Debt Resolution Fridays – July 10, 2020
Each week, bankruptcy attorney Elizabeth Domenico spends time educating the community about their debt resolution options.
Debt Resolution Fridays is dedicated to answering your debt questions. See what Coloradans asked on July 10, 2020. (A transcript of the event is available below.)
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Good morning, welcome back to Debt Resolution Fridays. We took a week off for the holiday. Hopefully all of you joining us or tuning in had a safe and happy 4th of July weekend. We are back for us to be able to help with questions and concerns about bankruptcy and debt resolution. We have an ongoing live Facebook event that’s also available on our website and a few other platforms for people to be able to have live questions answered about specific debt resolution and other problems financially they may be facing. If you are live with us today, you can go ahead and also find these available on our website. You can look at past archived videos to be able to see any other questions that might’ve been answered. If it’s something we may have already touched on, I’ll give it a brief answer. If you’re asking those things live, you should be able to, on our Facebook page, send these questions in, either prior to these events or even as we are having them and they will get them to me. If, for some reason, it doesn’t come through or I don’t get it addressed, rest assured we will be continuing these for the foreseeable future as long as you guys have a need for us to be able to answer these questions. Want to let you know that we offer consultations Monday through Friday 8:30 to 5:30. If you have a question that you think is more in-depth or you want your overall debt situation discussed with myself or my other attorney, we are happy to do that. You can log on to our website, which is robandhen.wpengine.com, and schedule that, or you can call in our office. Our number is 303-688-0944. Okay, so I already have a few questions here that have been sent in.
I pawned my car title, what happens if I file bankruptcy?
So the first one is if I pawned my car title, what happens to my car if I file for bankruptcy? So a lot of people do car loans. Once they’re paid off and they just need to get a little extra cash, they use their car as collateral to be able to get some funds out. Sometimes it’s through a pawning agency. Sometimes it’s through a title loan company. You’ll see those pop up every now and then. Sometimes it is a normal conventional lender on a car loan that’ll just basically buy your car from you and resell it back to you. What happens when you do this is you basically create a lien against your car. And in the event of normal non-bankruptcy situations, if you don’t make your payment, they have your title, they can keep your collateral. And if they sell it for less than what you owe, you would be responsible for the difference. In a bankruptcy, they do not lose their right to retain the security interest. So in a Chapter 7, if you were to discharge that obligation and not continue to pay, they would have a right to keep or repossess that vehicle. Same thing in a Chapter 13. Now, in a Chapter 13, if you were behind on your payments or you had a high interest rate, you could do something called a cramdown, or you could change the potential terms of your financing depending upon how long the loan had existed. At the very least, you could use this to catch up if you’re behind on your payments in a Chapter 13. And sometimes if a car loan is over 2 1/2 years old, now, the date from the title loan, not any prior loan you may have had and paid off, if 200, sorry, 2 1/2 years has passed since the date you took that out and you are severely upside down on the vehicle, you could use a Chapter 13 to only pay back what the fair market value on the date of your bankruptcy filing was plus some interest, it’s prime plus one, whatever that happens to be when your case is filed. So you could get some better terms on that loan if you wanted to keep the vehicle. Now, you always have the right if you don’t want to keep the vehicle, you can give it back. And if there is a deficiency, if you filed any chapter bankruptcy, you wouldn’t be legally responsible for paying that deficiency back. So that’s how that’s treated. You can’t just file bankruptcy, get rid of that obligation, and keep the vehicle because they have a security interest against the vehicle.
What are options if you receive a notice regarding the end of a moratorium and your income hasn’t returned to pre-pandemic levels?
All right, another question, what are options if you receive a notice regarding the end of a moratorium, I assume on either mortgage or debt payment, but your income has not returned to pre-pandemic levels? So this is something that really depends on the type of debt you have. If it is a credit card debt, you can always try to reach out to the lender again, see if they have any no-interest options or have any ability to work with you on a different payment schedule or even if they have anything for another deferment. If it is a motor vehicle, then you have the same options that you would have had on a credit card. Reach out to the lender first. You can also look at a bankruptcy. If you have some income, maybe not what you had before, you could look at doing a Chapter 13 to catch up on the payments that you had fallen behind on as long as you had income to pay both the car payment going forward, the trustee payment, which would include your arrears as well as all your other normal living expenses. That’s the same for a mortgage as well. A lot of mortgages right now are coming off of the three-to-six-month forbearance or deferment that they have given you. And a lot of times even on those forbearance or deferments, they will say you owe us whatever you fell behind in one lump sum, or you need to try to do a loan modification. So a loan modification is an option, but you also have the ability to look at doing a Chapter 13 bankruptcy. Chapter 13, again, just like with a car, would allow you to catch back up as long as you had sufficient income to be able to do that. Now, let’s say you don’t have sufficient income to fund a Chapter 13 plan. You could look at selling the property if it’s a car or a mortgage, so that way you at least, if you have any equity, and it wouldn’t lose that to a repossession or foreclosure. You could use a bankruptcy to buy you some more time. If you are planning to sell it, you could do it through a Chapter 13 where you say I propose to sell the asset by this date and use the proceeds to pay off the debt, plus if there’s anything left over, perhaps there may be some to your unsecureds, if you have any. But there’s a lot of different options. That’s why it depends on the specific type of debt, what your income looks like, and how long you think maybe it should stay low. That’s why it’s hard in some of these questions where they’re not fact-specific. You would be benefited by giving us a call, scheduling an assessment, and we’ll look at your overall debt and income situation to figure out the best options for you specifically.
What is good prioritization of debt when you can’t pay them all?
Okay, someone wants to know about prioritization of debts when you’re unable to pay all of them. Rent’s a priority, but beyond that are there others that should come first from a credit standpoint? Well, when you default on debt, you’re going to take a hit on your credit. So obviously rent and mortgage and car payments would take priority, especially if you are using your car to get to and from work. You need to maintain those payments, your payments on your rent and mortgage to keep a roof over your head. After that, things such as child support payments, those are important to make sure you keep up on. Taxes, specifically Colorado taxes. Colorado is a lot quicker and more likely to look at garnishing bank accounts and wages a lot more quickly than the IRS. So if you do owe back taxes, at least to Colorado, it’s a good idea to call them and see if you can get on a payment plan. In terms of credit hits, student loans tend to ding your credit a lot faster than credit card companies due to nonpayment. A lot of times the credit card companies, they do, but they’ll take a few months to report nonpayment, where as student loans, if you miss one payment, they are very quick to do that. So student loans would be also a priority to reach out and let ’em know about your hardship before you miss a payment if you’re gonna be in the situation where you don’t think you can afford those payments. Looking at those income-based repayments or income-driven repayments is a good idea, especially if you have little to no income. They can put you on a zero payment that you still get credit for that won’t ding your credit and show as missed payment. Typically, credit cards and those types of unsecured debts are the last priority, although medical, in the grand scheme of your unsecured debt, could be a little more important because they’re a lot quicker to sue you than normal credit cards or other unsecured personal loans. Once the medicals go to collection, it’s a lot shorter period of time we usually see once that default occurs. Also fairly true with car repossession deficiencies. Once you give a car back, they will sell it, and they’re pretty quick to turn around and sue for the deficiency. So your rent, your mortgage, your car, those are priority, then probably taxes, then student loans, and then with your general unsecureds between credit card, medical, repossessions, you’re gonna wanna focus on the repossession and medical, and then the credit cards are really probably last in line for priority for trying to handle and work out those debts.
Can creditors garnish wages without filing a lawsuit first?
Okay, another question came in. Are there any creditors that can garnish wages without filing a lawsuit first? If so, who are they? So things that do not need a court order to garnish you are gonna be governmental entities. You’re gonna find that IRS in Colorado do not need a court order to go in and garnish your bank account or your wages. You will typically find they will send you correspondence, notice of intent to levy, or notice of intent to seize assets. So you will have a pretty good idea when that’s starting to come down the pipeline. But they do not need a court order. You also are going to find that child support, if you’re in arrears, they do not need a court order for them to come in and attach your wages involuntarily or your bank accounts. Typically I haven’t really seen bank account seizures with child support. It’s mostly wages that you’re being looked at. But, again, that comes from a governmental entity, the Child Enforcement Support Unit from whatever county you’re in. So, again, those types of governmental debts that are owed don’t need those types of default court judgment and writ orders that the general unsecured creditors do when they have to file a lawsuit and get that judgment to be able to come into the wages, bank accounts, or lien your home. Student loans also, typically when you are in default, a lot of times those government-backed ones, again, Department of Ed will be able to intercept tax refunds. They don’t need a court order to do that.
Should I make partial payments on my mortgage?
Okay, someone else is asking if you can’t pay your full mortgage, is it helpful to make partial payments? So if you are going to go into default on your mortgage, then there are a couple of options. There are loan modifications or forbearance requests. It’s always better to try to make payments if you can if you’re gonna try to avoid bankruptcy and maybe just need a few months to try to catch back up. If you’re so far behind, let’s say four or five months or you’ve already gotten a foreclosure notice and you need to look at bankruptcy, it really doesn’t make sense to make your payments, ’cause you can put those in and reamortize them over the three to five years of a Chapter 13 to become current. And that way you can save some money because you’re gonna have attorney’s fees. You’re gonna be looking at you have to pay before filing. There’s a court filing fee. And honestly, once you’re in past a certain amount or you’re in the pre-foreclosure or foreclosure status, a lot of the lenders won’t even take your payments. So you have to be careful. Also, too, they may just put ’em in a suspense account and not even apply them to your actual payment if you’re not making full payment. So you’re still accruing interest, late fees, and getting deeper into the hole with them. So a lot of it just depends on your ability. If it’s only a few months, if you just needed some time to catch back up and you’re not potentially needing a bankruptcy because you’re not far enough behind that you’re facing that foreclosure, you may just need a little breathing room, making partial payments is probably a good idea. If you’re far past the point of maybe three, four, five months or you’ve already been notified of foreclosure, making those payments really doesn’t make a whole lot of sense if we’re gonna be looking at a bankruptcy.
Should I include all my debt in my bankruptcy?
All right, another question, very common question, is do you have to include all of your debt when you file bankruptcy? Are there scenarios where you would not include some debt? So including debt is a little bit misleading. So the law says if you owe anyone money on the date of filing, now, these are not gonna be things like I have a cell phone bill that’s $150, it’s due at the end of the month, I’m filing bankruptcy in the middle of the month, those normal everyday living expenses that you accrue and pay off each month are not going to be considered something we put in the bankruptcy as a creditor. These are gonna be things that you’re owing a balance on that you’re paying down on each month, like a mortgage, car loan, or things you’re past due on that carry a balance, credit cards, past due medical debt, lines of credit, taxes, student loans. Those are all things that you have to give them notice of. Now, when people say I filed bankruptcy but I didn’t include my house or I didn’t include my car, you have to be careful of what you’re saying. You do have to give those creditors notice that you filed, but you may be anticipating continuing with your monthly payment obligation such that you want to keep your property. And, in most instances, you are allowed to do that in bankruptcy. So you do have to give the creditor notice. So you are quote including the debt in bankruptcy, but you can choose to propose to continue to repay that. And sometimes through what we call reaffirmation agreements, you can actually take the debt outside of the bankruptcy and just continue to pay, and it will remove them from being able to not report on your credit. But if you default, they can come after you and the bankruptcy won’t shield you. Now, technically if you owe a family member or friend money and it’s a loan, not a gift, you need to include them as well for notice. Certainly if you owe child support, things like that, that would continue to be paid even though you file bankruptcy and they’re considered non-dischargeable, you still have to give notice to all of your creditors. If you fail to do so and you get your discharge, they can come back and say, oh, you never gave me notice. You still owe that debt; you cannot discharge it. So it’s important when you’re putting all your paperwork together that you do include anyone you believe you owe money to on the date of filing.
Is your employer notified of your bankruptcy filing?
Oh, really good question that popped up. Is your employer notified of your bankruptcy filing? In most instances, they are not directly notified by the bankruptcy court unless you happen to owe them money or perhaps you are being garnished and we need to give your payroll department notice of the bankruptcy to stop the garnishment. Otherwise they are not directly notified. Now, if you do a wage assignment for a Chapter 13 where your payments come out of your payroll, they would then obviously be notified. If you have a duty to report through an employment contract or maybe you work for the military or in some type of financial industry where they ask you those questions for background purposes or some other reporting requirement, you would have a duty to disclose that when that happened. Also, too, I know for security clearance Series 7 and Series 9 licenses, they ask you that. And sometimes your payroll or your employer will do a credit check or a background check on you. If they see that, then they would be notified. So there’s ways they could find out, but for the most part, a general bankruptcy does not give your employer direct notice just because you filed. There has to be certain circumstances that trigger that.
Can a creditor force me to file bankruptcy?
Okay, here’s a new one. Can a creditor request an individual file for bankruptcy and how often does this happen? There are some instances where a person or an entity, more likely an entity, is forced into an involuntary bankruptcy situation. They do not happen very often. Sometimes there’s situations where someone has a conservator or a guardian and they believe it’s in the best interest of the individual to do that. We certainly do not see creditors forcing individuals into bankruptcy very often. I’ve never seen it happen, but I have seen creditors in a business situation look to force a business into an involuntary bankruptcy.
How does filing bankruptcy affect filing a lawsuit?
Okay, another question is how does bankruptcy impact a lawsuit? So a lot of it depends on what type of lawsuit it is. Right now we’re dealing with a lot of small businesses that are being sued, and they also may have a personal obligation such that when a lawsuit comes in, it’s both a personal and business lawsuit that have the individual and the entity named. So it depends on what chapter and what type of bankruptcy you’re filing. For instance, if an individual is filing a bankruptcy and the debt is for a simple nonpayment on a credit card and there is also business obligated on it, the bankruptcy would shield the individual but not the business. The business could still continue to be sued. And the reason for that is there’s no co-debtor stay for a business, but if there’s another individual, let’s say a spouse owed jointly but they didn’t file bankruptcy, they would also have that stop as to them at least until the bankruptcy was complete or the creditor asked for relief from stay. Now, there’s certain types of things that can continue. If you are in a divorce and you have a judge who is taking under a ruling for child support, alimony, or parenting time, those things can continue. You can also have criminal proceedings that can continue. The things that stop are normal debt collection. Those would stop. You’d also have anything relating to allocation of debt and assets in a divorce. That would also stop. So by and large, it puts a stay on any lawsuit. Now, if any of the claim in the lawsuit has to do with fraud, then they can ask for the court to either lift the stay and proceed to litigate within state court on the fraud claim because that could be a non-dischargeable debt, or they could bring the lawsuit in bankruptcy court through what’s called an adversary proceeding to also try to prove and have a judge decide that that particular claim might not be discharged. So they always can come even in a bankruptcy setting and try to prove a particular type of debt should be excluded from discharge. And any creditor can also try to lift the stay for certain reasons to proceed forward in a lawsuit. So bankruptcy is an immediate stop to that, but it may not long term absolve from the debt or keep it from going forward even after a bankruptcy.
Can a boss fire you for wage garnishment?
All right, final question think we have time for here today is can a boss fire you for wage garnishment? So that kind of gets into an employment law question, which I’m not 100% sure of. My understanding is that Colorado is a at-will employment. So technically, a boss could fire you for any reason. They don’t actually even have to give you a reason unless you’re under contract. So there is a possibility that they could find a reason unrelated to that or even let you go for that. That’s a question you’re really gonna wanna talk to an employment attorney about. It’s a little bit beyond the scope of my breadth. But we do have an employment law attorney here at the firm that if you really would like to get into the nuances of that as you think you may have been terminated wrongfully versus the underlying debt issue, which is what I would be able to help with, you can definitely call our office and we can get you in contact with the attorney that can help with that particular issue.
All right, all great questions today. Again, remember you can ask questions as we’re live. You can also register and send questions before our events. Or if you happen to tune in later or see us on video, not in the live event, in our archives, you can go ahead and send them after. You can also call if you have a specific question and do an assessment. It’s free 30-minute consultation. You can go on our website, robandhen.wpengine.com, or you can call us at 303-688-0944. We’re gonna continue these live events. Next week you’re going to have a chance to hear from my associate attorney Jen Koss. She’s gonna be helping me out for answering your guys’ questions next week. But get us those questions so we can make sure we get those answered, and you guys enjoy your weekend. I will see you shortly.