Collateral is when your property can be taken if you do not pay on a debt. It’s also commonly known as secured debt. The most common example of this is a house or a car. For example, if you don’t make your car payment the lender can repossess your vehicle.
If you do not make your mortgage payment, the lender can foreclose and take possession of your house. The most common example of “cross-collateralization” that we see in bankruptcy cases is most commonly employed by credit unions. People have a car loan and an unsecured credit card or personal loan with the credit union – the credit union will make you pay off the credit card or personal loan in order to obtain the title to your vehicle. Its usually up to the amount of equity in the car. For example, your car loan is for $15,000.
The value of your car is $20,000. You have a signature loan with the same creditor for $10,000. The creditor can make you pay $20,000 to obtain title to your vehicle. You always have the option to surrender your vehicle if you don’t want to pay the extra amount added onto the loan by your credit union. The good news is if you surrender your vehicle in the bankruptcy you owe nothing to the car company.
We always recommend having your checking and savings account and/or vehicle at a banking institution where you don’t have any credit lines. If you have any questions or need to make a decision about whether its better to keep your vehicle or pay the creditor we can assist in letting your know the pros and cons.
All of your creditors get listed in the bankruptcy petition so as soon as the bankruptcy petition is filed, the court will mail your creditors the 341 meeting of creditor’s notice. The notice has your case number is located on the notice so they can log on and review all pleadings that get filed in the case.
If you have an active state court case where a lawsuit is pending against a creditor we file what is called a Suggestion of Bankruptcy in the underlying case. That alerts the Judge and all the parties in the State Court case that there is an automatic stay in effect, the litigation must stop because of the active bankruptcy. If you have any co-debtors they also receive a notice from the court.
People often ask if their employer gets notified of the bankruptcy. Your employer will not get notice of your bankruptcy filing. Similarly, people also ask if their landlord on a residential lease gets notified. You do have to list any leases/contracts so they do ordinarily receive notice.
This usually does not present an issue as long as, you are making your rent payments on time to your landlord. If you are involved in a domestic violence type of situation, we can get the court to seal the address from your file for your protection.
Your bankruptcy will typically not show up in a general google search so don’t be deterred from filing for bankruptcy because you think you people will find out. The case is filed in Federal Court and requires Pacer access to view case information.
Situations come up frequently where a potential client is on the deed to their parent’s or another relative’s house to make it easier when that person passes away for it to already be in the debtor’s name.
The client often is not living in the property, has not paid a dollar towards the property, the property may be paid off, or the property has equity. The client has their own debt and now wants to file for bankruptcy. Unfortunately, this presents a problem. If you are not living on the property, it is not protected by the homestead exemption.
If you are renting, certainly you can move back in with your parents once your lease expires to get the homestead exemption on the property when you file for bankruptcy. You will have a problem if you already own a house. You can only declare homestead and be living on property. In that case if there is equity in the property (which is not exempt), you would need to pay that back to the trustee.
Let’s say there is 100K in equity in the property, you would need to pay the trustee 100K. If you had 100K in liquid cash, you probably wouldn’t be considering bankruptcy.
That would make a Chapter 7 not feasible. You other option is to file a Chapter 13 and pay your debts over 60 months and keep the property. There are significant benefits of doing a Chapter 13. You stop incurring interest on your debts. You might be able to pay it off early. You would need enough disposable income to pay the trustee each month.
Some potential clients cannot afford to do a Chapter 13, so they suggest removing their name off the deed or putting the property into someone else’s name. That too will not work since all property transfers from two years from the date we file the petition would need to be disclosed. Usually transferring property before considering filing for bankruptcy results in worse issues and is not recommended.
If you find yourself in this situation, feel free to contact my office to discuss your options.
The question often comes up as to whether it is more beneficial to file for bankruptcy before or after a divorce. It really depends on your situation and what assets are being divided up in the divorce. You can file for bankruptcy if you are separated from your spouse. That can really simplify the divorce process and eliminate all the debt instead of litigating on who is going to pay for what debts. The divorce process can also be very costly relative to filing for bankruptcy.
There are situations where one spouse earns significantly more income than the other. This can make the difference between qualifying for a Chapter 7 or having to file a Chapter 13. If you are married, your spouse’s income is required to be included, whether or not they are filing for bankruptcy with you. If you are separated and residing in different households, you still have the option to file for bankruptcy together or file alone without your spouse and not include their income. There is a way to include both people’s incomes and both people’s expenses on separate budgets in the bankruptcy petition if both spouses want to file for bankruptcy. Many times, this enables both people to file for a Chapter 7 because you are evaluating the income as if they are each individual households rather than counting all the income towards one household.
There are people who “separate” and are in the process of divorce even though they are residing in the same house. There are factors to look at in terms of whether you are still splitting expenses? Are you still on joint accounts paying bills together? Is one person paying the bills? Are you still living in the marital home? Generally is better to be living separately or you would have to show that economically you are not still operating fiscally as one household. If you do have any questions about timing of the filing and how to proceed with it, it is best to consult with an attorney.
Escrow is an amount of money your mortgage lender holds to pay for expenses such as property taxes and homeowner’s insurance. If you have been late on your mortgage payments, and/ or your escrow reserves are not sufficient to cover escrowed expenses you would likely have something called escrow deficiency which means that the mortgage company has paid more for taxes insurance or other escrowed items on your property even though you have not paid the mortgage.
There is also something called a projected escrow shortage which means you are not actually delinquent on property taxes, but the mortgage lender needs more money in reserves to pay the property taxes or other escrowed expenses when they become due. You can typically pay the escrow shortage in full or have it broken down and added to your monthly mortgage payment.
If you are late on your mortgage payments, then the lender will also put in “force placed” homeowners’ insurance on your home. Having a deficiency on your mortgage can increase your monthly payments significantly when you include the arrears and the escrow that gets behind. The mortgage lender does not shop for the cheapest insurance.
You are usually better off finding and pricing your own homeowner’s insurance. That could be a several hundred dollar a month savings to you. If you are behind on your mortgage payments, you have the option of filing a Chapter 13 to get it current and catch up the arrears over a 60-month period. It’s always better to try to catch it before it gets too far behind. My office will offer solutions that would work best for your situation.
