Fort Lauderdale Bankruptcy Lawyer Blog

If you've decided that you need to file bankruptcy then there are definitely some things that you should and should not do. The first thing you should do is schedule an appointment with a bankruptcy attorney to discuss your case specifically, but the following list of items are also of paramount importance.

1. Don't borrow more money from anyone.
2. If you have personal loans from friends and family -- Do not make payments to cover these loans. One creditor (yes, your family and friends will be considered creditors) cannot be preferred over the others prior to filing.
3. Do not get married or divorced right before filing.
4. Don't transfer money or give away your assets in an attempt to hide it. We must report all transfers of property and most likely the bankruptcy trustee will take it back from whoever you gave it to.
5. Don't tell your creditors that you're thinking about filing bankruptcy, they may get the jump on you and escalate collection activities.
6. Do not transfer money to your IRA that isn't consistent with your regular contributions.
7. Do not take money out of your IRA accounts. As long as this money is in your IRA, it is "safe" money and cannot be used to pay creditors. If you take it out of the safety of an IRA account - then the creditors can take it.
8. Don't spend frivolously and rack up more credit card debt, you'll only have to repay that debt in the end.
9. Do not use your credit cards! If you know you are filing bankruptcy, do not use your cards to purchase anything.
10. Don't continue to make payments on your unsecured credit or debt. Credit card debt will usually be discharged so payments toward them is really just money you are throwing away.

Most people that come for a bankruptcy consultation had excellent credit up until a job loss, or an illness, injury or a divorce. Unplanned life events force them to dip into their savings account or they start selling off assets to continue paying that minimum payment and "maintain" their credit scores. They are usually depressed and down on themselves when they come in for a free consultation at our Davie or Coral Springs office. In most cases, their credit is already shot because they have missed payments or are behind in their mortgage. In some cases, their bills are current but they know they cannot afford to make one more payment and proactively come in seeking advice.

A Chapter 7 bankruptcy will remain on your credit report for 10 years. A Chapter 13 will be on there for 7 years. But that doesn't mean that you won't have credit again for 7 to 10 years. To the contrary, most clients discover that they actually get a credit card within weeks or months of closing out their bankruptcy case. Without bankruptcy, there was no opportunity to get credit because of their credit scores.

Bad credit entries stay on the credit reports for 7 years from the date of last activity. If you are paying your cards through a debt consolidation plan, then it's 7 years from the date of last activity - which is usually when you settle a card. That could take months or years to do because you have to pay into the plan long enough to have a settlement offer available. You are not getting credit while you are making these payments.

Further, current FHA guidelines allow you to qualify for an FHA loan just two years after your Chapter 7 case closes if other conditions are also met. Try getting approved for a home loan while you're consolidating your debts or shortly thereafter!

Find out all the facts about bankruptcy and how it can actually help improve your credit score. Don't listen to friends, neighbors or the credit card companies. Get the facts! Call today for a free consultation. It could be the fresh start you are waiting for.

Although many well-intentioned people borrow against their retirement accounts in order to pay off credit card debt, it's actually one of the worse things you can do in the long run. Yes, it's very tempting. Some pension plans have a hardship withdrawal provision. The money is just sitting there and the creditors are bugging you non-stop. You really meant to pay the money back anyway...you just lost a job or had an illness and plans changed. But think about it carefully as there are tax consequences, retirement consequences and bankruptcy consequences.

Tax consequneces: Retirement investments are given favored tax-treatment by the IRS while you are saving the money. Normally, you don't pay taxes on money that you put in an IRA account or a company sponsored plan. If you cash out before you reach 59, you incur early withdrawal penalties and a tax penalty at the end of the year. You get back a lot less than what you put in and risk running up your tax bill.

Retirement consequences: I will never agree that it's a good idea to wipe out your future income in order to pay creditors today. There will come a time when you cannot work. Social security is not so secure and doesn't provide a lot of income anyway. You may not absolutely need that money today because you are working or still able to work - but there will come a time when you need it to survive. There are other things you can do to eliminate credit card debt other than eliminating your future income.

Bankruptcy consequences: Any withdrawal that you make from a 401(k) plan within the six months prior to filing a bankruptcy case is treated as income on the means test. In some cases, that is not a problem and you will still qualify for a Chapter 7 bankruptcy. In other cases, a withdrawal has put my client out of a Chapter 7 and into a Chapter 13 because they exceeded the median family income when I added in the withdrawal. Then the withdrawal gets counted as income for the purposes of determining your monthly payment to the court. Not a good idea.

If you are thinking of withdrawing money from a 401(k) to pay off credit card debt, pause first and schedule a free consultation in our Coral Springs or Davie office. Find out first if doing so will cause you unwanted consequences. Informed decisions are better decisions!

The treatment of alimony or child support in a Chapter 7 or Chapter 13 bankruptcy really turns on whether you are the person receiving the money or paying it. Neither one of these two domestic support obligations can be wiped out in either bankruptcy if you are the one paying it (and wanting to file bankruptcy). If you are paying it, you can deduct either one (or both) on the means test. If you are receiving it, you must report both as income on the means test. If your divorce settlement agreement lists any payment as a "domestic support obligation" then it cannot be wiped out in a bankruptcy by your ex-spouse trying to get rid of it.

If you are filing a Chapter 13 and owe either child support or alimony, being current on those payments (and staying current) is part of the requirement in formulating your plan payment. For example, if you are $2,000 behind on child support payments, your Chapter 13 plan must include the regular monthly payment AND it must also pay the $2,000 you are behind. By the end of the plan, you must be current on both obligations.

The short version of everything is this: If your ex-spouse files for bankruptcy protection, they cannot eliminate or discharge any domestic support obligation through a bankruptcy. If they are behind on their payments and filing Chapter 13, they are required to bring everything current while they are in bankruptcy court.

If you owe child support or alimony, a bankruptcy filing under either chapter will not eliminate these financial obligations.

When bankruptcy is mentioned, many automatically assume that the rising number of bankruptcies can be blamed on poor personal money management and over-spending with credit cards. However, statistically and from what I see in real life, the major bankruptcy driver for many tends to be uninsured medical costs for health care or as a result of an unexpected illness or injury.

Another contributing factor that I've experienced first-hand is that medical providers are becoming increasingly inflexible with their co-payments and other accounts receivables. In the past few years, the medical industry has started to use aggressive collection agencies on minor amounts ($100 or less). Once collection fees are added, a minor debt can turn into several hundred dollars and countless phone calls, letters and other forms of abuse. To those facing chronic illness or serious health concerns, it can be debilitating. When you're ill or in poor health, I strongly feel that your first and only priority is to get better.

The good news is that a Chapter 7 bankruptcy can eliminate your medical debt completely. Medical bills are a type of unsecured debt, meaning none of your property was pledged as collateral for it. A Chapter 7 Bankruptcy can have all medical bills: including hospital or doctor charges, dental bills, lab bills, and diagnostic charges wiped out. Consulting with a bankruptcy attorney is your first step in finding out if you can eliminate your medical debt through bankruptcy.

A common reason that most people delay finding out about bankruptcy is a fear that they can't afford the process. You don't have enough money to pay your bills. You're drowning in debt. The mortgage is behind six months or more - how can you afford a bankruptcy?

The better question is: "How can you afford not to?" Although there are some costs associated with filing for bankruptcy, remaining in debt will cost you far more in interest, late fees, stress-related health issues and overall quality-of-life in the end.

If the total cost of filing a Chapter 7 bankruptcy is less than $2,300, what you need to ask yourself is this: If my creditors offered me a deal to wipe out all my credit debt right now for less than $2,300 - would I take it? Most people would jump at it! Filing a Chapter 7 bankruptcy is creating that deal for yourself and forcing the creditors to take the deal -- No more begging them to give you a break. But lets take a look at some of the costs:

Court Costs
There are costs involved with filing for bankruptcy. First there is a fee that must be paid to the court for filing the case. That fee is currently $299 for a Chapter 7 and $274 for a Chapter 13. There are costs associated with preparing the petition such as pulling all three credit reports, mailings, copies, and administrative costs for maintaining your case file. Those costs are $150. These are normally the only costs associated with filing a bankruptcy case and fortunately, they're both pretty manageable. The next cost are attorney fees.

Attorney Costs
The legal fees for hiring an attorney can vary greatly by firm, city or state. The average cost for a Chapter 7 case can range between $1,000 and $2,500. Before you automatically think that you can't afford those fees, think about what you could lose in a bankruptcy if you don't know the law and how it may affect your assets (if any). I was in a 341 meeting and saw a woman who filed her own case lose a $9,000 car (her only transportation) because it was paid off and she had no idea that it would become property of the bankruptcy estate and she would lose it. She lost it. Having the proper legal representation may not have saved the car but at least she would have known it was at risk and made a different decision or she could have made arrangements to keep it.

Hiring An Attorney versus Doing It Yourself
As stated above, you may file for bankruptcy in Coral Springs or Fort Lauderdale and complete the process yourself. You don't have to hire an attorney. But, hiring a bankruptcy attorney can often make the process much smoother and less scary.

An experienced bankruptcy attorney will manage the paperwork, trustee paperwork and court filings, as well as provide you with the resources you need to complete your debtor education courses. A good bankruptcy attorney is your representative and should convey a sense of compassion and flexibility while managing your case.

Your attorney should be able to tell you within a certain amount of probability what property (if any) is at risk and how to prepare for it. It's mush easier to deal with an asset case (a case that has assets which the trustee can liquidate) if you know what they are and how to keep them if you'd like. It's also easier to get a fresh start if you have someone that knows what exemption laws are available to help you keep your assets by protecting them. But how do you pay for it all??

Payment Plans
The most common way that people get out of debt through bankruptcy is to hire an attorney that accepts installment payments. Many people stop paying their credit cards and apply those payments towards the bankruptcy filing costs. A Chapter 7 bankruptcy case must be paid in full prior to filing but a Chapter 13 case can have some of the fees rolled into the payment plan.

At Casas & Mayor, P.A., we want everyone that is in need of a fresh start and sleep to find both. We offer very flexible payment plans that are crafted around your budget and needs. We don't believe that anyone should remain shackled to debt because of the cost of filing. During your free consultation, we will discuss all fees, costs and how to pay for them. You'll be surprised how flexible our payment terms are and pleased to know that you can start all over again! Find out today at either our Coral Springs or Davie location. You have nothing to lose but the debt!

Not every bankruptcy case is a "no-asset" case. A Chapter 7 is called a "liquidation" bankruptcy for two reasons: 1) you liquidate all of your debts; and 2) the trustee has the right to liquidate all unprotected assets for the benefit of the creditors.

A no-asset case is one that doesn't have any assets for a trustee to administer. Florida law gives bankruptcy filers $1,000 with which to protect personal assets and $1,000 to protect a motor vehicle (can be a car or motorcycle). If you do not claim homestead exemption (you rent instead of having a mortgage), you also get a wild card exemption of $4,000 to protect property with.

Sometimes clients want to transfer assets right before a bankrutpcy so they don't lose them. Bad idea. Doing so is bankruptcy fraud and it is always better to simply plan for the assets within the bankruptcy case then to do something that could have crinimal consequences.

So what happens with assets in a Chapter 7 bankruptcy case? You have two choices. You can either pay the trustee the value of the asset and keep it or you can turn the asset over to the trustee and he/she will sell it and liquidate the asset for the benefit of the creditors. The trustees in this area will work with you if you need to make payments for a short time (six to eight months is the norm) or they may settle for a lump sum payment that is less than the amount owed.

Even if your case is an asset case, the odds are that you are still wiping out a huge sum of debt for a fraction of what you owe. Ask yourself: If my creditors had gotten together and offered to cancel my debt for $5,000, would I have taken it? There's really no difference here except the payment is being administered by a third party.

The key is to make sure that you understand the details of your particular case and what assets you may have to pay to keep. Then be prepared for it by having family loans lined up, budgeting for the trustee payments or considering a Chapter 13 so you can pay the assets out over 3 to 5 years instead of 6 to 8 months.

Many times people contemplate bankruptcy because they want to start over again and get rid of payments that they can no longer make. One of the more common debts are lease payments on cars that they can no longer afford after an income reduction or job loss. The question that arises is whether they can turn in their car and be able to discharge lease turn-in expenses. The answer is "yes!" You can take advantage of the "surrender" option available for secured debts.

The "surrender process" in a Chapter 7 bankruptcy permits a debtor to give up property that is subject to a lien and/or outstanding loan. Through the surrender process, when the creditor receives the property back, the debtor is relieved of any further obligation for the debt. The release of any further obligation occurs upon a surrender in bankruptcy even if the value of the property returned is not sufficient to cover the outstanding balance on the loan.

So, if you can't afford to keep a car anymore, you can surrender the vehicle to the creditor through a bankruptcy proceeding. Doing so ensures that any debt which arises from the surrender of the vehicle is included in your bankruptcy and discharged.

From the FHA guidelines:

A borrower whose previous principal residence or other real property was foreclosed or has given a deed-in-lieu of foreclosure within the previous three years is generally not eligible for a new FHA-insured mortgage. However, if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower and the borrower has re-established good credit since the foreclosure, the lender may grant an exception to the three-year requirement. Extenuating circumstances include serious illness or death of a wage earner, but do not include the inability to sell the house because of a job transfer or relocation to another area.

If you have a foreclosure and then file bankruptcy in order to eliminate any potential deficiency judgments from the foreclosure, the longer waiting period would apply (see my blog article about buying a home after bankruptcy). For example, if you file bankruptcy and then your house is sold at foreclosure a year later, you would have to wait three years from the date of the foreclosure sale in order to qualify for an FHA mortgage again - even though it's only a two year waiting period after a bankruptcy.

In a previous blog entry, I answered a common concern that people have when considering whether to file bankruptcy. Can I buy a house again? The answer to that is yes, you can. After two years, you can qualify for an FHA mortgage again if you have qualify. So, how do you qualify?

In order to qualify for an FHA mortgage after a Chapter 7 bankruptcy, you must first wait until two years have passed since you received your discharge. During this two year period, you must have also re-established good credit and achieved a minimum credit score of 620. FHA guidelines currently define that as having at least three (3) credit lines that have been active for at least twelve months and always paid on time.

There is a misperception that once you file bankruptcy, you won't be able to get credit or buy a house for as long as the bankruptcy is on your credit report. This is false. Most of my clients begin to receive credit card offers in the mail again just months after their case is discharged.

Don't let what other people have told you about bankruptcy keep you from finding out the facts from a quaified professional.

A Chapter 7 bankruptcy does not disqualify you from qualifying for an FHA mortgage. In order to qulify, you must wait until two years after you receive your discharge. During those two years, you must re-establish good credit and demonstrate an ability to manage your financial affairs. Your credit score must also be a minimum of 620 by then. Additionally, the lender must document that the borrower's current situation indicates that the events that led to the bankruptcy are not likely to recur.

A Chapter 13 bankruptcy does not disqualify you from obtaining an FHA mortgage. In a Chapter 13, the lender must show that one year of the payout period under the bankruptcy has elapsed and your payment performance has been satisfactory (i.e., all required payments made on time). In addition, you must receive permission from the court to enter into the mortgage transaction.

On my website, I have a section on fiing bankruptcy without an attorney (pro se). The bankruptcy forms appear deceptively simple. They are available online at the bankruptcy courts website. They even have explanations for every section explaining what should go in that section.

On top of that, there are document preparers that will fill out the forms for you and charge you $500 to $600 for doing so. I've had clients that paid preparers to file the forms and still ended up in my office because the forms weren't done correctly, or better yet, they paid the money and were under the impression that the case was filed and nothing was ever done.

But let me tell you what happened at a 341 meeting this week that illustrates why going cheap usually ends up a lot more costly. It's not what you know that will hurt you (how to fill out the forms) - It's what you don't know.

At the 341 meeting, you're in a room with others who are waiting their turn to meet with the trustee. As a result, we all see and hear what happens in other cases. As I was waiting for my case to be called, the case before me was a pro se case (self-represented). The debtor had two cars. One was hers and the other belonged to her granddaughter but was in her name. Her car was a late model vehicle that was paid off. She valued the vehicle at $5000 but in reality, the car was worth $9,500 (the trustee looked up the value right there). Her only two options at that point were to pay the trustee $9,500 to keep the car or turn the car over to the trustee. Not having the money, she made arrangements to drop the car off this week. OUCH!

I hate to see things like that happen because they really don't have to. I know that paying a bankruptcy attorney legal fees is hard when you're already having financial difficulties but in the case I just mentioned, not having an attorney cost her $9,500.

Many Broward bankruptcy attorneys provide a free initial consultation. I'm thinking that this poor woman didn't take one of us up on it and lost her car as a result. Don't let this happen to you! Most people won't try to fix their car themselves or venture into other areas that they know are best left to a professional.

There are weeks that I seem to get asked the same question repeatedly during the free Chapter 7 bankruptcy consultations that I provide. When that happens, that question usually becomes a blog post! This week's question has actually been coming up for a couple of weeks now so it's overdue for a posting.

The question on most minds lately is: Can my employer take any action against me for filing a bankruptcy? This has come from prospective clients in the banking industry, goverment and also those that are looking for a job. There's no easy answer to that one.

There is federal law that prohibits a government entity (federal, state, local) from discriminating against someone solely because they filed for bankruptcy (11 U.S.C. sec. 525(a)). The prohibited actions include denying someone a job or firing them.

In re Kanouse, 153 B.R. 81 (Bankr. S.D.Fla., 1993), the Court found the language of Section 525(b) to be plain and unambiguous on its face: Section 525(b) provides a remedy to "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 ..." 11 U.S.C. Section 525(b) (emphasis added). Section 525(b) bars employment termination or discrimination by a private employer against a debtor or former debtor solely because such debtor: (1) is or has been a debtor under the Bankruptcy Code; (2) has been insolvent before the commencement of a case under the Bankruptcy Code; or (3) has failed to pay a dischargeable or discharged debt. (I emphasize the word "solely")

If you noticed, I emphasized the word "solely" in both of those paragraphs. The reason for that is because an employer cannot use bankruptcy as the sole reason for making a decision, but they can use other reasons such as performance issues as a reason for taking disciplinary action (including dismissal) and the bankruptcy becomes a secondary issue. The law clearly states that a bankruptcy cannot be the only reason that an action is being taken against the employee.

When it comes to hiring, government employers are expressly prohibited from denying someone a job because the person filed for bankruptcy. However, there is no similar "express prohibition" directed at private employers under the bankruptcy code. This has been tested in lawsuits and unfortunately many courts appear to land on the side of private employers on this one and rule that private employers have a right to refuse employment to someone because of a prior bankruptcy.

A recent example of this is found in a Pennsylvania case: Rea v. Federated Investors (W.D. Penn. Jan. 29, 2010). The U.S. District Court in Pennsylvania ruled that Section 525(b) of the bankruptcy code does not prohibit a private employer from refusing to hire a job applicant solely because they had previously filed for bankruptcy seven years earlier.

In reaching its decision, the court seemed to focus on the wording of Section 525 section "a" and section "b." It expressly commented on the fact that while the phrase "deny employment to" was found in Section 525(a) regarding government employers -- it was not present in Section 525(b). By this exclusion, the Court opined that Congress intended to leave it out and not bind private employers to that standard.

Continue reading "Can my Fort Lauderdale Employer Fire Me Because I File a Chapter 7 or Chapter 13 Bankruptcy?" »

As a Fort Lauderdale bankruptcy lawyer, many assume that I always recommend bankruptcy to prospective clients. Some of my best referrals come from people who schedule their free consultation and the facts of their case lead me to recommend other solutions.

One of the scenarios where bankruptcy might be avoided is if you have little or no assets that a creditor could take. Most people in this category are retired, have no wages that could be garnished (in Florida, a creditor can garnish your wages if they have a final judgment against you and other exemptions don't apply), and do not own a car or have income other than social security. That segment of the population is what we call "collection proof." They may get a judgment against them, but there is nothing a creditor could do to collect their money. I've had clients in this category choose bankruptcy not because they had to - but to stop the creditor harrassment and gain peace of mind again.

But what if you own some assets and/or have a job? Wages are an asset that a creditor can garnish in Florida with certain restrictions. For example, if you are a head of household, they cannot garnish your wages but you will have to file a Claim of Exemption with the court when you receive your notice of garnishment. If your creditor objects to your claim of exemption, then you will have to go to a hearing to prove that you are a head of household. If you are a non-head of household, Florida Statute 222.11(2)(c) allows creditors to garnish only 25% of your wages.

One asset many people overlook and creditors love to take are cars. For some reason, people are under the impression that a creditor cannot take your only car becasue you need it to go to work. WRONG. Creditors don't care if you can't get to work. They only care about getting their money and your car (whether there is a loan against it or not) is an asset that they can sell and recover something. The good news is that if your car is picked up by a creditor, you can get it back by filing a bankruptcy right away.

If you have a lot of assets such as cars, investment property, money in bank accounts, etc - these can legally be taken and sold to pay off your debt. In cases like these, a Chapter 7 or Chapter 13 bankruptcy is sometimes your best option.

Another point that I'm going to briefly address here. Retirement money, 401Ks, and pensions are off limits to creditors. They cannot touch them. You should not touch them either to pay off unsecured debt -- no matter how much creditors harass you or how attached you are to your credit score. If you have to choose between dipping into your retirement money or filing bankruptcy, the majority of the time you should file bankruptcy. Using your retirement money may buy you a few months of relief from your creditors but you're only buying time and not solving the problem. The saddest cases for me are the ones where people have gone through their entire 401K feeding creditors and THEN come in to file bankruptcy.

I'll repeat it again -- your 401K money is protected against creditors - they can't touch it. You shouldn't touch it either to pay credit debt.

When it comes to bankruptcy, every case is unique. One can always find both reasons to avoid bankruptcy and reasons to file. The internet is a great source of information and it's good to educate yourself on the laws, but the internet is like a blank piece of paper...it will hold whatever anyone puts on it - whether it's true or not - and you have no way of knowing whether what you're reading is correct. Your best option is to consult with a Broward County bankruptcy attorney and then make the best choice fror you.