Each Friday morning, bankruptcy and debt resolution attorney Elizabeth Domenico takes your questions about debt and how to improve your financial future.
Check out the recorded live broadcast from Friday, June 5, 2020. Below is a transcription of the video for your reference and convenience.
Good morning. Welcome to the second edition of the Debt Resolution Fridays, where I will take questions from individuals and people about bankruptcy and debt problems. Kinda see if I can get you guys up to speed on some of the latest issues around the coronavirus and work out options, things for small business owners and people just struggling to maintain their everyday bills. So same format as last week.
What we’ll do, is we will take questions from you guys out there in the audience, which I will then address. And also remember that we will have the video of these posted later on in the event that you aren’t able to make the actual live event. So you can refer to the video for good information that other people may be asking. And we will start to have these weekly for the foreseeable future. So you can always pre-register and email or send your questions in prior to the event so that I can get that and address it and then you can watch either live or recorded later on on our website, Vimeo or our Facebook page. So let’s start with some questions here.
Question 1: What happens if I default on my Ch. 13 payments?
First question is Jan from Denver. She wants to know, what happens if you default on your Chapter 13 payments, because you lost your job due to COVID-19? Are there any options for leeway? What should you do if that’s the direction you’re headed?
So if you’re already in a Chapter 13 repayment plan, you have up to five years to pay back the debt proposed to be repaid under your plan. The issue is you have to have income to be able to fund your plan. And some people don’t have the option to look at converting to a Chapter 7. Some people do.
Consider Changing Your Bankruptcy
So if you already have an attorney, the first thing I’d say is you need to reach out to them to find out what your specific options are, but in general, the options might be based upon your certain circumstances. Maybe you could look at converting to a Chapter 7.
Request an Extension
If you aren’t able to do that, the other option might be that under the CARES Act, you now are allowed to extend your payment proposal out to seven years from the five years.
The issue is, is that the court has to look at them on a case by case basis, and the necessity for filing the extension has to be directly related to COVID-19. If you have a job loss or any other reduction of income and it is not directly due to the virus, that would not be allowed under the CARES Act currently.
The other thing we don’t know is what that’s gonna look like for the future. If you have that extension out to seven years, we don’t know if you then get your income back because maybe you were furloughed or found another job if you can then shorten it again to five years.
So there’s a lot of things that we’re not quite sure about because it’s so new. So you really wanna talk to your attorney if you have one. If you are a current client of mine, we have already reached out to individuals and let them know that they should follow up with us if they have had that reduction of income so we can look at your specific case, but always feel free to call in or email if you would like a second opinion or just would like to see what options you specifically have available.
Question 2: Do forbearances hurt your credit score?
Okay, so the next question is from Amy, from Boulder. She wants to know if forbearances hurts your credit score.
So typically when you have a forbearance that gets into credit, it shouldn’t detrimentally impact your credit score.
A Forbearance Should NOT Affect Your Credit Score
But a lot of you may have seen the recent conundrum with student loans. A lot of people under the CARES Act, if you had those federally backed or federally guaranteed student loans have been able to take advantage of the automatic forbearance that goes into place. Under that forbearance, under the CARES Act, they’re actually not supposed to report on your credit and if they do, it certainly isn’t supposed to be a negative impact on your score.
What to do if You’re Credit is Affected
However, specifically one in particular lender actually had thousands of customers have a ding to their credit due to that. That is something that should not specifically have happened.
So if that does happen, you need to reach out to the lender first to see if they can reverse that. If you don’t have any luck with that, what you’re going to have to do is potentially try to seek to enforce the changing of that under a Fair Credit Reporting Act violation. That would be a typical state court matter.
We Can Help With a Fair Credit Reporting Act Violation
We can look at helping with that, we offer that service here. So getting in and getting information on what actually impacted your score, if it was the forbearance, or maybe if you weren’t actually eligible for it is something you also have to look at. Because I know a lot of people thought they were eligible for it and it didn’t actually fall under the CARES Act. So you wanna be very careful and specifically ask your student loan companies and your other creditors, such as a mortgage lender, if you are actually in a forbearance status. They can notate that on your credit report, but they should not be able to detrimentally impact you for that because it is not a late payment.
Question 3: I can’t afford my house payments; should I try to sell or file for bankruptcy?
All right, next question. I’ve got, Anonymous would like to know, they are struggling to pay their mortgage and thinking about bankruptcy as an option, but also thinking of trying to sell the house. They know you can try to keep the house even if you file bankruptcy, but don’t think they could afford the payments after bankruptcy. Would trying to sell it be a better option all around?
How to Keep Your Home
So one thing that is important to keep in mind is that the only tool for trying to keep your home through a bankruptcy is a reorganization. Typically a Chapter 13, in most cases.
That does allow you to try to take the arrears and put them through a reorganization whereby you have five years to catch up on the payments, but you have to start making your mortgage payments again the month after your bankruptcy is filed.
And if you’re in the situation where you have a lot of equity, you certainly don’t want to risk not being able to make a payment in your Chapter 13 plan and lose all of the equity through a foreclosure. Because if the property goes through foreclosure, you certainly will not get that equity. They will severely under sell it in terms of a sale price.
Why Selling Might be a Better Option
So right now, for individuals who do have a lot of equity, a substantial rearage facing foreclosure, and aren’t able to have income to drive a payment, one, for a Chapter 13 repayment and two, for starting your mortgage again, looking at selling, it is an option that a lot of people I’ve had to talk through and look at with them to see if it’s possible.
Bankruptcy Can Actually Give You Time to Sell
Now, bankruptcy can also be used as a way to try to allow you some more time to sell it.
I’ve had a lot of cases where the intent was originally to sell it. It just couldn’t happen in the time frame we needed it to before foreclosure sale was set.
We filed a Chapter 13 with a specific provision that by a certain date, we would look to sell the property. At that point, if it hadn’t sold by that time, then we would either have to look at getting out of the bankruptcy or potentially converting to another chapter.
But even if you had to do that, filing a bankruptcy will at least guarantee you a minimum of $250,000 as a homestead exemption, even if the case gets converted to a Chapter 7 and the trustee sells the property, that way you’re not losing that equity. If the house is occupied as a home by someone who is disabled or elderly, or the homeowner’s spouse is elderly or disabled, or the homeowner’s dependent is elderly or disabled, the homestead exemption is $350,000. *These numbers are current as of April 8, 2022.
So it’s even something to look at, even as a fallback position. The best option, probably if you can’t afford it is to look at trying to sell it. If you can’t, you can still look at a bankruptcy as a tool to try to buy you more time or to put in a reorganization that proposes to sell it, to give you more time before it forecloses.
Question 4: How long can a creditor try to collect debt?
All right, Gail from Denver asks, “How long can creditors come after a debt that was supposed to be charged up years ago? Can they go after my bank account? What can I do?”
So this is a common problem where you have a debt that you have that’s very old. You may have even forgotten about it and you have years go by where no one’s trying to collect from you.
Making Sense of a Confusing Time Limit
What happens is that you have a statute of limitations, typically six years from the date they last tried to collect.
Now the statute’s a little bit hard to understand because some of the courts have interpreted it to mean the date of the last attempt collect of the debt for the starting of that six year period.
Which means that if someone sells your original debt, let’s say it’s five years no one tries to collect, but then a creditor with a collection agency buys it and then they start to try to attempt to collect it, that would restart that six years.
Creditors Can Come After Debt for a Long Time
So it can be a very long time that they can try to come after you. The court says that they still have to sue you. They then have to get a judgment against you before they can take any action against your property. If you do not answer and they get a default, they certainly will get an order.
Do Not Ignore Creditors
They can garnish your bank account. If you’re working, they could garnish your employer paid wages. And if you have real estate, they could also look at putting a lien on your property.
So it’s important that if you get a note from a creditor, either a call, you notice that on your credit report or you get a mailing, and even if it’s not a lawsuit that they’re serving you with, and you think that debt might be too old to collect on, speak with an attorney who can run a credit report and do that analysis for you. One, to see if they legitimately can be trying to collect on it, and two, if they can, what options you have in terms of debt resolution.
Maybe it’s your only debt and you would be better served by trying to settle with them. Perhaps you have a lot of other debt or your credit score’s low, and maybe looking at a bankruptcy might be a better option than trying to deal with the creditor directly. Or you’re already at the point where they’ve got a judgment and you’re now facing that wage, your bank account garnishment and we need to look at stopping it.
That’s why we offer those consultations because everybody’s different and there are a lot of different options. And what we specifically do is look at your certain situation, what kinda debt you have and tell you what options and make a recommendation of what that best option might be for you individually.
Question 5: Is there temporary relief for credit cards right now?
All right, Nora from Colorado asks, if there are any temporary relief options for credit cards right now.
So I’ve had a lot of people state that they have been getting preemptive phone calls due to the virus from their credit card companies, to tell them that they may have options to defer or lower payments, or even maybe reduce the interest rate so that their payments are going more to principal right now.
I’ve also had people who are in default start to get settlement letters, which are a lot better terms than we usually see.
So I have been seeing the credit card companies start to have some options. What those are are gonna be different among each lender.
There is No Specific Relief for Credit Card Holders
I haven’t seen a blanket rule and there’s certainly nothing unfortunately, under the CARES Act that specifically addresses relief for credit cards. I do know, just as a practical matter, I’ve heard from colleagues who represent creditors that right now, credit card companies, aren’t really seeking to sue people for deficiencies right now.
I think one, the courts are somewhat closed here in Colorado still, other than for emergency cases, for things like divorce and criminal proceedings, and that they will start to be freed back up, come fall.
So I think we’re really looking at September or late fall time frame before we’re really gonna see a push from the creditors to really start trying to collect on the debt.
A Lawyer’s Advice
My best recommendation would be to reach out to the lender individually, to see what options they do have available for you.
You don’t know what you don’t know until you ask and the worst thing they can do is say no, at which point, if you’re gonna have trouble making those bills, make an appointment, get an assessment, we can discuss your options at that point.
Question 6: I guaranteed debt for my business. I really hope it’s viable after the pandemic dust settles, but I’m seriously concerned it won’t be. I don’t want to lose my house because of my business. What would you suggest?
All right, got a question from a business owner. They have guaranteed debt for the business, and they’re hopeful that when the pandemic ends they’ll be able to come back but they’re not sure. They don’t wanna lose the house because of the business. What suggestions do I have?
Begin With a List of Debts
So I will say, it is important to know if you are a small business owner, what debts you may have that are personally guaranteed and what are not. I would start by making a list.
The single largest debts we see right now that are personally guaranteed with small business owners are SBA loans, as well as the payroll loans and certainly commercial leases.
Now the payroll loans are not supposed to be personally guaranteed. There were a few, I think that were in there that got signed that way and I think it was an oversight from the lender and it shouldn’t have been done that way. So you really wanna check your paperwork because that specific program and the SBA lending is so new, you really wanna check on those.
But certainly the largest one right now are these commercial leases I’m trying to get out of them. Nine out of 10 of those commercial leases, have that personal guarantee.
What Happens if Your Business Cannot Bounce Back
If you’re not able to recover from the pandemic and reopen your business, then certainly you wanna look at both the business debt implication and the personal obligation.
So we have to look at everybody on a case by case basis to see what options there are.
The more assets you have such as a home, large bank accounts, other things that are attachable by a creditor, if you can’t work them out, then we’re certainly going to need to look potentially at a bankruptcy or looking at working with the lender on a settlement agreement.
And the only real way to do that and know are one, run a personal credit report to see what business, if any obligations show up on your personal credit report, and then look at your financing statement to see if there’s a personal guarantee clause, or you signed it in a personal guarantee capacity, and then call an attorney, call her office, call somebody so that you can have those looked at and do an overall debt analysis.
Because a lot of times it’s not just one debt that may be personally guaranteed as a business owner. If you’re gonna let the business go and there really are no assets of the business, it may not make sense to do anything with the business, if there’s nothing for them to go after.
But certainly if they can’t get the debt satisfied through liquidation or payment of the business, then they’re gonna turn to you personally to look for that and we need to look at your personal debt protection options.
Question 7: If I file for bankruptcy right now, what should I do or what should I not do?
All right, Phillip from Colorado says, hoping you don’t have to file for bankruptcy, but if they do, are there things they should or shouldn’t do right now? Very good question.
A lot of people are having to look at this as an option. There’s a couple of big things as do’s and don’ts that we see that could detrimentally impact you If you end up do having to file bankruptcy.
Do Not Transfer Your Property
One, if you have assets, a car, a house, money in a bank account, and you’re worried about it being taken by creditors, do not go transferring title to property, especially houses or cars, out of your name to another person, especially if they’re close or related to you or you don’t give them any value in order to avoid them being liened or taken by a creditor.
We have a statute in Colorado called the Fraudulent Transfer Act. It’s under state court. So if you did get sued by the creditor, even regardless of bankruptcy, and they got a judgment and you had transferred assets out of your name to someone who didn’t owe the debt without them paying you for a value or consideration for them, that is fraud and that could be undone.
Same thing in bankruptcy court, a trustee could undo that transaction. So you don’t wanna be doing any transfers of title of property or sales without getting fair value. So that rolls into the next one.
How to Sell Your Property on the Up and Up
What if you wanted to sell your car? What if you wanted to sell your house? If you were gonna do that prior to a bankruptcy, you wanna make sure it’s what we call an arms length transaction, and you’re getting fair value.
What does that mean? Well, if you specifically know the person, let’s say it’s mom, dad, sister, brother, you gotta do a fair market value. So you gotta know what’s on the open market, if you were selling it to someone you didn’t have that relationship with, what it sell for and they have to give you close to or fair value for that. Otherwise it can always be argued that they defrauded other potential creditors from getting that full value.
Be Careful About Repaying Debt to Friends & Family
The other things are, again, if you owe money to a family member or a friend, and a lot of these, unfortunately, surround family and friends and those types of transactions, when you’re gonna be filing bankruptcy, those are looked at very closely. You do not want to pay back any money to a family member or a friend that you had borrowed money from.
The court will look back two years from the date of filing to see if you had any of those types of transactions. Now there’s a specific rule that says you have to prefer them over your other debts.
So if you’re current on all your debts and you are paying mom, dad, sister, brother back, and you’re paying everyone back equally, then it won’t be an issue.
It’s only an issue where you’ve stopped paying all of the other debt and you then continue to pay that family member or a friend who you have that close relationship with.
So you really don’t wanna have those types of transactions with family members or friends.
Do Not Charge, Charge, Charge
The other big thing is, do not go out and charge up all of your remaining credit. Don’t go out and use all of the line of credit you have on credit cards.
Don’t Take Out High-Interest Loans
Don’t do cash advances. Don’t go take out a bunch of payday loans. If you have free lines of credit and available lines of credit, and then within a 90 day period of bankruptcy, you go out and you charge it and then you file, that’s gonna be per se fraud.
And even if it’s outside the 90 days, it’s gonna be very closely scrutinized If you go out and charge up all this debt right before you file. So that’s another thing you don’t want to do.
Stick With Cash if You Can
The last thing is, is really kind of cash is king. If you can use cash, debit card versus using credit cards, you really wanna get away from using credit cards in anticipation of filing a bankruptcy.
Question 8: What will bankruptcy courts look like in Colorado after COVID?
All right, Juanita from Denver says she keeps reading that once COVID is all over the bankruptcy courts are going to be packed. “Just curious what you think that means for people here in Colorado?”
I’ve read that too. The analysts think that there will be a pretty big surge in bankruptcies come the fall.
We’ve already started to see this on the East coast, where all of the large corporations are going through a reorganization for Chapter 11. You may have seen JCPenney. There’s a lot of other large, Banana Republic. They’re having to take advantage of the Chapter 11’s. Certainly right now, we’re seeing those businesses who have some of those funds able to do that.
Small Businesses & Individuals
For individuals or maybe smaller businesses, because right now we do have this moratorium on collection of debt right now, you’re really not seeing a lot of creditors really pushing in the court system for collection on this debt.
You’ve got a moratorium right now on the foreclosures. They pushed it back through mid June, so we may even continue to see that.
Here’s What You Can Do Now
What I would recommend is that you don’t be one of the people that wait. If you’re having trouble now, and you see the writing on the wall, either as a small business owner or even just an individual, who’s had a reduction of income or just a debt problem, get in now so you can get an analysis done and be prepared.
We always see the worst cases happen when someone just puts this off. Delays things, doesn’t deal with it and then all of a sudden, just because nothing happened, they get hit with a lawsuit, then they start to be garnished and then they come see us.
And then their options are a lot more limited and we don’t have as much time to plan, especially to, if we’re looking at a bankruptcy where there’s attorney fees, where we can usually do a structured payment and give you time.
If you’re up against a wall and this wave of bankruptcy people have hit, and you’ve got a bunch of people talking to attorneys and, you know, attorney availability is limited, you’re gonna have a harder time getting filed timely, and you may come up against those issues of being facing a foreclosure, garnishment or a lien on your home.
So it’s important now, if you see the writing on the wall to talk to a professional before kind of that fall wave that we’re really anticipating hitting. And I think that’s gonna be anywhere, not really just specific to Colorado.
Question 9: Is debt consolidation a good choice before bankruptcy?
All right, I’ve got a question. “Is debt consolidation a good choice before bankruptcy?” So debt consolidation and bankruptcy are really two different vehicles. A debt consolidation a lot of times, is good for people with credit card that primarily, most of the time if you’re gonna end up filing bankruptcy, debt consolidation isn’t gonna work. What we typically see happen is individuals try the debt consolidation route first and if that doesn’t work, bankruptcy then is a fallback. They’re really not meant to be, you know, one as a planning tool, as a prerequisite for another. Especially some people think, well, “If I get on the debt consolidation program “And these people are allowing me to make a payment plan “And then, you know, I’m gonna turn around “And then file bankruptcy and they’ll honor those.” Especially if you know, you’ll have to be a Chapter 13 due to high income or equity and property, the debt consolidation program is gonna be negated when a bankruptcy is filed. So, as a tool to try to work out your debt, it is a good path to consider if maybe bankruptcy is not the first best option for you, but we don’t really see them being used in conjunction together for planning purposes. But again, that is why knowing what your individual circumstances look like and talking to a professional about what those options are and how to go about flowing through ’em. Because a lot of people don’t have a best option as bankruptcy, some do, and that’s what we decide and work through with individuals.
Question 10: How can I tell if a debt collector is legit?
All right, Shannon from Denver would like to know if there’s any way to find out if a debt collector is legit.
Research the Creditors
We do see a lot of scams coming up, especially around this time of the pandemic people are trying to take advantage of others.
I’ve had a lot of people call mortgage debts collection agencies, the quickest way to find out if they may be legitimate is through the Better Business Bureau.
The other thing is through the Secretary of State. If they are licensed to do business in Colorado as a debt collector, they should have a Secretary of State notation that they are incorporated here.
Again, a lot of times it’s just a Google search. If it comes up that it shows scam on these things, certainly that’s gonna be an indication.
Get Their Contact Information
If they’re not willing to give you the name or address of where they’re at or things like that, if you do call them back and you get kind of the weird static, and it sounds like they’re riding you through a lot of places, that might be an indication that they’re not legitimate.
Threats & Other Red Flags
If someone threatens you, you know, “You’re gonna go to jail. “We’re sending a sheriff out.” Those may still be legitimate. They just maybe violating the Debt Collection Practices Act by what they can and can’t tell you.
Certainly if you have something and you would like it reviewed, you can take it to professional.
A lot of times, if you look there’s typos, the stuff with typos is usually not legitimate. An attorney will usually be familiar with the big collection agencies. For example, I’ve amassed a database of thousands of debt collectors over the years so it’s pretty easy to check out. But just on your own, I would start with the Secretary of State’s website or the Better Business Bureau.