When you file for bankruptcy, you are required to list all your assets and creditors. You cannot pick and choose which creditors you want to continue to pay and which ones you want to discharge in your bankruptcy.
If you have a zero balance at the time of filing your case, the credit card does not need to be listed. However, your creditors will sometimes close the account even if you do not have a balance because the credit bureaus will notify them that you have filed for bankruptcy.
If keeping one credit line open is important to you, you might want to call the creditor directly and ask if they would close your account or leave it open if you had a zero balance at the time of filing your case.
Additionally, if you have paid any creditor over six hundred dollars, ninety days prior to filing your case that would also need to be listed. If one creditor is paid but not others, that is considered a preferential treatment of that creditor and the trustee could look to that creditor for payment. For example, if you paid one creditor three thousand dollars, ninety days prior to filing your case, the trustee could go after that one creditor for the three thousand dollars to collect and distribute to your other creditors.
The good news is that you can typically get credit very quickly post-filing or open a secured credit line to rebuild your credit. Since you will have more disposable income and no debt after filing, hopefully credit will only need to be used on a limited basis. When you pay your credit lines on time that will definitely help to rebound your credit after filing.
Many people ask whether they will be able to rent a home or apartment after filing for bankruptcy. The answer to that question is yes. It’s a common requirement to fill out an application with the property manager and have them run your credit history.
Within a short period of time after receiving your discharge your credit score should continue to improve if you are making timely payments to your obligations such as your car payment. You also have more disposable income after filing your bankruptcy case because you will be debt free. Landlords are more likely to have an issue with prior evictions than a bankruptcy filing.
A few things can help you during the application process to help assure the landlord you would not be at risk for default. If you have lived in your existing rental and have paid on time for at least a year that’s helpful. Even better if you can use your current landlord as reference. Additionally, if you have had a consistent job history with the same employer that is also helpful with no gaps of unemployment.
If you have a lower credit score you may be required to pay a higher security deposit or have a co-signor on the lease. Typically, rent does increase each year so keep that in mind when you begin to rent to make sure it’s affordable long term. Ask what items are included in the rent such as water, cable or trash or if that and additional cost. Having a roommate at least temporarily could help defray some of the cost as well.
There are several rules you have to be careful to follow when you are giving or receiving gifts before filing your bankruptcy case. You must disclose any gifts over $600 to any one person two years prior to filing your bankruptcy case. For that reason, it is best to keep the gift giving to a minimum to avoid having to pay the trustee.
You may give towards charitable contributions such as your church up to 10% of your income. It is fine to receive monetary gifts. For example, if your uncle gives you two thousand dollars to help you pay bills, you can that use money on reasonable living expenses without it being a problem.
If you receive regular financial contributions on a monthly basis, that money might have to be considered as income for the purpose of determining your eligibility for a Chapter 7.
I would recommend consulting with an attorney prior to receiving a gift that would be considered an asset like a car. For example, say your parents buy you a $10,000 car that is now titled in your name. That asset would not be fully exempt and that might require you to pay the trustee several thousand dollars.
That could have been avoided by keeping the car in your parent’s name. Do not transfer property out of your name to avoid paying the trustee because any transfers of property would still need to be disclosed for up to two years.
We generally recommend not making any property transfers before filing your case if you can avoid it or definitely get advice prior to doing so.
When you file your case both a bankruptcy trustee and a judge are assigned to your case. Their roles are very different. The person with whom you’ll have your 341 hearing is actually the bankruptcy trustee not the judge.
The trustee is usually either an attorney or a certified public accountant that reviews your case and administers any assets to your creditors. For example if you are over the exemption amount by $1,500, you would pay that $1,500 to the Chapter 7 trustee and out of that $1,500 the trustee would collect a fee and they would distribute a pro rata share to any creditors who file claims in your case.
The trustee can also collect any insider payments in the past year (any money that you have repaid to friends or family members) or any gifts over $600 to any one person in the last two years. Its very important for your attorney to thoroughly review all of your bank statements and information to make sure there are no unforeseen issues on what you might have to pay the trustee.
That is also why it’s very critical to tell your attorney 100% of information so you can get proper advice on whether it’s in your best interest to file you case or whether it might be beneficial to wait to file your case. The trustee is objective is to find money to pay your creditors.
Although, creditors may also hire their own attorney to represent their interests. The judge is there to make rulings if there is a dispute between you and the trustee in terms of value of property or any other issue that may arise. In most cases there are no assets to distribute, but the trustee files the appropriate paperwork and the judge orders the discharge of your case.
There are certain steps a creditor must go through in order to obtain a lien on your homestead property. They must file a lawsuit. If the lawsuit goes unanswered then the creditor can obtain a default judgment. The creditor can secure a lien on your homestead property by recording a judgment in official records in the county where the property is located.
The judgment can cloud title to your property so when you go to sell it or refinance it you would be obligated to satisfy the lien at the closing.
Judgment also accrue daily interest much like a credit card or personal loan. So, if there is a lien for ten years without a payment, that amount can grow exponentially and even double or triple the amount of the original debt. When your file for bankruptcy the underlying debt will be discharged but it does not automatically extinguish the lien on the property. In order to remove the lien a motion to avoid judicial lien needs to be filed in the bankruptcy case. Once an order is obtained, you can record a certified copy and get the lien removed.
Clients are often surprised that creditors may put a lien on their homestead property, thinking because its homestead, it is protected against creditors. Similarly, many clients are also surprised that their homeowner’s association has the power to foreclose on their property, even if they are current on their mortgage and even if it’s for a few thousand dollars.
If you have questions on how to remove a lien on your property feel free to contact me for assistance.
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