Interviewer: So, bankruptcy is extremely powerful, it sounds like an atomic bomb for your creditors I guess, right?
James Logan: Unfortunately, in 2005, when they revised all the bankruptcy laws, they really cut out some of the protections. Up until 2005, you were able to wipe out private student loans but the private student loan industry lobbied congress and had those laws changed. So that now you can’t even wipe out private student loans in the bankruptcy and not surprisingly, student loan debt is gone from $500 billion to $1.3 trillion in this country because of that.
The Types of Debt That Cannot be Discharged through a Bankruptcy
Interviewer: What debts can’t you get rid of with bankruptcy? Which ones are exempted from bankruptcy?
James Logan: The main ones are student loans and child support. If you owe child support, obviously you can’t wipe that out with the bankruptcy. Taxes less than 3 years old cannot be wiped out but if you owe tax debts for more than 3 years ago, many times, we’re able to wipe that under the bankruptcy. So, I touched a little earlier on the tax that being ways we can deal with the IRS and tax debts and that’s one of the ways if a tax that’s more than 3 years old, many times we can wipe out that debt as well.
Parking Tickets and Motor Vehicle Fines Cannot be Discharged in a Bankruptcy
Other common debts that aren’t wiped out are parking tickets, motor vehicle fines are not wiped out but the filing of the bankruptcy will allow you to get your car registered. A lot of times, I’ll file a bankruptcy and people get their car registered but later on, they can set up a payment plan.
When an Individual Files Bankruptcy , They Are Considered Bankrupt 90 Days Prior to the Filing
Interviewer: What if, right before you file bankruptcy, you bought something new or you ran up a credit card and you incurred debt just before you filed?
James Logan: When you file a bankruptcy, 90-days prior to the date that you filed, you’re considered bankrupt. Of course it’s hard to know when it will be filed, so a lot of times, we’re looking backwards and dealing with issues that people didn’t realize they’re going to have because they didn’t realize they’re going to file bankruptcies. So, basically, anything you do within 90-days, many times, the creditor can go back and look into what you’ve done in that 90-days period. That’s why we’re able to recover garnishments within 90 days because you’re considered bankrupt in that period throughout.
Buying Electronics or Luxury Goods on Credit During the 90 Day Period can Render Those Purchases as Non Dischargeable Debt
Charge of credit cards, we mentioned that we have to wait 90-days before we can file the case. If you go out and buy electronics and luxury goods on credit, there’s a presumption that that’s a non-dischargeable debt. So, we ask people about that and look at their statements and if we find that kind of stuff, we’ll wait until the 90-days up and then file a case. If you’ve gone on and used your credit card to buy groceries or put gas in a car, that’s not such a big deal but if they see cash advances or went to Best Buy and bought a 90-inch flat screen TV, that’s a problem.