Utility bills in bankruptcy

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So you got behind on your utility bills and you are going to file for bankruptcy? The past-due debt to the utility company just gets discharged in your Chapter 7 and there’s nothing more to worry about, right?

Well…not necessarily. You might have to worry a bit more about your utilities, especially if you are still receiving service from the same company to whom you owe that past debt.

Utility service in bankruptcy is governed by section 366 of the Bankruptcy Code. Normally, efforts to collect a past-due debt after a bankruptcy filing are stalled by the automatic stay. But when that creditor is a utility, they have the right under section 366 to an adequate assurance of payment.

This assurance of payment generally takes the form of a deposit, usually two times the amount of an average monthly bill. The deposit would have to be paid within 20 days after the bankruptcy filing. If the deposit is not paid in time, the company may discontinue service to the debtor.

So the upshot is that if you owe a utility that you are currently using more than twice your average monthly bill, it might be worth discharging your past-due debt to that utility and paying the deposit. If you owe less than twice your average monthly bill, you are probably better off paying off the debt to the company before filing (less than $600 is best, due to preference payment issues) and keeping current on your utility bills at all times.

If you owe a lot of past-due debt to the utility and you cannot afford the deposit that they are demanding after your bankruptcy filing, you have the option of filing a motion with the bankruptcy court to ask for a lower deposit amount.

It’s best to discuss these issues with your bankruptcy attorney before filing. Ask your attorney to explain your options regarding all types of past-due debt and to recommend a good course of action based on your individual situation.

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Using credit reports in bankruptcy

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If you are considering a bankruptcy filing but you are concerned because you don’t remember which credit card companies you owe and/or exactly how much you owe them all, what do you do?

First, don’t worry. Remember – most, if not all, of your debts are on file somewhere – in your consumer credit reports. It is possible to pull your credit report from each of the three main consumer credit reporting agencies and find out what your creditors have reported with regard to what, and whom, you owe. These three agencies are Experian, Trans Union, and Equifax.

But what if you think you already know exactly who you owe and how much you owe them, prior to filing for bankruptcy? It is still a good practice to pull your credit reports before you file, anyway.

You should pull your credit reports because you may have forgotten a debt, a creditor may be reporting that you owe more than you think you do, and/or one or more of your debts may have been sold to a debt buyer without your knowledge. This is just a good due diligence practice.

The official site for free credit reports from all three credit reporting agencies is annualcreditreport.com. You don’t need to use the ones you see advertised on TV – they will cost you some money, possibly every month. So watch out what services you might be signing up for when you are surfing the net looking for credit report sources.

If you are going to hire an attorney to help with the bankruptcy, speak to that attorney first before you go to the trouble of pulling the reports, unless you just want to see them anyway. The attorney may already have a credit reporting service they want to use. Tell the attorney that you want a copy of the credit report they pull for you. Or, they may want you to pull your own reports first, before starting on your bankruptcy case. Different lawyers go about the preparation of a bankruptcy case in different ways.

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Variable income and the Chapter 7 means test

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In qualifying for a Chapter 7 bankruptcy, means testing is not an issue for people whose pay is below the median for their state and family size, but for those whose income is more, it can be a problem.

The means test is like a big IRS form with spaces for plugging in certain numbers and checking off boxes. If you’ve filed for bankruptcy in years past, you may not have seen it. The form was introduced as a result of the new bankruptcy legislation that Congress passed in 2005, which created more hoops for individual bankruptcy filers to jump through.

It has two main parts: The first determines whether your earnings are above or below median. The second is for those who are above median – it lets you take *certain* deductions from your income in an attempt to lower it to the point where you can qualify for a Chapter 7.

Obviously, it’s preferable not to have to fill out the second part of the Chapter 7 means test.

Those whose earnings vary during the year might be in a better position with regard to the means test than those with steady over-median earnings. Examples of people with variable pay over the course of a typical year include teachers, college professors, those who work solely or primarily on commission, and those who periodically claim unemployment insurance benefits because of temporary jobs or seasonal employment.

Many people credit their variable income for getting them into debt trouble to begin with, since they aren’t always able to afford their monthly payments steadily throughout the year.

How can earnings that vary over the year possibly be to your benefit? Because the means test only includes the earnings you received during the 6 months before your bankruptcy filing. If that prior 6 months encompasses a part of the year during which your income was lower, you have a better chance at your pay being below the median and qualifying for a Chapter 7.

So when considering the question of when you should file, think about filing soon after a period of lower income.

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Debt settlement isn’t usually the best option

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Looking at debt settlement to help rid yourself of credit card debt?

Credit cards are a huge problem in the U.S. A May 21st New York Times article reported that the Standard & Poor’s/Experian Consumer Credit Default Indices shows that the default rate on credit card loans recently climbed to its highest point, 9.14 percent, since the index first began in 2004.

So more people are no longer paying their credit card bills. What are those people who’ve stopped paying on their credit cards doing about their credit card debt?

Hopefully, they’re not paying a debt settlement company to try and “get out of debt.” There are a few cases where using a debt settlement company may be appropriate, but not many. Many debt settlement companies take large fees and tell you to stop paying on your credit card bills. They take monthly payments from you for a long time. Then they make offers to your credit card companies to settle your debts.

Sound like something you can do by yourself without paying the high fees? Yeah, there’s a reason for that – it is.

But many people who are taking the debt settlement route should consider bankruptcy instead. If you’re thinking about pursuing the debt settlement route, ask yourself, “why did I decide that bankruptcy wasn’t for me?” Was it fear? A belief that bankruptcy is too difficult?

You owe it to yourself – and your financial health – to first take the time to do some research. Look around online. The bankruptcy courts have their own websites with plenty of information for potential filers. It can’t hurt you to take the time to educate yourself. You need to know what the potential benefits of bankruptcy are before you commit to the high fees charged by a debt settlement company.

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Could you sue? List it in your bankruptcy papers.

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Yet another question that I always ask clients is whether they have any claims against anyone that they could file in court. In other words, I ask whether or not they have any potential lawsuits against anyone.

Of course, I do need to know about actual, ongoing lawsuits, but in this post I’m talking about claims the debtor might have against another individual or against a company.

Why would I want to know about possible lawsuits you might have against others that you never filed in court? Because they are assets. They are assets because, if filed, they might bring in some money to you.

Now, it’s true that court fees, attorney’s fees and expert witness fees might eat up a lot (or maybe even all) of a recovery you might get in a lawsuit, depending on how much in damages you stand to recover. But a danger of not telling the bankruptcy court about your potential lawsuits is that you might no longer have the right to sue after the bankruptcy is over.

This is because a person who is filing for bankruptcy has an obligation under the law to disclose all of his or her assets or potential assets to the bankruptcy court. When you fail to disclose a potential lawsuit to the bankruptcy court but then you later (after the bankruptcy discharge) file that lawsuit, you have taken an inconsistent position – you’ve sworn to a bankruptcy court that you had no assets other than those you disclosed, and those assets didn’t include a potential lawsuit; and yet, you then filed a lawsuit after the bankruptcy based on a pre-bankruptcy claim. The law basically says that you cannot have it both ways.

When you file for bankruptcy, a bankruptcy estate is created. All of your assets, including potential lawsuits, become property of the bankruptcy estate, except for those assets you have managed to exempt. If you do not specifically list and exempt an asset, it is property of the bankruptcy estate. The rule of thumb is that it is always a better idea to list it and exempt it than not to list it at all.

Got real estate? Tell your bankruptcy attorney ASAP.

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When I initially speak to a potential client, one of the questions I ask is whether or not they’ve ever owned any real estate, even a partial interest in land that they’ve inherited and had nothing to do with.

Why do I ask about real estate? For starters, I ask about real estate because the Chapter 7 trustee who reviews your case is likely to ask you at your meeting of creditors whether you’ve ever owned real estate. If you say yes, the trustee will want to know what you did with the real estate, how much it’s worth, and so on. I like to know the answers to important questions like these before they pop up at the meeting of creditors so that if there are going to be any potential problems, we can address them ahead of time.

What are some potential problems with real estate ownership that could crop up? One example is that even in this economy, you might have equity in your real estate – i.e., it might be worth something – and the amount of equity you have in the property can take up some or all of the limited exemptions available to you. This can have an effect on how much property (including personal property) you’d be allowed to keep after the bankruptcy.

Also, if, for whatever reason, you gave away your real estate – including signing it over to someone else (like a relative) just because you couldn’t afford the mortgage payments anymore, you are likely to have a problem. A transfer like this can look like a fraudulent transfer prior to bankruptcy.

In case you’re thinking ” I didn’t commit fraud,” the term “fraudulent transfer” as used in the bankruptcy setting is a specific legal term that has a specific meaning and is defined broadly in the law. It does not necessarily require intent to commit fraud. It’s just that Congress decided it didn’t like the idea of people dumping assets before filing, probably because it didn’t want people trying to look poorer when they had assets they could have sold to pay their debts but gave away those assets instead.

As a result, I like to ask people about real estate ownership. In case you are thinking of not disclosing current or prior real estate ownership to your attorney, think again – the trustee can take steps to independently research your property ownership situation and find things out. It’s better for everyone that you disclose everything to your attorney so that they can help you figure out the best course of action before you file for bankruptcy.

If you are in NJ and thinking of filing for bankruptcy, consider calling Jennifer Weil for a free telephone consultation to discuss your financial situation at 201-676-0722.

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Credit scores: Not all that and a bag of chips

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Without a doubt, one of the most frequent questions I get is about credit scores. The question is always some version of: Will a bankruptcy ruin my credit score forever?

Americans have an unhealthy obsession with bad credit, as though a credit score were an indicator of self worth. This obsession is unnecessary. You don’t need a good credit score to live a fulfilling and happy life. Even if you have bad credit, the sun will still come out tomorrow.

Do you want to work for a bank? Do you want to buy real estate someday? If so, you probably have legitimate reasons to be concerned with how your credit report looks to others. If not, stop worrying about your credit. It is not worth the energy you spend on thinking about it, believe me. But if it is a priority, there are ways you can rebuild credit.

And you’d think people who are on the verge of filing for bankruptcy must be starting out with good credit, considering all the energy they expend worrying about how it might ruin their credit scores. But you’d be wrong, for the most part. Sure, some people who file for bankruptcy early enough might still have a decent score, but honestly, most people who are serious about it already have bad credit.

If you are legitimately concerned with your credit, consider this: Those starting out with bad credit should look at how a bankruptcy can help begin to rebuild credit by providing a fresh start. Those starting out with good credit, but who have dischargeable debts they can’t pay, should be looking at how far down their credit score can go if they let their untenable debt situation continue its downward spiral.

Thinking about a bankruptcy in New Jersey? Call Jennifer Weil at 201-676-0722 for a free telephone consultation or email me at jweil@jenlawyer.com.

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Will I be able to keep anything when I file for bankruptcy?

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Can you keep your property through a Chapter 7 bankruptcy? The short answer to this question is: Maybe. It depends on your situation.

This is what something called “exemptions” are for. The way I explain it to clients is this: When you file for bankruptcy, something called the “bankruptcy estate” is created, kind of like the estate that is created when someone dies. Everything in the that estate temporarily comes under the Chapter 7 trustee‘s control. The trustee can sell estate assets to pay off your creditors. If something is NOT in the bankruptcy estate, it will not come under the trustee’s control.

How do you keep your stuff out of the bankruptcy estate? You list all it in your filing. Then you cite to the statutes allowing you to exempt each item from the estate. The laws allowing you to keep property out of the bankruptcy estate are generally called “exemptions”.

Does that mean you can exempt anything from the bankruptcy estate, no matter how expensive the it is? NO. Unfortunately not. Exemptions are limited. And they vary greatly by state.

How are exemptions limited? Generally, they are limited by type of property and by amount. For example, you might find that the statute that applies to jewelry might be limited in amount to $1500. This means you could exempt only $1500 worth of jewelry from your bankruptcy estate (that’s just an example – I made it up, so don’t rely on that statement for jewelry!). Limitations like this can make it difficult (and sometimes impossible) to exempt very valuable items like real estate, newer cars, or valuable collectors’ items.

How do you value your items? Generally speaking, you value your property by determining its resale value – how much could you get for it at a garage sale or on an auction website?

How do I exempt items that I don’t want to list in my papers? You don’t. Unlisted property is not exempted.

The bottom line is that you need to speak to a bankruptcy attorney in the state where you live to find out what the exemptions limitations are. And don’t make the mistake of transferring property to someone else just to keep it out of the bankruptcy estate.

If you are in New Jersey and need a bankruptcy attorney for a potential Chapter 7, please call Jennifer Weil at 201-676-0722 for a free telephone consultation or email me at jweil@jenlawyer.com.

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How long does a bankruptcy stay on your credit report?

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Bankruptcy filers who would like to rebuild their credit are justifiably concerned about how long a bankruptcy can appear on their credit report.

The answer is that bankruptcy information can stay on your report for 10 years. Most other types of negative information can be reported for 7 years.

Usually, a Chapter 7 stays on a credit report for 10 years while a Chapter 13 stays on a report for 7 years.

The Federal Trade Commission has a website explaining how to get free copies of your credit reports from the 3 major credit reporting companies. You should check your reports on a regular basis to make sure they do not contain any false information.

It is still possible to build a positive credit report even with a bankruptcy on your record, so long as you act carefully and methodically. If you’ve ever received credit card offers before, you are likely to receive them again after your bankruptcy.

If your goal is to build good credit, it’s worth your while to consider the post-bankruptcy card offers that you receive with an eye toward building a record of consistently and fully repaying an open line of credit.

If you are in New Jersey and considering Chapter 7 bankruptcy, please call me for a free telephone consultation at 201-676-0722.

How much do I need to owe to file for bankruptcy?

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Many people who call are concerned about their eligibility for a Chapter 7 bankruptcy and wonder if their level of debt will allow them to file for bankruptcy.

The answer is that there is no minimum debt amount required to file a Chapter 7 bankruptcy. A more important issue is whether you earn enough income to pay off your debts.

If you earn enough money to pay your debts off over time, you may have difficulties successfully filing a Chapter 7 bankruptcy. So you should look at your debts in proportion to your income to determine whether you can pay off your debts over time while still paying your reasonable housing and food expenses.

If you are concerned about being eligible for a Chapter 7 bankruptcy in New Jersey, please call 201-676-0722 for a free consultation or email jweil@jenlawyer.com.

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