A Course in Money Management Combats Financial Illiteracy

The bankruptcy reform legislation enacted in 2005 requires bankruptcy debtors to complete a personal financial management course.  The debtor must file a certificate of course completion with the bankruptcy court before an order of discharge can be entered.  This class averages about two hours in length and instructs the debtor on issues such as developing a budget, money management, and use of credit. 

Many bankruptcy debtors initially resent this course requirement.   However, most debtors report that they learn useful information and consider the course worthwhile.  That is not surprising as most personal financial management studies indicate that our nation suffers from financial illiteracy.  For example, a 2009 survey of 1,000 adults by the National Foundation for Credit Counseling found that: 

• 41 percent graded themselves C, D, or F on their knowledge of personal finance;
• 42 percent surveyed kept close track of their spending;
• 64 percent have not ordered a copy of their free credit report in the past year;
• 33 percent do not contribute towards their retirement 

Financial illiteracy can be a major contributor to personal financial failure.  Some debtors have become overwhelmed by debt because they lack the tools for effectively managing their personal finances.  The Personal Financial Management Course required by the bankruptcy laws is an opportunity for debtors to learn some basic management techniques.  The aim is to educate the debtor to adopt a more disciplined and deliberate approach in managing household finances.  

The opportunity for a fresh start after bankruptcy means much more when you have a plan for your future financial success.  If you are struggling with debt, speak to an experienced bankruptcy attorney and make the choice to get control over your personal finances.

Adversary Cases in Bankruptcy

The bankruptcy code describes categories of debts that are excepted from discharge in a bankruptcy case.  For most of these debts, the exception to discharge applies automatically.  In other cases, the creditor must file a lawsuit (called an adversarial action or adversary case) with the bankruptcy court and have the judge determine whether the debt will excepted from the discharge order.  A debtor may also want the bankruptcy judge to determine whether a debt is excepted from discharge. 

Debts described in sections 523(a)(2), (4) and(6) (debts incurred by fraud or malicious conduct) are not automatically excepted from discharge. A creditor or debtor must file an adversary case requesting the bankruptcy court to determine the discharge status of these types of debts.  The adversary case is generally filed within 60 days after the first 341 Meeting of Creditors.  Failure to file a timely adversary case waives the right to challenge the dischargeability of the debt. 

In some rare cases a creditor or the bankruptcy trustee may ask the bankruptcy court to deny the debtor a discharge.  Hiding assets, lying during the bankruptcy process, failing to obey a court order, and destroying documents with the intent to defraud creditors are all actions that could result in the bankruptcy court denying the debtor a discharge.  In bankruptcy, honesty is not only the best policy, it is the only policy that will get you a discharge. 

If an adversary case is filed against you, do not panic.  You and your bankruptcy attorney must be served notice of the adversary case and you will have time to answer the complaint.  In most cases an experienced bankruptcy attorney will anticipate the adversary case and will discuss options with the client.  However, some cases come “out of the blue.”  In those cases there is still time to develop a strategy including negotiating a settlement with the creditor.

After Filing Bankruptcy, Be Sure to Follow Through

After filing a bankruptcy case, some debtors experience “cold feet.”  Some have difficulty facing the trustee at the 341 meeting.  Others cannot meet their Chapter 13 plan payment obligations.  Still others are tempted by the promises of a non-bankruptcy resolution, like debt consolidation.  Before you back out of your bankruptcy case, make sure that your decision will be in your best interest. 

Once you abandon your bankruptcy case, the federal legal protections that prevent your creditors from collecting will expire.  Your bankruptcy case prohibits creditors from filing lawsuits, garnishing wages, and calling or otherwise harassing you over your debt.  The minute your case is dismissed you become fair game to your creditors. 

Failing to complete your bankruptcy case means you will not receive the benefits of a bankruptcy discharge.  Once your bankruptcy case is completed, the court issues a bankruptcy discharge which acts as a legal injunction forever prohibiting creditors from collecting from you personally.  This protection is extremely powerful and never expires.  On the other hand, when your case is dismissed, the creditor may charge you with interest and/or penalties that you did not anticipate. 

If you dismiss your case and later re-file, you will have two bankruptcy cases on your credit file.  Dismissing a bankruptcy case does not erase the first case from your record and does not lessen its impact on your credit score. 

If circumstances change after you file your bankruptcy case, discuss the matter with your attorney.  Most problems can be resolved without dismissing the case.  For instance, a Chapter 13 debtor who suffers a loss of income may be able to convert the case to a Chapter 7 and receive a discharge without further repayment.  In another example, if a Chapter 7 debtor incurs unexpected medical debt, the debtor can convert the case to Chapter 13 and include the new, post-petition medical bills in the Chapter 13 case.  

The general rule in bankruptcy is, “Once filed, follow through.”  However, every case is different and presents its own challenges.  Speak with your attorney and discuss your legal options.  You and your attorney can formulate a plan that will benefit you and your family.

Are You Too Broke to File Bankruptcy?

“If I had that kind of money, I wouldn’t have to file bankruptcy!” 

All bankruptcy attorneys hear that frustrated statement from time to time.  Some individuals wait until they are dead broke before contacting a bankruptcy attorney for help.  By that time there is little or no money to pay bills, let alone court fees, credit counseling fees, and attorney fees.  The article today is about helpful advice on how to get the money for your attorney without creating more difficulty for yourself. 

One popular choice for many debtors is a loan from a family member.  If you borrow money from a relative to pay the bankruptcy fees, you must identify that relative as a creditor on your bankruptcy schedules.  In most cases this debt will be discharged along with other unsecured creditors.  Despite the bankruptcy discharge, you are not prohibited from repaying the debt if you feel a moral obligation to do so. 

On the other hand, if your relative gives you the money as a gift, it does not need to be disclosed.  However, the money must be included as income on the Means Test.  In only a small number of cases would this situation cause problem with the Means Test. 

Selling property is another option to pay the bankruptcy fees.  There is nothing wrong with selling property for fair market value prior to a bankruptcy.  Selling a non-exempt asset (one that you may lose to the trustee) makes good financial sense.  You must disclose the sale in your bankruptcy schedules and account for the proceeds. 

Some debtors cash out investments or take money from a retirement account.  These choices may carry tax consequences and are also normally counted as income on the Means Test.  Other debtors use income tax refund money.  It makes sense to use non exempt cash money to pay bankruptcy fees rather than see it lost to the bankruptcy trustee. 

Some clients are able to save money from their paychecks after they decide to file bankruptcy.  Generally, once you decide to file bankruptcy, you should stop paying credit cards and other unsecured, dischargeable debts.  Secured debts that will survive the bankruptcy should be paid along with utility bills and non-dischargeable debts. 

 Using a credit card to pay your attorney can create difficulties in your bankruptcy case.  Credit card charges within 90 days of the bankruptcy filing are presumptively nondischargeable.  Likewise payday loans taken immediately before the bankruptcy will have to be repaid. 

As you can see, an experienced bankruptcy attorney can offer many suggestions on how to raise the money to pay the bankruptcy fees.  Discuss your financial situation before you sell, borrow, or charge anything.  Good advice from a knowledgeable source can save you from headaches down the road.

Bankruptcy Filings Increase Fourth Straight Year

Calendar year 2010 saw personal bankruptcy filing rates rise to the highest level in five years, according to information collected by the American Bankruptcy Institute, an association of attorneys and other bankruptcy professionals.  There were 1,530,078 personal bankruptcy cases filed during 2010, a 9% increase from 2009.  While the total numbers of bankruptcy filings continue to climb, the 9% increase from 2009 is actually the lowest rate increase in the last four years. 

Nationwide, 1 out of 150 people filed bankruptcy in 2010.  Nevada, with its unemployment rate at 14%, has the highest per capital filing rate averaging 1 bankruptcy filer out of every 67 residents.  After Nevada, Georgia and Tennessee have the highest filing rates per capita, about 50% more than the national average.  Alaska, South Carolina, Texas, North Dakota, South Dakota, and Vermont have the lowest filing rates. 

A few states saw sharp increases in the number of personal bankruptcy filings.  Hawaii experienced 29% more filings in 2010 over the previous year.  California, Utah, and Arizona each had increases of 24%.  The net increase in those states (about 62,000) was greater than the net increase in all other 46 states and the District of Columbia combined (around 60,000).  The data indicates that while the southeastern states are filing bankruptcy cases at a slower pace, the southwest is experiencing further economic distress evidenced by its increased bankruptcy filing rates. 

The raw bankruptcy data also shows a strong preference for Chapter 7 bankruptcy cases.  Consumers filed Chapter 13 cases only 28% of the time during 2010.  Information provided by the National Bankruptcy Research Center suggests that a higher percentage of Chapter 13 filings appears closely tied to high rates of auto loan delinquencies.  Southeastern states have the highest percentage of auto loan delinquencies and corresponding high percentages of Chapter 13 filings. 

If you are in financial trouble and need bankruptcy relief, you are not alone!  The federal bankruptcy laws can help protect your income, assets, and retirement accounts, while stopping lawsuits, garnishments and repossessions.  Speak with an experienced bankruptcy attorney and begin your path to a Fresh Start today!

Beware of Payday Lenders in Bankers’ Clothing

For over a year some national banks have been offering “checking advances” to their cash-strapped customers.  A Checking advance is a short term loan between $100 and $500 which must be repaid within 30 days.  Typically the bank will take all direct deposits made into the borrower’s bank account until the loan is paid. 

Critics have described this practice as a thinly disguised “payday loan,” since the loan is intended to provide cash to the borrower until his or her next payday and direct deposit.  With fees of 20% per $20.00 borrowed, the effective annual percentage rate is 130% when the loan is repaid on the thirtieth day.  U.S. Bank, Fifth Third Bank and Wells Fargo are three banks that offer this service to account holders. 

The checking advance repayment terms can have unexpected consequences for the borrower.  For instance, taking a checking advance two days before your direct deposit payday means that you have paid the bank between $10 and $50 for a two day loan.  The loan period is simply until the next direct deposit, or the expiration of thirty days.  At the end of thirty days the bank will withdraw the funds from your account, usually without notice.  This withdrawal may cause an overdraft of your account and additional fees.  Unlike payday loans, checking advance customers are unable to control and post-pone payment of the loan until the end of the loan period.  Some banking customers find themselves forced to take a series of advances until they are able to afford to repay the loan. 

Bankruptcy can discharge checking advance loans as well as payday loans.  These short term loans can cause significant damage to a families’ budget and cost hundreds of dollars in fees.  It is usually advisable for clients who wish to discharge a bank’s checking advance to open up another account at a different bank.  This will avoid any complications if the bank attempts to take money out of your account to repay the loan. 

If you need to get out from under checking advance loans, payday loans, or other high interest loans, speak with an experienced bankruptcy attorney and discover how the federal bankruptcy laws can provide you with relief.  Your bankruptcy attorney can explain the best way to discharge these loans and set you on a course for a better financial future.

Credit During Bankruptcy

There are many situations when a person needs credit during an open bankruptcy case.  Refinancing a home mortgage, redeeming an automobile, or simply applying for a new credit card are circumstances when a debtor needs to obtain credit during bankruptcy.  Fortunately, the bankruptcy process allows the debtor to obtain the credit he or she needs while concurrently pursuing a bankruptcy discharge. 

When a debtor applies for credit during an open bankruptcy case, the application not only affects the debtor and the creditor, but also concerns the trustee and the bankruptcy court judge.  The creditor is concerned that the bankruptcy will interfere with the extension of credit, and the bankruptcy trustee and judge are concerned how the extension of credit will affect the bankruptcy case. 

For Chapter 7 cases, the reach of the bankruptcy court is limited to those assets that you owned and debts that you owed on the date that you filed bankruptcy.  The judge does not have jurisdiction on post-petition matters.  While the bankruptcy court does have jurisdiction to approve or reject a reaffirmation agreement for a pre-petition debt, the court cannot forbid a post- petition extension of credit. 

For Chapter 13 cases, the court has continuing jurisdiction over your finances during the bankruptcy case.  A Chapter 13 debtor is required to commit all of his or her disposable income to repay creditors.  Any new credit must be approved by the bankruptcy judge since a new payment obligation may impact the Chapter 13 repayment plan.  

Automobile credit is often a concern for bankruptcy debtors.  Obtaining a vehicle during Chapter 13 bankruptcy will generally require that the debtor show that the vehicle purchase is “necessary to the completion of the Chapter 13 bankruptcy plan.”  In plain language, you need the car to get to work to make the money to pay the creditors in the plan.  When a vehicle purchase is reasonable and necessary, the courts are generally willing to approve the purchase on credit. 

If you have filed or are considering filing bankruptcy and are in need of credit, speak with an experienced bankruptcy attorney and discuss your situation.  Your attorney can offer advice and recommendations for obtaining both a bankruptcy discharge and the credit you need.