Need to Get A New Car? You Might Want To Do It Before Filing For Bankruptcy

A question clients frequently ask me involves the timing of buying a vehicle when filing for bankruptcy. The question of whether it's better to buy a vehicle before filing for bankruptcy or after filing is a good one.

If you're filing a Chapter 7 bankruptcy, there can be a few advantage to buying before you file. First, you may have a lower interest rate. After filing, you'll be able to get a car loan easily, but the interest rate is likely to be around 25%. Sometimes clients will actually have decent credit scores before filing that may allow them to get lower interest rates. Even a few percentage points can make a big difference over the life of the loan.

Second, many clients of mine find themselves in the unfortunate position of having to buy a vehicle at a "buy here, pay here" lot. These dealerships specialize in catering to low-income or bad-credit customers. As such, many of the cars are low quality and unreliable. The prices are inflated and the interest rates are exorbitant. If you buy the vehicle before filing your case, it is a pre-petition debt and is dischargeable. Of course, if you want to keep the vehicle you'll most likely have to sign a Reaffirmation Agreement that still makes you liable on the loan, but it gives you some time to evaluate the vehicle before being stuck with it. This is because you can rescind the Reaffirmation Agreement until you receive your discharge. If you do, you can return the vehicle without being responsible on the loan anymore. Because the average Chapter 7 case lasts about four months from filing to discharge, you can keep it and use the pendency of your case more or less as an "evaluation period". If you purchase the vehicle after your case is filed, it is a post-petition date. If something happens to it or it's repossessed, your out of luck and you're still liable on the car loan.

On the down side, if you purchase a vehicle before your case is filed and you have too much equity in the vehicle, your case trustee may seek to seize the vehicle and sell it. Also, if someone is going to be giving you a vehicle outright, it may be best not to title the vehicle in your name until after your case is filed, depending on the value of the vehicle and your available bankruptcy exemptions. The Ohio bankruptcy exemption for equity in a vehicle is currently $3,450.

Within the context of a Chapter 13 bankruptcy, there are also advantage to purchasing a vehicle before your case is filed. Because it is a pre-petition debt, you can include it in your Chapter 13 bankruptcy at (most likely) a reduced interest rate, currently 5.25%. If you choose to purchase a vehicle after the filing of your case, you'll need to first talk to your attorney. This is because you need to get court permission to incur any significant debt after your Chapter 13 is filed. This usually involves filing a motion with the bankruptcy court. The court can also require you to get multiple competing bids and may deny your motion if it is not satisfied with the vehicle you are trying to obtain. It can be a time-consuming and burdensome (although sometimes unavoidable) process.

The pitfalls with getting a vehicle before your Chapter 13 are similar to those involved in a Chapter 7. Although your Chapter 13 trustee won't take the vehicle, the excess equity in the vehicle may mean that you end up paying more through your Chapter 13 plan to your creditors. As always, it's best to discuss these issues with a qualified bankruptcy attorney before filing your case.

I'm an experienced Canton bankruptcy attorney who's filed or managed over 1,000 cases. For more information on Chapter 7 and Chapter 13, call me at 330-605-3508 or visit my website at http://www.ohiobankruptcyrelief.com/.

Getting a Tax Refund? - Speak To Your Attorney Before You File For Bankruptcy

The next few months will bring us into tax season. Don't think so? Then you're not thinking about the ramifications of your tax refund on your bankruptcy. The fact is that for cases filed from about November 1 through April, the issue of tax refunds has to be considered. Here are a few of the basics about whether or not you'll get to keep that tax refund.

As an initial matter, your bankruptcy trustee has an interest in your tax refund. The trustee's job is to find any property that is not exempt, seize it, liquidate it and use the proceeds to pay back your creditors. Although some trustees are more aggressive than others in pursuing property, they all look at tax refunds as a way to bring some money into the bankruptcy estate.

Here are some of the important things to know. First off, if your case is filed before the end of the year, then the trustee will only be entitled to a prorated portion of the refund. For example, if you filed on December 1, 2010, the trustee would only be entitled to pursue roughly 91% of your 2010 refund (11/12th). Got it? And every day that passes, he or she will be entitled to pursue a greater percentage. If you file after the first of the year (e.g. January 1, 2011), then the starting point for the trustee is the entire refund.

There is, however, good news. A debtor's best friend in bankruptcy (beside their attorney) is the exemption. Let's look at some of the specific exemptions that we use in Ohio to keep some, or all, or the tax refund out of the hands of your bankruptcy trustee.

EXEMPTIONS

An exemption is a legal right for the debtor to place certain property beyond the reach of creditors or the bankruptcy trustee. There are exemptions listed in the Bankruptcy Code for certain property ("Federal exemptions") and exemptions for individual states as well. For the most part, in Ohio we use the exemptions provided for by the Ohio Revised Code, most of which are contained in Section 2329.66. The practical effect of these exemptions is that the debtor gets to retain certain property he or she would otherwise have to surrender. The good news is that oftentimes debtors in Ohio may not have to surrender any of their tax refund to the bankruptcy trustee.  Some of the relevant exemptions are as follows:

• Cash on Hand (ORC 2329.66(A)(3)) - Allows a total $400 exemption for cash on hand or tax refunds
• Wildcard (ORC 2329.66(A)(18)) - Allows the debtor an exemption of $1,150 in any property
• EIC and Child Tax Credit (ORC 2329.66(A)(9)(g)) - Allows an unlimited exemption for amounts attributable to Earned Income Credit or Child Tax Credit

For many people, these exemptions are enough to cover the entire refund. If not, you may have to turn some of the refund over to the trustee. This means that you're in the middle of your bankruptcy case and you have to write a check to the bankruptcy trustee. That's something nobody wants to do. Fortunately, you sometimes have the ability to time your bankruptcy to keep even the non-exempt portion of your refund from the trustee.

TIMING

There are actually instances in which it may benefit a debtor to wait to file for bankruptcy. If a debtor has filed their tax return, but not received their refund, their attorney should analyze their refund to see how much is exempt. If the debtors stand to lose a significant portion of their refund to the trustee, I often advise them to wait until they receive their refund to file. If they receive their refund after they've filed, then the trustee will seize the entire non-exempt portion. If they get their refund first, then they will have a chance to spend it down before filing their case. If this is the case, I always advise debtors to keep track of what they've spent their refund on, as the trustee will want to know. And, of course, one great way to spend your refund . . . pay your bankruptcy attorney. However, there are often legitimate expenses that debtors can spend their refund on pre-petition. These may include groceries, utilities, insurance, clothing, car repairs or any necessities. It is NOT, however, a good idea to spend your refund on a big-ticket item or to re-pay friends or family members right before filing for bankruptcy.

Although the trustee is always seeking ways to get a portion of your tax refund, most debtors and their attorneys, using the proper exemptions and timing, can avoid having to turn over their tax refund and put it to use giving themselves a fresh start.

I'm an experienced Canton bankruptcy attorney who's filed or managed over 1,000 cases. For more information on Chapter 7 and Chapter 13, call me at 330-605-3508 or visit my website at http://www.ohiobankruptcyrelief.com/.

What Is A "Bankruptcy Petition Preparer"? - Someone You Should Avoid At All Costs!

Want to overpay for a simple service you could do yourself? Want to throw hundreds of dollars away? Then I've got just the thing for you. It's called a "bankruptcy petition preparer".

So what is a bankruptcy petition preparer? This is the best definition I found. This is taken directly form Nolo.com. A link to this page is here.


"A bankruptcy petition preparer is any person or business, other than a lawyer or someone who works for a lawyer, that charges a fee to prepare bankruptcy documents. Under your direction and control, the bankruptcy petition preparer generates bankruptcy forms for you to file either by typing them or inputting information into a bankruptcy software program.

Because bankruptcy petition preparers are not attorneys, they cannot provide legal advice or represent you in bankruptcy court. This means that the bankruptcy petition preparer cannot:

tell you which type of bankruptcy to file

tell you not to list certain debts

tell you not to list certain assets, or

tell you what property to exempt.

In essence, you must understand what debts your bankruptcy will discharge, what will happen to your property in the bankruptcy, and what laws should be used to exempt your property from being taken for the benefit of your creditors.

In addition, you must file the bankruptcy papers yourself and represent yourself in court. In other words, you are responsible for your case. You act as your own attorney and use the bankruptcy petition preparer as a typing service that transposes the information you give them onto the official forms."

A typing service. That's all they are supposed to be. Understand this point, first and foremost: A BANKRUPTCY PETITION PREPARER IS NOT A LAWYER! Did I say that loud enough? How about this too: A BANKRUPTCY PETITION PREPARER CANNOT GIVE YOU LEGAL ADVICE. Here goes another: A BANKRUPTCY PETITION PREPARER CANNOT REPRESENT YOU IN COURT OR AT YOUR HEARINGS! Let's see, what else? OK: THERE IS NO FORMAL TRAINING OR CERTIFICATION REQUIRED TO BE A BANKRUPTCY PETITION PREPARER. A bankruptcy lawyer has a bachelor's degree plus a degree from an accredited law school. They have also passed the bar exam and are licensed to practice law in a federal court. A bankruptcy petition preparer is not required to have any education or certification at all.

If you choose to use a bankruptcy petition preparer instead of a bankruptcy attorney, you are still completely on your own. And the cost for an attorney (who will represent you, give you legal advice and attend hearings with you) is often not much more than you'd pay the bankruptcy petition preparer. Filing for bankruptcy can be full of pitfalls, and the bankruptcy petition preparer is neither permitted nor qualified to give you any advice about whether you should file under Chapter 7 or Chapter 13 or what the consequences might be. They cannot tell you which property is exempt and which property you may lose. In short, they cannot tell you anything.

Bankruptcy petition preparers are often attractive to people because of the low cost involved. If you decide to file for bankruptcy, it can be an expensive option. Most good attorneys, however, will have flexible fees and payment arrangements that can help you get your case filed in a timely manner. But if you decide to take the risk and do it yourself, throwing hundreds of dollars at a typist could be your biggest mistake of all.

For more information on Chapter 7 and Chapter 13, visit my website at http://www.ohiobankruptcyrelief.com/.

Client FAQs - Will Filing for Bankruptcy Affect My Spouse?

There are really two sides to this question. In bankruptcy, we're mainly concerned about two things: your debts and your property.

DEBTS

In Ohio, when one spouse files it does not affect credit of the non-filing spouse. As long as the non-filing spouse has not co-signed or otherwise used the credit of the filing spouse, they will not be held liable for the debts of the filing spouse.

One thing to keep in mind, however, is the situation in which both spouses have co-signed for a loan or are jointly liable for a debt. In that circumstance, one spouse's bankruptcy filing does not relieve the other of liability for the debt. The non-filing spouse is fully liable. One caveat to this is if the debtor is filing a Chapter 13 bankruptcy and is re-paying a consumer debt in full through their plan. In this circumstance, the bankruptcy code has a "co-debtor stay" in effect that protects the co-debtor from the creditor (11 U.S.C. 1301).

PROPERTY

As a general rule, any property that is solely in the name of the non-filing spouse cannot be touched by the bankruptcy trustee. One thing to keep in mind, however, is the concept of fraudulent transfers. In Ohio, the trustee can look back up to four years at any property the debtor has transferred out of his or her name. If the debtor transferred property out of his or her name to the non-filing spouse, the trustee may be able to reclaim that property from the spouse.

Also, joint property can be an issue if there is equity in it. For example, if a couple owns a home worth $100,000 that has no lien on it, the trustee may end up selling the house. The debtor owns a 50% interest ($50,000), but Ohio bankruptcy exemptions only cover $21,625 worth of equity. The trustee could then sell the house, give the non-filing spouse the value of their interest, give the debtor the value of their exemption, and give the rest to creditors. This is the sort of situation that can result in the loss of a home, a car or any other jointly titled property. An experienced bankruptcy attorney should be able to point out these potential pifalls before you file your case.

For more information on Chapter 7 and Chapter 13, visit my website at http://www.ohiobankruptcyrelief.com/.

Client FAQs: Will I lose my home in bankruptcy?

One of the most frequent concerns people have when they come in to my office is whether or not they will lose their home in bankruptcy. Oftentimes, a person's home is more than just a piece of property. It is the realization of the American Dream. It is a place where memories are made and families are raised. It symbolized achievement and ownership in a community or neighborhood. People are right to ask the question "Will I lose my home in bankruptcy?"

With any question, of course, the answer depends on the circumstances. Clients should realize that with any property they have, their bankruptcy trustee is concerned with one thing, equity. The trustee's job is to find any property that is not exempt, liquidate it, and use the money to pay off creditors. In most Chapter 7 cases, there is nothing for the trustee to sell. These are called "no-asset" cases. Simply put, if there is no equity in your home (a common situation these days), then your bankruptcy trustee will not have any interest in it. But even if you do have equity, you may still be safe. The Ohio bankruptcy exemptions for homes (the "homestead exemption") allows any person to exempt $21,625 of equity in their primary residence. Double this for joint owners ($43,250). Even if you have more than this, your trustee may not pursue your property if they will not realize any money when taking into account the costs of sale.

If you have too much equity in your home, there is one of two ways this is resolved. Either the trustee will sell your property (and pay you the value of your exemption), or you can pay the trustee money to keep the property (in an amount agreed upon between the trustee and your attorney). If neither of these is an option, you should consider a Chapter 13 bankruptcy.
In a Chapter 13 bankruptcy, you do not lose the property, although the nonexempt portion of your equity is taken into account for purposes of your plan payment.

Finally, you should make sure that your mortgage payments are current, or that you have arrangements with your mortgage company, if you want to keep the home. If it is behind, you may want to consider a Chapter 13 bankruptcy to get it caught up or stop a foreclosure. Also, you can sometimes get rid of, or "strip", a second mortgage if you complete your Chapter 13 Plan and get a discharge.

For more information on Chapter 7 and Chapter 13, visit my website at http://www.ohiobankruptcyrelief.com/.