The Path of Bankruptcy Debts Pt. I: How Debts Are Treated Before a Bankruptcy is Filed

In this podcast episode, Bankruptcy Attorney, Darin Wisehart, explains the path of debts throughout the bankruptcy process, starting with how they're treated before a bankruptcy is filed.

If you would like to speak with one of our attorneys, please call our office at (503) 227-0200, or visit our website at https://www.pacificcascadelegal.com.

Disclaimer: Nothing in this communication is intended to provide legal advice nor does it constitute a client-attorney relationship, therefore you should not interpret the contents as such.

Transcript

Intro:
Welcome to Modern Family Matters, a podcast devoted to exploring family law topics that matter most to you. Covering a wide range of legal, personal, and family law matters, with expert analysis from skilled attorneys and professional guests, we hope that our podcast provides answers, clarity, and guidance towards a better tomorrow for you and your family. Here's your host, Steve Altishin.

Steve Altishin  0:30  
Welcome, everyone. I'm Steve Altishin, Director of Client Partnerships at Pacific Cascade Legal. And I'm here with our Bankruptcy Attorney, Darin Wisehart, to talk about the path of how debts are treated before a bankruptcy is filed. Hey, Darin, how you doing today?

Darin Wisehart  0:46  
I'm great. I'm great. Thanks for having me today.

Steve Altishin  0:49  
Thanks for coming. So then, we've explored a lot of different issues of bankruptcy. And now we're going to talk about debt specifically, and about the path of your debts and what you can do about your debts, before you file your bankruptcy, and how they're treated before you file a bankruptcy. So let's kind of start with with how our debts treated or enforced before a bankruptcy is filed. 

Darin Wisehart  1:16  
Okay. So a bigger question, we want to make sure we boiled it down to what we need. And we want to make sure that we understand where things are going to go. So we talked about cubby holes. And when we talk about the different categories of debt, we want to talk about which cubby hole that category of debt is gonna go. And so typically we talk about or we start with credit card debt, usually most people want to talk about credit card debt, medical bills, those types of debts, those are going to be your general unsecured debts. Now, the reason they're unsecured, the legal term just means they're not tied to anything, they're not connected, it's not like a home loan, or something else that's connected to a house, it's just floating out there, that's money that they offered you for interest rate, the idea was to repay it. Now on those debts, you want to make sure that you're ready to deal with those however, you need to deal with those in the bankruptcy. And the idea is that you pay as little on those debts as possible. And into chapter seven, usually the idea in no asset case, which means you don't have any, any property that's non exempt, then when you go through the bankruptcy, the idea is to pay as little or nothing on those debts. And so that's that's your cubby hole of your unsecured your credit card debt, your medical debt, your personal loans that might be you know, when you when you got an online offer, you took that those are all general unsecured. Okay, now, if one of those wants to heat you up a little bit, and they want to get collecting, and they want to step past the collection, where they're trying to pull money out of your pocket, they're gonna have to go into judgment. And unless you voluntarily give them the opportunity to do that, the judgment is what allows them to pull money out of your your paycheck, or out of your bank account, without your approval. And so when you get that judgment, when you get the knock on the door, and they say, Hey, we're serving you, we're going to take you to court, you owe us this $10,000, for this credit card debt, you want to make sure you deal with that, because you can have your day in court, you get a certain time period to respond, you get a chance to be heard, if you want to, if you have a defense, then of course, the judge will listen to you in the United States anywhere in the United States, you have that right. But the idea then is if you do nothing, or if you lose, they're going to be able to garnish your wages, they're going to be able to lean your real property. So lean your house, they're also going to be able to maybe take all the money out of your bank account. And they can do other things as well. There's a lot, there's a bigger conversation on that. But the idea is deal with it, or speak with somebody about it, because that's the point in time where they can pull money from you without getting your approval. Now we have a cubby hole there, that's a judgment, we have our unsecured cubby hole, then we can talk about our cubby hole for support, child support and spousal support those types of things. We want to make sure we know what's going to happen with those as the bankruptcy starts. And as we're going to plan for the bankruptcy or if you choose not to do the bankruptcy, what's going to happen with those as you move forward, okay. And then we also have the Goldman taxes, almost everybody always wants to talk about taxes, and taxes have these categories, they have four big rules, and then I'll hold a lot of smaller rules. And so if you've got tax debt, generally you want to speak with the attorney earlier rather than later so that you can start to get a game plan on how to deal with that tax debt. Because the different roads of bankruptcy are varying when it comes to dealing with that tax debt. And you want to make sure that you're setting yourself up for success for each one of these categories. Now, there's no perfect road of course, especially if you have both or all four of those categories rolling but bankruptcy you know, as you plan for bankruptcy, the idea is how do you get the most gone so that you can move on with your life and get whatever that first start is for your case?

Steve Altishin  4:49  
Which kind of leads to, let's say if I came in and said, you know, what would be better for me to dom, try to negotiate my debts and not have to file a bankruptcy, or file a bankruptcy?

Darin Wisehart  5:02  
And there's the golden question, right? There's the golden prefiled question everybody wants to know, what do I have to do? Should I just negotiate these guys? Or should I just file a bankruptcy and get it done with Now the way that I like to break this down when I speak to a potential client is, first we want to know how much the debt is because that is going to play in of course, now you can file bankruptcy with any amount of debt, you can file bankruptcy with no no debt, if you really want to, there's there's a lot of reasons to file bankruptcy. And some people will, will have reasons that aren't necessarily driven by just their credit card amount or something to that effect. So you want to keep in mind that you have the choice to file bankruptcy. But the big thing that you want to focus on is, is it the right move for you. And that's where negotiation versus bankruptcy versus maybe consolidation? Maybe you're going to think about that, that aspect as well. Those are kind of your pre bankruptcy considerations. And the first thing you want to do is where are the balances for the cubbyholes? And maybe Are you being garnished right now? Or are you are you behind in support? That's not going to be caught up in a bankruptcy or not going to be discharged in a bankruptcy? Or Are you behind on taxes? And you have to figure out how to get that dealt with? How many different cubby holes do you have numbers in and how big are the numbers? And so of course, when you're talking about negotiating or consolidation, really, you're talking about getting the creditors in the boat, trying to work with them and figure out what you can do to resolve the debts? And the question is, how much are you going to spend? How much is it going to hurt your credit? Still, these are the different questions that you can answer as you're looking at that. And really, as you're talking about negotiating, I always tell people try to break down what you want your path to be what the right path is early, rather than later. And then you can stay committed to that path. Because that's going to be a big issue on if you start negotiating a dad and you go and pay him $8,000 to settle a $16,000 debt, and you have 12 other debts that need to be dealt with, expect those them to get in line, they're going to get ready for their money too. And now you want to be committed to that route, if you paid them 1000, because you're into that $8,000 already.

Steve Altishin  7:12  
So this is a decision that really needs to be made before you move forward at all, in any kind of direction at that point. 

Darin Wisehart  7:22  
And a good bankruptcy attorney, if you call them you know, a good bankruptcy attorney is not just going to push you into bankruptcy. If they're going to entertain those different ideas, they're gonna say, hey, when I when I talk to any potential client, I want to talk to every client about where you are now. And if you keep going the road you're at right now, do I see a way out for you? Do I see light at the end of the tunnel. And of course, I'm in the comfort of my office. So you have to take that with a little grain of salt, there's, you know, I'm just looking at the numbers when it comes to that I'm not necessarily looking at the psychological weight and all that type of stuff as much. But when I look at this, I'm trying to balance what I think you're going to be able to do in the negotiation world, or maybe a consolidation, what is bankruptcy going to going to benefit? And how is that road going to be positive and negative, because they're all going to have pluses and minuses, they all will every every path, you know, you've got into this situation, and you're looking at your way through it, and it's going to take you're going to take some lumps, it's not going to be easy. But which one of those is going to be your best path. And there's plenty of times when I talk to somebody and I say hey, you know, your debt amount is not enough to where you want to take a bankruptcy and move forward with that maybe just try to negotiate or sometimes we you know, we would talk about the go silent, which is just fly under the radar and see if they're gonna try to get a judgment if nobody gets a judgment, and you have $8,000 in debt and it just disappears over time. Then of course, why file a bankruptcy. But there is the risk. There's the you know, the risk reward that goes with with each path, it has a little bit of risk, depending on which way is best for your situation. 

Steve Altishin  8:56  
Yeah. So let's say I decide, after talking to you, okay, gonna file. I think I've decided I want to file a bankruptcy, or I'm going in that direction. What debts can or should I pay before filing a bankruptcy?

Darin Wisehart  9:13  
Before you speak, if you're going to hire an attorney for sure, before you speak with your attorney, you're gonna pay none of them right then. Okay, so the key is getting that active planning. And we always want to use bankruptcy planning lightly because the idea is you come to the attorney with what you have. And the attorneys job is to try to figure out how to move you through the process. Whatever process is right for you in the most stress free way. And that's that's kind of the the idea with most good bankruptcy attorneys. That's what they're looking to do. And in your case, you don't want to just go paying debts, especially debts to family or friends or relatives or people that are close. Anytime you pay those guys within a year of filing the ideas that there's a possibility that that money can be taken back if you've file a chapter seven. And when you file chapter seven, you're in, you don't get to just dismiss, oh, wait, I don't like being here, you can't do that you're in, you're good. And so sometimes when you repay family or friends or people that are close to you, they're called insiders, within a year of filing, the trustee in chapter seven can go grab that money. And this is one of the worst conversations you can ever have with a client is they're gonna go after your grandma, because you repaid your grandma five grand, and now they're gonna go garnish, they're gonna go Levy, they're gonna go get a judgment on your grandma. And that's, you know, that's possible. So you want to be very careful about those debts. And if you choose to represent yourself, of course, you want to make sure all those ducks are in a row. Because if you go through that process, and you have an unknown, the trustee, they do this for a living, they know what they're doing. And when they seek that type of, you know, money to come back into the case. Sometimes they can, they can have real teeth and you want to be ready for that. The normal creditors 90 days, usually, that's your typical time period, you want debts to go quiet with normal creditors for about 90 days. And that's why when you talk to an attorney, they'll they'll typically tell you, hey, try to just have you know, don't use those cards for the next three months. And let's see what your budget looks like. If you don't use the cards. Sometimes we recommend don't pay the cards, but it's a tougher one to to advise in the potential client period, you want to have that attorney in your corner and be planning for, how do we get from this point on and the key, the real key is don't pay the debts in the very short period of time that you're analyzing, which way is going to be a good path for you.

Steve Altishin  11:38  
Does that include things like my gas bill, my lights, those sort of things? Are they also, I mean, are they going to come and turn me off? Or should I pay those? Or does it matter if I pay them?

Darin Wisehart  11:53  
A very good question. And of course, they have different classifications. So yes, we all know, you know, if you don't pay your electric bill, of course, they're gonna turn the electric off. But when you talk to your attorney, they're gonna they're gonna itemize these different cubbyholes. And I mean, typically, they're going to tell you to keep paying your electric if if you up to date with it, you're just moving forward, usually they'll tell you to keep paying your house payment, if you're up to date, or keep paying on your car, if you want to keep your car in a chapter seven. These are some things that they will tell you, of course, they want to you have to keep paying on maybe restitution, things like that. These are the types of things you'll definitely talk about. But this is the bigger category of hey, if you have enough of those debts, or you have any of those debts that you're uncertain about, you need to talk to the attorney sooner rather than later. Because the idea is get somebody in your corner that really knows where they're going, they can navigate the rocks, and they can move that boat around these these pieces that that may hold you up and may they may sink your ship. And so you want to make sure that you have those dealt with and getting those answers earlier rather than later in a short window of time. If you if you pause everything for a week, while you guys are figuring out together, how it's going to interplay with your case. That's a smart move. But of course, you know, if you're up to date on your electric, I don't think any attorney is going to tell you to stop paying your electric bill, right. There's certain common sense things in there that you want to keep using your phone, you keep paying on your phone, you keep paying your you know, your library dues, all the different things that you may have on an everyday basis. But if you have any questions about those, you jot them down and you ask your attorney, because with your attorney in the corner, I mean, there's a questions I answer all the time. And I don't have any problem answering questions all the way down to the minute stuff to make sure that my client feels comfortable going through the process and knows where we are and where we're gonna go with each one of the debts that may be in play. 

Steve Altishin  13:47  
Yeah, yeah. Well, those are great things to know before filing, which I'm just gonna ask you one more question on this stuff. And it's not really a debt question, but I guess maybe it is because, you know, if I came in, and then I said, Well, should I just not file my taxes yet? Does it go to that kind of a level of, you know, hold off on, is there any reason to hold off on like filing my taxes if a bankruptcy is going to be pending?

Darin Wisehart  14:14  
Yes, sometimes there is some I mean, taxes are such a tricky issue that you want to make sure that you have this plan of, if I'm going to talk with an attorney and I know I want to talk to an attorney, I want to get that consultation. Sometimes it's a good idea to just freeze everything to just pause what you're doing and don't go trying to run you know, Oh, I thought I should do this. Let your attorney give you that quick advice because that's uh, you know, the ounce of prevention, and you know, all that kind of thing. That's, that's your sayings that come into that idea. If you if you are right on the cusp of filing your taxes and you think, hey, I need to talk to the attorney before I do that might be a good idea. Most of the time, they'll tell you to file your taxes and get them get them submitted and get copies to the attorney But there are certain times where you think, well wait a second, you know, maybe, maybe we hold off for another couple weeks or we do this, you know, we try to file and maybe we file our bankruptcy after you receive your refund or, you know, these are the types of things that you want to make sure that you're talking through, and you don't want to go, I always call it going rogue on your attorney, you just go you decide, hey, you know what, I'm gonna go do all this stuff. And then I'm gonna go talk to the attorney. And then the attorney says, Well, I really wish you would have talked to me last week before you went and took $20,000 out of your 401 K or, you know, you did all sorts of things to try to maybe negotiate the debts. Those are things that you want to make sure that you have somebody if bankruptcy is an option. You want to talk with them before rather sooner rather than later, for sure.

Steve Altishin  15:51  
Great idea. Great idea. Don't overthink it sometimes. Wow. Wonderful. Again, thanks, Darin, for sitting down today to talk to us about, you know, debts and how they're treated before bankruptcies even filed. And thank you for being here today.

Darin Wisehart  16:07  
No problem. Thanks for having me. You bet. 

Steve Altishin  16:09  
And thank you everyone else for joining us. If anyone has further questions on today's topic, we can post it here, we can get you connected to Darin, and until next time, stay safe, stay happy and be well.

Outro:
This has been Modern Family Matters, a legal podcast focusing on providing real answers and direction for individuals and families. Our podcast is sponsored by Pacific Cascade Legal, serving families in Oregon and Washington. If you are in need of legal counsel or have additional questions about a family law matter important to you, please visit our websites at pacificcascadelegal.com or pacificcascadefamilylaw.com. You can also call our headquarters at (503) 227-0200 to schedule a case evaluation with one of our seasoned attorneys. Modern Family Matters, advocating for your better tomorrow and offering legal solutions important to the modern family.