Category Archives: After Bankruptcy

Chapter 13 Does Not Require You to be Naked and Bored

boredom-154308-mBy Jeff Curl, San Mateo Bankruptcy Attorney

If you have been reading up on Chapter 13 bankruptcy, you know that you have to make a monthly payment for a period of time. Once you complete your plan payments, the remaining amount owed to your unsecured creditors is discharged. Sometimes you pay them 0%, 100% or usually something in between. This number varies by each case.

The number one question I am asked about filing for Chapter 13 is “How much will my monthly payment be?”

This depends on a lot of things, including your income, expenses and assets for starters. The most common way a Chapter 13 payment is calculated is by taking your income and subtracting your expenses, yielding a monthly payment. It’s actually much more complex than that, but that is the gist of it.

This leads to the implied question in Chapter 13 and your monthly payment, i.e., what expenses are allowed and appropriate. Most of my clients will understate expenses, often stating little to zero is spent on clothing and entertainment. While there is some sense of austerity that comes with filing Chapter 13, you are not expected to go without clothing and catching a movie or visiting a museum.

That’s right, Chapter 13 does not make nudity and boredom mandatory.

There is a concern by my clients that they will be placed on the stand in the courtroom and crucified for every dollar they spent. It just does not work that way. That said, your budget must be reasonable. $1,000 a month for entertainment is not going to fly. And there are conventional truisms such as never driving a car nicer than the judge. I don’t know which car most judges drive, so that’s difficult to measure. But you get the idea.

But if you have a housecleaner, a nanny, a finely manicured topiary, weekly haircuts, and you are not willing to sacrifice any of these costs, Chapter 13 may not be for you. While you are not required to eat rice and beans, eating at Michelin rated restaurants with regularity is probably not going to happen.

The sacrifice you have to make is actually pretty reasonable: live within your means. Chapter 13 is essentially a structured economic environment designed to keep your finances in order so that you succeed.

So while some reasonableness is required to file and succeed in Chapter 13, starvation and nudity is not.

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Should I Continue to Pay My Bills After Filing Bankruptcy?

By Jeff Curl

Clients ask me constantly whether they should continue to pay their bills. It’s a good question, but like many lawyers, my answer must be the predictable “it depends.” It depends in part on the type of bills, chapter of bankruptcy, and timing for filing bankruptcy. Let’s look at why each one matters.

What kind of bill are we talking about?

With a few exceptions, I always have clients continue to pay for things he will need after the bankruptcy, such as utility bills, the phone, insurance and rent. You need the lights on, your cell phone, your insurance and a place to live.

Subject to the discussion below about timing, most clients usually cease to pay unsecured debts such as credit cards, personal loans and medical bills. These are going to be discharged in a Chapter 7 and paid a certain percentage in Chapter 13, so there is often little point in paying down a debt you are going to discharge anyway. That said, sometimes there can be reasons for continuing to pay something like a credit card, including just a plain showing of good faith, i.e., think of your last three credit card statements showing several thousand dollars in purchases with no payments, versus some demonstrated attempt to repay your debts, even if below the monthly minimum.

The chapter of bankruptcy matters.

Chapter 7 versus Chapter 13 can dictate the ongoing payments to a creditor. Secured debts such as a mortgage payment or car payment matter. For example, if you want to keep your home, it is paramount that you are current on your mortgage and property taxes on the date of filing, and thereafter. In a Chapter 13, missed mortgage payments before filing can be cured and repaid over a period of years. Not that you would miss payment intentionally just because you can, but if you have limited resources and need to do this before you file, you can in a Chapter 13. The same analysis applies to your car payment.

The certainty and timing of bankruptcy.

While I generally prefer clients cease paying credit cards if they are filing bankruptcy, sometimes it is uncertain if someone will meet the eligibility requirements of bankruptcy or follow-through with filing. If this is the case, missing payments can set you up for harassing calls, lawsuits, wage garnishments and other unpleasant activities.

Things such as a client’s changing jobs, moving or other fluctuations in their lives can impact the decision to pay or not some bills before filing bankruptcy.

It would be nice if I could lay out a formula or scenario for every situation and simply answer the question as a yes or no. But really, “it depends” on taking a holistic approach toward your situation to determine which bills to pay or not pay before filing bankruptcy.

Image Credit: RYCF

Bankruptcy Alphabet – L is for Life

Life after bankruptcy - what does it look like?

Frequently, I’ll meet with clients who are (understandably) worried about life after bankruptcy. How bad is the worst case scenario? Will I have to live without credit for 10 years? Will I ever be able to rent again? Get a car loan? How about a mortgage?

Clients often associate bankruptcy with being thrown out on the street, all of his or her assets taken away, and picture printed on the front page of the newspaper announcing to the world that he or she filed for bankruptcy. It’s so easy to think that you’ll be branded and you’ll have to wear a scarlet letter around your neck announcing to the world that you’ve filed.

I have news for you. Bankruptcy is about preservation of assets and discharge (forgiveness) of debt. Even though there are a lot of stereotypes and stigmas tied to bankruptcy, it is a perfectly legal and legitimate way for people (and businesses) to get out of overwhelming debt.

Shame, guilt and other emotions about debt

Some of the most common things I hear from my clients are:

I feel so guilty. I feel ashamed.
I am a responsible person.
I never thought I’d end up in this situation.

Being under crushing debt is emotionally draining, puts a lot of pressure on you, your marriage, and your family. (Not to mention, your wallet.) Debt brings up a lot of emotions, and whatever you feel - it’s perfectly normal!

After discharge, you’ll be able to continue to live your life - debt free. All of your future earnings or assets are yours to keep, free from creditors’ claims.

The downside of bankruptcy?

The bankruptcy will be reported on your credit report for up to 10 years. Despite popular belief, this does not mean you cannot acquire new credit for 10 years. Some of the negative impacts of bankruptcy start to diminish as your debt-to-income ratio is improved and your credit score begins to recover.

Most of our clients report being able to get new credit cards shortly after discharge, and in general, you can qualify for FHA mortgage after 2 years.

You may also experience difficulty trying to rent a new apartment immediately after bankruptcy. You can avoid this problem by moving prior to filing. In addition, many landlords will consider overlooking the bankruptcy if you increase your deposit or offer to pay for several months of rent up front. (Read more about renting after bankruptcy here.)

There will be adjustments and challenges. But the point of the fresh start principle that underlies bankruptcy is that there is life after bankruptcy.

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What happens after I file for bankruptcy?

By: Jeena Cho

Exploring into the unknown world of bankruptcy can be a scary proposition. You might be wondering - Is there a trial? Do I have to take the stand? Will I be cross-examined? When will the judge approve my bankruptcy?

First, let’s talk about what happens (or doesn’t happen) in a normal or “typical” Chapter 7 bankruptcy case.

1. You won’t see the judge. That’s right. Bankruptcy is primarily an administrative process so a typical Chapter 7 goes like this:

Case filed -> 341 hearing -> wait 60 days -> discharge (forgiveness of debt)

There is no bankruptcy judge who reviews your case, looks at your credit card statements, asks you questions, etc. Assuming no one objects to your case, your discharge will be entered. Chances are, if you are standing in front of the judge in a Chapter 7 case, something has gone wrong.

2. Meeting of Creditors “341 Hearing”

After your case is filed, there is one meeting you must attend. It’s called the Meeting of Creditors (because creditors can attend) or “341 Hearing” (referring to the bankruptcy code section that requires the hearing). The most important thing to remember about the meeting is 1). show up, 2). bring your government issued photo ID and proof of social security card and 3). relax.

In general, the meeting lasts 3-5 minutes. That’s right. 3-5 minutes! It won’t be anything like what you see on TV (you know all that Law & Order stuff is just TV drama, right?). There’s no judge. The meeting is conducted by the Trustee who’s assigned to your case and despite the name of the meeting, creditors rarely show up. Just to give you an example, in the last 100 meetings I’ve attended, I only had 1 creditor show up and it was the ex-wife of my client. Angry friends, ex-spouses, and family members show up. Discover, Chase, and Bank of America don’t. Why? Because unless you’ve committed fraud, there’s nothing for them to ask you. There’s nothing to talk about.

3. No news is good news. After the 341 Hearing, there is a 60 day waiting period where creditors and the trustee can object to your case. Assuming no one objects, the judge will sign an order discharging your debt. From the day you file until discharge typically takes 3-4 months.

Disclaimer: Unfortunately, it is impossible to give legal information over the internet, no matter how well researched or written. Before relying on any information I give, contact a lawyer to discuss your particular situation. I am a San Francisco bankruptcy lawyer. The information given is based on California law.

Image credit: Roslan Tangah

Can I rent after bankruptcy?

Written by Jeena Cho, San Francisco bankruptcy attorney

If you are considering bankruptcy, it’s natural to wonder - “Where will I live” and “Who will rent to me after I file?” Oftentimes, this conversation will come up with clients who are facing foreclosure. It’s also a topic of conversation with clients who are currently renting, but are considering moving in the near future. Here are some suggestions.

  1. Consider renting now. Depending on your credit, it may be easier to find a place to rent before your bankruptcy. However, it can make more financial sense to live in your current home - mortgage free for as long as you can and sock away the savings. For many clients facing bankruptcy, the time you can get out of your home living mortgage free will be the only “gain” you’ll ever see from the home. Often times, it can take months (frequently 12+ months) before the foreclosure.

 

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