10 Questions That You Need to Know the Answers to Before Ever Considering Filing for Bankruptcy Protection
Bankruptcy is usually the last thing anyone wants to have to think about. Usually, a person goes to see a bankruptcy attorney when they think there are no other options available to them. About 50% of the people who come to our office seeking bankruptcy protection are told not to file bankruptcy because it would not be in their best interest. Often, they are relieved to hear that bankruptcy is not their best option at the moment. But, the knowledge that bankruptcy is not their best option still leaves them with the same problems as when they reached out to us. So, we educate them on their best options and provide a road map and a game plan during a complimentary strategy session so they leave armed with the knowledge to fight their creditors.
IS BANKRUPTCY RIGHT FOR ME?
The benefits of attending a complementary strategy session with the Dellutri Law Group are numerous. First, we are bankruptcy lawyers and consumer protection attorneys and this makes a huge difference. Many bankruptcy attorneys in the community only practice bankruptcy law, and they do not regularly litigate against creditors, debt collectors, and their attorneys in the State and Federal Courts. So, if you visit one of our competitors, they will probably tell you bankruptcy is a very good option for you without discussing your other available options. It reminds me of a lesson I learned as a child. My parents owned a full service gas station in N.J. We did major and minor repairs on cars. If a car needed an oil change, that is what was done. A few of our competitors only changed engines. So, if a consumer was to go to that repair shop, guess what was recommended to them. Correct, they were told they needed an engine. My Dad always said, if a car needs an oil change, don’t change the motor. As I previously stated, bankruptcy is not always the best option for consumers. We are firm believers in giving our clients all of their options, discussing each option, and coming up with the best legal solution for the client. Ultimately, we know that clients can say either yes or no to a bankruptcy filing. It’s entirely their decision. Our role as their attorneys and advisers is to make sure they are making an educated decision based upon all of the circumstances surrounding their situation. We are here to answer questions and provide guidance. Again, our clients make the ultimate decision of whether to file for bankruptcy protection or whether to pursue another path. You can be sure that if we advise you to file for bankruptcy protection, it is your best option. Likewise, if we tell you a bankruptcy filing is not your best option, this means that you have other options available to you that you may want to consider.
- DOES MY SPOUSE HAVE TO FILE BANKRUPTCY WITH ME?
The simple answer is no. This question gets asked regularly during our complementary strategy sessions. People believe, and many have been wrongfully told by debt collectors, that once they get married they become obligated to their spouses creditors. Nothing could be further from the truth. Debt collectors will lie to try to get someone to pay a debt. In Florida, when people get married, the State of Florida recognizes each spouse individually and the marriage as a separate and distinct entity. So, if either of the spouses has a substantial amount of debt when they get married, the other spouse does not automatically become liable for the debts. Whatever a spouse brings into the marriage in the form of debt and personal property remains their individual debt and personal property. A creditor could not sue one spouse for the other spouse’s debts unless the first spouse obligated either himself or herself on that particular debt. If both spouses obligated themselves on a particular debt, then they can both be sued on that debt. This is why we advise our married clients to keep their assets titled together and their debts separate.
- HOW MUCH DEBT CAN I HAVE WHEN I FILE? IS THERE A SPECIFIC AMOUNT OF DEBT THAT I NEED TO HAVE TO FILE FOR BANKRUPTCY?
This is another one of those bankruptcy old wives tales. You know the one where my friend’s cousins mother filed for bankruptcy protection and this is what happened? We all have heard the horror stories. There is no threshold amount in the bankruptcy code that a person needs to file for bankruptcy protection. Some consumers have $20,000 in debt and some may have $200,000 in debt. The amount of debt a person or couple can tolerate varies with their individual circumstances. The real issue is that person‘s comfort level with their debt. If a person making $40,000 a year is uncomfortable carrying $20,000 worth of debt, they should explore their options. If a person making $400,000 a year is uncomfortable with $200,000 in debt, they should explore their options. The exact amount of debt doesn’t normally matter. What really matters is the individual’s other circumstances, like the household income, household expenses, and their assets. So, when we meet with individuals in a complimentary strategy session, we talk about much more than the amount of debt they have. The amount of debt is relevant sometimes, but more importantly, we look at how to protect the assets that our clients have acquired, like their home and their vehicles.
- WHAT CAN HAPPEN IF I DON’T FILE FOR BANKRUPTCY PROTECTION?
The answer to this question depends upon the situation that a person is filing when they come to our complementary strategy session. If a person is proactive, and they see a problem on the horizon, they will come to us with scenarios about lawsuits, repossessions and garnishments. We can talk about all of their options and what steps they can take next to prevent or get out in front of their problem. But, we are quick to reassure them that none of those things can happen until a lawsuit is actually filed against them, the lawsuit is served upon them, they lose the lawsuit, a money judgment is rendered, and then, and only then, can a creditor start proceedings to attempt to seize property, garnish wages, garnish bank accounts, etc. If a person procrastinates And waits until a lawsuit is actually filed, there are options become more limited because we have an immediate threat. Yes, I consider a lawsuit an immediate threat because the individual is obligated to take some action to defend themselves. If you are sued and process is properly served upon you, you are under an obligation to respond to the lawsuit in some manner. The failure to respond in an appropriate manner will allow a default judgment to be filed against you. The filing of a default judgment is not good.
- HOW DOES A COURT LOOK AT MY INCOME WHEN I FILE FOR BANKRUPTCY PROTECTION?
This question comes up often at our complementary strategy sessions. The reason is because many people have heard of the means test. The means test is a statutory test created to see whether individuals qualify for chapter 7. Believe it or not, since the means test was instituted in 2005, bankruptcy courts across the nation are still wrestling with issues created by the legislation. You would think after all this time that all of those issues would have been flushed out, but that would be wrong. So, you need to consult with an attorney who has mastered the means test. Those attorneys are few and far between. Many mediocre bankruptcy attorneys have their clients file Chapter 13 where the clients are required to make payments for five years because they do not know how to properly apply the means test. This lack of knowledge can cause their clients to spend thousands or tens of thousands of dollars that they may not have had to spend solely because the attorney they chose was not proficient in his or her application of the means test. This is unfortunate.
- WHAT WILL I LOSE IF I FILE FOR BANKRUPTCY PROTECTION?
Every person who considers filing for bankruptcy protection should know exactly how the bankruptcy trustee and the bankruptcy court will handle their personal property, their cars, and their homes. If a person filing for bankruptcy does not know beforehand how these issues will be dealt with by the bankruptcy court, they hired the wrong bankruptcy attorney. In our jurisdiction, clients get to decide if they want to keep their home or if they want to walk away from it. If they want to keep the home, then we have to figure out exactly how they are going to pay for it. In some cases it is easy, and the person can continue making direct payment to the mortgage holder. In other cases, we need to be creative, and that’s where your complementary strategy session will provide you with the options available to you. Likewise, with regard to your vehicles, a complementary strategy session will provide you with all the details that you need to know that your vehicles will be protected throughout the bankruptcy process. Lastly, when it comes to your personal property, like your household goods and furnishings, jewelry, cash on hand, money in the bank, musical instruments, family heirlooms, etc., you should know exactly how those items will be dealt with during the bankruptcy process. It is important to note that the bankruptcy court provides a level playing field for those who file bankruptcy and their creditors. While bankruptcy can be a game changer for an individual with substantial debt, creditors will also have the opportunity to be heard and have remedies available to them if the person filing for bankruptcy does not want to pay their creditors. The Bankruptcy Court is not a one way street, but, with the proper planning, a person filing for bankruptcy protection will come out of bankruptcy in a much better financial position.
- IF I FILE FOR BANKRUPTCY PROTECTION, WILL I HAVE TO GO TO COURT?
Prior to the pandemic, the answer would have been definitely yes. However, the pandemic was a game changer in the bankruptcy courts. Usually, after a person files bankruptcy they are required to attend a meeting of creditors. At the meeting of creditors, the bankruptcy trustee would normally question the person filing for bankruptcy protection about their income, expenses, assets and debts. The creditors, if they attended, would have an opportunity to question the debtor about their collateral and the debtors intentions with regard to the collateral. In reality, most creditors never attended the meeting. Usually, the meeting of creditors is attended by the bankruptcy trustee, the debtor, and the debtors attorney. Creditors are invited, but very rarely attend.
Now, the courts are closed and all creditor meetings in our jurisdiction are being done telephonically. This means that the debtor does not have to leave the comfort of their home to attend the meeting of creditors. Interestingly, the meeting of creditors was the only step in the process which gave clients anxiety. Most clients have never been to a court proceeding before or didn’t want to step a foot inside of a courthouse. Now, and for the foreseeable future, they don’t have to. This option may not last much longer, but for now it is still available.
Other than the meeting of creditors, people who file for bankruptcy protection are not required to attend a court hearing unless they choose to or the judge specifically requires their presence. But, even now, all court hearings are being done via zoom or telephonically. This may change in the foreseeable future.
- WILL ANY OF MY DEBTS SURVIVE THE BANKRUPTCY?
Unfortunately, not all debts are discharged in bankruptcy. Liens survive bankruptcy. This means that if you filed for bankruptcy and there was a lien on your home, in the form of a mortgage and promissory note, the mortgage will survive the bankruptcy and you will have to continue paying your mortgage if you want to keep your home. That same principle applies to your vehicle payments as well. Another consumer debt that survives bankruptcy is student loans, or the majority of loans that are considered student loans. There are exceptions to this general rule about student loans, and the courts are devising new and innovative ways to deal with student loans but, at this time Congress has not taken any action to make student loans dischargeable.
Alimony and child support are also nondischargeable. This means that if you go into bankruptcy owing alimony and child support, you will come out of bankruptcy owing the same alimony and child support and possibly more.
Another area of nondischargeable debt is taxes. Taxes can get complicated and will need to be discussed during the complementary strategy session. If you do owe a substantial amount of money in taxes, bankruptcy may be the best place for you. Believe it or not, one of the biggest collectors for the IRS is chapter 13 bankruptcy trustee s. Each month, Chapter 13 trustees collect delinquent taxes from debtors across the United States, and they, in turn, send very large checks to the IRS.
- WILL BANKRUPTCY KILL MY CREDIT SCORE?
The answer to this question is: it depends. Many people go into bankruptcy with a good credit score because they know that they are losing their jobs or that some other life altering event is about to happen. So, they take a proactive approach before their credit score hits rock-bottom.
Alternatively, some people fight with every ounce of their soul to avoid bankruptcy court. This may or may not be a good strategy. If your goal is to keep your credit score as high as possible or to rebound after bankruptcy as quickly as possible, you might want to take a proactive approach to dealing with your creditors. If you are older and not planning to buy a home or a car in the foreseeable future, you may not care about an aggressive credit rebuilding campaign.
A bankruptcy will stay on a credit report for a minimum of seven years and a maximum of 10 years. But, the impact of the bankruptcy filing on your credit report can be and should be minimized by each person unless there is no reason to worry about your credit score in the future.
Believe it or not, many people come out of bankruptcy with a higher score than when they went in. So, depending upon your circumstances and your future financial goals, it may be better to sit down with a qualified bankruptcy attorney before things get out of control. This way, you have a game plan and know what steps you should take to preserve your credit score and your credit future.
- HOW CAN I REBUILD MY CREDIT AFTER BANKRUPTCY?
People who are considering filing for bankruptcy protection are usually worried about how long it will take them to rebuild their credit after the bankruptcy. Their worries are valid and need to be addressed. If a person does nothing after filing for bankruptcy protection, it will take them much longer to rebuild their credit score. On the other hand, a person who actively works hard at rebuilding their credit score will see a dramatic rise in their credit report in the months following their bankruptcy discharge. It is really up to the individual how aggressive they want to be.
If a person’s goal is to buy a house or a car after bankruptcy, they will need to be very proactive during the rebuilding process. It is not uncommon for a person to be eligible for a home loan 24 months after their bankruptcy discharge is entered. Likewise, after the bankruptcy discharge, individuals are usually eligible for car loans and credit card offers. But, a consumer should be very concerned about these offers. Before stepping into any new credit situations, the consumer must do their homework to make sure that this is the best loan for them at that time. Sometimes waiting an extra six months could result in a substantial reduction in interest payments to be made over the life of that loan. So, the Dellutri Law Group advises their clients to proceed with caution and make great financial decisions for themselves and their family going forward.