the payments from the plan.

The presumptive authority for paying a student loan “outside the plan” is contained in the bankruptcy law’s section 1322(b)(5). This section permits the maintaining of payments on any debt where the last regularly scheduled payment is due after the final chapter 13 plan payment is due. Section 1322(b) reads as follows:

(b) Subject to subsections (a) and (c) of this section, the plan may–

designate a class or classes of unsecured claims, as provided in section 1121 of this title, but may not discriminate unfairly against any class so designated; however, such plan may treat claims for a consumer debt of the debtor if an individual is liable on such consumer debt with the debtor differently than other unsecured claims;
modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims;
provide for the curing or waiving of any default;
provide for payments on any unsecured claim to be made concurrently with payments on any secured claim or any other unsecured claim;
notwithstanding paragraph (2) of this subsection, provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due;

Section 1322(b) allows the chapter 13 debtor to continue making student loan payments directly to the creditor, much the same as the debtor would continue paying his mortgage payments, assuming that the bankruptcy trustee agrees with this interpretation and the bankruptcy court confirms it. However, here in Rochester, the Chapter 13 trustee disagrees with this interpretation of the statute and, instead, takes a position that the student loans should be paid pro-rata as other unsecured creditors. The trustee’s position is based on the argument that making full student loan payments, while in Chapter 13, treats student loan lenders better than other unsecured creditors and, in fact, does so at their expense. While Judge Ninfo has not written on this issue, I think that he would agree with the trustee’s position. Thus, it is critical to discuss these issues with a bankruptcy lawyer prior to the filing.

If you are dealing with debt problems in Rochester, New York; Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a bankruptcy attorney.

Bankruptcy Basics – Credit Counseling and Financial Education Requirements

Under the BAPCPA, debtors planning to file for bankruptcy, under either Chapter 7 or Chapter 13, must complete a consumer credit counseling course before they will be allowed to file a bankruptcy petition. Such credit counseling program needs to be completed within 180 days prior to the filing.

A pre-bankruptcy counseling session with an approved credit counseling organization usually includes an evaluation of the debtor’s personal financial situation, a discussion of alternatives to bankruptcy, and a personal budget plan. A typical counseling course lasts about 60 to 90 minutes, and can take place in person, on the phone, or on internet. The counseling organization is required to provide the counseling free of charge for those consumers who cannot afford to pay. If you cannot afford to pay a fee for credit counseling, you should request a fee waiver from the counseling organization before the session begins. Otherwise, you may be charged a fee for the counseling, which will generally be about $50, depending on where you live, the types of services you receive, and other factors. The counseling organization is required to discuss any fees with you before starting the counseling session.

Once you have completed the required counseling, you must get a certificate as proof. You can check if the organization providing the course is approved in the judicial district where you are filing bankruptcy by going to the U.S Trustee’s web site. Once the course is completed, you will receive the certificate. Credit counseling organizations may not charge an extra fee for the certificate.

In addition, once the bankruptcy is filed, debtor must obtain debt management counseling before being allowed to complete the bankruptcy process. A debtor education course by an approved provider usually includes information on developing a budget, managing money, using credit wisely, and other resources. Like pre-filing counseling, debtor education may be provided in person, on the phone, or online. The debtor education session might last longer than the pre-filing counseling – about two hours – and the typical fee is between $50 and $100. As with pre-filing counseling, if you are unable to pay the session fee, you should seek a fee waiver from the debtor education provider. Make sure that you received the certificate from a debtor education provider that is approved in the judicial district where you filed bankruptcy. Check the list of approved debtor education providers at the U.S. Trustee’s web site.

There are three main objectives of the Personal Financial Management course:

The help the debtor understand the benefits of creating short-term and long-term financial goals.
To teach the debtor how to create a budget.
To teach the debtor how to balance a checkbook and reconcile bank statements.

The purpose of these courses is to help the debtor become financially literate and avoid another bankruptcy.

Once you have completed the required debtor education course, you should receive a certificate as proof. This certificate is a different document from the certificate you received after completing your pre-filing credit counseling. Unless they have disclosed a charge to you before the counseling session begins, debtor education providers may not charge an extra fee for the certificate.

The Personal Financial Management course must be completed within 45 days after filing bankruptcy; but before receiving a discharge through bankruptcy. This is important because if the debtor does not complete this second course after filing for bankruptcy, the Chapter 7 or Chapter 13 bankruptcy may be closed without a discharge.

Chapter 7 Means Test

Under the current version of the bankruptcy law, in order to file a Chapter 7 bankruptcy, the debtor must pass a “means test” which will determine whether debtor, or his family, is eligible to file Chapter 7 bankruptcy.

The purpose of the means test is to keep debtors from abusing the bankruptcy system by filing when they don’t have to do so. The presumption is that if the debtor fails the means test, he/she is trying to abuse the system.

If the debtor’s income is below the median income for families in New York, based on Census Bureau statistics, the debtor will be eligible for a Chapter 7 bankruptcy. The current means test figures for New York are listed here.

The means test uses the income of the debtor for the six months leading up to the filing of the bankruptcy. The monthly income figure for that time is referred to as the debtor’s “current monthly income”.

Even if the debtor’s income has recently decreased, the use of the six months before the filing date may make the debtor’s income for bankruptcy purposes higher than it will actually be and place him/her into an income situation where he/she may be required to file a Chapter 13 bankruptcy.

If you make more than the median income for families in New York, your income over the past six months is considered, along with mortgage and car payments, back taxes and child support obligations, and school expenses up to $1,500 per year. You won’t be eligible for a Chapter 7 bankruptcy if, after deducting these amounts, and the living expenses provided in the Internal Revenue Service’s national collection standards, you have a monthly disposable income of more than $100.00 per month.

If your monthly disposable income is more than $166.66, you have failed the means test, and cannot qualify for Chapter 7.

If your monthly disposable income is between $100.00 and $166.66, and that is enough to pay more than 25% of your unsecured, nonpriority debts (credit card bills, student loans, medical bills, and so on) over a five-year period, then you fail the means test, and Chapter 7 won’t be available to you. If it is not enough to pay more than 25% of your unsecured, nonpriority debts over a five-year period, then you pass the means test, and Chapter 7 remains an option.

If you don’t qualify for a Chapter 7 bankruptcy, your only option would be a Chapter 13 bankruptcy.

Debt Settlement – Does It Work?

Recently, I read a New York Times article, “Debt Settlers Offer Promises But Little Help“, that confirmed something that I already knew – debt settlement, in most cases, does not work and usually costs a lot more than a Chapter 7 or a Chapter 13 bankruptcy. Also, most people working with debt settlement companies are likely to find themselves in the worse financial situation after entering debt settlement. One quote summarizes how debt settlement industry does business:

Consumers who turn to these companies sometimes get help from them, personal finance experts say, but that is not the typical experience. More often, they say, a settlement company collects a large fee, often 15 percent of the total debt, and accomplishes little or nothing on the consumer’s behalf.

While I appreciate the fact that most debtors want to avoid filing bankruptcy, in my opinion, bankruptcy represents an opportunity for a fresh start for most people. The critical difference between a bankruptcy and a debt settlement, despite what a debt settlement company may claim, is that the creditor does not have to agree to a debt settlement arrangement. In a bankruptcy, under either Chapter 7 or Chapter 13, the creditor is obligated to follow the Chapter 13 repayment plan or accept results of the Chapter 7 discharge.

At the same time, if a debtor has a only a few debts, may have other alternatives to either filing a bankruptcy or working with a debt settlement company.

I have experience with “workouts” which is a term used to describe a non-bankruptcy negotiated modification of debt. A workout is an out-of-court agreement between a debtor and his or her creditors for repayment of the debts between them, which is negotiated without all the procedural complications — and perhaps the stigma — of the bankruptcy process. A typical workout takes form of either “composition”, which is a contract between the debtor and two or more creditors in which the creditors agree to take a partial payment in full satisfaction of their claims. Another option is an “extension”, which is a contract between the debtor and two or more creditors in which the creditors agree to extend the time for payment of their claims. An agreement may be both a composition and an extension, i.e., an agreement to accept less money over a longer period of time.

There is no requirement that all of the debtor’s creditors agree to a composition or extension, but most of them must voluntarily support it for it to work. Creditors that do not agree to the workout are not affected by it and remain entitled to pursue other remedies to collect the debts owed to them. My role in this process is to negotiate such agreements on behalf of the debtor.

Chapter 7 Bankruptcy and Objections to Discharge

You have filed a Chapter 7 bankruptcy. You and your lawyer went to the meeting of the creditors. Everything seemed to be in order. Then your lawyer calls you, and tells you that one of your creditors has filed an adversary proceeding in your Chapter 7 case, objecting to discharge of its debt. So what exactly is taking place?

If a creditor determines that an objection with respect to discharge of its debt is warranted, the creditor will file an Objection to Discharge of its particular debt. This filing begins what is known as an adversarial proceeding in the bankruptcy court. An adversarial proceeding is simply a law suit within the bankruptcy, seeking to declare a particular debt as non-dischargeable. The debtor responds to the complaint, evidence is gathered and supplied to both sides, and a hearing is held in front of the bankruptcy judge who decides the case. Here in Rochester, Hon. John C. Ninfo, II, would hear the case. Typically, neither the bankruptcy trustee nor the U.S. Trustee are involved in the adversarial proceeding.

A creditor may object to the discharge of its debt in a number of different situations. An unsecured creditor may object using Section 523(a)(2) of the Bankruptcy Code, which contains several different types of non-dischargeable debt. The debt under that section may not be dischargeable because it is: (1) $500 owing to a single creditor for the purchase of “luxury” goods within 90 days prior to filing of the bankruptcy; (2) $750 owing to a single creditor for a cash advance (i.e. balance transfers are cash advances) obtained within 70 days prior to filing of the bankruptcy; or (3) for money obtained under false pretenses, false representation, or actual fraud. There are also additional reasons to declare a debt non-dischargeable.

With respect to situations (1) and (2), the applicable rules are known as as the per-se rules. That means that the creditor need not prove debtor’s intent (i.e. fraud), and needs to show only that the transactions meet the criteria stated. Situation (3) means that the debtor made the charges/cash advances knowing that he/she was going to file bankruptcy, or made the charges/cash advances while insolvent and/or could not have had a reasonable expectation to pay back the debt, or made false representations in obtaining credit resulting in the debt he/she is trying to discharge at this time.

If the creditor is successful in having a debt declared non-dischargeable, the debtor will owe that debt until it is paid, with all accumulating interest, and the debtor can never discharge that debt.

The following is a brief description of procedural issues applicable to the objections. The complaint must be filed on or before 60 days from the first date set for the creditors meeting (also know as 341 meeting). Typically, a creditor has less than 90 days after receiving notice of the bankruptcy case to file a complaint. A creditor must act promptly to determine there are grounds to object to discharge.

Even if a creditor files an objection to discharge of its debt, the rest of the bankruptcy will proceed normally. The debtor will recieve the discharge on time, and most of the time, the discharge will be received before the hearing in the adversarial proceeding.

Once the adversarial proceeding is filed, the debtor has a number of options with respect to the creditor’s claim. The debtor can agree to repay all or a portion of the debt by signing a reaffirmation agreement. A typical reaffirmation agreement results in the debtor paying 50% of the debt over 12-18 months. The next option is fighting the objection. The debtor will have to be able to either fight the objection on his/her own or pay an additional retainer to the attorney to fight the claim.

The way that a creditor proves its case, is by showing to the court that the debtor was in financial distress at the time the objectionable transactions were made. Therefore, the debtor’s financial history will be disclosed through the discovery process, usually for a period of 12 months prior to the challenged transaction, and from the date of the transaction to the date of filing. Since an adversarial proceeding is a civil matter, both parties may call witnesses, and the debtor may be called to testify by either side. A creditor’s theory of the case in an adversarial proceeding is usually that no reasonable person could have expected to be able to pay off the debt, at the time that debt was taken out.

If the creditor wins, a judgment is entered, declaring the debt non-dischargable. This judgment can ultimately be used in New York State court, or elsewhere, to obtain a money judgment that can then be used to garnish wages, restrain bank accounts or conduct other collection activities. That judgment will not be dischargeable in any subsequent bankrupcies and can only be extinguished by payment or by New York’s statute of limitations, presently 20 years. Even if the creditor prevails, the debtor is not responsible for the creditor’s attorney’s fees and costs.

If the debtor wins, the debt is discharged, and, under appropriate circumstances, the creditor will have to pay debtor’s attorney’s fees and costs.

Thus, if an adversarial proceeding is brought, the debtor must choose between either settling or fighting. The cost to defend an adversarial proceding is usually substantial. Therefore, it should be compared to the cost of settling the case. If the proposed settlement reduces the debt and the payments are affordable, especially if the settlement amount is less than the cost to defend, the debtor should consider settlement.

If you are dealing with debt problems in Rochester, New York, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation.

Car Ownership and Bankruptcy

I am often asked what happens to the debtor’s car if he or she is forced to file for bankruptcy. The answer to that questions depends on whether the car is owned by the debtor outright, is being financed, or is leased.

If the car is owned outright, and its value is less than the value of New York’s vehicle exemption, currently limited to $2,400, then the debtor can keep the car without any bankruptcy related consequences. This is true for the debtor filing either a Chapter 7 or a Chapter 13 bankruptcy. If the value of the car is greater than the allowed exemption, in a Chapter 7 case, the bankruptcy trustee can demand that the debtor turn the car to the trustee. Subsequently, the trustee would have the vehicle sold at an auction, and the debtor would be repaid the value of his or her exemption, and the rest of the money would be paid to the creditors. If a car is jointly owned by a debtor and someone else (such as a spouse), then the debtor will only be entitled to 1/2 of the equity. If debtor and a spouse file a joint bankruptcy petition, they can “double up” or stack their exemptions (i.e., $4,800 in one vehicle owned by them jointly, or $2,400 in two vehicles total). If the car is financed, the relevant value is the value of the equity in the vehicle, that is the difference between the market value of the vehicle and the amount owed to the lender.

When filing Chapter 7 bankruptcy, you have three options for handling a car loan. You can reaffirm your loan with the lender. That means that you agree to continue making regular payments on your car. In exchange, as long as your are making payments on the loan, your lender will not repossess the car. Whether you sign a reaffirmation agreement is strictly voluntary. Another option, although rather rare, is redemption. The debtor agrees to make one lump payment to the lender representing the car’s fair market value, regardless of what is owed on the loan. Any amount owed on the car in excess of its current value can be discharged as part of the bankruptcy. The final option is to surrender the car if you cannot afford to continue making payments. Any debts associated with the car will be discharged.

In Chapter 13, a debtor can keep his or her car even if the equity is greater than the allowed exemption amount, as long as the value of equity in excess of the exemption is distributed to creditors through the chapter 13 plan, i.e., satisfying the good-faith test. Chapter 13 bankruptcy can effectively halt car repossession and will allow the debtor to repay any arrears on the loan over the life of the Chapter 13 plan. In addition, in a Chapter 13, the amount the debtor will pay may depends on how long ago the car was purchased. If the car was purchased in the last 910 days (30 months), the debtor must usually pay the full amount owed, regardless of the car’s current value. However, under appropriate circumstances, the interest rate on the loan may be reduced by the bankruptcy court. If the car was purchased more than 30 months ago, the debtor is likely to have to pay the lender the amount representing the car’s present value over the life of the repayment plan. The amount representing the car’s value is treated as secured debt, and the remainder of the debt is treated as unsecured. This is particularly significant where the car is upside down, i.e., the amount owed significantly exceeds the car’s value. Those situations may result in significant savings to the debtor.

If the debtor is leasing a car, he or she has two options. The debtor can reaffirm the lease and keep the car, while continuing to make payments. Alternatively , the debtor can reject the lease, return the car, and discharge any debt associated with the lease.