Posts

Debt is weighing on a man and consuming all his money.

An Open Letter From a Bankruptcy Lawyer: The Truth about Bankruptcy and Debt Relief

To Anyone Feeling Overwhelmed with Debt:

As a bankruptcy attorney, my office deals with people who are going through stressful moments in their lives. Every day we help educate people on bankruptcy and debt issues. Hardest part about talking with individuals about debt relief options is combating the significant misconceptions about debt issues and bankruptcy. If we are able to explain the correct information, we can help individuals truly understand the legal process and get a fresh start. But, it is not always easy because many sources promote bankruptcy as the worst option out there and that bankruptcy means you are a failure; these ideas are completely false and do not reflect the actual concept of bankruptcy.

I get asked all the time, is bankruptcy the right option for me? Should I file? I almost always respond that I can’t make that decision; it is a financial decision only you can make. On occasion, when it is the only reasonable option available to achieve their goal (like stopping a foreclosure or garnishment), I let them know it is likely your best option here. Sometimes, I can say — especially when the debt level is very low — I cannot recommend bankruptcy. Often with low debt, the bankruptcy fee could be better put to use to settle debts, make a few payments, or just use the money to live. But, often, the answer is that bankruptcy is a good option, but you need to figure out if it is the right option for you.

For many, whether bankruptcy is a right option comes to whether they can accept bankruptcy as a financial choice and not a reflection of his/her personal situation.

Bankruptcy myths and misconceptions

More often than not, individuals who are great candidates for bankruptcy have preconceived ideas about bankruptcy. Sometimes, the myths can make people wait to consider their options. Waiting can sometimes be the right decision, sometimes filing sooner means you are getting a fresh start sooner, it really depends. Too often, I hear people say:

1. Your credit will be ruined after bankruptcy.
2. You should only file if I have a lot of debt; filing for only $20,000.00 isn’t worth it.
3. I will lose everything, if I file.
4. I can’t have any assets if I want to qualify for bankruptcy.
5. I have a security clearance; I can’t file.

All those reasons for not considering bankruptcy are incorrect. Bankruptcy is a legal and financial option to help individuals and/or businesses manage their debts. Addressing each of those concerns:

Credit after bankruptcy

Six months to a year after bankruptcy discharge, most debtors’ have between a 600 and 650 credit score; some of my clients have even seen higher. This increase in credit is usually without too much effort. If you take good steps toward improving your credit and using credit responsibly, it can be even better.

Additionally, you will be receiving offers for credit (i.e. credit cards and car loans) immediately after filing Chapter 7 or shortly after any discharge. After bankruptcy, most people have no debts (or a limited number of debts) and there is a restriction on when the debtor may file bankruptcy again. After a Chapter 7, a debtor cannot file a Chapter 7 for at least 8 years. This makes you a better credit risk than someone with a similar credit score.

How much debt should you have before considering bankruptcy?

There is no legal amount minimum debt necessary to file bankruptcy. We usually recommend at least $15,000.00 before you start considering bankruptcy as an option. But, the amount of debt usually depends on your income. If, after reviewing your finances, you do not believe you can pay the debt back within 4 to 5 years, then bankruptcy is definitely an option to consider. A Chapter 7 would let you wipe most debt away and Chapter 13 lets you restructure the debt and often allows a payment based on your monthly disposable income.

Bankruptcy is a legal and financial decision; it is not an ethical or moral one. Congress included bankruptcy as an option to deal with debt. They understand people need help dealing with debt. It also isn’t a kiss of death like many people believe it is; your credit will improve and you are allowed to keep certain things.

What can I keep in bankruptcy?

You can keep various things in bankruptcy. In a Chapter 13, you almost always keep everything you want to keep. In a Chapter 7, you are not completely without assets. There are certain bankruptcy exemptions (or protections) that apply to anyone filing for bankruptcy. Your exemptions vary depending on what state and federal laws apply to your circumstances. Most individuals are allowed to keep some cash, up to a certain value of a car, retirement plans, a base amount of household goods, and various other things. The government understands you should be a zero when you have your fresh start, but they do not want you to keep more than a fair share of assets.

Do I have too many assets to file bankruptcy?

Your assets are not part of the analysis of determining if you qualify for bankruptcy; the court is considering your debts and incomes. Assets are a consideration in determining what you could lose in a Chapter 7 or how many needs to be paid out in a Chapter 13. Sometimes it is surprise what can be protected in a bankruptcy. For example, I have some clients who are able to protect $200,000.00 worth of equity in their home and others who cannot even protect $7,000.00 worth of equity. Assets vary dramatically from individual to individual; an experienced attorney can advise you on what could be at risk in your particular situation.

Security Clearance in Bankruptcy:

Being in northern Virginia, we regularly have individuals who file bankruptcy with security clearances. Filing for bankruptcy relief will not automatically prohibit you from obtaining a security clearance. But whether you have a history of financial irresponsibility will be considered during the evaluation process. If the debt was incurred due to a situation outside of the control of the debtor, such as divorce, illness, loss of job, etc., the concern of losing your security clearance is often a lot lower. The evaluation heavily concerns whether it is likely you will be in debt again.

Bankruptcy is a legal way to apply for debt relief. Handling your debt through a bankruptcy is a better option than just having outstanding debt. With substantial debt, the government can be concerned about the potential for being compromised or bribed. A bankruptcy means your debt has been discharged in a Chapter 7 and/or you have a reasonable repayment plan in a Chapter 13. In fact, getting rid of debt in a bankruptcy could increase your chances of approval. Filing shows that you are taking proper steps toward correcting your financial situation.

Options to manage debts:

The most important thing I tell my clients is that they should understand all options available to them. Bankruptcy is just one financial tool out of many that you can use when having financial problems. Only when you understand all of your options can you make the best decision for your situation. Other options we often at least want our clients to understand include: debt negotiation, debt consolidation, and waiting. Each option can have pros and cons, but will vary due to the specifics of a person’s situation.

Timing is also important when considering your financial issues. Some people come to talk about a bankruptcy months before filing. Others file within two days of filing. If you understand the pros and cons of a bankruptcy well before you file, you could make decision about when to file that is best for you. If you wait until the last minute to consider bankruptcy, for example when a foreclosure is schedule or a garnishment is pending, you have a limited timeline and may have not been able to full review any pros and cons. For example, we do not usually recommend filing bankruptcy within 90 days of any cash advance due to the fact a creditor can object to that debt being discharged.

We offer a free consultation to potential clients for many reasons; we want clients to understand the process, and to see if the client is comfortable with our office. Bankruptcy is a personal process; you must disclose a lot of personal and financial information. If you are not comfortable, you may leave some important information out. We tell our clients you need to be comfortable with us; clients need to be completely candid with your bankruptcy attorney. Many problems can be prevented during a bankruptcy with complete and exact information. Fixing problems after the fact can be difficult, especially when due to lack of information.

You are not alone.

Since the economic downturn of 2007, millions of individuals have filed bankruptcy. Some people have had to file bankruptcy twice in the last 10 years because of many factors, like difficultly finding work even after a bankruptcy, negative equity in real estate, and much more. Bankruptcy is one of many debt relief options; even if you do not need bankruptcy, you may find relief using other options, such as debt negotiation or settlement.

Bankruptcy is a financial tool; Congress included bankruptcy in the laws because the government understands that people can need help with their debts. To make the best decision for any situation, you should educate yourself on all available options. Bankruptcy is one option to help manage one’s finances, it may be or may not be the best option for you, but you owe it to yourself to at least understand the option.

If you want to talk about available options to deal with your debt in northern Virginia or DC, set up an appointment with our office. We want to help you understand your options and get on the right track.

Sincerely,
Ashley

 

 

Attorney Ashley F. Morgan is a Virginia licensed attorney. She has been helping clients deal with debts for most of her career. It is important for her that her clients are making the best decision for their circumstances.

Signing closing documents with house keychain

Mortgages in Bankruptcy: How Secured Debt is Handled in a Bankruptcy

Mortgages in bankruptcy can be discharged, but the lien remains absent specific circumstances

When considering bankruptcy, many people ask to leave their mortgage out of the bankruptcy. This is not possible; you must include all your debts. However, a mortgage is treated differently than your credit cards or personal loans, it is secured against property.

Most individuals cannot afford to buy a home outright. They need help of buying a property with a mortgage. This mortgage is a lien against the property. The lien allows the mortgage company to take back the property if the terms of the loan are not followed. It also requires that the mortgage loan be paid back in full if the property is ever sold or transferred.

A second mortgage is usually referring to a junior debt that is secured against a property. This could be a loan that was obtained at the time of purchase or years later. A second mortgage could be a home equity loan with revolving terms, often referred to as HELOC, or a traditional 15 or 30 year loan.

There is a common misconception that second mortgages retain limited rights. Second mortgages have basically all the same rights as a first mortgage, only the junior mortgage is second in line in interest on a property. Often a second mortgage will not proceed with a foreclosure due to the fact they must either foreclose subject to the first mortgage or pay the first mortgage off.  But, if there is enough equity in a property, it can make perfect financial sense for a second mortgage to foreclosure.

Our office has even seen second mortgages foreclose when there is minimal equity after a first mortgage. This may occur because a creditor wants to limit the debtor’s ability to incur anymore debt through late payments, fees, interests, etc.

Chapter 7

Many people use a Chapter 7 as a tool to stop a foreclosure or keep a mortgage company from coming after them. If you cannot afford your house, and the property is worth less than what is owed on the property (or there is only de minimus amounts of equity), then a Chapter 7 can be a great tool. Filing Chapter 7 can ensure that debtors are not responsible for any deficiencies that remain after a foreclosure (basically any balance of the loan(s) that a foreclosure sale does not satisfy). Additionally, if the bankruptcy happens prior to a foreclosure being completed, it keeps a debtor’s credit cleaner; a foreclosure would not appear on a debtor’s credit because he/she would not longer have any obligation to pay on the debt at the time the foreclosure happened.

A Chapter 7 only takes care of the in personum obligation of a debtor. Basically, a discharge in a Chapter 7 covers the Debtor’s obligation to pay on their mortgage. A mortgage company cannot force a debtor to pay after a Chapter 7; additionally, if there is a foreclosure, a mortgage company cannot try to collect on any deficiency from the debt. However, in a Chapter 7, the lien remains on the property – this applies to all mortgages. This means that a mortgage company can still foreclose on the property to retake the collateral. A foreclosure against only the property , also referred to as an in rem proceeding.

If you reaffirm a mortgage during your bankruptcy, then all obligations for the mortgage return. The mortgage company can come after the debtor for any unsatisfied obligation.

Mortgage Liens Remain After Chapter 7

Many individuals come to see an attorney years after their bankruptcy. They are confused about why the second mortgage company is trying to foreclose. They say that the their bankruptcy included the second mortgage. Sometimes, the debtor even continued to pay the first mortgage. Usually this confusion comes in because their attorney did not explain the difference in the personal obligation and the lien.

The same terms of the all mortgages remain with the lien after the Chapter 7 bankruptcy. Your mortgage lender may be willing to do a modification to lower your interest and payments, but they are not required. If you do not comply with the terms of the debt, the mortgage company can foreclose.  On a rare occasion, a second mortgage may reduce the balance or forgive a debt after a bankruptcy. This is usually done, if they believe it is not in their best interest to continue having the outstanding liability or that a tax reduction for writing off the loan is in their best interest.

Chapter 13

In a Chapter 13, you must submit a plan to the court explaining your intent with the property. This plan will tell the court if you plan to keep or give up a property. It also likely will tell the court how you plan to repay any arrerages on the property.

A Chapter 13 can be a great tool to help a debtor catch-up on a first and/or second mortgage. A Chapter 13 would allow a debtor to pay back arrearages over the course of 3 to 5 years. While paying back the arrearage, you must also continue to make your regular payments to the mortgage company.

2nd Mortgage Strip off

One very special reason some people file Chapter 13 is to strip off the second mortgage. This process can only occur in a limited number of circumstances. Basically, a second (or even a third or fourth) mortgage can be removed from a debtor’s property if it is wholly unsecured. This means that the value of the senior mortgage is greater than the fair market value of the property. If the property is worth even a penny more than the balance of the first mortgage, then it is considered that the second mortgage has something to attach to and cannot be removed through a Chapter 13 strip off.

In a strip off, the debtor must file a separate lawsuit within his/her bankruptcy. The bankruptcy court must determine the property value is less that the mortgage(s) senior to the mortgage being removed. If the court determines that to be appropriate then the court issues an order that the lien must be treated as unsecured for the rest of the bankruptcy and after the Chapter 13 plan is complete, the liens of the junior mortgage(s) are removed.

With housing prices on the rise and increasing back to pre-2007 levels, this process is getting less common, but it still will be completed from time to time.

Court Orders are Required to Remove any Lien

The rule of thumb at the end of the day is that bankruptcy usually only takes care of personal liabilities. Liens are a special situation; no lien or mortgage can be removed from property unless there is a court order from a judge, the debt is completely satisfied, or the creditor agrees to voluntarily release the debt. Any creditor with a mortgage lien can foreclose on a property as long as the lien is valid.

 

 

Attorney Ashley F. Morgan is a Virginia licensed attorney. She has been helping clients stop foreclosures using bankruptcy and non-bankruptcy options.  Ashley has successfully helped many debtors strip off second mortgages from their properties. She has also helped numerous individuals catch-up on their mortgages and save their homes through a Chapter 13 plan.

Small Business Video #1 – Choosing the Right Name and Business Structure

 

Take a look at the first video in our video series about setting up your new business. It is important to set up your business properly; your business structure will dictate what protections you do or do not have. There can be legal and tax consequences to the way you start your business. It is important to understand all your options.

The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a business structure allowed by state statute. If you choose an LLC, you must also inform the Internal Revenue Service on how you want to be taxed. If you are a sole owner, you have two options: as a sole proprietorship (listed on a Schedule C) or S-Corp. If you have multiple owners, your only option is usually as an S-Corp. There are pros and cons to each type of taxation; you should talk to a tax and legal professionals before deciding on how to set up your business.

Additionally, most individuals set up a business structure to ensure protection for personal liability. In order to get these protections, you must make sure you are following corporate formalities, such as separate bank accounts, accounting, operating agreement. Even if you are a sole owner, you must have an operating agreement that dictates how decisions for the company must be made. Legal protections only continue to exist when formalities exist; otherwise, the courts will see the business as just an extension of the owner(s) and not a separate entity.

How to Handle Garnishments: Options to End Creditors Collection Efforts

Garnishments are just one way that a creditor can try to collect on a judgment. If you are facing a garnishment, you should understand your options. Understanding how to handle garnishments can save you time and money.

Garnishments are a scary thing. A creditor wants to take money out of your paycheck or your bank account. In Virginia, a creditor can perform either a wage garnishment or a bank garnishment. For a wage garnishment, a creditor can garnish 25% of your “disposable income,” which means they get 25% of your paycheck after deducting for requires taxes. If you are very low income, your income may be too low to be garnished; but, this is very low threshold. For a bank garnishment, a creditor can seize all money in a bank account up to the amount of the judgment. Some funds cannot be garnished, such as social security.

If you are being garnished, there is likely a judgment against you. Most creditors can only garnish you  if there is a judgment against you; the most common exceptions to this rule are tax debt and federal student loans.  Since federal student loans and taxes are owed to the government, they are given special rights to collect. A judgment could have been obtained without you ever having appeared in court or being personally presented with documents.

Some individuals come into our office unsure why they are being garnished or believe they can fight the garnishment. In Virginia, the law requires that a creditor served you at your last known address. Service does not have to be in person, like you often see in the movies (i.e., someone handing you papers and saying you were served). The sheriff or process server can post the notice on the front door of your last know address or hand the papers to any adult living in your residence. If you never got the paperwork, it does not matter — it’s still valid.

On occasion we are able to vacate (reverse) a judgement on grounds that you were served somewhere that was not your residence, but this is rare. Additionally, even if you can get the judgment vacated, you will likely be sued again by the creditor after the judgment was vacated. If the judgment was based on a valid debt, this may be a futile effort.

Guaranteed Ways to Stop a Garnishment

Only two guaranteed ways exist to stop a valid garnishment: satisfy the debt in full or file bankruptcy.

Pay the debt

If you can full pay the debt, a garnishment would stop. Creditors cqn only collect up to what they are owed. However, this can include interest and attorney fees, if they judgement allowed for those expenses. Depending on how old a judgment is, it may have increased dramatically due to interest. We have seen some clients with judgments subject to 30% interest!

Filing bankruptcy

Filing bankruptcy stops any and all collection activity; it is the trump card that debtors can play against handle garnishments and stop creditors from collecting. The moment you file a bankruptcy, as long as you haven’t had multiple bankruptcy cases pending within the last year, the federal court issues an order that says all creditors must immediately cease any and all collection activity. To ensure the creditor has knowledge of a bankruptcy, our office sends notice of the bankruptcy to any creditor attempting to garnish you and the court where the creditor obtained the judgment. Sometimes, we are even able to get some of the garnished funds back.

Bankruptcy is often the only guaranteed way to stop a garnishment. Often, we recommend bankruptcy as the only viable way to stop garnishments. Often, our clients often spend less to file bankruptcy than to pay or settle a judgment.

Ways to Attempt to Stop a Garnishment

There are two other ways that can either potentially handle garnishments. We rarely recommend these two other options, but in certain circumstances they may help; these options are negotiate the debt or file a Homestead Deed.

Negotiate the Debt

We occasionally can recommend trying to negotiate a debt; but, creditors are less likely to negotiate after a judgment is obtained. Creditors get certain rights when they obtain a judgment, these rights include garnishments, interrogatories (getting you to answer questions under oath), etc. If the creditor is getting more through the garnishment process than you are offering, it is not very likely they will take the settlement.

File a Homestead Deed

One other option to handle garnishments that we rarely recommend is to file a Homestead Deed, but it can serve a limited purpose. After a garnishment has been filed you will be served with the garnishment summons. On the garnishment summons, there will appear a “return date.” This date is when the judge will determine if the creditor is owed the funds or not. A homestead deed, which is a document particular to Virginia, advises the court that you are using your lifetime exemption under Virginia Code § 34-4 to protect up to $5,000.00 (or $10,000.00 if you are over 65). You must file the document in the land records.

We do not recommend a Homestead Deed because it offers a temporary solution. This protection is a lifetime exemption. This means that if $3,500.00 has been garnished from your wages during the past 6 months and you file a Homestead Deed to protect the funds, then you have used the $3,500.00 to get the funds release. Following the Return Date, the creditor can just file another wage garnishment immediately and start the garnishment all over again. Eventually, you will exhaust the the $5,000.00 protection. Using up this exemption also result in limited protections in any future bankruptcy; debtors must also use a Homestead Deed in bankruptcy to protect cash, or cash like assets.

 

Attorney Ashley F. Morgan is a Virginia licensed attorney. She has been helping clients manage various types of debts for years. Ashley focuses on helping her clients finding the ideals solution to their debt problems. Ashley reviews each person’s personal situation to determine his/her best options. She regularly helps clients handle garnishments and other collection activity.

Package of documents for new hire.

Business Legalities: Proper Hiring Practices For Your Company

Every business, both small and large, needs to have good hiring practices in place. Proper hiring practices can help save you significant time and money down the road.

There are many things that go into running a successful business; one of those things is making sure you are crossing your Ts and dotting your Is on your hiring practices.  The government requires that you have all the proper documentation for each and every employee your business hires.  The government can “audit” (or review) your paperwork at any given time.  They can also raid your business if they suspect you have undocumented workers working for the business.  Since the Trump administration came into power in early 2017 the number of large raids on businesses has increased.  Most recently a gardening company in Ohio had 114 people arrested by U.S. Immigration agents. Not only can undocumented workers get in trouble for working, employers can get in trouble for hiring those individuals and business owners can face fines and jail time for not complying with federal law.

Many business hire undocumented workers; most employers offer various reasons, including that it is cheaper to do so and/or the type of work does not usually appeal to people individuals who can legally work in this country. This is not always the case, and if it is proven to be true, the penalty for hiring undocumented workers is very high.  In the past many employers knowingly participated in the hiring of undocumented employees because the risks appeared to be limited to a warning or a small fine.  Some business owners even called it the “cost of doing business.” However, the position of the current administration is to crack down on these hiring practices. Potential consequences of hiring undocumented worker include: costly fines, immigration raids, and even criminal charges against the business owners.

Potential Fines & Jail Time

First offenders can be fined $250.00 to $2,000.00 per undocumented employee, as a civil penalty.  The fine can more than double for a second offense, up to $5,000.00 per undocumented employee.  Three of more offenses can carry up a $10,000.00 fine per undocumented employee.  At that point the employer is risking the government coming after them for showing a pattern of knowingly employing undocumented workers and facing up to six months in jail.  There is also a provision called “harboring,” where an employer employs ten or more undocumented individuals in one year.  Additionally, there are criminal penalties for employing undocumented workers can result in monetary fines and possibly jail time. These criminal penalties are separate from any civil penalties assessed.

I-9 Forms

U.S. Immigration and Customs Enforcement is the agency within the Department of Homeland Security that enforces the requirements for proper documentation of employees.  Employers need to make sure their I-9 forms are properly filled out and supporting documents are kept in a secure location.  It is important for employers to keep the I-9 documents in a location separate from other personal files of employees due to other sensitive documents that the ICE agents won’t need. You are allowed to store this information electronically, but it is important to comply with all current federal regulations regarding the documents.

Independent Contractors

Some businesses try to get around the requirements of verifying whether an individual can work legally in the United States by hiring independent contractors.  Businesses are not obligated to confirm work authorizations for independent contracts; however, if they know they are hiring undocumented workers they can still be held liable. Additionally, the practice of hiring an individual and labeling them an independent contractor, while he/she is really an employee can also cause additional problems. The general rule of classifying an individual as an employee or independent contractor focuses on control. An individual is considered an independent contractor, if the individual is given an assignment/goal, but has control over when the work will be done and how it will be done.

Tax Compliance

The Internal Revenue Service also requires that you use a Social Security Number when issuing W2s at the end of a year.  If the potential employee gives you an ITIN they may not be eligible to work in the United States.  An ITIN starts with the number “9” and is formatted in the same way a SSN is.   Other concerns that the IRS might look into is an audit of your business tax returns.  If you are claiming W2 wages for undocumented work as a business expense, the IRS may disallow those expenses through an audit and your business will then be hit with a higher tax liability, as well as additional penalties and interest.

W-4 Forms

Along with the I-9, an employer should also have the proper withholding documents for the IRS (W-4) and for the state, if the state has state income tax.   Keeping copies of the withholding documents, along with required I-9 documents, will ensure you are taking the necessary steps to comply with federal and state law regarding hiring individuals who are authorized to work in the United States.

If you are concerned about complying with federal laws, please contact Ashley F. Morgan Law, PC. Our office can conduct an audit of your files to ensure you are complying with current regulations. Additionally, our attorneys regularly work with Human Resource departments or employees to guide them through current regulations and educate individuals about laws and expectations. Ensuring proper hiring practices can prevent many problems and additional costs down the road. Attorneys Ashley Morgan and Arthur Rosatti can help businesses ensure they are complying with federal and state laws.

 

 

Schedule C: Property Exemptions

Keeping Assets in a Chapter 7: Understanding Bankruptcy Exemptions

Bankruptcy Exemptions are the laws that allow you to keep assets in a Chapter 7 Bankruptcy

The most common type of bankruptcy is a Chapter 7 bankruptcy, aka a liquidation bankruptcy.  The process usually takes approximately three to four months for a standard case. During this process you file a petition that provides information about your life. This information includes your income, expenses, debts, assets, and personal information. The bankruptcy process allows you to keep certain items. If you have more then the minimal items the bankruptcy trustee sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay creditors. Understanding bankruptcy exemptions can help you determine the right debt management option for you.

Who can file

Chapter 7 is an option for individuals or businesses. An individual gains fresh financial start after filing a Chapter 7 — only select debts remain after discharge. A business uses a Chapter 7 to close the business after it is no longer profitable.

 

How to qualify

When a debtor files Chapter 7, the court looks at the household income. If the household income is below the median for your state, you can qualify for Chapter 7. If your household income is above the median income for your state, you may still qualify. The court analyzes all income under the “Means Test.” This test is basically used by the court to determine if you have any disposable income at the end of every month to pay over to your creditors. The court determines the disposable income by deducting specific monthly expenses from your “current monthly income” (your average income over the six calendar months before you file for bankruptcy). Some of these expenses are actual expenses, such as car payments, mortgage payments, taxes, etc. Other expenses are based on the Internal Revenue Service standards for your county, such as utilities, food, etc.

 

Exemptions

When filing a Chapter 7, most people are most concerned about what assets you can keep. There are certain bankruptcy exemptions (or protections) that apply to anyone filing for bankruptcy. Your exemptions vary under state and federal laws. The exemptions you can use depend on state law and where you have resided for the past two years.
In Virginia, there are various exemptions that apply for residents. Some of the most common exemptions include:
Clothing: up to $1,000 of the value of clothing. Used clothing have a very low resale value; we use thrift store prices to value clothes. The only issue that ever arise are if there are a significant amount of newer designer clothes.
Vehicles: each debtor may keep up to $6,000.00 in equity in a car. If a car is jointly owned, this means a couple can have up to $12,000.00 worth of equity in the car. This means that if you have a car worth $20,000.00, but there is a $18,000.00 loan on the vehicle, there is only $2,000.00 worth of equity.
Household good and furnishings: each debtor can keep up to $5,000.00 on household goods. Generally, there is no issue with these items unless you have valuable antiques or collectibles.
Wedding and engagement rings: debtors are allowed an unlimited exemption for wedding and engagement rings. This means there is no limit on the value you can have for an engagement and/or wedding ring.
Tenants by the Entirety: there is an unlimited exemption for property titled Tenants by the Entirety (TBE) when there is no joint debt between the spouses. In Virginia, the law allows property (usually a marital home) to be titled in a specific manner between a married couple, but also requires that no joint debts exist between the parties. If you think this may apply to you, then I recommend speaking to an experienced bankruptcy attorney. Steps have to be taken to ensure there is no joint debt and that needs to be proven to the trustee in your case.
Federally-qualified retirement plans: traditional retirement plans, such as your 401(k), IRS, Thrift Savings Plan (TSP), etc. are all 100% exemption.
Tools of the trade: there is a $5,000.00 exemption for assets that are directly related to your primary profession.
Wildcard: Virginia bankruptcy exemptions are generous for everything exception a potential wildcard. A wildcard applies to any asset that has no other exemptions available, including cash in the bank and equity in a house. A debtor may also use this exemption to supplement any other exemption if more protections are needed.

Virginia’s wildcard is also called a Homestead Deed; it has this name because a document must be filed in the land records in the county in which you reside. This exemption is a $5,000.00 lifetime exemption. Debtors receive additional $500.00 exemption for any dependents.The exemption increases to $10,000.00 at the age of 65. However, since this is a lifetime exemption, if you file bankruptcy and use $1,500.00, you only have $3,500.00 remaining for any future bankruptcies filed in Virginia (until you turn 65).

 

NOTE: The above list of Virginia bankruptcy exemptions is NOT complete or exhaustive list. It includes only the most common exemptions. Additionally, these exemptions may change. 

 

Warnings about assets, exemptions and transfers 

It is also important to note that transferring assets to avoid including them in your bankruptcy is a bad plan. All transfers of property within two years of filing bankruptcy must be disclosed. The case trustee can reverse transactions. If the court determines you did the transfer with the intend to avoid a bankruptcy or to hide assets from creditors, the court may also deny you a discharge of your debts.

 

The court may review all debts that a debtor paid back within the last year. If you have paid back family, friends, or business partners, the court can actually sue those individuals for return of the funds. The court believes that a debtor must treat all creditors the same; as a result, you must treat American Express the same as Uncle Joe. Paying one creditor more money than another is considered a preference because you are giving preferred treatment to one creditor over another.
Once a Chapter 7 bankruptcy is filed, you cannot voluntarily dismiss the case.  A judge must review any request to end a debtor’s case. A judge will not dismiss your case just because a debtor is losing property or a trustee sues a debtor’s  family member.

 

An experienced Virginia bankruptcy attorney will be able to review your situation and help prevent potential problems in your case. Having an lawyer handle your case properly from the start can prevent problems later on.

 

Alternative options

If Chapter 7 is not right for your situation, there can be other options. Many people who qualify for Chapter 7 due to their income, choose to file a Chapter 13 because there are not adequate bankruptcy exemptions to protect all of their assets. If you have nonexempt assets, a Chapter 13 is another option to consider. In a Chapter 13, you are allowed to keep all nonexempt assets because debtors are required to pay out the value of these unprotected assets over the course of three to five years. Additionally, sometimes debt negotiation is a better option. If you have limited amounts of debt or cannot qualify for a Chapter 7, sometimes having an attorney help you settle a debt, is a better option.

 

 

 

Most individuals want to keep as many assets when possible, if you are filing bankruptcy.  Having an experienced bankruptcy attorney can help ensure your case goes smoothly and can help protect as many assets as possible. Attorney Ashley Morgan has experience dealing with all the above issues.
Sign for United States Bankruptcy Court

Top 17 Dos and Don’ts for Bankruptcy

Having financial problems? Think bankruptcy may be an option for you? To help ensure you keep your options open and available, understand there are things you should or shouldn’t do. In many cases, if you take certain action, such as transferring a house into the name of a family member before filing bankruptcy, you may either limit your options available or put your asset at risk.  There are even some actions that could completely jeopardize your ability to get a bankruptcy discharge. Here is a list of dos and don’ts for bankruptcy.

Here are the Top 17 Dos and Don’ts for bankruptcy:

  1. Do talk to a bankruptcy attorney immediately. Most bankruptcy attorneys offer free consultations, so you should take advantage of that. Talking to an attorney doesn’t mean you will definitely be filing bankruptcy. It allows you to understand how bankruptcy would apply to your situation. There are many different types of bankruptcy and it is important to understand how each option could apply to your situation; individuals primarily file Chapter 7 or Chapter 13. Additionally, you want to find a bankruptcy attorney that makes you feel comfortable. You will only be completely honest with someone if you trust him or her.
  2. Don’t transfer property or money. It is important for you to be aware that transferring title to property before declaring bankruptcy is not an option. Do not sell or transfer assets to your friends or relatives to hide them from creditors or the bankruptcy court. The trustee will ask you about such transfers at the first meeting of creditors, and has the power to recover those assets. The trustee can basically undo any transaction you have done within a certain time frame. In Virginia, it is two years. Also, don’t transfer money into your kids’ bank accounts. They have you as a co-signor or guardian and are subject to the same review as your accounts. Hiding assets can be a reason for the court to deny you a discharge, and you can be subject to criminal prosecution.
  3. Do tell your lawyer everything. Even if it is embarrassing it is better if your attorney knows everything about your situation. If you have made major purchases recently, then it may be important to wait to file. Or if you have an existing medical condition, it may be important factor to consider in the timing of your bankruptcy. Additionally, it is important to list all assets and debts. Anything that isn’t listed in your petition may not be discharged. Additionally, failure to list all your assets and your debts may result in not getting a discharge.
  4. Don’t leave out income. People think that a second, part-time job does not count as income. All household income must be included. The court will look back at least six months to see what your household income has looked like. Similarly, even if your spouse is not filing, you must list his/her income unless you are legally separated. The court needs a picture of your household. The court cannot require a spouse to pay a debtor’s debts, but they can require a spouse contribute to the household. If you want to claim somebody as a dependent in your bankruptcy, you must include their income. Additionally, social security does not count in qualifying you for bankruptcy, but it still must be listed.
  5. Do keep track of expenses. Part of a bankruptcy filing is disclosing expenses. Many individuals do not always realize where their money is going. But we want to be as accurate as possible with our accounting. If you are sending your mom, $300 per month, we want to make sure we account for that. Some expenses may be questioned or deemed unreasonable. If you are spending $1,000.00 per month on food for a household of one, the court may not allow the full amount unless there is a good justification. Other expenses may be allowed, but could be questioned if higher than average. For example, if you are paying $700.00 per month for medical expenses, it is important to keep documentation in case you need to prove it later on.
  6. Don’t pay back preferred creditors or family/friends. Many consumers want to pay certain creditors in full before filing for bankruptcy. The court doesn’t want you to play favorites and pay money to some creditors and not pay the rest. The court believes all creditors should be treated the same; however, there are exceptions for secured creditors, like your mortgage or car loan. The Trustee can reach back ninety days to recover money paid to general creditors and spread it out more evenly to all of your creditors. The Trustee can take back funds paid to your family and friends, if you have paid them back within a year.
  7. Do make sure to list all debts. Bankruptcy does not allow you to pick and choose which debts to list or not list. You must list all debts, from the credit card with American Express to the personal loan from Aunt Sally.
  8. Don’t incur any new debt without first asking your attorney. It might be a good idea to get a secured car loan before the bankruptcy filing hits your credit profile, but it is a bad idea to buy non essential assets like laptop, plane tickets, TVs, etc. It is important to talk about the pros and cons to opening a new account before filing. Additionally, any new accounts may delay your filing or complicate your case.
  9. Do keep current on payments for non-dischargable debts. Bankruptcy usually cannot discharge student loans, taxes, child support, etc. This means these debts will be around even after your discharge. Talk to your bankruptcy attorney about your specific situation, but generally, you want to keep paying these debts
  10. Don’t make any last minute charges or purchases. When the creditor gets the notice that you filed, it takes a look at your account history. If it sees a bunch of charges right before filing, it will get suspicious. Additionally, creditors can object to any major purchases within approximately three months of filing bankruptcy. The creditor can basically file a separate lawsuit with the bankruptcy court and ask it to not discharge that part of your debts.
  11. Do keep track of deposits and withdrawals. The trustee in your bankruptcy will review your bank statements. He or she may have questions about large cash withdrawals or deposits. It is important to remember what the money was from/for. For example, if you pay your rent in cash every month, try to make sure you get a receipt and keep it.
  12. Don’t take any cash advances. Do not make any major cash advances off of credit cards prior to filing for bankruptcy. A creditor can object to the discharge of debts incurred as cash advances before filing.
  13. Do disclose all assets. Anything that you own needs to be listed in your petition; this includes your 15-year-old furniture and the bank account with 25 cents. Additionally, even if you are on title of an asset, like a house or a bank account, it still means you have an ownership interest. Many families add parents or children to bank accounts to make transferring assets easier, this still means under the law it is yours. It is important to disclose this to your attorney up front to prevent any problems.
  14. Don’t borrow or withdraw from your retirement. Federal and Virginia law protects your tax retirement accounts from creditors. But funds in these accounts lose this protection the moment you withdraw them. You could also be liable for taxes and penalties for an early withdrawal. These taxes and penalties may not be dischargeable in bankruptcy and could cause a hardship down the road.
  15. Do separate money. If you have money that may be protected, for example, social security, settlement from a personal injury lawsuit, etc., you want it to be clear where the money came from. Put all the funds in a separate account that you own with the same type of funds, for example, have an only social security account where money is deposited in and no other funds go in. This will make it easier for an attorney to advise you if there is a way to protect the money during a bankruptcy.
  16. Don’t file until your medical conditions are stable. If you are considering filing bankruptcy due to medical debt or expect to have major medicinal procedures in the near future, you usually do not want to file bankruptcy until those are taken care of. Unexpected complications can occur that can cost significant amounts of money. You may limit expenses, if you have insurance coverage; but, insurance does not always cover all treatments and procedures and there is often a deductible and out of pocket to consider. Filing bankruptcy to just have more medical debt occur soon after is not a good outcome.
  17. Do file your taxes. It is important to make sure you are current with your tax filings before filing bankruptcy.  When filing a Chapter 7, the court will require you to provide your most recent tax filings; the court may hold your case open until the tax return is filed and you have received any refund. If you file a Chapter 13, court will require you to file the last four years of returns in order to be compliant with bankruptcy laws.

The bankruptcy court review’s a debtor’s financial situation. This list of dos and don’ts for bankruptcy should help you understand that making financial decisions before filing can impact your case. Most bankruptcy courts can look back at least two years to review transactions completed by the debtor; the trustee in your case can also undo certain transactions. It is important to not take any actions that could jeopardize your assets or even your discharge. Talking to an attorney as soon as you are facing financial difficulties can help. Just talking to a bankruptcy attorney does not mean you are agreeing to file bankruptcy, but can help you understand the option if you need to in the future.

 

 

It is important to preserve your rights in a bankruptcy.  Having an experienced bankruptcy attorney can help ensure your case goes smoothly and you come out with a fresh start. Ashley F. Morgan Law, PC helps many individuals manage their debts every month. Attorney Ashley Morgan has experience dealing with all the above issues.

Car on the back of a tow truck

Can I Keep My Car in Bankruptcy?

Can I keep my car in bankruptcy?

One of the most common questions potential clients ask us is if they can keep a car in bankruptcy. During a Chapter 13, there is rarely an issue with a car. The question really comes up in a Chapter 7, since the court is looking at all your assets; a trustee will sell any non-exempt assets. But, the good news is that most of the time cars are not an issue in a Chapter 7.

The exemption, or protections under the law, in Virginia is fairly high; Virginia residents are allowed a $6,000.00 exemption for vehicles. If the car is owned by two individuals, the exemption is allowed for each person. Additionally, if your car has a high value, you can apply your $5,000.00 wildcard/homestead deed to help protect the car. The exemption only applies to equity in your car; so if you have a car worth $20,000.00 but you owe $16,000.00, you only need $4,000.00 in exemptions to protect the car.

A lot of debtors also say they want to keep their car out of bankruptcy. In bankruptcy you are required to list all assets and all debts. The bankruptcy will discharge the debt on the car, but the lien on the car remains. This means that the contract between you and the bank is gone, but the lender can still repossess the vehicle if payments are not made. So there is no free car, but the car company cannot make you pay for the balance of the loan if you do not want. For most of our clients, if they agree to keep paying on the debt, they can keep the car and will get the title at the end of the payments. But it also allows you the option to give up an underwater car without potential issues.

Reaffirmations

A reaffirmation is basically signing the same contract over again after filing bankruptcy. The creditor will report new payment history to the creditor reporting agencies. However, it also re-obligates you on the entire debt; so, if you fail to pay the entire loan and the car is repossessed, then the creditor can come after you for the deficiency. Additionally, a judge must sign off on the agreement; the court will likely require a hearing to prove that you can pay the debt going forward.

We rarely ever recommend the debtor sign a reaffirmation; on rare occasions there are reasons to sign them. Some creditors require a reaffirmation because they will repossess, even if you are current on your payments. Currently, the only creditor that takes this action is Ford. However, this could change at any moment. It is important to be sure you attorney is up to date about changing policies with varying lenders.

Should you keep your car?

For some of my clients, there is the question of whether you should keep the car. Chapter 7 allows a debtor to surrender the car in bankruptcy without issue of a deficiency or a repossession being reported on your credit report. For many people who have only made one or two years worth of payments on a car purchased new, you likely have negative equity in the car. Additionally, if your car was in an accident or two, there is likely a significant depreciation in value from that damage. Other individuals who find negative equity in a car are those who traded in a car with a large loss on a new car purchase.

Many people love their cars; but, we want to remind them that cars are a depreciating asset and it really is a financial decision that you are making. If you owe $25,000.00 on a car only worth $15,000.00, it is not likely to be a good financial decision to keep that vehicle. Continuing to pay on the car means you will be paying more for the vehicle than it is worth. After bankruptcy, most people’s credit increase. Additionally, many car lenders are willing to give you a car loan since you must wait at least 8 years between bankruptcy court filings (and most car loans are less than 8 years). Now if you owe $10,000.00 on a car worth $16,000.00, it is a lot easier of a decision to keep the car. You can keep that car, trade it in or sell it after the bankruptcy is over.

Cross Collateralization

One issue that most debtors do not know about is cross collateralization. This is a right that only credit unions have. Basically, if the credit union gives you a loan for a car, that lender has a lien against the car to secure the payment. The lien allows the creditor to repossess the car if the borrower does not make all of the payments. The cross-collateralization agreement allows the lien against the car (or any other collateral) to secure additional debts other than the car loan. This means that if you don’t pay a credit card, then the creditor can repossess your car.

Cross collateralization is something very few people know about. Most people understand that when finances get tight, you make sure you pay your car payment, even if you cannot pay your credit cards. But, if you aren’t paying on a credit card or personal loan, the credit union can repossess your car even if you are current on your car payments. This is important to understand when taking out car loans or opening new unsecured credit accounts.

When you file bankruptcy, your obligation to pay on all the debts is discharged, but car loan and cross-collateralized debts all remain with the car lien. This means that you may owe more on your car than you believe. Some lenders may allow you to only pay the car loan amount if you reaffirm the debt, but this policy varies from creditor to creditor. Experienced bankruptcy attorneys will usually have an idea how major lenders deal with your car in bankruptcy.

Other Options

Bankruptcy provides a debtor with various options he/she do not have outside of bankruptcy.

Redemption

One option debtors can do during you Chapter 7 is to “redeem” the car. This means during your case, you purchase the car back from the lender for the value of the car, not the total debt.

Under Section 722 of the bankruptcy code, a debtor in Chapter 7 has the right to force the lender to release its lien in exchange for a onetime payment in the value of the collateral. This can be a great way to keep your car and save money. The most difficult part of this option is coming up with the funds. There are certain lenders and programs that work with debtors on financing this payment.  When making a decision about a redemption, you should consider the total amount that would be paid (principal and interest). Additionally, there sometimes is the option of talking directly to your credit union or bank for a new car loan; this option works best if you have high income or a cosigner. But, if you want to redeem your vehicle, you should consider all possible options; some debtors are able to find the funds from family or friends, selling exempt that you kept during your bankruptcy.

Decide later

The decision about keeping the car does not have to happen immediately in the bankruptcy, unless a reaffirmation or a redemption is needed. Sometimes you want to take more time to make the decision. You do not immediately need to make the decision of whether to surrendering your car back to the lender. You can surrender the car during the bankruptcy or much later, as long as you do not reaffirm the debt. Some of my clients continue to make payments for 3 to 6 months after the bankruptcy. After their credit has bounced back, they apply for a new car payment and surrender their old vehicle then.

You have options

It is important to understand you have a lot of options. Additionally, you must take important steps to protect your assets. Talk to an experienced bankruptcy attorney about all the options that apply to your specific case and your options to handle your car in bankruptcy.

 

 

It is important to understand all your options and rights during a bankruptcy. Having an experienced bankruptcy attorney can help ensure your case goes smoothly and you come out with a fresh start. Ashley F. Morgan Law, PC helps many individuals manage their debts every month. Attorney Ashley Morgan has experience dealing with all the above issues. She understands good credit is important, and she wants her clients to completely understand all the tools at their disposal before taking action.

Credit Score Board

Improving Your Credit Score: Taking Steps Toward Perfect Credit

Improving Credit: Tips and Tricks for Getting Your Score Closer to 850

Often after helping individuals manage their debts, we provide guidance on improving credit. In today’s world your credit score affects every day of your life.

A good credit score can mean getting approved for credit that you need to buy a house or car. A poor score can make it difficult to find an apartment rental or needing a large deposit to turn on the utilities. Improving your credit can help everyone, even individuals with already good credit.

Your credit score is a score created by the credit bureaus using information in your credit report. Credit scores range between 300 to 850. The score is designed to give creditors the likelihood that you will become delinquent on your debts. Your score will also vary slightly between credit bureaus.

Regardless of the reason you need to improve your credit, including old collection accounts, limited credit history, trying to buy a house, etc., the tips below can help you get your credit on track. For most credit cards and loans, you will be offered the best rates when your credit is above 750; you will be qualified for most types of credit if your score is at least 700.

Monitoring Credit Reports

To get a good idea about your starting point, you need to know what your credit looks like. Tools, like Credit Karma and Credit Sesame, give you a good basis about your credit score and what you can do to improve it. But, these are not real credit agencies. There are actually three credit bureaus: Transunion, Equifax, and Experian. Federal law allows you to get a free copy of your credit report every 12 months from each credit reporting company. You should regularly pull your credit report to ensure that everything is reporting accurately. Removing inaccuracies, like late payments, can quickly help you improve your credit. Additionally, reviewing your credit regularly can help you prevent issues with identity theft. Many credit cards now also offer free credit scores, which can help you keep an eye on your credit in between pulling full reports.

Credit Factors

When trying to improve your credit, it is important to understand the factors that make up your credit score. There are five elements that the credit bureaus weigh when determine your credit score: Payment History, Amounts Owed, Length of Credit History, Types of Credit, and New Credit.

Payment History – 35%

As you might expect, the repayment of past debt is a major factor in the calculation of credit scores. It helps determine future long-term payment behavior. Both revolving credit (i.e. credit cards) and installment loans (i.e. mortgage) are included in payment history calculations. This factor is why one of the best ways to improve or maintain a good score is to make consistent, on-time payments.

Credit utilization  – 30%

Creditors look at the total amount you currently owe, and the percentage of the amount owed compared to your available credit. When a high percentage of a person’s available credit is been used, this can indicate that a person is overextended, and is more likely to make late or missed payments. That is why it’s a good idea to keep low credit card balances and not overextend your credit utilization ratio. Additionally, this factor is why it is important to keep old credit cards open, even when not being used.

Length of Credit History – 15%

The credit bureaus look at the length of time all credit accounts have been open and the time since the newest account was opened. Those with a longer credit history have more data on which to base their payment history. This factor is why it is easier for old individuals to have a high credit score than younger individuals.

Types of Credit  – 10%

The credit bureaus want to see a combination of different types of debt, such as credit cards, installment loans (like student loans or car loans), open accounts (like lines of credit), and mortgage loans. This is important to show you can mange different types of debt.

New Credit – 10%

Creditors do not like seeing many recently opened accounts; opening several new credit accounts over a short period (which can be defined as anywhere from 6 months to 2 years) can signify greater risk. Creditors worry it is evidence of you facing financial difficulty. This is why it is recommended no new credit accounts should be opened one year before a major purchase, like a car or house.

Pay Bills on Time

Your payment history makes up 35% of your credit score. One of the easiest ways to improve your score is to always make sure you pay bills on time. Missed payments stay in your credit for 8 years. The more time that passes after a missed payment, the less of an impact it will have on your credit. One missed payment, won’t ruin your credit, but if it was within the last year, the impact will be obvious. Additionally, monthly bills like your electricity, cable and rent usually are not reported on your credit report every month. But, if you do miss a payment or the account goes into collection, the negative mark will usually appear on your credit.

Secured Credit Cards

One of the best tools for improving credit is a secured credit card. A secured card requires a cash collateral deposit that becomes the credit line for that account. For example, if you put $500.00 in the account, the bank will give you a credit card with a limit of $500.00. This allows for you to get a credit card with little risk to the bank; if you miss a payment on the secured credit card, the bank will take the deposit and close your account. Often a bank will reward you for good payment history and add to your credit line without requesting additional deposits or offer you a new credit card. Be sure to check the fine print on these cards; some banks may charge fees.

One important rule to remember about using a secured credit card (or really any credit card) is keeping your balance low. For credit building purposes, you should never have a balance over 30% of your total credit limit. Even if you are paying your balance off in full every month, having too high of a balance signals to creditors you could be over extending yourself.

Loans & Lines of Credit

If you are in need of a vehicle, consider getting a car loan. Or if you do not need a car, look into a line of credit. If it’s a car loan, buy a vehicle that is affordable and that you can pay off successfully. Additionally, you will see a drastic increase in your credit if you can make a large additional payment early on in the loan. A large additional payment will help bring down your credit usage and help improve your credit utilization. You may receive a higher interest rate to start. Shop around for the best rate; usually you will we get the best rate from a credit union. If you get a line of credit, keep in open but use is sparingly. The available credit — without a balance — will help your available credit.

Bankruptcy

For some individuals with many delinquent accounts and limited ability to improve their credit in a reasonable time period, bankruptcy can be used to get you a new starting point. Bankruptcy can even improve your credit faster than just trying to rehabilitate your credit (but it depends on your specific situation).  One of the many reasons bankruptcy is a great tool for managing debt is that it helps improve credit fairly quickly. After filing a Chapter 7, Debtors can usually see offers for new credit soon after filing bankruptcy. After a Chapter 7 discharge, you cannot qualify for a Chapter 7 for another eight years. To many lenders, you may actually appear to be a better risk immediately. The discharge zeros out any past due payments and delinquent accounts. Additionally, your income to debt ratio improves. This also helps your credit utilization rate as well.

Bankruptcy does have its limitations. If your goal is to buy a house, there is a required 2 year wait period to purchase a home after a Chapter 7. Two years post discharge, you may qualify for an FHA mortgage, if you have kept improving your credit and your income allows for it. You may need to wait longer for a conventional mortgage. There is no waiting period to qualify for new credit cards or car loan; however, your interest rates may vary depending on many factors. Since you cannot file a Chapter 7 more than once every 8 years, you will not have the available option if something happens during that period, such as job loss or illness.

Be Diligent

Most important part about improving credit is to keep at it. Your credit will not improve overnight. Being diligent at paying your bills on time, making conscientious decisions about opening new accounts, and understanding your credit report can make all the difference.

 

 

 

 

If you are dealing with debts, make sure you understand all your options. Ashley F. Morgan Law, PC helps many individuals manage their debts every month. Attorney Ashley Morgan has experience dealing with all the above issues. She understands good credit is important, and she wants her clients to completely understand all the tools at their disposal before taking action.