Credit Card Debts and Bankruptcy:
Chapter 7 and Chapter 13 allow you to discharge your unsecured debts, including credit card debts. When your bankruptcy is complete and all of the requirements are filed, you receive a bankruptcy “discharge” which means that creditors can no longer collect on most debts.
Any creditor can challenge your entire bankruptcy, but it is extremely rare for credit card companies to challenge the entire case. More frequently, though still rarely, they will challenge just the dischargeability of their credit card balance in the case.
Most of the grounds for objecting to the discharge of credit card debt involve some variety of fraud. Credit card charges can be challenged as non- dischargeable if:
1. If you charge over $600 of luxury goods within 90 days of filing your case, or you take cash advances totaling more than $875 within 70 days of filing, it will be presumed that you did these things fraudulently and you may have to pay.
2. If you misrepresent your assets or income on credit card applications, i.e. lie about your financial situation, it can mean that your credit card charges will be non-dischargeable.
3. If you use your credit card in an unusual way just before filing, for example by paying all your utility bills the day before filing, then the creditor can argue that you never intended to pay these charges and the debt may be found non-dischargeable.
Thankfully, objections from credit card companies are rare, and where grounds do exist for an objection bankruptcy creditors usually realize that there isn’t much to be gained by filing a complaint in the bankruptcy court. Often times, if there is an issue, the debt can be settled for a fraction of the amount owed.
As always, preparation is the key to success in bankrutpcy matters, and questionable charges should be reviewed prior to filing a chapter 7 or chapter 13 case in Colorado.
A recent case should be of interest to bankruptcy lawyers in Colorado. When filing a bankruptcy for a Debtor who is working, it is always a question exactly how much in wages are due the debtor on the date of filing bankruptcy. This is because the bankruptcy law tracks Colorado’s wage garnishment law. In other words, the bankruptcy trustee can collect 25% of the debtor’s gross wages and use that money to pay creditors.
In this recent bankruptcy case, at the time of filing, the Debtor was eligible for a quarterly bonus and a year end bonus. The bonus program states that “no employee earns or otherwise becomes entitled to a payment…..prior to payment…(by the Company).” The company’s bonus program states that the restriction applies to both quarterly and yearly bonuses, and that such bonuses are paid 60 days after the end of the relevant period.
The Debtor filed bankruptcy after the end of these periods but before the payment(s) had been made by the Company. After the meeting of creditors the Debtor’s attorney discussed the quarterly bonus with the Trustee in the case but failed to mention the year end bonus. The quarterly bonus ended up being approximately $8,000 and the year end bonus ended up being $16,000.
After finding out about both bonus payments the trustee moved the bankruptcy court to revoke the bankruptcy discharge and turn over the $24,000 received by the Debtor. The bankruptcy court did revoke the Debtor’s discharge and ordered turnover of the bonuses.
The Debtor appealed and the appellate court reversed the bankruptcy court concerning all issues. The Court reasoned that since the Company’s documents relative the bonus program made clear that the Debtor had no right to the payments until the Company makes the actual payment, the Debtor had no ownership interest in the bonuses to disclose on her bankruptcy papers. Since the bonuses were not paid until after the case was filed the bonuses did not become property of the Debtor until actually paid by the Company.
A few things should be obvious from this case. First, the exact nature of any bonus program must be examined before filing for bankruptcy where an employee is potentially to receive bonuses after the bankruptcy is filed. Second, a bankruptcy lawyer should always disclose bonuses, even if they are ultimately property of the debtor and not subject to seizure by the bankruptcy trustee.
Your Colorado bankruptcy lawyer should also be aware that this case is not necessarily binding precedent in Colorado, but that the issue of bonuses pending at filing bankruptcy should be analyzed.
The Case is Siaver v. Klien- Swanson 12-6054 (8th Cir BAP March 22, 2013).
Chapter 13 bankruptcy can be used to save a person’s home from foreclosure. In a chapter 13 case, under the bankruptcy code, a debtor can stop the foreclosure case using the automatic stay in bankruptcy, and then propose to “cure” the mortgage arrears over a period of time. It’s a way to use bankruptcy to force your mortgage lender to make a deal you can afford. The chapter 13 bankruptcy plan usually involves making payments to the bankruptcy trustee for 3 to 5 years in addition to making your regular ongoing mortgage payments.
If your home has decreased in value, you are may be able to remove a second mortgage, or “avoid,” or “strip-off,” a second mortgage on your home using chapter 13 bankruptcy. For a Colorado homeowner to take advantage of this provision your home must be worth no more than the first mortgage on the property. If this is the case, then your second mortgage can be stripped using 11 U.S.C. 506 and your second mortgage can then be treated as an unsecured claim, and be discharged upon completion of all of your bankruptcy plan payments.
I recently accomplished both of these things for a client and it went quite well using Linda Spray a local real estate expert for the valuation. My client came to me about 7 months behind on her first mortgage and owing a $30,000 second mortgage which was also in default. This client was able to use a chapter 13 case to pay the 7 months arrears over time, and to get rid of her second mortgage entirely!