Will the Bankruptcy Court Take My Children’s Property?

The bankruptcy law requires the debtor to list all of his or her assets in paperwork filed with the court.  The court requires the debtor to file a standardized form called “Schedule B” which lists all of the debtor’s property.  The instructions for completing Schedule B direct the debtor to “list all personal property of the debtor of whatever kind.” 

A common question from bankruptcy debtors is, “Do I have to list property that belongs to my child?”  The answer is, “It depends.”  If the child is a minor, you likely own any property that you purchased for the child, like bedroom furniture, clothing, toys, etc, even if you gave the property as a gift.  On the other hand, if a minor child paid for an item from his or her own funds, then you would identify your relationship to the property on Schedule B.  For instance, if your 17 year old son worked a summer job to purchase a car with is own money, your disclosure would identify the car and state that it is being held for a minor child.  The court cannot take what is not yours. 

Property that has been transferred to a minor or adult child with the intent to protect the asset from turn-over during the bankruptcy must be disclosed.  These transfers are often attacked as fraudulent and may be lost during the bankruptcy case.  The usual problem with this type of transaction is it is done without the guidance of an attorney.  State and/or federal exemptions that can protect the debtor’s assets may be compromised when the property is transferred immediately before filing bankruptcy.  The legal protections available to you may be lost by this transfer. 

Money held in trust for your child is generally not property of the estate.  For instance, a bank account set up under the Uniform Transfers to Minors Act (UTMA) naming you as custodian is usually protected.  This type of account is irrevocable and the money belongs to your child, not to you.  However, funds you contribute to this account during a time when you are insolvent may be found to be fraudulent transfers and the Chapter 7 trustee could obtain the funds to pay your creditors. 

Protecting assets belonging to a debtor’s child is usually not an area of large concern.  If you have an unusual situation and your child has an ownership interest in a valuable asset, it is important to discuss the best means to protect the asset with an experienced bankruptcy attorney.  Don’t leave the protection of your child’s asset to chance.  Get the advice you need by calling today.

Debt Settlement vs. Bankruptcy

Examining your options is important for anyone experiencing debt problems.  If you are considering bankruptcy or debt settlement to resolve your financial difficulties, investigate the consequences of each process before making your decision.  Below is some information about debt settlement companies and bankruptcy that you may not know: 

Debt Settlement:  The debt settlement process will harm your credit for years.  Creditors will report your delinquent account until it is paid.  Your report may identify settled accounts as paid less than 100%, which also adversely affects your credit score. 

Bankruptcy:  Any debt included in a bankruptcy appears on your credit report as discharged with a zero balance from the date you filed your bankruptcy case.  Bankruptcy stops adverse reporting so your credit report can improve.  

 

Debt Settlement:  The typical debt settlement account will resolve your debt with a lump sum payment of between 20% and 80% of the debt.

Bankruptcy:  In most bankruptcy cases you pay nothing to unsecured creditors. 

 

Debt Settlement:  Any settled debt will have tax consequences and you may have to pay the IRS. 

Bankruptcy:  There is no tax liability for a debt discharged in bankruptcy. 

 

Debt Settlement:  You may be sued while you or your representative is attempting to settle your debt.   

Bankruptcy:  All lawsuits are prohibited during your bankruptcy case. 

 

Debt Settlement:  Some debt settlement companies are disreputable and the process is even illegal in some states.

Bankruptcy:  The bankruptcy process is authorized by the United States Constitution and its laws are written by Congress.  Only licensed attorneys admitted to practice in the federal courts are able to represent bankruptcy debtors.

 

Debt Settlement:  The debt settlement process can take more than a year.  The general rule is: the longer you don’t pay, the better the settlement.  Creditors are reluctant to accept less than full payment unless they believe that you may file bankruptcy.

Bankruptcy:  The typical chapter 7 bankruptcy case takes less than six months.

 

If you are struggling with debt, investigate your options and speak with an experienced bankruptcy attorney.  The federal bankruptcy law is a powerful tool to eliminate your debt problem and put you on the road to financial recovery.

Discharged Creditor Responsible for Selling Debt

A bankruptcy discharge is a permanent court injunction prohibiting creditors from enforcing certain obligations against the debtor.  While the bankruptcy discharge does not actually “erase” a debt, it prohibits any collection against the debtor personally.  In plain terms, the debt is no longer legally enforceable against the debtor and the creditor can no longer engage in any type of collection activity such as; letters, phone calls, threats of criminal proceedings or other adverse actions brought about with the purpose of debt repayment. 

The purpose of the discharge injunction is to provide the debtor with a fresh financial start, free of the pressures of former debt.  Violation of the bankruptcy discharge is a serious matter.  A willful violation of the discharge injunction constitutes contempt of court.  The violator (often called the “contemnor”) may be penalized for this conduct, including a hefty fine and payment of attorney fees.  

Recently United States Bankruptcy Court Judge Enrique S. Lamoutte discussed the liability of a creditor that sold a discharged debt and the subsequent purchaser attempted collection action.  This is practice is often referred to as “zombie” debt collection.  The debt is legally “dead,” and the collector attempts to “bring it back to life” through direct collection efforts. 

In the case of Laboy v. FirstBank Puerto Rico, Judge Lomoutte reminds creditors that they “are obligated to maintain procedures to ensure that they do not violate [the discharge injunction], and may be held liable for damages and attorney’s fees if they do not.”  He concluded that FirstBank had knowledge of the bankruptcy filing and discharge and that its actions in selling the debt to a debt collector some 15 years after the bankruptcy discharge violated the discharge injunction.  

If you receive contact from a debt collector concerning a discharged debt, notify your bankruptcy attorney immediately.  This may be an innocent error, or it may be a zombie debt collector on the prowl.  Either way, you should contact your bankruptcy attorney and chase these zombies debts back to the grave!

Debt Collection After Bankruptcy

Your bankruptcy discharge prohibits certain creditors from collecting from you personally after your bankruptcy case.  So what happens when a creditor contacts you after your discharge?  The answer depends on the situation and first involves answering three questions: (1) “Was the debt discharged in bankruptcy?” (2) “Is the collection directed at the discharged debtor?” and (3) Was the creditor notified of the discharge?” 

Discharged debts are no longer legally enforceable against the debtor.  The discharge injunction is a court order from a federal bankruptcy judge prohibiting creditors from filing lawsuits, sending collection notices, or making collection phone calls.  Substantial sanctions may be imposed on a creditor that violates this order.  However, some debts are not discharged.  It is important to discuss your discharge with your attorney and understand which debts are included in the discharge and which are not.  For instance, taxes, student loans, and family support obligations may not be subject to the discharge.  In other cases a debt may be excepted from discharge by the court.  

Your discharge only protects you from collection efforts.  It does not protect a co-debtor who did not also file bankruptcy, and, as a general rule, it does not protect property that is subject to a lien.  Therefore, it is important to understand how your property is affected by the bankruptcy discharge and whether a creditor can seize, repossess, or foreclose on the property after your bankruptcy. 

As a practical matter, if a collector does not know about your bankruptcy discharge, the bankruptcy court is not likely to impose sanctions against it.  Often a collection attempt can be resolved by informing the collector of the discharge and either providing a copy of the discharge or referring the collector to your attorney.  Buying and selling debt is big business, and debts often get passed from collector to collector – even uncollectible debts like those discharged in bankruptcy! 

Your bankruptcy discharge injunction applies to the original creditor, collection agencies, attorneys, and any other subsequent collector.  Don’t let creditor harassment disturb your peace of mind.  If the answer to the above three questions is “Yes, Yes, Yes,” the collector has violated the bankruptcy court’s discharge order.  Contact your attorney and discuss the best course of action to stop the harassment.

Credit Card Companies Raise Interest to Record Levels

Credit Card APRs have risen over 20% during the past two years to an all-time high of nearly 15%, according to information CreditCards.com collects from 100 of the nation’s top credit card companies. While the best interest non-introductory rates are a reasonable 7 to 13%, people with bad credit can expect to get stuck with an APR of 24% or higher. 

The Credit CARD Act of 2009 stopped card companies from raising interest rates without prior notice and curtailed other abusive practices.  The credit card industry has responded by increasing interest rates for future charges and on new customer accounts.  Beverly Harzog of Credit.com was quoted by CNNMoney as saying, “Rates are going up because card issuers know that once you get a card they can’t raise the rates, so they’re raising rates on the front end to ensure they get the revenue from that interest.” 

So what are your best options if you have poor credit?  First, stay away from cards that charge high fees commonly labeled Acceptance Fee, Participation Fee, or Annual Fee.  In some cases a credit card with a $250.00 credit limit may already have $175.00 in fees charged against it! 

Instead, take a look at secured credit cards.  These cards are available to anyone, including recently discharged bankruptcy debtors.  To obtain a secured credit card you must first provide a cash collateral deposit to the bank that becomes your credit line. For example, if you deposit $500 into the account, your credit line is up to $500.  If you fail to make monthly payments or honor the terms of the credit agreement, the bank simply closes your account, offsets what it is owed against the deposit, and returns the remaining money to you. 

In many cases a secured credit card is reported to the three largest credit reporting bureaus (Equifax, Transunion, and Experian), so the cardholder can improve a credit score significantly with payments over time.  Some banks will reward its secured cardholders who pay on time with unsecured increases to the credit line.  Bankrate.com maintains a list of banks that issue secured credit cards.  Be sure to investigate and compare the fees and interest rates charged by these companies before opening an account. 

If you are struggle with paying your bills each month, get out of the vicious cycle of debt by using the federal bankruptcy laws. The bankruptcy discharge can be your ticket to financial stability and savings for the future.  Call today and discover how bankruptcy can help you.

Can I Keep My Vehicle After Chapter 7 Bankruptcy?

Chapter 7 is an erase-your-debts-start-fresh bankruptcy.  A debtor in Chapter 7 is unable to pay his creditors over time, so he offers to liquidate his assets. The basic idea is that all of the debtor’s property is taken and sold to pay creditors.  Any debt that cannot be paid from the debtor’s property is legally discharged.  The debtor has paid all he can.

However, it’s not practical to take everything a person owns.  Consequently the federal bankruptcy laws balance the rights of the creditors to receive payment against the need of the debtor to remain able to provide food, clothing, and shelter for his family.  The bankruptcy laws allow the debtor to keep reasonable and modest amounts of furniture, clothing, jewelry, and, in most cases, a home and car. 

Keeping a vehicle after filing Chapter 7 depends on three questions.  First, “Is the vehicle worth more than you owe?”  Vehicle equity must be protected with exemptions.  The bankruptcy laws allow a Chapter 7 debtor to keep a modest amount of equity in a vehicle, and other exemptions may be available to protect larger amounts of equity.  In basic terms, if you have a new Cadillac, and it is paid for (meaning a large amount of equity), the car will be taken and sold to pay creditors. 

Second, “Is the vehicle worth less than you owe?”  In some cases the debtor’s vehicle loan is a great deal more than the vehicle is worth.  In those cases the bankruptcy laws allow the debtor to pay the amount the vehicle is worth and discharge the difference.  This process is called “redemption” and the fair market value of the vehicle must be paid to the creditor in one lump sum.  Additional financing is often required to obtain the lump sum payment, although the money can come from any source. 

Since a loan secured by a vehicle must be paid or the vehicle returned, the final question is, “Are you able to continue making payments?”  If you are unable or unwilling to make the monthly payment, the vehicle may be surrendered back to the creditor, and you owe nothing.  If you want to continue making payments on the auto loan, you should discuss a reaffirmation agreement with your attorney.  Generally, a reaffirmation agreement is filed with the bankruptcy court and continues the loan obligations of the lender and borrower. 

If you are interested in keeping your vehicle after a Chapter 7 bankruptcy case, speak to your bankruptcy attorney and discuss your options of surrender, reaffirmation, or redemption.  Your attorney can explain the benefits of each process and map out a plan to keep your vehicle before you ever file your case.