“Can I Keep My Stuff?”

“Can I keep my stuff?” is one of the most common questions asked by a bankruptcy client of Bailey & Galyen, and for the overwhelming majority of our clients, the answer is yes … you can keep your stuff after a bankruptcy.

Assuming you have lived in Texas at least two years before the filing of a bankruptcy, you can choose between the Texas and Federal “exemptions” – laws that allow you to protect and keep property through a bankruptcy. The choice of exemptions is an important legal decision that will be based on kind of property you own and its value, and at Bailey & Galyen our job is to maximize your exemptions. Both exemption paths have a few things in common:

• Homesteads are exempt from your ordinary creditors. Mortgages, taxes, and certain other debts remain on your home.
• Most vehicles are exempt from your ordinary creditors, but like houses are subject to valid debts from any vehicle finance company.
• Retirement assets (such as 401ks, IRAs, pensions, teachers’ retirement, etc.) are exempt from your creditors.
• Most if not all of your personal property assets are also exempt from ordinary creditors (unless they have a “purchase money” lien on them like a car loan), such as furniture, clothing, jewelry, tools of the trade, pets, and household goods.

There are important limits on exemptions, and here at Bailey & Galyen our job is to apply the law to your specific situation so you know what your options are. Even if you own property of a kind that is normally not exempt, there may be bankruptcy options available to you that allow you to keep non-exempt property.

On a related note, you can also keep certain debts. Depending on the chapter of bankruptcy selected and your payment status with the creditor, you are generally able to keep debts on necessary property, such as your homestead and vehicle. “Reaffirming” these debts in a chapter 7 bankruptcy allows those debts to survive the bankruptcy so that you can keep the collateral (house or car) and hopefully rebuild your credit by continuing to pay those particular creditors.


Chevy Cruze: Top Selling Car Thanks to Bankruptcy!

Many who read the headline of this article might question the premise of a bankruptcy leading to the hottest selling car in the world. It would be a stretch if this was a fictional story. The amazing thing about this article is that it is absolutely true.

First of all, the Chevy Cruze is one of the hottest selling cars in any domestic car line. There are a lot of reasons. It is apparently a well-built car and it gets great gas mileage. The Cruze has sold over 700,000 units either under that name or the Daewoo or Holden names. The Cruze grew out of a former good seller, the Cobalt. The Cruze sales have tripled those of the best sales year for the Cobalt. The Cruze is overtaking even imports. More importantly for the future of GMC, the vast majority of Cruze buyers are purchasing the first Chevrolet they have ever owned. Not only is it a very popular car, it has better gas mileage than any gasoline powered car including the hybrids. Further, it is loaded with many safety features often found only on the more expensive imports.

How does bankruptcy lead to such a success? Prior to the bankruptcy of GMAC, the company was bogged down with lines of cars which had quit selling many years ago. They did not have the resources to develop new lines of automobiles or the flexibility to re-tool plants because so much of the monthly income was devoted to servicing too much debt. If ¾ of the income is debt service, then there is nothing left for investment by the time a company that size pays payroll and buys current materials.

GMAC filed what many call a pre-packaged bankruptcy. Realistically, it is not all that different than the type many individuals file. All pre-packaged meant is that the outcome of the case was fairly certain. A good consumer bankruptcy practitioner can predict how a case will be resolved. Just as in the GMAC bankruptcy, there are no guarantees but with the expertise of the law firm, results are somewhat predictable.

GMAC stripped off millions of dollars in Debt. They were able to take that freed-up capital and by the tooling and pay the engineers to come up with a radically different design for an automobile. That one car has led them to the profitability which had eluded them for all of these years.

Individuals often have a very similar result. It is not uncommon to have a client who has devoted 30 to 40% of their income to paying past debt. They have had to clean out savings and not buy the things needed to fix up the residence. By filing bankruptcy, the 30 to 40% of the income which was going for debt now can go for those capital improvements.

It is not uncommon for a client to let our firm know that, post bankruptcy, they are able to actually visualize a retirement or send a child to college. Prior to the filing of the case, they really believed they would have to work their entire lives just to get a chance to catch up. In reality, had they continued in the cycle they were in, the credit card debts would not have reduced in their lifetime. Most people are paying the minimums and can only maintain the level they are currently paying. You may be in the same situation, but you will not really know until you meet with a qualified bankruptcy attorney. Come visit with one of our attorneys and see what we may be able to do with your crushing debt.

A Cruel Retirement, Part One: Medical Crises

Retirement is supposed to be a great time of our lives. Everything is paid for, the kids are grown and you are ready to travel. Unfortunately, this image is more ideal than real. The truth is that retirement for many people is difficult. Whether this fact impacts you or an elderly loved one, it is important to understand that the dynamics of filing for bankruptcy are very different when we are older.

A recent article in a London publication documented that there has been a dramatic shift in England of the number of elderly people who have financial troubles. Bankruptcy attorneys are seeing a similar shift in the United States and, particularly, in Texas. There are so many causes of this problem that it is hard to focus on any one reason.

Part of the problem is health care. We tend to have more health problems in our later years. While insurance sometimes pays a majority of these costs, even the deductible can be devastating to someone on a fixed income. I have found that many people really do not have a feel for how difficult it is to live on a fixed income. Yet, those same people often live check to check themselves. Imagine living on an income that does not adjust for rapid inflation. Even gasoline costs have increased. And medical creditors are among the most vicious creditors of all. They do not take “no” for an answer. The days when you could pay just $10 a month to a medical creditor are gone. Hospitals often turn people over to a collection agency soon after their hospital visit, and the phone calls begin immediately. Elderly people are often not able to withstand the intense pressure of collection professionals, who will ask questions such as, “don’t you believe in paying your bills?”

People in their later years are very proud. They have worked all of their lives, paid all of their bills and done quite well for themselves. Suddenly, they are faced not only with little income but with little or no prospects for generating enough income to be able to dig themselves out of a hole. When a bill collector begins the harassment, it is not simply an annoyance for most people in their mature years. People who have always been able to write a check and make that payment suddenly have their honor and their worth challenged.

Even if an elderly person can get past the simple embarrassment and emotional end of being harassed by a medical bill collector, a real fear is that more such creditors may be on the way. The sad truth is that when both spouses are suffering from health issues, there is no escape. The fear that you may not be able to get treatment for your spouse if you do not pay current medical bill is one most of us can relate to. We would do anything for our loved ones. Don’t forget, bill collectors know this and use it extensively when dealing with those who have medical debt. Such collectors often suggest helpful hints for paying the medical debt — all you have to do is pull out that credit card that has had a zero balance for years and pay the bill. When you do that, the calls will stop, the bill is gone and you can feel good about yourself again. An instant solution. Unfortunately, far too many people succumb to that suggestion.

If you or a loved one is facing a medical debt situation, consider talking to a bankruptcy attorney PRIOR to depleting the resources that may be needed to sustain your years of retirement. The consultation is free and there may be other options. However, until you sit down with an experienced attorney, you will not know if bankruptcy can help.

Vehicles in Bankruptcy

We all love our cars and, more importantly, we need our cars. A common question for those considering bankruptcy is can I keep my car, and if I have a payment, how do I pay for it?

The answer depends on several factors.

In a Chapter 7 liquidation case, cars used for personal and household purposes are exempt from the claims of creditors — you can keep them. This exemption is usually limited to one vehicle per driving-age member of the household. Keeping the vehicle is subject to any valid financing agreements, however — there are no free cars in bankruptcy! If you choose to keep the vehicle and have a car note, you can reaffirm (retain) the debt and it will survive the bankruptcy, and you will be bound to the original terms of the note.

In a Chapter 13 case, cars are also exempt as in Chapter 7. However, a Chapter 13 payment plan can be used to pay the car note under different terms than under the original contract. If you have owned a vehicle for 910 days (two and a half years), then you can pay the value of the vehicle through your bankruptcy rather than the amount of the debt. Due to the depreciation of cars, this can be a substantial savings. In most cases we can also alter the interest rate paid to the creditor, another source of savings. Lastly, the payment itself can be stretched over a 60-month term. You can see how in Chapter 13, we can essentially “refinance” the car note to reduce your payment — and at the end of the case, you get clear title to the vehicle!

It should be pointed out that, in either type of bankruptcy, if you would like to be free from your car note, you can surrender the vehicle to the creditor and discharge (eliminate) the debt.

Lastly, note that motorcycles “count” as vehicles in all respects. If you have two driving-age members in your household and own two cars and a motorcycle, the motorcycle would typically not be an exempt asset and the creditors would be entitled to the net value of the motorcycle.

As in all legal matters, it is important that you get legal advice specific to your situation. Give us a call at your convenience to set up a free appointment to discuss your legal situation.

A Cruel Retirement Part Two – Non-Fixed Expenses on a Fixed Income

In the first part of this article, we explored how medical debt can be a very crippling economic reality. Of course, retirement is supposed to be a great time in our lives. That is the reality for some people, but how circumstances hit your life can really shatter the plans you have for retirement.

Many of us wake up to find out that the plan we thought we had was not successful. We may have planned to go to school, get a job, get married, raise a family, play with the grandchildren, retire and possibly travel. What we did not expect were the emergencies in our life.

Either we or a family member may have experienced a divorce. Sometimes that reduction of income, if it happens to us, requires a longer work life than we had ever anticipated. Instead of putting all of our disposable income away in a retirement fund, we had to raise a family by ourselves. Repairs to the house had to be put on a credit card to allow us to put food on the table.

Another scenario we see in our office is the one in which the grown child moves back home. Either they have gotten divorced or have lost what used to be a solid job. Suddenly the grandparents are thrust back into the role of supporting the whole family. Sometimes, there is an unplanned pregnancy and we have a whole family back home just as we were planning to start relaxing.

Before too long, we are past the point where we can realistically continue to work. We have absorbed most of the expenses that could be anticipated and had to put the rest on credit cards. At first, it is fairly easy to make it financially. However, as gasoline costs continue to rise, so do food and other commodities. The Social Security check and/or retirement check simply cannot keep up. Each month, it is harder and harder to absorb the difference.

For many in this age group, there is a sense of shame because we think our parents never got into this situation. Realistically they probably did, but the current generation is far more open to discussions about finances than was the last. After a while, the check will not reach until the end of the month. When that decision is made to stop paying the credit cards, the phone calls begin.

Unlike younger people who can escape to work every day, the retired person has to sit at home and hear that phone ring and ring. Each ring brings a new sense of dread. We have been taught to try to work out our problems, so the retired person finally answers the telephone to see if something can be worked out. The abuse has started. The telephone collector is trained to make the person on the other end of the line feel as though they are worthless. Any good collector knows that all you have to do is get the person to shed tears and they will often start drafting a payment.

It all sounds hopeless, but be assured it is not. Bankruptcy can have a tremendous and positive impact on a retired person’s finances. More importantly, it can have tremendous health benefits. Doctors tell us more and more that stress will ultimately have a negative impact on our lives. When you are elderly, the stress manifests itself even more as a health issue. Many people tell bankruptcy attorneys that they cannot sleep anymore and that is why they must file for bankruptcy. Most people are afraid they will lose something in bankruptcy. In most cases, nothing is lost. A well-trained bankruptcy attorney will let you know, prior to filing, if there is any chance of loss of property. In most cases, all that is lost is debt.

If you or a loved one is facing an overwhelming financial debt situation, consider talking to a bankruptcy attorney PRIOR to depleting the resources that may be needed to sustain the years of retirement. The consultation is free and there may be other options. However, until you sit down with an experienced attorney, you will not know if bankruptcy can help. At least talk to us.

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