Kentucky Bankruptcy Lawyers Blog

On television, credit cards seem so convenient and consequence-free -- just use your card and get "points, "rewards" or "perks."

But what these commercials don't tell the consumer is that along with the perks, rewards or points system are hidden fees and high interest rates that can escalate on a sliding scale through no fault of the consumer. Built-in rate hikes can add as much as 25 percent to the purchase price without the cardholder knowing it.

It's lending practices like these that make credit card companies so much money. It's why they can afford lavish marketing budgets and high-profile actors and celebrities trying to sell consumers on their cards. But it's also why people throughout the state and nation are struggling with credit card debt. These practices have driven many to seek shelter in Louisville bankruptcy laws.

Louisville bankruptcy lawyers have helped countless consumers who are unemployed, downtrodden and looking for answers and help. Bankruptcy laws were created with the consumer in mind. They allow people to discharge mounds of debt that are hounding them and give them a brighter future without creditors calling constantly.

A recent column looks at the nine myths of credit card usage and how to bust them:

Good credit requires a credit card
A credit score isn't built on how much a credit card is used alone. Credit histories take into consideration a lot of spending behaviors, including whether loans are repaid on time.

Credit card debt should be carried
Some people believe this and borrow well beyond their means, which can cause major problems. When fees and interest builds after falling behind on payments, people may not be able to pay it, driving down their credit score.

Paying the minimum will pay off debt
Sure, after you've ended up paying many times more for your purchases than the sticker price. At the rate that the interest is multiplied and carried out against consumers, it can take years and sometimes decades for everything to be paid off. Thousands of dollars in debt can turn into tens of thousands or hundreds of thousands of dollars after interest and fees are applied.

Creditors can't repossess items bought with an unsecured card
A default on a credit card can be devastating to your credit score, whether you keep the defaulted possessions or not

Credit card accounts that are inactive should be closed
Not necessarily. If you believe you can't resist the urge to use an active line of credit, then maybe. But if you can keep a line of credit open with a zero balance, it shows you don't rush to use the credit you have.

It's OK to go over the credit limit as long as it's paid before the due date
This can hurt your credit score, cost you fees and increase that card's interest rate.

Even if I overuse my credit card, it will die with me
Not true. Credit card companies can go after survivors and the assets you leave behind to get their money back. Your spouse, if he or she survives you and shares a credit card, will be saddled with the debt.

I wouldn't get so many credit card offers if I couldn't afford it
Credit card companies send out offers to just about anyone -- even dead people and children. Don't feel so special. Their plan is to get as many people signed up for their cards as possible and likely only do a cursory look at your credit score before sending you mail.

Bankruptcy is the only option if my credit card debt is massive
There are many solutions to high credit card debt, though Louisville bankruptcy may be your best option. Just beware of credit counselors and other programs that may not end up helping you in the long run.

Continue reading "Credit Card Myths Send Louisville Residents Into Debt, but Bankruptcy Helps" »

Transferring Property Before Filing Bankruptcy is Usually a Bad Idea

One of the many myths about bankruptcy is that a bankruptcy filing will cause one to lose all of his or her property. As a result, many individuals in Kentucky and Indiana contemplating filing bankruptcy engage in the dubious strategy of transferring some or all of their property out of their name. This is almost always a mistake and will usually make their situation worse. This blog post will explain why.

First of all, the idea that transferring assets out of one's name before filing bankruptcy is a good idea is based on the erroneous assumption that one is not allowed to own anything when he files bankruptcy. After all, Chapter 7 bankruptcy is called "Liquidation." Therefore, it follows that if I file bankruptcy then all of my property will be liquidated. This is not the case. The laws of every state, including Kentucky and Indiana, provide debtors with exemptions that allow them to keep a certain amount of property when they file bankruptcy. These exemptions are normally enough to cover one's basic necessities, such as household goods, clothing, jewelry and personal effects, as well as an automobile, up to a certain dollar amount. Exemption laws in Kentucky and Indiana also allow one to protect a certain amount of equity in one's personal residence. So in most instances there is no reason to transfer assets out of one's name because the assets are exempt and therefore not subject to liquidation.

The first problem with transferring assets out of one's name before bankruptcy is that if such action is done shortly before filing bankruptcy and reasonably equivalent value is not received in exchange for that transfer, then the transfer will be considered a "fraudulent transfer". If this transfer occurred within two years of the filing of the bankruptcy, then the bankruptcy trustee can set aside the transfer and sell the property for the benefit of your creditors. So the strategy of selling your house or your car or other property to your brother-in-law for $1.00 right before you file bankruptcy will simply not work. The transfer will not be legally valid and the trustee will be able to recover the property and sell it.

The other problem with transferring property out of one's name before bankruptcy is that by doing so one loses his exemption. The bankruptcy code provides that any property that is voluntarily transferred before bankruptcy is no longer exempt. So when the trustee recovers that fraudulent transfer and brings the property back into the bankruptcy estate, no exemption will be available to protect that property. So by engaging in this conduct, you will have actually made your situation worse. For the property you transferred may have already been exempt and had you not transferred it, you may have been able to retain it.

The best strategy is to seek competent legal advice before engaging in any pre-bankruptcy planning.

THINGS NOT TO DO BEFORE BANKRUPTCY
by Tracy Hirsch

Below is a list of common mistakes that clients make before filing bankruptcy. These mistakes can have a detrimental affect on a consumer's ability to obtain relief under the bankruptcy code. If you are anticipating filing a bankruptcy petition, please review the list carefully and as always, if you are unsure as to whether an action will affect your bankruptcy filing, seek the advice of a professional.

1. Do not transfer property out of your name. Oftentimes an individual who is contemplating filing bankruptcy fears that they will lose assets to the bankruptcy estate. More often than not, this is not the case. In fact, transferring an asset out of your name before the filing of a bankruptcy can actually cause you to lose an asset that would have otherwise been protected. This type of transfer can be construed as fraud, allowing the trustee to take the property from the individual it was transferred to and sell it for the benefit of your creditors.

2. Do not repay debts to relatives. Many debtors owe credit card companies as well as family members. While it is understandable that most individuals do not want to file bankruptcy against their relatives, repaying a debt to a relative before the filing of a bankruptcy petition could be bad news. Repaying debts to relatives before filing bankruptcy is considered a "preferential payment" and gives the bankruptcy trustee the right to recover funds from the person that was paid and distribute the money evenly among all of your creditors.

3. Do not cash out your 401K or other retirement plan to pay debts. Most qualified retirement funds are protected assets in a bankruptcy filing. Cashing out or withdrawing funds from these types of accounts not only puts your retirement funds at risk, it also has the potential for creating tax liabilities that will not be eliminated in bankruptcy.

4. Do not incur debts or make charges on your credit cards. Once you have made the decision to file bankruptcy, it is improper to incur additional debt that you do not have the intention or ability to repay. Creditors may object to those charges and may be able to have them excluded from your bankruptcy discharge.

5. Do not borrow money against your home. Many people think that if they have any equity in their home when they file bankruptcy then they will lose their home. This is not the case. All states have exemptions that cover at least some of your equity. Kentucky uses federal exemptions which allow each debtor to protect $20,200.00 in equity (that's $40,400.00 for jointly owned property). In Indiana, each debtor can have up to $15,000.00 of equity and still protect his home.

6. Don't hide information from your attorney. Your attorney can only provide proper legal advice if you provide him or her with truthful and accurate information. Failing to disclose income, expenses, assets, debts or any questionable actions for transfers could prove to be a costly mistake. Failing to disclose pertinent information could result in loss of assets, denial of your discharge and even fines or imprisonment.