Dear Leon:
My sister lives in
Chicago and was recently laid off of work and has finally found
a new job in the Chicago area. She has many medical bills in
California that total about $50,000...plus others. She has had
some medical problems that have really drained her mentally and
financially. She already filed bankruptcy in California 5 years
ago. Is she eligible to file Chapter 13 in another state?
-- Marisa, via
e-mail
Dear Marisa: A
person's entitled to discharge most kinds of debt every 6 years
under Chapter 7 Bankruptcy. It sounds like this is what your
sister did 5 years ago. I'm assuming she has no valuable assets.
If so, she can probably file Chapter 13 now, with a bankruptcy
payment plan based on what she can afford to pay towards her
debts over the next 3 years; whatever she can't afford to repay
gets discharged by the Chapter 13 at the end of her 3 year
payment plan. Sometimes the court will allow a plan to extend as
long as 5 years if there is a good reason.
For persons
with valuable assets, the Chapter 13 rules are much more
complicated, and the repayment plan must take into account the
value of property that creditors would have received if she was
again under a Chapter 7 case. Bankruptcy is "Federal" law, so
she can file it in the state where she now lives, even though
her debts were made elsewhere. However, she needs advice from a
qualified attorney in her state. Her lawyer might recommend that
she just wait until the 6 years is up, and then file another 7.
If she is being overwhelmed by debt collection, she can file the
Chapter 13 now to have relief.
Dear Leon:
My wife and I are in financial trouble. We have a yearly income
of $63,000, own a home, have some home equity, and a home equity
line of credit. We also have $45,000.00 in credit card debt. For
us, bankruptcy has always been the absolute unthinkable. We are
current on our bills, but it is getting harder by the month.
-- Sean in Van Nuys
(via e-mail)
Dear Sean:
Bankruptcy is an unthinkable word for most people, that is,
until they truly need it. Chances are that you have frequently
dipped into your home equity line just to meet the current
monthly credit card payments, (the old syndrome of "borrowing
from Peter to pay Paul"). If so, that is always a warning sign
of severe financial distress. Concerning your home if you file
bankruptcy, in California, most married people are entitled to
protect $75,000 of equity in their home if they file bankruptcy;
if they are elderly or disabled, that amount jumps up to
$125,000, (these amounts vary from state to state). Home equity
is the difference between what your home is currently worth, and
what you now owe on all of your mortgage loans, (including home
equity loans). As you can probably guess, home mortgage loans
don't disappear in a bankruptcy, but credit cards usually do.
Let's
assume the equity in your home doesn't exceed $75,000. If so,
then please don't even think of using what's left of your home
equity credit line to pay off credit cards, it could be a
30-year long payback mistake. If you do, all you would
accomplish is swapping your home equity (that you would keep in
a bankruptcy), in exchange for debts that you would probably
discharge in bankruptcy. If you do that, you could be paying on
that home equity loan every month for the next 15 to 30
years...why do that to yourself and to your family? In other
words, you will be giving up what you could have kept, in order
to keep what you could have gotten rid of; not a smart move.
Dear Leon:
What do I get to keep if I file bankruptcy?
-- Chris in Encino
Dear Chris:
Without realizing it, you have turned a very simple question
into something that is quite complicated. This question would be
very easy to answer if I knew what you owned, then I could tell
you if there is something you have that would not be protected.
But, to give you a very general idea, here goes: Assuming the
person lives in California, (Federal Bankruptcy law is uniform,
meaning it is the same in all states, except that the Federal
law yields to state law on the issue of what you get to keep),
it is very rare that a person would lose anything. This is
because the law is extremely generous about letting you keep
your property.
For
example, a single person can protect at least $50,000 of equity
in his or her home, a married person can protect $75,000 of home
equity, or if the person is elderly or disabled, as much as
$125,000 of equity; plus numerous other generous exemptions for
many different kinds of personal property, such as household
goods, money in certain retirement plans, automobiles, and if
you don't have home equity to exempt, there is a very generous
floating exemption that allows an additional $17,425 of
protection for anything else you may want to keep. Most people
won't ever lose anything to the court, but a few do. The best
way to know for sure is to consult with an experienced
bankruptcy attorney in your own state. Incidentally, this is
probably the most common problem that blows up on people who
file their own bankruptcy case without an attorney. I have even
seen people lose things to the court that could have been
protected, because their legal papers were not done correctly.
Dear Leon:
I have 12-year-old student loans, plus other debts from 7-12
years ago, plus a few medical bills and other small debts that
are more recent. I also believe that there are some judgments
against me from an eviction about 5 years ago. Should I file
bankruptcy or should I just go hide in the woods and assume a
new identity. Recently the student loan people have been
calling me at my work and getting me in trouble.
-- Leslie in Long
Beach
Dear Leslie:
Student loans that are made or guaranteed by governmental
agencies and non-profit institutions of higher learning are not
usually dischargeable in bankruptcy. Filing Chapter 7 won't make
sense unless you only want or need to get rid of the other small
stuff. Possibly a Chapter 13 is feasible to control the pesky
collection activity if you can afford to begin paying something
on your debts, enough so that they get paid off within 5 years.
A more serious problem for you is the eviction judgment, which
can stay on your record for 10 years or longer in California.
Most
landlords don't care whether or not a person has ever filed
bankruptcy, but they hate to rent to someone that has ever been
evicted. Other debts, such as the ones you describe as 7-12
years old, are probably now outside the statute of limitations,
(which is usually 4 years in California, meaning a creditor has
only 4 years from the date of your default to file a lawsuit
against you), so filing a Chapter 7 bankruptcy is not
necessarily worth your while. Go see an experienced attorney for
specific advice, and weigh all your options carefully before you
decide.
Dear Leon:
I'm considering bankruptcy. I have debts of about $8,000 in the
hands of collection agencies.
I also owe about $1,900 in taxes to the IRS. The taxes I owe
are about 2 years old and they are income taxes.
What are my options, how much does filing for bankruptcy cost
and how do I get started with this procedure?
-- Phil in Sherman
Oaks
Dear Phil:
The fact that your $8,000 of various debts are now in the hands
of
collection agencies suggests
that your credit's already so badly damaged that a bankruptcy
won't hurt it...and it also suggests that you simply can't
afford to pay back what you owe. A bankruptcy's something you
should seriously consider.
I assume
that you are an honest person, and would pay the debts if you
could afford to do so. That being said, if you can't afford to
pay the debts, then your options are to file bankruptcy and get
it over with, or go on living as you presently are.
An attorney
will probably charge you around $500 to handle your bankruptcy,
plus you have to pay a filing fee to the Federal Bankruptcy
Court of $200. If that sounds like too much money, just remember
that you can afford the bankruptcy case a whole lot easier than
you can afford to pay the debts. Your taxes will not be
dischargeable in bankruptcy at this time. If you do file
bankruptcy, I suggest that you contact the IRS after the
bankruptcy is discharged, and ask them to set you up with a
monthly installment payment agreement. The IRS should be willing
to do this with a monthly payment that you can afford. The
general rule is that bankruptcy will discharge an income tax if
you filed a timely and honest return for that was due at least 3
years before the filing of the bankruptcy.
Other very
complex rules will apply, for example if you filed a late
return, if there was a tax assessment, or if an offer in
compromise was ever pending.
Tax issues are
a trap for the unwary, so a person really needs to get expert
advice before seeking to discharge taxes.
Dear Leon:
My ex and I filed bankruptcy in 1998. The major reason was an
IRS debt that was unmanageable. For reasons that I won't discuss
here my debt was not discharged through bankruptcy. I eventually
paid the debt through an offer and compromise. My other debts
were small--between $3 to 5K.-- I have been told that I can
remove my bankruptcy from my credit record because my essential
reason for filing BK was not satisfied. Is this true? And do I
need a lawyer?
-- Tom M. in Denver
Dear Tom:
You probably can't remove the bankruptcy from your credit
record, because after all is said and done, you actually did
file it. Credit reports are just like a newspaper, they print
facts. The fact in your case is that you did file bankruptcy,
and it doesn't matter whether or not the bankruptcy was granted.
The readers of a newspaper want to rely on the accuracy of what
is reported.
Of course,
it's understandable that you want to remove derogatory
information from your credit report, but if a person was allowed
to remove such information when it was actually true, then the
reports become unreliable, and won't be of any use to the
lending industry. Those reports are not for your benefit, they
are for the benefit of the lending industry; lenders are willing
to pay the credit reporting service a fee for the information
because they want to know how you have handled your financial
responsibilities.
Dear Leon:
We're thinking filing Chapter 7 bankruptcy and have a few
questions. How long does it usually take to get discharged,
after you have signed your formal petition? How long after you
sign (the petition) do you go to court? After you have fully
retained a attorney what rights do your creditors have? Can
they legally repossess vehicles before my court date? I was
just wondering how long the whole process usually takes.
-- Todd W. in Los
Angeles
Dear Todd:
Expect a Chapter 7 discharge
about three-and-a-half months the case is filed with the court.
Your "Meeting of Creditors" hearing is usually about one month
after you file. Before your case is actually filed, your
creditors still have all the same legal rights that they always
had, such as to file a lawsuit, send you bills, and repossess
the collateral on a delinquent loan.
However, a
third-party debt collector, (such as a collection agency)
may not (legally) contact you once they are informed that
you are represented by an attorney; instead they must direct
their letters and phone calls to your lawyer instead of to you.
The whole Chapter 7 bankruptcy process is usually about four
months from start to finish.
Related
Articles:
Bankruptcy Q&A
Bankruptcy Test
Bankruptcy Still Works
Readers with questions about debt problems and
bankruptcy issues are invited to
email your questions
directly
to Leon Bayer,
or check out his firm's web site: www.debt-relief-bankruptcy.com.
Mr. Bayer's a Los Angeles-based attorney and a Certified
Specialist in Personal and Small Business Bankruptcy Law by the
State Bar of
California.
