One of the most difficult times in life can be facing the possibility of divorce.  Getting divorced usually has a huge impact on the family both emotionally, and financially.  Married couples often fail to realize is that following a divorce or separation, (one of the spouses moves out) simply paying the family bills and necessities such as utilities and a mortgage can be overwhelming, and even impossible. Even when one spouse had been making all of the living expenses with his/her income alone, when the other spouse moves out, another set of living expenses (rent, utilities, food) is created.  The family “breadwinner” is often forced to pay child support and spousal support (alimony), making it too difficult to keep up with his/her own budget such as a mortgage, car payments, and utilities.

    Going from one family budget to two often leads to increased debt, such as mounting credit card balances and medical bills.   Foreclosure is also very common following a divorce or separation. The influx of debt after separating can be avoided by consulting with an experienced bankruptcy lawyer prior to the finalization of divorce. A bankruptcy attorney can guide the couple on how to take care of the debt properly, in order to avoid financial disaster following the couple’s breakup.  If a divorce has been filed but not finalized, the bankruptcy attorney can work directly with the divorce attorneys to ensure that the parties do not end up being forced to pay debt they cannot handle following the divorce.

    Often times, a bankruptcy is not needed for a divorcing couple, but consulting with a bankruptcy attorney can prevent an impending bankruptcy down the road.  When a spouse has marital assets such as equity in a home or car, or retirement, a bankruptcy attorney can assist the divorce attorneys on how those assets can be protected, even if a bankruptcy is filed.  Using the knowledge of an experienced bankruptcy attorney is like having a long term financial planner for someone considering separation or divorce.

  Divorcees who do not consult with a bankruptcy attorney prior to the divorce are often in much worse financial condition, as they may end up being ordered by the Divorce Court to pay back more debt than they can handle, and sometimes cannot discharge the debt in a bankruptcy once the divorce is final.  Post- divorce debt can crush a divorcee’s ability to “move on” with his/her life and buy another car or home in the future, as the debt to income ratio will be way too high to obtain future credit. By filing bankruptcy prior to the divorce, the spouse can rebuild his/her credit quickly and purchase another vehicle or mortgage in the future.

  If you are considering divorce, or even just separating from your spouse, a free consultation with an experienced bankruptcy attorney can significantly help your financial future, even if bankruptcy is not needed.   DIVORCE AND BANKRUPTCY

With increasing unsecured debt, including medical bills, student loans, and credit cards, many Americans families, especially in Ohio, have fallen behind on their mortgage payments. Homeowners are simply unable to keep up with their monthly bills and budget, while still staying current on their mortgage loan. This leads to late fees and penalties on the mortgage payment, and soon enough, a foreclosure lawsuit will be filed by the lender. Fortunately, homeowners can stop the foreclosure action and save their homes any time up until the sheriff’s sale date, through a Chapter 13 bankruptcy. The Chapter 13 is a form of bankruptcy that allows the homeowner to cure the arrears (missed payments) on the mortgage loan over the course of 3-5 years, paying no interest or late fees on the arrears. At the completion of the Chapter 13, the mortgage lender(s) will receive a court order from the Bankruptcy Court stating that the mortgage must be deemed current, so the homeowner can resume making the normal monthly mortgage payments.

Chapter 13 Bankruptcy

Another huge benefit of the Chapter 13 along with saving one’s home, is that it allows the debtor to wipe out unsecured debt, including credit cards, medical bills, old utilities, and more. There’s a common misconception amongst the general public that in a Chapter 13, one’s debt has to be paid back in full. In almost every Chapter 13, this idea is completely wrong, as debtors only have to pay a percentage of their unsecured debt, based on their income. Generally speaking, when someone files a Chapter 13 bankruptcy to stop a foreclosure and save their home, the amount of unsecured debt they have to pay back is minimal, sometimes none at all. The purpose of the Chapter 13 in this instance is to stop the foreclosure and save your home, while eliminating as much unsecured debt as possible.

When homeowners get behind on their mortgages, they often get targeted by scams and loan modifications that simply do not work. Mortgage rescue companies and load modification offers specifically target homeowners who are behind on their mortgage payments, especially when a foreclosure has been filed. These loan modifications and mortgage rescue companies usually make promises they cannot keep, leading the homeowner to losing their home, along with their money. If you are behind or about to fall behind on your mortgage, or have a second or third mortgage you cannot pay, call an experienced bankruptcy attorney immediately. A Chapter 13 bankruptcy is the legal, guaranteed method to stop foreclosure, as it is backed by the Federal Bankruptcy laws. The lawyers at Harold Jarnicki and Associates have specialized in stopping foreclosures in Ohio and saving people’s homes throughout the Lebanon, Mason, Middletown, Wilmington, Hillsboro, and surrounding areas for over 40 years. Call 513-932-5792 today for a free consultation with a bankruptcy expert to find out how you can save your home and eliminate your debt.

In two recent blog posts, we discussed reasons why an individual may choose to file for bankruptcy and the benefits of Chapter 7 bankruptcy. In this post, we’ll take a closer look at Chapter 13 bankruptcy and provide general information related to qualification requirements as well as the overall process and benefits afforded to those who choose this form of debt relief.

Chapter 13 differs from Chapter 7 bankruptcy CHAPTER 7 BANKRUPTCY  in that unsecured debts are not immediately discharged, but rather negotiated, consolidated and discharged upon the completion of a repayment plan. In order to qualify to file for Chapter 13 an individual or couple must show proof of sufficient and regular income. Additionally, there are restrictions related to the amount of unsecured and secured debt an individual is allowed to carry. Provided these criteria are met, a bankruptcy attorney will file with the court a Chapter 13 petition along with detailed debt and income information at which time a case trustee is appointed. A notice of the Chapter 13 filing is then provided to creditors, which prohibits the continuation of any debt collection practices.

Finally free from the harassing phone calls and threatening letters, an individual can focus and partner with their attorney to come up with a plan for how to repay outstanding debts which is then presented to creditors. Once details of the repayment plan have been sorted out, it must be approved by the bankruptcy court at which time a schedule of payments is established.

An individual is now well on his or her way to becoming debt free in three to five years. There are several benefits to filing for Chapter 13, the most important being debt reduction and consolidation. Additionally, an individual is given more control over the terms of debt repayment and is usually able to keep a home and car.

The rules and terms related to Chapter 13 can be complex and those who plan to seek debt relief through this form of bankruptcy are encouraged to seek the advice and help of a bankruptcy attorney who will guide a person through the entire process and ensure for a successful discharge as dictated by the terms of the repayment plan.

Source: U.S. Courts, “Chapter 13: Individual Debt Adjustment” 2014

As we have often discussed on our Mason bankruptcy law blog, for many people, bankruptcy isn’t the end—it’s a fresh financial start. The benefits of filing for personal bankruptcy can be many: getting immediate debt relief, preventing foreclosure, and putting an end to creditor harassment, for example. But if you have worked through bankruptcy, there are other issues to think about. One of the most important is rebuilding your credit.

There are many ways that this can be accomplished. There is no single best way to start working on it, but there are several points about the process that might make it easier, and less painful, than you might expect.

First of all, creditors know that an individual can only file for bankruptcy once every eight years—though most people only do so once in their lifetimes. That means that people who have emerged from bankruptcy are good candidates to get credit—they have no debt.

It may be difficult to find an attractive credit card at this stage. Many cards offered to people in this segment often have substantial annual fees and high interest rates. Individual banks and credit unions may offer the best options for people, even if the initial credit limits for these borrowers are low. Even if the terms aren’t necessarily the best, people who have emerged from bankruptcy need to start somewhere. If doing this via a secured credit card is the most viable option, then it may be the best choice for someone who doesn’t necessarily have a lot of choices.

Source: Fox Business, “How Do I Establish Credit After Bankruptcy Discharge?” Justin Harelik, retrieved May 20, 2014

When a business or individual files for bankruptcy, the federal bankruptcy law generally recognizes two types of claims: secured and unsecured. The distinction between a secured creditor, who holds a lien against estate assets, and an unsecured creditor, has a number of implications.

A debtor may find that, in certain circumstances, the debt of an unsecured creditor can be avoided, as seen in the Chapter 11 United States Bankruptcy Court case of In re Medcorp, Incorporated.

Ambulance business on life support

The debtors were an ambulance service business that provided transportation for individuals needing medical care. A bank had extended credit to the debtors for the purchase of vehicles under a credit and security agreement. As part of the extension of credit, the debtors granted the bank a security interest in all of its vehicles.

Later, due to financial difficulties, the debtors’ business assets and operations were about to be sold when the debtors filed for Chapter 11 bankruptcy. A bankruptcy trustee was appointed and eventually the court approved the sale of the debtors’ assets, including the vehicles, according to terms that were substantially identical to those originally proposed.

Prior to the sale, the bankruptcy trustee filed a motion to avoid any security interests or liens claimed by the bank on the vehicles the debtors had formerly used to operate their business. The trustee alleged that any interest the bank had was not properly perfected in the title system under Ohio law—that is, that the interest in the vehicles was not filed fully and correctly.

Was the obligation on the vehicles avoidable?

A creditor who holds an unperfected, or improperly perfected lien against a debtor when a bankruptcy case is filed could possibly have the lien avoided by the bankruptcy trustee. The rationale behind this law is to ensure that the estate assets available to a debtor’s unsecured creditors is maximized by preventing the creation and enforcement of secret or undisclosed liens; liens that due to lack of being perfected were not known to others.

The certificates of title for these vehicles did not show the existence of the bank’s liens and there was no evidence that the liens had been entered into the automated processing system used in Ohio for recording liens on vehicles. Thus, under the so-called “strong arm clause” of the bankruptcy law, the liens held by the bank on the vehicles were subject to avoidance based on the fact that the liens were not properly perfected.

Accordingly, the security interests held by the bank in the vehicles could be avoided in the bankruptcy proceeding and declared void.

Business bankruptcy can be complex

A business facing bankruptcy faces much more complex issues than an individual. Such issues as whether or not you wish to keep your business open should be factored in to your approach to bankruptcy. Before taking any action, seek the assistance of an experienced bankruptcy attorney who can provide advice on the best approach for your specific circumstances.

Financial problems can spring up virtually any time in life for a multitude of reasons. Some people may experience a medical emergency, leading to expensive medical bills. In these tough economic times, others may turn to credit cards as a means of financing their day-to-day expenses, leaving them with thousands of dollars in high interest debt. Still others may have lost their job and be unable to keep up with their mortgage.

Faced with these high bills, it is only natural that some people may look to other means of repaying them. Some may turn to their retirement accounts such as 401(k)s, IRAs, pensions, or annuities as a source of funds to help stave off bankruptcy. Although such a decision is often justified with good intentions, in reality those who do this are making their financial situation worse in most cases.

First of all, when a person withdraws retirement funds, he or she will have to pay taxes on the money withdrawn. By creating a tax liability on top of the debt owed, this only compounds a difficult debt situation.

Also, there is no reason to raid the retirement accounts before filing bankruptcy, because many of such accounts are exempt under the bankruptcy code. This means that the assets in these accounts cannot be used to pay off creditors. Accounts that are exempt in bankruptcy include:

• Certain Individual Retirement Accounts (IRAs) (up to certain limitations)
• Government Retirement Accounts
• Deferred Compensation Plans
• Pension and Retirement Plans Under ERISA (e.g. 401(k))
• Tax Deferred Annuities
• Profit-Sharing or Defined-Benefit Plans

Since such accounts are exempt, once the bankruptcy has been completed, the individual gets to keep the money that he or she had accumulated in the account before the bankruptcy.

If you are considering filing for bankruptcy, it is not a good idea to transfer your remaining assets to your retirement accounts to attempt to keep them away from your creditors. Once the bankruptcy petition is filed, a bankruptcy court will examine your prior transactions. If it finds that you transferred the funds to avoid losing them in bankruptcy, the account that it was transferred to can lose its exempt status and be used to satisfy some of your debts.

If you are experiencing financial difficulties, it is important to speak with an experienced bankruptcy attorney early in the process. An attorney can advise you on your debt relief options, how each would affect your assets and which one would be best for your situation.

People experience financial problems for a wide range of reasons. Some may be having trouble paying back credit card balances that have high interest rates. Those fresh out of college may have difficulty finding a job, and be unable to make payments on student loans. Homeowners could be stuck with mortgage payments that are much more than their home is worth. Injuries and illnesses may have led to expensive medical bills.

Some individuals struggling with financial problems may look to their 401(k) accounts as a potential source of income in an effort to delay filing for bankruptcy. They may withdraw some of the funds that they have saved for retirement, and use the money to pay off credit card bills or other expenses. Withdrawing funds from retirement accounts can be an extremely bad idea. Generally, when an individual removes money from the account, he or she will have to pay taxes on the money that they withdraw. This may cause additional financial struggles, meaning that the debtor is still going to have difficulty repaying debts that are owed.

Also, most retirement accounts, including the majority of IRA’s, 401ks, pensions, and annuities, are exempt under bankruptcy rules. This means that these funds will not be taken by the Bankruptcy Court to pay off creditors. The debtor will be allowed to keep the money that has accumulated in the account after filing for bankruptcy.

It is extremely important that debtors considering using their 401(k) and other retirement account assets to pay bills first speak to an experienced bankruptcy attorney about the potential consequences of these actions. A bankruptcy attorney can guide you on how to eliminate your debts while saving your retirement for when you really need it….during your retirement years.

Although most retirement accounts are exempt from the Bankruptcy Court, people should usually not convert their assets into their retirement accounts prior to filing for bankruptcy protection. During the proceedings, the Bankruptcy Court will review the debtor’s prior financial history. If the individual transferred assets to the account to avoid losing them during the bankruptcy, the account could lose its exempt status. This could significantly reduce the amount of money that a person will have when he or she retires. An experienced bankruptcy attorney can explain how to properly protect your assets prior to filing a bankruptcy.

Filing for bankruptcy is not something that you should do on your own. Speak to an attorney who specializes in bankruptcy law to understand how you can regain control over your financial situation. You have unique assets and goals, and it is important to work with someone who can help you find the right solution for your problems.

When you are first starting to experience financial problems, you should speak to a bankruptcy attorney about the options that are available to you, including saving and protecting your retirement accounts. If you wait too long to address these issues with a bankruptcy attorney, you may place yourself at a greater financial risk, and it may take much longer to recover from your financial problems.

Individuals who file for bankruptcy have two types of bankruptcy as options: Chapter 7 and Chapter 13. If you are considering bankruptcy, you may wonder which type would be best for you. The answer depends heavily on your situation.

Both types of bankruptcies are similar in the sense that both offer a discharge of many types of your debts-meaning that you no longer have to repay the debt. However, the two types are otherwise very different.

Fundamental Differences

The main difference between the two types of bankruptcies is how each one works. In Chapter 7, also called liquidation bankruptcy, your nonexempt property is sold to pay your debts. However, many people in financial distress do not own any nonexempt property, such as a vacation home, so most Chapter 7 filers do not lose any property. Once the sale (if there is property to sell) is completed, you receive a discharge of many types of your debts.

Conversely, in Chapter 13, your debts are consolidated into a payment plan and are paid back in full or partially in monthly installments over a period of three to five years. Once the plan has been completed, you receive a discharge of any remaining debt.

Treatment of Debt

One of the other main differences between the two types of bankruptcy is how your debt will be affected. Here are some examples:

• Alimony, Student loans, and Child Support: Neither type of bankruptcy will discharge your obligation to pay domestic support debts like alimony or child support. Student loans can be discharged in either type of bankruptcy, but only in very rare and especially dire circumstances.
• Mortgages and Car Loans: Chapter 13 bankruptcy allows you to stop foreclosure and keep your house or car, as long as you catch up with your missed payments through a repayment plan. Chapter 7 can temporarily stop foreclosure, but cannot cancel it, if you do not catch up with any arrearages.
• Nonsupport Debts Owed Pursuant to a Property Settlement or Divorce: If your spouse objects to a discharge in Chapter 7, you will still owe the debt unless you can prove that you will be unable to pay the debt after bankruptcy. Chapter 13 discharges any remaining balance once bankruptcy has been completed.
• Co-Debtors: Chapter 13 protects co-debtors against creditors’ attempt to collect the debt owed; Chapter 7 does not.

Eligibility

Chapter 13 bankruptcy is easier to qualify for than Chapter 7. As long as your secured debts (e.g. mortgages and car loans) are below $1,081,400 and your unsecured debts (e.g. credit card or medical bills) are under $360,445, you would likely qualify for Chapter 13.

In Chapter 7, on the other hand, you must first undergo a means test to prove that you do not have the financial means to pay your debt. This test requires you to provide information to the court concerning your income, property, and amount of debt owed. If it is determined that your disposable income is above a certain threshold, you would not qualify for Chapter 7 and must file Chapter 13 instead.

Determining the type of bankruptcy that would be right for you can be a complicated process. Therefore, it is wise to consult with an experienced bankruptcy attorney, who can recommend a debt relief option that will protect your best interests.

Ohio students know how expensive attending college is. Students are often left with crippling credit card, student loan and other debt with hefty minimum payments.

It is commonly thought that student loans cannot be discharged in bankruptcy. For the vast majority of people this is true. In fact, section 523(a)(8) of the Bankruptcy Code makes clear the presumption that student loans cannot be discharged.

Undue Hardship Exception

However, the Code contains a very limited exception. The presumption against discharging student loans can be overcome if the student shows undue hardship. The undue hardship must be shown through a preponderance of the evidence.

This is a difficult standard to meet because bankruptcy courts usually advise students to take advantage of available federal programs to defer payment, rather than allow discharge of the debt. Additionally, the student must show more than simply financial difficulty. The purpose of this high standard is to prevent students with no true economic hardship from discharging debt immediately upon graduation.

Even if a student meets the burden of proof and shows undue hardship, the debt is not necessarily immediately discharged. A bankruptcy court must agree with the finding before the student is officially relieved of the debt.

If the court agrees, the debt is immediately cancelled. Additionally, filing for bankruptcy prevents all creditors from attempting to collect debt.

Students seeking student loan discharge under the undue hardship exception must file a separate petition. It is not automatically determined as part of the normal bankruptcy process. If a bankruptcy is already in progress, for an additional filing fee the case can be reopened to file for student loan discharge.

Tests for Undue Hardship

There is no specific definition for undue hardship. Therefore, two tests are used to determine whether a student qualifies for the undue hardship exception.

The first test is called the Brunner test. Under the Brunner test, the student must show:

• Based on current income and expenses, they cannot maintain a minimum standard of living for themselves and dependents if forced to pay the loans.
• Additional existing circumstances show this situation is likely to exist for a significant portion of the repayment period.
• A good faith effort was made to repay the loans.

Although a majority of courts use the Brunner test, a modified version is used by the Tenth Circuit. This test considers whether the student truly cannot afford to pay the loans. It also develops the good faith portion of the Brunner test by determining if the student is contributing to the hardship in some way.

Student Loan Discharge Is Not the Only Answer to Debt Problems

Although only a very small number of people will qualify for the undue hardship exception, a person experiencing difficulty paying student loan and other debt can still benefit from the assistance of an experienced bankruptcy attorney. A bankruptcy lawyer can explain options to wipe out other debt to free up cash to pay the student loans or how to defer the student loans for 3-5 years in a Chapter 13 bankruptcy.

Jewel Lewis-Hall, 57, works two jobs. Her husband lost his job at a farmer’s market and has been unable to earn much money since. They live a fairly modest lifestyle, driving a 1991 car for example, but they are still unable to make enough money to pay the mortgage on their Washington home. They had been making late payments for around a year when the dreaded foreclosure letter arrived. Now, what was once a bright future is much less certain and hopeful.

The housing market crash hit older Americans particularly hard. According to a new AARP Public Policy Institute report, over 1.5 million people 50 years and older have lost their homes since 2007 and another 3.5 million are currently at risk of foreclosure. Moreover, from 2007 to 2011, homeowners 50 years and older experienced a much higher foreclosure rate than those under 50. Unfortunately, the long-term prospects for older Americans are quite bleak.

While most homeowners hope to ride out the housing market crash to recovery, many older homeowners do not have the time to wait for prices to increase. A full recovery could take years or even decades and their golden years are on the near horizon. Unfortunately, many in the “baby boomer” group were counting on the value of their homes as their retirement nest egg.

According to 2010 Federal Reserve data, over half (51 percent) of families with a head of household between 65 and 74 years old had no money in retirement savings. Of those who did have savings, around half of them had less than $100,000. The percentage of families with no money in savings jumped to 67 percent for families with a head of household 75 years or older.

The problem is not limited to lower income families. The AARP study reports that in 2011, 53 percent of foreclosures within the 50 and older population came from middle class families with incomes ranging from $50,000 to $124,999. Homes with incomes below $50,000 accounted for only 32 percent of foreclosures within the same age range.

The AARP reports that 80 percent of Americans 50 and older own their homes. The percentage of people with mortgage debt and the amount of that debt has continued to climb for the last 20 years. The increased borrowing may be a result of older homeowners using their home equity to subsidize their retirement. Decreased home values may be forcing seniors to dip deeper into their retirement accounts to pay a first or even second mortgage. That leaves less money for food and other necessities.

The situation is dire for many, but most especially for older American homeowners. For those in need of assistance, an experienced attorney can offer useful advice and resources for consumers on the verge of foreclosure.