This video talks about the 3 questions to ask at your first meeting with a bankruptcy attorney:
1) will my bankruptcy case be approved by the Court?
2) will the Bankruptcy Court permit me to keep all of my property?
3) how will bankruptcy affect my credit rating?
I frequently get calls from people who have recently moved to the Pittsburgh area and want to immediately file a bankruptcy case.
They are generally impatient to file a case, but I have to caution them that they must follow the rules on where to file their case. The Bankruptcy Code requires that an individual can only file a bankruptcy case in the State in which they have resided the most over the past 180 days.
In other words, for most people, that would require them to wait 91 days after they've moved to Pennsylvania in order to file.
Unless you've got a true emergency, then it shouldn't be hard to wait 3 months to file. Once you retain a bankruptcy lawyer, then that lawyer should contact all of your prospective creditors to inform them that a case will be filed shortly. Moreover, you can use that time to help your attorney prepare your case. Your attorney will need to obtain copies of your last two tax returns, your recent bank statements as well as your last six months of paystubs.
One wrinkle in the Bankruptcy Code now is that the Court Trustee will be permitted to apply the exemption laws of the other states in which you've resided in the past 3 years. Bankruptcy exemptions refer to the laws that permit you to protect and retain your property, and those laws differ a great deal from State to State. The exemptions that we use in Pennsylvania are reasonably generous, so your lawyer will need to research the exemption laws in the other states in which you've resided in the past 3 years.
Let me know if you have a question or comment!
One of my pet peeves as a Pittsburgh bankruptcy attorney is not using one's retirement funds to pay off debts.
My big objection is that those funds are supposed to be used for your retirement, not for your supposedly productive earning years. I can, however, understand that people can have financial problems and that a 401k loan could possibly help overcome a specific problem.
Generally however, your retirement plan, (and this would have to be a tax-qualified retirement plan, such as a 401k plan or IRA), is going to be protected from your creditors. In Pennsylvania, this is going to be the case whether you file for bankruptcy relief or not.
So, once you borrow from your 401k to pay your creditors, here are the five likely things that will happen:
- you are probably going to "throw good money after bad". In other words, you won't be able to pay your debts in full from your retirement funds;
- you will be left without any retirement plan at all, or at least, a greatly-reduced one;
- to reconcile your 401k plan, you will have to either begin to repay the loan within 60 days, and I never cease to be amazed at how expensive the repayment terms are, or
- if you fail to repay the 401k loan, then you will have to pay taxes on the amount of disbursed funds. So, make sure to save some money to pay those taxes! You may have simply bought yourself a future problem with the IRS.
- you're going to get a headache when you realize that you could have protected your entire retirement plan in the event that you filed bankruptcy. Specifically, Section 522(d)(12) of the Bankruptcy Code gives you the right to protect qualified tax accounts. If you have other questions or concerns, please contact my office to discuss.
If you are facing a judgment due to a motor vehicle accident, then you risk losing your drivers license if you fail to pay off the judgment. On the other hand, you can file a Chapter 7 or Chapter 13 bankruptcy and discharge (wipe out) that debt in order to retain your drivers license.
The State cannot discriminate against people on the basis of filing bankruptcy, and the suspension or loss of a drivers license would constitute a discriminatory act pursuant to Section 525 of the Bankruptcy Code.
Please note however that there is a discharge exception for drunk driving debts that resulted in personal injury or death to others. Those types of debts cannot be wiped out by filing bankruptcy. You should consult an attorney to discuss the facts and specifics of such a case if this applies to you.
A pattern that I have seen recently is for extremely old motor vehicle judgments to be brought up before the State Department of Transportation for a license suspension. If this is the case, your attorney will have to locate the old judgment to find out the name and address of that plaintiff, along with the motor vehicle insurance company. They will have to be listed on your bankruptcy schedules as potential creditors when you file your case.
Once the discharge order is granted by the Bankruptcy Court, then you or your attorney can contact the State Department of Transportation and you will need to pay the license renewal or reinstatement fee in order to resume your driving privileges.
If you have specific questions, please let me know!
If you file a Chapter 7 bankruptcy, you’ve probably read about how the Bankruptcy Trustee “liquidates your property”. Well, let’s go through a couple of examples to show how this doesn’t usually happen in Pennsylvania Chapter 7 cases. (If you live in States other than Pennsylvania, don’t rely upon these descriptions, because the exemptions in other States are different. Bankruptcy “exemptions” are the monetary amounts you are permitted under the law to use to protect your property.)
So, how do you protect your car? First, if your car is still financed, then the Bankruptcy Court cannot take away your car because you don’t have the title anyway. Will your car lender object? No, not if you continue to make your regular monthly payments.
Second, if your car is paid off and it’s an older model car, then you can protect it from the Bankruptcy Court by using the “motor vehicle exemption”. This is the dollar amount that you can allocate toward the value of your vehicle. Right now, that amount is $3,225 per title owner.
So, let’s say that your car has a fair market value of $6,000, how do you save your car? You use your $3,225 motor vehicle exemption, and then you protect the remaining $2,775 by applying the “wild-card exemption”, which can be used to protect any property whatsoever.
Motor vehicle exemption planning requires some planning and thoroughness, but in over 17 years of practicing bankruptcy law, I’ve never had the Bankruptcy Court Trustee liquidate one of my clients’ vehicles.
Yes, you can keep your bank accounts, except there are a few things to think about first. As I explained in an earlier post about bankruptcy “exemptions”, folks filing bankruptcy in Pennsylvania can keep property up to certain dollar limits. Bank account funds fall within the “wild card exemption”, which is the exemption used to protect any and all property, as long as you haven’t used it all to protect your home. The wild card exemption for an individual is up to $11,200 currently.
Here’s an example. Let’s say that John Doe wants to file bankruptcy in Pennsylvania. He owns a house worth $100,000, but it has a mortgage balance of $95,000. He has two 10-year-old cars, both of which are paid off, and both of which are worth $3,000. He just got paid, and his paycheck was deposited into his bank account which now has a balance of $1,600. Can he protect all of this property? Absolutely. He can protect his home, which is well below the “homestead” exemption amount of $20,200. He can protect his first vehicle with the motor vehicle exemption amount of $3,250. And he can protect his second vehicle and his bank account, both using the “wild card” exemption.
Be careful about your bank accounts in one way however. Make sure that you don’t owe your bank any money on any loans or credit cards. Most people who decide to file bankruptcy will stop paying the credit cards and personal loans that they intend to discharge (wipe out) in their bankruptcy filing. Let’s say that you do your banking at First National Bank of Main Street, and you have a personal loan with them in addition. That bank may have a right of “set-off”, which means that the bank can invade the bank account to obtain its monthly payment on the personal loan. You might suddenly have an unexpectedly low balance, and you might have a raft of bad checks. Just be careful and plan accordingly. Obviously, you’ll need to seek appropriate legal advice.
Ah, this is one of the biggest no-no’s in bankruptcy law. Not only are you asked this question in your bankruptcy papers (specifically, the Statement of Financial Affairs), but when you go to Court, the Trustee in your case asks you this question point-blank.
It’s called a “preference” to transfer property prior to filing bankruptcy. In Pennsylvania, a bankruptcy trustee can actually ask about transfers that may have happened up to 4 years prior to the bankruptcy filing. And a preference could consist of a transfer of real estate or of personal property, like a car or boat. It can even be when someone takes their name off of a joint bank account, for example.
If the bankruptcy trustee discovers a preferential transfer, then the trustee can take legal action against the person to whom you transferred the property. For example, let’s say that 2 years prior to your bankruptcy case filing, you signed the title of a brand-new car over to your brother. The bankruptcy trustee could then force your brother to surrender the vehicle.
What is the solution to a bankruptcy preference? You should never transfer property like this. In most cases, if you simply retained control of the property, you might very well be able to protect it using the bankruptcy “exemptions”. Remember that you are legally able to keep a reasonable amount of property using the bankruptcy exemptions. The exemptions are the laws that permit individuals to retain their property while filing a bankruptcy. For example, a person can protect up to $40,000 in home equity as a married couple, or up to $3,225 in equity in a vehicle. Used carefully, the bankruptcy exemptions can protect the vast majority of property for most individual bankruptcy filings.
The vast majority of individuals who file bankruptcy protect all of their property and do not “liquidate” their property. The mechanism to protect the property is known as the system of “exemptions”. In Pennsylvania, we use either the Federal list of exemptions, or, rarely, the Pennsylvania exemptions.
Essentially, no one would want individuals who file bankruptcy to lose all of their property and then have to apply for public assistance. This question will apply to individuals and couples who file bankruptcy. Corporations and other corporate entities such as LLCs that file Chapter 7 bankruptcy cannot protect any assets because that is a true “liquidation” form of bankruptcy.
Let’s talk about the Federal exemptions, because those are the ones that we use almost all the time. So, what can you keep? First, up to $20,000 in home equity for your house. Next, up to $3,225 in equity in your car. The majority of individuals have their vehicles still financed, in which case, they don’t have any equity in a car or truck, or their vehicles are older and don’t have much value anyway. So, it’s extremely rare that a vehicle cannot be fully exempted.
The federal exemptions then protect household possessions, up to $1,225 in jewelry value, along with life insurance, and a variety of other exemptions, most importantly, pensions and virtually all retirement plans. There’s also the bankruptcy attorney’s favorite, which is the “wild-card” exemption, which is any un-used homestead exemption value up to $11,200. This is used to protect bank accounts, second or third vehicles, etc.
The property that gets the most scrutiny from the Court would likely be an interest in a lawsuit. If someone files a bankruptcy case and is in the process of pursuing a lawsuit claim, such as a personal injury lawsuit, then they can be sure to get thorough questioning from the Court Trustee as to the potential value of that lawsuit. The individual can protect up to $20,000 in personal injury lawsuit proceeds, and then use the “wild-card” exemption to protect more value.
The bottom line: most, but not all, bankruptcy filings are considered “no-asset” cases, which means that the Court Trustee is not able to seize any property whatsoever.