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What To Expect When You File Bankruptcy

Bert: Let’s get this party started. My first guest is Peter Daigle. Peter Daigle is an attorney specializing in consumer bankruptcy. He has helped thousands of individuals and families obtain relief from creditors. The Daigle Law Office is located in Norwell and Centerville, Massachusetts serving clients in eastern Massachusetts, Cape Cod, and the Islands. Peter lives on Cape Cod with his wife, Grace, of their 34 years and has 4 children and two dogs. He’s an avid outdoors man and his passion, aside from practicing law; include biking, skating, and standup paddle boarding. I love standup paddle boarding, I just started that. Anyway, Peter Daigle, welcome to Money for Lunch.
Peter: Thank you, Bert.
Bert: All right. So let’s talk about this. When somebody files bankruptcy, you know, and I know a little bit about bankruptcy where everything is kind of put on hold. Walk me through it. What else happens? Do I lose my house? Do I lose my car? Walk me through this.
Peter: So the idea behind filing bankruptcy is to get a fresh start. In getting a fresh start, you want to be able to exit the bankruptcy with all of your possessions that you entered with. So your house, your car, your furniture, your jewelry, your dog, your lawnmower. Everything that you own you want to leave the bankruptcy and have those intact. All you want to do is shed debt, unsecured creditors such as you know the credit card companies, hospital bills, old utilities. Those types of creditors that have bogged you down for such a long time that you now can exit a bankruptcy with your assets intact.
Bert: Excellent. So let’s talk about this. All right so if I’m filing bankruptcy, I’m obviously having some cash flow issues. How can I keep, again, some of those things that you described, my car, my home, my jewelry, if I can’t afford it?
Peter: In terms of secured loans, for instance, your house mortgage or your car loan, loans that attach to property, the bankruptcy laws don’t protect you from not making those payments. If you don’t make your car payment, you’re going to lose your car. If you can’t afford to keep your house, then you lose your home. You can restructure some of the terms of those loans in bankruptcy to allow you more time to pay if you get behind, but you have to be current on the current payments going forward.
For instance, if you owed let’s say five car payments because you were behind, or five mortgage payments if you’re behind on your mortgage, you could file for what’s called a Chapter 13 bankruptcy which would allow you to play catch up on your delinquent amount due, and you’d have either five years or three years to get current. In the meantime, you’ve got to be able to make that payment going forward. You’re not going to be able to keep the property that is secured if you’re unable to make the monthly payments going forward. That’s, unfortunately, when Congress wrote the laws, they protected the banking industry who financed the automobile loans and the home loans from being wiped out completely in bankruptcy.
Bert: Sure. I think that’s equitable, right? I mean, listen, bottom line is if you can’t afford your car, you can’t afford your house, even after you file a Chapter 13, then it might be time to downsize. It might be time to you know look at those things.
Peter: Right.
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Bert: Let’s talk about medical debt. I remember a few years ago when President Bush Jr. was in office, didn’t they do something to the bankruptcy laws regarding medical debt?
Peter: No, medical debt is unsecured debt that can be wiped out. Any medical debt. Essentially, there’s only a few debts that can’t be wiped out. I’ll give them to you to make it simpler. You can’t wipe out student loans. Those are non-dischargeable. Payments to ex-wives or ex-husbands, alimony and child support, those are not dischargeable. Then certain types of tax debts so within the last three years to the state or the federal government. So those are essentially your non-dischargeable debt, debts that you can’t discharge. Then, the only other thing would be whether or not if you abuse your credit card on the eve of a bankruptcy. If you were to go on a shopping spree a week before you file bankruptcy, the credit card companies could object to those charges. Other than that, everything else is dischargeable.
Bert: Okay. Great. All right. So let’s talk about this a little bit more. Let’s just say that here I am, I’ve been out of work for a while or whatever my setback was and now things are kind of righting themselves. Using your example, I’m 3, 4, 5 months behind on all of my big assets, what happens in that case? We filed a bankruptcy, you said a Chapter 13. Then what?
Peter: Right. A Chapter 13 is a reorganization. What a Chapter 13 says, I’ve hit a speed bump in the road, I’ve lost a job, got divorced, got sick, whatever, but now, I’m back on my feet. Okay? But I can’t pay all my debts when due. I can’t get my car payment current quickly, and I can’t get my house loan current quickly enough in the stress of it all with trying to get back to work here is difficult.
What a bankruptcy allows you to do is to spread out or term out those delinquent payments. This is what the law allows. It’s not something that a creditor can even object to. What the law allows you to do is term out whether it be your car loan, the IRS, or your house loan over that period of 3 or 5 years in which you make equal payments to the bankruptcy trustee. During that time frame, as long as you’re making those payments, they can’t repossess your house, they can’t take your car from you, and you’ll start receiving your tax refunds again if it’s, again, the IRS that you’re paying off. It affords you a protection. You’re going into a safe harbor where you’re able to reorganize your finances in order to earn your way out of this debt.
Bert: Yeah. I want to say this, I think sometimes we forget that this bankruptcy stuff, as you said, creditors can’t object. There are certain rules that are enacted to protect us when we have these bumps on the road. Presidential candidate, Donald Trump, I believe has filed bankruptcy a couple of times. Disney filed bankruptcy five or six times. Some of our biggest business heroes have filed bankruptcy not as a way of getting around something or being greedy, but just like you said, they hit a speed bump along the way and they needed some help to get caught up and they were able to fix their issue.
Peter: Exactly. I see people from all walks of life, young, old, who just hit, again, that speed bump. It’s very difficult to get through life unscathed. If you’re out there living and putting yourself out in the daily world, something will catch up to you at some point. A lot of times it’ll be outside of your control that you get sick or you know your spouse passes away or you lose a second job, you lose a job. There’s something out there that will occur. Congress decided that this a life circumstance that can really happen and not to people that would deliberately out trying to beat the system but just because life got in the way and dealt you a bad hand for the time being. It allows you to essentially get a fresh start.
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Bert: Absolutely. Absolutely.
All right, we’re back. We are speaking with attorney, Peter Daigle. He specializes in consumer bankruptcy. We’re talking about how most of us, a large percentage of us, will hit a speed bump along the way. We get sick, we lose a job. Life happens to all of us. We’re talking about Chapter 13 in this case. Let me ask you this, a lot of us when we sometimes hit these little speed bumps, we take out liens against our cars, against our homes, against other assets. What happens to those liens, second mortgage, and so on, in a bankruptcy filing?
Peter: There are certain ways that you can strip the second mortgage if the value is what’s called underwater. For instance, if you had a first mortgage of $300,000 and your home was worth $300,000, but you also had a second mortgage of $50,000. Well, that second mortgage is now unsecured because there’s no value to support it. You can strip those mortgage or strip those liens off of the property. Bankruptcy essentially gets you back to 0 again.
Bert: Got you. Again, a lot of us, we’ve heard people who’ve gotten a second even a third mortgage on their home because at one point, right before the little bubble popped there, real estate was growing at such an uncontrolled speed, right? It was just every day you were gaining some equity in the house.
All right so when should somebody consider filing Chapter 13?
Peter: Usually it’s a conversation that you have with yourself about 2 in the morning or 3 in the morning when you wake up and you realize that no matter how hard you work, you aren’t going to be able to earn your way out of this debt because the interest rates on the credit cards or the amount of delinquencies on your payments. You just aren’t going to be able to do it. You sort of come to the realization that no matter how hard you’ve been working, it’s usually too late. If a lot of times after someone has exhausted an IRA or 401K or borrowed from the family or done everything they can do to kind of avoid having to call a bankruptcy attorney, they now realize that they’re out of options.
That’s usually when we get that call is when, again, they wake up in the middle of the night. Others sort of take a more calculated approach to what they start doing their budget and they just realize that they’re not going to be able to continue to service the credit card debt which is usually what gets most folks in trouble is either getting behind on their mortgage or getting behind on credit card payments. Then they realize that it’s taking too much of their income to service this debt.
Bert: Yeah. I think that’s a great point you made there that if you are having that conversation with yourself at 2:00 in the morning, if you can’t get to sleep because of the debt, if you and your spouse are arguing about the debt on a regular basis, bankruptcy might be something that you want to consider. Let me ask you this. This popped in my head, you have things like these retirement accounts, 401s and these IRAs, are they protected in bankruptcy?
Peter: Yes.
Bert: In other words, you filed bankruptcy… So they are. If you had…
Peter: Completely protected. Yep.
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Bert: Completely protected. You have $100,000 in retirement accounts, you don’t have to liquidate those. You can still file bankruptcy and protect your assets.
Peter: Exactly.
Bert: That’s nice. I brought that up simply because of OJ Simpson. Matter of fact, OJ was convicted, not convicted, he was found innocent of these killings and then he was sued in civil court. Then, I believe he filed bankruptcy or something, but I remember that they made a big stink about all the money that he had locked away in these different retirement accounts and they were completely protected from these proceedings. It just came to mind. This is good. This is something that people need to be aware of. That way you do not make the mistake that a lot of people make and that is they wipe out all their retirement accounts. They pay these horrendous fees when they wipe out these big accounts that they have. Then, they still end up filing bankruptcy anyway.
Peter: Right. It’s so sad that people have completely wiped themselves out and they come to me afterwards.
Bert: Yeah. I know that this is a sometimes, what do you call it? A situation that is very much controlled by our emotions, our ego, our pride.
Peter: Yeah.
Bert: Sometimes you set that aside and talk to a professional and just get it done. Again, Donald Trump’s filed bankruptcy. A lot of these great leaders of the world today have filed bankruptcy sometimes multiple times. It’s not to be taken lightly, but not to make you feel bad about yourself either.
Peter: People are embarrassed by it. There’s sense of pride. Everybody wants to be thought of as a fighter and they’ll get themselves out of this thing on their own. They’re also concerned that somehow they’ll be a public record of this, and there just isn’t. Other than appearing on your credit reports, nobody’s going to know. They’re not going to read their name in the newspaper or it won’t appear online. It’s just a matter of, it’s very private except for again, the credit reporting agencies. TransUnion, Equifax, and Experian, will get notice. Essentially, your neighbor or your friends aren’t going to find our or your employer even.
Bert: I love it. I love it. Peter Daigle. We’re out of time. Good stuff there regarding your bankruptcy rights. If you guys have questions, you can reach out the Peter, thank you so much for stopping by.
Peter: Thank you, Bert. Have a good day.
Bert: All right. Good information about you and your rights. Again, don’t just sit there and suffer in silence. Take action. Reach out to somebody locally if you don’t want to reach out to Peter or whatever. Get some advice. That’s all I’m saying.
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