Debt Free or Bust

Chapter 7 Bankruptcy in Louisiana Part I, Update

If you haven’t read my first post on my bankruptcy proceedings, please read it here.

I’ve been working on my To-Do list

I located the Capital One law suit papers in my business file cabinet and took them to my attorney’s office yesterday afternoon. Hopefully, she’ll get a cease and desist letter out to them this coming week.

I’m about half way finished with the 26-page information packet. As soon as I get everything done on that I will get online and get another pre-bankruptcy certificate. I’m working on those two things this weekend.

I called my accountant and my 2007 tax return should be finished in 1-2 weeks. I need to call back and discuss what tax implications bankruptcy has. I haven’t ever seen anything about bankruptcy and taxes. I have to conclude from this that 1) it has no affect on your taxes, 2) any affect is minimal, or 3) nobody is worried about taxes unless you owe the IRS. I’m going to talk to my accountant again and do some more research to see if there are tax implications when you file for Chapter 7 bankruptcy and whether they will affect me.

My Attitude About My Debts

Just before I retained my attorney I received another letter from Capital One that they reported my delinquent account to all three credit reporting agencies. The first words that came to mind were “so what, it’s not like my credit isn’t already in the toilet”. It may seem like I don’t care about my debt anymore. I sure don’t care about my FICO score. In some ways I do care about the debt. I spent the money and I feel bad that I can’t pay it back without jeopardizing my future and my son’s future.

But in some ways the credit and collections systems have abused me so much now that they don’t deserve anything more from me, especially not my fear of any actions they may take against me. The debts I defaulted on are unsecured. They took a calculated risk when they gave me unsecured credit. That risk is built into their interest rates and fees and they know about how many debtors default and for about how much. They have recouping systems in place to cover those losses and still make a profit. They didn’t make such a bright decision when they gave me a bunch of credit in the first place. I didn’t make such a bright decision in applying for all the credit either. We were both stupid and we both deserve to pay some stupid tax.

I feel I’ve paid my stupid tax over the last two years of attempting to catch up on what I owe and to pay whatever was fair when I could no longer catch up.

The original creditors have already taken a tax write-off on the defaulted debts and sold them to collectors to recoup some of the money. The collectors bought the debts for pennies on the dollar and received some payments toward them. Some collectors sold some debts to other collectors. Two of my debts have been sold three times. Those collectors also jacked up the interest rates so much and added so many fees to each balance that the majority of what I still owe is added interest and fees, not original interest or principle. I no longer feel a moral obligation to pay off legal loan sharks.

Capital One sued me in 2006 and hasn’t taken any further legal action against me, so it’s just another empty threat. Since they have a judgment against me they could file for a writ of garnishment of my earnings. They haven’t done that. They could get a writ of seizure of my assets but that’s far less likely than garnishing wages. They could get a writ to just seize money in bank accounts. They haven’t done that either.

Now I’m legally under the bankruptcy protection umbrella and they can’t do anything more to me. The report to the credit bureaus was the last action they could take. I retained my attorney a few days after receiving that letter.

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June 14th, 2008 Posted by joubess | Bankruptcy | 4 comments

Chapter 7 Bankruptcy in Louisiana, an In-Depth Look Part I

This is part I of my experience. I’ll post additional parts as I continue through the process. Right now I’m guessing this will be about a 3-part article based on what my attorney told me.

I met with my attorney Wednesday, May 28. She went over the laws of Chapter 7 bankruptcy in the State of Louisiana and we discussed my income sources and expenses, and why I want to file for bankruptcy.

My attorney’s name is Elizabeth Hall. She specializes in bankruptcy and I found her name on a bus stop bench that I’ve been driving by for the last 2 years going to and from tutoring. I checked with the Louisiana Bar Association and found she’s been practicing law here for 20 years and specializes in bankruptcy. The entire process costs $799. That includes her fee and court costs. There are very few things for which she charges an extra fee, and so far, none of my information requires them.

Her retainer fee is $100 and she’ll file the case when the full $799 has been paid to her office. She accepts payments until your case is paid for before she does all your paperwork and files your case. She says all bankruptcy attorneys do it this way because all the clients are in financial trouble and no one will take on any credit risk with people like us.

I had another attorney, but he raised his prices considerably and I decided if I don’t have enough money to pay my bills, I don’t have enough money to line his pockets. My previous attorney also does a lot of other work, so I figured I needed someone who specializes in bankruptcy to handle my case.

It’s a really small world. I’ve met my attorney’s dad. He was a chemical engineering professor at LSU when I was a student. I never had Dr. Hall as a professor because I was in chemistry, not chem-e, but many of my friends had him and really liked him. He was like me. He got a bachelor’s degree and worked in industry for awhile before he went back and got his Ph.D. and decided to teach. I don’t have the Ph.D., but the teaching with industrial experience is similar. My industry experience is what gives my students the edge above their classmates.

Anyway, the meeting lasted about 45 minutes and she gave me a lot of paperwork to fill out and bring back. I retained her that day, so she is writing letters to the two creditors who sued me to cease and desist from collections calls and letters. Capital One Bank and Eaton Group attorneys sued me. Eaton Group is in Baton Rouge and Elizabeth knows them personally, so getting that taken care of is easy. I have to locate and bring the law suit papers from Capital One to her. They weren’t in my stack of paperwork and I’m not sure where they are. I seem to lose things so easily these days. As soon as I find them, I’ll bring them over to her so she can write to them as well.

Bankruptcy in Louisiana

Here is a list of the what you must have to file:

• Take a Pre-Bankruptcy Credit Counseling course dated within 6 months of the date of filing and obtain a certificate of completion
• Sign a contract with the attorney that acknowledges you understand that bankruptcy fraud is a felony, all bankruptcy cases are audited, any questionable documents or acts are investigated by the FBI, and if cause is found, you will be prosecuted by the U.S. Attorney General (scary, but part of the new law)
• Personal information and list of dependents
• Current employment information (including spouse if married)
• A list of all sources of income, the amounts and when you are paid
• A list of all real estate you own
• Details about your home’s value and mortgage(s), including any foreclosure proceedings
• Vehicle information, including debt owed and whether in danger of repossession
• A list of all checking and savings accounts
• A list of all asset accounts, including retirement and college savings accounts
• Child support (paid to you or to whom you pay it)
• A detailed list of your material possessions, exempt and non-exempt
• Any tax debts you owe
• A complete list of secured and unsecured debts (some information is collected more than once), including creditor or collector, address, approximate balance, interest rate, co-signer information, and monthly payment if applicable
• A list of monthly expenses
• Answer several questions about your financial history
• Answer several questions about your family, such as if your parents are living, and if not, when they died, how much you inherited and where the money and assets are
• Copies of the following: driver’s license, Social Security Card, Vehicle registration, Vehicle title if owned outright, bank statements, pay stubs, the previous two years of tax returns, and your credit counseling certificate

Exempt items are all your basic household furniture and appliances, clothing, and computers, especially if you use them in a business or to earn any sort of an income.

Your house is exempt if you have less than 25% equity in it and your paid-for car is exempt if it’s worth $7500 or less.

Non-exempt items are TVs, DVD players, DVRs, VCRs, stereos, alarm clocks (WTF?), game systems, iPods and any other non-computer electronic devices. Non-exempt items are valued at thrift store prices. For example, TVs are valued at about $50 each. An alarm clock is valued at $0.50.

On the day you file, you can only have $500 worth of cash, savings, money in your checking account and non-exempt assets. If you have more than that, the trustee will take it to stand against your debts. Any tax refunds and stimulus checks will also be seized unless you can show you spent them on necessary items or paid for normal living expenses with them. Since I just got my 2006 refund and I’m expecting my 2007 stimulus check and possibly a refund, I’ll need to wait until I’ve used that money up before I file.

Between the time you start the filing process (retain an attorney) and get everything ready for the trustee, you have to keep track of all your spending, especially any amount over $500. They look back into your financial life and accounts 6 months as well. Since I use the MyTMMO website for budgeting, I have a record of all our expenses since April of 2007. You can sell any items for cash as long as you account for the spending of the cash, so garage sales are okay. You can also buy exempt items if you can show a real need for them, like a new refrigerator if your old one breaks down and can’t be repaired for less than the cost of a new one.

Since tutoring hours are down over the summer and delivering pizzas only pays about $1,800/month, I’ll have to wait until August or September to file. The tax refunds are what I’m using to live off of this summer along with part-time tutoring and delivering pizzas, and what little I earn online which isn’t much yet. I’ll also have to reduce my savings and use that money to pay for living expenses.

If my income goes up considerably over the next few months I may have to file for a Chapter 13 bankruptcy. Your debts aren’t discharged. The trustee negotiates with each of your creditors and comes up with a payment plan with them. You pay a certain amount of money each month for 5 years and at the end of 5 years, all debts that were in the bankruptcy are discharged. If my income goes way, way up, I’ll negotiate and pay the debts myself. I hope that happens, but I’m a realist and don’t think it will. If I thought that, I wouldn’t have retained an attorney.

I still owe my attorney $699, so some of my refund money will go to pay her. My car needs two new tires and my transmission needs to be flushed. I also need a couple of things done to the house that will cost a few hundred dollars. She said to just keep all receipts for car repair and the like until the whole process is over.

From the day you file, it takes the trustee about 3-4 weeks to complete your bankruptcy, discharge all your debts and reaffirm any debts you plan to keep. I’ll be keeping my house so I’ll be reaffirming my first and second mortgages. The trustee will also require a full accounting of the student loans I co-signed on and whether I’ll have to start paying them. He or she will set up a payment plan with them if I have to pay. I’m not sure I’ll have to pay because I haven’t heard from those companies in quite awhile and my friend is working 60 hours a week, so I think she’s paying them herself. She says she’s paying them. I would have heard from the companies if she wasn’t paying. I heard from them late last year when she was laid off and wasn’t making payments.

Conclusions

Basically, your earnings, living expenses and spending habits will be scrutinized, but you’ll be fine as long as you’re behaving yourself and not hiding assets. Most of us in this boat who tried to pay our debts but can’t aren’t going to have trouble here because we’ve been budgeting, not eating out, working extra, and covering basic expenses of daily living and getting to and from work first. Most of us have also sold most of the non-exempt items to help pay down our debts.

I looked up the statistics comparing the percentage of people who file for bankruptcy legitimately and those who abuse it, and the maximum percentage of people who abuse the system or commit fraud is 10%. Those who commit fraud are being caught, prosecuted and put in jail. The statistics were the same before the new bankruptcy law took effect. The difference now is you have to have both pre and post bankruptcy financial counseling, and the U.S. Attorney General’s office is much more aggressive about tracking down those who commit fraud and prosecuting them.

My To-Do List

• Find Capital One law suit papers and take them to attorney
• Complete pre-bankruptcy credit counseling and obtain certificate
• Fill out the 26-page packet of paperwork from attorney, make copy for my records and return to her office
• Collect all required supporting documents
• Copy all required supporting documents and take them to attorney
• Pay attorney’s fee each month until paid in full
• Continue living on a frugal budget
• Keep all receipts
• Keep all expense records up-to-date

I hope you never have to go through a bankruptcy, but if you do, it’s not as horrible as many make it out to be. Many call it a life-changing experience, but for me, the weight of the debt was the life-changing experience and this is relief from that weight. Please leave your thoughts in the comments.

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June 4th, 2008 Posted by joubess | Bankruptcy, Debt Reduction | 7 comments

Called Bankruptcy Attorney Today

I’ll called today to make an appointment with my bankruptcy attorney. The appointment is on May 28, a week from today. My attorney is on vacation this week or we could have met sooner.

Here’s the list of documents I have to bring with me:

• Driver’s License
• Social Security Card
• Paycheck stubs
• Bank statements
• Tax returns
• Credit and collections statements
• Law suit papers
• Business financial statements
• List of house contents

Additionally,

• Budget
• Debt snowball
• CCCS certificate
• Contact information for all creditors

I have most of them together. I need to print current bank statements and financial statements.

A Fly in the Ointment

Then starting June 2-6, I have jury duty. I have to spend 5 days in the jury pool. They call about 400 people per week, and then you don’t have to serve again for at least two years.

Last time I didn’t get called to do anything (yeah!) and spent 5 mornings at the River Center Branch of the public library. I got a lot of reading done. I expect much of the same this time. Even if my group makes it into screening for a trial, they usually wouldn’t pick someone like me. I’m a scientist and I’m not swayed by non-physical evidence or emotional testimony. I could be called for a civil trial which would still require evidence.

The downside is I can’t start tutoring that week during the day because they can keep us until 4:30 p.m. They usually don’t, but they can, so this will hit my income hard. They will pay for mileage, but that is barely a drop in the bucket compared to the money I’ll be losing.

I would try to get out of it based on financial hardship, but about the only things that will keep you off jury duty here is death, hospitalization, or you’re out of town on business or in the military on active duty. They don’t really give a rip what your problems are. They need warm bodies and your’s will be one unless you like jail.

Oh well. I’m bringing my laptop and seeing if I can pick up a non-encrypted wireless signal so I can work online while I’m waiting. If not, I may be able to get on one of the library’s computers and work an hour at a time. Sessions are 60 minutes, then you have to log in to get on another computer for another hour. I haven’t been to the River Center Branch in a long time so I don’t know how many computers they have available. I’ll be finding out, though.

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May 21st, 2008 Posted by joubess | Bankruptcy | no comments

May 2008 Debt Report

Debts Paid in Full:

• Debts paid in full: 8
• Amount paid in full: $5,345

Status Report:

• May 2008 payments: $940.89
• Total amount of payments made to date: $13,456
• Debts left to pay off: 15
• Next debt in line before bankruptcy: Northland Group (Cap One Visa): $3,717.17
  

Balance Report:

• Original Debt Balance: $246,281
• Current Debt Balance: $248,020
• Balance change since last month: $1,739 (increase)
  
• Balance change since starting the plan (April 2007): $1,739 (increase)

After Bankruptcy Projection:

Debt snowball:

• CFCU Visa: $4,402.81
• Chase HELOC: $5,021.64
• Capital One HELOC: $21,637.43

Debt Balance excluding co-signed student loans: $30,985

• Co-signed student loan approximate balance: $45,051 (need a complete audit on these accounts; not sure this balance is correct or even close)

Debt Balance including co-signed student loans: $76,037

First mortgage balance: $117,803

Discussion

I paid off two small debts that crept up on us: $140 to Professional Emergency Physicians from when my son needed stitches a few years ago, and One Hour Air Conditioning for last year’s cleaning and maintenance.

Since I haven’t received anymore notices from the student loan people, it’s possible the friend I co-signed for is paying them again. The bankruptcy trustee will likely require an audit of these accounts as part of my remaining obligations. If the trustee doesn’t, I’ll require one before I start making any payments. I don’t know what’s been paid or what is still owed. I won’t make any payments on these loans until I pay off my own debts. It’s the biggest balance debt anyway, so would come last in the debt snowball.

I didn’t pay anything on the debts I’m going to bankrupt. I don’t see the point of spending money on them when they will be gone about this time next month.

New Summer Income Source

I found a new tutoring opportunity after school is out. All public school students in the 4th and 8th grades must pass the Louisiana LEAP exam to progress to 5th and 9th grades. If they don’t pass in the spring they have a chance to take it again over the summer. Failing 4th grade LEAP isn’t too big a deal. Students who fail it often are on the young end of the age limit and need another trip through 4th grade if they don’t pass LEAP remediation in the summer.

But 8th graders who fail the LEAP are extremely stressed out to pass it over the summer so they can go to 9th grade with their friends. It’s a huge social issue with 8th graders who need remediation. Those parents are very motivated to help their kids succeed and will pay for tutoring on top of the school system’s program.

This test is a must-pass thing. Even if a student passed all classes in 4th or 8th grade, they fail if they didn’t pass the LEAP test.

I made a flier, I’m getting it copied tonight, and I’m distributing them starting Monday to the public middle schools to give out to students who failed the 8th grade LEAP test. A friend who works in the school system has several of the remediation workbooks and is lending me a set to use over the summer. I’ll have to make copies for my students, but that’s relatively cheap compared to what I’m charging. I should be able to start working with these students as soon as school is out, but may not get as much work until remediation begins the first week of June. The test will be administered again the first or second week of July.

I’m charging $25/hour. I’m not charging full price ($45/hr.) because these are public school students and the families may not have the money private school families have. That’s $6/hr. more than my tutoring company pays me. Another reason to only charge $25/hr. is I’ll be undercutting all the tutoring companies so I’ll get more students.

Depending on the amount of work I can score, I’ll deliver pizzas on my free afternoons and evenings. I’ll go up to full-time pizza delivery after LEAP test tutoring until mid-August when tutoring picks back up. Then I’ll go back down to part-time pizza delivery again.

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May 9th, 2008 Posted by joubess | Bankruptcy, Debt Reports, Earnings Updates | 8 comments