“Dear Steve,
I have 2 unsecured personal credit cards I used almost 100% for a business that went under (so I am not subject to means testing). Each one is a little under $25K. I have spoken to a BK attorney.
The problem is, the only thing in my name alone is one of a cars. It’s free and clear and worth about $16,000. (Everything else in jointly owned with my wife and she is not on the cards nor would she file the BK if necessary).
I understand I get a $3500 vehicle exemption and another $5K wildcard exemption so there is $8500. These exemptions would apply if I do file or if the banks get a judgment against me. But it’s still not enough. My BK lawyer said that transferring title or adding my wife to the title could be fraud.
Instead of spending $2,000 to file Ch 7, why don’t I just let the my 2 unsecured credit cards be charged off?
I’ve been through this before in 1989 when I did file CH 7. But the more I think about it, why bother with a BK when all the debt is unsecured?
How aggressive are banks in pursuing judgments for unsecured credit cards with less than $25K?
Are they actually pursuing judgments and executing on those judgments through a sheriff’s sale of personal property?
I could just ignore the calls and letters from the collection companies. They don’t bother me. I have been doing that for the last 6 months. It’s unsecured.
Troy”
Dear Troy,
There is nothing stopping you from that approach.
Ultimately it will come down to which approach gives you the best chance to move ahead and do better financially as quickly as possible.
If you decide to ignore the debt it will be a liability hanging over your head. I’ve seen creditors sue for less than $1,000 and making the decision to file is not based on the amount of the debt but the room in the hopper with their local contract attorney.
Then of course you have the potential tax liability if you are not insolvent. You should expect to get a 1099-C on the debt at some point.
If the debt is more than 180 days past due it will most likely be sold to a debt buyer, unless it is American Express. They seem to like to hold on to their old debt more often.
Until the statute of limitations expires on the debt, you can be sued at any time. They can attempt to collect on it for the rest of your life.
The real risk isn’t a judgment that forces the sale of property, it’s a judgment which becomes a lien against your property. Even a regular old plain vanilla judgment will earn interest and will grow. Who knows, it can even turn into a wage garnishment or bank levy.
But it seems the most important factor here is the economic risk to you by doing nothing or selling the car and using the proceeds to deal with your debt and file bankruptcy on the rest.
The big advantage of the bankruptcy approach is it legally closes the door on the old debt and let’s you move forward to create a safer financial future without always looking over your shoulder. In that case you can get straight back to saving money, working to build the retirement account, and rebuild great credit.
Ultimately the choice is up to you. You can gamble with letting it ride, continue to hurt your credit, risk a judgment and all the other stuff. Or you can work with your bankruptcy attorney to sell the car or maybe trade it in on another car but get less value for it.
I’m just a bigger fan of dealing with these issues now so the focus moving forward can be on the future rather than dragging the past along with you.
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