Discharging Bank Account Debt During Bankruptcy
A bank account debt can offer many challenges to an individual in bankruptcy. Usually a bank account debt originates from fees associated with an overdrawn account. These fees can quickly accumulate and result in a debt of hundreds of dollars. A bankruptcy will generally discharge this debt, assuming the debt was not incurred by fraud or criminal activity. However, the issue is often should you discharge your bank account debt rather than can it be discharged.
In deciding whether to discharge a bank account debt, you must determine if repayment is feasible. In cases where the debt is small, the account is still open, and you have the resources to pay the debt, repaying the debt is generally the best option. Remember to consult with your attorney before repaying any debt prior to filing bankruptcy. In many cases it is advantageous to wait until after the case is filed before repaying a debt.
If paying the bank account debt is not feasible, you may face several negative consequences. First, the bank will close your bank account. Second, over eighty percent of all banks use Chexsystems, a consumer reporting agency that provides information regarding accounts at banking institutions. Negative information may remain on your Chexsystems file for five years. To view your Chexsystems report for free, visit: https://www.consumerdebit.com/consumerinfo/us/en/chexsystems/report/index.htm
While a bankruptcy will discharge a bank account debt, factual information concerning the debt will remain on your Chexsystems report after the bankruptcy. This information is available to financial institutions and may prevent you from opening another bank account.
Fortunately, there are programs available to an individual with a derogatory Chexsystems report offered by banks, universities, and not for profit groups. One of the most popular is the “Get Checking” program offered by several groups around the country. The University of Missouri Extension offers a typical “Get Checking” program, which requires a debtor to pay all outstanding bank fees on the prior bank account and take a six-hour checking education class. The debtor then receives a certificate of completion which can be used to open a new account at a participating financial institution. If ChexSystems reports suspicion of fraud on a prior account, a certificate will not be issued and institutions are not required to open an account.
If you have an overdrawn bank account and are considering bankruptcy, discuss your financial situation with an experienced bankruptcy attorney. There are many options to deal with bank account debt, but the situation can only grow worse from procrastination. Quick action is the best cure for this type of debt.
Debt Stress Makes Us Sick!
Are you in financial distress? Is it also causing you health problems?
A 2008 health poll by the Associated Press and AOL found that people in financial distress are more likely to report health problems, including “serious” health problems like ulcers, severe depression, and even heart attacks. Individuals reported the following health problems related to debt stress during the poll:
- 44 percent had migraines or other headaches, compared with 15 percent of those with low levels of debt stress;
- 29 percent suffered severe anxiety, compared with 4 percent;
- 27 percent had ulcers or digestive tract problems, compared with 8 percent;
- 23 percent had severe depression, compared with 4 percent; and
- 6 percent reported heart attacks, twice the rate of those with low debt stress;
More than half, 51 percent, reported muscle tension and/or lower back pain compared with 31 percent of those with low levels of debt stress. Those individuals with high debt-related stress also reported trouble concentrating and sleeping.
This information is neither new nor surprising. In 2005 researchers at three major universities surveyed three thousand people regarding the negative effect of financial stress and found that the top three health effects of financial distress are stress, anxiety, and depression. Anyone who works with individuals in debt on a regular basis sees the negative physical effects that debt stress can have.
Financial distress can negatively impact many areas of your life including your health. Take charge of negative financial stress today and do something to improve the quality of your life. An experienced bankruptcy attorney can evaluate your situation and give you legal advice that can lead to a fresh financial start.
Discharging Credit Card Balances
As a general rule, credit card debt is among the easiest type of debt to discharge during a Chapter 7 or Chapter 13 Bankruptcy. However, in some cases credit card companies will dispute the discharge of credit card debt by filing an adversarial proceeding against the debtor in the bankruptcy court. The creditor may claim that all or a portion of the debt is non-dischargeable. Debts that are declared non-dischargeable may have to be paid during the bankruptcy, or may survive the bankruptcy altogether.
A credit card company may claim that the debtor committed fraud in obtaining or using the credit card. If the creditor can prove that the card was obtained under false pretenses (i.e. that the application was false), the credit card debt may be declared non-dischargeable because of the fraud.
A credit card company may also claim that charges were placed on the credit card when the debtor had no intention to repay the debt. Additionally, a presumption of fraud arises where luxury goods and services are purchased or cash advances are taken shortly before the filing of a bankruptcy case.
Credit card companies are entitled to notice of a debtor’s bankruptcy case, and these companies monitor bankruptcy cases for signs of fraud. Certain actions send up a red flag including:
- Filing bankruptcy on a new card;
- Taking a cash advance prior to filing;
- Charges for travel or vacation;
- A debt transfer from one card to another;
- Credit charges while unemployed; and
- Charges made after consulting a bankruptcy attorney.
The more time between the credit card activity and the bankruptcy filing, the less likely the charge will cause a discharge dispute. The best advice is: if you are considering bankruptcy, stop using your credit cards. Consult with your bankruptcy attorney regarding the best way to discharge your credit card debt.
Loading Up on Debt Prior to Bankruptcy
For most, the decision to file a bankruptcy is a tough choice. It is the final step in a long journey that has included great compromise and sacrifice. A person usually experiences a sense of relief when deciding to file bankruptcy, and there may be a tendency to “let go” of your debt problem. Unfortunately, in some cases people will “let go” by recklessly spending money and running up credit card balances.
It is generally not a good idea to incur any new debt before a bankruptcy filing. The Bankruptcy Code has several provisions prohibiting the debtor from loading up on debt prior to filing bankruptcy. One of the most commonly cited is a spending spree prohibition against purchasing “luxury goods or services” totaling more than $550.00 within 90 days prior to filing a bankruptcy case. Another provision makes credit card cash advances presumptively non-dischargeable if taken within 70 days prior to the bankruptcy filing.
Recently the United States Supreme Court in Milavetz, Gallop & Milavetz, P. A. v. United States reiterated that incurring new debt before bankruptcy with the intent to discharge the debt is not only prohibited, but may also amount to civil fraud or a criminal act. The high court said that bankruptcy attorneys cannot instruct or encourage debtors to take on more dischargeable debt before bankruptcy, but attorneys “remain free to talk fully and candidly about the incurrence of debt in contemplation of filing a bankruptcy case.”
There are many situations where taking on additional debt is beneficial and permissible. The Supreme Court cited three of those situations in the Milavetz opinion: (1) refinancing a mortgage; (2) purchasing a reliable car; and (3) incurring “additional debt to buy groceries, pay medical bills, or make other purchases ‘reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor[.]’”
The bankruptcy process can relieve you of many financial worries. However, your path to financial recovery can be complicated without the sound advice from an experienced bankruptcy attorney. Don’t make any significant financial decisions prior to filing bankruptcy without consulting your attorney.
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.
Options When You Have More Month Than Money
Many professionals, including bankruptcy attorneys, will advise a debtor who is unable to pay monthly debts to “investigate your options.” So how many “options” does a person have when there is not enough money to pay the bills? The answer is: three.
The first is the “Do Nothing” option. Debtors who engage in this option hope that by avoiding phone calls and collection letters the debt will somehow just disappear. That is the same magic that makes a two year old become invisible when she closes her eyes. Obviously if you won’t see it, the collection companies can’t see it.
The “Do Nothing” option is the worst option of all because the debt does not disappear. In fact, the debt becomes bigger with increased fees and interest. Additionally, the debt collection efforts become more aggressive and may result in harassing telephone calls to family, neighbors, or your employer. Finally, you will likely be sued, your property seized or your income garnished.
The second option is “Negotiation.” Many debtors have had positive experience with this option which may include direct negotiation with the creditor for better terms, or help through a third party like a credit counselor or an attorney. Unfortunately, many people do not realize the consequences of negotiation which may include a resulting tax debt, negative items on a credit report, increased debt through fees and default interest rates, and substantial third party fees. It is well documented by the media and state attorney generals that many debtors that attempt the Negotiation option (e.g. credit counseling, debt settlement, debt negotiation, etc.) end up in worse financial shape because they opted for debt negotiation. If you elect the Negotiation option, hire a qualified and experienced professional.
The final option is “Bankruptcy.” Many professionals describe Bankruptcy as the “final option,” but in truth it may be the best option when you cannot pay your bills. Bankruptcy can give an honest debtor breathing room to reorganize debt without the pressures from collection agencies. Bankruptcy can also legally discharge debt without increased fees or tax consequences. At the end of a bankruptcy case the debtor can go forward with a “fresh start” and new financial beginning.
If your family is struggling with more month than money, it is time to examine your options. In the end, choose the option that is best for your family. Speaking with a qualified bankruptcy attorney can answer many of your debt questions.
Bankruptcy Versus Debt Consolidation Services
Like you, I constantly see ads for companies that claim they can negotiate down your balances with your creditors, get your interest rate lowered, and consolidate your bills into one low monthly payment. These ads run on TV, radio and the internet all times of the day and night. Some of these companies are legitimate and do truly want to help you get out of debt while others are fly-by-night operations who take your money and run. Whether they are legitimate or not, they all have one thing in common—they cannot stop your creditors from coming after you for payment. How do I know? Because I represented creditors in the past and creditors have certain rules for those people trying to collect the debts on their behalf. If the offer from your credit counseling agency does not meet the requirements a collection agency is given by the creditor, the collection agency can accept the proposed payments but does not give up their right to sue you on the entire remaining balance of the debt.
One of the many advantages of filing bankruptcy is that, when your case is filed, you are afforded the protection of the Federal Laws regarding bankruptcy. The best and most well known provision is the “automatic stay”. When your case is filed, your creditors are not allowed to contact you or try to collect the debt—they are automatically stopped from these acts. I like to think of it as they have their arms tied behind their backs. This gives you a time to breathe, regroup, and get your ducks in a row while your attorney, the trustee and the Judge look at your financial situation and find a solution with your help.
When Your Back Is Against The Wall Because Of Debt, What Can Filing Bankruptcy Do For You?
Have you ever gotten behind on paying a monthly debt and then stopped paying altogether? Did you begin to avoid phone calls from your creditors or the monthly billing statement you get in the mail? Did you ever begin to ignore the debt and pretend it didn’t exist? Have you ever cashed out all or part of a retirement account to catch up on your bills?
Many people who owe money to their creditors can answer “yes” to one or more of these questions. Owing debts that you can’t pay can become overwhelming, stressful, and add unnecessary pressure to your life. But ignoring the debt can cost you more in the long run. Pretending that it doesn’t exist or ignoring it doesn’t make it go away. Filing bankruptcy can stop creditors from collecting debts that they are owed. Below are a few instances of how filing bankruptcy can help.
IRS Tax Levy/Garnishment of wages or bank accounts – Filing bankruptcy can stop money from being involuntarily taken from your paycheck or bank account. If a creditor sues you for a debt and gets a judgment against you, then they can execute on that judgment and garnishment may occur. It is better to file bankruptcy once you are sued rather than waiting until you are being garnished simply because you have full access to your money without restrictions.
Suspended driver’s license – If you are involved in a motor vehicle accident and are determined to be the responsible party who must pay for damages, then you could be sued by a plaintiff insurance company to pay the debt arising from the accident. You risk your license being suspended if you don’t pay. If you bankrupt such debt, you can prevent or have the suspension of your license lifted.
Past due utility accounts – If you are on the verge of having your utilities shut off due to non-payment, chances are you may have other debts that you haven’t paid as well. Filing bankruptcy can prevent a shut off of your utilities. You may then have continued utility service and start fresh with a zero balance account.
Does any of this apply to you? It is always best to seek counsel before things get too far out of control.
Question: What Should I Do If I Can’t Afford To Pay An Increased Credit Card Payment? Should I Contact A Debt Consolidation Company Or Consider Filing A Chapter 13 Reorganization Bankruptcy?
Before you take any affirmative steps to reorganize your debt with a debt management company or file for bankruptcy, you should sit down and work up a detailed financial budget for you and your family so you know how much disposable income you have each month to apply towards your credit card debt.
When you have completed your budget, contact your credit card companies directly and see if you can get them to agree on changing the terms of the repayment of the debt. Unfortunately, most credit card companies will not change the repayment terms unless you fall at least three months behind. Of course, if you stop making your payments, your credit score will drop significantly.
If you are unable to negotiate directly with your creditors, then consult with an attorney to consider all of your options including hiring a debt management company or filing bankruptcy.
A common question we receive in our offices is “what’s the difference between private debt consolidation and filing Chapter 13 and which is better?” Though the concept is nearly the same, there are many important differences. If you’re interested in maintaining a good credit rating and you don’t want your debt problems to become public record, then private debt consolidation may meet your needs. Private debt consolidation, however, can’t give you guaranteed court protection from your creditors. Creditors can still proceed with legal action against you to collect their debts. On the other hand, Chapter 13 offers significantly more protection to you and your family, allowing you to pay your creditors a percentage of the debt owed (often as low as ten percent) and discharges the remaining balance. And perhaps best of all, creditors cannot repossess or foreclose on your property.
What’s best for you will naturally depend on your specific debts, personal priorities and income status.