Can I Keep My Vehicle During Chapter 7 Bankruptcy?

One of the most serious questions a client may ask is, “If I file Chapter 7 bankruptcy, can I keep my vehicle?” Like many simple, straight-forward legal questions, there are no simple, straight-forward legal answers. However, while each case is different, the vast majority of bankruptcy debtors keep their vehicles during Chapter 7. 

Keeping a vehicle during Chapter 7 bankruptcy starts with a simple accounting: is the fair market value of the vehicle more than the amount owed on the loan? In other words, does the debtor have equity in the vehicle? If there is no equity in the vehicle, the Chapter 7 trustee cannot take and sell it since there is no benefit to the unsecured creditors. 

On the other hand, if there is vehicle equity, that equity must be protected otherwise the trustee can take and sell the vehicle to reach the unprotected equity. The vehicle’s equity may be protected by one or more legal exemptions. The total amount of exemptions available to a debtor is determined by state and/or federal law and varies from state to state, and case to case. In some cases the ownership of the vehicle may protect the vehicle’s equity, such as in cases of joint ownership with a non-filing party. 

If the vehicle has unprotected, non-exempt equity, the debtor has a few options. First, instead of taking and selling the vehicle, the trustee may accept a cash payment. Generally this cash payment is less than the amount of available equity, because there are actual costs involved in selling the vehicle. Second, the debtor may consider a Chapter 13 bankruptcy. A payment equal to the amount of non-exempt equity must be paid to the debtor’s unsecured creditors during the Chapter 13 plan, but this payment is stretched over 36-60 months.  Third, the debtor may choose to allow the trustee to sell the vehicle. Any claimed exemption will be paid to the debtor from the proceeds of the sale.  Finally, the debtor may choose to trade or sell the vehicle prior to bankruptcy and use any proceeds for necessary household expenses. 

The truth is that it is rather unusual for a debtor to have a vehicle equity issue during Chapter 7 bankruptcy. If you have a vehicle with a great deal of equity, your bankruptcy attorney can discuss your options for keeping your vehicle and protecting your equity.

Do I Have To List It In My Bankruptcy?

A common question from clients preparing to file bankruptcy is, “Do I have to list it?” “It” can be an item of property, a financial obligation, a source of income, or even a reoccurring bill. The simple answer is, “Yes!” You must list all of your assets, debts, income and expenses. The bankruptcy process expects and relies on honest disclosures from the debtor. These financial disclosures are made under oath and threat of perjury. You must disclose everything. 

Disclosing ownership of an asset doesn’t mean you will lose that property. Statistically, only four percent of all Chapter 7 bankruptcy cases have an asset that is turned over to the trustee. Federal and/or state exemption laws protect most property during bankruptcy, however property exemptions are only recognized when the asset is listed and the legal exemption is properly claimed. An asset that is concealed during your bankruptcy case will not receive the full protection of the exemption laws. 

Likewise, disclosing income does not mean that you will be forced into a Chapter 13 repayment case. Most debtors pass the means test without much effort. In the remaining cases, most only require small adjustments. Disclose all of your income early during the bankruptcy process, and your attorney can discuss your legal options for discharging unsecured obligations without filing a Chapter 13 repayment case. 

Intentionally failing to disclose a debt means that the debt is not discharged. Unfortunately, it also means that you have committed perjury since you attested to having listed all of your debts. Perjury is a federal crime, and you may be denied a discharge. Occasionally a debtor wants to omit a creditor from the bankruptcy case. Your attorney can help you with this decision. For instance, a credit card with a zero balance is not a debt and there is no disclosure requirement. In theory, since the credit card company is not listed as a creditor, it does not receive notice of the bankruptcy, and the credit relationship is not disturbed. Realistically, the credit card company will discover the bankruptcy independently and may restrict the account. 

When it comes to bankruptcy it is important to be completely honest with your attorney. Your attorney can advise you on making the best disclosure decisions while staying within the legal requirements of the bankruptcy laws. Don’t hide a financial fact! Discuss it with your attorney and protect your legal rights.

Is Debtors’ Prison Making a Comeback?

In the early days of this country it was common for debtors to be imprisoned until their debt was paid. Popular history records that the last debtors’ prison was closed in the 19^th century and the practice of incarcerating a person on account of a debt was abolished. However, the prohibition against debtors’ prison has always had its loopholes; the most well-known examples are tax evasion and child support delinquency. In one case a former corporate lawyer, H. Beatty Chadwick, was imprisoned for more than 14 years for failing to turn over money related to a divorce case. The judge who released him decided that after 14 years Mr. Chadwick either could not or would not pay. 

Since the start of the recession more debtors are being arrested for not paying debts. The Washington Post reports that “more than a third of all U.S. states allow borrowers who can’t or won’t pay to be jailed.” This process generally occurs after an individual fails to show up to court, but sometimes results from failing to make court-ordered payments to a creditor.  In one case the Post reports that a 26 year old woman was arrested for failing to show up to a court hearing over a $1,159.87 credit card debt. When she posted a $500 bond, that money was turned over to the creditor. 

While many state judges appear to be using the power of their office to influence debtors to pay their creditors, these judges cannot circumvent the power of the federal bankruptcy laws. When a debtor files bankruptcy, all debts owed prior to the date of the bankruptcy fall under the jurisdiction of the federal bankruptcy judge. All state court proceedings must automatically stop, including the execution of a state court contempt of court warrant to coerce payment. This automatic stay is a very powerful protection and gives the debtor a chance to propose a plan to either discharge the debt or repay it over time. 

If you are threatened with a lawsuit, don’t ignore it. Speak with an experienced bankruptcy attorney and learn how the federal bankruptcy laws can protect your income, your property, and even your freedom.

How Often Can I File Bankruptcy?

The federal bankruptcy laws do not limit the number of times an individual can file for bankruptcy protection. When an individual is facing overwhelming debt and needs relief from creditors, the bankruptcy laws provide powerful protection. In some cases that protection can be a discharge of debt. In other cases, it means an opportunity to repay what is owed. 

An individual may file multiple bankruptcies for many reasons. When a discharge of debt is needed, the federal law limits time between discharges. After you receive a discharge in a previous Chapter 7 bankruptcy case, you must wait 8 years before you can receive another Chapter 7 discharge; and 6 years to receive a Chapter 13 discharge.  If you received a discharge in a previous Chapter 13 bankruptcy case, you must wait 4 years before you can receive a Chapter 7 discharge; and 2 years to receive another Chapter 13 discharge. 

The above time periods are measured from the date the previous case was filed.  For instance, if you filed a Chapter 7 bankruptcy on June 1, 2005, then on June 1, 2013 you will be eligible to file a Chapter 7 bankruptcy case and receive a discharge. However, on June 1, 2011 you are eligible to file a Chapter 13 bankruptcy and receive a discharge. 

In some cases a discharge is not needed. A debtor can file a Chapter 13 bankruptcy and repay debts without receiving a discharge. In this situation there is no legal limitation between bankruptcy cases. This strategy is especially useful when faced with non-dischargeable debts that must be fully paid. The obligation is paid over time under the supervision and protection of the bankruptcy court.  In some rare cases of abuse a bankruptcy court will deny the debtor relief. This may occur when a debtor has shown a history of repeated bankruptcy filings that have been dismissed. 

If you have received a discharge and need the protection of the bankruptcy laws for a second time, discuss your situation with an experienced bankruptcy attorney. The bankruptcy laws are meant to help the honest, but unfortunate debtor and can help you straighten out a difficult financial dilemma.

Who Will Know About My Bankruptcy?

One of the most common questions asked about the bankruptcy process is, “Who will know about my bankruptcy case?”  Filing bankruptcy is usually very confidential, but the Bankruptcy Code and Federal Rules of Bankruptcy Procedure dictate that notice of your bankruptcy case must be sent to certain individuals and businesses. 

Bankruptcy is a legal process and is a matter of public record.  Few newspapers will publish bankruptcy filings in the “public notices” section.  While this was a common practice for newspapers in the past, the sheer number of bankruptcy filings makes reporting personal bankruptcies impractical.  This year more than a million and a half people will file bankruptcy, and more than 5.7 million people have filed since September 30, 2005.  Unless you are a public figure or your bankruptcy case is somehow newsworthy, it likely will not appear in any section of a newspaper. 

You are required to submit a list of the names and addresses of every individual or business you owe when your case is filed.  Everyone on that list is sent a notice of your bankruptcy case.  The notice also prohibits the creditor from taking any further collection activity.  The bankruptcy court will send notices only to the names on your list of creditors, to your attorney, and a notice to your address.  Friends and family members are not sent notices unless you identify them on your list. 

Your employer may receive notice regarding your bankruptcy in a few limited circumstances.  Obviously, if you owe your employer money, your employer will be notified.  A second circumstance is when you file a Chapter 13 repayment bankruptcy and wish for your employer to withhold the plan payment from your wages.  Finally, there may be a reason to notify your employer, like if your employer is under a court order to garnish your wages. 

Since your bankruptcy case is a matter of public record, an individual may contact the bankruptcy court to obtain information about your case.  Most bankruptcy courts have an automated telephone system that will provide basic case information to the public.  Some individuals are able to access the Public Access to Court Electronic Records (PACER), an electronic public access service that allows users to obtain bankruptcy case information via the Internet.  PACER registration is free, but the system charges an access fee per page. 

The typical bankruptcy case is quick and confidential.  However, every case is different.  If you have specific questions about the effects of filing bankruptcy, consult with an experienced bankruptcy attorney.  Your attorney can explain the benefits of the federal bankruptcy laws and the process for discharging your debts.

I Have My Bankruptcy Discharge. Now What?

You should obtain a copy of your credit report immediately after receiving your bankruptcy discharge. Federal law entitles you to one free credit report from the “big three” credit reporting agencies, Experian, Equifax, and TransUnion, every twelve months. The easiest way to obtain your free credit report from each of these agencies is by visiting AnnualCreditReport.com. 

After receiving your free credit reports, check each report for errors. First, any debt discharged by your bankruptcy should be listed as “Discharged in Bankruptcy” with a “Zero Balance.” Second, there should not be any negative activity reported after the date that you filed your bankruptcy case. This includes any new collection agency report after your filing date. Third, any debt that was reaffirmed should not be listed as “Discharged in Bankruptcy,” and should list your on-time payments. Finally, in some cases inaccurate information will be reported. For instance, a car voluntarily surrendered back to a creditor during a bankruptcy is not a “repossessed vehicle” and should not be reported as such. 

Correcting any errors on your credit report is simple and easy. Each reporting agency has procedures from contesting erroneous information, either by mail or on-line. Once the credit agency has updated its records, it must issue you a free corrected report. Review this new report for errors; do not assume that the report has been correctly amended. You may need to correspond with the agency several times and supply documentation regarding your bankruptcy case. It is your responsibility to ensure that your credit report is accurate. Neither the bankruptcy court, nor your attorney, nor your creditors are responsible for sending the credit reporting agencies information regarding your bankruptcy case. 

Updating and correcting your credit reports is the first step on the road to rebuilding your credit after bankruptcy. Fortunately, this step is free and takes very little effort. Be sure to correct your credit reports and then closely monitor your credit regularly for the first two years after your bankruptcy discharge. With timely payments and by carefully protecting your credit file, your credit score will increase quickly.

How Long Will Bankruptcy Stay On My Credit Report?

When a bankruptcy case is filed, information about the case is reported on the individual’s credit file. The report lists the date filed, the type of bankruptcy case (i.e. chapter 7, 11, 12 or 13), the case number, the case status, and closing date. The federal Fair Credit Reporting Act (FCRA) permits credit reporting agencies to keep this information on an individual’s credit report for up to ten years. Note that the FCRA does not mandate that reporting agencies list the bankruptcy for ten years; only that bankruptcy information must be removed from the individual’s credit report at that time. 

Each credit reporting agency has its own policy regarding the length it reports a bankruptcy case as a public record. In general, Chapter 7 cases are reported for ten years and Chapter 13 cases are reported for 7 years. However, the FCRA does not distinguish between Chapter 7 and Chapter 13 cases and a bankruptcy case under either chapter may be reported for up to ten years. 

The FCRA is very clear regarding when the ten year period commences. Credit reporting agencies are directed to exclude bankruptcy case information from an individual’s consumer report ten years after “the date of entry of the order for relief.” The “order of relief” is a bankruptcy term defined in Section 301 of the Bankruptcy Code as the date the bankruptcy case is filed. The day the bankruptcy case is filed is the day the ten year clock begins to run.  For instance, if a case is filed on January 1, 2012, then the bankruptcy record must be removed from a credit report before January 1, 2022. 

Knowing the time limitation for reporting your bankruptcy information is an important part of the “fresh start” promised by the bankruptcy laws. Filing bankruptcy does not brand an individual for life; bankruptcy relieves the individual of overwhelming debts and provides the opportunity for a second chance at a better future. If you need a financial fresh start, discuss your options with an experienced bankruptcy attorney.

Can An Illegal Immigrant File Bankruptcy?

There is no requirement of citizenship in the Bankruptcy Code. Section 109(a) of the Bankruptcy Code states that “…only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor” in bankruptcy. Your legal status does not determine eligibility to file bankruptcy; however there may be complications if you are not a U.S. citizen. 

First, you must be able to prove a physical residence or ownership of property within the bankruptcy court’s jurisdiction. A permanent physical address is required for the bankruptcy forms. Residency is also important to qualify for state exemptions used to protect your property.  Generally, a debtor must show residency within a state for at least 90 days preceding the bankruptcy filing in order to qualify for that state’s exemption laws. 

Second, you must prove your identity. Most bankruptcy debtors use a social security number (SSN), but an individual tax identification number (ITIN) may also be used. An ITIN is issued by the IRS to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for SSNs. Whether a SSN or ITIN is used, physical verification of the number must be shown to the bankruptcy trustee. 

While there is no requirement in the Bankruptcy Code that you must have either a social security number or ITIN, the bankruptcy petition requires you to sign a Statement of Social Security Number. The options on this Statement are (1) you have a social security number; (2) you have an ITIN; or (3) you don’t have either. If you select option three, you may be able to use a valid passport or some other official government issued identification as proof of identity.  There are bound to be consequences for the debtor that does not have a SSN or ITIN including the red flags it sends to the Department of Justice, the IRS, and INS. 

Crimes of “moral turpitude” that are be disclosed within a bankruptcy filing may affect your immigration status or application for citizenship. These acts include the fraudulent use of credit cards, bad check offenses, tax evasion, fraudulent transfer of an asset, or falsifying government documents (including your bankruptcy petition.) 

If you have immigration issues and need to file bankruptcy, discuss your situation with an experienced attorney. The United States bankruptcy laws are very liberal and can help you get out of debt. Your attorney can work with you to resolve your debts while avoiding deportation.

Will I Lose My Tax Refund by Filing Chapter 7 Bankruptcy?

April 15 is quickly approaching and many Americans are filing their income tax returns.  A common question at this time of year is, “Will I lose my income tax refund if I file Chapter 7 bankruptcy?”  The short answer is no, at least if you consult with an experienced bankruptcy attorney. 

The safest situation is to file your tax return and receive your refund prior to filing bankruptcy.  The bankruptcy estate is calculated as of the date that you file your case.  If the tax refund money is gone on the date you file your bankruptcy, there is generally no way for the bankruptcy trustee to make a claim against the tax money. 

However (it’s funny how bankruptcy law, like life, has many “howevers”), there are exceptions to the general rule.  For instance, if you pay an insider creditor on an antecedent debt, the trustee can avoid the transfer.  An “insider” is a basically person close to you like a friend, family member, or business associate.  If you owe an insider money, and you repay the debt from your tax refund, then the trustee could ask the insider to repay the money to the bankruptcy estate.  Paying an insider within a year of filing bankruptcy usually leads to problems. 

You may run into a similar problem if you pay down a loan, or pay any creditor a large lump sum within 90 days of filing bankruptcy.  You could also run into an equity issue by paying off a vehicle with a large tax refund.  These may seem like responsible actions, but the bankruptcy laws are full of landmines.  Before spending your tax money it is wise to consult with your bankruptcy attorney to avoid these sticky situations.     

Another issue that occasionally happens is when a bankruptcy debtor files a Chapter 7 case after filing a tax return, but before receiving an expected small refund.  “No problem,” says the bankruptcy attorney, until the IRS adjusts the small refund into a large refund.  There is “no problem” if the debtor has available exemptions to protect the refund, the debtor simply amends his schedules.  But sometimes there is no way to protect all of the refund and the trustee is able to collect.  That is an unfortunate situation for someone that really could use the extra money, and a case that can be avoided by waiting until the refund is received and spent. 

If you are concerned about keeping your income tax refund, consult with an experienced bankruptcy attorney.  Your attorney can advise you on property that is exempt (protected) and non-exempt (not protected) before you file your case and risk losing any property.

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.

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