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Is it Morally Wrong to File Bankruptcy?

As a Maryland Bankruptcy Attorney I find myself dealing with great emotional distress that clients feel when they first start contemplating bankruptcy. Clients feel badly about their inability to pay the bills and to meet their obligations. I very often hear when we first meet how they never expected to have to do this. They feel it’s somehow wrong for them to get help with the bills. Often clients tell me: “I was taught to pay my bills”, or “I had a 700 credit score for many years”, or “My parents have told me not to file bankruptcy because it is wrong”. Some clients even feel it is “unchristian” to relieve the yolk of debt they are burdened with.

It is normal to feel badly about our mistakes. Even if it is not our fault it is understandable that we feel unhappy when we have made agreements we not able to keep anymore. If you feel badly being unable to pay your debts, it is understandable. Doing nothing about it makes things much worse.

Bankruptcy is designed to help the honest debtor who finds himself unable to properly take care of him and his family because of unmanageable debt. The bankruptcy discharge allows you to start over financially and to be once again a productive and functioning member of society. Our society does not benefit from having a group of citizens who cannot provide for their needs or who are doomed to live worse than everyone else for most of their lives because they have debts that cannot be paid. The decision to deal with the debt is often a matter of priorities and pride. I have found that client religious or not feel strongly that their family and the needs of the family should come first, ahead of bills that cannot be paid. For those who are religious it is hard to imagine a loving father who would counsel his children to put the credit cards first, ahead of his daughter’s children.

The concept of a bankruptcy has biblical support. In the Old Testament we are told that we should forgive our debtors every seven years: “At the end of every seven years you shall grant a release. And this is the manner of the release: every creditor shall release what he has lent to his neighbor or his brother, because the Lord’s release has been proclaimed”.  Deuteronomy 15: 1-3. The seven year discharge of debts is nicely codified in our bankruptcy Chapter 7 which originally allowed a debtor to get a bankruptcy discharge once every 7 years. Later it was shortened to 6 years. In 2005 it was changed so that you had to wait 8 years for a Chapter 7 discharge after obtaining one in a prior case.

Often pride is our worst enemy. Most clients agree once they have a chance to reflect what is most important to them family, and if they are religious God then family come first ahead of the bill collectors. At Broumas Law Group our Maryland Bankruptcy lawyer with over 35 years experience can help you figure out if Bankruptcy is your family’s best option.

HOW TO DEAL WITH CAR LENDERS WHO REFUSE TO PROVIDE STATEMENTS OR ELECTRONIC ACCESS IF YOU DO NOT REAFFIRM THE DEBTS

If you recently filed bankruptcy you may find that some lenders, notably many automobile finance companies will stop providing statements and electronic access to your account information. They don’t repossess a car or take action against you, they just make it just a little more complicated for you to make payments or get account information. They do this under the pretext that they would be violating the bankruptcy stay by giving this information to you or giving you access. This is absurd especially if you file bankruptcy in Maryland with a Maryland bankruptcy lawyer. The local Bankruptcy Rules in Maryland make it very clear that there is no legitimate reason for these lenders to discriminate against persons who filed a bankruptcy. Local Bankruptcy Rule 4001-5 States:

POST PETITION PAYMENT NOTICES AND ACCOUNT ACCESS

      Creditors and lessors may continue to provide customary notices, including, but not limited to, monthly statements, payment coupons, and escrow adjustment analyses to debtors regarding post-petition account activity. Further, to the extent available, creditors and lessors may allow debtors to access, obtain information, and make post-petition payments through electronic, telephonic and/or on-line means.

 

Because the bankruptcy rules in Maryland are very clear one can only wonder what improper reason the lenders might have for telling their customers that the information is only available to customers who either did not file bankruptcy or who reaffirmed the debt. From the calls we get I can guess at a plausible reason. The scene painted by the client is one where the car lender, mortgage company or bank refused to let the client pay using the normal electronic system. After trying unsuccessfully customer service informed them that because they filed a bankruptcy and did not reaffirm the debt they are forbidden as a creditor from providing the access or information. That then is followed with a recommendation that they call their bankruptcy lawyer and have the debt reaffirmed or if its after the case is closed with a suggestion that it’s a shame the lawyer did not help them reaffirm the obligations.

What is a reaffirmation agreement? It’s an agreement to make the debt pass through the bankruptcy unaffected. If you are current on your mortgage the mortgage company cannot foreclose. There is no possible reason to reaffirm the debt. If you don’t and you get sick and lose the house the mortgage company cannot come after you personally for a balance. If you reaffirm the debt you will be liable for the deficiency after foreclosure. Even if the reaffirmation agreement could be approved by the court it would be a very bad idea to reaffirm this debt just so you can avoid mailing the mortgage company a check and pay on the website.

With vehicles it is a little different. We almost never recommend that a client reaffirm vehicles. Only a handful of car companies will repossess a car if it is current. An experienced Maryland bankruptcy lawyer will be able to tell you from experience which ones is a potential problem. The benefit of not reaffirming the debt is that you can give the car back once your credit score improves and buy a better car that does not have negative equity. The Bankruptcy Court will not approve a reaffirmation agreement unless you have a positive budget (very few people have a budget showing they have funds left over in a Chapter 7 case). In some cases the Bankruptcy Court might approve the reaffirmation agreement if the car company reduces the balance or interest rate. The car companies very rarely will agree to this.

The way many car companies try to get around negative budget problem is to encourage the bankruptcy lawyers to “create” a new budget for the reaffirmation that does not show a negative number. This is disturbing since the original budget is done under oath. This would also avoid the need for a hearing so the lawyer can just sign it, avoid a hearing and you are stuck with something the Court should not approve. We get a very high callback from past clients on the few reaffirmation agreements that do get approved asking if they can put the car back in the bankruptcy because it is no longer running nor has problems.

The lenders’ policy of refusing to provide normal services to customers who filed bankruptcy often backfires. On the one hand telling my clients something is wrong with their case because we do not do the reaffirmation might generate a few concerned calls to the office. On the other hand they invite me to educate the client regarding their right to take advantage of their improved credit, give the car back and get a better one.

An experienced bankruptcy lawyer can always help to find the best solution to protect clients’ interests.

Dealing With Vehicles in Chapter 7

     When we file chapter 7 bankruptcy we always think how it effects our assets, like house or a car. Our vehicle is very important. It is needed to get to work, go to the grocery store and to do just about anything that we need to do. Sometimes when clients file bankruptcy the client just wants to be done with the vehicle; it is often in poor condition, with high mileage and subject to more debt that it is worth. Those cases are relatively simple. If you file a bankruptcy and don’t want your car you have the option to surrender it.

     In most cases in bankruptcy the client wants to keep the car and is willing to continue making the payments to the lender. The first thing to look at is the whether there is any value in the vehicle over and above the amount of the car loan. If there is no value or we can use the clients exemptions to protect that value the bankruptcy estate will have no interest in selling the car and the likely result as far as the bankruptcy trustee is concerned is that the car will pass through the bankruptcy. In that case the client will be probably able to keep it so long as he is current and maintains the payments on that vehicle.

     When dealing with car lenders there are three official ways to deal with a vehicle in Chapter 7. First, you can surrender a vehicle that you do not want. Second you can enter into a reaffirmation agreement making yourself completely responsible for that debt after the bankruptcy, meaning if you miss a payment and they repossess the car they will come after you for a balance. Third you can redeem the car with a court order lowering what you have to pay for the car to its actual value.  The problem with this option is that you have to pay the value in a lump sum and who has several thousand dollars available to do this.

     Each of these options has problems. With a reaffirmation you don’t get rid of the debt. With a reaffirmation you also often end up owing more on the car than it is worth. The court will sometimes enter an order disapproving the reaffirmation but directing the lender not to repossess the car so long as it remains current. There is no guaranty the court will enter this order however and you will have to attend an additional hearing to get it. With redemption you have to be able to pay the full retail value of the vehicle when the redemption order is entered. Most clients cannot afford to do this.  While there are a few lenders who will help you redeem a vehicle the interest rate is often high enough to make the effort questionable.

     There is an unofficial alternative. So long as the client is current and continues to make her payments on time, very few car lenders will repossess a vehicle. The benefit of this approach is that one can keep the car and later should it break or become a liability the client can simply voluntarily return the vehicle and in the absence of a reaffirmation have no liability for a balance. The number of car companies allowing this treatment changes and it is important to get good advice from a Maryland Bankruptcy Attorney before making any of these decisions.

What to Do if you Already Filed a Chapter 7 Case and Need Help Again.

     You are able to receive a Chapter 7 discharge once every 8 years. This time period is calculated from date of filing the first case to the date the second case is filed.  Unfortunately life does not always follow this schedule. Sickness, job loss, accidents unexpected events can mean having mounting debt problems even after bankruptcy.  The solution could be a Chapter 13 bankruptcy.  Chapter 13 allows you to get a discharge within 4 years of a Chapter 7 case shortening the time by 4 years. While the Chapter 13 is a payment plan in many instances the income situation is similar to what it was when the original Chapter 7 case was filed meaning there is little if any money left over after the client pays his normal living expenses.

     In that situation a Chapter 13 case could be approved with a minimal monthly payment based on relative low disposable income. The way the minimal payment Chapter 13 would work is to pay creditors a small token payment every month for 36 months based on the few dollars the client has left after he pays his living expenses. At the end of the 36 month payment plan the remaining balance of the debt is discharged just like it was in the previous chapter 7 case.

     If the unexpected life problem happens before the 4 year anniversary of the filing of the Chapter 7 case the Chapter 13 still can be used to stop collection by the creditors it just will not allow the debt that remains unpaid to be discharged. An experienced bankruptcy lawyer can help you with your debt problems even if you have already filed a prior bankruptcy. These actions require careful planning and understanding of the limitations you have which the bankruptcy lawyer at Broumas Law Group LLC can help you with.

     Another place where a Chapter 13 which is filed after a Chapter 7 case can provide some relief is in the situation where the client files the Chapter 7 case discharges the debt and then after that becomes delinquent on her mortgage. This is often referred to as a Chapter 20. While “Chapter 20” does not exist officially under proper circumstances, where there is no bad faith, a Chapter 13 filed after a Chapter 7 (the Chapter 20) can allow you to save your home by catching up the arrears on the mortgage over 5 years even after you filed a previous Chapter 7 case. This is definitely where you want to have an experienced bankruptcy lawyer to help evaluate whether this sort of relief is available to you.

Stripping a Lien on a Principal Residence in a Chapter 13 Case.

The ability to strip off or eliminate second and third mortgages from the client’s principal residence is one of the things that makes Chapter 13 a great bankruptcy alternative. In a Chapter 13 case a property that has lost value because of the poor housing market can be made into a better more affordable investment. You own a home that is your principal residence. You owe a mortgage and a few years ago when the real estate market was good you took out a home equity line. Now the market has fallen and the value of the house is less than the amount owed on the first mortgage. Now you have a home that has very large negative equity.

In a Chapter 13 bankruptcy you can eliminate that negative equity under the right circumstances. Based on a valuation of the home, A knowledgeable bankruptcy attorney can file a motion asking the court to take that equity mortgage of the home and strip it off the real estate so you no longer have a second or third mortgage. For this to work you need a proper valuation showing that the first mortgage holder is owed more than the value of the home. At Broumas Law Group LLC our bankruptcy lawyer has extensive experience helping Maryland clients save their home, eliminating valueless mortgages and by doing this getting rid of the burdensome payment obligation of that second or third mortgage.

Chapter 13 does not let you change the amount owed the first mortgage on your principal residence. Chapter 13 does  give you the ability to take however many months you are behind with that mortgage company and force them to let you catch those arrears up over a 5 year period. Chapter 13 is an excellent tool to empower you and prevent mortgage companies who have not been cooperative with the loan modification process from taking your home away from you.

LOST YOUR DRIVER’S LICENSE? BANKRUPTCY COULD BE THE SOLUTION TO A BIG PROBLEM.

Maryland State and many other states will suspend your driving privileges if you have an accident, are not insured and the state has to pay under the State uninsured motorist insurance.

This is one area where bankruptcy can provide very significant relief. Section 525 of the Bankruptcy Code prohibits all governmental units from discriminating against someone who has filed bankruptcy or has not paid a dischargeable debt. This includes a prohibition from refusing to issue a license or a permit.

Under this section if you have been in an automobile accident while your insurance lapsed an experienced Bankruptcy attorney can help you with the process of having the flags removed by the Motor Vehicle Administration and force the State to issue a license to drive. Another place that you can benefit is when you owe the State taxes and have had your license suspended.

Once again in either Chapter 7 or Chapter 13 an experienced bankruptcy lawyer can help you get your driving privileges back. The Relief in Chapter 7 will only be temporary however unless the taxes are able to be discharged.

You should consult a bankruptcy attorney to help you determine whether this relief will be available and under what circumstances it will be permanent. A bankruptcy will not resolve a Debtors problems if they have a license that is suspended because of fines or violations.  Those are not going to be discharged and are not subject to the protection in Section 525 of the bankruptcy code.

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