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 31, 2020. (A transcript of the event is available below.)
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Good morning people out there viewing for Debt Resolution Fridays, I’m back, I’m attorney Elizabeth Domenico with Robinson and Henry had a couple weeks off, where you should have been enjoying some information from my colleague Jen Koss but now I’m back to answer some questions as it relates to bankruptcy and debt resolution for you as we’ve been doing for the past few months here. So I have a few that have come in. I just wanna remind people who are viewing that this is a live event. However, if you aren’t able to view it live, you can look at our archives on our website, robandhen.wpengine.com. And look through this live event or any of the prior live events to get information and questions answered that other people have asked relating to bankruptcy and debt resolution. The other thing is you can also have your questions answered and send them into our Facebook page or robinsonhenry.com, and I will get them live, or you can ask them prior to and email them over before this live event in the event that you cannot send them over during this 11 to roughly 11:20, 11:30 timeframe. So with that, I’m going to turn to these questions that I’ve had come in earlier and see about getting you guys some answers to those pressing debt questions.
How can you protect a co-signer if you file bankruptcy?
So the first question I have asks, how do you protect a co-signer if you filed for bankruptcy? That is a very good question. A lot of the times, people on cars, student loans, or even people who are married, that aren’t going to file jointly, have debts that, someone else is also legally responsible for. So in the event that you have a debt and you have a co-signer who is not gonna be filing bankruptcy, there are some specific rules guiding this and has to do with what chapter bankruptcy you file. If you file chapter seven and there’s a co-signer and it’s an unsecured debt, that debt is going to be able to be collected upon by that creditor, regardless of the bankruptcy, they can initiate a suit against the person for garnishment, for attachment of property and bank accounts. So the bankruptcy’s not gonna do anything to stay. There’s no, what we call codebtors stay in the chapter seven bankruptcy. Now, if it’s a secured debt like a mortgage or a car loan, as long as the other party or anybody, really, even if you are paying that debt and you’re keeping it current, such that there is no default on the car loan or the mortgage or secured debt, then the creditor doesn’t have any right to try to seek to take that property back or to sue the other party for payment, as long as the contractual obligations being met, that’s also the same with that unsecured debt. If you declare bankruptcy on it and the other person or someone continues to pay, the other party doesn’t have any issue with the creditor being able to come after them. It’s only in the event of a default. Now, one thing we always do recommend that any codebtor, when you file bankruptcy, run their credit report because the other parties, as long as the, or sorry, the creditor, as long as the other party or someone is paying on the debt and has kept it current, should not legally be able to detrimentally report anything on their credit. Now, there can be a notation that the codebtor, i.e you or the person who has filed bankruptcy can show up on the non filing co-signers credit report, but it cannot show that one, they personally filed bankruptcy or two, detrimentally impact their credit score because of that notation. Sometimes other things that happen are that when a person who is a co-signer files bankruptcy, they put that debt in with the bankruptcy or insolvency department, such that you will no longer have anybody getting the ability to pay online. You may have to call in, walk in or mail in a payment with debt. You also may lose the ability to have online access to your statements like your billing statements or the mortgage or car statements. So you need to make sure you’re communicating with that lender to make sure that that is still able to be paid and that those statements are able to be received. So a couple of things to just be cognizant of, that’s why it’s important if you are a co-signer and you’re filing the bankruptcy, or someone has co-signed for you to talk to the attorney so they can tell you what to look for, how to prepare. And obviously you have to let the co-signer know you’re filing bankruptcy. It is one of the requirements and the forms actually ask if you have a co-signer. Now they nice thing about a different chapter of bankruptcy is chapter 13 allows what we call a codebtor stay. And this only applies to people wouldn’t apply to an LLC or a codebt with a business. But if you have someone who is co-signed with you and you file bankruptcy, and it’s a chapter 13, they automatically get the benefit of your bankruptcy, such that there cannot be any legal proceedings in the event of a default or nonpayment on that debt as to the co-signer unless one of two things happens. The cases dismissed or converted to a chapter seven or chapter 11, then that code that are stay goes away, or you have a motion for relief from stay filed whereby the creditor seeks to try to lift the bankruptcy protection and go after the codebtor. So they are afforded more protection in a chapter 13, when you have a codebtor. Most of the time we don’t recommend filing a chapter 13 just to protect a co-signer. But again, that is something that you can speak to your attorney about and plan for, but it’s always a good idea to have a discussion with a co-signer when you are the one filing bankruptcy, because there are things that they need to be looking out for and make sure that the creditor is doing appropriately. So very good question.
I’m currently in the middle of bankruptcy, why have I received a motion to lift from my mortgage?
Next one, I have, as it relates specific to someone who’s already in bankruptcy, they said, why have I received a motion to lift, stay from my mortgage? And what should I do next? So if you’re in a chapter seven or you’re in a chapter 13 and you have a mortgage, and if you’re not current, you initially get protection from the bankruptcy court. So the creditor can no longer seek to foreclose or repossess in the event of a car on any secure debt. However, one of the requirements is that you continue to make your post-filing payments in order to keep that property. So specific to a chapter 13, if you enter into a plan and you’re trying to catch up on your mortgage payments, you have to the month after starting the 30 days after your bankruptcy is filed, start to make your mortgage payments again, and you have to stay current on your mortgage payments through the life of your bankruptcy. If you don’t, they can seek what’s called a motion relief from stay letting the court know that you are not making your post-petition payment obligations and therefore in order to protect their rights as a secured creditor, they want to get the bankruptcy protection lifted so that they can proceed forward with foreclosure or some other remedy to get that property back because you’re not meeting your obligation. So if you have an attorney already in your chapter 13 or even your chapter seven, you need to talk to them because there can be some ways to work around that. A lot of times creditors will enter into what we call a stipulation, which will allow you to catch back up on the payments you’ve fallen behind over a period of time. Most creditors allow anywhere from four to six months. And basically what happens is you take your normal payment and you add whatever amount you’d fallen behind over that additional three to six months, in addition to your normal payment. And then you are brought current over that period of time, but you have to stay current on your other mortgage, normal, monthly obligation as well. But it’s always a good idea to reach out to your attorney. The other option is if you can’t afford your mortgage, you may want to look at a loan modification to see if you can get your accrued amount that you are past due, tacked onto the end of your loan, and then be deemed current. Most of the time, unless you’re about two years out from bankruptcy, you won’t be able to refight. So that may not be an option, but talking to an attorney or your attorney, if you have one is gonna be the best course of action so that they can tell you what options should you have.
How can I build credit after bankruptcy?
All right, next question is both very good one. What is the best way to build credit after a bankruptcy? So one of the nice things here at our firm that we do help with is, if someone has the desire to get a house or a car post-filing, we can look at your current credit score and then give an estimate of about 12 months after filing what that is going to look like in terms of the credit rehabilitation, and then give tailored advice on how to rebuild it. Now, just as general rules and everybody’s different because everybody’s score is gonna be impacted differently, once a bankruptcy is filed based upon prior credit and credit history. But as a general rule, taking out new debt is actually a good way to increase your credit. And specifically installment debt like a car. A car has a very large impact upward because what it does is it shows the ability to carry a balance and make one monthly payment over a lengthy period of time. Other things that can help our small secured credit cards that you put money down on act like a debit card, but they report to your credit. What you do is you pay one or two bills on that each month, and that’s all you put on that. So you pick maybe utility bill, cable, internet, and you put it on one card every month with auto-pay so that you don’t have to worry about going over your limit or having any kind of interest in grew on that. So those are both good ways to help rehabilitate your credit. There’s also some programs, one specifically is called Seven Steps To A 720 Credit Score that sometimes we send people to. It’s a little bit more involved, and it looks at your individual spending, your monthly bills, what debt you had previously and help you to get a more tailored approach on a month by month process to rehabilitate it based upon your specific credit usage goals.
When do you begin making planned payments in chapter 13 bankruptcy?
All right, general question about chapter 13 is when do you have to begin making planned payments on chapter 13? So when you’re in a chapter 13, the idea is, is that you’re on a monthly payment plan for anywhere from three to five years. And once your bankruptcy is filed with the court, your first plan payment is due 30 days after your case is filed. That is generally going to be before your first court date. So you’re gonna start with that at least one payment before you go to court. They then fall on that same date each month thereafter. The general rule is, if you can’t make it on the exact date, try to make it as much around that time as possible. But one payment per calendar month should be sufficient. But when you come to the end of your plan, you have to make sure you make your final payment on or before the last due date, or there’s some case law that says you shouldn’t get your discharge, if you don’t make an end to your planned payments within the 60 months. So as long as it’s within the month, that ends, and you’re not falling over into another month at the end of your plan, you should be fine. But for purposes of your initial payment, you’re gonna find that it’s due 30 days after your case is filed with the court.
If a creditor is left off of the bankruptcy filing, can it be added later?
Okay, another question is what happens if a creditor is left off of the filing, can it be added later? So there are a couple of different things as it relates to creditors. So it’s obviously the best option to try to get all of your debts listed when your case is filed. However, in a chapter seven, you do have about 90 to 120 days after the case is filed to add additional creditors. The court is gonna charge a fee, and so if you use an attorney, they’re gonna turn around and charge that to you to be able to add additional creditors, but it can be done. Once you get your discharge, you’re supposed to have had all your creditors listed, and if they are not listed, they’re not supposed to be included in your discharge. However, in a chapter seven, there is a work-around. If you have no money that you have given to the bankruptcy estate, for them to give to your creditors, what we call a no asset case or report of no distribution, and you didn’t list a creditor, even if they did not get noticed, they’re still gonna be able to be discharged because there is no money for any of the other creditors to have shared in. So the court’s gonna say there is no detriment to that unsecured creditor, because they didn’t get notice. So you can have a workaround in the chapter seven. Now in a chapter 13, it is different because you are proposing to pay some of your debt back in a chapter 13, once your case is confirmed, and that can typically take anywhere between 60 to 90, maybe even 120 days after your case is filed. If a creditor is not notified and your plan is then confirmed, they are not going to be able to be added. You are going to owe them. They cannot be included for your discharge. So it is really important to review everything. And as soon as you’re made aware that there may be a creditor who has missed, even in a chapter seven, it’s always a good idea, depending upon how much you owe them to go back and try to amend and make sure they get notice before that discharge or confirmation order enters.
What happens if I am the co-signer of a car loan and need to file bankruptcy?
Okay, another follow up question to the co-signer question, what happens if I am the co-signer of the car loan and need to file bankruptcy? How does that work? So it’s gonna work very similarly. If you are the co-signer and you need to file bankruptcy, basically what’s gonna happen is you’re going to get rid of your obligation on that debt. And then the person who took out the loan is going to then be legally responsible for that debt. And if the debt’s not paid such as a car or a mortgage, then the lender’s gonna have the right to turn around and take the collateral back. If it’s an unsecured debt again, if it’s not paid, then the person who took out the debt is going to be legally responsible and be able to be sued. And they still get the benefit of a codebtor stay in the chapter 13. Again, does not apply in the chapter seven. So it’s gonna be basically the same. You’re still going to have to let that other person know in the bankruptcy that you are filing so that the obligation falls to them. You’re also going to have to make sure that they check their credit because it still can carry the designation that co-signer is in bankruptcy, but it should not negatively impact their credit. So exactly the same as to whether you are the original or co-signer and you go ahead and file bankruptcy.
Can chapter 13 payments be temporarily halted while managing an unexpected expense?
All right, if after filing chapter 13, there’s an emergency purchase that someone needs to make like a roof repair, a new furnace, can a chapter 13 payment be temporarily halted while managing this unexpected expense? So there are always things that happen during the life of the three to five year bankruptcy you cannot plan for. The chapters 13s can be modified to change your payment terms for a period of time based upon these financial circumstances. Sometimes if it’s a onetime thing and it’s not a lot of money, we say, miss a few chapter 13 payments, and then try to catch them up, other times we do look and say, we need to modify now again, when that expense is done, if your income is the same or higher, than you’re gonna have to go back to paying the old amount, additionally, you’re gonna have to let the court see all of your finances and income and expenses again, but it is something that can be done. Sometimes a trustee will try to argue that the expenses are built into your budget for contingencies in certain areas because there’s line items for budgets. It all depends on what type of expense, how much and kind of when it occurs. But when those types of things happen, it’s important to speak to your attorney or an attorney to make sure you know what your options are and what the best course of action for your specific case would be.
What happens if you lose your job after filing chapter 13 bankruptcy and can’t make payments?
Oh, follow up to the previous question. What happens if there’s a job loss after a chapter 13 is filed and you don’t have any income to make payments? So a lot of it depends on your specific circumstance. If you were in a chapter 13 solely because your income was too high for chapter seven, you may be able If you’re otherwise qualified to look at converting to a chapter seven. If you’re not eligible to convert, maybe because you had a prior chapter seven in the last eight years, you may need to dismiss the case. And then refile as the seven, once that time period has passed. Other things that could happen are, is that if you are anticipating being able to get a new job fairly quickly or you’re getting severance unemployment disability, you may be able to lower your payment from what it was before in order to make the payment are manageable until you can get income that was like what you had before to fund your plan. Worst case scenario is if you’re in a fixed payment based upon mortgage arrears or house equity or taxes, and it’s a fixed number, and it didn’t have anything to do with your income, and you lose that, your case may be dismissed. Now, typically you have to miss two full planned payments before you would get a motion to dismiss by the court or trustees. So you have some time. So trying to get additional supplemental income to be able to keep you in that, is important. Again, you’re most likely going to have an attorney already. So speaking to the attorney about what your options are when you know it’s gonna be an issue is important. What we typically see are the people who have a better outcome when that happens, are the people who reach out to their counsel early and let them know there’s an issue, instead of letting it go the two or three months of not making a trustee payment. And then the attorney only finds out you’re having trouble, once there is that motion to dismiss file. At that point, your options are a lot less available to you in terms of what can be done and the timeframe in which to get it done is also shrunk from, if you were to let the attorney know once you lose your job.
Can bankruptcy affect my ability to get utilities or cable?
Alright, can bankruptcy affect my ability to get utilities or cable? So a lot of people have passed through utilities when they file bankruptcy. So the way the law is designed to work is that, if you owe a utility company or for services, you can get rid of the past due amount and continue to use their service. But most of the time, once the company receives notice of the bankruptcy, they will open a new account. And in order to maintain that service, you’re gonna have to pay a deposit down as a security for the future service. So that is very likely. Most of the time I see that with IRIA with Excel, Comcast, it’s all very common for them to open a new account, they close your old one, they write off the past two balance, start a new one, or require you to have a deposit before giving you service.
How long does it take to complete the credit counseling course that’s required before filing bankruptcy?
All right, and then the final question that we have time for today is, how long does it take to complete the credit counseling course that’s required before filing bankruptcy? So one of the things a lot of people don’t like to do, is this credit counseling course that is required prior to filing. There’s also a course that you have to take after the case is filed called a financial management course, and they both take about 90 minutes. Now, some you can do online, some are over the phone. They typically take longer if you are doing them over the phone, because you have to have all the information relayed to you by a counselor. And they’re speaking to you versus the online version is basically a PowerPoint that you scroll through. Now, one thing people find frustrating is that you have to spend a certain amount of time. They do time you, when it is online, you cannot just click through all of the slides so best as I can recollect, unless they’ve changed it, it’s about a minimum of 90 minutes that you spend on that. You also then follow up with a counselor, with a brief chat. So all in all, you’re probably looking at anywhere between an hour and a half and two hours on both of the courses each time. It’s designed to make sure you understand what bankruptcy is, what your options are for debt resolution and where your money’s going. And then some budgeting tips after. So while annoying, it is actually beneficial for you to know that information. And it is a requirement that the bankruptcy court imposes on everybody who files. So everybody’s in the same boat. You gotta get through it, but it takes about an hour and a half to two hours for each course.
All right, everyone, that’s about all the time we have today. I just wanna remind you that if you have questions, you can send them over to us via email. You can submit them through our website, robandhen.wpengine.com. We offer free case assessments. You get a half an hour to talk to myself or Jen. We are the two bankruptcy attorneys about your specific issue. We’ll be able to go through what your options are, answer any questions you have, and then see if bankruptcy or other debt resolution options are appropriate for you. At least then you can get your questions answered. If you want a more tailored approach. Also, too, we have all of these chats archived, and we are anticipating continuing our live events until you guys don’t have any more questions or you no longer have a need for these to be given to you, but I foresee this happening, that’s some good feedback. But again remember every Friday, Debt Resolution Friday you can tune in, or you can look at our archive on our website and or Facebook. So you guys have a great rest of your day and enjoy your last day of July.