Self-Employed People Can File Bankruptcy Too

There are many strange misconceptions regarding bankruptcy.  Some believe that a person is unable to file bankruptcy if the debtor is employed.  Another myth is that self-employed people can’t file bankruptcy.  These myths can prevent a person from obtaining needed relief from overwhelming debt. 

Employment is not a precondition for filing for bankruptcy protection.  The bankruptcy laws require that the debtor state all income for the past six months and list his or her current income.  This income information is used to calculate the debtor’s ability to pay creditors.  If the income information demonstrates that the debtor is able to pay a substantial amount to creditors over a five year period, the debtor may be ineligible to file Chapter 7 (a liquidation bankruptcy) and must file Chapter 13 (a repayment bankruptcy).  Most employed debtors are able to produce the required income information from pay stubs, W-2s, and employer records. 

Self-employed debtors must also produce income information for the six months prior to the bankruptcy filing and show current income.  The bankruptcy trustee will require a self-employed debtor to show net income (gross business profit minus necessary business expenses).  If you are self-employed and considering bankruptcy, it is time to start gathering income and expense information.  If you do not already keep track of your business finances in a ledger or with computer software, it is time to start.  You may have to recreate your income through bank records, and your expenses through receipts and memory. 

If you are struggling with a debt problem that you cannot overcome, consult with an experienced bankruptcy attorney.  Whether you are employed, unemployed, retired, disabled, or self-employed, an experienced bankruptcy attorney can suggest solutions that will end your debt nightmare.  The federal bankruptcy laws are very broad and can help you and your family to a fresh financial start.

Mortgage Refinancing Can Be Full Of Surprises

Many homeowners participating in the federal “Making Home Affordable” program, a federal mortgage assistance program, have found that the program benefits have not lived up to the political promises.  Homeowners have discovered that this refinance process is not only difficult, but in some cases can be destructive to their credit. 

The Making Home Affordable program is a $75 billion dollar loan modification program aimed at helping homeowners refinance their mortgages to terms they can afford.  The program is actually two refinance processes: first, a refinance program for homeowners with Fannie Mae and Freddie Mac loans; and second, a modification program for everyone else.  The “everyone else” program is the “Home Affordable Modification Program” (HAMP).  Under HAMP, homeowners who have experienced financial difficultly (e.g. a job loss or high medical bills) and are struggling with their current mortgage payments can reduce their mortgage payment by lowering their interest rate up to two percent and extending the repayment period up to 40 years.  

While the promise of refinance sounds like a blessing, the process can be both slow-moving and full of unexpected surprises.  For instance, to qualify under HAMP the homeowner must, among other requirements, make all mortgage payments on time for a three-month trial period.  In essence, the program requires timely payments that you can’t afford before the loan can be modified to a payment you can afford!  

Homeowners who seek assistance under HAMP are also surprised by an immediate reduction of their credit score during the three month repayment period.  By applying for a home loan modification, you are announcing to the credit industry that you are experiencing financial difficulty.  This can lower your credit score by up to a staggering 150 points, making it difficult to obtain other types of credit including auto loans.  This initial drop can only be rectified over time. 

If you are experiencing financial difficulty, educate yourself to all your legal options.  Only an attorney can advise you regarding your legal options including bankruptcy, debt settlement options, and government assistance programs.  An experienced bankruptcy attorney can help you evaluate your financial position and choose the right option for your family.

How Often Can I File Bankruptcy?

Filing bankruptcy is a difficult decision, but sometimes life dictates choices to us.  Financial disaster can blind-side any of us, like a job loss or medical catastrophe.  Whatever the reason, individuals occasionally need the protections of the federal bankruptcy laws a second time. 

An individual can ordinarily file a bankruptcy case at anytime, however there may be restrictions on the relief that is available.  The most common restriction is the eligibility to receive a bankruptcy discharge.  To receive a Chapter 7 discharge, you must file your case eight (8) years after your previous Chapter 7 case was filed, or six (6) years after your Chapter 13 case was filed.  To receive a Chapter 13 discharge, you must file your case four (4) years after your previous Chapter 7 case was filed, or two (2) years after your Chapter 13 case was filed. 

In some cases, receiving a bankruptcy discharge may not be important to the debtor.  For instance, if a debtor has a non-dischargeable debt like child support or taxes that must be paid, bankruptcy can offer an organized process for payment while the debtor retains some control. 

Another less common restriction concerns the automatic stay.  If your bankruptcy case is dismissed within the past year, the bankruptcy court assumes that your second bankruptcy is filed in bad faith.  The automatic stay will only apply for 30 days after your second filing.  A hearing is required to extend the automatic stay and you must convince the court that you have filed in “good faith.”  If you file two or more cases within the past years, you must petition the bankruptcy court for a stay – it is not automatic for any period of time. 

Finally, you are not eligible to file at all if your case was dismissed by the bankruptcy court within 180 days due to a willful failure to obey an order of the bankruptcy court, or if your case was voluntarily dismissed after a creditor sought to lift the automatic stay to enforce a lien against your property. 

Filing a second bankruptcy is not uncommon.  Congress has established a few additional rules to deter abusive serial filers, but bankruptcy protection is available for the honest yet unfortunate debtor.  If you need assistance with filing a second bankruptcy case, contact an experienced bankruptcy attorney and get the relief you need.

Bankruptcy and Divorce

Harvard law professor and bankruptcy expert Elizabeth Warren has stated that the economic fallout from divorce is a leading cause of bankruptcy.  The divorce process assigns debt, awards assets, and can significantly deplete marital assets.  In many cases, one or both spouses are in a difficult financial position after the divorce.  If the fall-out from your marital debt is pushing you and your spouse into divorce court, consider how a bankruptcy can alleviate the stress and simplify your finances.  Filing bankruptcy before starting a divorce proceeding can be advantageous to both parties, and, in some cases, can even save a marriage.

A common problem after a divorce is the family court’s order concerning joint debt.  The order will typically direct one party to pay or refinance a joint debt.  Many are surprised to learn that this order does not relieve a parties’ obligation to pay the debt.  The simple explanation is that the family court judge does not have the authority to rewrite a contract between you, your spouse, and a creditor who is not a party to your divorce.  If your spouse does not pay the joint debt, your credit may be harmed.  

On the other hand, by filing a bankruptcy prior to the divorce, most joint debts can be legally and finally terminated either by payment or discharge.  Additionally, by resolving many of your outstanding debts, it is easier to negotiate the remaining obligations between you and your spouse. 

Married couples also enjoy protections in bankruptcy that single debtors do not receive.  For instance, married couples often receive increased legal exemptions that protect property from creditor attachment.  These exemptions may be lessened or no longer available once the divorce is finalized.  In other words, what you could protect in bankruptcy while married may not be protected after a divorce. 

To say that the interplay between the state family laws and the federal bankruptcy laws is complex is a gross understatement.  However, many of these complexities can be avoided by filing a bankruptcy ahead of a divorce.  In some cases, the couple decides to stay together after the financial strain is removed by the bankruptcy. 

If you and your spouse are considering divorce, consult with an experienced bankruptcy attorney and have your finances examined.  If bankruptcy is a possibility, it is generally better to proceed with the bankruptcy case prior to the divorce.

When A Creditor Attempts To Collect A Discharged Debt

A bankruptcy discharge is an order from the United States Bankruptcy Court.  The discharge is a court injunction prohibiting any attempt to collect on a discharged debt.  Creditors are strictly prohibited from contacting the debtor by mail, phone, or otherwise; filing or continuing a lawsuit; attaching wages or other property; or taking any other action to collect a discharged debt.  A creditor that violates this order is subject to contempt of court and may have to pay damages and attorney’s fees. 

A creditor that contacts you in an effort to collect a discharged debt is in violation of the bankruptcy court’s discharge injunction.  Usually such contact is a mistake and the creditor is unaware of your bankruptcy discharge.  While claiming ignorance is not a valid excuse for violating the bankruptcy court order, informing the creditor that you have filed bankruptcy and received a discharge of the debt is often enough to stop future collection actions.  The creditor may want to know certain information about the bankruptcy (case number, date of discharge, chapter, etc.) to update their records and stop further collection efforts.  You can answer these questions or simply refer the creditor to your attorney. 

It is good practice to document any post-discharge collection action by creditors.  While these collection attempts are often mistakes, a main purpose of the bankruptcy discharge is to allow you to live your life free from creditor harassment.  The bankruptcy discharge applies to the debt and enjoins any collection of the debt.  Consequently, the discharge injunction applies to the original creditor, collection agencies, attorneys, and any other subsequent collector. 

Your bankruptcy discharge is legal protection against creditor harassment concerning discharged debts.  If you are repeatedly contacted by a creditor after your bankruptcy discharge, document the creditor contact and report it to your attorney.  The law is on your side and will protect your right to a fresh start free of creditor harassment.

Discharging Bad Checks In Bankruptcy

There are generally two types of “bad checks.”  The first type is the kind that is “payable on demand” meaning that it is expected that the bank will honor the check when it is presented.  This is the most common type of bad check.  When you write a check that the recipient believes is “payable on demand,” and the check is returned for Non-Sufficient Funds (NSF), you may have committed a criminal act.  Depending on the amount of the bad check written, a person can be prosecuted for a misdemeanor or a felony.  Even if you later make payment on the check there may be criminal charges or substantial fees and/or fines. 

A NSF “payable on demand” check is not dischargeable in bankruptcy and bankruptcy will not exonerate you of a criminal act.  The bankruptcy automatic stay does not apply to stop criminal prosecutions.  Likewise, any debt to the victim of the bad check is now considered criminal restitution, also not dischargeable in bankruptcy.  Any restitution, costs, and fines are not discharged by the bankruptcy. 

While criminal prosecution of a bad check case is not affected by your bankruptcy, private collection is stopped by your bankruptcy.  Any civil legal action concerning a bad check must stop, and any civil garnishment or other collection action must cease. 

The second type of bad check is the post-dated check.  These checks include payday loans and other checks that are essentially promises to pay in the future.  You and the receiver are aware that the check is not presently negotiable.  The bank will not pay the check because you don’t presently have the money in your account.  

With a few narrow exceptions, being unable to pay a post-dated check is not a criminal act.  However, it may be a crime to write a post-dated check that you intend to include in your bankruptcy.  Typically the recipient of the post-dated check would have to file an adversary case with the bankruptcy court and prove that you committed fraud in writing the check with no intention to ever pay it. 

If you have outstanding bad checks and are considering bankruptcy, discuss your situation with an experienced bankruptcy attorney.  Your attorney can advise you on the best way to deal with a bad check during your bankruptcy.

What Happens When You Walk Away From A Home Loan?

Deciding to walk away from a family home is a gut-wrenching decision.  Before walking away the prudent person will investigate all of the options, including returning the property to the lender (i.e. a deed-in-lieu of foreclosure), a short sale, or renting the property.  Unfortunately, for some walking away is unavoidable, so it is important to know the repercussions. 

The first concern is safeguarding the property.  Maintaining insurance and basic utility service is important until possession (and in some cases ownership) of the house is transferred.  Should you fail to safeguard the property, you may be liable to the lender for damages. 

Next, once transfer of title is accomplished (usually through a foreclosure proceeding), the bank may sue you for breach of contract and damages.  Sometimes the bank will wait until after it fully realizes all of its damages upon sale of the house, then it will sue for the difference between the amount it recovers and the amount you owed.  This is called a deficiency balance and it is recoverable by the lender in most states. 

The bank may also forgive the debt difference and issue you an IRS Form 1099C.  When this happens the bank is telling the IRS that it has given you a “gift” in the amount of its loss (because you don’t have to pay it back) and you owe income tax on the “gift” amount.  You have two options to avoid paying the tax debt: bankruptcy, or the insolvency exclusion in the tax code.  The insolvency exclusion requires that you prove that your liabilities exceeded the value of your assets.  By filing bankruptcy this type of tax debt will be discharged. 

Congress has granted a reprieve from tax debts stemming from the sale of your primary residence.  The Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648) provides that taxpayers do not owe taxes on mortgage debt that was forgiven by the lender.  The law only applies to deficiencies during the 2007, 2008, and 2009 tax years. 

Finally, walking away from your home will have negative consequences to your credit report.  The possible negative items include 120 day late entries, foreclosure, and debt write-off.  All of these items have a devastating impact on your credit report and, consequently, your credit score. 

If you are contemplating walking away from your home, get the facts!  Investigate your options from a qualified bankruptcy attorney.  Only a bankruptcy attorney will be able to explain your options including those available under the bankruptcy laws.

Medical Treatment And Bankruptcy

It is no surprise that illness is a chief contributor to personal bankruptcy.  In fact, a 2009 study released by Harvard researchers claims that 62% of all personal bankruptcies during 2007 were caused by health problems.  Many individuals struggling with medical bills need relief, but worry about how a bankruptcy will affect their ability to receive medical care in the future. 

Under the Emergency Medical Treatment and Active Labor Act hospitals and ambulance services are required to provide emergency healthcare to a person regardless of ability to pay.  This federal law requires appropriate medical screening, necessary stabilization, and transfer to an appropriate facility for treatment of an emergency condition.  In broad general terms, if you have an emergency medical condition, a hospital ER must treat you. 

If you do not have an emergency medical condition, the hospital or doctor may refuse treatment to a bankruptcy debtor.  It is unusual for a hospital to deny service after bankruptcy unless the patient demonstrates an inability to pay the new bill.  If you have insurance or other form of guaranteed payment, the hospital will likely treat you. 

Individual physicians are more likely to deny services if you have discharged their bill.  Many bankruptcy debtors want to continue a relationship with their personal doctor, and consequently make payment arrangements after the bankruptcy has been filed.  While the bankruptcy law requires the debtor to list every creditor, there is no prohibition against paying a debt after the bankruptcy.  Paying the debt does not renew or create a new obligation and the doctor may not take action to collect a discharged debt (i.e. writing or calling to encourage payment). 

If you need to include medical bills in your bankruptcy, but worry about receiving future medical care, consult with your bankruptcy attorney.  In most cases there is no interruption in medical care or treatment.  Know your legal rights and be informed of how your bankruptcy will affect your ability to receive medical care.