Texas Bankruptcy Blog : Texas Bankruptcy Lawyer & Attorney : Fears Nachawati law Firm : Chapter 7, Chapter 13, Consumer Bankrutpcy : Dallas, Fort Worth, Austin, Houston, San Antonio

The saying goes, “You can’t take it with you.” However, when it comes to credit card debt, in many cases you can. When a credit card belongs to one person only, the debt also belongs to one person only. Whether that debt must be paid or passed along to another person after your death depends on a couple of factors.

If you die with outstanding credit card debt, the first question is whether there is enough money in your estate to pay the credit card company. State laws direct the administrator or executor of your estate to pay certain bills first. Anything left after paying creditors will be paid according to your will or in accordance with state law if you die without a will. Non-probate transfers like life insurance and payable on death accounts (especially retirement accounts and bank accounts) are not part of your estate after death. Credit card companies typically cannot reach money that is not part of the decedent’s estate.

Generally, if your estate does not have enough money to pay your credit card debt, the card company gets nothing. However, in some cases the credit card company may have some options to get paid. First, if the debt was jointly owned, the survivor is now responsible for the debt. For instance, if you and your spouse were jointly obligated on the debt, your spouse is now 100% obligated to pay. This rule does not apply to authorized users on your account.

Second, if you live in a community property state, assets that are accumulated during your marriage are considered joint property, and, in some cases, so are the debts. The states of Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are community property states and a surviving spouse may be obligated to pay your credit card debts. Credit card debt will not pass onto other family members or friends.

Bankruptcy will discharge your credit card debts so that neither your estate nor your spouse will be affected. A dead person cannot file bankruptcy, but, once the bankruptcy is filed, the debtor can still receive a discharge after death. If you have concerns about burdening your loved ones with debt after your death, speak with an experienced attorney and discuss how the federal bankruptcy laws can help.
 

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When an individual files a bankruptcy case, a bankruptcy estate is created. This bankruptcy estate is comprised of “all legal or equitable interests of the debtor in property as of the commencement of the case.” Consequently the debtor must identify all legal and equitable property rights when completing the bankruptcy schedules. But what exactly is a legal interest and what is an equitable interest in property?

Without getting too technical, a legal interest is simply ownership that is readily recognized by law. Say, for instance, that you go to the auto dealer, buy a car, and title it in your name. This is a legal interest in a vehicle that is disclosed when completing your bankruptcy schedules.

On the other hand, an equitable interest may exist when there is no legal interest, but in fairness there should be an interest in the property. The most common type of equitable interest is an express trust. In a trust a trustee holds the legal right to the property for the benefit of another person (the beneficiary). If you are the beneficiary of a trust, this is an equitable interest that must be disclosed on your bankruptcy schedules.

Another common situation that may result in an equitable interest is a child’s vehicle. Suppose that your son purchased a car with his own money, but it is titled in your name to save on insurance. You have legal title, but your son has an equitable interest. You must list your legal interest on your bankruptcy schedules. That begs the question: can the bankruptcy trustee take the car?

Probably not. This situation is called a “resulting trust.” Your son paid for the car and drives the car. . . it’s his car. Just like in the express trust situation discussed above, the law will recognize that you are the trustee with legal title of the car and your son is the beneficiary. The bankruptcy trustee will want evidence of the “real owner,” including evidence that shows you did not pay for the car.

Equitable and legal interests are sometimes difficult to distinguish during bankruptcy. If you have co-signed for a secured loan, recently purchased property for a family member, or are named in a trust, there is likely a property interest that must be disclosed. It is vital to discuss all of your financial issues with your attorney prior to your bankruptcy filing. Your attorney can propose options for dealing with the situation and for protecting your property rights.
 

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Everyone knows that the price of gold has skyrocketed over the past decade. During 2002 gold averaged around $300 per ounce, and by 2012 it climbed over $1,700 per troy ounce. Precious stones have also increased in value. An “average” 1 ct diamond sells for $10,000 more today than in 2002. These price increases can have a serious impact on your bankruptcy case.

During a Chapter 13 bankruptcy case you get to keep all of your jewelry, no matter the value. A Chapter 13 bankruptcy is funded by payments from your income. You pay what you can afford over three to five years. Any remaining debt is discharged at the end of the repayment period.

On the other hand, filing a Chapter 7 bankruptcy could put your jewelry at risk. That is because a Chapter 7 bankruptcy is a liquidation process. State and federal laws allow you to keep certain property that is reasonably necessary to your fresh start after bankruptcy. These laws are commonly called “exemptions” and protect your assets from creditors and from the bankruptcy trustee.

Before applying legal exemptions to protect your jewelry, you should accurately value each item. Keeping your jewelry may come down to providing the bankruptcy trustee with trustworthy evidence of its value. One way to do this is to have your gold jewelry appraised as scrap gold. The general rule is that the weight and karat of the gold determines its value. Ten-karat gold means that it has 42% gold content. Fourteen-karat gold is actually 58% pure gold and about 75% of the content of 18-karat jewelry is gold. Consequently, a 14-karat gold necklace weighing one troy ounce is worth 58% of the market rate (e.g. 58% of $1,700/ounce means that the necklace is worth $986).

Gold dealers have costs associated with buying gold and will typically only offer a fraction of the market value. One recent investigation found that bids from mail-away gold purchasers can vary from as little as 18% of market value, to a high of 90%! Many pawn shops openly display what they pay for scrap gold, so choose your appraiser carefully. A price that is too low will be disregarded and a value that is too high can put your property at risk.

If you have expensive jewelry and need bankruptcy relief, speak with an experienced attorney and discuss your options. In many cases the value of your jewelry can be protected by legal exemptions. In unusual cases you may consider filing a Chapter 13 bankruptcy, selling the jewelry before filing, surrendering the jewelry to the trustee, or purchasing the nonexempt equity from the bankruptcy estate. Before doing anything, get competent legal advice.

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Many homeowners are surprised to learn that their monthly mortgage payment check is not made out to the owner of the mortgage note. The company that receives your money is the servicer of the loan, but is not necessarily the legal note holder. This distinction can become important if you need to modify or change the terms of your loan.

A loan servicer is a company that collects and processes your monthly payment for a percentage of the interest payment. While a mortgage note's owner may change, the loan servicer may not change. Buying and selling mortgage notes is common, and sometimes a mortgage note is bought and sold in rapid succession making it difficult to determine the current owner. So how can you discover the current owner of your home’s mortgage?

Since the loan servicer is the owner's agent for handling the day-to-day tasks associated with managing your loan, call the servicer and request your note's owner. MERS, or Mortgage Electronic Registration Systems, tracks the identity of servicers that registered loans on its system. You can search their registry for your current loan servicer at www.mersinc.org/homeowners/. Once you have called your loan servicer, follow up by contacting the mortgage company and request verification that it holds your mortgage note.

If your loan is guaranteed by Fannie Mae or Freddie Mac, you can search for the note holder via the internet. Statistically, about 50 percent of U.S. mortgages are currently held by Fannie Mae and Freddie Mac, and about 30 percent are guaranteed by FHA. Fannie Mae's website is: www.fanniemae.com/loanlookup/.
Freddie Mac's is: www.freddiemac.com/avoidforeclosure/ - under "Tools and Resources," click on "Loan Lookup."

Knowing the current owner of your mortgage note is necessary for filing bankruptcy. The federal bankruptcy law places the burden on the debtor to make reasonable efforts to obtain accurate information. Providing inaccurate information could cause delays in your case and you may miss out on needed financial relief. If you have questions concerning your mortgage debt, speak with an experienced bankruptcy attorney.

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Filing bankruptcy impacts every aspect of your finances. If you need to fund your child's education, it is important to discuss the details with your bankruptcy attorney. Three common educational financing concerns during bankruptcy are: funding a 529 educational savings account, paying for private school tuition, and college loans.

Section 529 of the Internal Revenue Code makes special tax allowances for contributions to protected education accounts. These accounts are also protected from creditors (and from the trustee) during bankruptcy, but special rules apply. For instance, the beneficiary of the account must be your child, stepchild, grandchild, or step-grandchild. You cannot set up a 529 fund for yourself, then file bankruptcy and protect the money.

The timing of deposits into a 529 Plan will determine whether the money is protected. Deposits made within 365 prior to your bankruptcy filing are not protected at all. Deposits made between 365 days and 720 days prior to your bankruptcy filing are exempt up to $5,850 per beneficiary. Any deposit made over 720 days before filing bankruptcy is entirely exempt.

Private school tuition for elementary and secondary schools may or may not be allowed during a Chapter 13 bankruptcy. Congress allows an educational expense of $147.92 per month per child under the bankruptcy means test. Whether you will be allowed to pay more than that is decided on a case-by-case basis. Chapter 7 bankruptcy debtors are not prevented from paying private school tuition.

College loans may also be impacted by bankruptcy. Your bankruptcy does not affect your child’s ability to obtain need-based financial aid such as Pell Grants and Stafford Loans. However, you are disqualified from credit based financial aid like the PLUS (Parental Loan for Undergraduate Students) Loan and the Graduate PLUS Loan if you have declared bankruptcy within the past five years, unless there were extenuating circumstances or you can obtain a creditworthy cosigner.

Fortunately, your child qualifies for increased unsubsidized Stafford loan limits if you are denied a PLUS Loan. Stafford loans are advantageous because the loan remains in forbearance while the student attends school, while a PLUS Loan is subject to immediate repayment.

Bankruptcy can impact funding your child's education. Each case is different and a qualified legal opinion is required to guide you to the most beneficial outcome. Consult with an experienced bankruptcy attorney and discuss your unique situation. Your attorney can explain your legal options.
 

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For most people having reliable transportation is a necessity. A vehicle is required to get to work, school, or to an appointment at the doctor. Most of us can't imagine doing without a personal vehicle. Filing bankruptcy doesn't mean you have to give up having a car, truck, or motorcycle.

The first question is whether you have equity in the vehicle you own. Equity is simply the difference between the amount you owe and what your vehicle is worth. If you owe more than your vehicle is worth, you have "negative equity," which is really no equity at all. The bankruptcy laws allow you to keep a reasonable amount of vehicle equity. If this amount is not enough to fully protect the vehicle, you may use other legal exemptions to protect your vehicle equity. Finally, if you have more vehicle equity than you can legally protect, you can purchase the equity from the Chapter 7 trustee.

The second consideration is your lender. There are three options for dealing with vehicle loans in Chapter 7 bankruptcy: reaffirmation, redemption, and surrender (a controversial "fourth option" is available in some states and circumstances. Speak with your attorney to see if your situation qualifies).

If you wish to continue the monthly payment, you can execute a reaffirmation agreement. This is a contract that states that the debt you owe the lender will survive the bankruptcy and the lender agrees to not repossess the vehicle. In some cases you can use a reaffirmation agreement to rewrite the original agreement. This can be useful if you have missed a few payments or need to reduce your interest rate.

If your vehicle is substantially "upside down," you may want to consider a redemption. In a redemption, the debtor pays the lender the fair market value of the vehicle. The payment is made in a lump sum which usually requires another loan at a high interest rate. However, for a car that is worth thousands less than what is owed, the new monthly payment could be hundreds less - even with the high interest rate.

The final option is surrender. Sometimes just walking away from a lemon or a bad deal is the best choice. In a Chapter 7 bankruptcy, you simply turn over the car to the lender and owe nothing. There is no prohibition against buying a different vehicle during or after your bankruptcy case. If you need to purchase a different vehicle, speak with your bankruptcy attorney.

The United States bankruptcy laws contain powerful provisions for protecting property and reducing debt. There are many options available in Chapter 7 or Chapter 13 cases. Consult with an experienced bankruptcy attorney and explore your options under the federal law.
 

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The most common type of bankruptcy case is the Chapter 7 no asset case. In this case the debtor does not lose any property and unsecured creditors (e.g. credit card companies and medical bills) receive nothing. A Chapter 7 no-asset bankruptcy is usually a “quick and easy” process. The following timeline describes the process:

Meet Your Attorney
Your attorney will listen to your concerns, identify legal issues concerning your debts, and recommend legal solutions. While bankruptcy is not always the best option to solve a financial problem, it is a powerful tool that should be considered. Your attorney will also ask you to provide financial documentation such as tax returns, titles and deeds, and paystubs. Your attorney will take this information and draft a bankruptcy petition.

Credit Counseling
Before you can file bankruptcy you must meet receive credit counseling from an approved credit counseling agency. Your attorney will recommend an agency that is approved.

Sign and File Your Bankruptcy
Once the petition is drafted, you will meet with your attorney to review and sign your bankruptcy petition and schedules. You must verify the contents of your bankruptcy filing under penalty of perjury, so it is important to carefully review this document. You must also pay your court filing fee (currently $306).

Attend Financial Management Class
After your case is filed you will attend a course in personal financial management from an approved agency. This course must be completed before the court can enter a discharge, so you might as well get it out of the way as soon as possible.

Section 341 Meeting of Creditors with Trustee
The bankruptcy court will send out notices of your Meeting of Creditors. Your meeting will take place between 30 and 45 days after your case is filed. While creditors do not typically attend this meeting, you will answer questions under oath from the Chapter 7 Trustee about your debts and property.

Trustee's Report
The Chapter 7 Trustee's report is due to the bankruptcy court within 10 days after your Meeting of Creditors has concluded. This report states that the Trustee has completed a review of the case and that there are no assets to administer.

Wait
Creditors have 60 days after the date first set for the Meeting of Creditors to file an objection in your case. Objections are rare, especially in Chapter 7 no asset cases.

Discharge and Conclusion
If no objection is filed and all other requirements are satisfied, the bankruptcy court will enter an order discharging your debts, and soon thereafter it will close your case.

Every bankruptcy case is different and some cases do not follow the timeline described above. An experienced bankruptcy attorney will conduct an investigation of your finances and can give you a very good indication of what to expect during your bankruptcy, including how long it will take.
 

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Many common events trigger a decrease in monthly Social Security benefits, including a change in the number of people in your home, or an increase in income. The Social Security Administration (SSA) requires that you report changes within 10 days after the month the change occurred. If the SSA does not get your reported change in time, you may receive an overpayment. Over time these overpayments can amount to a debt you cannot afford to repay.

When an overpayment is discovered by the SSA it will request that you send payment within 30 days. You are entitled to request a waiver and, if the waiver is denied, you may ask for a hearing with an Administrative Law Judge. The SSA will look at whether you acted honestly in making its decision to waive the overpayment.

If the waiver process fails, you may consider a bankruptcy. Social Security overpayments are treated like any other unsecured debt in bankruptcy. The debt can be discharged at the end of a Chapter 7 or Chapter 13 case. However, the SSA may file a timely objection to the discharge of the debt. The most common reason for objecting to the discharge is that you committed fraud by keeping additional benefits when you knew you were not entitled to them. If the SSA is successful in proving fraud, the debt will be excluded from the discharge.

In a fraud case the issue generally boils down to one question, "Did you know you were not entitled to keep the extra money from the SSA?" These cases are seldom cut and dry because of the SSA's complex rules, especially when dealing with return to work issues. The SSA seldom files objections in bankruptcy cases, but each case is different.

Social Security overpayments are serious business and require a serious response. If you fail to take action, the SSA will begin taking money from your monthly check 60 days after you receive notice of the overpayment. Your best response is to consult with an experienced attorney. Your attorney can help you weigh your legal options and develop a plan to deal with this debt.
 

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The Chapter 13 bankruptcy trustee encourages debtors to make monthly plan payments using a wage deduction order. At the debtor’s request, the bankruptcy court will send an order to the employer to withhold money from the employee’s paycheck and send it to the trustee. Cases using wage deduction have fewer instances of default.

Many debtors don’t use wage deduction because they want to avoid informing their employer about the bankruptcy case. But does this make sense?

Bad credit can get you fired. Failure to manage your personal finances could lead to your termination, especially if you work for a bank and other financial institution, a retail store, or a business where you handle cash on a routine basis. Collection calls at work can get you fired. Mistakes and time off work can get you fired.

On the other hand, the federal bankruptcy laws prohibit government and private employers from firing you on the basis of your bankruptcy filing. By informing your employer that you have filed bankruptcy, you have put the employer on notice that you are dealing with your financial problems in a responsible and legal manner. In order to terminate you during your bankruptcy case, your employer must find a reason unrelated to your bankruptcy and personal finances. Consequently, most employers do not want to risk violating the federal law.

Finally, which is worse: to inform your employer of your bankruptcy through a wage deduction order, or for your employer to discover your financial problems through some other channel? Most employers (and people) respect honestly and forthrightness. Some employers conduct periodic credit checks on their employees, so your bankruptcy will be eventually discovered. This is especially the case with government work involving national security or the Federal Deposit Insurance Corporation.

Of course, every situation is different and you should discuss your situation with an experienced bankruptcy attorney. Your attorney can help you decide if a wage deduction order is right for you. 

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Filing bankruptcy does not stop your finances. You still need money for gas, food, to pay the rent, etc. But what if you have money in your checking or savings account at a bank where you owe money? This can be a problem once you file your bankruptcy case.

What the Bank Can Do
If you have a debt at a bank where you have money deposited, the bank has a right of setoff. That means it can take money from your checking or savings account to pay a debt, like an overdraft or a defaulted loan. When you file bankruptcy, the bank’s right to setoff survives, but is temporarily prevented by the automatic stay. Before the bank can perform the setoff it must ask permission from the bankruptcy court.

You would think that the bankruptcy automatic stay would stop the bank from taking collection action against you, but that is wrong. The 1995 US Supreme Court case of Citizens Bank of Maryland v. Strumpf, 516 US 16 (1995) says that a bank can freeze your account and withhold your funds so that it has time to make a request for setoff from the bankruptcy court. Once your account is frozen for setoff purposes, the money is likely gone for good.

How Long Do You Have?
When you file bankruptcy the clerk of the court sends a notice to the bank regarding your bankruptcy case. It usually takes a few days for the bank to receive notice. However, some larger banks compare the list of recent bankruptcy filings against their accounts. If an account holder has filed bankruptcy, some banks will freeze the account immediately, whether you owe it money or not (Wells Fargo Bank often does this).

What You Can Do
The answer is simple. If you owe money to your bank, switch banks. Keep the old bank account open, but only keep a small balance. Remember to change any direct deposit to the new bank account and cancel any monthly direct debits. Your old bank cannot setoff money that is deposited in another bank, and cannot freeze that account.

Filing bankruptcy is complicated. Thankfully there are experienced attorneys that can identify your debt issues and are able to use the federal and state laws to protect your interests. If you need help with your finances, speak with an experienced bankruptcy attorney and discuss your situation. The federal bankruptcy code can help you discharge debt, restructure your finances, and get a fresh start.

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