Saturday, October 20, 2012

Should you stop paying credit cards?

Should you stop paying credit card balances once you have decided to file for bankruptcy relief? Or should you ever stop paying them when you do not plan to file bankruptcy? I will address each of these situations.

Credit cards before filing bankruptcy: For many debtors who plan to file a Chapter 7 bankruptcy case, ending their credit card payments once they make the decision to file only makes sense. Whether your credit card debt is one dollar or one million dollars, it is going to be discharged. You can stop paying credit cards and start saving that money, perhaps to pay for the bankruptcy case or meeting other needs.

This is a decision to make carefully. For one thing, you need to be certain that you are going to file because if you change your mind after you start paying, your interest rates may have shot up to default rates, making your minimum payments higher and increasing the total amount of payments you will need to make to pay off your cards. You need to evaluate your situation carefully to be certain there is no reason you will avoid filing. Also, you cannot expect to save up more money than you are entitled to exempt and retain after your bankruptcy filing, so you should know your cash exemption limit if you will end up saving thousands of dollars before you file your case.

Not paying credit cards but not filing bankruptcy: There are some people who are "judgment proof" who have little reason to file bankruptcy because they have minimal assets and will not be acquiring any. For example, people who are renting their home and are supported by Social Security, pensions, or other benefits which cannot be garnished by creditors through judgments — and also have minimal assets — have nothing they will lose if creditors sue them, so there is no benefit from filing bankruptcy to maintain their budget or keep assets. If you are in this situation and you have credit card debt, you may as well save your money for meeting your necessary expenses.

Again, your decision to stop paying credit cards should be based on a careful analysis of your financial situation. You need to learn whether your assets are of the type and significance to be lost through judgments or bankruptcy, and you need to understand how your financial situation will progress over time with or without a bankruptcy.

Saturday, July 14, 2012

Headline: Baseball great pleads guilty to bankruptcy fraud

From the Associated Press via the Atlanta Journal-Constitution: Baseball great pleads guilty to bankruptcy fraud.

It is a federal crime to conceal assets in a bankruptcy case. Most intentional fraud probably operates at a low level, such as when smaller assets are undervalued or not listed, perhaps with the intention of claiming that they belong to someone else. And there is no doubt that assets are often forgotten or undervalued unintentionally. But when someone like Lenny Dykstra lies about the location or sale of his property, as I understand this story to say, then a routine bankruptcy case turns into a serious criminal prosecution.

Monday, June 4, 2012

Georgia increases homestead exemption

On May 2, Governor Deal signed a bill that more than doubled the value that a bankruptcy debtor can exempt for his or her home in Georgia. The exemption available is now $21,500, up from the previous amount of $10,000, and a married debtor can still exempt double that amount -- $43,000. Georgia's bankruptcy exemption amounts for one's home are still low compared the amounts available in other states, but this is a much more meaningful amount.

The higher homestead exemption may not make a difference in many cases since many debtors have lost all equity in their homes, leaving no value to exempt at all. But it will make a difference to those who have a small but uncertain amount of equity by lowering the risk that a Chapter 7 would result in a liquidation that would cause them to lose their house. It could even allow a debtor to end up keeping a house with a large amount of equity.

 If you are reviewing the amount of equity and considering a bankruptcy filing, be sure you understand that the analysis requires practical considerations beyond the numbers on paper. If you have more equity than you can exempt in bankruptcy, it does not necessarily mean that you would lose your house in a Chapter 7 case. The next level of analysis in my office involves discussing the likelihood that a trustee would attempt to sell the house versus summarily abandoning it. I consider the amount of equity available versus the whole value, how easy or difficult it is to appraise the house, and the numbers and sizes of liens that are junior to the first mortgage. I may make recommendations to my clients or just advise them of the risks.

Wednesday, April 25, 2012

My ex-spouse filed bankruptcy -- now what?

The disturbing news that often comes after a divorce is that one's ex-wife or ex-husband filed bankruptcy. Your ex-spouse may be responsible for child support and debt payments, so what happens when he or she files for bankruptcy protection? In many routine cases, you will not be harmed or even inconvenienced, but be aware that a rigid set of deadlines has been set according to the filing date. Here are some of the issues:

Child support and alimony: Bankruptcy filings do not stop the collection of these obligations. If your ex-spouse is in arrears, you can proceed with divorce court actions to collect this money. You may or may not need to deal with a trustee on the collection of arrearages, depending on who is in the control of the funds. In a Chapter 13 case, the payment of arrearages may be scheduled, but they are a priority debt, so the success of the plan depends on you getting paid. If you are receiving late payments through a Chapter 13 plan, you are probably in a better position to be paid than if there were no bankruptcy case filed.

Mortgage payments, car payments, and other debt payments: If your ex is responsible to you for some or all of your debt payments according to your divorce papers, bankruptcy will probably not change this. These payments may be defined as domestic support obligations (like child support and alimony). If they are not, then this obligation is still something that cannot be discharged, so long as your divorce papers made your ex responsible to you for their payment.

Attorney's fees: If your ex is responsible for paying your divorce attorney, this can go one of two ways. It could be a standard debt to be discharged in bankruptcy, but often this obligation is a domestic support obligation. The theory behind Georgia court orders to pay the other party's lawyer is that this is a type of alimony which allows the other party a fair chance at representation in court.

Property settlements: In a Chapter 7 case, an obligation to make payments to an ex-spouse as a property settlement cannot be discharged. The question that needs to be determined, though, is whether the obligation is a property settlement or some type of support obligation.

Generally, you do not need to get involved in your ex-spouse's bankruptcy case to protect your rights to receive alimony or child support. The Bankruptcy Code excepts these obligations from discharge and excepts them the automatic stay which stops the collection of other debts. Your right to receive payments from your ex for debts in your name will not go away if your divorce decree addressed them properly. In fact, these types of obligations are understood to be excepted from discharge, so you do not need to file an objection in the bankruptcy court to determine that they are not going to be discharged. Your ex's bankruptcy filing is probably a good thing for you so that you will not be competing with his or her other creditors after the other debts are discharged.

However, your rights could be affected, particularly in a Chapter 13 case, so for the more tricky situations you should consult a lawyer as soon as you learn about the bankruptcy filing, and that means before the scheduled meeting of creditors (which could be as soon as 21 days after the notice of filing). If you need a lawyer to represent you in bankruptcy court, your lawyer may need the opportunity to ask your ex questions at that meeting.

Wednesday, March 28, 2012

Possible federal courthouse closings with Athens on the list

Bankruptcy cases are usually filed in the federal court division where the debtor resides. The Athens Division serves Clarke, Elbert, Franklin, Greene, Hart, Madison, Morgan, Oconee, Oglethorpe, and Walton counties. News stories are reporting that the Athens courthouse is on a long list of courthouses that could be closed to save costs. I know that this could complicate my bankruptcy practice and inconvenience my bankruptcy clients, though I am not sure of the full effect that this might have on our region. Imagine living in Hartwell and receiving a summons for jury duty in Macon, a drive that could be well over two and a half hours when coming to Athens would have been far enough. Here are some of the stories covering the issue: