Discharging Bank Account Debt During Bankruptcy

Discharging Bank Account Debt During Bankruptcy


A bank account debt can offer many challenges to an individual in bankruptcy. Usually a bank account debt originates from fees associated with an overdrawn account. These fees can quickly accumulate and result in a debt of hundreds of dollars. A bankruptcy will generally discharge this debt, assuming the debt was not incurred by fraud or criminal activity. However, the issue is often should you discharge your bank account debt rather than can it be discharged.

In deciding whether to discharge a bank account debt, you must determine if repayment is feasible. In cases where the debt is small, the account is still open, and you have the resources to pay the debt, repaying the debt is generally the best option. Remember to consult with your attorney before repaying any debt prior to filing bankruptcy. In many cases it is advantageous to wait until after the case is filed before repaying a debt.

If paying the bank account debt is not feasible, you may face several negative consequences. First, the bank will close your bank account. Second, over eighty percent of all banks use Chexsystems, a consumer reporting agency that provides information regarding accounts at banking institutions. Negative information may remain on your Chexsystems file for five years. To view your Chexsystems report for free, visit: https://www.consumerdebit.com/consumerinfo/us/en/chexsystems/report/index.htm

While a bankruptcy will discharge a bank account debt, factual information concerning the debt will remain on your Chexsystems report after the bankruptcy. This information is available to financial institutions and may prevent you from opening another bank account.

Fortunately, there are programs available to an individual with a derogatory Chexsystems report offered by banks, universities, and not for profit groups. One of the most popular is the “Get Checking” program offered by several groups around the country. The University of Missouri Extension offers a typical “Get Checking” program, which requires a debtor to pay all outstanding bank fees on the prior bank account and take a six-hour checking education class. The debtor then receives a certificate of completion which can be used to open a new account at a participating financial institution. If ChexSystems reports suspicion of fraud on a prior account, a certificate will not be issued and institutions are not required to open an account.

If you have an overdrawn bank account and are considering bankruptcy, discuss your financial situation with an experienced bankruptcy attorney. There are many options to deal with bank account debt, but the situation can only grow worse from procrastination. Quick action is the best cure for this type of debt.

When Judgment Proof Is Not Poor Enough

When Judgment Proof Is Not Poor Enough

In some cases a debtor has no money, no job, and no assets. Lawyers commonly refer to this situation as being “judgment proof.” Any attempts to collect on a debt will be futile. As the saying goes, “You can’t get blood out of a turnip.”

While an entirely insolvent and judgment proof individual may avoid creditor collection, many people without money, jobs, or assets receive periodic federal benefits like Social Security. The federal law prohibits most creditors from garnishing federal benefits making the individual “legally” judgment proof.

Debt collectors will occasionally circumvent the federal prohibition by seizing the debtor’s bank account through a state court order. After a judge orders the seizure of a bank account to satisfy a judgment it is the debtor’s obligation to prove that the funds are federally protected. This generally requires hiring an attorney and holding a hearing in the state court. For more information, visit the Federal Trade Commission website for a free publication about bank account seizure of federal benefits.

To close this legal loophole, the Obama administration has recently proposed rules to protect federal benefits from creditor garnishment. These proposed rules require banks to determine whether federal benefits have been directly deposited into a customer’s account within the past 60 days, and to determine the amount, before collecting funds pursuant to a court order. More than 80 percent of Social Security recipients receive their monthly benefits via direct deposit.

Many federal benefits are protected during bankruptcy. For a legally judgment proof debtor, a bankruptcy will end creditor harassment, prevent a bank account seizure, Stop foreclosure, Stop Garnishments, and discharge the debt for good. A bankruptcy can provide peace of mind.

If you receive federal benefits and have outstanding debts, consult with an experienced bankruptcy attorney. Your attorney can advise you on the best course of action to resolve the debt and protect your federal benefits.

Bankruptcy Means Test

Bankruptcy Means Test

The bankruptcy means test is a calculation designed to identify debtors who can afford to pay some of their unsecured debts (for instance, credit card debt) and encourage repayment of these debts through a Chapter 13 repayment plan. The first part of the means test determines whether your current monthly income is less than your state’s median income for a household of your size.

If your family’s income is less than your state’s median income for a family of your size, you PASS the means test. There is no other testing and you can proceed with a Chapter 7 bankruptcy. The current state median income figures can be found at the U.S. Trustee’s website: http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm.

If your family’s income is more than your state’s median income, you must complete the means test worksheet to calculate if you have (or should have) money to repay unsecured creditors. In the end if you are able to pay a significant portion of your unsecured debt, you will FAIL the means test and cannot file a Chapter 7 bankruptcy.

The truth is that most debtors pass the means test without any difficulty based upon their income. Others pass the means test after a skilled bankruptcy attorney has examined your income sources and made certain elections in completing the calculation. That is not to say that the test can be manipulated! On the contrary, the skilled bankruptcy attorney will work within the bankruptcy statutes, rules, case law, and local interpretations (which can vary a great deal among jurisdictions!) to obtain the best result from the means test.

If you have questions or concerns about passing the means test, seek out competent legal advice. An experienced bankruptcy attorney can guide you through the means test to reach the best possible result for your circumstances.

Auto Redemption in Chapter 7 Bankruptcy

Auto Redemption in Chapter 7 Bankruptcy

During a Chapter 7 bankruptcy all unsecured debts are discharged. Debts that are secured by collateral (e.g. car loans) must be paid or the collateral must be returned to the lender. Occasionally an individual considering Chapter 7 bankruptcy will own a vehicle that is worth less than what is owed. This situation is often referred to as “upside down” and usually involves a late model vehicle that has depreciated faster than the person has paid on the loan. It doesn’t make any sense to pay for something that is “upside down,” but often an individual needs to keep the vehicle for transportation to work and for family use.

Fortunately, a provision of the Chapter 7 bankruptcy code allows an individual to keep a vehicle and pay only its current market value. This process is called “redemption.” During a redemption the value of the vehicle is determined (either by agreement between the debtor and creditor or by the bankruptcy judge after a hearing) and a court order is issued directing the creditor to accept a sum from the debtor in exchange for a release of its lien. In plain terms the lender is paid a lump sum and the lien on the vehicle is released. For example, a debtor that owes $15,000 on an auto that is worth $10,000 will only pay $10,000.

Unfortunately, the payment must be made in a one-time lump sum to the lender at the time of the redemption order. If the debtor is unable to pay for the vehicle, there are finance companies that make redemption loans for debtors in bankruptcy. Before making a redemption loan these finance companies require a loan application and certain assurances of repayment. The interest rate can be high for a redemption loan, however the resulting monthly payment is often lower than the original payment. It is important to carefully consider all of the advantages and disadvantages before making a decision to redeem a vehicle:

Advantages of a redemption loan:
• Retention of the vehicle;
• Vehicle is no longer “upside down;”
• The creditor cannot repossess the vehicle;
• Usually results in a lower monthly payment.

Disadvantages of a redemption loan:
• High interest rate.

Redemption is not the only option for keeping a vehicle after a bankruptcy. A skilled bankruptcy attorney can explain all of your options and help you obtain the best deal for your family.

Declaring Bankruptcy the Right Way

In an episode of television’s “The Office,” the main character Michael Scott makes a misguided attempt to resolve his debt problems by publicly stating, “I. . . declare. . . bankruptcy!” Video clips of this funny episode can be found on YouTube.

Back in the real world, declaring bankruptcy is not nearly as public, or as simple, as shouting out “I declare bankruptcy!” The bankruptcy process begins with an accounting of your income, expenses, assets, and debts. The debtor is required to use approved forms for this financial accounting. A copy of these forms can be found on the U.S. Courts website, and a general description of each form that must be filed in all consumer debtor Chapter 7 bankruptcy and Chapter 13 bankruptcy cases is provided below.

The Voluntary Petition is three pages long and is the formal declaration of bankruptcy. Filing the Voluntary Petition begins the bankruptcy process and imposes the automatic stay which will generally stop action by creditors to collect debts.

Schedule A is a list of real property.

Schedule B is a list of personal property.

Schedule C is a list of property the debtor claims as exempt.

Schedule D is a list of creditors holding secured claims.

Schedule E is a list of creditors holding unsecured priority claims.

Schedule F is a list of creditors holding unsecured nonpriority claims.

Schedule G is a list of the debtor’s executory contracts and unexpired leases.

Schedule H is a list of codebtors in the bankruptcy.

Schedule I lists the debtor’s monthly income.

Schedule J lists the debtor’s monthly expenses.

The debtor must sign a Declaration that the above schedules are accurate to the best of his or her knowledge, information, and belief.

The debtor must file a Statement of Financial Affairs. This form provides a summary of the debtor's financial history, transactions, and operations over certain time periods before the case is filed. There are 18 separate items on this form:

1. Income from Employment or Operation of Business
2. Income Other than from Employment or Operation of Business
3. Payments to Creditors
4. Suits, Administrative Proceedings, Executions, Garnishments, and Attachments
5. Repossessions, Foreclosures, and Returns
6. Assignments and Receiverships
7. Gifts
8. Losses
9. Payments Related to Debt Counseling or Bankruptcy
10. Other Transfers
11. Closed Financial Accounts
12. Safe Deposit Boxes
13. Setoffs
14. Property Held for Another Person
15. Prior Address of Debtor
16. Spouses and Former Spouses
17. Environmental Information
18. Nature, Location, and Name of Business

Finally, the debtor must file either a Statement of Current Monthly Income and Means Test Calculation in a Chapter 7 Bankruptcy case, or a Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income in a Chapter 13 bankruptcy case.

The success of your bankruptcy largely depends on the accuracy of these forms and the skill that your bankruptcy attorney applies in crafting these financial reports. Don’t leave your financial future to chance! Seek out an experienced bankruptcy attorney to complete these forms and advise you on the best course of action to resolve your financial problems and protect your rights!

Meeting Your Bankruptcy Attorney

Meeting Your Bankruptcy Attorney

Many clients are intimidated when meeting a bankruptcy attorney for the first time. They fear that they will be asked judgmental questions and have to justify their financial distress. They fear that they will not be able to answer the attorney’s questions and somehow not qualify for bankruptcy and the debt relief they desperately need.

Nothing could be further from the truth.

The first thing you will discover when meeting your bankruptcy attorney is that your attorney is a good listener. You are the world’s foremost expert concerning your own finances, and your attorney is there to learn about your case from you.

The second thing you will discover is your attorney’s compassion. Bankruptcy attorneys really do care about their clients. Bankruptcy is one of the few areas of the law where the legal process is designed to have a positive result for the client. The goal of your bankruptcy attorney is to ensure that you are in a better financial position at the end of the case than you were at the beginning. Bankruptcy lawyers are caring individuals that have an active interest in your future success.

The third thing you will notice is how your attorney is able to quickly summarize what seems like an overwhelming problem into simple concepts. Your attorney will break down your finances into four categories: assets, debts, income, and expenses. From there you and your attorney can discuss what must be done to improve your financial situation.

Finally, you will be impressed with the clarity your attorney has for repairing your financial problem. A skilled bankruptcy attorney spends years studying, training, and gaining practical experience just so your case can be resolved quickly and efficiently. Bankruptcy law is all about paths to recovery and your attorney will guide you along a path that is best for you.

When you first meet your bankruptcy attorney, discuss your case openly and honestly. You will find that your attorney is dedicated to helping you attain a financial fresh start and improve your family’s finances.

“At Risk” Property During Chapter 7 Bankruptcy

“At Risk” Property During Chapter 7 Bankruptcy

Chapter 7 bankruptcy is generally a numbers game between the bankruptcy trustee and the debtor. The trustee seeks to liquidate the debtor's non-exempt assets to pay creditors, and the debtor tries to avoid liquidation of any property. When property is identified by the trustee as non-exempt, the trustee may ask the debtor to turn over the property (or its cash equivalent). The trustee will then liquidate the property and distribute the proceeds to creditors.

The United States Trustee Program reports only around four percent of all Chapter 7 bankruptcy cases are “asset cases.” In other words, statistically only one case in twenty-five has an asset that can be converted to cash and distributed to creditors. Some common types of non-exempt assets include:

• Cash money
• Tax refund
• Vehicle equity
• Home equity
• Misidentified financial account
• Unlisted property

Whenever a non-exempt asset is found by the bankruptcy trustee, the debtor’s case comes under greater scrutiny, the case is generally prolonged while the asset is administered, and creditors are invited to file proof of claims to participate in the distribution of the asset.

The key to keeping property during a Chapter 7 bankruptcy is early identification and full disclosure with your bankruptcy attorney. Poor communication between the client and attorney is usually the cause of “at risk” property. Every bankruptcy attorney has a story about a client who informs the trustee at the 341 meeting of creditors, “I didn’t tell my attorney about this property, but. . .” This story seldom has a happy ending for the client and usually results in the loss of that property.

There are many ways to protect property during a Chapter 7 bankruptcy. Be sure to discuss all of your assets with your bankruptcy attorney. If you have doubts whether you have an ownership interest in property, discuss it with your bankruptcy attorney. Your attorney can provide you legal options to protect your assets and avoid “at risk” property during the bankruptcy process.