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How to Avoid Credit Card Debt: Insight from an Indianapolis Bankruptcy Attorney

Credit card debt can grow until it becomes nearly impossible to pay the monthly payments.  The monthly payments on credit cards can be devastating to your budget.  Beyond this “monthly” aspect, how can these cards ever be repaid?   Being an Indianapolis bankruptcy attorney, I have seen countless people from the greater Indianapolis area file for bankruptcy at our office over the years due to the excessive build up of credit card debt.  What can be done to avoid Credit Card Debt?   Let’s talk about three “safe guards” that can help you avoid excessive credit card debt.

The Scheduled Pay-Off Time

The best way to avoid credit card debts is to do something that credit card companies hate: have a scheduled pay-off time.   If you are paying off your credit card debts on a regular, scheduled basis, you will be at much less of a risk of accumulating high credit card debts.  You need to schedule a certain time whether that is every month, every two months, or every three months where you will pay-off the entirely of your credit card debt.   You can even “auto-schedule” payoffs with most credit cards from their website’s auto-pay function.   If you have an established pay-off time, you will not overspend or carry over large balances.

Reduce Your Expenses as Much as Possible

Credit cards (or any other form of credit) can very quickly get people into the dynamic of spending the entirety of their income on their expenses.   Even worse, many people end up spending more than their income on their various activities and expenses.  Credit cards open up a very limited period of time where you can spend more than you make!

It is absolutely critical that you budget your expenses to be much less than your income.   Attempt to spend 50-80% of your free income on your planned expenses.  This leaves money to save, money to give toward other people, and it frees you from the need of turning to credit cards when your budget does not add up.

No Cards or Low-limits

The safest and most “sure” way to avoid credit card debt is to have no cards at all.  The excuses that most people bring to get into massive credit card debt are usually false and contrived.  They range from “we need credit cards for emergencies” to “we need credit cards to rent a car.”   These flimsy and false excuses are really just a smoke-screen usually for being unwilling to move away from a debt-oriented lifestyle.  Having no credit cards is definitely a step in the right direction on avoiding credit abuse.

Using cards with low balances – such as $500 to $1000 – can also be a powerful safeguard.   If you have one or two cards with these low balances, you can usually plan to pay them off at scheduled times as discussed above.  You will still have credit cards for “convenience,” but the cycle of carrying an outstanding large debt will be more easily broken.

How to Avoid Credit Card Debt

Parties Involved When Someone Files for Bankruptcy

The question comes frequently to our office – who is involved when someone files for bankruptcy?  In reality, less parties are usually involved than most people think.   Let’s discuss who is involved when someone files for bankruptcy.

The Debtor

The debtor is the primary person (or persons) involved when filing for bankruptcy. The debtor is the person or company who needs their debts relieved.   Usually the debtor files a bankruptcy petition asking the court for bankruptcy relief.  Debtors range from a single filer, to a married couple, all the way to the largest corporations in America.

The Case Trustee

The Case Trustee (or Interim Trustee) is the person in charge of your Chapter 7 or Chapter 13 case.  The trustee makes sure that your case is handled correctly, making sure that all bankruptcy rules are followed. The Trustee is also responsible for your property during the bankruptcy case, making sure that all property (or income) that should go to your creditors is properly turned over to repay your debts.

The Bankruptcy Court and Judge

You are always assigned a bankruptcy Judge during your bankruptcy case.  However, most cases never come up in front of the Judge because there are not disputes in most bankruptcy cases.   The Bankruptcy Court is the forum and mechanism in which you file your case.  The bankruptcy court’s clerk office is responsible for receiving your bankruptcy petition request and managing the basic administrative functions of your bankruptcy case.

The United States Trustee

The United States Trustee is the “sheriff in town” during the bankruptcy process. This party makes sure that all bankruptcy rules are being followed and that no bankruptcy fraud is occurring.  This office is also required to randomly “audit” a certain amount of bankruptcy cases each year just to make sure that the system is being properly followed through a “spot checks.”  Their direct involvement is not common on most bankruptcy cases.  The United States Trustee also takes a more active role in larger Chapter 7 and Chapter 11 bankruptcy business cases.

The Creditors

The other major party – perhaps the most important in some ways – are the creditors.  All creditors of the debtor are notified when a bankruptcy is filed. The creditors are allowed to make objections in very limited situations.  All creditors must file a proof of their claim if they want to be paid by any amounts collected during the bankruptcy process.  However, in most Chapter 7 cases, the creditors can do very little during the process.  In the majority of Chapter 7 cases, the creditors do very little except just receive their bankruptcy notice and then write-off or cancel their debt when they receive the Chapter 7 discharge notice.

Photo of judge with gavel, Parties in bankruptcy

Can I Talk to My Attorney During the Bankruptcy Meeting?

I have frequently been asked, “Will you be coming with me to the Bankruptcy Meeting?”  I have also been asked whether clients can talk to their attorney during the bankruptcy meeting.   The answer to both of these questions is “yes.”  Your bankruptcy attorney will be with you during the bankruptcy meeting (meeting of creditors).  You will be able to talk to him and ask him questions.

The Bankruptcy Meeting is an Examination: Your Attorney Will Be There

The Trustee will ask a series of questions during your bankruptcy meeting (meeting of creditors).  The Trustee is a court appointed bankruptcy official who reviews your case and makes sure that all rules and procedures are followed.   The Trustee will first confirm your identity and personal information.  Then, the Trustee will ask you a series of questions about your finances.   During this examination process, your attorney may interject to clarify aspects of your financial affairs.  Your attorney sometimes may also handle questions that relate to certain legal aspects of your case.  During the examination time, you can ask your attorney for clarification to questions or talk to your attorney if necessary.

Indianapolis Bankruptcy Attorney John Bymaster will be by your side during your bankruptcy meeting.

The Trustee and Bankruptcy Filer will do Most of the Talking

Most of the bankruptcy meeting consists of the Trustee asking questions to the bankruptcy filer.   Therefore, during the meeting, most of the talking will be done by the trustee and the debtors who filed their bankruptcy case.   In some bankruptcy meetings, the debtors will not ever see the need to talk to their attorney.   Remember, it is an examination of debtors by the trustee.   Attorneys come to the bankruptcy meeting mainly only to assist in the examination and communicate legal information to the trustee.   The attorney only rarely needs to assert some kind of defense or protect the debtor’s rights in some way during the examination.

Most of the “work” of the bankruptcy meeting is already completed before attending the meeting.  All of the required documents and disclosures are presented to the Trustee before the bankruptcy meeting.   Essentially, the bulk of the review and legal work on all sides is completed before the bankruptcy meeting.    Your attorney will be at the meeting ready to assist you and represent you.   You have nothing to worry about at the bankruptcy meeting: most of the “work” is already completed.  Your attorney will be there right beside you

Do Both Spouses Have to Attend Bankruptcy Meeting?

Due to either job requirements or sometimes health restrictions, we are frequently asked whether both spouses are required to attend the bankruptcy meeting. The answer we give is an unqualified, “yes,” both spouses must attend the bankruptcy meeting. The reason why both spouses must attend can be found in Section 341 of the bankruptcy code.

Section 341 of the Bankruptcy Code requires an “Oral” Examination at a Creditor’s Meeting

Because Section 341 of the bankruptcy code requires an “oral” examination of the debtor at a “creditor’s meeting,” both spouses must attend this bankruptcy meeting of creditors. Because it needs to be oral and at a place where the creditors can attend, the meeting must occur in-person with both debtors present. Although creditors rarely attend basic Chapter 7 bankruptcy meetings, the opportunity to attend these meetings must take place on every case. If both debtors are not physically present, then they cannot be examined by the trustee or the creditors.

The bankruptcy system has developed the bankruptcy meeting from these requirements to be a single-set “hearing-like” setting. Just as any other court hearing, you are required to attend in person. Both debtors’ identities must also be clearly established to prevent bankruptcy fraud by bringing their driver’s license and social security card in person. Telephonic or other not-in-person approaches are not allowed or at least very much opposed by the bankruptcy system because this further frustrates attempts to prove identity.

Are There Any Exceptions? What About Power-Of-Attorney?

The bankruptcy system makes few exceptions to in-person examination during the bankruptcy meeting. Even power-of-attorney is usually insufficient for someone else or a spouse to testify without the debtor in person. If at all possible, the debtor needs to attend: work requirements or other practical-type considerations are usually insufficient excuses. If the debtor faces complete physical disability or mental incapacity, then accommodations are sometimes made to make the bankruptcy system work for these rare situations. In almost every other situation, both debtors need to attend the bankruptcy meeting in person in order to meet the requirements of the bankruptcy code.