Bankruptcy and Creditor Harassment FAQs

Many clients have the same general questions about bankruptcy and creditor harassment. The following is a list of my more candid answers to these common concerns:

 

Almost everyone is able to file. If you have filed before, there may be a time limitation that comes into play. It depends on when you filed, what chapter you filed and what you need to file now. If you previously filed a Chapter 7, you have to wait 8 years to file another Chapter 7 and 6 years to file a Chapter 13. If you previously filed a Chapter 13, you have to wait 4 years to file a Chapter 7 and 2 years to file a Chapter 13.
This is often called “straight” or “total” bankruptcy, mainly based on some misconceptions about Chapter 13. In short, we file the petition and all of your property is protected. Creditors are “stayed” (or stopped) from any attempt to collect a debt against you while you are in the bankruptcy estate. If the debt is discharged, then they can never again collect on that debt even after the bankruptcy estate is closed. There is a trustee appointed to the estate and his job is to see if you have extra property that can be used to pay unsecured creditors. Almost all of the Chapter 7 cases I see are “no-asset” cases where the trustee has nothing to collect. That is because we get to use certain exemptions in the law to protect our property even when it is completely paid for. That is part of the analysis we go through before filing; we see what your exposure is. There are rarely any surprises. You should know prior to filing whether you might lose property. That way you can make the decision not to file. But in reality, this is almost always a non-issue.
A Chapter 13 will discharge debt like the Chapter 7; however, there is a debt repayment plan. This plan allows you to catch up late payments on your house and car. Most people who are behind on their house payments will put the arrearage in the plan and this brings them current on the house payment. For your car it works basically the same way. You can also catch up past due taxes and other obligations in this plan. There are also some debts discharged in a 13 that cannot be discharged in a 7. An example is debt for intentional torts. Also in a 13, you must be able to make payments. Either have a job or some source of income. There is a lot of technical information I am skipping over here, but this is the gist of it. Many people are told that in a Chapter 13 you have to pay back all of your debt. This is simply not true. There is a plan to pay back some, but 100% is extremely rare and most Chapter 13 plans I file pay back less than 2%. That is my experience; other attorneys may have different experiences.
These are always bad, in my opinion. Occasionally I will have a client who has been working on debt settlement. They tell me they settled one debt for several thousand and still have others to settle. By that point they could have paid for a bankruptcy attorney to help them discharge all of their debt and have some money left over. I have also seen many, many times when these operations are nothing more than scams. Especially when it is a law firm offering to settle debt. Remember: lawyers have no more power to settle anything that you have on your own. In fact, they have to confer with you before they agree to any debt settlement. You’re basically paying someone to make phone calls for you. Most people in this position cannot afford such luxury. And I have had so many clients come to me and tell me how much money they wasted in debt settlement that I could never recommend it in good conscience. Finally, very often a settled debt will be sold by the bank with whom you settled to another bank or collection agency. When the new creditor starts collecting, they typically ignore your protest that the debt was settled. And you had better hope you have not lost your paperwork. The defense at that point is to try to convince the new creditor that they bought a settled debt. Most don’t care about your complaints and continue to harass you to pay the debt. In a scenario where the debt was included in a bankruptcy petition, I can simply fie a motion for sanctions and the bankruptcy court can make the collector pay the client for violating their bankruptcy. In the end, debt settlement is worse than not helpful; it is almost always quite harmful. Read the fine print on your paperwork and you will see that the debt settlement companies are required to tell you that your credit score will drop with debt settlement. In that scenario, the bad debt is continually reported. With bankruptcy, they cannot report the delinquent payments anymore so your credit score is allowed to recover.
Sometimes. And we will sometimes delay a bankruptcy sale to accommodate a short sale. On the plus side, the transfer of the property is complete and the issue is finalized with a short sale. However, if there is still money owed because the short-sale or foreclosure did not pay off the mortgage on the home, the debtor may have to pay taxes on any amount that the bank forgives. Forgiven debt is counted as income by the IRS unless it is forgiven in bankruptcy. For example: say a person has a house and he has moved from it and no longer lives there, so it is not his primary residence. He works out a short sale with the bank and after the sale he still owes $50,000 because the house sold for $50,000 less than was owed. When the bank forgives that difference (called a deficiency), they will send him a 1099 and he will owe tax on $50,000 as if he had earned it. For most people that will put them in a new tax bracket. Even if he only pays 25% income tax, he will then owe more than $15,000 in taxes that are non-dischargeable. But if he had paid a bankruptcy attorney and surrendered the house in bankruptcy, he would owe no money in taxes. People outsmart themselves all the time.
The general rule is that if you can make the regular payments on something and you are not behind when you file, you can keep it. Most times even if you are behind, we can work out a repayment plan that will bring you current and you can keep the property. This is not always the case, but almost always. You will have to work out the mother-in-law issue for yourself.
Again, if you can make the normal payments you can probably keep it. Even if it is in foreclosure. Even if it has been sold already (within 10 days after the sale). The bankruptcy petition stops all state proceedings on the foreclosure and gives you a chance to keep the house.
All kinds with a few exceptions. You cannot discharge tax debt unless it was due more than three years before filing the bankruptcy. There are a few more qualifications, but that is the most important. You cannot discharge child support debts, but you can catch up missed payments in a plan. You cannot discharge student loans because Congress is in the pocket of the banking industry and people keep voting in the same members of Congress. Basically anything else is dis-chargeable unless the debtor committed fraud while incurring the debt.
No. For people who stay out of debt after the bankruptcy and who manage their money, their credit scores will increase dramatically very quickly. I have a couple who filed and within 11 months their credit scores were in the low 600’s. Another client came to me in July. He and his wife filed a Chapter 7 in February and their credit scores were near 680 for both by August. Home lenders typically lend for a house within two years of filing.
No. In our area the newspapers do not print bankruptcies. I have heard that some small town papers in the north do this, but not in our area. The fact is, the filing is public record, but it is rare that a person accidentally finds a bankruptcy filing. If someone finds your filing, odds are they already knew you filed.
The bankruptcy code explicitly states that you cannot lose your job for filing bankruptcy. You cannot even lose a security clearance in the military for filing. In the last few years this issue has been tried in the federal courts.
You should take any lawsuit seriously. However, judgments are almost always dis-chargeable in bankruptcy.
A lot less than most legal actions. First the Court will charge a filing fee: $299 for a Chapter 7 and $274 for a Chapter 13. You have to take a credit counseling course prior to filing and after filing. Why? Because Congress is in the pocket of the banking industry and people keep voting in the same members of Congress. Some people say these courses help; others say it was a waste of time. Either way, they are mandatory. You take them online in an hour or so. Attorney fees are a different matter. You can find an attorney who is new to the practice and will charge less. You can find a more established attorney who might charge more. But I see it this way: it’s like going to a dentist. You don’t have to use the most expensive dentist, but you definitely do not want the cheapest. The results are equally painful. After attorney fees, filing fees and other costs all tolled, most people file a Chapter 7 petition for around $1,800. If you have a complex case, expect it to cost more. A complex case takes more work and if your attorney does not charge more for a complex case you should question whether you are getting all the work done that you need. Chapter 13’s are going to run around $3,500 for all attorneys because the Court sets our maximum there. However, unlike in a Chapter 7, you do not have to pay all of the attorney fees up front. Finally, if you file with your spouse it costs basically the same as if you file individually. So if you both have debts which need to be discharged, it is usually advisable to file together.
This is a plan that allows you to catch up missed payments on your house and car, taxes, child support, etc. It allows you to keep all of your property. Of course, you can also surrender property you cannot afford any longer, same as in a Chapter 7. You can also use this plan to decrease what you pay for your cars in many cases. This is called a “cramdown,” where you pay what the car is worth, not what you owe, if it is less than what you owe. Chapter 13 is called the “super-discharge” because you can do so much with it.
Everyone has a separate credit report. If you are joint on a debt with your spouse and you file individually your spouse will owe all of the debt. Also, medical debt is always shared with a spouse if you get the debt while you are married, even if the spouse is not signed onto that medical debt. So even if your spouse passes away, you will still owe that spouse’s medical debt under North Carolina law.
When people speak of right and wrong they are speaking of morals. In our society, most of us find our beliefs about morals from scripture. I can only speak to what my beliefs are and they happen to be grounded in the Bible. In Deuteronomy 15 we are taught about the basis for bankruptcy: 1 At the end of every seven years you must cancel debts. 2 This is how it is to be done: Every creditor shall cancel the loan he has made to his fellow Israelite. He shall not require payment from his fellow Israelite or brother, because the Lord’s time for canceling debts has been proclaimed. 3 You may require payment from a foreigner, but you must cancel any debt your brother owes you. 4 However, there should be no poor among you, for in the land the Lord your God is giving you to possess as your inheritance, he will richly bless you, 5 if only you fully obey the Lord your God and are careful to follow all these commands I am giving you today. When we are given the same direct order five times in four sentences, we should take it seriously. Notice that this is not a suggestion, but an absolute command. It doe not matter if the debtor was wealthy and could easily afford to pay the debt; the creditor must still forgive all debt. Why would God ask for this? This is a commandment based on responsible lending. People in hard times make hard choices. People who want to feed their children and drive to work will borrow money for food and gas because it is our most primal instinct to care for our children and to labor. And when we are doing well we spend money on goods and services because we can afford them. An extension of credit is very normal in good times. We want people to spend money because that is how the economy is stimulated. People do not expect to fall on hard times and if we saved all of our money and never spent it, many manufacturing and service industry jobs would be lost. But the commandment above does not say that some debt is forgiven and other is not. All debt is to be forgiven.
Quite the opposite. Bankruptcy is a very capitalist notion, despite what your bank will tell you. There are several reasons why, but I will list the most simple. First, we want our money to be spread around as we purchase goods and services. This stimulates the economy. We want to purchase from a lot of different people so more people receive the benefit of that stimulus. If we are sending most of our money to one place (the bank) then the rest of the members of our economy suffer. The bank is making all of the money instead of the hardware store, the beautician, the grocery store, the gas station, etc. Next, consider that the money going to the bank is not for products or services. The banks don’t make anything. Many of the people who come to me are paying hundreds and even thousands of dollars per month on interest alone. Interest. This does not generate anything. This is not productive. This is what allowed Ken Lewis at Bank of America to have a $100,000,000 salary per year. That is one hundred million dollars per year. At the same time Bank of America charged $4.50 to cash a check, even if it was for $1.00. And then, of course, we had the bailouts. The government took money from us taxpayers and handed trillions of dollars to these same banks who did not use it the way they promised. In fact, they raised banking fees to pay back the money they received from us to fix their horrible mismanagement. Never let the banks talk to you about the morals of money management.
Well, that is not really a question, but let me say this: Dave Ramsey is not telling you the truth and he will not debate a bankruptcy attorney face to face. I have challenged him on this personally and he will not respond. He filed for bankruptcy and has become very successful. That should tell you a lot. He also says that your credit is affected for up to 10 years by the bankruptcy. This is absolutely not true. I challenge Dave to have an open, live debate with me about bankruptcy. He is foisting lies upon people and wrongfully using their conscience against them. I can use Dave’s own Bible to prove him wrong if he would face the challenge. But this requires a constitution of which he is not possessed. Simply put, Dave Ramsey is a quack selling books and air time. If you think I am angry at Dave Ramsey, you are correct. He is causing many people to remain in a terrible situation so that he can continue his radio career.
“These bill collectors are driving me crazy!” I hear this from most of my clients. And in most cases the bill collectors are breaking the law in their attempts to collect debts. This goes mostly unchecked, so most collection agencies ignore the law. My firm wants to put an end to that. If a collection agency or debt collector has done any of the following, the debt collector has probably broken the law and we can get compensation for you: 1.    Multiple calls per day. 2.    Calls to work. 3.    Calls to relatives and friends where they discuss your debt. 4.    Threats. 5.    Rude behavior. 6.    Profanity. 7.    Dishonesty. 8.    Calls very late or very early. 9.    Calls after you have told them you have an attorney. 10.    Calls about debt that was discharged in bankruptcy. 11.    Calls about very old debt. 12.    Calls about debt that you do not owe. And the list goes on. Fortunately, we have some strong laws meant to stop debt collectors from harassing people. It does not make any difference if you owe the money. The law understands that you may owe the money; but the law says that the debt collectors have to comply with certain standards in debt collection. They cannot behave like thugs and gangsters to collect money.
If you are dealing with this type of behavior, here are some things you need to do: 1) Contact my office. This way we can establish an attorney/client relationship and you can tell the debt collectors that you are represented on this debt. You do NOT have to pay any money to have an attorney/client relationship. This is a misconception. However, we do need to meet and discuss your situation. 2) Document EVERYTHING! Simply take notes on the calls you receive. These notes are almost always admissible in court, especially if you keep notes on a regular basis. Your notes should list the time, date, number that called you, etc. The more information the better. If you answer the phone, ask for the “operator number” of the person calling you and their full name. Ask for the name of the business calling you. They should have already told you, since the law requires them to identify themselves at the beginning of each call. 3) If you are getting a lot of calls, take pictures of your caller ID so each call will be documented. Do the same thing at your work, if you can. 4) Talk to someone about how this is making you feel. Talk with someone who will testify about your conversations. If you seek medical attention because of the stress, collect any prescriptions and any notes from your doctor. This is all important. While some may think that is trivial, I have had several clients who were suicidal because of the stress put on them by debt collectors. 5) If you have the ability to record calls, do so. But ALWAYS tell the caller at the beginning of the phone call that you record all of your phone calls. Save these conversations. 6) Keep ALL communications. Don’t throw away anything, including the envelopes.
Of course the question arises what damages are available for someone who has been harassed. The federal law gives $1,000 in damages as well as any actual damages and attorney fees. This means you don’t pay for our services up front and you only pay if we win. North Carolina law has several ways to make the debt collectors compensate you over and above the federal law. These claims include infliction of emotional distress, actual costs for professional fees (your doctor, lawyer, accountant, etc.), and punitive damages. There are also two strong laws specifically aimed at debt collectors and agencies. These provide for a minimum of $500 per violation and a maximum of $4,000 per violation as well as attorney fees and other costs and damages. This is why it is important to document every single interaction with the debt collector.
Immediately. We want to establish an attorney/client relationship so you can advise the debt collectors about that. Moreover, there could be time limitations that we need to comply with to be able to file suit.
Anyone who was subject to their violations of the law. As an example, a debt collector called my client’s father and said terrible things about the daughter. The daughter has several claims, as one might expect, but the father does as well. They have harassed him in the collection of a debt. The law stops debt collectors from harassing anyone.