FAQs

Post Discharge Credit Reports

A DISCHARGE IN BANKRUPTCY STARTS THE REHABILITATION OF YOUR CREDIT REPORT AND CREDIT SCORE

A discharge in bankruptcy has a significant impact on your credit report.

Your bankruptcy will appear on your report for the next 10 years.

Any debt discharged will show a zero balance.

All discharged accounts are closed.

No more reports will be made about your payment histories.

You must file a dispute if a discharged debt is still being reported despite being discharged. If the debt is not removed then you must report that to your bankruptcy attorney. Any creditor that refuses to remove the information can be punished by the Bankruptcy Court. through the court.

Your discharge starts the rehabilitation of your credit score. The effect of bankruptcy on your credit score is not what you think would happen. The majority of clients file for bankruptcy with a credit score in the 400 – 500 range. Because you have no debt and no more negative reports, the longer your credit report stays healthy and you avoid future financial problems, you will see a large improvement in your score, maybe over 100 points within the first 18 months post-discharge.

You will become a car loan and car sale solicitations magnet. Once my client receives a discharge they receive offers to buy or finance cars, and get offers of credit cards and loans.

Bankruptcy does not destroy your credit score or damage your credit report. Bankruptcy is a known way to improve your credit score.

Post Discharge Reestablishing Credit

After you exit the bankruptcy process you may want to borrow money for a car, or refinance a home. The question is “what kind of credit can I get if I have been through a bankruptcy.”

The first thing to remember about credit for big items, like homes and vehicles, is that it is largely individualized and depends deeply on your income at the time of seeking a loan.

When our clients go through bankruptcy they become prospects for vehicle loans. You will be contacted by dealers, and finance companies soliciting you to buy a vehicle. They want your business because you have discharged all of your debts and you are beginning your fresh start.

We do not normally recommend you consider those due to the loan’s high-interest rate. If you can wait a year or more you will most likely be able to rebuild your credit score enough to buy a car with a much lower interest rate. But if you need a vehicle while in a bankruptcy case, or shortly after concluding your case, there are many sellers.

Homes are quite different. A new home loan applicant may face up to a 2 to 3-year waiting period after completing your bankruptcy case. This is not true for all home mortgage lenders. Each situation is individualized and we can not predict if you could buy a home or refinance a home.

You will be offered credit cards and other types of loans after your discharge, and we discourage taking these offers. We do not find it necessary to take on debt in order to prove you have reestablished yourself.

Please avoid new debt if you can: You have gone through a hard experience because you had a problem with debt. We recommend you avoid using credit unless it is necessary, for as long as possible.

Post Discharge Unlisted Creditors

“They are Toast, but don’t know it yet.”

One question we answer frequently is, “What if I owed someone money and they were not listed in my papers because I forgot about them?”

It isn’t likely that we miss any of your creditors. When we try to find your creditors we pull all your credit reports, we review the bills and statements you bring us, and we probe your memory as to who you might owe.

If despite those efforts we can not find one of your creditors it is not our fault nor your fault. It was the creditor’s fault. If they are not sending bills or reporting to your credit report and we have no way of locating them then that’s their problem.

In that case, the creditor’s debt has been discharged; they just did not know about it at the time.

After your discharge, if you receive a bill or letter that you owe a creditor that was not listed in your bankruptcy, all you need to do is send us the letter or bill and we will get rid of the creditor for you. Once notified, they know their debt has been discharged, and any attempt to collect the debt will be a contempt of court charge.

Exemptions aka Exempt Property

During the course of the videos, you have heard me refer to exempt assets or exemptions. Exempt property is property and possessions you get to keep when you file a bankruptcy case.

In a bankruptcy case, you get to keep the property up to a limit. If you have more possessions than you claim as exempt then the “surplus” property could be sold by a Bankruptcy Trustee to raise money to pay on your debts.

As a rule, a large majority of our clients can protect all their homestead and personal assets.

Exempt property is divided into two categories: a Homestead which is the real estate that is your home. This is not an unlimited exemption, and it is different for different people. Our Tennessee clients have a limit on the amount of homestead they can claim ranging from $5,000 to $50,000. Our Virginia clients can claim a homestead exemption ranging from $5,000 to only about $20,000. If you do not own the land where your home is, for example, a mobile home on a rented lot, then you do not get to claim a homestead exemption.

All your other possessions are called personal property. This includes anything that you claim to own; such as your vehicles, recreational vehicles, mobile homes, furniture, appliances, bank accounts, work tools & equipment, your interest in recovery in a pending lawsuit or class action claim, and even retirement savings.

There are many factors that determine how much of your home and which of your possessions we can protect. Tennessee has fairly generous exemptions, and Virginia has fewer. Pension plans are almost always protected from creditors but there are some exceptions that can cause a client to lose his pension accounts. We have to go through every asset that we own and classify the assets to determine if we might lose something.

What Debts are Included – Tax Debts

“Yes, Sometimes you can Discharge Income Tax Debts”

If you owe income tax debts you have a problem. The IRS is the world’s most aggressive and powerful collection agency. There is little they cannot do in order to collect a debt from you. There are even criminal penalties associated with this debt in extreme cases. Some states have their own income tax.

However, it is a widely misunderstood belief that you cannot discharge tax debts in bankruptcy. In some circumstances, you are able to discharge income tax debts.

This is not available for all types of tax debts. Taxes owed under Form 941 are not dischargeable.

Even with Income Taxes – There are limitations on which income tax debts can be discharged and others that can not.

We will be able to tell you whether a particular tax debt can be discharged. This requires an investigation of that debt and the circumstances around it.

There is very little public notice of a bankruptcy case unless you are a big company or a celebrity.

This information is not printed in any local newspapers. It is not available on a random search through the google search engine. Of course, all of your creditors are notified. The fact that you have filed a bankruptcy case will appear on your credit report. As a general rule, the public does not know you filed a bankruptcy case.

Attorney’s fees are like auto shop charges; your fee is directly related to the complexity of the job.

We do not have a single fee for all bankruptcy cases. “Costs” are expenses we pay for services provided by others, such as credit reports and the required credit counseling.

At the initial appointment with your attorney, you will be given a written quote of our fee for handling your bankruptcy case.  Many of our clients cannot pay the full fee immediately; therefore we offer a payment program.  You can make a down payment on your fee and we will represent you for 6 months, standing between you and your creditors, while you finish payments on your fees and costs.  If you are unable to pay your fees within 6 months we reserve the right to charge extra because we are doing more work than expected.

Once your fees and costs are paid your case will be filed promptly. We can not file a case before the fees are paid because we can not be a creditor.

During the time you are gathering your fee and costs, we work as a team to discourage creditors from harassing you.  Once you have retained us as your attorney I do not want you to talk to your creditors, I want all creditor inquiries to be funneled through my office.  All you do when contacted by a creditor is to tell them you are going to file a bankruptcy case and then give them my name, address, etc. I want them to call me. After that, you are instructed to ignore all calls or communications from creditors.

The effect is most creditors stop trying to collect money from you if they know you have retained an attorney to file a bankruptcy case.

What Is Debt Relief?

If you’ve gotten behind in your bills, or are about to become behind in your bills, you are going to enter the debt collection process very quickly. Initially, you will be contacted by the creditor asking why you’ve missed a payment. But if you don’t have a way to make up those payments, those calls will become increasingly shrill and frequent.

Once you miss payments, that starts showing up on your credit score very quickly. If you’re missing payments to more than one creditor, then the problem is getting worse even faster.

After you have missed multiple payments, you are likely to be turned over to the collections department. These are individuals who are not as nice and are intent on collecting this debt – that’s their job.

The in-house debt collectors are not the worst problem. What happens next – if your debts are not caught up, you are likely to have your case referred to an outside debt collector, or possibly have the account sold to a debt buyer. These individuals are much more aggressive about collecting. They will call constantly, and threaten lawsuits – they want to be paid, and they want to be paid now. You will find that it is very difficult to deal with them, because the main thing they are wanting to get is payment on the account, and they want the account brought current. It is very difficult to work out payment plans unless they are much to the creditors’ advantage.

As bad as debt collectors are, they are not the worst. The worst thing that can happen to you in the debt collection process is that you get sued by one of your creditors. That means they’ve hired an attorney, prepared and filed a lawsuit in a court, and had that summons served upon you.

What they are seeking is judgment, the most powerful tool a creditor has to force you to pay money. Before they have a judgment, they cannot make you pay them, take things from you, garnish your wages, or seize your possessions (though a creditor can repossess your car if you don’t make car payments).

What I mean by a judgment is that the creditor has appeared in court with their attorney and has proven to a judge that you owe the money. Once a judge has certified that debt, the court itself will help the creditor collect the debt through wage garnishment, seizure of bank accounts, and even the placing of a judgment lien on your home.

Of all the collection activities I experience through my clients, wage garnishment is probably the most devastating. The creditor can take as much as 25% of your pay after some deductions – that is a large amount of your pay. Most of my clients cannot pay hardly any of their bills after having that much money removed from their checks. If you are threatened by a garnishment or are being garnished, you need to consult with us as soon as possible.

“All of them!”

In any kind of bankruptcy case, you are going to be required to disclose everything about your financial condition including all of your assets, debts, your income and expenses, and much additional information.

I am frequently asked: “Do I have to list all of my creditors?” Yes, you do.

The law requires you to report all creditors. Listing all of your creditors means you must report your medical bills, mortgage loans, car loans, and all others. Every creditor has to be listed and notified.

Next, what is important is how that particular debt is going to be treated. Whether you keep a debt or discharge the debt is mostly up to you. You can repay creditors, in whole or in part, after a discharge.

Judgment Liens on Real Property

If you have a judgment lien on your real property you have a serious problem. We have the tools and resources to resolve that problem and remove judgment liens from the property.

One way a creditor can try to collect a debt from is to file a judgment lien against your real property. After a creditor receives a judgment in court, the judgment document can be recorded in your County’s Register of Deeds or another clerk’s office that records these. This is the same document that a creditor can use to garnish your wages or bank accounts. A judgment lien means that if you sell, try to borrow on, or refinance the loan on your home or other real estates the creditor holding the judgment lien may have to be paid in full. It is effective for 10 YEARS, and it can be extended for multiple 10-year periods.

A judgment lien is what I call a “stealth collection.” You do not have to be notified that a judgment lien has been filed. Many people do not know their real property is subject to a judgment lien. They find out when someone reviews the public records specifically to see if there is one.

A recorded judgment lien attaches to every piece of property you own in that county. A judgment lien can be recorded in multiple counties. In essence, a judgment lien ties up every piece of real property you own.

Most of our clients first discover they have a judgment lien on their real property at the initial meeting with one of our attorneys. Before your meeting look for any judgment liens. If you have been sued and a judgment has been entered against you there is a good chance a judgment lien has been placed upon your home or other property.

THE GOOD NEWS: In a bankruptcy case, most all the time, your bankruptcy attorney can have the Bankruptcy Court remove the judgment lien on your house partially or completely.

THE BAD NEWS: Bankruptcy law does not allow you to avoid a judgment lien on real property that is NOT your home. We will have to review with you other techniques to resolve that problem.

What Debts are included – Co-Signers

Sometimes a friend or relative has co signed a loan for our client.

In Chapter 7 bankruptcy, if you have a Co-Signer you can voluntarily continue to make that payment to protect your cosigner. If you do not pay the debt then your Co-Signer will be obligated to pay it. If you do voluntarily pay it then the payment history goes on your Co-Signer’s credit report; which may affect their credit score if you are late or miss payments.

You may be able to “reaffirm” the debt. That is a process where you sign documents that are filed in the bankruptcy court that reestablish this as one of your debts after your discharge. However, your cosigner’s obligation exists regardless of whether you reaffirm the agreement or not. If you reaffirm the debt and have a good payment history you will be rebuilding your creditworthiness.

In Chapter 13 bankruptcy, the law actually allows you to protect that cosigner by paying the debt in full; even if other unsecured creditors don’t. This is not always available and can be determined only by careful consideration of all the facts in your case with your bankruptcy attorney.

Post Discharge Credit Reports

A DISCHARGE IN BANKRUPTCY STARTS THE REHABILITATION OF YOUR CREDIT REPORT AND CREDIT SCORE

A discharge in bankruptcy has a significant impact on your credit report.

Your bankruptcy will appear on your report for the next 10 years.

Any debt discharged will show a zero balance.

All discharged accounts are closed.

No more reports will be made about your payment histories.

You must file a dispute if a discharged debt is still being reported despite being discharged. If the debt is not removed then you must report that to your bankruptcy attorney. Any creditor that refuses to remove the information can be punished by the Bankruptcy Court. through the court.

Your discharge starts the rehabilitation of your credit score. The effect of bankruptcy on your credit score is not what you think would happen. The majority of clients file for bankruptcy with a credit score in the 400 – 500 range. Because you have no debt and no more negative reports, the longer your credit report stays healthy and you avoid future financial problems, you will see a large improvement in your score, maybe over 100 points within the first 18 months post-discharge.

You will become a car loan and car sale solicitations magnet. Once my client receives a discharge they receive offers to buy or finance cars, and get offers of credit cards and loans.

Bankruptcy does not destroy your credit score or damage your credit report. Bankruptcy is a known way to improve your credit score.

Wage Garnishment or IRS Wage Levy

The most effective and devastating tool that a creditor has to collect a debt from you is to garnish your wages. If you owe the IRS it is called a “levy.”

The information below also applies if your bank account has been levied.

IMPORTANT: A CREDITOR CAN NOT GARNISH YOUR INCOME; ONLY A COURT OR THE IRS MAY DIRECTLY GARNISH WAGES. A creditor has to have gone to a court and previously been awarded a judgment against you in order to get the court to issue a wage garnishment. You should have been served a court process before that happens.

IF YOU HAVE ALREADY BEEN SUED AND YOU EARN WAGES, YOU ARE IN DANGER OF A WAGE GARNISHMENT! Call us immediately!

Not all income is subject to garnishment.

Protected income: Social Security benefits, retirement benefits, annuities, military or veterans benefits, workers compensation, or some other similar benefit, your income cannot be garnished before you receive it or after it is in your bank account.

Exposed income: Wages, commissions, and 1099 contractor payments. If you earn your income by these methods then your income can be garnished. In Tennessee and Virginia, the Court takes 25 percent of your take-home pay.

Garnishments are devastating; they blow your budget out of the water. They are very difficult to recover from. They must be stopped quickly!

OUR LAW FIRM CAN STOP A WAGE GARNISHMENT. Filing a bankruptcy case stops a garnishment. But if you have not filed a bankruptcy case yet we know the law and the techniques to stop a wage garnishment, even before you file a bankruptcy case. Garnishments are not easy to stop. It requires a dedicated bankruptcy lawyer, the cooperation of the creditor and its attorney, the court clerk that issued the wage garnishment, and your employer.

GOOD NEWS! OFTEN WE CAN RECOVER YOUR MONEY! There is some good news in the garnishment world though. One of the things you may be able to do in a bankruptcy case is to recover the money that has been garnished from you. The basic formula is that if, in the previous 90 days a creditor has received over $600 of your garnished wages we are able to demand a refund of all garnished wages in the 90 days prior to filing your case. We cannot recover garnished wages paid to the creditor more than 90 days before you file a bankruptcy case.

Your assets in a bankruptcy case: Inheritance and Life Insurance received before your case is filed.

INHERITANCE BEFORE YOU FILE: In any chapter of bankruptcy one of the questions we will ask is whether or not someone has passed away before we file your case, and if you have received or will receive an inheritance or life insurance proceeds. This is life insurance money, inherited IRAs, or your share of an estate. Anything that you have inherited before you filed your case is considered one of your assets. This is an asset that can be used to pay your debts.

It does not matter that the land or buildings are still in the deceased owner’s name. It also does not matter if there is an ongoing probate case that has not concluded so you do not know what you will get yet.

The law is that if someone has passed away before you file a bankruptcy case, what you will receive from that estate is part of your bankruptcy estate and can be used to pay your debts. We see this frequently; when someone has died and their land has never been divided or sold. The home, mountain land, or farmland still belongs to the family.

Here at this office, we can advise you on how these assets may be protected.

Inheritance and Life Insurance are to be received after your case is filed.

INHERITANCE AFTER YOU FILE: Within 180 days of the time you filed your bankruptcy case; if someone passes away and you will receive life insurance benefits, money or accounts of any kind, an interest in land or buildings, or possessions; then that inheritance is part of your bankruptcy case and it can be used to pay your debts. If this happens you need to notify us immediately so we can determine how this terrible event affects your case.

A common concern among my clients is that they owe the hospital, pathology, labs, or their doctor a bill and they are afraid that they are not going to be able to receive medical service in the future if they discharge those debts. 

When it comes to medical debts, it’s important to keep in mind that there are 2 categories:

The first we call the Provider Debts. The actual hospital bill is in that class. People who provide medical services for you, lab work, radiology, anesthesiology, and other services cannot be denied to you in the future if you discharge those debts. If you show back up at the hospital and have discharged debts to them, they will treat you. You will have your X-rays taken, and your blood will be sent to the lab.

If you owe your personal doctor or your dentist a bill and you discharge that debt, they do not have to continue treating you. Before you do that, if that doctor is important to you, we suggest you go to his office and talk to someone in his office about the fact that you are filing bankruptcy and if that will affect your treatment.

If it will, you can voluntarily pay that debt during or after your bankruptcy case. One of the principles of bankruptcy is that you are allowed to repay any of your past debts. If you wish to continue repaying your doctor in order to continue your treatment, that’s fine. However, if your doctor demands payment on certain terms or schedules, we need to talk about whether or not you should consider keeping that debt.

Whether or not you owe a debt to a medical provider or a doctor is an important consideration and you should not make that decision without contacting us and obtaining a consultation.

IRA’s, 401k’s, Annuities, other Retirement Plans and Pensions

THESE ARE PROTECTED ASSETS – PROTECT THEM

Many of my clients have earned retirement pensions through their employment or other efforts. It could be an IRA, a 401k, a 403b, a “defined benefit” plan, or some other pension plan that you have earned.

Some clients are tempted to use these funds to pay off debts.

We recommend that you do not use or borrow against any 401k or other pension plans to pay debts.

You should almost never use pension funds toward debts. The main reason is that these assets are protected, with very few exceptions. Your pension plan cannot be taken from you by a creditor, in a bankruptcy case.

Most 401k’s and pension plans are too small anyway, and you need them for when you retire. If you take them out now you are seriously damaging your ability to provide for your needs after you retire.

We recommend you consult with us to determine if your pension plan is protected, and what options you have to deal with your debts, including your bankruptcy options.

What is a Secured Creditor?

In any chapter of bankruptcy, you may have a secured creditor. A secured creditor is one that has collateral that backs up (“secures”) your debt. “Collateral” can be your home, your car, or home furnishings. These are secured debts.

I want to keep my car! Even in bankruptcy, secured debts have to be paid if you want to keep the collateral, whether it is your car, home, boat, equipment, or other types of collateral. It is best to be current before you file a bankruptcy and while you are in a bankruptcy case. If you are behind we can make recommendations on how to fix that.

Finance Company Loans. You can keep the collateral and discharge the debt. In many finance company loans, consumers fill out a list of household possessions that secure the debt. In most cases, you can discharge these debts in your bankruptcy and keep the household items. Each case is unique, so this should be determined in consultation with your bankruptcy attorney.

I want to get rid of the car/home! In this case, you “Surrender” the collateral. If you do not want to keep your home or car, possibly because the payment is too high or you owe too much it can be surrendered. Your bankruptcy attorney will advise you as to when to stop making payments, and arrange for the orderly surrender of the collateral. Afterward, you have no further requirement to make payments and cannot be held responsible for the debt.

Surrendering collateral does not mean you immediately have to turn in the car or move from your home. How to surrender is handled in your case should be determined in consultation with your bankruptcy attorney.

What Debts to Include – Student Loans

“Not much good news”

One category of debt we receive numerous questions about is student loans. Unfortunately, under the current bankruptcy law, it is very hard to discharge a student loan. The standard requires you to be under extreme financial distress now and for the foreseeable future. There are additional requirements that make it unrealistic in all but the most extreme case to win a discharge of student debts.

There are programs through the U.S. Department of Education that are of more assistance.

In certain circumstances, you may qualify for a deferral of the requirement to make a payment of the loan for a period of time.

Another kind of assistance is in the payment per month. If you have high student loan payments you can contact the lender and ask for the various repayment plans.

Don’t forget to ask about the Income Contingent Repayment Plan, where the payment is set based on your income, and the amount can be very small if you have a low income.

What Debts are Included?

“All of them!”

In any kind of bankruptcy case, you are going to be required to disclose everything about your financial condition including all of your assets, debts, your income and expenses, and much additional information.

I am frequently asked: “Do I have to list all of my creditors?” Yes, you do.

The law requires you to report all creditors. Listing all of your creditors means you must report your medical bills, mortgage loans, car loans, and all others. Every creditor has to be listed and notified.

Next, what is important is how that particular debt is going to be treated. Whether you keep a debt or discharge the debt is mostly up to you. You can repay creditors, in whole or in part, after a discharge.