Filing Bankruptcy Can Remove Liens Against Personal Belongings

If you took out a personal loan, did the lender ask you to write down a list of your personal belongings?  If so, you may have given the lender a lien against your personal property, turning what would otherwise be an unsecured personal loan into a secured one.  A lien is a claim against an asset that can be used to satisfy a debt.  In other words, if you don’t pay the loan, the lender can take possession of the collateral you pledged to offset the debt.  Typically, these types of loans are not made by banks, but instead by finance companies that specialize in small, high-interest rate loans.

The Finance Company Doesn’t Want Your Old Television…

But they don’t want you to know that.  Used household goods are rarely worth enough to satisfy the loan.  Instead, the lender knows that your belongings are worth more to you than to anyone else, and that if they tell you that they are going to take back your belongings, that you will do whatever it takes to pay the loan, often putting you further behind on your other bills or over-drafting your bank account.  With the high interest rates charged on these loans, you will end up paying many times over what your property is actually worth.  But, because of the high interest rates, it can take a long time to pay down the principal, keeping you trapped by the finance company for years.

Bankruptcy Can Help

Thankfully, filing Chapter 7 or Chapter 13 bankruptcy may help you remove the lien on your belongings.  In order for this to occur and to ensure your creditors keep their hands off your belongings, you must make sure that these conditions are met:

  1. You must be able to claim an exemption in the collateral securing the loan.
  2. The collateral must be for household goods and furnishings, your work tools, or your prescribed health aids.
  3. The loan must have been a “nonpossessory, nonpurchase-money” loan.  What this means is that the finance company can’t retain possession of your belongings, like pawn shops do.  Also, the purpose of the loan can’t be for purchasing the property that is secured by the loan, like a house or auto loan.

You Must Ask The Court To Remove The Lien

Filing bankruptcy doesn’t automatically remove the lien.  Instead, your bankruptcy attorney will file a motion with the court requesting that the lien be removed.  While the finance company will have an opportunity to respond, they usually do not.  If they don’t object, the court may not even hold a hearing and may rule in your favor by default.  If the creditor does chose to respond, they would need to prove that your belongings are worth more than you can exempt.  Luckily, under both the North Carolina and Federal exemptions, most filers can exempt all of their household belongings.

Talk To A Bankruptcy Attorney

If you have liens on your personal belongings, talk to an experienced bankruptcy attorney to find out if bankruptcy can help you eliminate those liens.

 

What Happens to Your Vehicle & Loan in Chapter 13 Bankruptcy

This big-picture guide will give you an in-depth look at how vehicles with loans are treated in a Chapter 13 bankruptcy.  Addressing the issue involves two separate topics: whether you can keep your vehicle; and how car loans are treated in your case

Whether you can keep your vehicle

In a Chapter 7 bankruptcy case, you can lose your vehicle if you have more equity than you can exempt.  However, in a Chapter 13 bankruptcy, you can still keep your vehicle even though it is over-exempt.  It just means that you will have to pay that extra amount that is over-exempt to your unsecured creditors.  

For example, if your vehicle is worth $20,000, has a loan balance of $15,000, and the North Carolina vehicle exemption of $3,500 is applied, you will have $1,500 of non-exempt equity left over for your vehicle.  The nonexempt equity of $1,500 is the minimum amount you will be required to pay to your unsecured creditors in your Chapter 13 plan.  This works out to about $25 per month over the course of a 60-month plan Chapter 13 plan.  There are other factors that determine how much your unsecured creditors have to be paid, and the length of time you have to pay them, but that will be a topic for another post.

How your loan is treated

Next, we deal with how your vehicle loan itself is treated.  A Chapter 13 bankruptcy case offers four main options:

  1. Surrender
  2. Pay the lender directly
  3. Pay through trustee
  4. Cram down

Each choice has positives and negatives, though each option may not be available for your particular situation.

 1. Surrender 

Not everyone wants to keep their vehicle when they file bankruptcy. Surrendering your vehicle allows you to give the vehicle back to the lender.   This can be a great option in some circumstances:

  • You have a vehicle that is in need of major repairs; 
  • You have a second vehicle that you no longer need; 
  • You have a vehicle that no longer serves the purpose that you bought it for, such as a work truck or a passenger van.  

The advantage of surrendering the vehicle is that you do not pay for the full amount of the loan or worry about selling the vehicle yourself.  The lender will have to resell the vehicle, and whatever is left of the principal loan balance is paid pennies on the dollar as an unsecured debt.

2. Pay the Lender Directly

If you are current on your vehicle loan, you may be able to just continue making monthly payments directly to the lender.  The original terms of the loan are not changed, so the length of the loan, interest rate and principal balance will stay the same.  This can be a good option if you have a low interest rate loan on a newer vehicle.

However, there are some restrictions in order to use this option if you are filing bankruptcy in the Western District of North Carolina (other districts may have different local customs, and this firm only files cases for the Asheville and Bryson City division of Western North Carolina).  You must be current on your loan payments and the last payment on your loan must be due after the last payment under your bankruptcy plan. Stated simply, if you have six years left on your loan and your bankruptcy plan will last for five years, you can use this option. You may also use this option if there is a cosigner on the loan and the cosigner is not filing a joint bankruptcy case with you (only spouses can file joint cases).

3. Pay Through the Trustee

The most common method of dealing with your car loan is to pay it though your Chapter 13 plan with the trustee paying the lender.  Instead of you paying the lender directly, the trustee pays the loan from a portion of your monthly plan payment.  This option modifies the interest rate to the prime interest rate, plus an additional 2%.   Also, your vehicle loan will be paid off at the end of your bankruptcy case and you will own the vehicle free and clear from the loan.  However, it does not reduce the amount of principle you pay on the loan.  In some circumstances, paying your loan through the plan can be more advantageous than the paying the lender directly:

  • If you are shortening the length of your loan, your lender will get paid quicker than it otherwise would. However, instead of increasing the amount you have to pay to the trustee, it may come at the expense of your unsecured creditors by reducing the amount that they are repaid. 
  • Paying your loan through the plan helps to minimize disputes in your case.  If you are paying the lender directly and you miss a few payments, the lender may ask the court for permission to repossess the vehicle.  However, if you are paying it through your plan and you miss a few payments to the trustee, the lenders will typically skip asking the court for relief and instead rely on the trustee to require you to increase your payment amount to make up the difference.  

4. Cram Down

If you owe more than your vehicle is worth, a “cram down” can save you thousands of dollars in your bankruptcy case.  If your loan meets certain criteria, this is a great option to explore. Your vehicle loan is paid through the plan, but with the added benefit of reducing the principal amount due on the loan.  What your lender is paid will be split into two parts.  The first part is based on the fair market value of your vehicle.  This is the “secured” portion of the loan and is paid in full with interest.  The second part, the “unsecured” portion, is the remaining portion and is paid at the same percentage as your other unsecured creditors.  

For example, if you have a car loan with an outstanding balance of $10,000 but the car’s current retail value is only $6,000, then the lender is paid only $6,000 with interest.  The lender may only be paid 10% for the remaining balance, or $400, and without interest.  After you make all of your bankruptcy plan payments and receive a discharge, you will own the vehicle free of the lien.  However, a “cram down” is only available in limited circumstances:

  • If the loan was a “purchase-money” loan, meaning you obtained the loan at the same time you purchased your vehicle, you can’t cram down your loan unless you obtained the loan 910 days (about 2.5 years) prior to when your case is filed.  For example, if on January 1, 2018 you obtained a loan to purchase a vehicle, you would have to wait until June 30, 2020 before the loan is eligible to be crammed down.
  • If you used a vehicle that you already owned as collateral for a loan (like a title loan) or if you refinanced an existing vehicle loan into a new loan, you do not need to wait 910 days to take advantage of the cram down.

 

As you can see, you won’t lose your vehicle just because you file Chapter 13 bankruptcy.  If you want to surrender your vehicle, you can.  But, if you want to keep it, your Chapter 13 plan will offer you a solution, provided that you can pay the amounts required.  Are you curious about how your vehicle will be treated in a Chapter 13 bankruptcy?  Call 828-412-8700 today to see what solution works best for you.

Bankruptcy Myth: You Can’t Discharge Taxes In Bankruptcy

Struggling with tax debt? Bankruptcy can help.

It’s not uncommon to see bankruptcy self-help websites state that taxes aren’t discharged in bankruptcy, but this is simply not the case.  The truth is that only some types of taxes aren’t discharged in bankruptcy, while the rest are:

  • “Trust Fund” taxes – these are payroll taxes that an employer is responsible for withholding for their employees’ tax obligations. It applies to the employer, not the employee. Even if the business is a corporation or an LLC, the officers of the company can be held personally liable for these taxes if they file personal bankruptcy.  These types of taxes are not as common in bankruptcy because it only applies to business owners, but these taxes are never discharged in bankruptcy.
  • State sales taxes – like trust fund taxes, if an employer does not withhold sales taxes owed to the North Carolina Department of Revenue, these are also not discharged in bankruptcy.
  • Property taxes owed prior to filing, in most circumstances, less than one year old.
  • Taxes that are owed for years that you did not file a return a return.
  • Recent income taxes – these taxes will not be dischargeable if it has been been less than three years since they were first due. For example, if you owed taxes for the 2015 tax year, filed your return by the April 18, 2016, deadline, you would need to wait to file bankruptcy until after April 18, 2019, to file to discharge these taxes as general unsecured debts. If you file for an extension, the “first due” date will be extended for six more months.
  • Late filed returns – these taxes are not dischargeable for two years since the return was filed. If you waited until December 31, 2017, to file your 2015 taxes, you would need to wait to file bankruptcy until January 1, 2020, in order to discharge these taxes.
  • Recently assessed taxes – if you filed your returns, but the IRS or other taxing authority recently assessed taxes, these taxes will not be dischargeable for 240 days. So, if you filed your 2015 taxes on December 31, 2017, but the IRS assessed taxes on December 31, 2019, you would need to wait eight more months to file bankruptcy.

When making the decision to file bankruptcy, it is important to know what will and will not be discharged. This will determine whether the filing of your bankruptcy should be delayed so that you can discharge as much tax debt as possible.  You will want to pull your account transcripts from the IRS so your bankruptcy attorney can determine your best options.

If you file a Chapter 7 bankruptcy, your non-dischargeable debts, including penalties, will survive the bankruptcy. If there was a tax lien before you filed Chapter 7, the lien would still remain on your property even if the underlying tax debt is discharged.  Also, the IRS other taxing authorities can still file tax liens or garnish your wages after your bankruptcy is over.  It may be beneficial to pursue an installment agreement or an offer in compromise to avoid these consequences.

On the other hand, Chapter 13 bankruptcy allows you to deal with your non-dischargeable taxes with the protection of the automatic stay – no more tax liens or wage garnishments once your case is filed.  You will be required to pay back 100% of the non-dischargeable portion as priority taxes, but the remaining taxes are paid the same percentage as your other general unsecured creditors, like credit cards or medical bills.  Another benefit of Chapter 13 bankruptcy is that tax penalties are paid at the lower unsecured rate as well.  Tax liens can also be reduced, depending on the value of your assets and the equity you have.  This can mean that even with the additional expense of Chapter 13, it can save you thousands of dollars versus filing Chapter 7 and paying the taxes through an installment plan.

Ready to see how bankruptcy can help you with your tax debts?  Call and speak to an Asheville bankruptcy attorney today at 828-412-8700.

Is Bankruptcy The Right Choice For You?

Are you struggling with the choice to file bankruptcy?

However you got into debt, you may be struggling with the question, “Is bankruptcy right for me?”

Most of the clients I meet in my Asheville bankruptcy law firm came to the realization that they were trapped with the amount of debt they had and needed help getting relief. They couldn’t get out of debt by skipping the morning coffee line.  They couldn’t get out of debt from debt snowballsDebt avalanches didn’t work either. You name it, they tried it. But nearly all of my clients say the same thing, “I wish I would have filed bankruptcy sooner.”

Life Happens

Job change, illness, divorce… or simply, “life happens”. Whatever the reason that caused your financial distress, if you are going without basic necessities, an emergency fund, or health insurance, then it is time to consider filing bankruptcy. Filing for bankruptcy relief can have an immediate positive impact on your quality of life. Creditors stop calling, lawsuits stop, foreclosures and repossessions are halted. You can focus on taking care of yourself and your family instead of taking care of your creditors. Often when clients come to me, they have sacrificed the basic necessities so that they can pay their creditors. But after bankruptcy, they have money for healthy food, car repairs, and clothes that aren’t from a thrift store.

Bankruptcy Helps You, Not Punishes You

And guess what?  Bankruptcy is really not that horrible. Talk to someone that has actually filed bankruptcy instead of listening to the scare tactics. You will probably keep everything you own. It’s also not uncommon to see credit scores rise dramatically after bankruptcy with just a little bit of time.  You can still borrow money, including for a car or a home.  After your bankruptcy, you will have wiped out nearly all of your debts.  Since you won’t be eligible for a a discharge in another bankruptcy right away, your are a better credit risk coming out of bankruptcy than before you went in.

The Sooner You File, The Sooner You Recover

The longer you wait to file bankruptcy, typically the worse off you will be.  You might drain your retirement that would would otherwise keep in bankruptcy.  You might waste years in a debt settlement program.  This will only leave you worse off once you finally file bankruptcy.  File bankruptcy first and you will recover sooner with more of your assets left over.  Find out if it is the right choice for you by calling a bankruptcy attorney in Asheville, NC at 828-412-8700.

Is Debt Settlement a Better Alternative to Bankruptcy?

The basics of debt settlement

The formula for debt settlement is simple: hire a debt settlement company, stop paying your creditors, save up funds to use for settlement, then make offers with your creditors for pennies on the dollar.  It sounds like a great alternative because it keeps you out of bankruptcy, but beware of the fine print.

You can be sued in debt settlement

Debt settlement requires you to stop making your regular monthly payments to creditors. However, when you stop paying your creditors, you can be sued for the full balance of what you owe and even additional amounts for their attorney fees. If a creditor gets a judgment, the judgment is an automatic lien on any real estate you own, and they can even seize your assets to satisfy the debt. The lawsuits will only stop only after settlements are reached with your creditors, and it can take years before you’ve saved up enough to settle. Even then, your creditors are not obligated to settle with you. With bankruptcy, your creditors cannot prevent you from filing, lawsuits are stopped immediately with the automatic stay, and your creditors are required to obey the bankruptcy court order discharging your debts.

Bankruptcy is cheaper

In debt settlement, creditors settle based on a percent of what you owe. If you have a lot of debt, this can drive the cost of debt settlement to an unaffordable monthly payment. The balance of what you owe can even go up until the debt is settled. With debt settlement, you never know what the final cost will be until the last debt is settled years down the road. Chapter 7 bankruptcy will always cost less than debt settlement because there are no monthly payments at all. In a Chapter 13 bankruptcy, if your assets don’t exceed your exemptions, your monthly payment is based on what you can afford to repay. You will also know early in the process what a Chapter 13 bankruptcy will cost. Almost always, your unsecured creditors will be paid less than what they will settle for in debt settlement.

Taxes            

When you cancel more than $600 in a settlement, the creditor will issue you a 1099-C for the difference between the current balance and the settlement amount. This may be treated as income that will trigger a higher tax bill on your income taxes. There are some exceptions to this, so speak with a CPA to see if this will apply to you. Filing bankruptcy does not trigger any income tax for the discharged debt.

The bottom line

Almost always, the only time I advise a client that debt settlement is a better alternative to bankruptcy is when they will lose assets in a Chapter 7 bankruptcy [find out what you can keep here] and when they can’t afford the payment in a Chapter 13 bankruptcy. Before attempting debt settlement, speak with me first for an honest assessment of your situation.

Bankruptcy Can Prevent Foreclosure

If you are behind on your mortgage and facing foreclosure, bankruptcy may offer you relief.  For most filers, the instant your bankruptcy case is filed, the automatic stay goes in to effect.  Once your creditors are notified about your case, foreclosures and other collection activities by your creditors are halted.

Filing Chapter 7 bankruptcy can temporarily stop a foreclosure for a few months. This may give you time for a loan modification or to receive assistance from the North Carolina Foreclosure Prevention Fund. However, if neither of those solutions work, your mortgage lender may eventually succeed in foreclosing your home. At most, this may only stall the process for six months because Chapter 7 does not cure the arrears on your mortgage loan.

On the other hand, Chapter 13 bankruptcy is an effective way to prevent your home from being foreclosed because it gives you time to catch up on missed payments.  This is done by filing your Chapter 13 plan with the court, which allows for up to 60 months to pay off your past due mortgage payments.  Unlike a loan modification, your lender does not have to agree with your plan.  As long has you make your plan payments and your plan complies with the bankruptcy laws, the court will approve your plan.

But don’t wait until it’s too late.  It is much better to talk to an Asheville Bankruptcy Attorney sooner than later.  If your mortgage company starts a foreclosure, it can typically add $2,500.00 or more that you will have to pay back in the bankruptcy just to pay your lender’s foreclosure attorney fee.  Also, if you wait until after the foreclosure sale and upset period, the foreclosure will be final and bankruptcy may offer you no relief.  Contact Mosley Law Firm today to get started.

Are You Thinking About Filing Bankruptcy? Don’t Try These Three Things First.

When a client comes to me seeking help to file bankruptcy, many times they have tried something else first.  Whatever they tried didn’t work.  It was also time, money, and headache that could have been avoided.  Sometimes there are strategic reasons to wait to file bankruptcy.  But usually, the sooner you file bankruptcy, the sooner you eliminate your debts and begin making a financial recovery.

If you are considering doing one of these three things to try and get out of debt, call me first.  It may do more harm than good:

  1. Don’t try to make a debt settlement program work.

Bankruptcy is cheaper, takes less time, and stops lawsuits from your creditors.  If you sign up for a debt settlement program, your creditors aren’t getting paid and after a while they are likely to sue you.  This is usually about the time many of my clients decided debt settlement was not worth it.

  1. Don’t borrow money from friends and family.

You’ll feel morally obligated to repay them, and if you do, the court might view the repayment as fraudulent and your friends or family may have to give the payments back.  Do this and you may have to wait before you can file bankruptcy.

  1. Don’t use your 401(k) to pay down debt.

You’ll need the money for retirement and you’ll get to keep all of it when you file bankruptcy.  Use it to fend off your creditors before filing bankruptcy and you won’t get that money back.  It may also trigger tax consequences, and if you can’t afford the tax bill when it comes due, you may not be able to discharge the debt in a Chapter 7 bankruptcy.  If you file a Chapter 13 bankruptcy instead, it may increase the amount of your monthly plan payments.

Talk to me first.

Don’t try figuring it out on your own.  I will tell you if bankruptcy is the best option or if there is another solution that would work better.  These solutions might make sense if bankruptcy isn’t a workable solution.  Usually, it just delays the inevitable.  The longer you take until you file bankruptcy, the longer it will take to get a fresh start.

Which Exemptions Do You Use When You File Bankruptcy?

When you file bankruptcy, your exemptions determine what property you get to keep.  There are federal exemptions and state-law exemptions.  The exemptions you use depends on where you have lived for the past two years prior to filing bankruptcy and whether that state requires you to use its exemptions or permits you to use the federal exemption.  If you’ve lived in North Carolina for the past two years, the answer is simple – you’ll use the North Carolina exemptions when you file bankruptcy.  You can read about those here.

 

But what if you haven’t lived in North Carolina for two years?  In that case, you look to where you lived for the 6-month period just before the two-year period.  For example, if you are filing bankruptcy on January 1st, 2018, you look to where you lived for the majority of the time from July 1st, 2015 to Dec 31st, 2015.

 

Once you have figured out which state applies for the 6-month period, there is one more step – you must look to the law of that state to determine if non-residents can use that state’s exemptions.  Many states do not allow non-residents to use its exemptions so you’ll use the federal exemptions. Some states do, and in that case, you will use your prior state’s exemptions, or if permitted, the federal exemptions.

 

The state-law exemptions usually differ from the federal exemptions, and depending on what you own, one set of exemptions may be more advantageous.  That is why it is important to carefully review the time periods and your assets to determine if you should go ahead and file bankruptcy now, or if it would be better to wait so that you can use North Carolina exemptions.

Do You Qualify For Bankruptcy?

Odds are that you qualify for at least one of the bankruptcy chapters.   Very few things will actually disqualify you from filing bankruptcy:

  • If you have been in a bankruptcy in the past six months and your case was dismissed under limited circumstances
  • If you failed to take an approved pre-bankruptcy credit counseling course within six months before filing your bankruptcy case and you do not meet any of exceptions that would excuse you from taking the course.

 

The bigger question is what type of bankruptcy you qualify for.  Below is a general overview for 99% of bankruptcy filers:

 

  • Is your household income below the average for North Carolina?  Is your monthly take home pay about the same, or less than, your monthly expenses?  (When making this calculation include payments you make on your car or home, but exclude all other unsecured debts like medical bills, credit cards, and personal loans.)

If so, you may qualify for Chapter 7 bankruptcy.

 

  • Is your household income above the median?  Are your unsecured debts less than $394,725 and your secured debts less than $1,184,200?  Do you have regular income that exceeds the expenses of your bare necessities?

If so, you may qualify for Chapter 13 bankruptcy.

 

  • Do your debts exceed the dollar limits allowed in Chapter 13?

If so, you may qualify for Chapter 11 bankruptcy.

 

  • Are you a family farmer or family fisherman?

If so, you may qualify for Chapter 12 bankruptcy instead of Chapter 13 bankruptcy.  You may also qualify for Chapter 7 bankruptcy.

 

However, qualifying for bankruptcy is one thing, but whether or not you will be able to obtain a discharge and keep your property gets a little more complicated. Look for part 2 of this article for an overview why you may not want to file bankruptcy even though you qualify.

 

You Don’t Lose Your Retirement Accounts in Bankruptcy

You made responsible choices and contributed to a retirement account, and now that nest egg has grown significantly.  Don’t worry about losing your retirement savings in bankruptcy, because it’s exempt.  Under North Carolina exemptions, all IRS qualified retirement accounts (employer pensions, 401(k)’s, Traditional IRA’s, Roth IRA, etc.) can’t be touched by the bankruptcy court.

If you are a state or municipal employee, those retirement benefits are exempt too.  This also applies to retirement accounts from the federal government, as well as other states and their municipalities.

If you haven’t filed bankruptcy yet, but are considering withdrawing from your retirement benefits to pay down debt, please call me first.  Many times this just delays the time before you end up filing bankruptcy, except now you’ve spent your retirement funds.  Funds you would have kept had you filed bankruptcy first.

Every dollar that you spend from an exempt source is a dollar that you could have otherwise kept after filing bankruptcy. The sooner you file bankruptcy, the sooner you will stop making payments on old debts that are keeping you from getting a fresh start.