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Bankruptcy and Credit Unions: Part 3 – Your Options in a Chapter 7

By Peter Orville, Attorney at Law on Oct 15, 2007 in Bankruptcy Practice and Procedure, Benefits of Bankruptcy, Chapter 7 Bankruptcy, General Bankruptcy Information

In a Chapter 7 bankruptcy, you have three options with regard to a secured debt. You can reaffirm the debts, redeem the property used as security on those debts, or surrender the secured property and discharge the remaining debt.

If you have a car loan with a credit union and you sign a reaffirmation agreement, you remain legally obligated on the debt. If you later stop paying, the credit union can repossess and sell the car AND hold you liable for any deficiency. If you owed the credit union for any additional unsecured debts, and want to reaffirm on the car, the credit union will usually require you to reaffirm ALL of the unsecured debts in addition to the car loan. (Refer to Part 2 – “cross-collateralization”).

If you choose to redeem the car, you must pay the credit union an amount equal to the value of the car at the time you filed the bankruptcy. If you redeem, you pay only the car’s value, not the additional amount you owe on the car loan and not any other cross collateralized unsecured debts you have with the credit union.

If you choose to surrender the car, the credit union gets the car back and sells it, usually at auction. Any deficiency left on the car loan and all additional cross-collateralized debts owed to the credit union are discharged in the Chapter 7.

See Bankruptcy and Credit Unions: Part 4 – Your Options in a Chapter 13

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Mortgage Fraud Scams.

If you suspect that you have been a victim of mortgage fraud or are aware of a possible scam, you can report it by calling the Mortgage Fraud Hotline 1-800-4FRAUD8 (1-800-437-2838). You can also contact your state's attorney general office. Locate your state's attorney general through the Consumer Fraud Reporting website.Check out this video on Mortgage Law Network.

All the pennies within the last six months.... what the heck does that mean?

What does "all the pennies in the last six months mean?" The means test looks at all the pennies in the last six months. You must take this test in order to qualify for bankruptcy. The means test counts every penny for the last six months starting the last month before filing bankruptcy. So if you file bankruptcy on November 10, 2007 you must count all your pennies within the months May 1 through October 31.It truly comes down to every penny that has been acquired by you in the last six months. So our calculation begins with every penny you have earned within the last six months. Then you add every penny earned by your spouse if you are married. Then you add every penny from the sale of property received with that six month period. Add every penny from a 401(k) or other pension cash out. They key term here is "cash out." If it is a loan don't add the pennies. Then you look at the pennies from your tax refund. Look at the tax refund pennies but you do not have to add them to your calculation. However, if your parents, roommate, significant other or other parties have given you money on a regular basis or one large lump sum you will need to add these pennies to your means test. Do you have income from social security? Then like tax refunds you do not need to count these pennies for your means test calculation.As you can see not only is a penny saved is a penny earned but pennies do add up and count towards your means test. So be sure to know how many pennies you have acquired during the last six months and tell your attorney about them. It could make the difference between filing a Chapter 7 or a Chapter 13 and if you live in the Kansas City Missouri District it could make the difference between qualifying for bankruptcy and not.

Insanity

It has been said that insanity is doing the same thing but expecting different results. You must change your spending habits when you file bankruptcy or if you attempting to change your overall financial habits. If you keep spending more than you make then your financial future will never change. Another saying is: Denial is not just a river in Egypt. You must face the reality that change must occur if you are on the verge of filing bankruptcy.It is true that some people are filing bankruptcy due to medical conditions, loss of job or some other circumstance that is truly out of their control. However the majority of people are in bankruptcy because they spent more money than they make. They are led into the false belief that if they get 60, 90 or 365 days of no interest that they can save up for that debt and pay it off before the end of the no interest period. Unfortunately, more often than not this does not happen. Another common circumstance is that people live on their overtime budget as opposed to a 40 hour work week. When the overtime stops then the snow ball of debt begins to grow. It continues to grow until the snow ball rolls right of the top of you and crushes you to death.We have become a society of instant gratification. This instant gratification pattern created by the media and credit industry has led us into the current state of poor economic outlook. Spending and saving are just like anything else in our lives. These are behaviors that become habitual. Since behavior is a human trait we have the free will to change or modify our behavior. This can be done but it is going to take hard work and perseverance. This first step is to take a harsh look at your current economic outlook. This is something you can do yourself. You take your monthly income and place it in one column and then list your expenses in the second column. However, break out the expenses into two groups. The first expenses are those for necessities and the second are for those expenses that are non-essential.Necessities are for rent/mortgage, electric, gas, water, trash, food, clothing, laundry outside the house, gasoline for auto, oil, tires, auto maintenance, charity, insurance (rent, house, auto, health direct pay, life), car payment, cellular, real property tax, personal property tax, work related expenses (not food unless you are a firefighter or other similar work schedules), children expenses related to school, daycare, cigarettes, and medical/dental. Total those expenses up and then work on the other expenses. These are the expenses that are optional things such as: drinks/food at the gas station, Starbucks coffee, dvd rentals/purchases, clothes you do not need, trips that are placed on credit, presents at Christmas or birthdays that you do not pay cash for, eating out instead of taking a meal with you to work, video games, drinking/partying spending, outrageous cable bill, etc...You take the necessity expenses and deduct this amount from your net (take home pay) monthly income. Then take the other expenses and total them. Take this total from the remaining amount left over from the net income - the necessity expenses. How much money do you have left over each month? If the amount is zero it is time for a reality check.If you have money left over then these funds should be placed into 401(k) or other savings plan. However, you should be placing the savings category into the necessity category. Savings are a necessity and must be a priority for you to change your behavior. This is the hardest habit of our spending pattern to change. However, if you can start and keep a savings fund then I feel confident that you can change your overall spending.A great place to start is to read this savings article/ Every journey begins with the first step. It is up to you whether or not you are going to takes this first step to change your spending behavior for the better.

What to bring to the appointment?

When you walk into a doctor's appointment you want to tell him/her everything that is wrong with you. You want to list each and every ailment so that the doc can tell you what is wrong or that everything is okay. However, when people go to an attorney for an appointment they are generally unprepared. I cannot tell you how many times my clients tell me in their interview that they have no idea how far in debt they are or even how many money they make a year.If you want us to make an accurate diagnosis and prognosis of your financial future you must give us input. Meaning you must provide us with details. In doing your homework you will also get a better picture for yourself of your financial situation. I would suggest at a minimum you have the following information and documents together before going to your first appointment:1. Tax Returns - 4 years worth - state and federal2. Pay statements for six months - from all jobs3. A list of money received from 401(k) cash outs, lottery winnings, signing bonus (received or not issued yet), funds from friends and relatives4. Monthly budget - with credit card debt and without5. Equity in vehicles - Equity= Amount owed - Worth of Vehicle6. Equity in house7. Value of household goods and jewelry8. List of all land and value - whether here or anywhere in world - other than your primary home9. Amount of back taxes10. Amount of back child support11. What you have transferred in the last ten years worth $4,000 or more - vehicle, house, boat, plane12. List of all assets (goods) worth $1,000 or more - television, home, car, season tickets, beanie baby collection, coke collection, timeshare, etc....13. List of debts - secured (house, boat, plane, car, etc...), personal loans (Beneficial signature loan), credit card debt, tax, child support, payday loans. etc...The more information that you can provide in a concise manner the better financial diagnosis you can receive. Remember to review your information before going to the appointment so that you can follow along with the analysis and you are not shell shocked to find out you are $60,00 in debt to the almighty credit card.

How do I track my case online?

Is there a way that I can track my bankruptcy case online? Yes, you can sign up for a PACER account which will allow you to electronically access your case as well as any other case that has been filed. The cost to you is $.08 per page. You can sign up at PACER and provide a debit account number so you can be billed. Anyone is eligible.PACER allows you to be actively involved in your case and your financial future. You can print and/or save the documents into a safe place on your computer. This is a nice backup if you lose any of the filed documents that will be issued throughout your case. In addition you can follow your case 24/7 without waiting.Technology is a wonderful tool to help you regain financial control and stay actively involved in your case!

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