Why does this matter? Because if you expect someone else to care more about your case than you do, you’re going to be very disappointed in the results. The bankruptcy process requires a high level of effort from clients. You cannot simply hand off the problems to your attorney and wait for them to be solved. While I try to make it as easy as possible for my clients to work with me, I do need some cooperation. A successful bankruptcy requires teamwork. I can prepare your paperwork, deal with your creditors and the trustee, and guide you through the whole process. I’ll need you to gather some documents and provide information about your assets and debts. As long as you make YOUR case a priority, the odds for success will be pretty good.

Bankruptcy attorneys from around the country are taking part in this “Bankruptcy Alphabet” exercise. Please take a few minutes to check out these other blog posts on the letter “Y.”

Yacht – by Jacksonville Bankruptcy Attorney, J. Dinkins G. Grange
Years Between Discharges – by Hawaii Bankruptcy Attorney, Stuart T. Ing
Yoke – by Bay Area Bankruptcy Lawyer Cathy Moran
Young v. United States – by Omaha/Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell
Your Bankruptcy Trustee – by Cleveland Bankruptcy Attorney Bill Balena
Yo-Yo – by New York bankruptcy lawyer Jay S. Fleischman

Image Credit: takomabibelot/flickr

Disclaimer: When clients ask me, “how will anyone find out if I lie?” little red lights & sirens go off in my head. If you’re thinking about being anything less than 100% honest with me, you need to find another lawyer. But the answer to the question is The X-Factor. Undisclosed assets or income are frequently uncovered by bankruptcy trustees thanks to ex-spouses, ex-friends, or ex-business partners.

No one can keep all their financial secrets from everyone. Think the bankruptcy trustee won’t find out about that collection of Roman coins that you were able to keep in your divorce? Your ex-spouse is likely to be the first to drop a dime. The $500,000 you made in a business deal four months ago? The business parter who thought he deserved a bigger cut will be making a call. Any assets or income you have are known by someone. Have you made anyone mad? That “X” will probably make a beeline to your 341 meeting to inform the trustee that you lied on your bankruptcy paperwork.

Most bankruptcy filers are honest people. But the court records are full of people who thought they could pull a fast one and outsmart the system. More often than not, those people lost assets or lost their right to a discharge. In extreme cases, they ended up in federal prison. Because we don’t look good in orange, most bankruptcy attorneys refuse to lie for any client. If you’re thinking about lying and filing bankruptcy, be sure to consider the X-Factor.

Bankruptcy attorneys from around the country are taking part in this “Bankruptcy Alphabet” exercise. Please take a few minutes to check out these other blog posts on the letter “X.”

Ex-Spouse – Maui Bankruptcy Lawyer, BankruptcyHI.com
OEX – Bay Area Bankruptcy Lawyer Cathy Moran
Xantusiidae – Cleveland Bankruptcy Attorney Bill Balena
Xenagogue – Omaha/Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell
Xenocracy – Jay S. Fleischman, New York bankruptcy lawyer

Image Credit: Steve Snodgras/flickr

Maybe you filed bankruptcy because some event caused your income to decrease and/or your expenses to increase. Now that you’ve remedied that situation and eliminated the debt you incurred, you need to establish good spending habits & build up some savings to ensure that you don’t need to file bankruptcy again. Or perhaps you made some poor choices and lived beyond your means for too long. If you fall back into the same spending habits that caused your bankruptcy, you’ll be seeking bankruptcy relief again in a few years. As much as I like my clients, it would be good if they didn’t need me more than once.

Here are some tips for curbing wasteful spending habits post-discharge:

1 – Credit card use. Most of my clients receive credit card offers within six months of getting their bankruptcy discharge. Credit cards aren’t inherently bad. They’re convenient and making regular payments on time can help rebuild your credit after bankruptcy. But you need to use credit cards wisely. Pay your credit card balance in full and on time each month. This way, you don’t pay interest or late charges. And the on-time payments will show up on your credit report, showing other lenders that you’re a good credit risk. But be careful! This tip only works if you pay in full and on time every month. It’s easy to skip a month or start to carry a balance, but doing so will likely land you back in your bankruptcy attorney’s office.

2 – Payday loans. This one’s easy; don’t take them. The APR on these loans frequently exceed 500%. If you fall on hard times and need cash, you’d be better off borrowing from a friend or family member. The payday loan cycle frequently ends with a visit to a bankruptcy attorney.

3 – Keep track of your spending. Whether you use a credit card or cash, keep track of how much you spend each day. You may be surprised how much you spend in an average week on small things like coffee, candy bars, or drinks after work. The true cost of these expenditures doesn’t show up until you get your credit card bill or bank account statement showing all the ATM withdrawals. Once you know where your money is going, it’s easier to change your habits.

4 – Give yourself an allowance. All work and no play makes Jack a dull boy. When you get paid, set aside some amount for “walking around” money. Once that’s spent, don’t take more until you get paid again. This will help you budget your money and ensure that you have enough each month for your necessary expenses (rent/mortgage, car payment, utilities, groceries, etc.)

If you apply these tips to your spending post-bankruptcy, you should be well on your way to making the most of your fresh start.

Bankruptcy attorneys from around the country are taking part in this “Bankruptcy Alphabet” exercise. Please take a few minutes to check out these other blog posts on the letter “W.”

Wage Garnishment – by Cleveland Bankruptcy Attorney, Bill Balena
Wages – by Hawaii Bankruptcy Attorney, Stuart T. Ing
Wages – by Jay Fleischman New York Bankruptcy Lawyer
Wait – by Bay Area Bankruptcy Lawyer Cathy Moran
Warning – by Omaha/Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell

Image Credit: CarbonNYC/flickr

Different people value assets in different ways. The method you choose isn’t important as long as your valuations are reasonable. I tell people to ask themselves how much they could get if they sold the sofa/TV/desk/etc. in its current condition at a garage sale or auction. Very few things have an intrinsic value; they are worth only what someone is willing to pay. While your pet may be priceless to you, there is a limit to what Joe Blow on the street would pay you for it. And even if you don’t know how much your wedding ring is worth, there are plenty of professionals who can tell you what it would sell for.

You’re required to disclose how much your assets are worth to a hypothetical, objective third-party buyer. You’re not setting the price at which you would sell. For example, you might not sell your engagement ring for any price because the emotional attachment is worth more than any dollar amount. That doesn’t change the fact that our hypothetical, objective third-party buyer would pay $500 for it. Keep in mind that we’re not asking how much your assets mean to you; we’re asking for your best good-faith estimate as to how much a reasonable third-party would pay to own them.

When valuing your assets for a bankruptcy filing, reasonableness is the key. While you don’t need to get an appraiser to tell you if your silverware is worth $5 or $6, you do need to make a reasonable inquiry into the value of your assets. If you really have no idea whether your baseball card collection is worth $10 or $10,000, you need to make a reasonable effort to find out. What is a reasonable inquiry? Depending on the nature of the asset, you could take it to a collector, jewelry store, or pawn shop. You could go to garage sales and auctions or look on eBay and Craigslist to see how much people pay for similar items. It might also be reasonable to estimate values yourself. If you purchased your sofa eight years ago for $500, and since then the kids have thrown up on it, the dog has peed on it, and the cat has scratched up the arm, you might reasonably estimate that it’s worth $75 today.

Valuing assets is important, but you don’t need to worry about it. You probably won’t lose anything, because of the applicable exemptions. If you state on your bankruptcy schedules that you own an original Picasso painting that’s worth five bucks, the trustee may send out an appraiser to verify your claim. But no one is going to send an appraiser to your house to make sure your easy chair is really worth $50 and not $60. As long as your value estimates are reasonable, you’ll be fine.

Bankruptcy attorneys from around the country are taking part in this “Bankruptcy Alphabet” exercise. Please take a few minutes to check out these other blog posts on the letter “V.”

Value – by Silicon Valley Bankruptcy Attorney Cathy Moran
Vehicle – by Omaha/Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell
Venue – by Cleveland Bankruptcy Attorney Bill Balena
Venue – by Metro Richmond Bankruptcy Attorney, Mitchell Goldstein
Vesting – by Jay Fleischman, a bankruptcy lawyer in New York
Violation of the Automatic Stay – by Hawaii Bankruptcy Attorney. Stuart T. Ing

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First, a little terminology. An upside-down vehicle simply means that the vehicle is worth less than is owed against it. A $5,000 vehicle with a loan balance of $7,000, that sort of thing. Saying the car is “underwater” is the same thing.

If you have an upside-down car or truck, bankruptcy may be able to help. I’ll take you through the options using this scenario: Debtor owns a 2001 car with a fair market value of $3,000. Debtor also has a loan with Big Bank, with a current balance of $15,000. Big Bank has a lien on the car, securing its loan. If Debtor files bankruptcy, how can he deal with this debt? (That sounds a lot like a law school question…)

- If he files a Chapter 7, Debtor could reaffirm the debt. He would keep the vehicle and keep making his payments. I wouldn’t recommend this option, as Debtor would eventually pay $15,000 for a $3,000 car. If he’s going to spend $15,000, he might as well get a vehicle worth $15,000.

- Debtor could surrender the car in his bankruptcy. Big Bank would get the car, but nothing else. If Debtor surrendered the car outside of bankruptcy, Big Bank would sell it at an auction for around $20 and then sue Debtor for the deficiency (the difference between the value of the collateral and the loan balance). In bankruptcy, Big Bank couldn’t sue for the deficiency. Unless this car has sentimental value to Debtor, this isn’t a bad option.

- Debtor could redeem the vehicle in a Chapter 7. By redeeming, Debtor would pay Big Bank a lump sum of $3,000 and Big Bank would release its lien. There are places that will give loans for this type of transaction, but their interest rates are quite high. It’s usually best if a friend or family member can lend the money to redeem. If Debtor can come up with the necessary funds, redemption is a great way to keep the upside-down car without overpaying for it.

- In a Chapter 13 bankruptcy, Debtor might be able to cram down the loan. In a cram down, Debtor would pay the value of the vehicle over the life of the Chapter 13 plan. It’s similar to redemption, but a lump sum payment isn’t required. Debtor cannot cram down the loan if the car was purchased less than 910 days before the bankruptcy was filed AND the loan was made to purchase the car, i.e. it wasn’t a refinance.

- Whether or not he can cram down the loan, Debtor can modify the interest rate in a Chapter 13. Instead of paying the 8% – 13% contract rate, he can pay the Till rate (long story short, it’s around 4.5%). Depending on the contract rate, this could save Debtor quite a bit of money.

As you can see, there are quite a few options for dealing with an upside-down vehicle in bankruptcy. Which one is best for you will be determined by your individual circumstances. Your bankruptcy attorney can give you advice specific to your situation.

Bankruptcy attorneys from around the country are taking part in this “Bankruptcy Alphabet” exercise. Please take a few minutes to check out these other blog posts on the letter “U.”

U.S. Trustee – by Omaha/Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell
Unauthorized Practice of Law – by Cleveland Bankruptcy Attorney Bill Balena
Underwater – by Jay Fleischman, bankruptcy attorney in New York City
Underwater – by Metro Richmond Bankruptcy Attorney, Mitchell Goldstein
United States Trustee – by Maui Bankruptcy Attorney, Stuart Ing
Unlisted assets – by Allen Park, Michigan bankruptcy lawyer, Christopher McAvoy
Unsecured – by Cathy Moran, Bay Area Bankruptcy Lawyer

Image Credit: dumbledad/flickr

The ownership of the timeshare itself is an asset. Despite what the salesman told you, your timeshare is probably not worth the $5,000 you agreed to pay. Regardless of how much it means to you, that timeshare is only worth what someone is willing to pay for it. Given that timeshares are often sold on eBay for under $1.00, it’s doubtful that you will find someone willing to pay $5,000 for the right to stay at Fantastic Resort.

The value of a timeshare may not be great, but it is an asset that must be disclosed in your bankruptcy. Given the low value of most timeshares, exempting them is usually not a problem. Bigger problem with timeshares are the maintenance fees and initial purchase prices. Maintenance fees, often $100/month or more, are charged whether you use the timeshare or not. And the high initial purchase prices are usually financed. My clients with timeshares usually owe a few thousand dollars on the original purchase and accrued maintenance fees. In most of those cases, I advise them to let the timeshare go, discharge that debt, and pay for vacations as they go.

A timeshare isn’t necessarily a bad purchase. But if you’re having trouble paying your other bills, the timeshare should be one of the first things you consider eliminating from your budget.

Bankruptcy attorneys from around the country are taking part in this “Bankruptcy Alphabet” exercise. Please take a few minutes to check out these other blog posts on the letter “T.”

Tax Discharge – by Allen Park, Michigan Bankruptcy Lawyer, Christopher McAvoy
Tax Refund – by Cleveland Bankruptcy Attorney Bill Balena
Tax Refunds – by Philadelphia Suburban Bankruptcy Lawyer, Chris Carr
Taxes – by Kauai Bankruptcy Attorney, Stuart T. Ing
Tension – by San Mateo County Bankruptcy Lawyer Cathy Moran
Thirteen – by Metro Richmond Bankruptcy Attorney, Mitchell Goldstein
Tools of the Trade – by Colorado Springs Bankruptcy Lawyer Bob Doig
Transfers – by Omaha/Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell
Trustee – by Bankruptcy Lawyer Jay S. Fleischman

Image Credit: TooFarNorth/flickr

The next question usually is, “does it matter if I file my bankruptcy before or after the creditor gets its small claims judgment?” The answer depends on your individual situation. If you’re unemployed and have no non-exempt assets, probably not. If you’re employed and your wages are not exempt from garnishment, it’s usually better to file the bankruptcy before the judgment is entered and the creditor begins collecting on that judgment.

Small claims judgments are typically dischargeable in bankruptcy. So the obligation to pay on that judgment will probably be eliminated whether you file your bankruptcy before or after the small claims suit is completed. If you file before the judgment, the judgment will not be entered. If you file after the judgment, the creditor may be able to collect on the judgment from the time of the judgment until you actually file the bankruptcy, but won’t be able to collect once you file. In short, the timing of the bankruptcy filing doesn’t usually make a big difference, but you should talk to your attorney to learn if the specifics of your situation require an earlier or later filing.

Many consumers are afraid of getting sued in small claims, largely because they don’t know what will happen. Information can relieve that stress and allow you to make good decisions. If you have questions about small claims suits, feel free to ask in the comments below or on my Facebook page. While I can’t give legal advice without meeting you face-to-face, I can answer general questions.

Bankruptcy attorneys from around the country are taking part in this “Bankruptcy Alphabet” exercise. Please take a few minutes to check out these other blog posts on the letter “S.”

Scared - by Jacksonville Bankruptcy Attorney, J. Dinkins G. Grange
Schedules and Statements – by Omaha/Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell
Section 341 Meeting – by Allen Park, Michigan Bankruptcy Attorney, Christopher McAvoy
Security Interest – by Jay S. Fleischman
Spouse – by Cleveland Bankruptcy Attorney Bill Balena
Statement of Intention – by Metro Richmond Bankruptcy Attorney, Mitchell Goldstein
Statutory Lien – by Dorota Trzeciecka Bankruptcy Blog
Step Plan – by Kurt O’Keefe Michigan bankruptcy lawyer
Strip – by Bay Area bankruptcy lawyer Cathy Moran
Student Loans – by Colorado Springs Bankruptcy Lawyer Bob Doig
Student Loans – by Hawaii Bankruptcy Lawyer, Stuart T. Ing
Stuff – by WilksLaw, DC Metro
Surrender – by Metro Richmond Consumer and Bankruptcy Attorney, Mitchell Goldstein

Image Credit: TooFarNorth/flickr

- Surrender the collateral. Outside of bankruptcy, if your vehicle is repossessed, the lender will sell it at an auction, get about twenty bucks for it, and sue you for the difference between that $20 and the last balance on your loan. This difference is called a deficiency. In bankruptcy, if you surrender the vehicle, the lender cannot pursue you for the deficiency. The lender will get its collateral and nothing more. This option makes sense if your car is worth considerably less than what you owe and you’re willing to let it go.

- Reaffirm the debt. If you want to keep the vehicle and continue making your payments, you can reaffirm the debt. By signing a reaffirmation agreement, you agree to assume the personal liability that your bankruptcy would otherwise discharge. With respect to this particular debt, it will be as if your bankruptcy had never happened. If you default in the future, the lender will repossess the vehicle and sue you for a deficiency. This option is preferred by many of my clients when the vehicle is worth more than is owed. Check out THIS POST for a more detailed explanation of reaffirmation agreements.

- Redeem the collateral. Redemption allows you to pay a lump sum to your lender for the fair market value of the vehicle in exchange for a lien release. Say you have a car worth $2,000 but you owe $15,000 against it. To redeem the vehicle, you would pay the lender $2,000 and the lender would release its lien. You would emerge from bankruptcy without the debt and a $2,000 vehicle that you own free and clear of all liens. (That’s a simplified version; redemption involves a motion and possible hearing on the value of the collateral.) Redemption is a great option if your vehicle is worth significantly less than what you owe, you want to keep the vehicle, and you can come up with the necessary funds to pay the fair market value within a few weeks of your bankruptcy filing.

There’s also an unofficial fourth option called “Retain and Pay,” where the debtor proposes to retain the collateral and continue making payments. It’s similar to reaffirmation, but without the threat of being sued for a deficiency in the future. However, the Bankruptcy Code doesn’t provide for this option. If you don’t choose to either surrender, reaffirm, or redeem, the Automatic Stay will be lifted and the lender may proceed under state law. Given that lenders will usually get more money by continuing to accept payments than by repossessing, your smarter lenders will typically allow Retain & Pay. But not all lenders make good financial decisions and will try to repossess if the debtor does not either reaffirm or redeem. In Wisconsin, the lender cannot repossess without a default in payments if the loan falls under the Wisconsin Consumer Act. In states without such consumer protections, the lender may repossess if you don’t reaffirm or redeem, even if you’re current on your payments. But see THIS POST for a warning on trying retain in pay in Wisconsin.

Bankruptcy attorneys from around the country are taking part in this “Bankruptcy Alphabet” exercise. Please take a few minutes to check out these other blog posts on the letter “R.”

Reaffirmation – by Metro Richmond Bankruptcy Attorney, Mitchell Goldstein
Reaffirmation Agreement – by Cleveland Bankruptcy Attorney, Bill Balena
Reaffirmation Agreements – by Omaha/Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell
Reaffirming Your Mortgage – by Allen Park, Michigan Bankruptcy Attorney, Christopher McAvoy
Redemption – by New York Bankruptcy Lawyer, Jay S. Fleischman
Redemption – by Metro Richmond Bankruptcy Attorney, Mitchell Goldstein
Rental vs. Continued Home Ownership – by Philadelphia Suburban Bankruptcy Lawyer, Chris Carr
Renting After Bankruptcy – by Los Angeles Bankruptcy Attorney, Mark J. Markus
Reorganization – by Northern California Bankruptcy Lawyer, Catherine Eranthe
Repossession – by Colorado Springs Bankruptcy Lawyer Bob Doig
Repossession – by Kona Bankruptcy Lawyer, Stuart T. Ing
Retirement – by Bay Area Bankruptcy Lawyer Cathy Moran

Image Credit: bixentro/flickr

I tend to use my credit cards for nearly everything, so it may seem hypocritical for me to tell others to stop. But my advice isn’t meant for everyone. If you pay your credit card bill in full and on time every month so you don’t pay any finance charges, credit cards can be a convenient way to pay. But there’s a reason banks make good money on credit cards. Miss your payment deadline by one day, and say goodbye to that 5% introductory interest rate and hello to a $25 late fee.

I see people every day who had the best of intentions when they started using their credit cards. The card was only going to be used to cover some necessary expenses one month and be paid back in full the next month. But something else came up next month and that credit card payment got pushed back again. Suddenly, $500 worth of charges ballooned to a $3,000 debt that will take years to pay off.

Credit cards can be convenient, but they can also be financial traps for the unwary.

Bankruptcy attorneys from around the country are taking part in this “Bankruptcy Alphabet” exercise. Please take a few minutes to check out these other blog posts on the letter “Q.”

Qualified Retirements – by Kauai Bankruptcy Attorney, Stuart T. Ing
Qualified Written Request - by Metro Richmond Bankruptcy Attorney, Mitchell Goldstein
Qualified Written Request – by Northern California Bankruptcy Lawyer, Catherine Eranthe
Qualifying – by Colorado Springs Bankruptcy Lawyer Bob Doig
Quality Bankruptcy Attorney – by Omaha/Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell
Questions – by Bay Area Bankruptcy Attorney Cathy Moran
Questions About Bankruptcy – Allen Park, MI Bankruptcy Attorney, Christopher McAvoy
Quick – by Jacksonville, Florida Bankruptcy Attorney, J. Dinkins G. Grange
Quiet – by New York Bankruptcy Lawyer, Jay S. Fleischman
Quitclaim – by Cleveland Bankruptcy Attorney, Bill Balena

Image Credit: takomabibelot/flickr

Property of the estate is defined in Section 541 of the Bankruptcy Code. Why does it matter? Because this property doesn’t belong to the debtor, it belongs to the bankruptcy estate and the trustee will either administer it (sell it and distribute the proceeds to creditors) or abandon it (let the debtor keep it). Property of the estate ties in with exemptions, which have been discussed HERE. If property of the estate has been properly exempted, the trustee will abandon it and the debtor will retain it. If it can’t be exempted, the debtor has two options: (1) surrender the asset to the trustee for liquidation, or (2) file a Chapter 13 bankruptcy and pay the nonexempt value into the plan over 3-5 years. For example, let’s say the debtor has a vehicle worth $5,000, no liens against it, and no exemption available to protect it. If the debtor wanted to keep the vehicle, he could pay that $5,000 into the Chapter 13 plan over 3-5 years and essentially “buy back” the vehicle from the bankruptcy estate.

While most of a debtor’s assets are property of the bankruptcy estate, some property is excluded from the estate by statute. These exclusions are in § 541(b) of the Bankruptcy Code. The list is pretty long, but it includes certain Education IRA’s, most retirement plans, and trusts that include valid spendthrift provisions. As you can see, there are two categories of property that a debtor can keep in a bankruptcy case. Property that goes into the bankruptcy estate and is then taken out using exemptions, and property that never goes into the bankruptcy estate at all.

Most of my clients never have to worry about losing assets. The exemptions available in Wisconsin are reasonably fair, and I can usually exempt 100% of my clients’ property. If you have an asset that you can’t risk losing, be sure to discuss it with your bankruptcy attorney before filing.

Bankruptcy attorneys from around the country are taking part in this “Bankruptcy Alphabet” exercise. Please take a few minutes to check out these other blog posts on the letter “P.”

Pay Advice – by New York Bankruptcy Lawyer, Jay S. Fleischman
Payment – by Jacksonville Bankruptcy Attorney, J. Dinkins G. Grange
Personal Bankruptcy – by Livonia, Michigan Bankruptcy Attorney, Peter Behrmann
Phone Call – by Cleveland Bankruptcy Attorney, Bill Balena
Plan – by Omaha/Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell
Planning – by Los Angeles Bankruptcy Attorney, Mark J. Markus
Preference – by Maui Bankruptcy Attorney, BankruptcyHI.com
Preference - by Marin County Bankruptcy Attorney, Catherine Eranthe
Preferences – by Colorado Springs Bankruptcy Attorney Bob Doig
Pride – by Southgate, Michigan Bankruptcy Lawyer, Christopher McAvoy
Property of the Estate – by Philadelphia Suburban Bankruptcy Lawyer, Chris Carr

Image Credit: TooFarNorth/flickr