RAM Law

Bankruptcy & Managing Your Money

In today’s economic environment, many people, whether they make $15,000 or $115,000 per year, feel as if they aren’t paid enough, because they’re always playing catch-up with their bills. You know your paycheck doesn’t stretch far enough. This recognition can leave you feeling anxious and stressed, especially if you are a single parent raising children or an older person with elderly parents or an aging spouse to worry about. Even when you do have enough money in better times, there are temptations everywhere, usually in the form of items available in the catalogs that inundate our homes. Consequently, people spend their entire paychecks on necessities or splurge items, and don’t save. People also use “plastic” in a profligate way, incurring large charges and account arrearages on their easily available credit cards. Sound Familiar?

If you face or someone in your family or circle of friends faces such a problem, there is help available. Financial planning now can help avoid serious difficulties, even law suits, later.

DEFINITE GOALS IN MIND
Have a definite goal in mind for which you want to save money, such as graduate school education for your child, a new car, new coat, a new appliance. Write down a short-term goal and some longer-term goals. Make the goals as tangible as possible and make them something that motivates you. Ask yourself realistic questions about your goals, such as , if it is a new car, not only the price of the down-payment and monthly payments, but also the cost of insurance. Then break those total costs down into monthly and weekly amounts so you have a specific weekly amount to save. For example, if you need to save $4,000 in a year, that breaks down to $153.85 per pay period, or $76.92 a week.

ANALYZE YOUR SPENDING HABITS
See if you can eliminate small luxuries, such as eating out. Substitute home cooking or brown bag lunches instead. Instead of buying coffee and a snack out, you bring a thermos from home or drink the office coffee and bring a homemade snack, you could save as much as $2.00 a day. If you work 50 weeks a year, that works out to about $500 a year. If you invest that $500, even in a low interest savings account, you’ll be richer at the end of five years. In other words, do what your supervisor does at budget cut time — look for “fat” and try to trim it, in the interests of your economic health.

KNOW WHAT TEMPTS YOU
Everyone has something they can’t resist — shoes, jewelry or clothing. Others prefer computer “toys,” more software or accessories. Knowing your soft spots can help you limit your acquisitions. Develop a specific plan for what you will acquire in the tempting area, and when you will acquire it. Set a limit. Do not attempt to eliminate the tempting items from your budget completely — that would be unrealistic.

CUT COSTS
Consider ways to cut major costs. Drive your car longer, try to increase deductibles on insurances if you can handle this, buy a good used car instead of a new one, shop for bargains, analyze if you can afford your house or rent ( should be about 25% to 30% of your gross income), and if your housing costs are too high, move to cheaper digs.

CREDIT CARDS
Pay off your credit cards and stop using them if you can. The interest cost of consumer credit can run as high as 30%, and averages 17% – 18% on unpaid balances. If you need plastic, look for the lowest rate card and transfer your present outstanding balances to the lower rate card if possible. Also, negotiate with the credit card company for a lower interest rate; remember, everything is negotiable and if you don’t try, you won’t get it.

SALARY SAVINGS
Try to enroll in an automatic salary deduction savings plan, either at work or through your bank.

PRACTICAL RESULTS
All these measures should help reduce your financial pressures. However, if your creditors continue to pressure you and you feel swamped, you can try to negotiate a settlement with them to avoid a lawsuit. Many people hire an attorney to help them negotiate with creditors. Often creditors will accept a plan of repayment of some of the debt, or arrange for arrearages to be “tacked on” to the end of a payment plan rather than have to sue you. Loan consolidation, refinancing, or lower interest and interest-deductible home equity loans are also possible alternatives to consider.

Remember, in New Jersey, most pension funds and IRA’s are protected from your creditors so it is usually not wise to remove money from or borrow money against your retirement funds, since creditors generally can’t reach them in any case.

WHAT IF ALL ELSE FAILS?
What if your creditors won’t give you a break, and you just get too far behind? You might want to consider bankruptcy.

BANKRUPTCY
It is your right to request protection in the federal bankruptcy court from the onslaught of your creditors and to get a fresh start in life. Most individuals consider filing for either a Chapter 7 or Chapter 13 bankruptcy.

CHAPTER 7 BANKRUPTCY
A Chapter 7 bankruptcy enables a debtor to be released from paying his or her debts by filing a petition with the federal bankruptcy court and turning over all nonexempt property to a trustee. The Trustee is an officer of the court appointed to gather the nonexempt property, turn it into cash by selling it, usually at auction or by private sale, and to pay this money to creditors. If all the debtor’s assets are exempt, however, a trustee will be appointed but will not collect any property.

One common misconception should be set aside: it is not legally necessary that debts be greater than assets or income in order to file a bankruptcy petition, although if debts do exceed assets, it’s probably wise to do so.

As a rule of thumb, one’s dischargeable debts should exceed one’s ability to handle monthly payments and also pay ordinary living expenses before it is wise to go bankrupt, but this is not a law. When the debtor is married, both spouses should file when some of the debts are owed jointly by both. If both owe debt and only one files for bankruptcy, creditors will try to force or harass the other spouse into paying the debts, even if that other spouse in unemployed.

A primary reason for filing for bankruptcy is that the mere filing of a petition with the court will automatically stop all collection proceedings against you, including dunning letters and law suits. A few days after bankruptcy papers are filed the court will mail a notice to all creditors that you list ordering them to stop all actions against you. Criminal proceedings, however, are not affected by bankruptcy.

If a discharge in bankruptcy is granted all your debts will be erased, with certain exceptions as discussed later in this article.

If your debt is largely consumer debt, (such as credit cards), it will be discharged unless the creditor can establish to the court’s satisfaction that credit, goods or services were obtained fraudulently.

CHAPTER 13 BANKRUPTCY
In the Chapter 13 case, a debtor with a regular stream of income (this can be disability or social security income; it need not be income from employment) keeps all assets, and submits a plan for the repayment of all or a portion of debts owed to the court. The automatic stay on collection proceedings still is in effect. The debtor submits a budget to the federal bankruptcy court outlining the debtor’s living expenses, and the debtor offers to pay any additional monthly income in excess of the living expenses to the creditors, through the trustee. The debtor pays this monthly sum to the Chapter 13 trustee over a period of 36 to 60 months. The trustee disburses the payments in the proportions specified in the debtor’s plan.

At the end of the period of the plan, the balance remaining of all the debtor’s unsecured debt will be discharged. Chapter 13 is usually preferable for a debtor with a significant asset to protect, usually a home. A person who has regular income and unsecured debts of less than $250,000 and secured debts of less than $750,000 is eligible to file under Chapter 13.

An important distinction in all bankruptcies is the difference between secured and unsecured debt. Secured debts are those for which you have pledged collateral against the loan, and the lender retains the right to repossess the collateral if you default on the payments agreed to. The classic example of secured debt is your home mortgage. In a Chapter 13, your secured creditors have to be paid in full if you wish to keep the collateral. Usually this is your home, but often it is your car, or an important piece of equipment, such as a home appliance or a computer system.

Certain debts cannot be discharged in bankruptcy, and include but are not limited to:

Debts not provided for in the Chapter 13 plan; · income taxes due within the last three years or assessed because of fraud; · fraud or the filing of a false financial statement in a Chapter 7; and debts for child support, alimony or maintenance, and certain equitable distribution obligations.

Please call RAM Law today if you would like to learn more about your rights under the law.