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Bankruptcy Law

There are different types of bankruptcy chapters under our federal laws.

The most common type are Chapter 7 and Chapter 13 bankruptcies.

If you are considering bankruptcy, know that you are not alone. People throughout the U.S. turn to the bankruptcy system to find relief from credit card debt, medical bills, car loans and bad mortgages. There are several factors that can result in financial distress. This includes, job loss, divorce, health problems, or a business failure. In short, too much debt and not enough income can result in significant financial strain. In some ways bankruptcy can be a way to obtain a fresh start and in other ways it provides a method to reorganize debt in a manner that suits each individual debtor. People will try their hardest to avoid bankruptcy and will sometimes make bigger mistakes in the process. These examples may include: debt consolidation, debt reorganization, or borrowing against a retirement plan to pay off creditors. This last one is especially troubling because, generally speaking, your retirement is completely protected throughout bankruptcy. Some clients will also borrow from one credit card to pay another, or as the old saying goes, “borrowing from Peter to pay Paul.” 

Filing for bankruptcy is not an easy decision to make. Chronic financial stress and pressure can cause long term medical problems. Filing for bankruptcy can be a way to get a fresh start. In some ways, it is like pressing the “reset” button and starting over. In other cases, filing for bankruptcy is a way to assure the preservation of your home and/or assets. If you are being harassed by creditors or are being threatened with lawsuits, call our office for a confidential consultation. Together we can find a solution to your financial struggles. 

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Chapter 7

Chapter 7 bankruptcy is sometimes called “liquidation” bankruptcy. It cancels most types of debt. This process involves the complete disclosure of your assets and your property. You then use various laws or “exemptions” to protect you assets and property. You will have to complete a mandatory credit counseling class in order to qualify for Chapter 7 bankruptcy. These classes are generally done online and our office has this information readily available for your review. The Chapter 7 bankruptcy process takes approximately three to six months to complete and costs $335.00 in filing fees. Upon filing your case, it will be assigned to an individual bankruptcy trustee. His or her job is to administer your bankruptcy process. The trustee’s sole job is to find assets that can be sold in order to pay creditors.

Typically there is one brief meeting, known as “meeting of creditors,” that the attorney attends with the client. At this meeting, the trustee will verify the identity of the debtor and will review the bankruptcy documents. Many questions arise when filing bankruptcy. The most common questions include the preservation of assets and credit. Here are some examples:

Can creditors continue to harass me after I file for bankruptcy?
Often people filing for bankruptcy have been subjected to weeks or months of harassment by creditors. The calls are typically hostile, nasty and even offensive. Creditors will call and demand payment or threaten lawsuits. Filing a bankruptcy stops all of this.

Can I keep my house?
This answer will depend on how much “equity” is in the home. Remember, there are exemptions that can be used to protect assets. If the equity of the home exceeds these exemptions, then a Chapter 7 bankruptcy may not be the best option.

Can I keep my personal belongings?
Yes, there are specific/individual exemptions that can apply to particular household goods or personal belongings. You are permitted to keep certain belongings protected within the exemption amount.

How many cars can I keep?
If you are financing a car, you can typically keep your car so long as you are current on your payments and you are able to afford it. If your car is paid off, we will compare the value of the car to the exemption amount.

Comparing the value of your assets to the exemption amounts is paramount to deciding on whether to proceed with a Chapter 7 bankruptcy. Going over this with your attorney is vital to avoiding any legal pitfalls.

Chapter 13

Some people will try to negotiate a payment plan with their creditors. However, this often fails because the creditor will ask the debtor to borrow money from a retirement account or will ask a debtor to pay too much. Unlike a Chapter 7, a Chapter 13 may require that the debtor pay back a portion of the debt owed to the creditors. In a Chapter 13 bankruptcy, the debtor will enter into a court-approved plan to manage your debts over a three or five year payment plan. Some debts must be paid in full (back taxes as an example), while other may be paid in part. A simple understanding of a Chapter 13 plan is that you must devote all of your disposable income to the payment of unsecured debts. Determining your disposable income requires a tedious calculation of the cost to live in your specific community.

Advantages to a Chapter 13 bankruptcy include, keeping non-exempt assets, eliminating the interest on certain debts, and “cramming down” secured debts.  Cramming down simply means that the debtor may possibly pay off a current debt based on market value and not what is owed. However, the entire amount must be paid off within the three or five year plan. For example: Debtor owes $20,000.00 on a car loan. Due to the condition of the vehicle, the car is only worth $10,000.00. If approved by the court, the debtor will only need to pay back $10,000.00 in a Chapter 13 Bankruptcy. However, the entire amount, $10,000.00 must be paid in full within the duration of the plan—three or five years. 

Some debtors will start in a Chapter 7 and covert to a Chapter 13. This will happen if the debtor has too many non-exempt assets. Converting to a Chapter 13 will allow him or her to keep all non-exempt assets. Converting from a Chapter 13 to a Chapter 7 will happen when the debtor simply cannot make the required payments. In this case, the debtor will move away from a repayment plan, to liquidation. Converting a case from either Chapter has legal implications and you should be guided by a bankruptcy attorney throughout the process.