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Answers to Common Questions

Q: Can Seniors file Bankruptcy
A: Yes. Generally seniors are on a fixed income and have fixed resources for their future. Therefore, a sizeable, unexpected expense (medical, car repair, home repair, divorce), can be the beginning of a serious problem, one that cannot be remedied by extra work in the future. If a credit card had to be used to cover the emergency, the cost will have been increased due to the high interest rates and other fees. Because retirement accounts are exempt, bankruptcy is usually one very good alternative. There are unusual cases involving seniors in which bankruptcy was a necessity: I recently had a case in which a senior fell prey to one of the fraud scams, in which the seniors were notified that they had won a prize, but they must send money to collect the prize. This senior sent over $35,000 “knowing” that she would be receiv- ing the $25,000,000 prize. I had another case in which a senior was worried how he would pay his living expenses in the future; he tried making money by gambling.

Q: Did the 2005 changes to the bankruptcy code make it impossible to file?
A: No, however there now is a lot more work, e.g., the 2005 law brought us the “means” test, a test in which one’s allowable living expenses are limited in calculating whether one has the means to repay a certain percentage of their bills. Due to its complexity most attorneys use a computer program to run the test. National statistics show that approximately 5% of persons wanting to file a Chapter 7 bankruptcy must file a Chapter 13 due to the fact their income exceeds their living expenses as determined by the means test. The 2005 law also added new debts that will not be cancelled in a Chapter 13 case, which results in the benefits of a filing of bankruptcy being decreased in some cases.

Q: If someone is married does their spouse have to file also?
A: No, many times there is no reason for one spouse to file, such as when the bills were incurred only in one spouse’s name before the parties married. When one spouse files, the non-filing spouse will not have a bankruptcy on their credit report. We always obtain credit reports before filing to determine if both spouses should file.

Q: Who will know if a person files bankruptcy?
A: Almost no one. Bankruptcies are a public record, however, who one ever inspects the public records. The Tribune, the news- paper publishing this presentation, used to publish the names of business owners who filed bankruptcy; it no longer does. The creditors listed in a bankruptcy will be advised. Everyone who files bankruptcy must attend a hearing at which they are asked questions; approximately 20 other persons are scheduled for their hearing at the same time. Therefore, one might see someone they know at the hearing.

Q: Are medical bills cancelled in bankruptcy?
A: Yes, medical bills, credit card bills, lawyer bills, car repossession bills (known as deficiencies), judgments, bills in col- lection, are eliminated/cancelled forever by a bankruptcy discharge.

Q: Does bankruptcy ruin one’s credit forever?
A: No. In addressing this question, first one has to ask if a higher credit score important. If one is not intend- ing to borrow money in the near future he/she may not be concerned with their credit score - many people are not (check the internet: some even consider credit scores a scam). It is true that potential employers and perspective landlords often consider information contained in credit reports.

A bankruptcy stays on a credit report for 10 years. It is my understanding that unpaid bills, debts that are writ- ten off, are on one’s credit report for 7 years. As stated elsewhere in this presentation, almost everyone I talk to is current, and has been current, on their credit card debt; however, they are meeting with me because their credit card debt is insurmountable - they have tried to pay it down for at least a year, without success. So, in considering what a bankruptcy would do to one’s credit score, one must also consider what their creditworthiness is without a bankruptcy. Yes, they haven’t missed a payment for over a year, but do they have the income with which to pay more debt, if a lender were willing to lend. I have filed bank- ruptcies for residential mortgage bro- kers and residential real estate special- ists (persons who analyze home buyers for home loans) and all agree that between 2 to 3 years after a person has received their bankruptcy discharge they will be considered for a home loan, and that three years after the bankruptcy the bankruptcy is pretty much irrelevant. Don’t quote me, but I am also advised that HUD regula- tions provide that a bankruptcy is not considered if it is over three years old. Lastly, in analyzing this question, one must take into account the fact that after a bankruptcy cancellation of debt (discharge) is received, the person has no bills to pay and cannot file a Chapter 7 bankruptcy again for eight years. Does that make the person a better credit risk?

Q: Do people who file bankruptcy lose some or all of their property?
A: People almost always keep all of their property. As stated elsewhere in this presentation, a bankruptcy is designed to provide a “fresh start” and some property is needed to accomplish that goal.

From time to time I have consulted with a person whose property is not on the list of exempt property and on those occasions we have been able to exchange the non-exempt item for property that is exempt before filing bankruptcy. We always know before
a bankruptcy is filed if there might be a risk of having to surrender property to their bankruptcy estate. Sometimes a person has property which is not exempt so a Chapter 13 is filed; in such cases we do an analysis to insure the the person’s creditors receive at least the value of the non-exempt property which the person filing wants to keep.

Q: Must one have to list all of their creditors?
A: Bankruptcy law requires that all creditors be listed. However, say a person owed $40 on a credit card and wanted to have a credit card after bankruptcy (for emergency purposes). The person could pay off the credit card prior to filing, then would not have to list that credit card creditor. However, it is possible that that credit card creditor will learn about the bankruptcy, even if it is not listed, and cancel the account. That is something beyond our control.

A person can pay any creditor after their bankruptcy. There have been a number of occasions in my experience in which a person has filed for bank- ruptcy to stop creditor harassment, or a wage garnishment, etc., and the increasing charges, then, after getting back on his/her feet financially, paid the creditors the amount owed. This happens frequently with family and friends who are creditors.

Q: Are tax obligations cancelled in a bankruptcy?
A; It depends. The laws are designed to give out taxing agencies time to collect. Generally, a tax may be dis- chargeable if it was due more than 3 years ago, the return was filed more than 2 years, the taxes have been as- sessed for more than 240 days, and the return was not fraudulent. There are more rules; one must have a profes- sional to assist in this analysis. Impor- tantly, if one has tax debt it is impor- tant that they ask the IRS for free “account transcripts” for each year.