Tuesday, July 17, 2012

Can I keep my credit cards in Bankruptcy?

The Bankruptcy Code requires a debtor to list all creditors in her bankruptcy schedules.  However, a “creditor” is typically defined as someone to whom the debtor owes money.  Specifically, 11 U.S.C. § 101(10)(a) defines a creditor as an “entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor.”
So, if the debtor has a credit card with a zero balance, the issuer of that card is NOT a creditor, and therefore, the debtor need not disclose her bankruptcy to that credit card company.  However,  that’s not the end of the story.  Card issuers write very one-sided credit card agreements that seem to get modified all the time.  The Terms and Conditions always include the following language:

“Default – You and your Account will be in default of this Agreement if:  . . . you become insolvent, assign any property to your creditors, or go into bankruptcy or receivership . . .
Cancellation of your Account – We may cancel your Account or suspend your ability to use the Account at any time, with or without any specific reason and with or without prior notice to you as permissible by applicable law.”
               So, even if a debtor has a zero balance credit card, the issuer has the absolute right to cancel it.  But how does the credit card issuer know that a debtor filed bankruptcy if the debtor does not give the issuer notice of the bankruptcy?  The answer comes from modern-day technology.
Credit card companies use sophisticated systems, like Automated Access to Court Electronic Records (AACER), to provide virtually instant data of new bankruptcy filers.  They compare multiple pieces of debtor information with their account holder databases.  If enough pieces of a debtor’s data match an active account, the credit card issuer assumes a match. 
Once the credit card company has a match, does the card issuers always close the credit account?   The answer is usually, but not always.  I am aware of occasions in which the debtor used a zero balance credit cards after the bankruptcy filing.  Perhaps in those instances the card company made a decision to keep the account open or maybe it simply failed to make a match.  In either case, it is important to know that, despite not listing a zero balance credit card in the bankruptcy schedules, the credit card can get cancelled.
Typically, this is a short-term issue.  For the vast majority of people, once the bankruptcy is over, the credit card companies will inundate the freshly discharged person with pre-approved credit card applications.   It seems that the credit card companies, even those which were wiped out in the bankruptcy, want the discharged debtor to quickly get back into debt.  Use caution.  Debtor cards with the VISA or MASTERCARD emblem work just like credit cards, with the added benefit that the client will have a better chance of avoiding unwanted debt.  Call us for more information. 

Thursday, July 12, 2012

Chapter 13 – The Final Chapter

When your Chapter 13 was filed five years ago, the goal was to complete the plan and receive a discharge.  A “discharge” is the legal determination that essentially all of your unsecured debts that remain after the plan are simply wiped out.  With a discharge, the collection companies and bill collectors that once harassed you may no longer contact you or elicit payment for those debts from you.
So, what must occur to receive a discharge in a Chapter 13?
Like so many of the bankruptcy processes, the answer will vary from bankruptcy court to bankruptcy court, even in the same state.  The answer may also vary depending on the particularities of the case.  For instance, if you own a home and were using the Chapter 13 to eliminate or “strip” a junior mortgage, then extra steps may be required to ensure that removal of the lien is actually recorded with the county recorder’s office – this may be a challenge if the junior lien holder is out of business or sold the loan to any lender.  Your attorney may wish to work with a title company on this issue to ensure that public record reflects the elimination of the lien.
Under current bankruptcy law, you may also get a statement, signed by the court, that your mortgage is up to date. This is a great thing to have if you started the Chapter 13 when you were behind on your house payments.  Without that determination, the lender will often come back after the Chapter 13 plan is over and claim that you have other charges that have not been paid, like “attorney’s fees incurred to review the bankruptcy” or “property valuation charges.”  It is certainly better to have the court resolve those issues before closing the case rather than fight with the lender after the fact.
There is much to consider before the case is closed.  At Speckman Law Firm, we work with our clients throughout the process.  Near the end of the case, we re-visit the reasons for the filing and cover with the client the steps that must be taken before the case closes.  Paying that extra attention to the client’s case not only makes the process smoother, it better ensures that the client received all of the benefits afforded by the Chapter 13 bankruptcy.  A discharge and the closing of your bankruptcy is a great thing. We make sure it is done right.

Friday, July 6, 2012


Bankruptcy may be something that you believe you can avoid.  After all, you don’t owe too much money or you believe you can manage your debts – except for your car.  So what to do? Well, perhaps your plan is simply to voluntarily surrender the car to the finance company. No need to file bankruptcy, right? Wrong!
A car lender which believes that it is not going to get paid wants to get its collateral back as quickly as possible - with as little fuss as possible. Sometimes this leads to the finance company telling the borrower - “don’t worry, the car will be sold and you’ll get a credit for the sale price.” To be sure, the finance company does not want to pay the “repo man” to chase around the borrower, so the lender will often make it sound as though it is sympathetic with your situation or even trying to help you.  What is left out of the message is that the vehicle will be sold at an auction, yielding a very low sale price. 
Voluntary surrender is a repossession and is a default of your credit agreement. Repossession is repossession, whether done in the middle of the night by a tow truck, or voluntary turnover by the borrower.  It will not only harm your credit rating, but it will result in a repossession sale of your car no matter how the lender gets it, and usually for much less than you could have sold it for yourself …and you will owe the lender the deficiency balance, which is the difference between the price it sold for and the balance on the loan.
If you believe that you can no longer afford your car payments, if you feel your car is worth less than you owe, or you simply need time to get caught up on a few missed payments, bankruptcy may be the right answer.  Depending upon what YOU want, you may be able to surrender the vehicle without any risk of a deficiency.  You may be able to lower your payments or the balance you.  You may be able to “re-purchase” the car for its current market value, no matter how much you owe.  Or, you may be given time to get caught up.  Bankruptcy is a power tool and it is designed to help good people stabilize their financial situation – including car loans.

Do yourself a favor. 
Call Speckman Law Firm before you loose your car to the Repo-Man.  If your car is taken, you may wind up having to file bankruptcy to get rid of the deficiency balance; you might as well explore how bankruptcy may be able to allow you to keep the car.