Employment Discrimination and Bankruptcy

Most bankruptcy clients worry about how a bankruptcy might disrupt their lives.  While many of these fears are unfounded, it is important for you to know the truth about the bankruptcy process and how it may affect you after your case is filed.  One serious matter is how a bankruptcy may affect an individual’s employment. 

The first concern is how a bankruptcy can affect your current job.  An employer will not receive notice of your bankruptcy except under two circumstances.  First, if you owe a debt to your employer, the bankruptcy court will notify your employer.  Second, if you file a chapter 13 debt repayment bankruptcy, and choose a voluntary wage garnishment to pay creditors, your employer will be notified.  

Additionally, section 525 of the Bankruptcy Code prohibits a government or private employer from terminating or discriminating against an employee who files bankruptcy.  You cannot be fired from your current job because you filed bankruptcy. 

A second concern is how a bankruptcy may affect your ability to get a job.  Government employers are absolutely prohibited from denying employment to a person solely on the basis of a bankruptcy filing.  As for private employers, most courts have found that the bankruptcy code does not prohibit a private employer from denying a person employment because of a bankruptcy filing. 

Refusing to hire a person solely because of a bankruptcy filing seems like a very short-sighted and naïve policy.  Consider that the U.S. Census Bureau estimates there are around 308 million people in the United States.  From 2000 to 2009, there were over 13 million non-business bankruptcy filings (source: American Bankruptcy Institute).  That is over four bankruptcy filings per one hundred people.  That figure rises substantially once you take into account that the census includes many that are not in the “working” population, and that many of the non-business bankruptcy filings were joint husband and wife filings.  Add to the fact that there are many legitimate and blameless reasons for filing bankruptcy, and it is no wonder that most employers do not discriminate based upon a bankruptcy filing. 

If you are experiencing financial difficulty, consult with a bankruptcy attorney and explore your options.  Bankruptcy is a federally guaranteed legal process that helps individuals recover from overwhelming financial hardship.  Get your financial fresh start today.

Debt and the Elderly

Many older Americans struggle each month to pay credit card debt with a modest income. Often paying unsecured debt is a tremendous burden and requires a sacrifice of basic necessities. Sometimes the elderly conserve utilities, or cut back on food, or forego prescription medication to pay credit card companies. 

The subject of bankruptcy is especially difficult for elderly people who may cling to preconceptions that are out-dated or otherwise incorrect. There have been many changes in the laws that protect an elderly person’s ability to meet basic monthly living expenses. Many retirement accounts and social security income are protected from creditor garnishment. Additionally, elder Americans are often judgment proof, meaning all income and assets are protected from creditors. Unfortunately, many older Americans fail to take advantage of these protections because they believe they can honor their obligations by paying minimum payments each month. The sad truth is that it often takes decades to pay off a credit card by making minimum payments. 

The stress and worry over repaying unsecured debt can cause health issues for young and old. A great deal of this stress and worry can be alleviated by choosing a feasible plan to either pay or discharge this unsecured debt. Bankruptcy is one tactic for managing unsecured debt and for reorganizing an elderly person’s finances. An experienced bankruptcy attorney can explain your options and provide solutions for living on a fixed income. Don’t let credit card debt turn “the golden years” to rust.

How to Value Household Property in Bankruptcy

During bankruptcy a debtor is required to reveal all assets and give an estimated value of the property.  When the asset is cash money or an investment, figuring its value is easy.  In other cases nailing down a value can be very elusive.  This is especially true when dealing with a unique or expensive household item.  So how does the bankruptcy trustee expect the debtor to come up with a value for household property? 

To understand how to value household property for bankruptcy purposes, it is important to understand the bankruptcy process.  One of the chief functions of the bankruptcy trustee is to uncover assets for the benefit of creditors.  Federal and state laws allow the debtor to keep certain modest items of household property that are considered “necessary,” like clothing and household items, but only up to a certain dollar amount.  That amount is called an “exemption,” and that property is considered “exempt” and protected from a creditor’s collection remedies.  Any property that is worth more than the allowed exemption amount is subject to be liquidated, usually at auction. 

So the easy answer to how household property should be valued is, “At auction prices.”  Since auction prices can vary, that doesn’t really answer the question at all.  Instead, what most bankruptcy trustees suggest is to set a price like you would at a yard sale.  Additionally, internet resources like eBay can be helpful to determine the quick-sale market value of a unique item.  Using one of these on-line resources can provide good evidence that your new-in-box Barack Obama Chia Pet is only worth $20.00. 

Many used household items, like common dinner dishes or bedding, have little or no value.  On the other hand, a grandfather clock, piano, or gun safe usually has some value. A bankruptcy trustee is not in the used furniture business, and will usually incur significant costs in selling a debtor’s property. Consequently, the trustee will not be interested in your household property unless you own a non-exempt item that can be sold for a substantial profit to the bankruptcy estate.  

As owner of your property, you are entitled to give an opinion regarding its value.  It is important not to under-value or over-value your household property, but instead give a fair and reasonable estimate.  If you own an expensive household, do some research and speak to your bankruptcy attorney.  There are many ways to protect property in bankruptcy and your bankruptcy attorney can help you decide on the best course of action.

Will I Lose My Tax Refund by Filing Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy is a repayment plan that lasts three to five years.  During that time the debtor is required to devote all disposable income to the repayment of debt.  Most bankruptcy trustees and courts consider tax refunds part of the debtor’s disposable income that is over-withheld and should be paid into the Chapter 13 plan.  However, instead of reducing the amount payable under the debtor’s plan, tax refund money is paid to unsecured creditors that would otherwise not be paid.  If the debtor is paying a 100% repayment plan, the trustee will not request turnover of any tax refunds.

Some courts have approved a provision in the Chapter 13 plan that requires the Internal Revenue Service to forward any tax refund to the trustee’s office.  However, at least one bankruptcy court has found this practice to be unlawful.  In United States v. Carroll, No. 2:09-cv-13505 (E.D.Mich. Jan. 20, 2010), the bankruptcy court concluded that the IRS was not a party to the debtor’s chapter 13 case and did not have an opportunity to object to the plan.  Additionally, as a part of the United States government the IRS possesses sovereign immunity that it did not waive. 

Keeping your money and avoiding an income tax turnover may be as simple as adjusting your paycheck withholding.  By speaking to a tax professional you may be able to predict your tax liability and put more money in your pocket each payday.  However, be careful to avoid a situation where you do not withhold enough taxes and end up with a large tax bill at the end of the year. 

If your tax refund is largely due to an Earned Income Tax Credit (EITC), the IRS allows tax payers to request an advance payment of the EITC.  Information regarding this advance payment program can be found on the IRS website.   If you qualify, your employer will add additional money to your take-home pay each paycheck. 

If you want to avoiding surprises during your Chapter 13 bankruptcy, seek out and hire an experienced bankruptcy attorney.  An experienced bankruptcy attorney can discuss your financial situation with you and help you keep your hard-earned money for your family.

How Taking Financial Actions Without Court Approval May Affect Your Chapter 13 Case

Before people file for bankruptcy they are free to handle their finances as they see fit.  You can choose which debts to pay when you want or opt not to pay at all.  In addition, you can apply for credit to purchase things, like a car or furniture or a home, and open up new credit card accounts.

After you file for bankruptcy all of this changes.  In essence, the court becomes your financial overseer.  Any financial move you make besides paying your debts as designated through the Chapter 13 plan and paying for your regular living expenses will require court approval. 

So what does this include? Any loan, even something as small as taking out a 401k loan through your employer, will require court approval.  The idea behind this is that the court wants to make sure that you are not putting yourself in a worse financial position than you were in before you filed the bankruptcy. 

What happens if you do take a loan without court approval?  First, a new loan reduces money that is already earmarked to take care of the things in your budget, like food, clothing, shelter, insurance, which may cause a monthly financial shortfall.  Secondly, if you need to request a reduction of your monthly plan payment to the court because of a decrease in income, then the court is likely to deny your request because of the loan you have taken out without prior approval.  Thirdly, the court may even dismiss your case.

As you can see, this can be detrimental to your case.  Be mindful of this as you embark on a Chapter 13 case filing.

Motion/Order to Raise Plan Percentage filed by your Trustee

Our office receives calls from clients in a panic from time to time when they receive one of these Motions and Orders. And understandably so.  Your initial reaction is “I can’t raise my plan payment.  I am already stretched to the limit.” Relax, your plan payment is not being raised.  What is being raised is the percentage of debt being repaid to your creditors who filed a claim to be paid in your Chapter 13 Plan.

This is purely an administrative matter by the Trustee.  Your creditors have a deadline to file a claim to be paid in your bankruptcy.  After the deadline, the Trustee reviews your case and pays only those creditors who actually filed a claim.  The plan as originally filed may have stated that the intention was to pay the unsecured creditors approximately 10% of the balance owed at the time of filing of the case.  However, after all the creditors that filed claims are determined, it appears that your regular payment will end up paying these creditors 25% of what is owed by the end of your plan. For bookkeeping reasons, the Trustee will file a Motion and Proposed Order which raises the percentage paid to unsecured creditors to 25%.  It is a simple matter and does not affect the amount of your payment.

Creditors who do not file a claim and were notified of the bankruptcy are not paid within the bankruptcy and will be discharged at the end of the plan even though they received no money. They have given up their right to collect the debt and cannot later make you pay them because they did not get paid in the bankruptcy.

Help! My Car Has Been Repossessed!

Imagine this: you are behind on your car payments.  Heck, you are behind on a lot of bills, and perhaps you have been considering bankruptcy for some time.  Then one day you walk out the door for work and discover. . . 

Your car has been repossessed! 

Don’t despair!  Bankruptcy can still help.  Call an experienced bankruptcy attorney immediately because you may be able to get your vehicle returned to you. 

The law in most areas (including the Sixth, Seventh, Eighth, Ninth, and Tenth Circuits) is when a debtor files a Chapter 13 bankruptcy, the creditor must immediately return a repossessed vehicle to the debtor.  This is because even though the creditor has taken possession of your vehicle, you are still the legal owner.  The Bankruptcy Code states that in a Chapter 13, a creditor in possession of a debtor’s asset must ordinarily relinquish the asset back to the debtor. 

However, this begs the question: what if your car is sold at auction or the creditor transfers the vehicle title out of your name?  If this transfer is done after the Chapter 13 bankruptcy is filed, it is typically a violation of the automatic stay and the vehicle will be returned.  If the transfer is done before the Chapter 13 bankruptcy is filed, you are out of luck.  You no longer have ownership of the vehicle. 

If the creditor refuses to return the vehicle, or does not return the vehicle in a timely manner, most courts will sanction the creditor.  Once your vehicle is returned you must provide “adequate protection” to the creditor to assure that the property will be safeguarded and that the creditor will be adequately compensated.  This usually takes place by submitting a Chapter 13 plan of repayment to the bankruptcy court. 

If your vehicle has been repossessed, take immediate action!  Call an experienced bankruptcy attorney and discuss your options.  Your attorney can help you make the right financial choice for yourself and your family.

Discharging Post-Petition Debt in Chapter 13

A lot can happen during a Chapter 13 repayment plan which generally lasts three to five years.  Sometimes large debts are incurred that the debtor is unable to pay.  Fortunately, a Chapter 13 debtor is able to discharge a post-petition debt, but only after certain prerequisites are met. 

First, the debtor must amend the repayment plan to provide for a post-petition debt.  Second, the debtor must usually obtain the approval of the bankruptcy trustee prior to incurring the debt.  This is not always obtainable, especially in the case of a large medical bill.  Third, the creditor must voluntarily choose to file a proof of claim.  And finally, the claim must either be a tax claim, or a claim for a consumer debt necessary for the completion of the debtor’s plan. 

A common situation in which post-petition debts arise in a Chapter 13 case is where the debtor needs to purchase a different automobile.  Repaying a post-petition car loan through a Chapter 13 plan is easily accomplished through coordination and cooperation from the trustee, the lender, and the court.  The lender agrees to be paid by the trustee, the trustee agrees to sanction the debt, and the court approves the amended plan allowing the lender to be paid through the bankruptcy plan. 

 In some cases it may not be practical to include a post-petition debt in the debtor’s Chapter 13 plan.  In that case, the debtor may elect to convert the Chapter 13 case to one under Chapter 7.  The Bankruptcy Code states that a debt that arises after the Chapter 13 filing date, but before the debtor’s conversion to Chapter 7, is to be treated as a pre-petition debt.  The Chapter 13 restrictions and requirements listed in the preceding paragraph do not apply to debts in a conversion case.  

The Bankruptcy Code contains many flexible options for reorganizing your finances and dealing with your creditors.  Even when there is an unexpected event that results in a debt, your bankruptcy attorney can provide you with choices for dealing with a post-petition debt.

Buying a Home After Bankruptcy

Sometimes a young couple who has struggled for years will finally decide to file bankruptcy.  For a young family the financial difficulty is often a combination of unstable income, medical bills and overextended credit.  While desperate to buy their first home, they have resigned themselves to the belief that the bankruptcy will prevent home ownership for the foreseeable future. 

Not so. 

Most debtors emerge from bankruptcy financially stronger and determined to not repeat past mistakes.  Many debtors who receive bankruptcy discharges have steady jobs, no unsecured debt, and low debt-to-income ratios.  Additionally, a bankruptcy debtor cannot receive a second discharge for several years.  That actually sounds like a good credit risk combination, right?  

The federal government recognizes that a person who has recently discharged unsecured debt through bankruptcy has little debt, but must demonstrate a commitment to managing credit in a responsible manner.  That is why the FHA credit guidelines require the debtor to show two years of responsible credit management after the bankruptcy discharge before it will issue a federal guarantee on a home loan.  It is also possible to obtain a federal guarantee after twelve months, if the debtor can show that the bankruptcy was caused by extenuating circumstances beyond his or her control.  An FHA guarantee means that the lender is guaranteed money if the borrower defaults on the loan.  This federal guarantee makes your loan application more appealing to banks and other lenders. 

Rebuilding your credit report and safeguarding your credit score is very important if you want to buy a house after bankruptcy.  Your bankruptcy attorney can provide helpful tips regarding the rebuilding process and help you on the path to home ownership.

The Consequences of Ignoring Your Debts

I recently read a newspaper advice column written by a Certified Financial Planner who suggested that, as a practical matter, there is no difference between ignoring your credit card debt and filing bankruptcy. Well, let’s look at the “practical effects” of ignoring your credit card debt: 

First, ignoring credit card obligations will cause a persistent series of harassing telephone calls and letters from credit card companies, collection agencies, and finally law firms. Phone calls are systematically made to the debtor’s home and work, and sometimes to third parties including neighbors, extended family, and your employer. The agencies that collect credit card debt are experts at telephone harassment – it is one of their most important weapons. 

Bankruptcy, on the other hand, stops all collection calls. 

Second, your credit score will be ruined on a continuing basis. For each month that a credit card goes unpaid, the creditor will report negatively to the credit reporting bureau. Additionally, collection agencies will often further harm your credit score by “resetting” the date of last activity when the account is transferred to a new collector. 

Bankruptcy stops all negative reporting. Discharged debts should be identified as “Discharged in Bankruptcy” with a zero balance. The debtor’s credit report and score can begin to recover from the date of the bankruptcy discharge. 

Third, you can (and will) be sued. The typical consumer will undoubtedly lose a lawsuit over a legitimate debt. The resulting judgment may include substantial penalties, interest, court fees, and attorney fees. A judgment creditor can collect from your wages, your property, and your bank account. While there are some people who are judgment proof, they are the exception and not the norm. Most people have assets that a judgment creditor can attack. 

Bankruptcy prevents all lawsuits and even stops collection actions from judgment creditors.

Many consumer advocates have likened credit card debt to an illness. Like any illness, the cure is not found in ignoring the problem, which will only make things worse. If you are sick from credit cards and are unable to pay your debts, consult with a bankruptcy attorney and find the cure!

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