Season 3, Episode 14: WTF is personal bankruptcy?

It’s okay if you need to start over. It’s really okay.

Do you know anything about personal bankruptcy? Us neither. I mean, we knew the rumor that it ruins your credit and should be the OPTION OF LAST RESORT, but we actually didn’t know anything useful. Kind of the opposite - we knew just enough to be scared of it without any actual information. Sounds like the stock market all over again!

So, for our last episode of Season 3, we decided to learn about something together. Finally we’re both the dummies!

To walk us through the process, we invited Texas-based bankruptcy attorney Justice Pierce with Lincoln-Goldfinch Law. What a treasure! Justice is the most compassionate, understanding and knowledgeable expert we could’ve ever asked for.

We learned a lot. The most important thing was something we talk about a lot on the WOTV - the intersection of shame and money.

Guess what?

Bankruptcy is not a moral failing.

It’s just not. Justice explained that it’s actually a feature of the entire system that people are supposed to use. Politicians from both sides of the aisle support it - that’s how universally valued it is!

So, if it’s not a reason to tar and feather yourself because of you moral failures, what is it?

It’s actually a legal tool specially designed to help people escape overwhelming debt and start fresh that has different categories depending on what your situation is. Unexpected medical bills, job loss, or economic downturns can push even the most responsible people to their limits. But you know what, even people with some irresponsible blips also get our support.

But it ruins your credit forever!! OR DOES IT?

Listen as Justice tells us everything we didn’t know we wanted to know about this option.

Oh! And we realized after the episode that we didn’t ask her how much hiring a bankruptcy attorney costs. It sounds like anywhere between $4,000 - $5,000, depending on where you live. If you’re curious, call one and find out! Report back!

Ask us your dumb investing and finance questions for….Season 4 (which will happen some day in the future!) on our Ask Us page!

We have the social medias!! Here’s our Instagram and Facebook and LinkedIn.

This episode was edited by our co-producer Kelly West. Music by Bad Bad Hats and Devmo.

Transcripts for Season 3, Episode 14: WTF is personal bankruptcy?

Caitlin [00:00:07] Welcome to Women on the Verge of a Financial Breakthrough, a podcast where we're figuring out finance. One dumb question at a time. I'm the dummy. Caitlin Meredith, a coach and mediator based in the Bay Area.

Sara [00:00:20] And I'm Sara Glakas. I'm an investor, advisor and founder of Blackburn Financial and the Austin Women's Investing Group, which can be found on Meetup and Facebook. Before we start, do you know a woman who might be on the verge of a financial breakthrough? Will you text her a link to our show? Also, if you can, please leave us a review. This helps other women on the verge find us, and we read all of them and they make us happy. Cry like this one from a listener who said, when a friend recommended this podcast to me, I said it was too late. That ship has sailed. But Sara and Kaitlin convinced me that there was still time for me to trim the sails, scrape the barnacles off the bottom, and make the boat both swift and seaworthy. Oh my gosh, this wind is funny to me because every Financial Advisors website has people on a yacht. Thank you listener and to all of our other listeners. Now let's get started.

Caitlin [00:01:14] Today we have a guest expert on who Sara and I. Sara and I have been wanting to cover this topic for maybe since we started. I remember and our season one like meeting, we're like, we should cover this topic, which is bankruptcy, personal bankruptcy. So we found an expert in this field, justice. Do you want to introduce yourself? And you can talk about the firm you work for and how long you've been in the field, etc. maybe even why this became interesting to you.

Justice [00:01:47] Thank you. I am so excited to be here today. My name is Justice Pierce. I am a lawyer out of Houston, Texas. My firm is out of Austin, Texas. It's Lincoln Goldfinch Law. They do immigration and bankruptcy and I do exclusively bankruptcy work. Predominantly chapter seven. That's the, that's where I would consider myself an expert in. I kind of came into this field around the time of Covid. I graduated, in December 2019. And like that spring is when Covid hit. Oh, God. And so I was, preparing for the bar and also Covid, like, the world stopped, and I desperately needed a job, because I didn't pass the bar the first couple of times, but I desperately needed work. And so I became a paralegal at a bankruptcy firm because they, like, desperately needed someone. And I was like, I don't want to do bankruptcy, but whatever. It's money, right? But I was like, exceptionally good at it. And I always pictured myself as being like this, like lawyer who was going to do family law or criminal law. Like, if you're going to help people, like you're going to change the world.

Caitlin [00:02:48] Yeah.

Justice [00:02:49] And I just found that it was so satisfying to like, help people kind of get back on track and how grateful they are, like when they can restart financially. And I just kind of stayed in this field. And I seem like that seems to be a common thing for people in the bankruptcy field. Like most of the people who I have worked with have been practicing in bankruptcy for a very long time. And so, yeah, that's I was a paralegal in bankruptcy for like three years. And then, I got brought to Texas because my husband got a promotion and long story short, passed the bar here and was like, I'm going to be a bankruptcy attorney. So, yeah. So that's how I got here.

Caitlin [00:03:26] Sara reminds me of your story of how you got into finance.

Sara [00:03:30] I know, because I, when I moved to Texas, I had no job, no prospects. I just graduated from school, and a friend of a friend's dad's son's girlfriend. Or wasn't actually his girlfriend, someone he wanted to be his girlfriend knew a guy at a family law firm who needed a paralegal. And so similarly, I thought like, oh, I'll just go work at a family law firm. I don't want to work in family law. But that's where I got connected with the personal finance side of things. And like, hey, women need to really have as many tools in their toolbox as they possibly can when they go through a divorce. And that was my entrance into personal finance and investing was from being a paralegal. I really like getting to work with people who are who are going through something very painful and need help and need someone to be on their team and to, you know, help them through it. So your story definitely resonates with with me. And I know Caitlin too. She's she's a people helper as well.

Caitlin [00:04:31] Yeah. But I think there's those two things. Bankruptcy and divorce can be really stigmatized too. And people with a lot of shame. It's not like winning the lottery. I need help like it is something you might not tell your really good friends for a long time, and especially in the case of bankruptcy, you might think you don't know anybody who has been through it before or has even had to question it. And so that isolation from both of those experiences, too, you're meeting someone at a really specific point in their life.

Justice [00:05:05] Yeah. A pretty common factor of clients that I have is like their when they get to this point, they're like shameful or they're embarrassed and it's actually quite common, like bankruptcy is very common. You know, most people probably do key and kind of keep it to themselves. But when I meet with clients, that's kind of a very common thing that they kind of say, like, I tried to get back on my feet or I tried, you know, I don't usually do this. I pay my bills every month and I'm like, you don't. First of all, you don't have to justify it to me. You could say you don't pay your bills every month, and I'm just here to help you. Like I'm not here to judge you. I'm here to help you get back on track. But when I meet with clients, I kind of try to remove that stigma. And so I always kind of start with, like, this kind of, speech of some sort that's basically like, regardless of how you feel about our political system or political parties, both parties came together to agree to allow you to file bankruptcy, and they have solidified it into federal law. And as of my understanding, none of those parties are currently trying to take out bankruptcy.

Caitlin [00:06:03] Like it's that important and unifying that we need that outlet.

Justice [00:06:08] Yes. So we have these hot blood issues, right. But bankruptcy, I don't see them attacking that like. Either side. So clearly this is a resource that they want you to use and you should use. We bail out banks. We bail out billionaires. You deserve to be bailed out sometimes like you are a consumer. You deserve to start over. It helps our economy. And so, I've kind of always kind of started off with that. Like, regardless of where you sit, they want you to use this tool. So I will say that sometimes they make it a little harder, but it's there for you for a reason.

Sara [00:06:40] Oh my gosh, I love I've never heard it framed like that before, but it's so true, right? There are laws that everybody voted on and everybody put into place for a reason. And when you go back through history, you're like, okay, people were incentivized to take risks. And we have this whole system in place so that people where the risk doesn't pay off, they don't get completely wiped out or go to prison or so all of the stigma is they're not legal. They're all kind of these invented social mores is not the right word, you know, like that just utter out there in the world that we set up, you know, that we are inventing. They're not real, right.

Caitlin [00:07:19] And we don't have for something like Social Security like that is also government money helping us out at a chapter of our life when we need it. So it's a very specific like Protestant work ethic. What is it? Where how do we trace back.

Sara [00:07:34] To something where we feel very good about, like judging people? Oh yeah. Right. Like falling stones. Right.

Justice [00:07:41] I think it's just like the stigmatized stigma is taxation, like with, like, being poor or like not being able to make enough money, but like, I don't know, I have a wide variety of clients like I have, you know, low income clients, single mothers. I have people who have large families, you know, they have 6 or 7 kids and they make lots of money. It's it literally is a tool for everybody. And I don't have one certain type of demographic that comes to me. And so it's just mainly like, do you have an overwhelming amount of unsecured creditors? So things like credit cards, unsecured loans, medical debt, judgments against you from these creditors, like these all are types of things that can be included in a chapter seven bankruptcy and essentially can wipe your slate clean. So I guess so that's kind of to kind of get into what is bankruptcy. Right? So, I predominantly do two types of bankruptcy, chapter seven and chapter 13 a chapter seven bankruptcy is what I would consider myself an expert in. And that's, basically where the court is going to liquidate your assets or sell them off to give that money to creditors. But in almost all of my cases, there are protections on many of your assets. So most cases assets aren't even being sold. The creditors are getting absolutely nothing, and you get to just start over at the end of your bankruptcy. They'll issue you a discharge, which is what I call a fancy term for forgiveness. And you just start over.

Caitlin [00:09:10] Okay. So the tip, the typical or, client comes in, let's say me and I have. Can you define what unsecured. You said unsecured something. Can you just tell me what that means.

Justice [00:09:23] So a secured versus unsecured credit. So secured is things like your car or your home. You have the asset. But there's someone other like a creditor that's still tied to it that you're making payments to. And essentially if you stopped making those payments they could take the the possession of the item back. So foreclosure, if you're not making your mortgage or repossession if you're not paying your vehicle versus unsecured things or like a credit card, well, they can be secured. But most often things like credit cards are not secured. Right? You gave me a line of credit and I can use it for whatever I want. But like, for example, if I bought groceries on my credit card but don't pay my credit card, they can't come take my groceries back, right?

Caitlin [00:10:01] They can't take my trip to the Bahamas away from me. It already happened. Okay, so that's unsecured, meaning it's unsecured for the creditor.

Justice [00:10:11] Yeah. Secured is just like means that. So there's different types of creditors. And a secured creditor just means they have an extra level of security that if you don't pay them, they get something back in return.

Caitlin [00:10:22] Gotcha. Okay. So unsecured creditors would be credit card companies, for instance. Yes. Okay. So I come to you and I'm like, I have $50,000 in credit. I don't know what that line is between, like, I have credit card debt, but I'm paying it off every month versus I just don't see a light at the end of this tunnel. And there was a judgment against me and a fender bender, whatever. So I have all this and I come to you and I say, help, what does that look like?

Justice [00:10:52] So with I mean, each firm is different. If you're coming to me or specifically my law firm, we are going to have a consultation and I'm going to ask you facts about your case, like how much debt do you know roughly in the ballpark, what kind of debt? We might also start with what got you here. You know, let's because sometimes people just need to talk about it. Like, were you sick? Did Covid. It kind of hit you really hard. Did you have more children? Did you get divorced? Let's just talk about it. And because sometimes those facts are important as well. So listening to them tell me their story kind of helps me get additional information. And so I'm going to ask you, like do you have a mortgage or a rent. Are you current on those types of things? I'm trying to assess what kind of assets you have. And then most importantly, I need to know what your income is and, how much you make yearly based on the number of people in your household. Because under chapter seven, in order to qualify, you have to meet a certain, household threshold income. So, for example, if you're a household of one, you have to make 61,000 or less to qualify. That's 61,000. It's a change. But or less. So each time we add a person to your household, the amount goes up, right? But you have to make less than that to qualify. And if you don't, unfortunately, you can't file. So I kind of I'm going to meet with you and I'm going to assess your situation and see can chapter seven benefit you? Because when people think of attorneys, they're like, oh, they're just after money. It's a cash grab kind of thing. I'm not here to force you into bankruptcy. I'm here to provide you with an outlet or an option. But if bankruptcy is not the best option for you, or maybe you should try something else now, then I'm going to advise you of that. There's no reason to force you into a bankruptcy if you can get out another way. So this allows me to better assess that situation.

Caitlin [00:12:39] And you assess it and you're like, you meet the criteria. I think this is actually the path that, you know. Here are the things to consider why this path might be good for you. Then what happens.

Justice [00:12:52] At least in, in the state of Texas, you have to pay your attorney's fees in full before your bankruptcy case can be filed. You and our firm, you can pay in upfront, or we understand when you get to this point, you're clearly having financial issues. So you can be set up on a payment plan, and. But you've retained me. You've hired me. I'm your bankruptcy attorney. I will be handling creditors with you. I'm here to answer questions for you, things like that. And then once you're ready to go forward, I'm going to ask you for, documents related to your case. So typically, chapter seven is going to be looking at the day you filed. So let's say today your filing going back six months in time. So I'm going to ask you for six months of bank statements, six months of your income, your driver's license, social things like a divorce decree. There's there's a whole bunch of different documents, but things that are applicable that will help me fill out your petition. And then once it's filled out, you and I are going to meet. We're going to make sure it looks good, no changes need to be made, and then your case will get filed. When I file someone's case, I always joke with clients. I'm like, it's gonna feel like you did something wrong because at this point, I take over. There's really nothing for you to do except sit back and let the system work. So you do have a hearing.

Caitlin [00:14:05] That sounds amazing. I don't have to do anything anymore. You just do it. Oh my God.

Justice [00:14:11] Every client that I have is like, oh, that was so easy. So, you'll there's a credit counseling course that is required by law for you to take. You have to take the there's it's two parts. So you take the first part before you file that's required under the law. And then once you file and get your case number, you're required to take the second part. And then there's what we call the meeting of creditors, also known as the trustee meeting or 341 because that's the the code section that it falls under. Under the law, the 341 meeting, that's usually about 30 to 45 days after your cases filed. And right now in the state of Texas, and I believe in most states, those are not in person. They're over zoom. So it's a court hearing held by zoom. So you don't actually have to go anywhere. You and I, if I were your attorney, are going to be on that call together. And the trustee, that's a third party, government official who's assessing your case. They're making sure we have not committed perjury, that we've filled out your petition accurately. They're going to ask you questions about your petition. It's usually very simple, yes or no questions. People get really nervous because they're like, oh, it's a court hearing. And I'm like, yeah, but they're they're asking you questions about yourself that you should already know. Like they'll have you say your name and your address and they'll ask you if you understood what you filed. Or did we meet to confirm that? I actually met with you and I answered questions for you. And usually the line of questioning for like one specific case is like ten minutes or less. And unless it's unless there's like some sort of red flag or like asset that is like not protected in your bankruptcy, but in most cases that's not applicable. So the line of questioning is very quick and then you're done. And from there you just have to wait 60 days at the earliest for your discharge. Like that's it. You do those two things after you file and then we're waiting for your discharge. And once you get your discharge, you're done. So it's it's the whole process from filing to discharge is about five months. But it's an actually a very quick process. And it's very. Very easy. I tell clients the hardest thing is you collecting your documents at the beginning and making that payment. But from there, I'm going to do the work for you. You just need to sit back and relax.

Caitlin [00:16:25] This sounds amazing.

Sara [00:16:27] I mean, it sounds so much less scary than a anyone imagines who has not gone through the process or talked to someone who's an expert and be way simpler than what people, what people imagine, I'm sure, and what I imagined.

Justice [00:16:43] Yes, I think people people are really kind of surprised at how easy a chapter seven process is. I mean, that's the point, right? At least in my firm or my goal as an attorney is to make it as easy as possible, because that helps lessen the stigma. Stigmatization. Right. And word gets around like it was so easy. It wasn't it didn't hurt. It wasn't hard. It didn't drag me through the mud. And so it was just an easy process that allowed me to get started or, sorry, started essentially. So there are things you need to know in the process, like your credit score will probably take it or it's going to take a hit. If you have a higher score, then you'll probably jump down to the six hundreds. If you're in the six hundreds or five hundreds, you're going to take a lower hit, of course. But again, you can still restart because once you receive that discharge, there are still plenty of creditors who or lenders who won't because they're not creditors at that point, but lenders who will work with you to help restart your credit because they know you can't file bankruptcy again for at least a couple of years, and even then, you can't refile a trap. You wouldn't be able to refile chapter seven. You'd have to file under a different chapter.

Caitlin [00:17:49] So they feel protected because like, oh, you took you took advantage of that once and you can't do it again. So you're going to be taking this really seriously. So they all have a little bit more. They'll feel more protected or what what is the lender you're talking about. Would that be like at the individual bank.

Justice [00:18:08] Well, you can't get a mortgage for two years post chapter seven. But like, lenders for credit cards or other loans or for vehicles if you need to get another vehicle, like any type of like lender who might provide you with money. People always assume, like, I can't file bankruptcy because nobody's going to want to lend me money anymore. How am I going to rebuild my credit? Or how am I going to fix my credit? That's simply not true. Because again, creditors, once you've received a discharged and successfully completed your bankruptcy, you can't file another bankruptcy for two years. I believe it's two years. I may be misspeaking it's at least 2 to 3. And so and even then you have to file a different type of bankruptcy chapter. You can't file another seven for eight years. There's a protection period of sorts. So they know, like they can work with you and they can help you get restarted because you can't turn around and file bankruptcy on them. Again.

Sara [00:19:01] That's so interesting. I mean, and one other thing. Justice, you've mentioned a couple times protected assets. Could you talk a little bit more about the types of things or accounts that are not available to pay creditors through bankruptcy? I'm assuming that's what protected assets means, but please correct me if I'm wrong.

Justice [00:19:19] Yeah. So when I say asset, I mean like the things you own your home, your car, the things inside your house. Some people have trademarks or copyrights or your retirement, things like that. So these are all considered assets that you do have to list in your bankruptcy. We have to list basically everything that you own, and be as accurate or as thorough as possible. And so let's say you own a home. Most people own a home, or many people own a home. And they come to me and they're like, I just don't want to lose my home, right? And I'm like, that's fine, because you may not. And all bankruptcy, there are exemptions. These are laws put in place that you place on that asset that essentially protects the equity, right? The equity is what the trustee is trying to get Ahold of because they can sell that asset, get money and give it to your creditors. But the exemption essentially zeros out the equity kind of it acts as like a protector. So for example, in Texas you can use Texas exemptions or there's federal exemptions. And many states allow you to use one or the other. You cannot co-mingle them. And how you decide which is best or how I decide which is best is for you is going to depend on the type of asset you have and the amount of equity. So let's just say home, a home, for example, a Texas. The Texas exemptions cover less categories than the federal exemptions, but their amounts are very high. So like for example, Texas is one of the states that has an unlimited homestead exemption. There are requirements that you have to meet. You have to have lived there for three years to use the unlimited. But even if you haven't, it's still I think it's $189,000 of equity. That's still a very high amount that you can use if you haven't lived there the three years. So Texas is going to have these really large amounts of equity protection for your assets, but less categories. So some assets will be left unprotected versus in the federal exemptions. They have a large variety of categories. But less like lower. Amounts. So I need to look at your assets and decide federal or Texas. For most people who have a homestead, we're going to choose the Texas exemptions because we see that house pricing is going up. And so there's a lot more equity in homes now. And so I essentially what I do is I just click a button in your petition that says this home has a homestead exemption, which tells the trustee the person administering the case, don't touch the home or you can't touch the home. It's now being protected by this law. And so the debtor is going to continue to maintain or continue to make payments throughout their bankruptcy and post bankruptcy. You cannot take this asset and try to sell it. So that's how it works with all of your assets. There's a vehicle exemption that goes on your vehicles. There's, the things that you own in your home, like even your clothes, your dog, your bank accounts, things like that. They all get special exemptions and certain amounts that they cover. So that's what I mean when I say that there's an asset and there's an exemption to protect it. Now, again, under the state of Texas, for example, your bank accounts don't get exempted. They don't have a bank account exemption. So if we need to protect your home, that leaves your bank accounts open for, like, being possibly taken like the money out of it being taken and given to creditors. But I have a solution for that. We just try to file when your bank accounts are at their lowest. Right. We pick a day that works best for you, and then the trustee has no money to go after. There's ways to get around those loopholes when an asset is unprotected.

Sara [00:22:45] That is so interesting. I did not living in Texas for a long time. I knew about the homestead exemption because like in financial planning, a lot of it is like they can't take your home like, can't take your retirement accounts. So they just so people just kind of naturally gravitate towards putting money in there. But I did not realize that you get the choice between state bankruptcy laws and federal bankruptcy laws, that you get to choose your own adventure based on what sounds like what's best for you in the circumstance you're in. That's really interesting.

Justice [00:23:12] It will depend on what state you're in. So I will say that some states don't allow like you have like some states will say you have to use Wisconsin. I don't know if that's actually true for Wisconsin, but Texas does allow you to choose which is which. Exemptions work for you. You just can't co-mingle so you can't choose Texas for this one and then federal for that. It's all or nothing.

Sara [00:23:32] But you could have a paid for house that's worth $1 million in Austin, declare bankruptcy and keep your million dollar house. Yep.

Justice [00:23:42] As long as we attach the exemption. You've lived there for more than three years, and, there's an acreage requirement, I think it can't be more than, like, ten acres. So, again, there are other aspects that come into play, but these things aren't as common. Most people are going to kind of fall into a certain kind of category. So yeah, so that's one way that your assets are protected. And then, another way that bankruptcy protects you is that, I think it's important to mention, like, when your case is filed the day that your case was filed, you get what's called an automatic stay. And I tell clients this is like a shield that drops down over you, when you file bankruptcy. And the automatic stay tells creditors they can't come after you anymore. Unsecured creditors. It says I kind of joke with clients that the automatic stay, like creditors are dogs, and the court is saying, sit and stay. Sit and stay put until I tell you otherwise. And so, the automatic stay want as soon as your case. So we can't really stop creditors from, you know, coming after you, harassing you. We're calling you before we file your case, unfortunately. But we can navigate and maneuver around those things in certain ways. Right. Or we can't stop them from suing you. But it's the moment your case is filed, the creditors are not allowed to proceed anymore. They. You will see the calls stop. You will see them contacting you. Stop. Because they have to follow the automatic stay. And so same thing with like. So let's say your home was under and we're getting ready to be processed for foreclosure. The foreclosure has to stop. If you're getting a wage garnishment you will see the wage garnishment stop. Literally. They cannot take money from you or they're not really supposed to contact you either. All of those things will cease within like 48 to 72 hours after you file, because they have to cooperate with the automatic state which protects you. And a chapter seven. It's going to protect you up to your discharge and other types of bankruptcy. The length of the stay will vary. And then at the end you received your discharge. Your discharge order tells those unsecured creditors you can't move forward with them at all ever again. So don't contact them for pay. Don't contact them for anything. This order says you have been discharged. Please don't contact this person. Secured assets like your home or your car at the end of your bankruptcy. Once you receive your discharge, you'll just continue to maintain your payments because you stated you would in your petition. So there's lots of ways that you're actually protected in the bankruptcy. So like I said, your assets get protected by exemptions and you yourself are protected by the automatic stay.

Sara [00:26:13] I love that because on my list of questions was debt collectors. You know, question mark, thinking about the the emotional impact of going through a process like this, like it sounds like most people probably come to you after having been avoiding phone calls or notices or whatever is happening. And so what you're saying is, like, once you make that decision to file, that all goes away. And now justice is in charge of leading you through the process. And all of that just stops and you get to have some silence.

Justice [00:26:46] Yes, I like to. I just always try to mention those things because these are things that people are like, worried about my assets and myself, like the creditors are showing up at my job or they're calling me constantly. But there's ways for us to protect you or like forks or even judgments like so. Another common factor as well. The creditor just sued me. What do I do? Like, can you help me? Well, first off, I can't help you in those judgments because I only represent you in your bankruptcy. I don't represent you in a civil capacity. So you are welcome to seek outside counsel. But I do have good news. Any judgment? If it's active, like, let's say, the lawsuit, they've sued you and the lawsuit is still going the moment your case is filed, the automatic stay takes effect. The bankruptcy court will send a notice to that court and say, look, this case can't go forward anymore. I've got a bankruptcy in place, so please shut down this lawsuit. And eventually or basically that lawsuit gets dismissed or it's also called state. It gets put in its place and stopped and stayed put. And it can't go forward because you've received a bankruptcy stay or let's say they win the judgment against you. Well, that's still an on type of unsecured debt. So it's going to get wrapped up in your creditors either way and it gets discharged. So there's a lot of ways that you get protected. Want your cases filed.

Sara [00:28:02] Caitlin I feel like I've been monopolizing the question. No.

Caitlin [00:28:05] You've been at your first time ever. It's very unusual justice that I'm sitting here on the sidelines. No, but you were also asking all the questions that I had, just as I'm curious, for our listeners, like, who were the ones that like how to. As individuals, we decide when we should consider bankruptcy or not. Like what's just like, you know what I got in over my head a little bit, but, like, I spent it. I need to pay it back versus this is you don't have to live like this. Like, you might have made some mistakes, but wiping the slate clean like you should really consider.

Justice [00:28:48] So most people get to me when they're like, they're really in the hole. Like they're they can't live. They're struggling to live month to month. And and so that's like the most common. Like they're just like, I can't do it anymore. I've tried to pull myself out. I've tried to dig out of the hole and I just can't anymore. Ideally, it would be best for you to reach out to a bankruptcy attorney before you get to that point. Like if you're kind of seeing the bills kind of start to stack up and you're like, I don't know. Or like, maybe you just have a large amount of debt and you're like, I don't know how I'll be able to pay all of this down and take care of myself or my family. If you're getting to the point where you're kind of questioning that, where you're like, I just need to make more money or I just need, you know, whatever. Then like, maybe it's time to discuss bankruptcy, because if you do it before you kind of get in the hole, then you do it before creditors kind of start digging on you and harassing you. It's going to be less anxious, a less like, anxious process. But most people kind of when they don't reach me until they've kind of hit rock bottom and they're just like, I'm drowning. And I have see no other way out. And I'm like, that's fine that you see no other way out, I will I we are in this tunnel together and I will make sure you find the light. So it's totally okay. But, honestly, just when you kind of get to the point where you're like, if your bills each month are just too hard, right? And you're like, I only have like a dollar or $50 left each month, or maybe even maybe, I don't know, even if you have a lot of money, you if you qualify, then it's like I said, it's a resource for you. Use it. If you have debt that you don't think you can pay and you want to restart, then you should reach out and you should see if it's a it's a good option for you.

Caitlin [00:30:32] Okay. You can't pay. You've accrued this. I'm wondering about situations where it's a health situation where the bills are going to be. It's not like, oh, that all happened in the past. And so now I'm trying to like dig myself back out. It's like, no, this is an ongoing health situation that comes with a lot of ongoing bills. What happens in those cases?

Justice [00:30:56] Your bankruptcy is only going to cover your creditors from the day you file going back in time. Any unsecured creditors previous in the past, unfortunately, the moment you filed like the next day, moving forward, any debt incurred is your responsibility again. But I do try to tell clients who have health issues, like if you've come to me because it's the medical bills that are kind of piling up. Then if it's possible, we don't have to. If we don't have to file right the second, we can wait until, you know, the big surgery or the big thing down the road. Or once your health kind of gets back on track, then let's do that. Maybe you don't need to file right the second, but maybe it would help us to file six months from now, when you're out of the hospital and your health is back on track, and then your medical debts, those are unsecured, they get included. But unfortunately, you always need to look at it as the day I'm filing. So if I filed today, all my unsecured creditors going back in time from the moment I could acquire unsecured creditors will be included. But anything moving forward, going forward tomorrow will be my responsibility again.

Caitlin [00:32:02] Okay. During that five month period, you're not protected from incurring more debt. It's just the people that you already owe money to. Can't ask you for it during that time.

Justice [00:32:13] And, well, during the during your bankruptcy, you're not actually allowed to incur more debt. Like you can do medical expenses, but like you can't go out and incur current more credit cards or loans while your bankruptcy is active. You need to wait. I usually advise clients wait till you're you can start over again, but you need to wait until we receive that discharge. And then at that point, you can start incurring new debts, new creditors, new loans, things like that. But medical expenses are necessities. So, like, if you, of course, need to take care of it yourself, then you should do so.

Caitlin [00:32:42] Okay. And then day of the morning, you're like, hey, good news. You got your judgment. Then what's different in your life? Like, you open up all those accounts and they're zeroed out.

Justice [00:32:54] I don't honestly look, credit report is going to look different almost immediately after filing. You're going to see a lot of them drop off almost immediately after your case is filed. So, yeah. So essentially your credit report is going to look different. They're either going to show that they dropped, like they'll just stop reporting and they drop off, or they'll stay like closed out. Or they might have a bankruptcy tag on them. But like the yeah, they just fall off essentially, or they're not reporting there anymore. I usually tell clients you'll see your credit report kind of balance back out between 45 and 60 days after that discharge is received, your like vehicle and your home. If you still have those and you're maintaining payments, you'll start seeing those kind of re re report at that time, any of your discharged creditors will drop off. And then again, any new creditors that you like inquired will then begin to pop up and start reporting.

Sara [00:33:48] It makes me think about we did an episode with Matt Shultz about credit scores and credit. And I think in that podcast, Kaitlin, I think we talked about how, like the most recent 12 months of payments are the most important ones. So whether you're rebuilding credit or, you know, in this case, rebuilding after a bankruptcy that really like the responses from the creditors aren't as draconian as everybody thinks. Everybody thinks like we will. We cannot recover from this or we can't recover from it within seven years. But based on what you're saying and what Matt was saying, like you, you start the recovery process. I mean, 12 months is not a long time to start really rebuilding credit and your credit score in a serious way by having 12 months of current payments, which maybe you couldn't have when you had all of the unsecured debt. But you can focus on once you get your discharge paperwork.

Justice [00:34:47] Yeah. And again, for some people, it might take a couple of years to get back to where you were or even back up to 700 or 800, but you absolutely would like immediately. You can start the process as soon as your discharges received, and there are actually bankruptcy programs that are like back to 7080 after bankruptcy, like they will coach you and provide you with resources or direct you to lenders who will help you rebuild that credit, like there are programs for that. Like I said, there are so many resources and lenders who will work with you post bankruptcy because they know that you can't file again and again like they want you to. It's a resource that's provided to you. You should be restarting and you deserve to restart.

Caitlin [00:35:29] I'm curious if people come to you ever and you're like, you know what, I think this might not be the best option for you. Like, I understand the case where it's you're still going to have the big surgery. So you're like, yes, I think you're a good candidate for this, but let's wait, until the big debts are, you know, that that are still coming in. Are there are there other instances where you like, hear their life plan and where they've been and where they want to go, where you're like, Let's put a pin in this. Might not be a good idea.

Justice [00:36:00] Yeah. So it's going to kind of depend, like I said, on the factors. But like, for example, if you're not married yet, let's say if you have a fancy and you're planning a wedding, I think it's it might be best to file now, or it might be best to wait until after your wedding. Because you won, then you're entitled to a joint filing you and your spouse can file. Can both of you be protected under the bankruptcy? Because there's a misconception, at least in community property states, which Texas is, that if only one spouse fails, both spouses are protected, which isn't true. So maybe we need to assess both of your debts and do it after you're married. So, like, maybe we need to wait. Or. I recently had a case where, I met with the gentleman, and we got all his case prepped, and I. I was reviewing his creditors, and he only had two creditors, which isn't a big deal if they have large amounts. Right. But it was one was like a thousand, and the other one was like 10,000. And I, I was like, I just don't know if because your credit is going to take a hit and you kind of have to restart and you can't get a mortgage for two years, maybe it's best that you reach out to them and see if they'll do a payment plan with you, and if it's a reasonable payment plan, then you should start there. And he was like, oh, okay. You know, after going through all of his, information, he was like, okay, I think that is a good idea. And he did. He reached out to the creditors and he was able to get on payment plans, reasonable payment plans that he can pay back without being like drowning or being brought under. And so I pulled out. I was like, there's no reason for a I'm not going to like I said, my job isn't to force you into bankruptcy. You have I'm in some long I will say there are bankruptcy firms where, you know, it's like a cash grab or like it's just numbers. But like with me, you are not a number. You are a human being who deserves to live. You deserve to function in society. And we are going to get you there, whether it's filing or sending you somewhere else.

Caitlin [00:37:52] That's awesome. I saw you writing down another question. Sara.

Sara [00:37:58] I do have another question. Going back to the process, justice, when you're when you're there, like, you've listed all the assets, you've listed all of the debts, do creditors ever fight you like or challenge you like what I mean? So at this point, it sounds like the client is kind of sitting over here and there's a trustee and you have the assets and the debts, like how do the creditors like, fight for like as much as they can possibly get? What does that look like?

Justice [00:38:25] So actually want your cases filed. So there's all of your creditors will be notified of your bankruptcy. And we call it the bankruptcy matrix list. So they do get notified that you filed because they do have the right to be involved in your bankruptcy. They are they have an interest. They are losing out on, you know, money. Right. And then they are allowed to file a proof of claim. And that just said like it's exactly what it sounds like. This is proof that I'm owed this X amount of money. And chapter seven you'll see like the vehicle, if you have a secured vehicle or a mortgage, they're going to file a proof of claim with the court and show, hey, this is how much is left on the mortgage or how much is left on your vehicle. And so if there is an amount paid out, like let's say there was an asset that was unprotected left and they sold that asset, they will get a stake based on their proof of claim. If they if creditors don't file a proof of claim, then they don't. There's no proof. They don't get anything because they didn't file one. So they are allowed to file proof of claims. And it's called the bar date or bar claims date in all cases. And it's usually set the it's like 30. I think it's 30 days after that 341 meeting that we talked about. So they get an additional 30 days to file proof of claims and object to your discharge should they wish to. Now, just because a, creditor objects doesn't mean you're not going to get a discharge, but they do have the right to do so. But I will say in the chapter sevens that I work on, it is not very common for creditors to object, because if you don't have the money or there's no assets to be sold, then they're kind of just going in circles.

Sara [00:39:58] Yeah, yeah.

Caitlin [00:40:00] Aren't they insured? Like.

Justice [00:40:03] I'm sure they are, but I don't really have any knowledge. Yeah. It's going to kind of depend on their own internal product protocol I guess.

Sara [00:40:11] Right? I mean, because I think banks have when they, when banks report their earnings every quarter, there's something called a loan loss provision. So any lender is going to know based on who their clientele is, how many people are going to default, how many companies are going to default, how many mortgages are going to default. So they have that built in to their, their business model, right, that some of these people aren't going to pay us back so they don't have to necessarily fight for every scrap because they've already basically set the money aside and assumed if that's going to happen.

Caitlin [00:40:44] Well, in that 24% interest rate really helps buffer, right? Whatever losses they might incur right down the line.

Sara [00:40:51] It's all part of the business model. Right. Like, we're going to we're going to push some people over the edge with the amount of or bad things happen to people. Right. And some people are not going to be able to pay us back.

Caitlin [00:41:02] I think that's such an important piece that you bring up, Sara, because I think even I start worrying like, well, what will Citibank do? They're going to lose all that, that $70,000 like that does. Didn't seem fair, like they didn't. And so it's also so good to be reminded, like, this is how capitalism works. This is how these corporation works. They know and they lend money to people that they know might not be able to pay it back. So like they're going into all of this with eyes wide open.

Sara [00:41:33] I like how you're so worried about Citibank.

Caitlin [00:41:35] That's ridiculous. But I'm trying to also think if I was in that hole, like, what is that shame? What is that like? I am somewhat part of my identity is I am someone who, like, stands by my word or I'm responsible or I wouldn't steal. And this could feel like stealing. And so I just want to broaden the frame a little bit, to take it away from that idea that it's stealing from Citibank, like Citibank is doing its own version of stealing. Like, if we're going to talk about stealing, I think like each of us as individual consumers will be like the lowest level offender versus these bigger corporations. So I'm trying to just like, bust that in my own head that.

Justice [00:42:19] Yeah, and it's not I don't I think people kind of feel that way, but it's not necessarily stealing. They took the risk by giving you an unsecured loan. If they wanted to secure it, they absolutely could. They can. There are ways to facilitate that on credit cards or any any asset really. And so if they wanted to secure it, they could they took the risk by not securing it. It's kind of like gambling. Like if you go to gamble and you win the million dollar jackpot, like they took that risk. Also kind of like I just kind of like when we talk about like discharge or like forgiving old debt or something. No one. It's not that it's being burdened on someone else to pay it. Like they don't have to pay it back. And you also don't have to pay it back. It's just done. It's just done. It just doesn't exist anymore. What I mean, yeah, they have to take a loss, but with the amount of money that they make, they're billion dollar corporations. It's balancing out.

Caitlin [00:43:11] Okay. So we don't have to worry about them not being able to like.

Sara [00:43:14] Feed their families. Yes.

Caitlin [00:43:17] The bank could make it right. The CEO of Chase Bank.

Justice [00:43:22] Chase and Citibank and JP Morgan, those are the same. But they'll be fine. Yeah, yeah. So, I know I think we're kind of getting towards the wind down, but I have like a frequently asked question sheet.

Sara [00:43:35] Oh, perfect. We don't even have to be here, Caitlin I know.

Justice [00:43:39] So just some questions that I kind of think that are frequent questions that people ask and just kind of answer them real quick if that's okay. Yeah. So, how do you know which creditors to include? Well, all of your unsecured creditors have to be listed. You can't pick and choose. So it's not like, oh, but I really want to keep my Ulta card. I'm so sorry. You are. An Ulta card is going to be included. I will say if it's your own, I don't list it because you don't owe anything, so they will be deleted from your creditor matrix. But if they you know, most credit card companies like synchrony Bank owns multiple credit cards, right? So if you have a JCPenney J.C. Penney card and an alter card and a TJ Max card, but Ulta is actually wrote, I delete it out. Well, they're going to find out through one of your other cards. Right. And so they'll probably close out all of your accounts with them. But basically you don't get to pick and choose if it's okay, if there's an amount that you owe on it, I'm going to list it. I'm going to pull your credit report and list everything on there, and then I'm going to ask you to provide me with any additional creditors. If you're not sure if they're on your credit report, and I'm going to add them in manually from there. So you don't get to pick and choose if there's a balance, they're going to get added. So what if my debt was sold to a credit like off to collections? Well, we want to try to capture everybody on the matrix. But if for some reason you don't know, it got sold to someone to sold someone to sold someone, right? So you don't know where it's at. But the original holder was Chase. Let's say as long as I've listed Chase, I get everybody in the line of collections. Okay, so ultimately it's about the debt itself. I don't know where you want to put we because we want to notify your creditors as much as possible. But as long as we get the debt at somewhere in the chain, it's going to get everybody in the chain. Okay, what if, what if a creditor gets missed? So let's say your case gets filed, and then a couple weeks happen and you receive some sort of notice, and it's clearly from a creditor from before you filed. Well, we can amend there's a certain amount of time while your case is filed where we can amend to add the men, and that's fine. That fixes that. But let's say it's post discharge and a collections agency pops up and you know, they're from before you filed and they're unsecured. As long as none of the, creditors in your case received some sort of money, then all of those creditors are included. Regardless of if they're listed, they're bound by your discharge order. Now, if an asset was sold and money was dispersed to your creditors, then unfortunately, you will need to pay that creditor because they missed out on money. Right? That. Should have been dispersed to them. But in most chapter sevens, your creditors aren't really. Or at least the ones I file. It's very common that creditors aren't going to get anything. So as long as they no creditors got anything. That creditor is included in your discharge. Yes. So what is a joint bankruptcy? Do I have to file with my spouse? You don't. You are allowed to file an individual bankruptcy. But the court does allow you to file jointly. Married? You do need. I do typically require that you be officially married, not common law. And I haven't lived together. I it's much more helpful if you have a marriage decree. So if, all of your debts are just your own, they're at no point have been in your spouse's name or they're not an authorized kind of user, or they're not racking up the debt, then you can file by yourself. But if the debts are overlapping, if their marital dad you're using them for the both of you or creditors have their name and, you know, the statements kind of go to your partner, then maybe it's best for you to file jointly together. So what type of debts are included and what type of debts are not included? So again, types of debts that are included in a bankruptcy are unsecured creditors credit cards, loans, payday loans. Medical debt. and judgment creditors like a like a credit card person who is suing you. Okay. Things that are not included. Criminal fines, restitution. If it's related to a criminal matter, you probably cannot get a discharge. Parking tickets, child support and alimony. Is not this chargeable because the government has an interest to protect that individual, right. So we want to protect children or marital spouses who will receive alimony. So that's not dis chargeable. You'll still be responsible for those student loans and IRS debt are not dis chargeable, at least not automatically. Again, the government is going to carve out exceptions to protect themselves. There are some cases where IRS debt can be this chargeable, but it's usually got to be like so many years that you've had it. And there are other like trigger points. I am not an expert in this field. I usually tell clients I'll list your IRS debt because I have to, but you should confirm with an IRS or a tax expert to see if confirmed if they were discharged or not. Okay. So divorce and bankruptcy, how do those affect each other? Generally, bankruptcy is going to over like supersede your divorce. So let's say in your divorce decree, you were assigned your marital debts. They said you're going to pay back the JCPenney card and this loan and this card. Once you file for bankruptcy, that bankruptcy will oversee that divorce judgment, and both will be discharged. You will not be responsible for them, even though they say so in your divorce decree.

Caitlin [00:48:57] Wow.

Sara [00:48:58] I'm the justice on the divorce question. If so, you said that you can file for bankruptcy person like as an individual or jointly. I'm assuming that if two people file jointly, they both have to agree to it so that, for example, to, you know, husband and wife situation where if the husband wants to declare bankruptcy, they can't like rope their soon to be former spouse into the bankruptcy with them.

Justice [00:49:31] Yes. Both parties must agree. Both parties have to sign and both parties have to turn over documents for themselves. Like I and I have to meet with both of you. So no, you and your their spouse can't file bankruptcy on your behalf and kind of wrote both of you into it. That would be fraud.

Caitlin [00:49:48] Can I ask another question? And then I went, what about your miles? If the credit card debt gets wiped out, do you get to still keep your phone?

Justice [00:49:58] That I don't know, I that's an interesting question, but I don't have an answer. There's probably something in your contract that says, like you, you probably default on like the perks or assets once the if the card is defaulted or discharged.

Caitlin [00:50:11] So you might want to take that round the world trip even though you don't like just like use the miles. Okay. Thank you. And I know you have a couple others.

Justice [00:50:23] Just as a recap. So how do I qualify for chapter seven? We're going to look at what's called the means test. And that is based on your household size. So it's going to include like you even if your spouse isn't filing they're still included as your household number. Your children, if they are under the age of 18, get included in your household number. Some college level students, like if they're still living at home or if their primary residence is still at home or you claim them on your taxes, we might be able to include them as your household. Well, assess these factors and decide what household size fits for you. And then does your income meet the threshold? And if it does, then you qualify for chapter seven. Well, that's a starting point. Chapter seven. Think of it as two doors. The first door is do I meet the household requirement income? And then the second door is disposable income. So you have to get. Door one to get to door two, and you have to get through door two. To be able to file so one, do you meet the household requirement? Yes. I've assessed your income, you of your household of one. And you make less than 61,000. Perfect. We step through the first door. The second is that a disposable income? It's a portion of your petition. So it's going to take your income minus your monthly expenses. And whatever balance is left is called your disposable income. We don't want an excess of disposable income, because if you have a high disposable income, that means you have money to pay creditors. And that means that either you should pay we your discharge should be denied so you can pay creditors, or they're going to convert you to a different type of bankruptcy. So that way you can pay your creditors. So we want to ensure that your disposable income as low as possible. We usually this is an easy fix. Door number two isn't as big of a problem as door number one. Usually if we get through door one we'll get through door two. But door two I'm going to review your expenses with you. I'm going to go over all everything you pay each month and fill it in to our expense sheet. And that will help lower your disposable income. And that gets us through both doors. And then at that point, you and I can file together. We just need to review your petition, make sure you're comfortable, make sure your assets are protected. And then like I said, from there I'm going to take over and you're going to let me do the work for you.

Caitlin [00:52:33] Oh, God, I wish, I wish I had this specific problem right now. I'm like, justice help! Just you're reminding me of, like a bubble bath commercial, just like, take me away. Here's my question for both of you. How come, in my mind, bankruptcy was synonymous with filing chapter 13? Like, I just thought that was it. So I was really surprised when you said chapter seven, and then you said chapter 11. And I was like, there's all these chapters in this book. I only know about one particularly.

Justice [00:53:07] I'm doing chapter seven and chapter 13. I don't love 13. So they are kind of complex. A 13 is different from a seven because they are going to consolidate your loans like all those unsecured creditors are going to consolidated into one monthly payment, and you will pay the trustee every month for 3 to 5 years, like you're going to be you're paying them off in that case. And they're very complex. There's lots of nuances that kind of go into them. I'm still learning them. And I think most chapter 13 attorneys would tell you I'm learning every day because it is kind of a complex scenario. But yeah, so there are different types of bankruptcy. And you don't necessarily just because you don't fit into one box doesn't mean you don't have any options. So for chapter seven, if you don't qualify, maybe we need to discuss the chapter 13 for you. Although I don't love them. So I do try. I do try to see if sevens are the best option for you.

Sara [00:54:01] I mean, I kind of want to know what's in like chapters like one through six. Like nobody ever talks about that. I know I'm not going to open like the bankruptcy code, but, you know, it's like the you referenced the seven, 11 and 13 most often. I'm like, I wonder what the other chapters say. Like, then I say something, but but no one cares.

Caitlin [00:54:18] So don't worry, listeners, we're not going to go through each chapter know.

Justice [00:54:24] So if I can do a quick plug, if you're in the state of Texas and you need help with bankruptcy, if you have questions, please reach out to us again, it's Lincoln Goldfinch, Law or justice Pierce. You might be able to search me on the Texas Bar attorney site and find information about me. So if you have questions about bankruptcy, please, all you have to do is call. And that doesn't mean you necessarily have to file, but you can get more information. And I know it's kind of a scary process, but you deserve to get back on track. So please reach out to our firm if you have questions. Like I said, you're not a number to me. You're a human being and I want to see if there's any way we can help you. Oh my gosh.

Caitlin [00:55:00] I'm so glad we found you.

Sara [00:55:01] I know, I know, I mean, because really, like, in I mean, thinking of, like some of the boards that I serve on, you know, in some of the communities that we're trying to reach, I know that this is information that more people should have.

Caitlin [00:55:17] Yeah. And I bet in my network, just asking all of my friends, like there would be maybe nobody that would know what I know now about this and who would have avoided that? Like, I am not the type of person that would even get information about bankruptcy. Yeah, are so pleased. And this is our last episode, first season three. So I'm really glad we're ending on this note of information is power. And consider your options. Thank you.

Music transition by Bad Bad Hats

Sara Did you have a question about finance or investing? Send it to us in an email or voice memo on our website womenontheverge.com.

Caitlin Hey, we want our listeners to know that economic abuse can be subtle, but it's a serious form of control. Watch out for partners who limit your access to money. Sabotage your job or rack up debt in your name. If this sounds familiar, know you're not alone and there's help available. Please learn more at the hotline.org or call 800 799 safe.

Sara This episode was edited by our co-producer Kelly West, with music by Bad Bad Hats and Devmo.

 Music outro by Devmo

Devmo I know the first thing you notice is that I'm covered in gold, the flick of the wrist it could turn a hot bitch cold, to get what you want in life girl you gotta be bold. Now Imma die rich, and I know...

Sara This podcast contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this podcast will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.