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Debts of the Deceased

What Happens to Someone’s Debts When They Pass Away?

What happens to the debts of someone who has passed away?

When a loved one passes away, it can be difficult for the entire family. The situation can be also become confusing when the notices for the deceased family member’s debts keep coming in the mail. The creditors are demanding payment, but your loved one is now deceased. Do you need to now pay these bills? It is important to understand what happens to someone’s debts when they pass away.

Many Creditors Will Simply Write Off the Debt if Presented a Death Certificate

When a person passes away, many times their debts pass away with them. This is because many creditors will simply write off the decedent’s debts if they are presented with a death certificate. Although many creditors are not required by law to write off the debt, credit card companies and even many medical providers offer to either write off the debt entirely or drastically reduce the size of the debt.

If you were a cosigned with your recently deceased family member, you will still be responsible to repay the entire debt yourself. The creditor will not very likely write off the debt if only one signer on the debt passes. In addition, do not continue to use the credit cards of deceased person. If the credit provider finds out you used the card personally after the death, they may take legal steps to make you responsible to pay back that portion.

Some Creditors will Seek to Be Paid Out of the Estate if One is Opened

When someone passes away, the property that they own will be placed into an “estate” if the property exceeds a certain set value. This estate is usually opened in the county court where the deceased person resided. It is assigned a court case number. An administrator of the estate is named and certain required legal documents must be filed before estate can be full administered.

If someone passes away and an estate is required to be opened, the creditors may seek to be paid from the proceeds of the deceased person’s estate. This can drastically reduce the proceeds available to other family members from the estate. Although some creditors may elect to write off the debts beforehand, certain creditors may file a claim to be paid through the deceased person’s estate.

Seek the Advice of an Attorney

Because various complex situations can arise when someone passes away, seek the advice of an attorney. Not all situations will play out the same way. Also, law differ from state to state. If you have a loved one who passed away and now you are receiving their debt notices, seek the advice of an estate or debt relief attorney.

 

Debt To Income Ratio

Does My Debt to Income Ratio Qualify Me for Bankruptcy?

Debt to income ratio and bankruptcy

To file bankruptcy, you must be “insolvent,” a term that basically means that you can no longer pay your bills. Your debt to income ratio can help determine if you are a good candidate for bankruptcy. Testing your debt to income ratio can help you determine if you are truly “insolvent” and unable to pay off your debts.

What is Debt to Income Ratio?

Debt to income ratio is a term used by lenders. The focus of the debt to income ratio is on required monthly debt repayment. It calculates how much your minimum (or reasonable sized) payment per each month totals for all of your debts.

For instance, use an example where you had $700 in credit card payments, $1100 in mortgage payments, and a $300 auto loan payment. This would total $2100 per month. If you made a total of $4200 per month, then you would have a 50% debt to income ratio. This is because your debt-to-income ratio is your total monthly payments on debts divided by your gross income.

How Does Debt to Income Ratio Determine if You Qualify as a Good Candidate for Bankruptcy?

You may be a good candidate for bankruptcy relief if you have a calculated debt to income ratio that exceeds 50% . Mortgage lenders usually do not want to lend to anybody with a debt to income ratio of about 42%. Mortgage lenders have determined that defaults on debts occur much more frequently if the debt-to-income ratio exceeds this 42% range.

Using this concept, if you find yourself exceeding the 42% range, you may be running into trouble. If you have incurred large amounts of credit card, medical, or personal debts, you are even more likely a good candidate to file for bankruptcy if you exceed this 42-50% or greater range.

Another Simple Test for Bankruptcy

Beyond debt to income ratio, you can use a more simple qualifying test to see if you should file for bankruptcy. This is called the “two to three year test.” If you believe that you will be in the same bad financial shape as now after working on your debts to 2-3 years, you should get a consultation with a bankruptcy attorney. If you are only able to pay minimum payments or “just get by,” you need to make a more powerful plan for getting out of debt. You could service your debts for a decade and never get out of debt.

Remember, the best way to determine if you are good candidate for bankruptcy is to get a free consultation with a bankruptcy attorney. Bankruptcy attorneys constantly analyze debt situations. Such attorneys are uniquely equipped to answer all of your questions. They can give you frank and honest answers about the debt situation you are facing.

Secured Credit Card

Can I Build My Credit With A Secured Credit Card?

Secured Credit Cards

Many times our clients inquire about secured credit cards.  If you are trying to build credit after filing for bankruptcy, it can be difficult at first. Only limited credit options are sometimes available. You may be able to use a secured credit card in order to safely rebuild your credit when other options are not available.

How Do I Get A Secured Credit Card?

You can get a secured credit card by applying for a secured credit card online. Many major credit card providers such as Discover, Citibank, and Capital One offer a secured credit card program. In order to obtain the secured credit card, you will be required to provide a deposit that will “secure” whatever limit the credit card company will allow. This will allow you to quickly and safely rebuild your credit history.

These credit card companies have very little risk of default. The company will hold your $500, $1000, or greater deposit as a “security” for the credit card. If you stop paying, they will eventually take your deposit to cover their losses. Therefore, it is much more likely that you will be accepted into a secured credit card program before you can get a regular credit card with your credit history.

How Does the Secured Credit Card Build Credit?

Although these credit card are different because they are secured with a deposit, a secured credit card operates as a regular credit card in every other aspect. The credit card company is required to report your credit history the same as a regular credit card. This can quickly rebuild your credit.

After you acquire a secured credit card, the best way to build credit is to set up an automatic monthly repayment. Attempt to make your automatic payment to pay more than the minimum amount. Also, to achieve maximum results, do not retain a balance of more than 75% of the credit card limit.

What Are Other Ways to Build My Credit Score?

After you have automatically paid your secured card balance for six months, attempt to get a normal credit card. Use the same strategy of limited balances and automatic payments whenever you are able to get the regular credit card. You can also eventually seek affordable and reasonable automobile and mortgage loans after you get farther into rebuilding your credit. Remember, the key to credit success is automatic payments and getting loans that you can easily afford to repay each month. If you do not set up automatic payments or get into too burdensome of loans, you will risk damaging your credit.

 

Security Deposits and Bankruptcy

What Happens to My Security Deposit If I File For Bankruptcy?

Apartment Security Deposit

Large security deposits are common with apartments. When you leave your apartment, this security deposit money protects you from the landlord seeking damages. Many times the security deposit will be returned to you after the completion of your lease. What happens to your security deposit when you file for bankruptcy?

Your Security Deposit Could Become an Asset Taken in Your Bankruptcy

In Indiana, you may lose your security deposit for your apartment in Chapter 7 bankruptcy. However, usually this is not the case. To lose your security deposit, a few factors will likely need to be necessary in Indiana.

First, you will need to file for Chapter 7 bankruptcy. In Chapter 13, the bankruptcy trustee will not be interested in the security deposit as an asset because you are already paying back an amount to your creditors. Chapter 7, however, focuses on finding assets that can repay creditors.

Second, your security deposit will need to be very large in nature. Your bankruptcy trustee will not likely be interested in a $500 deposit. However, your trustee may very likely pursue a $2000 or greater deposit. The chances of your trustee pursuing such a deposit also increases if there are other assets being collected for creditors on your case.

Third, your security deposit will need to be collectable. If a contact or landlord situation proves too difficult to deal with legally, the trustee will likely abandon the security deposit because pursuing its collection may be cost prohibitive for the bankruptcy estate. Because there is a third party involved (the landlord), the trustee is sometimes dissuaded from entering such an undesirable situation.

Usually Security Deposits Are Not Taken in Bankruptcy

“Asset” cases in bankruptcy are much less common than what the court calls “non-asset” cases in Chapter 7 bankruptcy. This simply means that the trustees in bankruptcy usually do not seek any of your assets or moneys to be turned over during a Chapter 7 case. Unless your security deposit is very large and easily obtainable by your landlord, you will likely not have it taken during the bankruptcy. It is usually not worth the time or effort of the trustee to recover such a small amount for the repayment of creditors.

 

Will My Employer Learn if I Have A Wage Garnishment in Indiana?

After filing Chapter 7, when can I file Chapter 13?

A wage garnishment on your paycheck can come after receiving a judgment during a lawsuit.   This wage garnishment can damage your budget severely.  In Indiana, the creditor will frequently take up to 25% of your gross income.  Will your employer know about the wage assignment?  On some level, it is very likely that your employer will learn that you have a wage garnishment.

Wage Garnishment Orders Are Sent to Your Employer

Wage garnishment orders are sent to the payroll department of your employer.  Small employers sometimes manually deduct this amount from your paycheck.  Smaller employers may be required to set this money aside and manually send these payments to the court for your creditor.  If your employer does not use a payroll service, then the staff must manually send these payments.

Most employers, however, use a payroll service.  If you work at a larger company, your company will either use a payroll service or operate an internal payroll department.  In such cases, only an initial entering of the wage garnishment information is required.  From that point, the payroll system will automatically deduct the amount and send it to the court.

Your Manager and Fellow Employees May Have No Knowledge of the Wage Garnishment

Because many companies use a payroll service, it is very likely that your fellow employees or manager may never learn about your garnishment.   Although the payroll person or department may have knowledge of the garnishment, this information may not be passed to others within the company.   If you work for a larger employer, it is much less likely that this information will be passed to other employees.

Wage Garnishments Can be Stopped by Bankruptcy

If you have excessive debts, you need to consider filing for bankruptcy.  Bankruptcy has the power to instantly stop wage garnishments.   If you are suffering from a garnishment on your check, consider contacting our office for a free consultation.