How Bankruptcy Can Save Your Marriage

The Angry Spouse 

Maryland bankruptcy attorney who has been practicing for over 30 years we run across many situations that seem to repeat themselves on a regular basis. 

• The angry spouse who cannot understand why the mortgage, credit cards, car loans were not paid on time.
• The angry spouse who cannot understand why their partner has incredibly high credit card bills.
• The angry spouse who is shocked that they were not informed over the course of several months that the bills were becoming unmanageable.

A Story about My Fireman Friend

My favorite story is my friend the fireman. He lived in a nice home in a good neighborhood. If you look out front he had a camper, a Harley, and a four wheeler.  He prided himself on paying his bills on time, and on having excellent credit.

The farthest thing from his mind was the possibility that he might have to get help from a bankruptcy lawyer. As is often the case he felt filing bankruptcy is wrong.

My fireman friend was a hard worker, put in overtime and made great money. His spouse also worked and was responsible for the household expenses, kids’ activities and paying the bills.

When they came to see me they were several months behind on the mortgage, the credit cards were “maxed out” and husband was furious, making a scene about the state of the bills and the importance in his family of paying them on time. Filing bankruptcy resolved their financial difficulties and their conflicts.  

Bankruptcy as a Solution for Financial Problems and Personal Relationship Issues

This scene repeats itself almost on a weekly basis in our office. The meeting is often more of a marital counseling session to help people who are terribly overloaded with debt to realize that the solution of filing bankruptcy makes sense and will help rebuild the credit  as well as make the family better able to communicate about the  bills and finances.

The angry spouse in most on these cases is either involved with the household expenses and does not attend to all the things that need to be paid of the household. Or in some cases the household is managed with a relatively “separate” budget system when the spouse doing mostly the household chores and duties does not have enough funds to pay for all the things that need to be provided. 

Bring Your Angry Spouse to a Bankruptcy Lawyer

In many cases an experienced bankruptcy lawyer can help deal with the angry spouse by helping the parties communicate better, helping the spouse who gets blamed deal with their very upset partner. A quick glance at the statements will show the cards have been used to pay normal household expenses not things the family does not need. It is usually process of educating the angry spouse so they can accept some responsibility for the problem.

Discrimination by Public and Private Employers Based on Credit Reports and Bankruptcy

AMERICAN DREAM AND BANKRUPTCY

As a Maryland Bankruptcy lawyer I feel we are blessed to live in a country founded on principles that promote the rights of the individual, personal freedom and the right to privacy in our homes and personal lives. This country has nurtured many great political leaders, great entrepreneurs and creative geniuses. Among them one of our founding fathers and drafter of the United States Constitution, Thomas Jefferson, our countries 16^th and possibly greatest president, Abraham Lincoln, who helped preserve this great country.
Our 18^th President Ulysses Grant, Great entrepreneurs and businessmen like Henry Ford, who invented the automobile and revolutionized the modern factory to mass produce those cars. Walt Disney, a brilliant creative businessman who changed the world of entertainment. Great writers such as Samuel Clemens (Mark Twain). All these great people share at least one thing in common: they all had to file bankruptcy. All of these people would be unemployed and unable to make a living in this great country if we decided whether to hire them based on a modern credit report.

NEW SOCIAL CANCER

One of our current presidential candidates, billionaire, Donald Trump filed bankruptcy for his casino business (Mr. Trump did not file personal bankruptcy however). It is against this backdrop that we start a discussion of a new social cancer: The misuse of people’s private credit information to keep them from working and achieving the American dream. Private employers will often request a credit report as part of their pre-employment process. Most people who are in financial trouble are in that situation because of things that are beyond their control, loss of a job, illness, divorce. Why is it reasonable or fair to deny these people a chance to have a normal life?

ACCESS TO YOUR PRIVATE INFORMATION

Leaving aside the unfairness, we have all seen people in the workplace share confidential information about co-workers with their friends. Is it right to give the clerical staff in H.R. access to information about how much you pay your mortgage company, what cars you drive, where you shop. Who wants to give these minions sitting in cubicles in the back office access to our private information? They are not lawyers, CPA’s or for that matter regulated by anyone. They don’t lose a license if they violate ethical standards. In fact the people handling these private records are not regulated at all.

MARYLAND JOB APPLICANT FAIRNESS ACT

This Orwellian practice puts many people in a terrible situation especially when their financial troubles are caused by situations that are beyond their control. Many states are enacting laws to counter this unfair practice. Maryland recently enacted the Job Applicant Fairness Act which limits access to credit reports in the context of employment to employers who are:

Required by state of Federal law to check credit of prospective employees;

• Federally insured banks;
• Certain credit unions;
• Employers who are registered as investment advisors with the SEC;
• An employer with a bona fide reason for requesting or using the information that is substantially job-related and disclosed in writing to the employee or applicant.

The last category will allow employers to obtain credit reports on employees who are “managerial” setting direction and control of a business, department, division etc.; persons who are fiduciaries; persons with access to expense accounts or company credit cards and persons with access to sensitive personal information.

BANKRUPTCY PROTECTION AGAINST EMPLOYER ABUSE

PUBLIC SECTOR – GOVERNMENT

Bankruptcy law has similar and seemingly broader protections from employer abuse. All Federal, State and local governments are prohibited from discriminating against an individual for filing bankruptcy or because that individual was insolvent before filing the bankruptcy:
a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.

With respect to any government job it seems pretty clear that the employer cannot in any way discriminate against an employee or a prospective employee.

PRIVATE SECTOR EMPLOYERS

In 1984 Congress added a new anti-discrimination section targeting private employers. This section of the Bankruptcy code pretty clearly prohibits discrimination by private employers when dealing with employment solely because the person filed bankruptcy or was insolvent before the bankruptcy was filed:
No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—
(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;

(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; 

(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

INTERPRETATION OF THE LAW

If you walk down the street and ask passersby what the text of this section means they would tell you its obvious. The person on the street would tell you confidently the employer cannot refuse you employment for filing bankruptcy, because they would be discriminating with respect to employment.At least one Court agreed with this common sense approach. In Leary v. Warnaco, Inc., 251 B.R. 656 (S.D.N.Y. 2000) the plaintiff, Ms. Leary was denied employment based on a credit report that showed she had filed bankruptcy. Deciding in favor of Ms. Leary the court stated:

The plain meaning of the statute does not support such a gloss. Section 525(b) prohibits an employer from discriminating “with respect to employment.” Such language is clearly broad enough to extend to discriminating with respect to extending an offer of employment. Such an application of the plain meaning of the statute makes sense. The evil being legislated against is no different when an employer fires a debtor simply for seeking refuge in bankruptcy, as contrasted with refusing to hire a person who does so. The “fresh start” policy is impaired in either case. A Court should not go out of its way to place such an absurd gloss on a remedial statute, simply because the scrivener was more verbose in writing § 525(a).

Unfortunately this court is in the minority. Lawyers do not always read plain English the way everyone else does. Most courts deciding the issue have gone the other way to say that the language is only clear with regard to existing employees, not prospective employees. They reach this result because the statute that deals with governmental discrimination is very specific when it says the government shall not “deny employment” and the one dealing with private employment discrimination does not.

NON-BANKRUPTCY ALTERNATIVE

Despite the controversy the alternative to filing bankruptcy is in most cases much worse. At least when you file bankruptcy your credit starts to improve. The employers using credit reports will now, more than ever be sensitive to the restrictions on the use of credit reports as States such a Maryland restrict the practice.
In most cases there are no viable non-bankruptcy alternatives. If the employer is uses a credit report to make decisions about hiring the bad credit will be there forever unless the client files bankruptcy and wipes it away. Credit counseling does little to fix the problem in 99% of cases. The clients do not have money left over to pay a costly payment plan. Moreover, the plans are not only not affordable, they only deal with a small number of consumer debts, and the program is voluntary for the lenders. Because interest is often still charged by the lenders that do participate it often takes years before any noticeable balance reduction happens. At least if you file bankruptcy and are discriminated against there is a potential for liability based at least on one courts interpretation of the law.

FAMOUS BANKRUPTCY FILERS

Below is a list of other famous, successful Americans who filed bankruptcy:

• John Connally – Former US Secretary of the Treasury and Former Governor of Texas.
• Daniel Webster – Former Secretary of State
• William McKinley – 25^th United States President
• P.T. Barnum – Founder of Barnum and Bailey Circus
• H.J Heinz – Founder of the H.J Heinz Ketchup Company
• William Durant – Founder of General Motors
• William Fox – Founder of 20^th Century Fox Film Corporation

EXPERIENCED MARYLAND BANKRUPTCY LAWYER

A lot of people who come to our office for bankruptcy help feel very guilty about the fact that they need to go through the bankruptcy process. It is understandable and our experienced Maryland Bankruptcy attorney is here to provide our clients with different bankruptcy and non-bankruptcy options to help our clients resolve their financial mess. Allowing people to get rid of debt and have a fresh start is a great option that many other countries do not offer. You deserve a chance to fulfill your American dream and be successful. Take your first step.

Can Gambling Debts be Discharged in Bankruptcy.

GAMBLING DEBTS

Three bankruptcy Code sections are of concern if the client has incurred substantial gambling debts. The section which excepts from a discharge debts incurred fraudulently, the section barring discharge of debts for willful malicious injury and the general objection to discharge provision regarding transfers of assets with actual intent to hinder delay or defraud creditors or failure to explain loss of assets. The last, Section 727 (a) (2), (3) or (6) of the Bankruptcy Code would be a possible issue if there is a substantial depletion of the clients assets within a year before the bankruptcy filing, either as a failure to explain the disappearance of assets or just as a deliberate attempt to divest himself from the assets in contemplation of filing bankruptcy by gambling them away.

Most casinos will have records of the winnings and losses that were incurred by the client and it is unlikely anyone would deliberately lose substantial assets by gambling them away for the sake of harming their creditors. The Objections to discharge under Section 727 of the Bankruptcy Code are of concern but the client may weather this challenge more easily than the ones addressed below. The client should expect to provide documentation that the funds were actually used and lost. The client should also realize the Chapter 7 trustee might give them a difficult time.

GAMBLING MARKERS

The Casinos who have gambling markers will pose a greater challenge as they often have the gambler sign markers that are much like a check and often have representations by the client that funds are available to pay the marker. These false representations unfortunately might be sufficient to put the client in a bad situation. Often these markers are signed with full knowledge by the casino that the gambler in fact has no funds to cover them. This becomes a matter of proof – Showing the casino did not rely on the representations on the markers and has the gambler sign them deliberately so the casino can later bring a fraud action.

FRAUD ACTIONS

The fraud action is made worse when the gambler incurs a mountain of debt far in excess of what he could possibly pay back. A person on a teacher’s salary would have little hope of ever paying back $200,000 in gambling debts. The magnitude of the debt would provide some proof that the client never intended to pay the debt back. This however has not been an insurmountable problem. There are cases where the Court has found that the gambler had an unrealistic but honest expectation that he would win and pay the money back.

The final area of concern is the willful malicious injury section in Section 523 (a)(6) of the Bankruptcy Code. This section requires that the client have actual intent to harm the casino. The late Honorable Judge Mannes in out district wrote a helpful opinion in Desert Palace, Inc. v. Rich (In re Rich) (Bankr.Md., 2014) where the court determined that there was no subjective intent by the client to harm the casino. He just had unreal expectations that he would win.

If you have substantial gambling debts you have a serious problem. Those debts may or may not be discharged. To handle the complicated process and litigation that will likely have to be done as part of the bankruptcy you will need to consult an experienced Maryland bankruptcy attorney.

Dealing with Fines in Bankruptcy

HOW BANKRUPTCY COULD HELP WITH PROBLEM RENEWING DRIVER LICENSE 

One of the worst situations faced by clients is when their driving privileges or tags are flagged as a result of fines or other obligations due to the State of Maryland. Clients at times come to our Maryland bankruptcy attorney complaining that they cannot drive because they are unable to renew their license. This is unfortunate and in some cases may not be something that can be fixed by filing a bankruptcy. The clearest example of what can be remedied if the situation where the license is either revoked or cannot be renewed because the client was in an accident without insurance and there was damage that had to be paid by either the state of Maryland or another insurer. These uninsured motorist cases will easily be resolved by the State once either a Chapter 7 or Chapter 13 is filed.

TICKETS, PENALTIES – DIFFERENT TREATMENT IN CHAPTER 7 AND CHAPTER 13

More difficult are cases where the suspension or flag is due to a fine for having an insurance lapse, parking tickets, camera tickets or toll penalties. The problem discharging these obligations is that the fines are specifically excluded from being discharged in Chapter 7 cases by Section 523(a) (7) of the bankruptcy code.  This section prevents a discharge of civil fines unless those fines are designed to compensate the government entity for the damage caused by the violation. Thus parking fines, insurance lapse penalties and the like are most likely not going to go away with a Chapter 7 case.

In a Chapter 13 case the result for clients may be different depending on the nature of the fines or penalties. The discharge provisions of Chapter 13 are slightly broader than in Chapter 7. In Chapter 13 civil fines and penalties can be discharged based on Section 1328 (a) (2) of the bankruptcy Code. Interpretation of this section is not as simple as it might seem however since one still needs to determine if the fines or penalties are civil or criminal in nature or will not go away for other reasons. Criminal fines, criminal restitution awards will not be discharged under Section 1328 (a) (3) of the Bankruptcy Code.

FRAUD PROVISION IN BANKRUPTCY

The fraud provisions and the exclusion from discharge for “willful, malicious injury” still might apply depending on the circumstances. For example if the client is a scofflaw and has so many fines that it shocks the conscience the Bankruptcy court might have a harder time letting these debts get discharged even in a chapter 13 case.

EXPERIENCED MARYLAND BANKRUPTCY ATTORNEY

This is a complicated area requiring careful analyses of the particular situation by an experienced Maryland Bankruptcy lawyer before any determination can be made whether the fines or penalties will be dealt with in the bankruptcy and discharged. The other consideration is can whether the State will be required to issue a drivers license or to remove flags. This again will require assistance by an experienced bankruptcy lawyer.

WHAT TO DO IF YOU FORGOT TO INCLUDE SOME CREDITORS IN BANKRUPTCY BY MISTAKE.

ALL CREDITORS ARE REQUIRED TO BE LISTED IN BANKRUPTCY

When we file a bankruptcy the client has an obligation to list everyone that they owe in the bankruptcy schedules. This document is filed under oath and when you sign it you certify under penalty of perjury that it includes all your creditors. Clients often ask if they can just file some of the credit cards and not others. It just does not work this way. It’s not the debts that are being filed but the person. When a person files a Chapter 7 case or any other bankruptcy case all the debts are required to be listed and are dealt with in some way.

WHAT CREDITORS COULD BE OVERLOOKED

It is unavoidable that on occasion a debt will not be listed. Most experienced Maryland bankruptcy lawyers will either have the ability to get a credit report from all three credit bureaus or at least will require the client provide one. This tends to insure that most of the debts that are still valid will be included in the schedules. Credit reports however are not 100% accurate and certain creditors do not report to the bureaus. Individuals who have loaned money to the client, some doctors; small service providers are typically not going to be there. Ex-spouses or former partners may also be part of that often overlooked list.

AFTER BANKRUPTCY CASE IS CLOSED

Once the case is fully administered and closed there is really not much that can be done. Maryland bankruptcy courts have been pretty clear that a case will not be reopened just to add a creditor who did not make it onto the bankruptcy schedules. This does not mean that all is lost in a Chapter 7 case. The normal creditors will still be discharged in almost all cases. Most Chapter 7 cases are “no asset” cases. This means that there are no non-exempt assets for the Chapter 7 trustee to administer and distribute to creditors. In those cases the normal debts that would have been discharged in the Chapter 7 case will still be discharged. This however assumes that the omission is not deliberate.

IMPORTANCE OF DEADLINES FOR ASSET CASE IN BANKRUPTCY

In “asset” cases there is a deadline that is very important for creditors. It is the deadline for them to file a proof of claim. If the creditor does not get notice of the bankruptcy and therefore misses the deadline to file claims then this debt will not be discharged. Similarly if a creditor has potential fraud or other claims involving wrongdoing by the debtor then there is a deadline to file a lawsuit to determine if the debt will not be discharged. As in the case with the proof of claim deadline if the lack of notice causes the creditor to miss the deadline then they can still file a fraud, conversion, assault etc. type of claim in State Court and those debts will not be discharged.

Paying Back Family Members Just Before Filing Chapter 7 Bankruptcy.

PREFERENTIAL TRANSFERS

What happens when we repay legitimate loans from family members shortly before filing a bankruptcy case? It is not unusual for a client to have repaid money to a family member, a friend or even a regular creditor within a few months of before meeting with counsel to file a bankruptcy case. The scenario is like this: Mom loaned me $4000.00 to get an apartment a couple of years ago and I have been paying her back $200.00 a month for the last year to repay the loan. Or, I just got my tax refund and repaid my brother the $2,000.00 loan he gave me as a down payment on my car”

TREATING CREDITORS FAIRLY IN BANKRUPTCY

Normally there will be no documentation of this as a loan and in often if you would call Mom or Brother they might say her daughter can pay back the money if they can or even that there is little expectation of repayment at all. Assuming the client really did borrow the funds. There nothing wrong with paying back a real loan to family members or others. Once you file bankruptcy the process has as one of its functions a mechanism to make sure all creditors are treated fairly. For regular creditors like a Visa card if you pay back more than $600.00 within 90 days before a bankruptcy is filed those funds can be recovered for the benefit of creditors. With relatives this time period is expanded to 1 year from the date the bankruptcy is filed.

The client is often surprised: “Mom really did loan me the money”. The purpose is not to punish you or the family member. The purpose of this feature is to make sure creditors we like don’t get a better deal than the ones we don’t care about. There are defenses to preferences as these recoveries are called. The ordinary curse of business defense in the case of family members will not be of much help since loans between family members are probably not “in the ordinary course of business”.

GET HELP FROM A BANKRUPTCY LAWYER IF YOU HAVE ISSUES WITH PREFERENTIAL TRANSFERS

In most cases a relatively small preferential transfer to a family member may be so small that it is not worth it for the Chapter 7 trustee to go after. An experienced Maryland Bankruptcy lawyer can help you evaluate the risk associated with these repayments. An experienced Maryland Bankruptcy attorney can also help you figure out other options to deal with the transfers such as determining whether it would pay for the chapter 7 trustee to go after the relative. There are other options including a negotiated repayment plan by the relative or by the debtor and the possibility of a reduction of the total that needs to be repaid. An experienced Maryland bankruptcy attorney might even be able to help you insulate the transaction legitimately from being recovered, with proper planning.

Chapter 7 Bankruptcy for Persons with Above Average Income

ABOVE AVERAGE INCOME BANKRUPTCY REQUIREMENTS

In October of 2005, Bankruptcy laws were changed with a view towards making it harder for people with above median income to file a Chapter 7 case. The law before 2005 did not set any specific income guidelines but it in many ways still restricted people with substantial incomes from discharging their debts in Chapter 7 if after deducting reasonable expenses there were funds left over in the budget. If a client does not fit the income and expense requirements they are not allowed to get a Chapter 7 discharge and if they want relief need to file a Chapter 13 bankruptcy.

CHAPTER 13 BANKRUPTCY WITH HIGH INCOME

To understand the difference between the two most common bankruptcy chapters, a Chapter 7 bankruptcy does not have a payment component. You file the case and if everything is in order you ordinarily will finish the process in three and a half to four months and at the end discharge most debts. Chapter 13 is not a bad alternative; it’s a restructuring with a discharge at the end of the process. Chapter 13 is an income based repayment plan. This means in its simplest form the first test for what must be paid in the Chapter 13 is 100% of all disposable income after normal expenses for the 36 to 60 month plan period. In many cases there is very little money left over in the budget and the client ends up using the Chapter 13 to catch up back mortgage and car payments and taxes. Because there are no additional funds left over in the budget the credit card, medical bills etc. get nothing and are discharged at the end of the plan.

CHAPTER 7 BANKRUPTCY WITH HIGH INCOME

A person with high income who wants a Chapter 7 discharge needs to show that:

1. His or her reasonable expenses do not leave enough money to fund a Chapter 13 plan.
2. The monthly average of all gross income earned in the six months preceding the filing of the bankruptcy is less than the median income for that State of residence.

Once the client goes over the median monthly gross income average the client is restricted to using the arbitrary monthly living expenses permitted in the statute to determine if there is money left to fund a plan.

IRS AND BANKRUPTCY GUIDANCE FOR REASONABLE EXPENSE TEST

Most of the arbitrary expenses that are used in the means test are the same ones the Internal Revenue Service uses to determine a person’s ability to pay. Other expenses are set by the bankruptcy statute. Both the arbitrary timing and arbitrary expenses lead to some absurd results in many cases. A well paid school teacher who does not receive pay in the summer might not pass the means test at the end of the school year but may pass in August when school resumes. A real estate agent who makes most of her commissions in the spring might pass in January. This area is complex and full of issues that require the knowledge of an experienced Maryland Bankruptcy lawyer. Just because the client passes on paper does not mean a high income person will be able to weather the scrutiny that will inevitably be given in a close case.

ATTRIBUTES OF MEANS TEST          

Not only is the timing of the calculation important and arbitrary. Some of the expenses that can help beat the means test are:

1. Very large alimony or child support
2. You owe an enormous tax liability that will not be discharged
3. You have a very high mortgage expense
4. Your children have learning disabilities and you have to pay for private school
5. You have very large car payments

These won’t guaranty that you will pass but they may help get the means test to work.

GET HELP FROM BANKRUPTCY LAWYER WITH MEANS TEST

The expense side also gives rise to some absurd results. The person, who is frugal, buys a small inexpensive car and does not have a loan on that car will get almost no means test deduction for owning that vehicle. The person who bought a $50,000.00 Lexus at 24% interest and still has 50, $850.00 per month payments gets to deduct the standard ownership allowance for the car plus the car payment. Similarly, someone with a $1,000,000.00 mortgage who pays a $4,500.00 a month payment gets to deduct that payment. The homeowner with a normal $250,000.00 house gets the IRS standard allowance. Despite passing on paper however this is an area where an experienced bankruptcy lawyer will make a difference. Even if you pass the requirements on paper there will be many questions that need to be addressed before you will make it through the process. These high income cases are not simple Chapter 7 cases. They require a great deal of experience and skill before and after they are filed.

HOW TO DEAL WITH CAR LENDERS WHO REFUSE TO PROVIDE STATEMENTS OR ELECTRONIC ACCESS IF YOU DO NOT REAFFIRM THE DEBTS

DEBT REAFFIRMATION

If you recently filed bankruptcy you may find that some lenders, notably many automobile finance companies will stop providing statements and electronic access to your account information. They don’t repossess a car or take action against you, they just make it just a little more complicated for you to make payments or get account information. They do this under the pretext that they would be violating the bankruptcy stay by giving this information to you or giving you access. This is absurd especially if you file bankruptcy in Maryland with a Maryland bankruptcy lawyer. The local Bankruptcy Rules in Maryland make it very clear that there is no legitimate reason for these lenders to discriminate against persons who filed a bankruptcy. Local Bankruptcy Rule 4001-5 States:

POST PETITION PAYMENT NOTICES AND ACCOUNT ACCESS

Creditors and lessors may continue to provide customary notices, including, but not limited to, monthly statements, payment coupons, and escrow adjustment analyses to debtors regarding post-petition account activity. Further, to the extent available, creditors and lessors may allow debtors to access, obtain information, and make post-petition payments through electronic, telephonic and/or on-line means.

Because the bankruptcy rules in Maryland are very clear one can only wonder what improper reason the lenders might have for telling their customers that the information is only available to customers who either did not file bankruptcy or who reaffirmed the debt. From the calls we get I can guess at a plausible reason. The scene painted by the client is one where the car lender, mortgage company or bank refused to let the client pay using the normal electronic system. After trying unsuccessfully customer service informed them that because they filed a bankruptcy and did not reaffirm the debt they are forbidden as a creditor from providing the access or information. That then is followed with a recommendation that they call their bankruptcy lawyer and have the debt reaffirmed or if its after the case is closed with a suggestion that it’s a shame the lawyer did not help them reaffirm the obligations.

WHAT IS REAFFIRMATION AGREEMENT?

It’s an agreement to make the debt pass through the bankruptcy unaffected. If you are current on your mortgage the mortgage company cannot foreclose. There is no possible reason to reaffirm the debt. If you don’t and you get sick and lose the house the mortgage company cannot come after you personally for a balance. If you reaffirm the debt you will be liable for the deficiency after foreclosure. Even if the reaffirmation agreement could be approved by the court it would be a very bad idea to reaffirm this debt just so you can avoid mailing the mortgage company a check and pay on the website.

With vehicles it is a little different. We almost never recommend that a client reaffirm vehicles. Only a handful of car companies will repossess a car if it is current. An experienced Maryland bankruptcy lawyer will be able to tell you from experience which ones is a potential problem. The benefit of not reaffirming the debt is that you can give the car back once your credit score improves and buy a better car that does not have negative equity. The Bankruptcy Court will not approve a reaffirmation agreement unless you have a positive budget (very few people have a budget showing they have funds left over in a Chapter 7 case). In some cases the Bankruptcy Court might approve the reaffirmation agreement if the car company reduces the balance or interest rate. The car companies very rarely will agree to this.

The way many car companies try to get around negative budget problem is to encourage the bankruptcy lawyers to “create” a new budget for the reaffirmation that does not show a negative number. This is disturbing since the original budget is done under oath. This would also avoid the need for a hearing so the lawyer can just sign it, avoid a hearing and you are stuck with something the Court should not approve. We get a very high callback from past clients on the few reaffirmation agreements that do get approved asking if they can put the car back in the bankruptcy because it is no longer running nor has problems.

GET HELP FROM BANKRUPTCY LAWYER WITH UNDERSTANDING REAFFIRMATIONS

The lenders’ policy of refusing to provide normal services to customers who filed bankruptcy often backfires. On the one hand telling my clients something is wrong with their case because we do not do the reaffirmation might generate a few concerned calls to the office. On the other hand they invite me to educate the client regarding their right to take advantage of their improved credit, give the car back and get a better one.

An experienced bankruptcy lawyer can always help to find the best solution to protect clients’ interests.

Dealing With Vehicles in Chapter 7

EFFECT BANKRUPTCY ON VEHICLES

When we file chapter 7 bankruptcy we always think how it effects our assets, like house or a car. Our vehicle is very important. It is needed to get to work, go to the grocery store and to do just about anything that we need to do. Sometimes when clients file bankruptcy the client just wants to be done with the vehicle; it is often in poor condition, with high mileage and subject to more debt that it is worth. Those cases are relatively simple. If you file a bankruptcy and don’t want your car you have the option to surrender it.

IS THERE A VALUE IN THE CAR?

In most cases in bankruptcy the client wants to keep the car and is willing to continue making the payments to the lender. The first thing to look at is the whether there is any value in the vehicle over and above the amount of the car loan. If there is no value or we can use the clients exemptions to protect that value the bankruptcy estate will have no interest in selling the car and the likely result as far as the bankruptcy trustee is concerned is that the car will pass through the bankruptcy. In that case the client will be probably able to keep it so long as he is current and maintains the payments on that vehicle.

3 WAYS TO DEAL WITH CARS IN BANKRUPTCY

When dealing with car lenders there are three official ways to deal with a vehicle in Chapter 7. First, you can surrender a vehicle that you do not want. Second you can enter into a reaffirmation agreement making yourself completely responsible for that debt after the bankruptcy, meaning if you miss a payment and they repossess the car they will come after you for a balance. Third you can redeem the car with a court order lowering what you have to pay for the car to its actual value.  The problem with this option is that you have to pay the value in a lump sum and who has several thousand dollars available to do this.

Each of these options has problems. With a reaffirmation you don’t get rid of the debt. With a reaffirmation you also often end up owing more on the car than it is worth. The court will sometimes enter an order disapproving the reaffirmation but directing the lender not to repossess the car so long as it remains current. There is no guaranty the court will enter this order however and you will have to attend an additional hearing to get it. With redemption you have to be able to pay the full retail value of the vehicle when the redemption order is entered. Most clients cannot afford to do this.  While there are a few lenders who will help you redeem a vehicle the interest rate is often high enough to make the effort questionable.

UNOFFICIAL ALTERNATIVE

There is an unofficial alternative. So long as the client is current and continues to make her payments on time, very few car lenders will repossess a vehicle. The benefit of this approach is that one can keep the car and later should it break or become a liability the client can simply voluntarily return the vehicle and in the absence of a reaffirmation have no liability for a balance. The number of car companies allowing this treatment changes and it is important to get good advice from a Maryland Bankruptcy Attorney before making any of these decisions.

Protect Your Assets with Bankruptcy Exemptions

DISCHARGE DEBTS WITHOUT LOOSING ASSETS

A Chapter 7 bankruptcy, if done properly will allow you to discharge all your debts and retain the all the things that you own. Although Chapter 7 bankruptcy is also known as liquidation bankruptcy, bankruptcy law allows us to exempt or protect certain assets. Since all non-exempt assets are to be liquidated in a Chapter 7 it is critical to have proper legal advice to using Maryland exemptions so that you will not lose any property.

MARYLAND EXEMPTIONS

In the State of Maryland, a debtor has up to $12,000 in total personal property exemptions. There are several categories of property that are included within the $12,000 of property that we can exempt:
First, you have $5,000 in personal property exemptions that you can use to protect any personal property or effects.
Second, $1000 is allocated to household goods and furnishings. This means you can use this $1000 to protect furniture and other items in your home.
Third you have a $6,000 wild card exemption that allows you to protect either real or personal property.

The result is that if you are filing without your spouse you can protect any personal property as long as the value of that property is not more than $11,000. If a married couple is filing together in Maryland for Chapter 7 bankruptcy, they can protect up to $2,000 in household goods and $22,000 in any personal property.

If you do not have equity in your home, car or other financed asset, there is normally little if any risk that it will be liquidated or sold as part of a Chapter 7 bankruptcy. If you do have equity or value over the mortgages or secured loans, we use exemptions to protect the property.

SPECIAL PROTECTIONS FOR MARRIED COUPLE IN BANKRUPTCY

In the State of Maryland married couples are given special protection for assets that were acquired during the marriage. Real estate and personal property that is owned “by the entireties” as a married couple can under proper circumstances be fully protected. So if the proper analysis is done a home with very substantial equity can pass through bankruptcy without being liquidated if it is properly titled and other very important requirements are met. The exceptions to this type of protection are complicated and require proper analyses. At Broumas Law Group our Maryland bankruptcy lawyer can help you determine if your home will be safe when it has substantial equity.

BANKRUPTCY EXEMPTION FOR REAL ESTATE

There is also an exemption for owner occupied real estate in Maryland. Under this exemption you can protect $22,975 of equity in your homestead. Married couples cannot double the homestead exemption which protects equity in their home. Debtors can protect up to $22,975 of equity as per the homestead exemption, which was passed in 2010.

MARYLAND BANKRUPTCY ATTORNEY CAN HELP TO KEEP YOUR ASSETS

There are other property specific exemptions in Maryland that may be available including some life insurance policies, pension plans, tools of the trade and various other less commonly used exemptions. Our Maryland bankruptcy attorney at Broumas Law Group can make sure you get every single exemption you are allowed when filing for any kind of bankruptcy.