December 7, 2021
Chapter 7 bankruptcy is one of the most common types of bankruptcy filings used. It has the potential to help many people get themselves out of poverty and onto a path where they feel empowered to handle their finances. Chapter 7 bankruptcy can give you a fresh start in eradicating the debts that loom over you. However, filing for bankruptcy should only be done when thought through, and discussed with a lawyer who is familiar with bankruptcy law.
What makes Chapter 7 bankruptcy different from other types of bankruptcy filings? Here we have listed the pros and cons, so you have a better idea of what operating under this bankruptcy status will be like:
Pro’s of Chapter 7 bankruptcy:
- Automatic Stay Protection: once your case has been filed, creditors are banned from contacting you or taking collection actions.
- You Keep Most Belongings: Chapter 7 bankruptcy allows for people to keep most of their assets, such as cars, furniture, clothes, etc.
- Future Wages are Protected: after filing, creditors cannot touch your earnings, so future paychecks are entirely yours to keep and use for necessities of living and other expenses.
Con’s of Chapter 7 Bankruptcy:
- Public Record: what happens in the bankruptcy court is not private, and is open to the public. But, most people aren’t interested in finding out the details about another individual’s bankruptcy case.
- Income Limits When Applying: it will be important to calculate your income, and see if you fit the criteria needed to file for Chapter 7 bankruptcy.
- Giving Up Luxury: even though you are permitted to keep certain assets, there are others that aren’t protected, such as luxurious and indulgent items.
June 30, 2021
Hiring a lawyer can be a stressful process. To begin with, how can you be sure you even need a lawyer? There are a lot of reasons that you need a lawyer before you end up in a courtroom. Once you know you need a lawyer, how do you find a good one? Should you hire one for just this job or keep a lawyer on retainer?
How to know if you need a Chapter 7 Bankruptcy Lawyer
The simple answer is, if you’re not sure, you need a lawyer. Consulting a lawyer and finding out you are in the clear is preferable to not contacting a lawyer and facing down lawsuits or fines. Lawyers are essential at every step of the business process like a chapter 7 bankruptcy lawyer from a firm like Carolyn Secor, P.A., can explain. They can make sure you start off on solid ground by advising on a sound business structure and helping you with the paperwork and licenses you need. You will also need a lawyer if you are working with any intellectual property and when going through a bankruptcy. They can draft solid agreements and contracts to help keep business running smoothly. They can even help you get paid with a letter on your behalf. If you wait until an emergency comes up to hire a lawyer, you have waited too long.
How to Find a Good Chapter 7 Bankruptcy Lawyer
One of the best ways is to ask around. Put your personal and professional networks to work for recommendations. Make sure to look around online and do some research. There are sites that offer directory services for lawyers, and they may even include complaints lodged against the lawyer.
Once you have some recommendations, set up meetings with the potential lawyers. Make sure that you come ready to ask questions. Think of it as interviewing an employee. How much do they need to be paid? How much experience do they have?
What is a Retainer
A retainer is a prepayment into an account that is used to pay the lawyer’s fees later. By setting up a retainer with a lawyer, you can avoid worrying about legal issues and focus on running your business. The retained lawyer can review and form contracts and agreements and advise in all sorts of legal matters. They can even make recommendations if you need someone more specialized. The exact amount needed depends on the lawyer, so make sure you ask during the interview process.
If you have questions about any chapter 7 bankruptcy legal issues relating to your business, contact a Chapter 7 Bankruptcy Lawyer and discuss your options.
June 11, 2021
Filing for bankruptcy is never an easy decision. There are many things to consider when deciding if it is right for you. There are two main types of bankruptcy for individuals: Chapter 7 and Chapter 13. This blog will focus on Chapter 7.
Chapter 7 bankruptcy, or liquidation bankruptcy, is the kind of bankruptcy that is often portrayed in media. It allows individuals who are unable to pay their debt to discharge most of it. Once you file, an automatic stay takes place and your creditors must cease all actions pertaining to the collection of your debt. You will likely have to sell some of your assets to pay down some of the debt, however some things may be considered exempt. If you decide to file for bankruptcy a lawyer can help you decide if this is the correct option for you. If you go forward with filing Chapter 7 bankruptcy here are six ways it may affect your everyday life.
You may have difficulties obtaining a good credit card.
When you file for bankruptcy your credit score will likely drop by 100 or more points. The negative mark bankruptcy leaves on your credit score can last for up to 10 years. Most “good” credit cards, with benefits and low interest rates, will require you to have a credit score of 700 or above. While you are building your credit back up, you may still be able to get a credit card, but it will likely be one with a higher interest rate and fees.
You may have a hard time getting a mortgage.
Once you file for bankruptcy you will have a waiting period before you can apply for most types of mortgages. For example, FHA loans are the most flexible allowing you to apply for a loan as soon as 1 year if you can prove extenuating circumstances, or 2 years without. Other types of loans have their own waiting periods. Once you have completed the waiting period you will probably need to meet a credit score minimum and other requirements. Securing a mortgage after bankruptcy is by no means impossible, but there will be hurdles.
You may have high interest rates if you choose to finance a new car.
Sometimes during a bankruptcy proceeding you will be forced to sell your car to pay down your debt. If this occurs and you need to buy a new car but cannot pay cash, car dealerships may take advantage of the situation and charge you extremely high interest rates, occasionally up to 29%.
You will no longer receive collection calls.
Once you file, collection agencies will not contact you anymore. Not having to deal with harsh creditors may significantly improve your daily life.
You may feel relieved.
Once your bankruptcy proceeding is finished you may feel immediately relieved. Now that you have been discharged of your debts, you can move forward without the constant stress of large amounts of debt hanging over your head. You may even find you look at the world in a more positive light and other aspects of your life may improve as well.
You may notice a decrease in the amount of fights you are having at home.
If you have a partner, you might find that your relationship improves almost overnight. Financial strain is one of the biggest stressors on any relationship. With your debt being eliminated you can focus more on your improving your relationship rather than your financial situation and you may fight less frequently.
These are just a few of the ways filing Chapter 7 bankruptcy could affect your daily life. Deciding to file for bankruptcy is a very personal decision, everyone’s situation is different. Like with everything in life, there are pros and cons to filing and only you and your lawyer can decide what those will be for you.
March 4, 2021
One of the basic and most important protections available when you file a bankruptcy of any type, anywhere, is the Automatic Stay.
Essentially, the moment you file your bankruptcy case, the Bankruptcy Automatic Stay stops any company or person whom you owe money (a “creditor”) from taking any steps to collect money from you. The provision that creates this Automatic Stay is Section 362 of the United States Bankruptcy Code. The Automatic Stay blocks credit card companies, personal loan companies, banks, car loan companies, mortgage companies, the IRS, and almost anyone else to whom you owe money.
What does this mean for you? Here are a few examples: If your home is to be sold tomorrow in a foreclosure sale, we can file a bankruptcy petition today and stop the sale. If your bank account has been frozen (restrained), we can file a bankruptcy petition, and the Automatic Stay requires your bank to release the freeze and allow you access to your money. If your salary is being garnished (also called an “income execution”), filing a bankruptcy petition will invoke the Automatic Stay and stop any garnishment so you once again receive your full paycheck. Are you being sued? Filing a bankruptcy petition will invoke the Automatic Stay which, in turn, will temporarily halt any proceedings against you.
The Automatic Stay begins at the moment the bankruptcy petition is filed (usually electronically); not the day it is filed, but the actual moment it is filed. Therefore, we can theoretically stop a foreclosure sale scheduled for 3pm by filing the bankruptcy ten minutes earlier.
However, it is not unlimited relief; there are some circumstances in which the Automatic Stay will not block legal action against you, as the lawyers at Baram Kaiser Law can explain. For example, criminal proceedings do not violate the Automatic Stay. Likewise, actions to collect previously Court-ordered child support obligations are not stopped by the Automatic Stay. The Automatic Stay can be limited in duration in certain circumstances, for example, if you have filed bankruptcy previously in the recent past. In certain circumstances, a creditor may have legal grounds to ask the Bankruptcy Court Judge to remove or modify the Automatic Stay, for example, if you do not resume mortgage payments after you file your bankruptcy. These nuances in the Bankruptcy law require the advice and counsel of a knowledgeable, experienced attorney to help plan the best course of action to protect you and your family’s finances.
January 24, 2020
If you are considering filing a personal injury lawsuit after someone else caused a recent injury, a very natural question is “How much is my case worth?” However, this is not really the right way to think about things. The purpose of personal injury lawsuits is to compensate a victim for losses. This means your case is worth exactly how much you lost. Of course, things are a little more complicated than that. The first step in understanding how much your case is worth is understanding the different types of damages.
Special Compensatory Damages
The first type of damages is special compensatory damages. These damages correspond to financial losses. If you can place an exact monetary value on a loss, then it will fall into this category. Examples of this include:
- Medical bills
- Damage to property
- Lost wages
- Loss of earning ability
- Purchase of medicine
- Purchase of medical equipment
For all of these losses, their monetary value is objective. Before you step foot into the court room, you could look at receipt or bill or wage log and know exactly how much money you lost.
General Compensatory Damages
The second type of damages is general compensatory damages. These damages correspond to non-financial losses. If you suffered in some way, but it is impossible to objectively place a monetary value on your suffering, then it will fall into this category. Examples of this include:
- Pain and suffering
- Emotional distress
- Loss of mobility
- Loss of companionship
- Loss of enjoyment of life
As you can probably tell, the monetary value of all of these is subjective. The only way you could determine it is by making an estimation. When general compensatory damages are accepted in a court case, the judge will be the one to decide how much they are worth.
The third type of damages is completely different from the other two. Punitive damages are not a form of compensation. Instead, they are assigned as punishment for the defendant. The judge will be the one to decide if punitive damages are appropriate, as well as how much potential punitive damages should be.
So, now that you know about the types of damages, you can estimate what your case is worth. It will be the sum of special and general compensatory damages. Punitive damages are rare in personal injury cases, so you should not expect to receive any. Speaking with a personal injury lawyer in Washington, DC can help you estimate these values more with more precision.
Thanks to Cohen & Cohen, P.C. for their insight into personal injury claims and what your case may be worth.
September 10, 2019
In the majority of situations, filing for a chapter 7 or chapter 13 bankruptcy should not adversely affect your immigration status.
For starters, you don’t need to be a US citizen or even have a green card to file for bankruptcy protection.
The key requirement is that you must be a US resident which generally means showing or proving that you’ve lived in America for a substantial amount of time such as six months or more.
Even better, your citizenship application, visa or green card applications should and will continue even if you do file for bankruptcy.
The United States Citizenship and Immigration Services (USCIS) can’t deny your application just because you filed for bankruptcy.
The Bankruptcy Code, Section 525 (a) is the law that prevents the federal government from discriminating against anyone who files for bankruptcy protection. The section provides:
“…A governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.”
How a Bankruptcy Petition Could Be Used by Immigration Authorities
Generally, anyone seeking admission to the United States through the immigration process must show they have good moral character.
If you’ve been convicted of a crime, if the immigration officials have reason to believe you lied on any forms, or if the officials believe that you lack morality; your immigration application may be denied.
USCIS also wants to make sure immigrants seeking admission into America don’t become a financial burden.
Mostly, they’re looking to see if you can, or are working.
The government doesn’t want to have to pay for welfare and other financial assistance.
The fact that you declared bankruptcy may actually help to show and prove that you are working to resolve your debt situation.
Situations Where Filing Bankruptcy Could Affect Your Immigration Status
While the act of filing for bankruptcy shouldn’t disqualify you for immigration, the items on the bankruptcy petition, and your conduct during the bankruptcy process could be used against you.
Here are a few ways the underlying facts behind the bankruptcy petition may hurt your chances for immigration approval:
- You ran up large debts to pay for items you clearly knew you could never afford.
- If it is clear from the creditor list and your income that you were never ever going to be able to pay for lavish expenses, that may be problematic.
- You may be asked about your taxes. Many people get behind on their tax obligations.
- If, however, you lied about your taxes to the IRS or any official for that matter, the lie could be used to deny your immigration applications.
Generally, immigrants are productive people who pay a lot of money into the government (through taxes and social security) even though they are not entitled to those benefits unless they become an American citizen.
Immigrants, like every existing citizen in America, can develop financial problems due to a bad marriage, medical difficulties, and credit card debts.
They may not be able to pay for a home or apartment.
Not being able to pay your bills shouldn’t disqualify you – unless you were dishonest, lied, or committed a crime to get the funds originally.
For immigrants, like American citizens, a bankruptcy is nothing to be ashamed of or frightened of – it is your right.
Bankruptcy provides a legitimate second chance for many people each year including American citizens and immigrants alike.
Bankruptcy and Criminal Offenses
If the bankruptcy court believes you committed a crime, then that crime could be used against you.
Possible bankruptcy crimes include:
- Lying under other;
- Providing financial statements that you know to be false;
- Not providing information about income or debts that you were supposed to provide on your bankruptcy forms
Very few people are charged with bankruptcy crimes.
Many usually are just told to provide the accurate information within a specific time frame.
If you are charged with a bankruptcy crime, then your bankruptcy petition could be denied.
If USCIS learns of the bankruptcy crime after examining your bankruptcy records, then you could be deported if you are an immigrant.
You may even be barred from re-entering the United States, or be unable to re-enter for a specific number of years.
Experienced bankruptcy lawyers successfully work with immigrants.
We explain what you must list on your bankruptcy petition paperwork and the need for you to be honest in everything your report to the US Bankruptcy court.
We also explain that you must be truthful at the mandatory creditor’s meeting before the US Trustee in Bankruptcy.
Filing Bankruptcy After Sponsoring an Immigrant
If you are sponsoring an immigrant for a visa or for citizenship, generally, you can still sponsor that person even if you file for bankruptcy.
If you sponsor someone and they need to go on to public assistance, you may need to repay public assistance.
The Take Home
The bottom line is that if you’re an immigrant and seeking citizenship, even if you declare bankruptcy, you’ll still be able to become a citizen. All you need to do is make sure you’re honest about your financial situation, and that you remain crime free. If you’re considering bankruptcy, view our full list of bankruptcy services to see how we can help you rectify your financial situation and help get you out of debt.
For the best results, contact your local bankruptcy attorney and they’ll be able to guide you on the right track and ensure your case is heard and you’ll be properly represented.
Disclaimer. Please not that this article does not establish a lawyer/client relationship. Further, anyone with concerns about their immigration status should speak with an experienced immigration lawyer. The discussion in this article is to address the issue from just the bankruptcy side – and again bankruptcy clients should meet with an experienced bankruptcy lawyer.
August 30, 2019
The main concern will be for jobs where you are expected to be good at handling money as part of your job requirements.
However, bankruptcy may affect your ability to get or keep a job which requires certain types of security clearances.
But in most cases, your employer won’t even know that you filed for bankruptcy unless you tell them.
In other cases, the employer may learn that you have but probably won’t have a problem with the filing.
Keeping your job if you already have one
Generally, no employer (whether a public employer or a private employer) can fire you from your job because you declared bankruptcy.
The right to file for bankruptcy protection is actually set forth in the US Constitution.
Additionally, public and private employers can’t alter the terms of your employment if they discover your bankruptcy.
This means that the employer:
- Should not reduce your wages or salary because you declared bankruptcy
- Should not assign you to a lower paying job, or a job that requires less skills or talents
You can lose your job or be demoted because of general work performance issues such as dishonesty, being late to work, not performing your job duties, and not achieving the results the employer expects.
But when it comes to bankruptcy, you’re completely protected.
How an employer might find out about your bankruptcy filing
There are two main types of consumer/debtor bankruptcies.
You use a Chapter 7 bankruptcy if you don’t have secured debts such as a home or such as priority debts that you need time to pay off – but that you can’t discharge.
Most people use Chapter 7 if they have credit card debt or debts due to medical expenses.
In a Chapter 7, you typically file the bankruptcy petition, attend a creditors’ meeting, and then about six months later – your unsecured debts are discharged.
Normally, the court or trustee doesn’t notify the employer.
Generally, an employer will find out about the fact that you filed for bankruptcy protection if they were already paying a creditor through an existing wage garnishment.
A wage garnishment generally arises when a creditor obtains a judgment against you.
Some states allow the creditor to garnish you wages – to take a preset amount or a percentage of your pay, before you are paid your income.
If you file for bankruptcy protection in a Chapter 7, then the court or trustee or your lawyer will normally inform your employer that your debts have been discharged (on successful completion of the bankruptcy process) and that there is no more need to garnish your wages.
Since the employer knows your debts have been discharged and they don’t have to do the paperwork to garnish your wages, most employers are actually glad that your financial burden is behind you.
If you file a Chapter 13, then you have to propose a plan to pay your secured creditors and non-dischargeable debts.
You’ll also need to pay a percentage of your unsecured debts such as your credit cards.
The plan requires you to make monthly payments to the trustee in bankruptcy.
Many bankruptcy courts only require that they get the money on a timely and regular basis.
They don’t care if you pay the monthly amount from your income or if the employer pays it through garnishment.
If you ask your employer to pay the trustee, then the employer will learn of your bankruptcy.
In some courts, especially if you’re late on your payments, the trustee may ask the court for approval to deduct the payment from your paycheck.
If you owe your employer money, then you do need to list that debt on your bankruptcy petition, and then of course your employer will then learn that you have listed them as a creditor.
How bankruptcy affects job applications
No public employer (federal, state, or local) can consider the fact that you filed for bankruptcy when evaluating you for a job.
The same isn’t true for applicants filing for a private job.
While many employers only want to know your experience and your credentials, some employers may have a reason to ask to run a credit check on you.
Bankruptcy petitions stay on your credit record for 10 years, so an employer who runs a credit check may learn that you have filed for bankruptcy.
Employers do need your consent to run a credit check but they can refuse to hire you if you don’t give them permission.
Just because an employer learns that you’ve filed for bankruptcy doesn’t mean you’re automatically disqualified.
Most employers still want to know if you can do the job.
Many employers understand that people get into debt problems.
They also know that having a job is the only way most people can pay their bills.
The potential employer may ask about the circumstances that led to your bankruptcy so that they can feel confident in hiring you.
If you had medical bills, they’ll want to know if your medical problems were taken care – so you can work.
If you had problems due to drinking, they may need some assurances that you are now sober.
A few exceptions
If you are being hired to work with money such as an accountant, then the employer will likely want some assurances that your debt problems were due to other causes (such as medical surgery that wasn’t covered) and not your inability to handle finances.
Some jobs may require a security clearance such as work with the military, with some federal agencies, or with some contractors who do business with federal agencies.
The decision about your security clearance will consider several factors.
There is some concern that people with debt problems could be subject to blackmail.
On the other hand, filing for bankruptcy does show that you are ready to handle your debts and the bankruptcy petition may, very well, work in your favor regarding a security clearance.
June 10, 2019
The short answer is yes: tenants that rent an apartment or residence may be able to use a bankruptcy to postpone or even stop an eviction.
Bankruptcy is generally used to help people that can’t pay their secured debts such as home mortgages and car payments.
Bankruptcy is also useful in helping discharge unsecured debts such as credit card debts and medical bills.
Medical bills can include hospital bills, doctor visits, and even the cost of medications.
Generally, people in debt use a Chapter 7 to discharge their unsecured debts and use a Chapter 13 to discharge secured debts.
A debt is considered secured if you agree – when you accept the loan to buy a home or car – that the person or company that gave you the loan can sell your home or car if you default on the loan repayments.
Read more details about the differences between secure and unsecured debts here.
Chapter 13 requires that the debtor file a plan in bankruptcy to pay the amount they are behind over a three to five-year period.
All future loan payments must be paid on time.
Staying In Your Home
To stay in your home you still must keep up on your payments.
In home mortgage situations, you can file a Chapter 13 bankruptcy to avoid foreclosure action.
A rental eviction situation is similar but not the same as defaulting on home mortgage payments.
In both cases, the you may no longer be able to keep living in the place where you live and sleep.
And in both those cases, a creditor will eventually try to force you out of their home.
If a you’re in debt, and you own your home, the creditor will try to use a foreclosure action, but foreclosure can be stopped.
If you rent your home, the creditor will attempt to use an eviction action.
The Key Differences
The key difference is that the tenant does not have any ownership interest in their apartment or property.
A second key difference is that the tenant’s rights are determined by the landlord-tenant lease.
In most cases, leases are year-to-year agreements and landlords can refuse to extend a lease beyond the yearly period for almost any reason.
The tenant may consider leaving voluntarily and staying with friends or family until he/she can afford a new apartment to live in.
The Automatic Stay May Stop Tenant Eviction
If you need to continue living in your apartment, declaring bankruptcy and using the automatic stay can offer some help.
Generally, the moment you file a bankruptcy petition with your local federal court, all collection actions and court actions against you must immediately cease.
If a creditor wishes to proceed against you, he/she must convince the bankruptcy court that the collection and eviction actions should be allowed to continue outside of the bankruptcy court.
When landlords seek to evict a person for nonpayment of the rent, the landlord has two concerns.
- The first concern is that they want to remove the tenant from the building premises – from their apartment
- The second concern is that the landlord wants to be paid for the rent that is due
When a tenant files a bankruptcy, initially there is little the landlord can do to force the tenant to pay the arrearages on the rent, however in some cases landlord does have options:
Filing bankruptcy creates an “automatic stay,” which means that creditors cannot take any action against the debtor without court permission. However, the landlord can still pursue and collect back rent from any guarantors named under the lease, even while the tenant is in bankruptcy. [source]
If the tenant files a Chapter 7, then he/she can normally discharge – with court approval – the past due rental payments.
If the tenant files a Chapter 13, then he/she does pay off the rental arrears over a three to five-year time period.
Generally, if the tenant doesn’t own the property, he or she will not normally use a Chapter 13 unless they are trying to keep their vehicle from being repossessed at the same time. Other rare situations may also justify filing a Chapter 13 bankruptcy.
How Bankruptcy Helps The Landlord
Usually, a landlord who sought to evict a tenant will be able to seek their own relief from the bankruptcy court.
Relief means that the landlord may be able to proceed with the eviction proceedings depending on the circumstances.
Relief isn’t immediate though. The landlord will still need to file papers with the court and wait the allotted time before any action can be taken.
In such cases, the court will likely set up a hearing date so the tenant has a chance to contest the landlord’s request to continue with the eviction.
The bankruptcy court will normally consider a variety of issues in deciding whether to allow the landlord to proceed with the eviction.
These factors include:
- What is the reason the landlord is seeking to evict the tenant?
- Is it an overall financial issue or just a rent problem?
- Is the tenant destroying the property?
- Is the tenant violating the lease by keeping a pet when no pets are allowed?
- How far along are the eviction proceedings?
- Has the tenant made payments in the interim?
If the only reason for the eviction is nonpayment of rent and the tenant catches up on the rent due, that can affect the right to evict regardless of whether there is a bankruptcy case.
As a practical matter, a discharge in bankruptcy doesn’t take that long – usually four to six months.
If the eviction proceeding does take too long, it may make practical sense for the landlord to wait until the discharge is complete.
These are sometimes complicated situations which is why consulting with a bankruptcy attorney is your best recourse.
What if the tenant is a commercial tenant?
Evictions that affect a business are usually treated differently than evicting someone from where the live and sleep.
A commercial tenant may have an option to buy the place they are renting.
In this case, the tenant may be more inclined to file a Chapter 13 bankruptcy.
Filing For Bankruptcy is a Difficult Choice
People declare bankruptcy for many reasons including loss of income, medical difficulties, divorce, and other reasons.
Sometimes solutions can be worked out short of filing for bankruptcy or going to court for dispute resolution.
When creditors such as landlords won’t negotiate, then filing for bankruptcy may be the only option.
In such cases it’s a great idea to call your local bankruptcy attorney and consult with them regarding your options.
Each situation is different and getting professional representation is the best course of action you can take and will offer you a better chance of protecting yourself from being evicted.
May 7, 2019
In these tough financial times it’s common to worry about whether bankruptcy would mean losing your 401k. For the most part, 401K plans and other retirement plans can be protected in a federal bankruptcy. Protection means that creditors won’t be able to claim your assets.
A 401 (k) plan is a specific type of pension plan that is defined by section 401 (k) of the Internal Revenue Code. It is mostly used by employees who deduct the contribution to their 401 (k) from their pay-check before the income is taxed.
Many employers do match the amount of the contribution. 401 (k) plans encourage employees to save and encourage employees to stay with one company.
The taxes are essentially deferred until the employee retires.
The savings is based on the fact that most retired employees are in a lower income bracket when they retire than when they worked.
There are limits as to how much you can contribute into your plan. As of 2019, the limit is $19,000.
There are other types of IRS approved plans depending on where you work and whether you or some other entity is making the contribution.
Bankruptcy exemptions allow you to exempt many different types of property.
An exemption means that creditors can’t demand that your exempt property be sold by the trustee in bankruptcy to pay the your debts.
11 U.S. Code § 522 Section 3 C specifically exempts the following property:
“(C) retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.”
In addition, ERISA assets are not considered part of the debtor’s estate. ERISA stands for the Employee Retirement Income Security Act.
Most 401 (k) accounts qualify for this ERISA protection.
Your employer can inform you whether your retirement plan, such as 401 (k) is an ERISA account.
Property That is and isn’t Part of the Estate
There is a key difference between property that isn’t part of the estate in the first place and property that is part of the estate.
If the property is part of your estate, you must use an exemption statute, such as 11 USC 522 3 C to protect the property from creditors.
Funds that don’t qualify for ERISA protection need to use an exemption. In addition to 522 3 C, 11 USC 522-n can also provide an exemption for many 401 (k) accounts. 522-n provides:
(n) For assets in individual retirement accounts described in section 408 or 408A of the Internal Revenue Code of 1986, other than a simplified employee pension under section 408(k) of such Code or a simple retirement account under section 408(p) of such Code, the aggregate value of such assets exempted under this section, without regard to amounts attributable to rollover contributions under section 402(c), 402(e)(6), 403(a)(4), 403(a)(5), and 403(b)(8) of the Internal Revenue Code of 1986, and earnings thereon, shall not exceed $1,000,000 in a case filed by (a) the amount of the 401 (k) and most other retirement accounts that can be exempted is now $1,362,800 for each debtor.
What Actions Can Affect the 401 (k) Protection?
There are many and it’s advised that you review with your bankruptcy lawyer which actions could affect the safety of your 401 (k) account from creditors.
The funds are generally safe provided they aren’t touched before you are old enough to access them.
Generally, employees or former employees can take money from their 401 (k) without penalty once they reach the age of 59.
Once a person reaches 70, the owners of the account are required to withdraw funds from the account.
If a debtor takes any funds from the 401 (k) account and places those funds in another account such as a personal checking account, the funds can then be attacked by creditors – unless another exemption can be shown to apply.
If the 401 (k) account or any retirement account was created through fraud, then the account may be subject to attack by creditors.
How to Protect All Types of Retirement Accounts
One of the key items to review is how to protect all types of retirement accounts such as 401 (k)s, IRA accounts, pensions, and any plans that have special protection through the Internal Revenue Code.
You may be tempted to use your 401 (k) or retirement benefits to pay your debts.
While that may be a viable option, you should understand that once you file bankruptcy – it’s often a better option to keep your 401 (k) and other retirement assets so you can get a fresh start when you receive a bankruptcy discharge.
A lot will depend on whether you are seeking to discharge unsecured debts such as medical bills and credit card debts through a Chapter 7 bankruptcy or whether you are looking to pay secured debts and secured arrearages through a Chapter 13 bankruptcy.
Chapter 7 bankruptcy is generally used when you don’t have homes or cars you want to keep.
You simply declare bankruptcy and list all the unsecured debts you have.
Property that is excepted or exempted can be saved. Property that can’t be protected is sold and used to pay your creditors.
Chapter 13 bankruptcy is used to save secured assets.
A secured asset is an asset that can be sold by the creditor who gave you the loan for the asset.
The most common example is a mortgage for a home or a secured car loan.
Debtors offer to pay off any arrears on the secured assets over a 3-5-year period.
They also agree to pay the continuing secured loan. If they pay off the plan, their assets are saved.
At the Law Offices of Ronald I. Chorches, we advise debtors about assets such as 401k plans, they can save and when those assets could be sold for the benefit of creditors. Bankruptcy consultations are free so view our services to see how we can help you.
February 11, 2019
Even if you have health insurance, medical expenses can still overwhelm you. Without insurance, just one medical emergency or the need for treatment can mean the a patient can quickly get into extreme debt. It’s no surprise that people claiming bankruptcy due to medical debts, is on the rise.
Types of Medical Debt Most People Encounter
People need medical services for different reasons. Just one night in a hospital can cost upwards of $50,000. Common medical expenses that can cost a fortune include:
- Surgeries and hospital stays
- The cost of anesthesia
- Ambulance costs
- The cost of emergency room care
- The cost for seeing specialists such as cardiologists, oncologists an orthopedists
- The expenses to see your family doctor
- Therapy costs including physical therapy, occupational therapy and speech therapy
- The cost of medical devices such as prosthetics and wheelchairs
- Medication expenses
- Travel costs to and from the health providers
Often times, patients need to see their doctor or therapist multiple times which means a charge for each visit.
The Relationship Between Medical Expenses and Bankruptcy
CNBC reported that a study done by NerdWallet Health showed that nearly 2 million people filed bankruptcies in 2013 due to unpaid medical bills – more filings than were due to unpaid mortgages and unpaid credit-cared bills. The study examined Census Data, data from the federal courts (where bankruptcies are filed), and the Centers for Disease Control.
The study also found nearly one in five Americans between the ages of 19 and 64 struggle with and need help paying their medical expenses.
The Balance reported the following relationship between medical debt and bankruptcy in January 2019
- The studies on the amount of bankruptcy filings differ from year to year depending on the state of the economy. The Great Recession increased the number of bankruptcy filings.
- A study done by Elizabeth Warren and researchers found that 62 percent of all bankruptcies were due to medical bills based on interviews with people who filed for bankruptcy between January and April 2007. Medical expenses included mortgaging a home to pay the medical costs, losing at least two weeks work because of an illness, and medical bills of more than $1,000.
- A 2011 study found that “out-of-pocket medical costs” caused about one in four bankruptcies – among low income debtors.
- The NerdWallet Health study found that about 57.1% of bankruptcies were medical related.
- A Kaiser Family Foundation study in 2015 found that many people admit that paying medical bills means sacrifice. Many say they cut down on payments for food, clothing, vacations, seeing their doctors, taking their medications, and other sacrifices. The Kaiser study found that, on average, people pay 26% of the income (outside of their mortgage or rent) for medical expenses.
- Another study in 2017 by debt.org found that people 55 and older were filing more bankruptcies and that “the average 65-year-old couple faces $275,000 in medical bills throughout retirement.”
It can be hard to determine exact numbers because people who file for bankruptcy don’t have to state their reason for filing. There are different definitions of medical debt. Many people who have high medical expenses also have other types of debt too.
For more information, you can read some of the advantages to filing medical bankruptcy and how an attorney can help you through the process.
Eliminating Medical Debts
Generally, patients can eliminate the medical bills that are not covered by their insurance in a Chapter 7 bankruptcy. They can also make payment arrangements for any arrears in a Chapter 13 bankruptcy.
One practical factor to consider is whether you will have the need to go back to your doctor again after the bankruptcy is discharged. Some doctors may not want to treat you if you don’t pay their medical bill. Generally, hospitals that get funding through the government can’t refuse to continue to treat you if you fail to pay past due bills.
It is important to remember that you will need to make payment arrangements with any health providers you see after your bankruptcy discharge.
Types of Health Insurance
The main types of insurance coverage in America are:
- The Affordable Care Act. This law has helped many people who couldn’t afford insurance obtain insurance. The Act generally offers different types of plans depending on how much the debtor can afford to pay the premiums. One huge advantage of the Affordable Care Act is that patients with pre-existing conditions such as heart disease, cancer, diabetes, or other diseases and disorders are now eligible for coverage.
Still, the Affordable Care Act doesn’t cover many things:
- The deductible: Even with insurance, most people with ACA coverage must pay a certain amount out of their own pocket before the insurance company is required to pay anything. A typical ACA deductible is $6,000. Deductibles may be higher.
- Co-pays: Most plans require that the debtor pay a specific fee or a percentage of the bill out of their own pocket. The amount of co-pays is usually capped – that is, it usually can’t be more than a specific total for the year. Still, the co-pays can be expensive and a contributing factor to the need to file for bankruptcy
- Not every treatment is covered: Debtors should check with their insurance carrier as well as their doctor before they begin any course of treatment so they know whether the bills will be paid.
- Traditional coverage: Many people don’t use the ACA. Instead they either have medical coverage through their employer, a group plan, or they buy their own coverage. Like the ACA, these coverages all have deductibles, co-pays, and some treatments that won’t be covered. Pre-existing conditions may not be covered in these traditional policies.
- This coverage is primarily available to people who are 65 years-old and older: It generally covers 80% of your medical expenses. Seniors should consider buying supplemental coverage to cover the other 20%. Even with supplemental coverage; there are deductibles and co-pays – though they should be much lower than other insurance coverage. While most treatments are covered, there still may be some treatments that aren’t covered
- This is basically insurance coverage for low-income people: As with other insurances; there are some medical expenses that aren’t covered.
- Auto insurance: If you’re hurt in a car crash, the liability insurance for the person that caused your injuries may pay some of your medical expenses.
- Drug costs: There are many different types of drug plans depending on what type of basic health insurance you have. Drug costs can add up quickly because many people who take medications need to take them for the rest of their lives.
Countries like Canada offer universal coverage which pays for an array of many bills that American coverage does not.
Learn How Bankruptcy and Other Options Can Help Address Medical Debts
At The Law Offices of Ronald I. Chorches, we help debtors understand what solutions they can use and which ones offer the most benefit. We provide a free and confidential bankruptcy consultation to all new clients. Our offices are located in Wethersfield and Winsted Connecticut, and we’re easily reachable from the cities of Hartford, West Hartford, East Hartford and Manchester.