Money Matters
Money Matters
Broke But Not Broken: The Truth About Bankruptcy
Bankruptcy may be a taboo subject in personal finance, but it can be a necessary option for those facing overwhelming debt. Attorney Mitchell Dickson and bankruptcy specialist Nicole Duhon demystify the bankruptcy process and help listeners understand who should consider this path.
• Chapter 7 bankruptcy involves the liquidation of assets and is typically for those with lower incomes needing a fresh start
• Chapter 13 creates a 3-5 year repayment plan allowing individuals to keep homes and vehicles while paying what they can afford
• Most bankruptcies result from traumatic life events like divorce, death, medical issues, or disabilities – not financial irresponsibility
• Making only minimum payments on credit cards for years or falling behind on mortgages/car payments are red flags that bankruptcy might be appropriate
• The bankruptcy process typically involves three meetings with an attorney and one court appearance (now usually via Zoom)
• After filing, the "automatic stay" immediately protects from creditor actions like garnishments, foreclosures, and repossessions
• Bankruptcy doesn't mean losing everything – secured debts can be maintained if payments continue
• Credit unions often close accounts of members who discharge debts through bankruptcy, especially if the institution suffers a loss
• Recovery is possible – with responsible credit usage post-bankruptcy, financial healing can happen relatively quickly
• Free consultations with bankruptcy attorneys provide confidential, personalized information with no obligation to file
If you're considering bankruptcy, schedule a free consultation with a qualified bankruptcy attorney to receive professional advice tailored to your specific situation. Bankruptcy can be a financial reset rather than a financial death sentence.
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Welcome to Money Matters, the podcast that focuses on how to use the money you have, make the money you need and save the money you want – brought to you by Neighbors Federal Credit Union.
The information, opinions, and recommendations presented in this Podcast are for general information only and any reliance on the information provided in this Podcast is done at your own risk. This Podcast should not be considered professional advice.
Welcome to Money Matters, the podcast that focuses on how to use the money you have, make the money you need and save the money you want. Now here is your host, ms Kim Chapman.
Speaker 2:Welcome to another edition of Money Matters, and I'm your host, kim Chapman. So today we're going to talk about a taboo bankruptcy. You probably don't hear a lot of personal finance podcasts talking about this. Definitely it's a subject that both banks and credit unions hate, but guess what? It's a necessary evil. So today we're going to uncover what bankruptcy really is and who should, or who shouldn't, file. So joining me today are attorney Mitchell Dixon and then our in-house bankruptcy specialist, nicole Duhon.
Speaker 4:Welcome, thank you, thank you. Thank you, ms Chapman, for having us.
Speaker 2:So I think this is going to be a really, really interesting topic because, like I said before, it's a necessary evil. Nobody, you know envisions, wakes up and aspires to file for bankruptcy, but it's something that happens. So, Mitchell, I want to, you know, have you kick it off first, Tell for bankruptcy, but it's something that happened.
Speaker 4:So, Mitchell, I want to have you kick it off First. Tell us how did you even get into this particular industry as an attorney? What is your background? Well, I'm happy to answer that for you. Sure, First, thanks for having me. I enjoyed doing this and enjoyed getting to meet you so far, and just delighted to be here. My background was just going to LSU Law. I graduated from there in 2013. And at the time, the job market in the legal field was not great. You know, I was applying when I graduated. I didn't have any offers, so I was on the job hunt and the first really appropriate, acceptable offer that I received was at a consumer bankruptcy firm here in Baton Rouge. I had not even taken bankruptcy law in law school, so I was starting fresh and I jumped headfirst in. You know, just gave it my all and decided I liked it. You know, the math always made sense to me and, you know, kind of just took off from there.
Speaker 2:And Nicole, you've been in that bankruptcy office for forever. I don't know that you've done anything else for neighbors, so give us a little bit about your history.
Speaker 3:Whenever I first got to neighbors, I handled the legal accounts, so that is repossessions, filing garnishments, filing suit, working closely with our attorney's office that handles that for us. And then I shifted over to bankruptcy, probably about four years later. So I've been here for 20 years, just made my 20 years. Congratulations, I'm hot on your trail. So I've been here for 20 years, just made my 20 years. Congratulations, I'm hot on your trail.
Speaker 3:So I've been doing it for about 16 years now, so it's been a learning event. I didn't have any knowledge of bankruptcy whenever I took the position, just on the legal side of it, not the actual bankruptcy part of it. We have a fantastic attorney, stacey Butler, and I've learned a great deal from her, so it's very interesting. I love it.
Speaker 2:So let's dive in. And you know, there are a list of words that just kind of bring up those negative feelings. At the top of that list I like to think of IRS, but then right behind it there's bankruptcy. So while most consumers know the term, a lot of them don't know the real ins and outs. So let's start with maybe having Mitchell talk about what exactly bankruptcy means.
Speaker 4:Well sure, let's kind of start off by dividing bankruptcy into both consumer bankruptcy, which is what we're going to talk about, and business bankruptcy, which is something that is outside the realm of what we're going to be talking about.
Speaker 2:We'll do another show just for that. Sure, yeah.
Speaker 4:And so consumer bankruptcies are typically both Chapter 7 or Chapter 13. 13. Okay, and the people that go into that, consider doing those kinds of bankruptcy cases, are usually the people that are going through a lot and are not able to handle those issues themselves financially. People can be behind on a vehicle, behind on a house, need a fresh start. You know, have tax issues you mentioned the IRS, those kinds of things. But bankruptcy if there's one thing I want to communicate to you today, it's just it's not the end of the world for these people. We've had over a thousand clients through the years now and we've gotten good results. People are happy they've done a bankruptcy case, but it's also not for everybody. One of the bankruptcy attorney's most important roles is to kind of provide counsel in advance of filing a bankruptcy case, so that somebody knows if it's a good idea for them to do or not.
Speaker 2:That way they're not just trying to file as many bankruptcy cases as possible and throwing people who maybe shouldn't be in a bankruptcy case in a bankruptcy case and be in a bankruptcy case, in a bankruptcy case, and I think I want to kind of go next to mystifying one of those myths, because I think there are a lot of consumers that have the conception of misconception that, hey, I'll file bankruptcy and I don't have to pay off any of my debt. Sure, how does that really work?
Speaker 4:So general advice, of course, right. This is anything I say here today is not going to be specific legal advice for any individual listening to this right. Always go get proper legal advice from a qualified attorney, absolutely Right. But in general, if you do a chapter 13, you're paying to keep your stuff. Okay. You're doing a chapter 13 because you want to keep your house and or keep a vehicle and you're not doing that for free okay, you're paying to do that. You're doing a chapter 13 because you want to keep your house and or keep a vehicle and you're not doing that for free Okay, you're paying to do that. You're also paying the unsecured debt that you can afford to pay Okay. So if your budget allows for you to have the surplus income to pay unsecured debt, you're going to pay that too. And a chapter seven if you want to keep secured debt, such as a mortgage or a car, you're not keeping the collateral if you don't keep the debt. So you know there's no free house or free car, no free ride, let's say, in a bankruptcy case.
Speaker 2:And so, nicole, being that you've, like you say, you've been doing this in this particular area for 16 years, so it's got to be a pretty big deal in that they have at least one person dedicated. So, on the backside, what does it mean for a credit union when you have consumers or members that file bankruptcy?
Speaker 3:Well, we, you know, will pull. I will pull all of the documents that's filed by the attorney, such as Mitchell, and review them to make sure we are being treated fairly. In the plan, we are receiving the proper value for our collateral in a 13 and in a 7, making sure that the documents get signed if they would like to keep their car or house. It's called a reaffirmation and that's just reaffirming the debt that you already have with neighbors.
Speaker 4:Functionally exclude. I'm sorry, excuse me, but functionally excluding that particular debt from the Chapter 7 discharge, right, right.
Speaker 3:And that's what the reaffirmation does.
Speaker 4:Yeah.
Speaker 3:So that's how it's handled on our end. Does so that's how it's handled on our end, just looking at all of the documents that's filed in the bankruptcy and making sure that we're treated fairly.
Speaker 2:And so and Mitchell may not realize this, but of course I do a lot of teaching, of financial education, not just for our members but in the school system, and a lot of times when consumers come in to see me they've gotten in over their heads and a lot of it is just, you know, sometimes wanting to keep up with the Joneses. But that's not the only reason people get into financial trouble. So, mitchell, what are some of the most common reasons that you see individuals come in and file?
Speaker 4:If we're looking at the period of multiple years ahead of the period ahead of the time when they file a bankruptcy case, oftentimes we're looking at traumatic life events. You know things like a death in the family, a divorce. You know because nobody ever plans on getting divorced, but a lot of marriages unfortunately do end that way and people do end up in financial hardship due to divorce. Very, very often there's also very commonly medical issues and disabilities, just things that happen to people through no fault of their own. That kind of cause them to no longer be able to meet their obligations. And some people have savings, some people live off that savings for a while, but if they're still not able to go back to work, that's whenever that a person might look at doing a bankruptcy case.
Speaker 2:And I'll ask each of you this question Do you find that there are any particular times of the year where there is a spike in the number of people that file for bankruptcy, whether that be the first of the year, the summer? Is there any any trend that you, that either one of you see?
Speaker 4:I can probably help.
Speaker 3:Yeah, you go first on this one. I want to see what you say, so for Chapter 13s.
Speaker 4:A big drive for Chapter 13 filings is foreclosures and a lot of times Chapter 13s are filed a very short period before a home is put up for sheriff sale at the end of a foreclosure, and not a whole lot of sheriffs hold foreclosure auctions around the holidays.
Speaker 4:So there's not a whole lot of chapter 13 filings, let's say, between Thanksgiving and New Year's. On the other hand, chapter 7 filings a lot of times the people that look at doing a Chapter 7 are really, really living on a very tight budget. Okay, and the only time of the year they can afford to even consider doing the Chapter 7 is when they get the tax refund, you know, and they might get a whatever you know X number of dollar refund, use some of it to pay a month's rent, use some of it to catch up a car note and use the rest of it to pay for a bankruptcy case. And that might be the time of year they have those extra funds because, you know, living paycheck to paycheck.
Speaker 3:That actually makes a whole lot of sense. Yeah, it sure does. And now I'm sitting here thinking about, you know, my caseload over the years and how the trend goes, and that definitely makes sense. I would say that there's really no filings during the holidays November through really the beginning of February.
Speaker 4:And the other part of that, Nicole, is. Attorneys don't like to work around the holidays either, so we're not like I hate to generalize but I don't mean to generalize, but it's, you know, we're not trying to take all the appointments we can around Christmas, you know, and you know just trying to give staff as many as much of a holiday break as we can as well, you know to treat them right, because y'all work just as much as we do.
Speaker 4:Well, yeah, I just, I truly do value our staff, you know, and want to make them feel appreciated and give them the time off between Christmas and New Year's, for instance. Oh, yeah, definitely.
Speaker 3:I would say that a spike in filings would come around the beginning of school, which would be the August, july, august, kind of the season that we're in right now.
Speaker 4:I've, throughout the years, seen a spike during that time, Very, very and you can also just on a national basis. You can kind of track bankruptcy filings just along with the economy, just kind of how the how the national economy is doing. You know definitely, and if it's not doing well, people are losing money on their investments. If unemployment rate is rising, you can bet bankruptcy filings are probably going to be going up as well.
Speaker 2:So let's talk who should be filing for bankruptcy. I mean, statistics say eight out of 10 Americans in debt. Right, so that pretty much covers most of us. But just because you have debt, bankruptcy may not necessarily be the option for you. And I want to circle back and we can kind of talk a little bit about other options. But who are those candidates that really, really fit the bill that this is the right decision? This may be the only decision for them.
Speaker 4:It's somebody who is living the right way but can't make the numbers work. Okay. So it's somebody who is trying to pay the debt. It's somebody who is paying what they have to pay for. They're paying their rent, you know, because that's the first thing you got to pay. They're paying the electric bill because you got to pay it. They're paying their car note because if they don't pay the car note, they don't have a car, can't make any money to pay any of this stuff, right. And they're just paying the minimum payments on the credit cards if they can do that, right.
Speaker 4:That's the kind of person that is going to sell through a chapter seven bankruptcy case because they're not going to have any bad acts in the recent past before they look at doing a bankruptcy.
Speaker 4:They're in good faith. We would say they're trying their best and just can't make the numbers work through no fault of their own. That's the kind of person who would look at doing a Chapter 7. That's one of the types of people who would look at doing a Chapter 7. Alternatively, often we have clients who are senior citizens on a fixed income and those are very often Chapter 7 cases because any debt that gets out of hand when you're a senior on a fixed income, you can't exactly go get a job in addition to the Social Security, because the Social Security will get taken away from you, right, right. So those are often Chapter 7 filings and for Chapter 13s it's people who either make too much money to look at doing a Chapter 7 or people who are behind on a house or behind on a car that they want to keep, and then those are the kind of people we look at doing a Chapter 13 for.
Speaker 2:And of course, in my world, unfortunately. You know, we offer free financial counseling services, but I find far too often people wait until they are in over their head before they come in and seek that counseling and they kind of miss out on those alternatives or different opportunities. So what do you think are some big red flags that consumers if somebody's listening to this podcast and they're thinking I've got a lot of debt, I'm that eight person out of eight out of 10, but how do I know the difference between whether I can handle this or is it time for me to seek some professional help? What are those common red flags that you see?
Speaker 4:That's a great question and that's something I should have delved into more in my last answer.
Speaker 4:But for people, when they're looking at their credit card statement, ok and, as you said, people often let this pile up on themselves, which I think is human nature because we try to avoid the things that cause us bad feelings or anxiety or stress. Right, if clients are behind on credit cards, they're not waiting for it to come in so they can look at the statement. Right, but if you look at the statement, you're going to see a truth in lending box that federal regulations require to be on every credit card statement and it's going to tell you if you make the minimum payment on this card, it's going to take you this many years, this many months to pay this off, and I would love for listeners to keep in mind that that means you don't use the card anymore either. Okay, that means you cut up the card that day and just make that minimum payment for the rest of your life practically Right, which is, you know, on those truth and lending boxes, it can be eight years or you know whatever to pay those off, you know, or whatever.
Speaker 4:And if that, if that, if that's what somebody is looking at as their only option to pay off that card, I think it's time to probably consider looking at doing a bankruptcy case, because you're not really doing yourself any good making minimum payments If that's all you can do on that card and forgive me for saying this, I'm in an office of a credit union, but this is how banks, this is how lenders, make a lot of money on these cards. Right Is that people take a long time to pay them off. They're just paying interest for an extended period of time. But that's often a if somebody's in that kind of spiral where they're just paying interest on interest on interest, come go see a bankruptcy lawyer, yeah.
Speaker 2:And hopefully I like to think that I can kind of bridge that gap, because if they knew Right, If we as consumers knew what 30 percent actually really meant when we went and put something on a credit card or signed up for a loan, you know, I don't think any of us would have. You know, hey, a computer it's only $200 if we pay cash. But, if we put it on a credit card, we could pay upwards of $1,000. Nobody willingly signs up for that type of debt.
Speaker 4:It's really important, though. Also, though, really important for us to acknowledge that we're probably coming at this from an angle of at least a little bit of privilege. To say that, right, because you know, clients are not excited about signing for a 30% car loan or 21% car loan. They're not excited to go get a payday loan. Right, it's a last resort to do either of those things, and if they're signing for a 23.99% car loan, it's because they have to get to work to have a job. They're not signing that car loan, happily, you know, and that's an important thing to keep in mind too for those people.
Speaker 2:So can you walk us through what does the process look like if somebody walks in your office today and say, hey, I think I need to file bankruptcy?
Speaker 4:I think most bankruptcy firms around here will operate very similar to this, which is we'll have a potential client in for a free consultation. That consultation will be with an attorney at our office. At our office it's either with me or my associate attorney, who's named David McBride. That consultation typically lasts around 30 minutes and we'll just kind of get to know each other, kind of get an assessment of the potential client's situation and and, to the best of our ability, be honest about whether or not a bankruptcy could be a good idea for them. And if it is a good idea for them, we'll make that recommendation, typically quote them a fee to file. Don't take any payment, of course. That day we're just kind of making a quote and we provide them a list of documents tailored to their particular situation that we'll ask them to get together for our next meeting.
Speaker 4:Okay, that second meeting is where we get all those documents. We sign a retainer agreement. Okay, following that, we'll have a third meeting where we sign everything to file a bankruptcy case. Okay, of course we have to get all of those documents at the second meeting to properly prepare everything accurately for the third meeting, which is kind of the battle sometimes right. So sometimes it ends up being more than three meetings, but ideally it's three meetings and you get all the documents at the second one, you know.
Speaker 4:And once you file after that third meeting, somebody files. They're immediately protected by what's called the automatic stay, which either stops a garnishment, stops a foreclosure, stops a repossession, immediately provides you protection from creditors. You'll typically have a court date roughly about four to six weeks after you file Around here. Those court hearings are held over Zoom ever since COVID. Court hearings are typically with your attorney. They should be with your attorney, in my opinion. They certainly are at our office and that's typically the only time a bankruptcy client has to make an appearance in court is over Zoom for that one hearing.
Speaker 2:So you mentioned one, two, three meetings and then, of course, the court appearance, which is done for Zoom. So from that first meeting to, I'm on my plan now. The collection calls have stopped. I don't have to worry about Nicole or anybody else harassing me anymore. What is that process? What is that timeline generally like and I know it can vary for each- consumer.
Speaker 4:So a lot of times clients, as you mentioned a few minutes ago, they'll wait until there's a fire to come in, right?
Speaker 4:So there might be a foreclosure next week or the car might be an active repossession, ok, and if that's the case, we're going to tell them.
Speaker 4:Yeah, this is a case we're interested in, but we need to get filed by this time next week, and what that means is I need all your documents within 48 hours, okay. If you don't have them to me within 48 hours, I'm not sure we're going to be interested in this file. Okay, and if you set the standard with the client in that kind of way and the client lives up to the standard, I, as the attorney, want to live up to that same standard, and what that means for me is I'm going to get that file ready and it's going to be ready to sign as soon as it can possibly be ready, and that's going to be within a few hours of the time I get those documents. If the client needs to have it filed that day and that's something David and I are very good at is efficiently getting those, prioritizing those files to get those done so that we get the automatic stay in effect for those clients that need it quickly.
Speaker 2:And, like you mentioned, sometimes it is one of those emergency situations. So I know that there are cases or situations where a client meets with a bankruptcy attorney. They file, we get paperwork, but, nicole, how often do you see that you know, somewhere in that process it's canceled, they change their mind.
Speaker 3:See that you know somewhere in that process it's canceled, they change their mind. I don't really come in until after they have already filed, so once they have filed, then I'll receive their notice that they have filed. Every now and then we'll have members that call me, contact us before they file. Just to say this is kind of what I'm thinking about doing. How is this going to affect my relationship with you guys? You know what? And then at that point it's on a case by case basis. It is going to depend on what they have financed with this. Is it current, is it past due? What chapter are you filing?
Speaker 4:And how do you want to treat the credit union? Yeah, do you want to keep the debt? Exactly, do you?
Speaker 3:want to. You know you bank with us, Do you not bank with us? So there's a lot, of, a lot of decisions that go into it, but it is on a case-by-case basis, you know, and a lot of times they have no idea what case they're going to file, and it's not let me rephrase that, it's not that they may want to file a certain type of case. There is a standard for that. So they kind of get told what case they're going to file. So at that point I just kind of generally go over everything with them, tell them to definitely meet with an attorney, and then give me a call back and let me know what what they decided to do.
Speaker 2:And it's clear from this conversation that this is not a decision that consumers make lightly, so obviously there's got to be a downside to it, right? So let's talk about that. What is, what are the disadvantages, what are the negative consequences for an individual that does file bankruptcy? And I'll let Mitchell answer that, and then you can kind of briefly talk about, from the credit union's perspective, if we have a member that files bankruptcy.
Speaker 4:Sure, I'd like to start just by telling you I have to keep in mind, whenever we're having those first meetings, those consultations, you know we're meeting potential clients that day and we have to keep in mind we're meeting them at their worst possible time. Right, you know we're, you know they're not.
Speaker 2:Stress level is high, tension is thick, Exactly right.
Speaker 4:So our job in that consultation, we got to give them some grace, Right. You know, a lot of times we're providing an immediate benefit upon filing Right. But there are downsides depending on the chapter of bankruptcy you file. For instance, if you're doing a Chapter 13, a Chapter 13 plan will typically last 36 to 60 months, so we're talking three to five years. It's a big deal Right. In those three to five years, it's a big deal right.
Speaker 4:In those three to five years you need to be on your financial best behavior and what that might mean is you're not taking out any new debt, so you're not using a credit card. You're not taking out a car loan. You're not buying a house during that three to five year period unless you get court approval to do any of that stuff. Okay, You're not doing any of those things. You're also turning over tax refunds during that time period Okay. The inability to use credit for three to five years is a big deal and an important consideration and I think it is a downside worth mentioning In a chapter seven. Most of the times it depends on where we're starting at, because a lot of clients will have been going through it already, you know and the filing of the bankruptcy case will raise a credit score for a number of clients, unfortunately because they waited.
Speaker 4:They were at rock bottom yeah they waited so long to file a bankruptcy case, which you know they're trying their hardest, right, but I wish they would have come to see me a little earlier for those people, those people. What I'll tell people, though, for long-term goals in a chapter seven, is that the downside, if you want to buy a house, you're looking at three years of good behavior after a chapter seven discharge before you're going to be able to get a federally backed mortgage. Okay so, and if you're a first time home buyer, that's what you're going to be getting is going to be a federally backed mortgage. So if you're thinking about doing a Chapter 7 and you also have a short-term goal of buying a house, it's maybe not congruent with each other and you might need to evaluate other options to pay off that debt or maybe your goals regarding the house.
Speaker 2:Unfortunately, and Nicole, from the credit union's perspective, what does that mean for a member when they have filed and they've included their debts with the credit union?
Speaker 3:Now these are really just going to be general information. Like I said, everything's on a case by case basis. So in a 13, you know you're going to be in the plan for three to five years and it depends on if you, if you're banking with us, if you're not banking with us, if you're going to, you know, keep your your collateral with us. Let's say you're on your best behavior and everything goes smoothly, we're receiving payments, you're keeping insurance on your car. Then everything will be absolutely gorgeous in your life. Best case scenario right.
Speaker 3:Best case scenario yeah, worst case scenario if you give your auto back to us, your house back to us or what have you, and we do take a loss on your behalf. Unfortunately, you can no longer have services with our credit union and that is indefinitely, so anytime we take a loss.
Speaker 4:That's very typical within the industry. So any credit union that I've dealt with has pretty much the same policy. So, uh, for instance, if a client only has a credit card and a uh checking and or savings or share account or whatever right, I had a credit union and they file a chapter seven to get rid of that credit card. Any credit union I have to prepare the client for this. Very often. Uh, any credit union is going to take away your banking privileges. So a lot of times clients are having to change direct deposit ahead of bankruptcy filing to a new bank account. That way they don't have a paycheck or two sitting in limbo once the bankruptcy case is filed.
Speaker 3:Yes, and greatly appreciate you guys giving them that information. I know that there's so much information whenever they, you know, come into your office and there's so much to cover and I really appreciate y'all remembering to do that. It makes my job a lot easier.
Speaker 4:Listeners can probably tell we haven't mentioned this on air, but Nicole and I have known each other not in person we met in person today, yes, but since I became an attorney in 2013 and started working at that first firm, we've known each other through email, and so it was delightful to meet her today, of course, yeah, yeah.
Speaker 3:Yeah, so we, we definitely try to do the best that you know we can do for our members. If, for some reason, there's just no way around it, they can't keep the debt, you know, then we understand and I do give them, you know, time to change their direct deposits, change, you know, their financial institutions. We don't just go in and, you know, shut it down. We do, you know, give them grace.
Speaker 4:Yeah, and neighbors has always been reasonable, in my experience as well. Yeah.
Speaker 2:Thank you and kudos to Mitchell for knowing the credit union language. I heard him say that share account. I like that Definitely. So what are some other myths that you find? Consumers walk into your office, you know that are misconceptions about bankruptcy. Oh gosh, that's another hour.
Speaker 3:Right, Right, there's a lot of those.
Speaker 4:I've heard some wild stuff, right, because a lot of times you know somebody will come in and they've read something on the internet, right? Or they have a cousin who knows somebody who's related to somebody else, who did something in a bankruptcy case in Illinois or something right.
Speaker 4:And I'm like well, I don't know that person, you know. I don't know what happened, you know, so I can't tell you what happened there, but I can tell you what I can do for you here. Right, you know. But a lot, of, a lot of the myths are really just whatever you might see on social media regarding bankruptcy because don't get your legal advice from social media, Don't get your legal advice from your. Tiktoks.
Speaker 1:All right.
Speaker 4:And I'm going to sound like a grandpa because I'm not on the socials, right, but it's.
Speaker 4:I've heard a lot from clients about what they'll, what they'll see on TikTok, especially Apparently, there's a lot of financial influencers of some sort on TikTok who give this kind of advice, advice. I don't believe they're attorneys, it's just people doing their stuff and you know clients might come in thinking you know, I can make whatever kind of money I'm, you know I'm making, and still do a chapter seven. You know, or it doesn't matter how much equity I have in my house, I can still do a chapter seven, right? Or I can do a chapter 13 and I don't have to pay back any of my credit cards. You know, because I saw a TikTok video that says this person didn't have to do it. And I just really encourage you, encourage listeners, to keep in mind that this is why it's so important to get individualized legal advice. Do not listen to these TikTok videos and do not listen to me today giving you this general advice, right, and then saying I'm going to go file a chapter seven by myself, right, because that'd be the worst thing you could possibly do.
Speaker 3:Ten out of ten would not recommend, of course, right.
Speaker 4:Get proper legal advice from an attorney who's going to listen to what you have to say about your situation. Right.
Speaker 2:That way you can make an informed decision and you're not relying on whatever half truths you may have read on social media or just through the grapevine truths you may have read on social media or just through the grapevine, and because there are so many half truths out there and I imagine you have many consumers walk through the door that really don't have a real grip on what they're walking into. So what responsibilities do attorneys have in terms of providing that financial education and their support before they take this big step?
Speaker 4:Yeah, I believe attorneys have an ethical duty to make sure clients are well informed about what they're doing before it happens.
Speaker 4:Ok, and to me what that means is that whenever we're signing documents at that third appointment, it's an attorney going through that stuff explaining it to them when we're signing it. It is not a paralegal to flipping through it, it saying sign here, sign here, sign here. I think there's a real ethical obligation. That is an attorney who does that kind of thing because there's going to be a legal question or two that pop up in that signing. The attorney is the only one who should be answering legal questions. Additionally I don't know if you've heard of the, and bankruptcy is not the kind of thing that could just be rubber stamped. If I have a consultation today for a Chapter 13, the consultation I had yesterday that was also a Chapter 13 could be completely different and every case has to be looked at by the attorney individually to make sure we're doing the best we can for that particular file and there's real attorney work that goes into it and I worry that that's not always done for the people that it should be done for.
Speaker 2:And so we live in a world where scams it's hard to avoid that. So in the bankruptcy world, are there common scams that you see individuals trying to pull off?
Speaker 4:individuals trying to pull off. Yes, yes, so I've gosh, I could tell you. There's stories and maybe some of these are better for off air, but but, but I've worked in this field on multiple different sides and you know, obviously now I represent people going through bankruptcy cases. Right Previously I've represented mortgage companies in foreclosures. Ok, I've also done trustee work. Who is I've represented? I've been a staffures. I've also done trustee work.
Speaker 4:I've been a staff attorney for the Chapter 13 trustee here who kind of oversees Chapter 13 filings, and in that position you see a lot of scam artists, in particular people who are not attorneys but are giving legal advice to people to file their own bankruptcy cases and not disclosing it as required under federal law. Uh, these people can be rolled into court, can be arrested by the United States marshals and can be imprisoned, uh, if they don't stop. Uh, while I was at the trustee's office, there was a woman in particular who I believe was in Gonzalez, who didn't want to stop and uh, yeah, created a. It was a woman in particular who I believe was in Gonzalez who didn't want to stop and, yeah, it was a big problem for her, of course, and we ended up catching it because the person who had filed the bankruptcy case themselves.
Speaker 4:Whenever I conducted the hearing, her name was spelled wrong on her filings and so I asked her. I said, how'd you misspell your own name? Because, meeting her she seemed to be of reasonable capability. I had no reason to think she wouldn't know how to spell her name. And she immediately told me the truth. And you know, it just shows how little care that person actually put into the documents if the person's, if the bankruptcy filer's first name wasn't even spelled correctly.
Speaker 2:Yeah, so you've both been in this industry for seems like, over a decade. What changes? What are some of the biggest changes that come to mind that you've seen with bankruptcy over the years?
Speaker 3:Well, there were a lot of new laws that got rolled out and 05. And uh oh five.
Speaker 4:BAP. Cpa was, uh, a reconstruction of the bankruptcy code. That was 2005. I was 20 years old at the time, so I cannot provide any anything more than general information about what bankruptcy was like before then. Uh, chapter seven, though prior to 2005, there was no income limit, is my understanding. So ever since 2005, you had to be either average or below.
Speaker 3:It's actually median median or below median income to do a chapter seven. But as far as like individuals, is that what we're asking about? I think just the economy in general. You know COVID hit. There was a lot of things that went on during COVID. People lost their jobs. You know that was a huge thing for everybody to try to navigate through you know and not file bankruptcy.
Speaker 4:The bankruptcy world locally here has been pretty static since I've been an attorney going on 12, 13 years now and that's because our Chapter 13 trustee and all three of the Chapter 7 trustees have been constant from that time through now. We did have our bankruptcy judge retire a few years ago. He was replaced with another judge who, in my mind, has continued a very stable and responsible court, so there was not a whole lot of change there from my point of view. I do think there are going to be changes within the next few years because all those trustees I mentioned are now of a certain age right where bankruptcy locally here might be going through a change over the next decade or so.
Speaker 2:So you mentioned earlier once a consumer files bankruptcy. Generally they're not supposed to, you know, incur any new debt. They're going to have to stop using those credit cards and you know that, I'm sure, goes with a grain of salt. What are some of the most common or biggest mistakes you find?
Speaker 4:consumers make while they're in the midst of their plan. Oh gosh. So if there, if somebody is in a confirmed Chapter 13 plan, the perfect client is somebody. Once they're confirmed, like I'm saying, so we're six months into the case, they're on easy street so long as they're making their payments. The perfect client I never hear from until the case is over, because they're making their payments, so no issues pop up, nobody's complaining, life's good, right.
Speaker 4:But the common mistakes in the middle of Chapter 13 are going to be, let's say, not turning over a tax refund, right. Not making your direct mortgage payments during the case, because if you own a home that has a mortgage on it and you're in Chapter 13, you're going to, in general, have two big payments and you're in Chapter 13, you're going to, in general, have two big payments. There's going to be a Chapter 13 payment that's going to pay for again, in general, everything outside of the house the ongoing mortgage payment, and then we're going to have the ongoing mortgage payment on the side. Your bankruptcy attorney can only help you with that bankruptcy payment. The ongoing mortgage payment is within the client's purview, so I can make sure that bankruptcy payment gets made Right.
Speaker 4:I have to rely on the client to make that house payment, and so a very common thing that happens is that if a client is short budget wise, the mortgage will fall behind again. Right, and that's, unfortunately, is probably the most common reason a chapter 13 will will fail. When they fail is because of repeated mortgage default. Additionally, I did tell you earlier, one of the drawbacks of doing a Chapter 13 is that you can't take out debt during the case. A mistake, of course, is going to be not taking, not following that rule right.
Speaker 2:You're going to get a brand new car.
Speaker 3:It's like I don't have to pay these loans anymore. Well, sometimes it does, Unfortunately, you know, things happen during three to five years of your life.
Speaker 4:That's a really long time it is.
Speaker 3:And accidents happen. Cars get wrecked, you know, you lose your job, you know. So all of these things do play a part in your Chapter 13.
Speaker 4:Yeah.
Speaker 3:You know you wreck a car. What are you supposed to do? It's totaled. I need a new car. I have to get to work.
Speaker 4:Yeah, A mistake in that case would be to not immediately notify your attorney. You know the mistake would be to sit on it for a little while Definitely, we'll figure it out, you know get the attorney's office involved, provide them with insurance documentation and contact information for the insurance adjuster. That way things can be handled appropriately and timely and you're not without a rental car and or the ability to finance something else for an extended period. Yes, yeah.
Speaker 2:So we could talk about this subject, obviously for hours and hours, and hours, but I want to give Mitchell definitely an opportunity to give his best piece of advice to anybody that is sitting there contemplating. You know, should I file? Is this so scary? You know how can we kind of get the elephant out of the room? What advice would you give to them?
Speaker 4:My advice would be that a consultation is going to cost you literally cost you nothing. Okay, to my knowledge, every consumer bankruptcy attorney in this area provides free consultations. No decent attorney is going to pressure you into doing a bankruptcy case at all. I think any decent attorney is just going to provide you with information, allow you to make an informed decision, and not going to make you feel like you're buying a used car. Okay, the best advice I can give you is take the legal advice that is given to you. Okay, make an informed decision. Go to that consultation. Go with an open mind. Okay, you don't have to file a bankruptcy case If you go to that consultation.
Speaker 4:Go find out some information. Okay, an attorney might tell you you don't need to do a bankruptcy case. This is a better option for you. Why don't you take this asset, pay off this debt, solve your problems? You don't need a bankruptcy case in your credit report. Okay, rather, just find out more information. Right, just don't go to TikTok for the information. Go take a little initiative, meet with an attorney, tell them your information it's private, it's confidential and just get some more. You know, get professional advice. That's the best thing I can probably tell somebody.
Speaker 3:And there is a life after bankruptcy. A lot of people you know they think it's such a taboo. I can't do this. You know I'm going to be ruined forever. I'll never be able to get anything ever again in my life and that's just simply not the truth, especially not this day and age, absolutely.
Speaker 4:It's not the truth at all. If somebody is responsible with their credit usage and finances after a bankruptcy case, then I think those are the people who are able to recover very quickly. On the other hand, if you just got a chapter seven discharge, every creditor out there knows you have no debt and cannot file another bankruptcy for eight years. Okay, and so if they want to loan you money, they know they can sue you if you don't pay and there's going to be no other creditor who's in line to garnish you or take your money. So you're an attractive customer at that point. But just you got to be smart about the kind of debt you incur after doing that bankruptcy discharge?
Speaker 3:Yes, you have to. You have to learn how to manage your money. Yeah, yes. Yeah.
Speaker 4:Money matters.
Speaker 2:And that's why we have podcasts like this. We have free financial counseling, so I think a key part is definitely getting that education, education, knowing where your limits are, and then, if you find yourself in a financial hardship, don't wait until you're drowning to seek that consultation, and then you may never have to see a person like Mitchell or have to, you know, have your file come across Nicole's desk. But if they do need to see Mitchell, how can they contact your office?
Speaker 4:Well, they can always call us at 225-369-9922. Also, our website is Dixon, which is D-I-C-K-S-O-N lawfirmcom. Potential clients can schedule a free consultation there. If they call us at that number, I provided they'll speak to Kiara, who is the most delightful receptionist, slash legal assistant they'd ever speak to. So just give us a call and talk to Kiara.
Speaker 2:Definitely so. Hopefully, if you're out there, this is not a circumstance where you will ever have to file bankruptcy, because, again, there's always that blueprint for financial success where we're here to help you work out those financial hardships, but definitely sometimes bankruptcy is that necessary evil hardships, but definitely sometimes bankruptcy is that necessary evil. So I want to thank our guest, mitchell Dixon, for coming out and definitely our in-house, ms Nicole, for sharing that information.
Speaker 3:Thank you so much.
Speaker 1:It's time for Blueprint Building Blocks Small changes that lead to big financial wins. Let's stack up for success.
Speaker 2:Know your numbers, and you can do this by tracking your income, expenses and debt early. Don't ignore those red flags, things like missing payments, juggling credit cards, falling behind on basics or warnings that you need to act now. And, of course, before filing, explore your alternatives first Maybe debt management plan, free financial counseling like the Blueprint for Financial Success, or some other repayment plan arrangements. Recovery is possible. Bankruptcy doesn't have to end your financial life. It can be a reset.
Speaker 1:That's a wrap on today's Blueprint Building Blocks. That's a wrap on today's Blueprint Building Blocks. Stay on track with your financial journey. Subscribe to the Money Matters podcast and visit neighborsfcuorg slash financial wellness for more tools to help you build a strong financial future.
