It is important to understand that what is included on the bankruptcy schedules (or what is omitted), can have serious consequences later on. A debtor who leaves things out, or makes mistakes on the forms can lose important rights, or find him or herself on the wrong side of a federal criminal indictment.

It is crucial to know that lawyers, including those that wrote the bankruptcy code, as well as those that designed the forms have only a passing acquaintance with the English language. Lawyers are in love with their own jargon, and often include special definitions of words, which may not correspond with the way the rest of the English-speaking world understands things.

A good example is income. Schedule I asks for income, and Form B22 begins by asking for something called “current monthly income.” Lets suppose that the debtor’s income has gone down – perhaps he is laid off, or is working fewer hours. Students of the English language would probably assume that “current” monthly income is what the debtor is currently earning, and use that on Form B-22. For Schedule I they might decide to use an average – perhaps the average of the last 6 months. But that would be precisely 180° off course. Schedule I is supposed to reflect current income, and income for the immediate future. Averaging is often appropriate, but if the change is expected to be permanent, the new amount should be used.  Form B-22 is based on language in the statute – the “means test”, which requires that a 6 month average be used.

Two of the most important forms are Schedules A and B – listing all of the property owned by the debtor. Most people would understand that they have to list their house, car, and furniture. But many might not think to include a claim they have against a former employer for not paying overtime. This also needs to be listed; if it’s not, the debtor may lose the right to collect if the case is successful after the bankruptcy.

A few of the questions are “red flags” for the trustee who will be reviewing this. The Statement of Financial Affairs asks, innocently enough, about transfers of property made within the past two years. Easy enough to answer, but if a significant amount is involved, it may be possible for a trustee to undo the transfer.

The forms are filled with traps for the unwary. That is one of the reasons why most persons seek out the services of a consumer bankruptcy attorney.

Other Attorneys writing about the letter F:

Consumer Help Central

Cathy Moran

Catherine Eranthe

Mark Markus

Ryan Caldwell

In Pennsylvania, debtors can choose to use either the state exemptions, or the federal bankruptcy exemptions. Because the state exemptions are limited, most debtors choose the federal bankruptcy exemptions.

The federal bankruptcy exemptions include up to $21,625.00 in equity in a home (equity is the difference between what the home is worth, and what is owed on it) and a motor vehicle worth up to $3,450.00. Other exemptions (with some dollar limits) apply to household goods, jewelry, and work tools.

There is also a “wildcard” exemption, which can be added to the above amounts, or used for any other property. The wildcard is $1,150.00, plus up to $10,825.00 of the unused portion of the homestead exemption, for a potential total of $11,975.00. This means that if you don’t own a home, or if your equity is less than the amount of the exemption, the wildcard exemption is increased. The Dollar amounts are adjusted for inflation.

If a Husband and Wife file a joint case, each can claim an exemption in their half of jointly owned property.

Our Pennsylvania state exemptions are not very generous. They include up to $300 in anything (an amount which hasn’t changed in at least 100 years), plus a few specific items such as Wearing apparel, Bibles and school books and Sewing machines. Pennsylvania does provide protection for assets owned by Husband and Wife as tenants by the entireties, so long as the debt is only owed by one spouse. Pennsylvania is also somewhat unique in that it does not allow wage garnishment in most situations (exceptions include claims for support, for certain judgments of landlords, claims by PHEAA for student loans, and for criminal restitution).

Other statutes provide protection (in or out of bankruptcy) for specific kinds of property, such as social security benefits, and most retirement plans.

If a debtor in a Chapter 7 case has property worth more than what they can exempt, the trustee can use the non-exempt property to pay creditors. Most debtors facing this situation don’t file a Chapter 7, but may choose to file a Chapter 13 payment plan which would allow them to keep their property.

Other lawyers writing about the letter E:

Consumer Help Central

Cathy Moran

Catherine Eranthe

Mark J. Markus

Ryan Caldwell

The general rule is that all debts get discharged. The bankruptcy Code lists 19 exceptions. I won’t try to discuss them all here, but will mention a few of the most common issues that come up in a consumer case. The curious (and brave) can read the full text: Code §523

Before discussing the exceptions, however, I should mention some of the requirements for successfully filing and completing a case. The debtor needs to file all of the necessary paperwork, and make certain that it is accurate, complete the financial management course, attend at least one hearing, and cooperate with the trustee. Failing to do these things could result in a dismissal of your case without discharge. Also, there are time limits for filing after receiving a previous discharge: if the previous case was a Chapter 7, a second Chapter 7 case cannot be filed for 8 years. The time limits are different (and somewhat shorter) if one of the cases is a Chapter 13.

Debts that can never be discharged include some (but not all) taxes; debts obtained by fraud or misrepresentation (but only if the creditor files an objection, and proves fraud); child support or alimony obligations; and criminal fines and restitution. Obligations which are due under a marital agreement, or Divorce Decree (other than alimony or support) cannot be discharged in a Chapter 7 case, but can sometimes be discharged in a Chapter 13 petition. Student loans cannot be discharged unless the debtor proves that repayment would impose an “undue hardship.” The Courts have made it difficult for debtors to prove hardship, particularly where there are hardship programs available from the lending agency.

One frequent issue concerns credit cards. The law “presumes” that consumer debts for luxury goods or services over $550, and obtained within 90 days of filing, or cash advances over $825 within 70 days of filing are nondischargeable. If there has been a lot of recent use of a credit card, whether or not within these time periods, some credit card companies will object. If the amounts are small, or not close in time to when the petition is filed, credit card debts are normally discharged without difficulty.

Another question concerns secured loans – thing like a house with a mortgage, or a car if the creditor is holding the title. In this situation, even though the debt is discharged, the creditor retains the right to repossess or foreclose. The debtor has a number options, if he or she wants to keep the property.

Finally, it is important to note that the discharge only protects the debtor; a co-signer will not be discharged, unless they also have filed.

Other Attorneys writing about the letter D:

Consumer Help Central

Cathy Moran

Catherine Eranthe

Mark Markus

Ryan Caldwell

A little history (not much, I promise) is in order. Years ago, each state claimed jurisdiction over children who were physically present, and did not always recognize each other’s custody decisions. That sometimes led to conflicting decisions, and gave a great advantage to the parent who decided to move with the children: he or she could litigate in their new location. That changed with the passage of uniform child custody jurisdiction laws. Although this is an over-simplification, the former home state retains jurisdiction, for at least 6 months, after the children leave. This gives the other parent a chance to go to court and challenge the decision to leave.

Pennsylvania has recently enacted a custody law which adds a notice requirement. The person desiring to relocate the children must give a 60 day notice (less is there is an unforseen emergency). If the other parent objects, the relocation cannot occur until there is a court hearing.

The statute lists a number of factors which are to be considered, and the court is required to look at the effect on the children, and on the children’s relationship with the other parent. The court will also, if relocation is approved, consider necessary changes to the visitation schedule.

The new law doesn’t make relocation impossible, but it will probably make it both procedurally, and substantively harder to leave and take the children.

It should be understood that Credit Unions are subject to the same rules in bankruptcy as any other creditor, with one minor exception; the rules for when a reaffirmation agreement (a promise to pay a debt that would otherwise be discharged) can be approved make it somewhat easier to reaffirm debts owed to credit unions.

Many of the clients I serve in Central Pennsylvania who file bankruptcy petitions want to treat their credit unions differently than other creditors. Many ask me about reaffirming their credit union debts, even those that are unsecured.

Reaffirmation is usually done only for secured loans, such as an automobile loan, where the creditor is holding the title. It is very unusual for an unsecured loan to be reaffirmed. Many credit unions will allow debtors to remain members after bankruptcy if they pay any loans owed to the credit union. The member would be “considered” for future credit, although no promise of approval is ever made.

In my view, the advantages of remaining a member of the credit union are outweighed by the disadvantages of reaffirming (or voluntarily paying) an unsecured loan. Bankruptcy is supposed to provide a fresh start – allowing the debtor to emerge without the burden of paying old debts. The money that would be used to pay the credit union could be put to better use – establishing an emergency fund, or saving up for a major purchase. If the goal is to re-establish your credit, there are other steps that can be taken.

When dealing with credit unions in bankruptcy, there are a few traps that are worth mentioning. Many credit unions assert a right of set-off, claiming the right to use money on deposit with the credit union to pay any debt that is owed. Closing the account before filing, or having only a minimal amount in the account when the case is filed is often the best plan.

When dealing with secured loans, one must also be alert to the possibility of a “Cross-Collateralization” clause: a clause in a contract that tries to make a car that is the subject of one loan security for payment of another loan, which was assumed to be unsecured.

Other Attorneys writing about the letter C:

Consumer Help Central

Ryan Caldwell

Christopher Carr Law

For many people, Bankruptcy is a scary word, one that conjures up images of failure, disgrace and dishonor.

Lets start with the honor roll. Some of the many Celebrities who either filed for bankruptcy, or would have, had modern bankruptcy laws been available) include Francis Bacon, Harry S. Truman, Thomas Jefferson, Wayne Newton and Walt Disney (from the book, They Went Broke). Major corporations have included General Motors, Exxon, and Lehman Brothers Holdings (ranked as the largest filing ever).

In the area where I practice (Blair County, Pennsylvania), we have had Doctors, Lawyers, a former County Commissioner, and several notable local businesses file.

Anyone filing a bankruptcy petition is in good company.

Getting relief from debts is a time-honored tradition. It is in the United States Constitution Article I, §8: “The Congress shall have power … To establish … uniform Laws on the subject of Bankruptcies throughout the United States.”

The Bible also mentions obtaining a release from debt: “At the end of every seven years you shall grant a release.  And this is the manner of the release: every creditor shall release what he has lent to his neighbor, his brother, because the Lord’s release has been proclaimed” Deuteronomy 15:1-2

The current Bankruptcy Code was the product of years of lobbying by banks and credit card companies. Congress, exercising its Constitutional powers, drew a line, known as the means test, that affects who is eligible for a discharge, and what they must do to obtain it. Those debtors who are eligible for relief from debt are acting in a lawful manner, and should not be ashamed or reluctant to take advantage of the law.

Other Attorneys writing about the letter B:

Consumer Help Center

Brooklynconsumerdebt.com

Ryan Caldwell

I will use the alphabet as my theme.

For the letter A, I will discuss the role of the debtor’s attorney.

Do I need an attorney to file bankruptcy? No, but it is almost always a bad idea to file a bankruptcy case without one. Most individuals, and many lawyers, do not understand the ins and outs of the world of bankruptcy. Making mistakes during a bankruptcy can cost someone a lot more than the fees that most consumer bankruptcy attorneys charge.

In a bankruptcy case, attorneys have two primary roles. First and foremost, the attorney should advise and counsel the debtor. Should I file a petition? What Chapter is right for me? Will I receive a discharge? What will happen to my property? What should I do about my mortgage, car loan, etc.? All of these, and more, are questions that the attorney will answer during a typical case.

If a bankruptcy petition is filed, the attorney (or the attorney’s staff) will also fulfill a clerical role: preparing and filing the necessary paperwork. Although this might seem to be of lesser importance, doing the paperwork correctly cannot be separated from the role of providing advice. The legal decisions made by the debtor are often reflected in the paperwork that is filed. For example, if a question is raised about the treatment of an automobile loan during the bankruptcy, one of the first things the lawyers (or bankruptcy judge) will do is look at the schedules to see what value the debtor gave for the property, and what the paperwork says about the debtor’s intentions.

Other Attorneys writing about the letter A:

Consumer Help Central

Ryan Caldwell

McAvoy Law Firm

Following the case as it developed, mostly through CNN and Headline News, two things became apparent to me. First, Headline News has turned into a bunch of cheerleaders for the prosecution, abandoning any attempt at unbiased reporting. Second, there were a number of facts that were less clear to me than the prosecution might like. The lack of evidence of a cause of death being the most obvious gap in their case.

I suspect that the atmosphere in the Courtroom was, as it should be, quite different from the circus that took place outside. There, 12 jurors listened to sworn testimony from witnesses, rather than the ranting of rating-hungry commentators. They quickly reached a unanimous decision: the prosecution had not met its burden of proof on the most serious charges. The speed of their verdict could mean many things, but I suspect that they all agreed that the gaps in the evidence were too great.

I don’t know what I would had I been on that jury. I might have argued for a guilty verdict, pointing out that circumstantial evidence, if sufficient, can be enough to prove the elements of a crime. I might have looked at things quite differently, given the difference between a juror, and a casual viewer.

Lawyers often say that it is “better that ten guilty persons escape than that one innocent suffer”, quoting William Blackstone from the 1760s, among others who have stated this principle.

Casey Anthony, like O.J., may have been one of those ten, but our system of justice, which has served us fairly well, survives.

Eligibility for Social Security disability is based on being unable, as a result of a physical or mental condition (or combination of conditions) to perform any type of work, when the condition is expected to last at least a year (or result in death). In theory, disability is caused by medical problems which shouldn’t change with the economy.

The truth isn’t that simple. Most disability claimants want to work, and many persons succeed despite having conditions that would qualify them for benefits. For example, I have known blind attorneys, and attorneys who were able to practice despite physical problems confining them to a wheelchair.

The definition of disability in Social Security takes into account many factors that are not purely medical in nature. The first question they ask is whether the person is currently engaged in substantial work. An attorney in a wheelchair is an example of someone who, despite his or her obvious “disability” will be found to not be disabled at this step.

Many other people, who are currently working, do so due to accommodations by their current employer. An employer may value a long-term employee, and keep them on by accommodating their disability – even beyond what the Americans With Disabilities Act requires of them.

In a recession, many of these workers will lose their jobs for economic reasons. Often these are older workers, with physical limitations. Job prospects for such persons are grim, even when hiring resumes.

The Social Security Act, and regulations, takes into account vocational factors – things like age, education, training and work experience – are a part of a disability decision. An older worker who has done heavy labor all of his life, and is now able, at most, to do a sedentary job will be found to be disabled. A younger person with the same medical issues will not.

DISCLAIMER: These are some general comments about the law, and not intended as legal advice.

1. I’LL LOSE EVERYTHING I HAVE

In a Chapter 7 Bankruptcy, the law provides for certain amounts of exempt property. Exempt means you get to keep it. The exemptions vary from state to state: most persons who file in Pennsylvania can use the federal exemptions, which include – within certain dollar limits – exemptions for a home, car, clothing, furniture, etc. The amount you can exempt depends on the fair market value of the asset, less any mortgages or liens on it.

The vast majority of people who file Chapter 7 keep all of their property. If there is property above the amount of the exempt amount, the individual might choose to file a Chapter 13 instead, which may allow them to retain the property.

2. MY CREDIT IS RUINED FOR LIFE

Bankruptcy can be reported on your credit report for up to 10 years. Your actual credit score depends on many factors, including how long it has been since the bankruptcy, and your record after the case was discharged. There is one benefit of getting a discharge; after bankruptcy, although the bad stuff will still be on your report, the current amount due will be reduced to 0. Since the amount of debt currently owed is a factor in your score, some people will see their credit scores increase after bankruptcy.

3. THE NEW LAWS MAKE IT IMPOSSIBLE TO FILE

In 2005, Congress added what is known as a means test, as a requirement for filing a Chapter 7 bankruptcy. Persons whose household income is below the median for their State automatically pass this test. Persons whose income is higher may still pass, depending on a number of other factors, such as the amount of their secured debt payments (such as mortgages and car loans).

If Chapter 7 is not available for this reason, most persons will qualify for a Chapter 13. In Chapter 13, you make your best effort to pay for a 3 to 5 year period, and may receive a discharge from any debts not paid in full during that time.

4. IT IS WRONG NOT TO PAY YOUR DEBTS

Bankruptcy is intended to provide a fresh start for the honest debtor who is unable to pay their debts. There are many reasons for filing: medical problems, loss of income, and simply overspending. By “honest” I mean that at the time you took out a loan, you intended to pay it back.

Filing puts you in good company. Some of our largest businesses, such as General Motors, have used the bankruptcy laws to their advantage. Locally, here in Central Pennsylvania, we have seen businesses, and individuals including doctors, lawyers, and a former county commissioner file.

The Constitution authorizes Congress to pass bankruptcy laws, and they have placed some limits on the types of relief available, such as the means test discussed above. If an individual qualifies for bankruptcy under the law, it is certainly not illegal.

I won’t attempt to enter the debate about the moral aspects of bankruptcy, but will note that release of debts is discussed in the Bible: At the end of every seven years you shall grant a release of debts.” Deuteronomy 15:1-2, New King James Version

5. I CAN’T INCLUDE MY TAX DEBTS

There are actually two issues here. First, all of your debts must be listed, including those that will not be discharged. Second, some taxes can be discharged, and some cannot – depending on the type of tax, and how old it is.

6. PAYDAY LOANS DON’T GET DISCHARGED

Payday loans are debts like any other, and do get discharged. Some payday lenders claim that because the debtor has written them checks, they can still prosecute for bad checks after the date of filing. However, in Pennsylvania, and many other states, post dated checks are treated differently than other checks.

7. EVERYONE WILL KNOW I’VE FILED

It is true that bankruptcy filings are a public record: anyone can check the court dockets. This is also true for almost everything else that happens in court, such as divorce, and criminal cases (there are a few exceptions, such as juvenile cases and adoptions).

Most bankruptcy cases aren’t big news, unless a prominent person is involved. And if someone does find out, you’ll be in good company; many famous persons have done this (Abe Lincoln, Henry Ford and Walt Disney, to name just a few).

8. IF ITS NOT IN MY NAME, I DON’T NEED TO LIST IT

In addition to telling the court about everything you own, you will be asked about property you have transferred, whether sold or given away. In many cases, there is nothing wrong with this, however some fraudulent transfers can be reversed by a bankruptcy trustee.

9. I’LL LOSE MY RETIREMENT

Most pensions plans are completely protected in bankruptcy, and IRA accounts are exempt up to $1,000,000.00.

10. I CAN NEVER FILE AGAIN

Most people don’t plan on a second filing, and there are limits. For example, if you filed and were discharged in a Chapter 7 case, you can’t file another Chapter 7 case for 8 years from the date of filing. A Chapter 13 case could be filed sooner than that, however.