Often times, debtors looking to file bankruptcy not only have the usual debts such as credit cards, medical bills and broken leases etc., but they may also be stuck with unwanted timeshare maintenance fees.  This brings up questions of whether time shares contracts can be surrendered in either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy and whether past and future time share maintenance fees can be discharged in bankruptcy.

If you no longer wish to keep your time share you can surrender it in the bankruptcy.  This will allow you to avoid your contract obligation for the timeshare and will also allow you to get rid of all timeshare fees due prior to the bankruptcy filing.

However, the bankruptcy code allows the timeshare cooperative to continue to collect timeshare maintenance fees from you even after the bankruptcy is filed until your timeshare is purchased by another owner.  Section 523(a)(16) states that a debtor cannot discharge “a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor’s interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot…”.

If you are the owner of an unwanted timeshare then your best option is to donate it or give it away simultaneously with filing the bankruptcy.  Once the timeshare is taken over by another owner, you can avoid any future maintenance fees.

There may be exceptions to your liability on the future maintenance fees.  You should always consult with a competent bankruptcy attorney when dealing with these issues so that you know what liability you may have after filing.

Ask any Indianapolis Bankruptcy Attorney what happens to outstanding home owner fees after bankruptcy, and they'll tell you it depends on whether a debtor is filing a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy, and whether the home owner fees have been recorded at the Recorder’s Office in the County where the home is located.

Outstanding home owner fees should be included in the repayment plan of a Chapter 13 Bankruptcy.  For instance, if a debtor owes $450 in past due home owner fees, the debt can be paid by the Bankruptcy Trustee throughout the life of the bankruptcy using the monthly payments made by the debtor.  While the past due amounts may be paid by the Trustee, all new home owner fees incurred by the debtor after the bankruptcy is filed will be paid directly by the debtor just as they would had they not filed bankruptcy.

Home owner fees owed by a Chapter 7 debtor who wishes to keep their home may be dischargeable in the bankruptcy if the debt was incurred prior to the filing of the bankruptcy and if the debt has not been recorded in the recorder’s office in the county where the debtor’s home is located.  However, if the debt has been recorded, then a lien will remain on the home for the amount of the home owner fees owed even after the debtor receives their discharge and their bankruptcy has been closed.

Home owner fees owed by a Chapter 7 debtor who surrenders their home are also discharged, if the debt was incurred prior to the filing of the bankruptcy and the debt has not been recorded in the recorder’s office.  However, even though the debtor surrenders their home in the bankruptcy and is no longer liable for any mortgage debt on their home, they may still be liable for any future home owner association fees until the home is sold and placed in another’s name.  In some instances, the amount paid by the new buyer may be enough to satisfy the outstanding home owner fee lien against the home, so that the debtor is relieved of the obligation to pay the fees. In other cases, the home owner association may pursue debt collection actions against the debtor after their bankruptcy has closed.

Kainrath Law Firm has occasionally filed bankruptcies for debtors who are represented by another person through a power of attorney.  Typically these situations occur when a husband or wife has power of attorney over their incapacitated spouse, a son or daughter has power of attorney over an incapacitated parent or a parent has power of attorney over their incapacitated child.

Often questions arise as to whether an incapacitated person would need to file bankruptcy. It may be true that if the person has no income there is nothing for a creditor to garnish.  However, other factors to consider are whether the incapacitated person has non-exempt assets that a creditor could seize or put a lien against, such as a house, bank accounts, automobile or other personal property.  In matters where a husband or wife has power of attorney over their spouse their debts are sometimes jointly held.  This means that if only one spouse files bankruptcy then the creditor can still go after the incapacitated spouse for collection of debt. 

Even if the incapacitated person is judgment proof, meaning that they have no income to garnish and no non-exempt assets to seize or put a lien against, they or their family members may still be subject to never-ending harassing phone calls from debt collectors.  In this type of situation, a bankruptcy lawyer may offer alternative options to stop creditor harassment with the possibility of avoiding filing for bankruptcy altogether.

For additional information on this topic, contact Indianapolis bankruptcy attorney Scott A. Kainrath for a free bankruptcy consultation.

If you are considering bankruptcy, you may wonder if you fit the description of the common bankruptcy filer.

According to The Fragile Middle Class: Americans in Debt by Elizabeth Warren, Harvard Law School and Smith Business Solutions:

• Couples filing jointly make-up 44% of all bankruptcy filings
• 30% are women filing bankruptcy alone
• 26% of the bankruptcy filers are men who are filing alone
• The average age of a bankruptcy filer is 38
• Another statistic says the most bankruptcy filers are slightly more educated than the general population
• Two out of three bankruptcy filers have lost a job
• Half of all bankruptcy filers have experienced a serious health problem
• 91% of bankruptcy filers have suffered a job loss, medical event or divorce
• The states that have the highest bankruptcy rates are Tennessee, Utah, Georgia, and Alabama

The US Government provides additional statistics on bankruptcy filers including the mean scheduled debt of both Chapter 7 bankruptcy and Chapter 13 bankruptcy filers per state which can be found at this web site.

It’s ok if you do not fit the description of a common bankruptcy filer.  As an Indianapolis Bankruptcy Attorney, I have seen debtors of all ages, from eighteen to over seventy, seeking advice on how to address financial issues.  The important thing to remember is that you are not alone.  Although the number of Indiana bankruptcies has decreased from 2010 to 2011, there were still over 30,000 bankruptcies filed in this State alone with the majority of those occurring in the southern district of the State.

According to a recent Indianapolis Business Journal article, the number of Chapter 7 bankruptcy and Chapter 13 bankruptcy filings has decreased for the fiscal year ending September 30, 2011, from the 2010 fiscal year.  However, new bankruptcy filings in the Southern District of Indiana, which includes Indianapolis bankruptcies, still totaled 24,727 for the fiscal year.

Indiana is currently ranked sixth in the nation, down from fourth, for the number of Chapter 7 bankruptcy filings and ranks eleventh, down from tenth, in the nation for the number of Chapter 13 bankruptcy filings.

The decrease in new filings can be partially attributed to the willingness of creditors to delay lawsuit collection activities against debtors because the difficulty trying to collect judgments from unemployed debtors.  Creditors are more reluctant to spend money pursuing lawsuits if they aren’t going to be able to recover.  Indiana is following the national trend where overall bankruptcies are down eight percent from the previous fiscal year.

As a dedicated Indianapolis bankruptcy lawyer, attorney Scott Kainrath, personally reviews every potential bankruptcy in great detail to make a determination if filing bankruptcy is the best option.  The timing of bankruptcy filing can potentially save a debtor hundreds, or even thousands, of dollars.   In many cases bankruptcy is not the best option.  At Kainrath Law Firm, P.C., we also assist debtors with debt settlement.  Many times we are able to negotiate debts down to a fraction of their original amount, allowing bankruptcy to avoided altogether.

If you are unsure as to whether filing bankruptcy is right for your particular situation, talk to a competent bankruptcy lawyer to personally review your individual case.

Beginning November 1, 2011, filing an Indiana bankruptcy will become more expensive.  The Judicial Conference has increased the fees for filing both a Chapter 7 bankruptcy and Chapter 13 bankruptcy as well as increasing fees for a variety of other bankruptcy related filings.  A complete list of fee changes can be found at the United States Bankruptcy Court Southern District of Indiana’s web site.   Consult with an Indianapolis bankruptcy attorney to see how the change in fees could affect your bankruptcy filing.

More importantly, November 1, 2011, also brings changes to the Means Test calculations.  Kainrath Law Firm, P.C. previously posted a blog on October 9, 2011, on the topic of Bankruptcy Qualification and Means Test.  To summarize, the Means Test is used to determine whether a debtor qualifies for a Chapter 7 bankruptcy or to determine whether a debtors Chapter 13 bankruptcy will be a 3 or 5 year payment plan.  Whereas prior to November 1, 2011, a single debtor with no dependents wanting to file a Chapter 7 bankruptcy needed to have a gross income that averaged $3,345 or less per month over the last 6 months which comes out to an annualized $40,135 per year.  A two person household needed to average $4,259 or less per month over the last 6 months or $51,104 per year.  A household of 3 needed to average $4,919 or less per month or $59,028 per year and a household of 4 needed to average$5,769 or less per month or $69,226 per year.  Every additional person in the household allowed for an increase of $625 per month or $7,500 per year.

The new numbers for those filing bankruptcy after November 1, 2011, are for a single person household $3,332 or less per month or $39,987 annualized per year.  For a two person household $4,139 or less per month or $49,669 per year. A household of three needs to average $4,808 or less per month or $57,696 per year and a four person household needs to average $5,608 or less per month or $67,296 per year.  Each additional household member still allows for an increase of $625 per month or $7,500 per year.

What this means is that it is now more difficult to qualify for a Chapter 7 bankruptcy or to be in a 3 year Chapter 13 bankruptcy plan because the amount of money that your household is allowed to earn in order to qualify for those has decreased.  However, it still may be possible to qualify for a Chapter 7 bankruptcy even though your household income is above the Means Test income limits.  For those debtors who believe that they may make too much money to file a Chapter 7 bankruptcy it’s important to speak to a knowledgeable bankruptcy lawyer to see if your particular situation may allow you to still qualify.

I frequently have consultations with debtors who owe income taxes and want to know if they are dischargeable in bankruptcy. Income tax is typically owed due to one of two reasons: 1) the debtor is self-employed and was either unaware that they needed to file taxes or unable to afford their scheduled tax payments, or 2) the debtor claimed the maximum amount of exemptions to increase take-home pay in the paycheck and now they can’t pay their tax liability after they file their income taxes.

Whether their income taxes are dischargeable is depends on several factors.  There are five rules to determine if tax debts are dischargeable.  If the income tax debt meets all five of these rules, then the tax debt is dischargeable in Chapter 7 and Chapter 13 bankruptcy:

 1.   The due date for filing a tax return is at least 3 years ago

 2.   The tax return was filed at least two years ago

 3.   The tax assessment is at least 240 days old

 4.   The tax return was not fraudulent

 5.   The taxpayer is not guilty of tax evasion

 Return must have been due at least three years ago

The tax debt must be related to an income tax return that was due at least three years before the taxpayer files for bankruptcy. The due date includes any extensions.

Example 1: Debtor filed his 2005 tax returns on February 1, 2006, and owes $1,000.  Taxes were officially due April 15th of that year.  The $1,000 becomes dischargeable on April 16, 2009, which is over three years from the date that the tax year 2005 taxes came due.

Example 2: Same scenario except that Debtor got an extension to file his 2005 taxes and the new due date was October 15, 2006. The $1,000 that the debtor owes on October 16, 2009.

Return must have been filed at least two years ago

The tax debt must be related to a tax return that was filed at least two years before the debtor files for bankruptcy. The time is measured from the date the taxpayer actually filed the return.

Example: Debtor filed his 2000 tax return on April 10, 2006, and owes $1,000. The bankruptcy must be filed after April 10, 2008, in order for the $1,000.00 to be dischargeable.

Income tax assessment must be at least 240 days old 

The Internal Revenue Service or Indiana Department of Revenue must have assessed the tax at least 240 days before the debtor files for bankruptcy.

Income tax return was not fraudulent

 The tax return cannot be determined to be fraudulent.

Income taxpayer cannot be guilty of tax evasion

The debtor cannot be guilty of any intentional act of evading the tax laws.

Other Tax Issues:

In order to file Chapter 7 bankruptcy or Chapter 13 bankruptcy you must have filed your income tax returns for the previous 4 years, unless because of lack income you were not required to file tax in any of those years.

If the IRS assessed income tax for you because you failed to file your required tax return then you cannot discharge that tax unless you signed a return for that year.

Occasionally the IRS or the Indiana Department of Revenue will place a tax lien against your property.  Tax liens are not dischargeable in bankruptcy.

Penalties on income taxes due may be dischargeable in a Chapter 13 bankruptcy even if the underlying taxes are non-dischargeable, but penalties are not dischargeable in a Chapter 7 bankruptcy unless the underlying taxes are dischargeable. Consult with an experienced bankruptcy attorney to determine what option is best for you.

A common concern of bankruptcy clients is about credit after bankruptcy. During a bankruptcy consultation at the Indianapolis bankruptcy office of Kainrath Law Firm, P.C., I remind clients that filing bankruptcy does have a negative impact on credit rating, but, equally as important to understand is that this drop in your credit rating is temporary. And you may actually have a chance to have a higher credit score faster than if you had not filed bankruptcy at all.

Credit is especially important in our current national financial situation. In order to obtain necessary purchases, such as homes and cars, a good credit rating is imperative. That said many clients understand that assuming a lower credit rating for an interim period in order to be relieved of many financial debts is necessary, and a temporary situation. It is also important to understand that rebuilding your credit after filing bankruptcy takes work and personal commitment from you.

What Happens to Credit Rating after Bankruptcy

Once you file bankruptcy, all debts discharged will be listed as bankruptcy, or BK, debts. These will remain on your credit report for several years – 10 years for a Chapter 7 bankruptcy and 7 years for a Chapter 13 bankruptcy. These ratings do not preclude you from qualifying for significant loans; however you may notice an impact to your terms.

For example, once some time has passed from filing bankruptcy – about a year – you may qualify for a home or car loan, but your payment terms may not be as favorable as they were on purchases previous to filing bankruptcy. You may not be able to rent or lease, but you should still have access to student loans. Finally, you must understand your fiscal responsibility for these loans, as you will not be able to file another Chapter 7 bankruptcy for 8 years. 

Ways to Rebuild Your Credit after Bankruptcy

With hundreds of bankruptcy clients at Kainrath Law Firm, P.C., our Indianapolis bankruptcy attorneys can  help you understand your options for rebuilding credit.  In order to rebuild your credit after filing bankruptcy, some important items to consider include: open a savings account and add a little bit every week; ask a close friend or family member to name you on their credit card, but do not make any charges on the card; once you’ve saved enough to open a secured credit card, do so in your name only, making minimal purchases and paying off the balance each month; pay all bills on time and inform your bankruptcy trustee or creditor immediately if you will be unable to pay a bill; and finally monitor your credit rating and challenge any inappropriate debts.

During the duration of your Chapter 13 bankruptcy you may be required to get permission or a letter from your bankruptcy trustee giving you permission to obtain additional credit.  Consult a knowledgeable bankruptcy lawyer to understand your options.

The first question that most people who are unfamiliar with bankruptcy have is, “How do I know if I qualify for a bankruptcy?”  The answer is that almost everyone qualifies to file either a Chapter 7 or a Chapter 13 Bankruptcy.  A better question is, “Do I qualify for a Chapter 7 Bankruptcy?” 

To begin with, let’s discuss the timeline qualification. A Chapter 7 Bankruptcy can be filed only once every 8 years.  So if it hasn’t been 8 years since the date that you filed your last Chapter 7 Bankruptcy then you must file a Chapter 13 Bankruptcy. If the last bankruptcy you filed was a Chapter 13 Bankruptcy and you received a discharge, 6 years must have passed from the Chapter 13 filing date before you can file a Chapter 7 Bankruptcy. However, if for some reason you never received a discharge in a previously filed bankruptcy, then you should consult a Bankruptcy Attorney to determine if you can file again. 

Assuming that you meet the timeline requirements, the next step is to determine if you qualify under the Means Test.  The Means Test is designed to determine whether you meet the income requirements to file a Chapter 7 Bankruptcy or to determine how long your Chapter 13 Bankruptcy will last.  The income levels to file bankruptcy in Indiana change periodically, but as of the date of this post, a single person with no dependents and lives by him/herself must make under $40,105 annually, a two person household’s income must be under $51,104, a three person household’s income must be under $59,028 and a four person household’s income must be under $69,226.  The income limit continues to increase with each additional person in the household.  If you are filing a Chapter 13 Bankruptcy and are over the Means Test income limit then you will be in a five year bankruptcy instead of the three year bankruptcy that you would be in if you were under the income limit. In general, if you are over the income limit then you are excluded from filing a Chapter 7 Bankruptcy; however, if you are close, you should consult with a knowledgeable Bankruptcy Lawyer to see if an exception may apply to your situation.