What is a Preference in Bankruptcy?

Preference in a bankruptcy means that you are showing favoritism to one creditor over the others.  In other words, you treat one creditor better than another. For an example, let’s say that you received a bonus check of $1000 on top of your regular pay. You have a large number of creditors and you owe them all a considerable amount of money. However, you do have a charge card to your favorite department store and you choose to take your bonus check to pay off the $1000 balance on that account since you really like that card and want to be able to continue using it. Well, the court has a bit of a problem with that!

Dad & Son

The court views this as “preferential treatment” and views it as you should have evenly spread out that $1000 by paying a little bit to each creditor instead of giving the entire $1000 to one specific creditor. Upon your bankruptcy filing, the bankruptcy Trustee will then contact that creditor (in this example is your favorite department store) and make them return the money to him so that he can divide it out equally among ALL of your creditors.

When you meet with your attorney prior to your bankruptcy filing, you need to discuss which creditors/debts you have been paying and the amounts that you have paid. You will also want to have an idea or timeframe as to when you will be filing your bankruptcy, so your attorney can advise you whether or not to pay any creditors and how much you should pay if you choose to pay them.

A normal credit card or medical bill can be deemed as preferential treatment but do not confuse this with your secured debts such as a home loan or car loan. If you are filing a Chapter 7 and plan on keeping your house and/or car, these loans MUST be current at the time you file your bankruptcy and kept current during your time in bankruptcy in order for you to keep them without any problems arising. Making payments to secured creditors above everyone else is not viewed as a preference.

Another important thing to keep in mind is that preferential payments to “insiders” – family members or friends – are also viewed as problematic. There can be consequences to paying family members or friends prior to your bankruptcy filing, so if you have done so or are considering do so and are also considering bankruptcy, you should talk to a bankruptcy attorney immediately. Depending on the circumstances, the bankruptcy Trustee may require the friend or family member you paid the money to to return that money to the Trustee so he can distribute it to your creditors. Therefore, it is very important to discuss this situation with your attorney prior to your bankruptcy filing.

If you are considering paying a debt prior to your bankruptcy filing, contact your bankruptcy attorney first to ensure that you are not going to cause problems later on in your case.

How Do I Apply For Food Stamps?

Family

Food stamps are a wonderful benefit for those who qualify.  If there are times when you are finding yourself in the predicament of deciding whether to pay the energy bill or buy groceries for the week, you should take the time to research the eligibility requirements for food stamps.  If you are in North Carolina, check out the NC food stamps website for information on how to apply for food stamps. Visit this pageto find out where the Department of Social Services (“DSS”) office is located in your county.

The most difficult part of applying for food stamps is finding the time.  If you can go to the website, print out the necessary forms, and fill them out beforehand, that is half the battle.  You will need certain documents to verify the information you have listed on the application.  These are the basic documents you will need – but verify with your local Department of Social Services to ensure you have gathered all of the documents they require:

Drivers license and social security card (or some other official document with your name and social security number on it).

Your last two months of paychecks.  If your check is usually the same, sometimes just one month will be accepted, but try to provide at least two.

Proof of your daycare/after school care expenses.

Proof of utility bills in your name.

You can make the process easier on yourself by keeping your documents organized. As you fill out your application, make note of the sections and what documentation may be required for your personal answers.

Next, you must go to the DSS office.  Unfortunately, there is no “good” time to go stand in line.  Regardless of the day of the week or time of day, you will be waiting in line and it will be crowded. If you have kids, you may want to try to find a babysitter or bring a book to keep them occupied if you have to bring them with you. Please be patient while you are there; remember the specialists are there to help and can only work so fast! They are excellent in answering questions of all types or at least giving you a number to the department you should be contacting.

After this line, you will then move to a different area (with chairs this time) to wait for your assigned case worker to call your name for an interview.  This interview is not bad and they are just going over your application, so no need to be nervous!  As a side note, if you are interested in any other services such as WIC, Medicaid, help with child support, housing, or daycare, your case worker usually can steer you in the right direction.

Food stamps are now issued as an EBT card, which works exactly as a debit card.  It makes paying fast and easy.  And the icing on the cake is that most grocery stores have an option for EBT/Food stamps, for those who need the help but are a little embarrassed.

Will Automatic Drafts With My Bank Stop After I File Bankruptcy?

Paying Bills With A CheckWith the ever improving online banking that is available through most banks, it is possible to pay almost all of your bills without ever stepping foot outside of your home.  There is no doubt filing bankruptcy can impact every situation of everyday life, but what about paying your bills?  What happens if you have everything automatically drafted out of your account each month?  Will that continue?

It depends. If your home mortgage or car payment is automatically drafted prior to your bankruptcy filing, then during the duration of the bankruptcy the mortgage company or vehicle creditor will likely stop automatic drafts and require you to manually pay your bill, or will only accept a mailed-in payment.  When you file bankruptcy there is an “automatic stay” that goes into effect which states that your creditors cannot contact you for a payment.  Many lien holders (such as your mortgage company or vehicle creditor) would rather play it “safe than sorry” and will code your account as being in active bankruptcy and will not automatically draft payments. In some cases, the creditor will not even send monthly statements.  If you wish to continue receiving monthly statements, contact the creditor to let them know. They may require you to send in written permission from your bankruptcy attorney, which is common practice with creditors.

If you have your utilities automatically drafted from your bank account, then they will likely continue.  If your automatic drafts are for credit cards and other debts, once you file the bankruptcy they should automatically stop since the debt is included in the bankruptcy. Those creditors should not be receiving payments at all – whether automatic draft or otherwise – due to the automatic stay.

Therefore, after you sign your petition and your bankruptcy is filed, it is imperative to make your monthly payments on your secured debts.  If your payment is normally automatically drafted, do not think something is wrong in the transaction and sit and wait for it to happen.  Go ahead and contact your creditor to find out the best way to make the payment (whether they will accept the payment over the phone or if you will have to mail in your payment).  Discuss any confusion you may have with your attorney.  Your bankruptcy is one step towards obtaining your financial freedom; you do not want to file bankruptcy and then become behind on your vehicle or mortgage due to the fact that they no longer just took their payment like they were before your bankruptcy filing.

If I Choose To Voluntarily Turn In My Car, What Should I Do?

If you are behind on car payments or decide you will not be able to make the payments in the future, you can decide to voluntarily turn in your vehicle. We encourage our clients not to voluntary turn in their vehicle prior to filing bankruptcy, but we will discuss that in more detail below.

Couple

What if you do choose to voluntarily surrender your vehicle? How should you go about doing that? If you are going to voluntarily turn in your car you will need to call the finance company and set up a time where you can bring the vehicle to them. It is critical you get a business card or use some kind of identifying method to show who you left the vehicle with. You do not want to just drop it off and walk away without knowing exactly whom you turned the vehicle in to. In the past we have heard of dealerships not reporting the vehicle as turned in to the finance company. This means you would still owe on the car. Sometimes people will choose to voluntarily turn in the vehicle instead of having the finance company come to their home or place of work and repossess it. By doing so they can avoid the feeling of not knowing when their car will be picked up. It is on their terms instead of the lenders.

Once you turn the vehicle in to them, the creditor will then sell the vehicle. You will receive a statement from the finance company after the vehicle is sold. You will still be responsible for the difference between the amount you still owe for the vehicle and what the sales price is. That debt does not automatically go away just because you do not have the vehicle anymore. The amount you owe is called the deficiency balance and this is a debt that can be included in a bankruptcy filing. This occurs whether the vehicle is voluntarily surrendered or repossessed.

However, it is important to know voluntarily turning in a vehicle prior to bankruptcy filing will still go on your credit report as a repossession. This means you will still have a negative mark on your credit report and do not forget you will still owe the deficiency balance even if you voluntarily surrender the vehicle and do not file bankruptcy. We typically encourage our clients to surrender their vehicle within the bankruptcy instead of the voluntary surrender prior to bankruptcy. If you surrender the vehicle within your bankruptcy a repossession does not appear on your credit, and you can still eliminate the remaining debt within your bankruptcy. If you are planning to file bankruptcy and have already voluntarily surrendered your vehicle, be sure you discuss the voluntary surrender with your attorney so the deficiency balance can be properly taken care of.

How Do I Know If I Have A Tax Lien?

April 15 Tax CalendarDo you owe income taxes to the Internal Revenue Service (IRS) or State of North Carolina (NCDOR)?  If so, you may find that you have an income tax lien filed against you.  There are two ways to confirm whether a tax lien has been “perfected” or filed with the Clerk of Court in the county you claim as your residence.

First, you can go to the Clerk of Court’s office in the county you live.  The Clerk’s office is most likely located inside the county courthouse.   Ask to speak to someone in the civil filing department within the Clerk of Court’s office.  Explain to the clerk at the desk or window that you need to determine if you have a tax lien filed against you.  The Clerk of Court’s staff is usually extremely helpful and will assist you with your research to determine if a tax lien has been filed against you.  If you determine there is a lien filed against you, we recommend you obtain a copy of the lien paperwork, since it will specify which tax years are included in the lien.  In many cases you may owe taxes for several years’ but only select years are included in the tax lien.  It is highly recommended that you bring cash with you to the Clerk of Court’s office, since they may not accept a check, credit card or debit card to pay for copies of the tax lien paperwork.

The other option for determining if you have a tax lien filed against you is to contact the IRS or NCDOR and inquire if they have a tax lien against you.  If they do have a lien filed against you, ask that they provide you with a copy of the paperwork.  The copy may be provided to you free of charge or there may be a nominal fee, but it may take several days to obtain a copy of the lien through the U.S. Postal Service.

A perfected tax lien, one filed with the Clerk of Court within the county you live, attaches to both your real and personal property.  In other words, the tax lien will attach to your home, cars, bank accounts, etc.  As a result, it is extremely important to determine if you have a tax lien prior to filing bankruptcy.  The amount of taxes you owe to the IRS or NCDOR, and the existence of a tax lien, will impact the type of bankruptcy that is best suited for your needs and it will directly impact your monthly payments in a Chapter 13 bankruptcy.  Checking for a tax lien is time well spent, especially if it saves you money in your bankruptcy!

Upside Down or Under Water on Your Home? Bankruptcy May Help!

With the decline in the housing market many people find they are “upside down” or “under water” on their home.  In other words, do you owe more for the house than what it is worth?  If that is your situation and you have two or more mortgages, you may find that Chapter 13 bankruptcy is an option you have never considered.

Young Family in Front of House

Let’s look at an example where Chapter 13 bankruptcy may help you:

You have a home with a fair market value of $150,000.  Three years ago the house was worth $200,000.

You have a first mortgage on the home for $160,000 and a second mortgage or HELOC for $40,000.  In other words, you owe more on the first mortgage than the house is worth.

You can easily make the first mortgage but the second mortgage is more than you can afford.

You know it will be several years before the house is valued at $200,000 again.

As a result, you are stuck making two or more mortgage payments on the home and it isn’t worth it.

You are contemplating a short-sale which leaves you without a home and a “ding” on your credit or you are considering walking away from the home and letting the mortgage company foreclose.

If this is your situation, you should consider a Chapter 13 bankruptcy.  With the Chapter 13 bankruptcy, you may be able to “strip” or eliminate the second lien/mortgage.  Within the bankruptcy, you are able to eliminate the lien on the house as long as you complete the Chapter 13 bankruptcy within the three to five years required by the bankruptcy laws.  The number of years you must be in the bankruptcy will depend on your specific situation.  Let’s use the example above to see how it might work for you.

Your first mortgage is $1,100 per month.

You have $10,000 in credit card debt, a $2,000 personal loan and $750 in medical bills.

You owe $40,000 on the second mortgage that may be eliminated in your Chapter 13 bankruptcy.

You meet with the bankruptcy attorney and determine that you qualify for a Chapter 13 bankruptcy and it appears you are eligible to strip the second lien in the bankruptcy.

Your Chapter 13 plan payments are estimated at $1,300 – $1,500 including your first mortgage and other debts including the second mortgage.

Once the bankruptcy is filed, your attorney will file a lawsuit or adversary proceeding against the mortgage company or they may be able to simply file a motion to strip the lien.  Each bankruptcy court has their own requirements, so you should speak with your bankruptcy attorney to determine what must be completed in your case.

Once this process (either adversary proceeding or motion) is completed, the bankruptcy court will issue a judgment or order that voids the second lien on the house as long as you complete and receive a discharge in your Chapter 13 bankruptcy.

Once the bankruptcy is discharged and completed, three to five years after you file, you will resume payments on your first mortgage but the second mortgage and the other debts listed in your bankruptcy are eliminated and you will not be responsible for making payments on these debts in the future.

As a result, if you decide to sell your house in the future, you will only be required to pay off the first mortgage.  The second mortgage is no longer a factor.

This is obviously a simplified approach, so you should seek the advice of a bankruptcy attorney to see if stripping your second or third mortgage or HELOC is an option for you.  You are thinking this must be too good to be true otherwise someone would have mentioned this to you before!  It really is fairly simple.  This is just one way a Chapter 13 bankruptcy may assist you in keeping your home when you are upside down or under water.

Can a Creditor Call Me At My Job?

Open Laptop - KeyboardHave you ever had a creditor or debt collector call you at work?  After the shock of the call wears off, you wonder “can they do that, is that legal?”  The answer of whether it is legal in North Carolina depends on your specific situation.

North Carolina General Statutes, Article 2, Section 75-52 outlines what is considered harassment by a debt collector.   Subsection 4 specifically addresses phone calls made by debt collectors to an individual’s place of work.  There are two key component to this subsection that help determine whether calling you at work is considered legal under the North Carolina Statutes.

Did you provide your work telephone number to the creditor or debt collector at any point in time thus telling them it is okay to contact you at work?

Does the creditor or debt collector have another telephone number to contact you at during non-working hours?

If you provided the debt collector your work telephone number, you may have unintentionally given them permission to contact you at work.  As a result, you want to correct that problem by telling the creditor or debt collector that the work telephone number is no longer a good number to reach you, and you are requesting they no longer contact you at that telephone number.  In addition, you will need to provide another telephone number they can contact you at during non-working hours.  If you do not provide the creditor or debt collector with another valid telephone number where they can contact you, they may continue to contact you at work even if you have asked them to stop calling you there.  Why, because the work number is the only telephone number they have to contact you.

You can easily stop creditors or debt collectors from contacting you at work,  however, you must provide them with an alternative number you can be reached during non-working hours.

If I Become Depressed Due To An Incident on the Job Can I Collect Workers’ Compensation Benefits?

Research on a White LaptopDepression caused by an accident or incident on the job is usually compensable.  However, there must be a medical doctor or a licensed psychologist opinion that the depression was caused by the incident or accident.  You cannot claim you feel depressed without a professional opinion substantiating the claim of clinical depression.

For example, a new healthcare worker was asked to assist rescue workers with the recovery of bodies of a major airplane crash.  Several children on the plane were killed and their bodies were badly damaged. The healthcare worker had children the same age as some of the plane crash victims.  The healthcare worker was severely depressed after the incident and needed psychological counseling.  This type of treatment is usually compensable.

If an employee was injured on the job and lost an arm, this, too, would cause depression for most persons.  The counseling needed by this person is usually compensable as part of their medical expenses.

Again the key factors are the depression must be work related and there must be a professional clinical diagnosis of depression. This depression must be related to and caused by the employment of the person (employee).

If you think you may be suffering from depression from an incident that occurred while you were working, you should speak first with a health care professional. After you have received proper care, you should then speak with a workers’ compensation attorney to determine if the depression may be compensable under workers’ compensation laws.