Personal Bankruptcy Transcripts August 21, 1997 9 a.m. - 10 a.m. GUESTS: GABRIEL DEL VIRGINIA, BANKRUPTCY ATTORNEY, The following are excerpts from the viewer call-in portion of the program. When to File Bankruptcy Differences Between Filing a Chapter 7, 11 and 13 Bankruptcy and Filing for Divorce Filing Bankruptcy and Personal Property Filing for Bankruptcy and Student Loans How Will Filing for Bankruptcy Affect Future Spouse? Consumer Credit Counseling Services Credit Card Debt JUNE GRASSO: Good morning. I'm June Grasso, and welcome to Legal Cafe, Court TV's daily wakeup call to the law in your life. On Thursdays at Legal Cafe, we focus on the work place, and we begin by discussing bankruptcy, one of the worst things that can happen to your career, especially if you own a small business. This morning, we'll look at the two different bankruptcy options that are available to consumers, better known as Chapter 7 and Chapter 13. We'll talk about the legal ramifications a bankruptcy can have on you, your family, and your credit, and we'll also discuss whether it's too easy for people to declare bankruptcy these days. WHEN TO FILE BANKRUPTCY I'm joined now by Gabriel Del Virginia to discuss how personal bankruptcy works and what it means to all of us. Gabe has worked in the bankruptcy field for more than 10 years as an attorney and instructor and as a legal clerk in federal bankruptcy court. Nice to have you here, Gabe. MR. DEL VIRGINIA: Thank you, June. MS. GRASSO: When do you think a person has reached the point where he or she should think about filing bankruptcy? MR. DEL VIRGINIA: There's no general answer. It's really a function of your tolerance for pain. A lot of people couldn't go to sleep at night owing hundreds of thousands of dollars. Some people are concerned if they owe their monthly mortgage payment. So it's really a personal thing. Usually if someone's knocking on your door or foreclosing, garnishing your paycheck, it's time to see a professional, but really what you should do is take an assessment of your financial capabilities, see how you could repay your debts, and if you can't, consult an attorney. MS. GRASSO: Now, why do you think bankruptcies are on the rise? Is it too easy to declare bankruptcy today? MR. DEL VIRGINIA: I don't think it's too easy. I think there's a number of factors. If I see five persons a day in my office for a consultation, they may have five different reasons for needing to file for bankruptcy. One person could come in and have lost a job. Another person may have a penchant for Atlantic City. Another person -- another client of mine had an elderly parent that they had to take care of, and combined with a steady income, the increased expenses couldn't be met, so it varies. DIFFERENCES BETWEEN FILING A CHAPTER 7, 11 AND 13 MS. GRASSO: Now what are -- is the difference between the two different ways of filing for bankruptcy? MR. DEL VIRGINIA: Well, there are actually three. MS. GRASSO: Okay. MR. DEL VIRGINIA: There's Chapter 7 -- in numerical order, Chapter 7, Chapter 11, and Chapter 13. MS. GRASSO: Okay. MR. DEL VIRGINIA: Chapter 11's usually employed by large companies -- or companies. I represent a number of companies in Chapter 11, and that's a reorganization. MS. GRASSO: Okay. MR. DEL VIRGINIA: The reorganization -- MS. GRASSO: Now, we're only going to talk about personal bankruptcies here. MR. DEL VIRGINIA: But an individual can also file for Chapter 11. MS. GRASSO: All right. Okay. MR. DEL VIRGINIA: Chapter 13 is more often employed by an individual. If an individual has a mortgage that's in default, a few months in default, and they need to make up those mortgage payments, Chapter 13 allows them to make up the mortgage payments and pay off certain of their debts over time at a percentage -- 10, 20 percent -- and they maintain the property and go on merrily their way. Chapter 11 does the same thing for an individual. A Chapter 13 has a limit, a monetary limit, of $250,000, so if -- and there are instances where if you have more than $250,000, you can opt for a Chapter 11. MS. GRASSO: What about Chapter 7? MR. DEL VIRGINIA: Chapter 7 is a completely different animal. A Chapter 7 is a process whereby a client comes to me and has, let's say, $50,000 in credit card debts or other unsecured debts -- no mortgage, no car loan, unsecured debts. The process is a Chapter 7 trustee is appointed to collect all their property, liquidate it, and pay the creditors whatever they can be paid, thereby discharging them of all their obligations. It sounds worse than it is. MS. GRASSO: Okay, now tell me, what is the difference as far as -- most people will be concerned about their credit in the future and whether they can start their lives again, if they want to establish a business. Is there a difference, depending on which of the forms of bankruptcy you opt for? MR. DEL VIRGINIA: Not really. What you have to understand is that our bankruptcy laws are not punitive. They're not looking to punish the debtor, the person who needs relief. They're looking to rehabilitate you. Congress said that an honest but unfortunate individual gets a fresh start in life, as opposed to some people -- Scott Fitzgerald once said there's no second acts in American life, and he obviously didn't appreciate the bankruptcy laws. You can re-establish credit, because you're discharging your debts and thereby enhancing your ability to repay. MS. GRASSO: All right. Well, we'll talk a little bit more about that in a few minutes, because I think that's an issue for most people who are thinking about bankruptcy. BANKRUPTCY AND FILING FOR DIVORCE Now, if the volume of e-mail we've received at the Legal Cafe website is any indication, our viewers have a lot of questions on the subject of personal bankruptcy. Donna from California wants to know how divorce affects a bankruptcy and vice versa. She writes, "If my ex-husband files for bankruptcy after our divorce, will I also be released from debt?" MR. DEL VIRGINIA: Unfortunately not. MS. GRASSO: No. Why not? Why shouldn't she be, if the debts were before the marriage, during the marriage? MR. DEL VIRGINIA: Well, let's assume that they're jointly liable on the debt -- that is to say, one person defaults, the other person has to step up and accept those obligations. Therefore, the divorce really doesn't affect her obligation, nor does his bankruptcy, because the creditor can simply look to her for repayment of the obligation. MS. GRASSO: Now, should you try yourself, before you go to a lawyer, if you have, let's say, mounting debts. Your credit card, every month you're paying off the minimum, sometimes you can't even pay off the minimum. It's hard to meet the mortgage or the rent payments. Should you try yourself to go to a financial adviser before you go to an attorney to talk about bankruptcy? MR. DEL VIRGINIA: Well, you have to understand, a financial adviser is going to cost you money, as well as a lawyer's going to cost you money. The end result is going to be completely different. A financial adviser may tell you how to reallocate your resources, but still have to pay. A Chapter 7 bankruptcy lawyer or a Chapter 7 bankruptcy option is going to discharge you of all your dischargeable obligations. FILING BANKRUPTCY AND PERSONAL PROPERTY MS. GRASSO: All right. Well, let's go to the phones. Jeff from New York is on the line. Good morning, Jeff, you're our first caller this morning on Legal Cafe. Welcome. Q Hi. Good morning. I want to know like if I file bankruptcy, right, I will -- and I don't have really anything. I have like a computer, a 1984 van. Do I have to surrender any of that stuff? And also I heard something about, like with your spouse, if I was to file for divorce, right, does that affect her in any kind of way? MS. GRASSO: Let me ask you something first, Jeff. You want to file bankruptcy? Why? Do you have a lot of personal debt, or -- Q Yes. MS. GRASSO: Personal debt, and you want to try to get rid of it? Q Yes, right. I'm not working and, you know, currently disabled. MS. GRASSO: Okay. Well, Gabe, let me -- let's answer that question. Does he have to give them these personal possessions that are valuable to him? MR. DEL VIRGINIA: No, he doesn't. Valuable to him is one thing. Objective valuation is another thing. I think he mentioned he had a car, a 1984 -- MS. GRASSO: Personal computer. MR. DEL VIRGINIA: A personal computer, as well as a car. In New York state -- I think the caller's from New York state -- in New York state, you're allowed to keep $2,400 and a car, the value of a car. So therefore if your car is worth $2,400 or less, you can keep it. The bankruptcy trustee is not going to seize it, so I don't think he has to worry. MS. GRASSO: Now, what about as far as divorce, and we talked a little bit about that, because our e-mail question was about divorce. If he is married to her now -- and then -- and he files for bankruptcy, how will it affect his wife, even if they decide to divorce? MR. DEL VIRGINIA: Well, it won't affect her. It may affect certain obligations he may owe to her under the divorce. It's not surprising that alimony and child support are not dischargeable in Chapter 7. MS. GRASSO: Okay. MR. DEL VIRGINIA: Congress thought that's the reason. MS. GRASSO: All right. Good luck to you, Jeff. We hope everything works out for you financially. FILING FOR BANKRUPTCY AND STUDENT LOANS MS. GRASSO: Okay. Let's go to our phones now, where Steven from Florida is on the line. Good morning, Steven. Q Good morning. Okay, my question is as far as student loans, I've had a couple of them since '86, and I defaulted and then kind of -- there's some program where you kind of reinstate them back up -- MS. GRASSO: Right. Q -- and I'm looking -- I'm on a forbearance, whatever you cal lit now, and I'm thinking about bankruptcy. Can I claim those? MS. GRASSO: Okay. That's a great question, Steven, and let's go to Gabe for that. We discussed this a lot when we did student loans, which is a whole topic. MR. DEL VIRGINIA: You can claim them, Steven. The key consideration is whether or not they are more than seven years old when they first became due. If that point in time was more than seven years, they would be dischargeable. There's another provision in the bankruptcy law that if you have an undue hardship, they would be dischargeable, but an undue hardship is very difficult to prove. Mere loss of a job doesn't constitute an undue hardship. MS. GRASSO: Steven, when did you -- when were those loans due? Was it more than seven years? Q Well, yeah. I think I went to school for a year, in '87 they started one of the payments, so I think I'm within that realm that he was talking about. MS. GRASSO: So maybe you're in luck then. Q Right. Okay. Thank you. MS. GRASSO: Well, good luck to you. HOW WILL FILING FOR BANKRUPTCY AFFECT FUTURE SPOUSE? Our next caller is Jeff from Indiana. Good morning, Jeff. Q Yes, I've declared bankruptcy, and I'm single -- MS. GRASSO: Which chapter did you file under? Q Chapter 7. MS. GRASSO: Okay. Q And I am looking to marry someone, and I wanted to know if that would affect her in the future. MS. GRASSO: Okay, now that's a great question, because we've talked about what happens if you file before you get a divorce, but what about if you file before you get married? MR. DEL VIRGINIA: It won't affect her in the future at all. MS. GRASSO: Well, suppose they want to get a mortgage on a house together. MR. DEL VIRGINIA: Well, it won't affect her directly. The person or the entity that's considering lending him money is going to see what his payment record has been post-bankruptcy. If he's become a solid citizen who's paid his bills diligently, he shouldn't have a problem. MS. GRASSO: Really? And do you have to wait seven years or 10 years? What are those numbers that we always hear? MR. DEL VIRGINIA: You really don't. I've had clients come to me at point A a year ago, I did their personal bankruptcy and there was satisfying to do; about a year later, they're house closing. MS. GRASSO: Really? I mean, but what's funny is I remember a friend of mine years and years ago filed for bankruptcy and then was getting all these credit card requests -- MR. DEL VIRGINIA: Sure. Sure. MS. GRASSO: -- in the mail the next few months from companies who -- American Express, big companies. MR. DEL VIRGINIA: All the time. MS. GRASSO: So, Jeff, may I ask you a personal question? Q Yes. MS. GRASSO: Have you discussed it with your fiancé, the possibility of, you know, what might happen? Q No, I haven't, but should I discuss that with her? (Laughter.) I mean, should I keep that quiet or should I -- MS. GRASSO: Well, I don't know, that's such a personal -- personal thing to discuss. We really should get a premarital counselor in there, but I would think that full disclosure is good before you get married. That's my own personal opinion. There's nothing legal about it. Thanks so much, Jeff, for calling, and good luck on your wedding. CONSUMER CREDIT COUNSELING SERVICES Lauren from New York. Welcome to Legal Cafe, Lauren. Q Hi. Good morning. MS. GRASSO: Good morning. Q My husband and I went through a bankruptcy about seven years ago. At the time, we went to one of the consumer credit counseling services. We spent six months with these people. They kept coming back to us saying that the creditors were unwilling to work with us. They advised us at the end of six months to go ahead and file bankruptcy. I've been carrying a lot of anger about this, because now I hear from other people that have filed bankruptcy, they've been able to work out deals with the creditors like a dollar a month. Here my husband and I were both working at the time, we were willing to make some kind of payment arrangement, but the counseling service told us that the creditors refused. MS. GRASSO: Let me ask you something, Lauren. Was it mostly credit card debt that you were facing? Q It was mostly at the time, because I had a lengthy illness, and so we had had to borrow against everything to, you know, pay for different treatment options. MS. GRASSO: Right. Now, your question actually raises two issues in my mind, and one is these consumer credit counseling bureaus. Now, I've heard that you really shouldn't go to these consumer credit counseling bureaus, because anything that they can do for you, you can do for yourself, Gabe. MR. DEL VIRGINIA: You can, and it's my understanding that they work frequently with the credit card companies or with the creditors, trying to get more money than you really have to pay. You can frequently go directly to your lender and ask for forbearance or for a modified payment plan, and frequently you'd be pleasantly surprised. MS. GRASSO: Now, Lauren mentioned that she heard something very, very low, that some people were paying something like -- it sounded ridiculously low, a dollar a month. I mean, is it possible that they would work out a payment plan -- MR. DEL VIRGINIA: Sure. MS. GRASSO: -- where you would pay something like 10 (dollars) or $20 a month? MR. DEL VIRGINIA: Sure. I mean, it's a function of how much you owe. MS. GRASSO: And you could do that yourself? MR. DEL VIRGINIA: Sure. MS. GRASSO: So, Lauren, you know, I guess you have a right to be upset, because you could have worked this out yourself and possibly -- but you never know -- possibly you could have worked it out with the creditors, but possibly have some creditors who wouldn't have been willing to work it out. But, you know, one other point, Gabe. If you file -- it seems like they would want to work it out, because if you file for bankruptcy -- MR. DEL VIRGINIA: You can't for another six years. MS. GRASSO: But then they don't get anything at all. MR. DEL VIRGINIA: That's right. MS. GRASSO: So it's better for them to get $10 a month or $20 a month than to get nothing. MR. DEL VIRGINIA: It oftentimes is. Yes, that's right. MS. GRASSO: That's probably a good argument to make to them. We'll answer more of your questions throughout the show, and if you're worried about privacy, you can always use an alias, so don't be afraid to give us a call. CREDIT CARD DEBT Our next caller is June from New York. Hi, June -- a lovely name. Are you there? Q Yes, I'm there. MS. GRASSO: Hi. Q Okay. MS. GRASSO: Do you have a question about bankruptcy? Q Yes, my question is my husband and I have $100,000 in charge card debt. MS. GRASSO: Wow. Okay. Q And we're borrowing from Peter to pay Paul each month on each charge card to pay another charge card -- MS. GRASSO: Yeah. Q -- and my husband and I are both on Social Security and pensions, city and federal. Do we have to pay those charge cards without filing bankruptcy, or should we file bankruptcy to be sure? MS. GRASSO: Can you just not pay the charge cards and not file bankruptcy, is that what you're saying? Q Yes, because I thought that banks could not take money from Social Security and pension funds. MS. GRASSO: Well, I don't think that they can, can they? MR. DEL VIRGINIA: They can't. They're exempt under New York state law, but she has a legal obligation to repay those bills. MS. GRASSO: Right, and so -- I mean, you just don't -- because what can the credit card companies do? Do you have any other assets, June -- Q No, no, we just -- MS. GRASSO: -- a home or -- Q -- no, we have a 1993 Plymouth Acclaim, which in thinking about bankruptcy they said the book value is 3,000 (dollars) -- and I think -- I had talked to a banker, but my -- to a bankruptcy lawyer, but my husband kind of didn't want to get into that, and he said you would pay the difference between the 2,400 (dollars) and the 3,000 (dollars) through the bankruptcy court, that $600. MS. GRASSO: Well, let me ask Gabe. Suppose -- what would happen if you had, as June says, she has $100,000 on these credit card debts. Her money that comes in monthly is secure, and she just decides not to pay it. So her credit -- her credit report is bad. MR. DEL VIRGINIA: That's all it is is that her credit report is bad. From what I am hearing, there's really nothing that -- no assets she has that can be seized, so I don't know that it would be even wise for her to file for bankruptcy. MS. GRASSO: June, let me ask you, is there ever -- do you ever anticipate anything in the future where you would need credit? Q No, if -- the way I would think, it would be a weight off of us, and we would just pay cash from then on. We would pay our rent, pay our telephone bill, the car insurance, life insurance, and just have that money to live on, where I take $600 from charge cards to pay the charge card debt and then struggle for food, and this is going on more than three years, because all the interest has gone up higher and the bills are higher and higher, and it's like -- it's an albatross around my neck, because my husband isn't even aware of the debt that we have. MS. GRASSO: Oh, he isn't aware? Q Well, he's kind of aware that -- he knows every month we don't go anywhere or do anything, a little bit of money to visit the kids and birthday money, but that's the way we live and -- MS. GRASSO: June, let me ask Gabe a question. What would be the down side for her declaring bankruptcy? Because then she would have the same relief and it would just be a question of the car, she'd have to pay the 600 (dollars) for the car. MR. DEL VIRGINIA: I don't even think she would have to pay the 600 (dollars), June. Given the amount of debt, the 600 (dollars) is not going to go very far, so there's really no down side. If it helps her -- she and her husband sleep at night, perhaps it's a good option for her to employ. MS. GRASSO: So, June, I mean, you can go ahead the way you're saying and just have a bad credit report, or you can declare bankruptcy and perhaps you wouldn't even have to lose your car, though, as you said, the limit is 2,400 (dollars), but perhaps you wouldn't have to, and then you'd have the peace of mind, as well as the opportunity of knowing that you could still have a credit card, if you want, in the future and you could still have some kind of credit report that would be, you know, able to be fixed later on, but that's certainly your decision to do. You can go either way. Thanks so much for calling. MS. GRASSO: That's a wrap for hour one of our Thursday Legal Cafe, and, yes, there's a lot more coming your way in hour two. We'll switch things up and talk about freelancers and temporary workers. They're a large and growing part of the work force, and there are legal issues to consider, whether you're looking for temp or freelance work or you're looking to hire someone on a part-time basis. That's coming up next, so grab a refill and stay tuned to Legal Cafe.