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Personal Bankruptcy

Monday, July 2, 2018

What are the different chapters of Bankruptcy?

Chapter 7

Chapter 7 bankruptcy is filed by individuals and businesses unable to pay their existing debts. It is the simplest and quickest form of bankruptcy available. Unsecured debts, including credit cards, medical bills and personal loans, are discharged in a Chapter 7 bankruptcy. Certain debts, including mortgages, car loans, student loans, and child support arrears, may not be discharged.  An individual is allowed to protect certain assets from being liquidated and disbursed to creditors in a Chapter 7 bankruptcy. A business that files for Chapter 7 must liquidate all of its assets.  Not everyone can qualify for Chapter 7 bankruptcy protection.


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Tuesday, June 19, 2018

What is the difference between a reorganization and a liquidation?

When a person declares bankruptcy, it must be clear whether the petition asks the bankruptcy court to discharge the debts listed therein or asks to reorganize the debt. An individual files for reorganization under Chapter 13 of the bankruptcy code, while a business uses Chapter 11. Both businesses and individuals may file for a discharge under Chapter 7 of the bankruptcy code.

In liquidation, a bankruptcy trustee collects the assets of a debtor, sells them to make them liquid, and distributes the money among the creditors to pay off as many of the debts as possible. Once this is done, the debts owed are discharged, which means they are permanently canceled. Creditors usually receive much less than they are owed, if they receive anything at all. If an individual asks the bankruptcy court for a discharge, the consequences are limited to the individual’s credit. He or she will likely continue living his or her life normally afterwards, though the assets she or he retains afterwards are limited to those exempt from the bankruptcy. A business, on the other hand, must be dissolved after discharges are granted. It must close its doors, fire all of its employees, terminate pension plans, and cease operations. If a company is large enough, a bankruptcy trustee might sell an entire division to help appease creditors.

A  reorganization is completely different. An individual in reorganization must consolidate his or her debts and work with the bankruptcy trustee to establish a budget to repay creditors over time under more favorable terms. An individual can keep assets that would otherwise be sold and businesses can continue operating normally. In order to qualify, a bankruptcy petitioner must make enough money to pay the debts under a reasonable repayment plan. Even though creditors will receive more money under a reorganization than under a discharge, it will take longer for them to receive any money, and some debts will be cancelled in whole or in part.

Only an attorney is qualified to assess the factors in each person’s unique case can provide advice on whether a liquidation or reorganization is better equipped to resolve that person’s situation.


Thursday, April 26, 2018

Five Common Bankruptcy Myths

For those who are facing insurmountable debts, filing for Chapter 7 or Chapter 13 bankruptcy may be the only option. However, there are many misconceptions about the process. Let's take a look at five common bankruptcy myths.


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Tuesday, March 13, 2018

Can I be discriminated against for filing bankruptcy?

Filing for bankruptcy can have long lasting consequences, not the least of which is that it will cause damage to your creditworthiness, making it harder for you to borrow money. At times, some individuals may also find that they are being discriminated against because of a bankruptcy filing. That's the bad news. The good news is that in many instances, this form of discrimination may be illegal.


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Wednesday, December 20, 2017

What Is a No-Asset Bankruptcy?

When an individual petitions the court for a bankruptcy filing under chapter 7, that individual gives an impartial bankruptcy trustee the right to take possession of his or her assets. Those assets are subsequently sold off and the proceeds distributed among the petitioner’s creditors. This is an attempt to fairly compensate those creditors before discharging the balance of petitioner’s debts. State and federal laws allow bankruptcy petitioners to exempt their personal possessions up to a certain value from collection and sale. If a petitioner exempts an asset, it will continue to belong to the petitioner even after the bankruptcy is completed and the debts of the petitioner are discharged. This allows people going through bankruptcy to keep assets like automobiles, family heirlooms, tools necessary to make a living, clothing, retirement plans, and even a reasonable amount of liquid money.


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Monday, July 17, 2017

What is a Debt Management Plan?

If you are having trouble keeping up with your debts, an alternative to filing for bankruptcy is a debt management plan. In this arrangement, you make payments to a credit counseling agency which then pays creditors on your behalf according to a payment plan. Only unsecured loans such as credit card debt and personal loans can be included in a debt management plan while secured debt such as mortgage loans, car loans and student loans are not eligible.

The process starts by meeting with a credit counselor, who thoroughly assesses your financial situation. In addition to debt management, other options will be presented to you, including debt settlement, and filing for personal bankruptcy. If a debt management plan is arranged, the amount you owe will not be reduced, but rather a payment plan for a period of three to five years will be set up.

The counselor then notifies each creditor of the plan, and makes the agency the payer on your account. Depending on the circumstances the counselor can negotiate with the creditor to waive certain fees, lower interest rates and monthly payments. Each month, you pay the agency electronically, and then the agency pays your creditors.

It is important to note that creditors will most likely require accounts to be closed. However, before agreeing to the plan, you can request certain cards to be kept open for emergencies or business purposes. In addition, you will not be able to take on new credit obligations for the duration of the plan.

Lastly, if you fail to abide by the terms of your plan, creditors can begin assessing fees, raising interest rates, or begin collection activities.

In the end, debt management plans can help you get control of your finances. The benefits include making a single, lower monthly payment, stopping harassing debt collector calls, and paying down the debt over time. Ultimately, an attorney with experience in debt management and bankruptcy can help you explore your options.

 


Monday, May 22, 2017

Do I qualify for Chapter 7 bankruptcy?

Not everyone is eligible to have his or her debts discharged under Chapter 7 bankruptcy.  People with larger incomes will not be permitted to use Chapter 7 to eliminate their debts.  The test is that determines who is eligible for this form of protection is called the Bankruptcy Means Test.  The courts consider the petitioner’s income and expenses in order to determine if a petitioner qualifies.  The eligibility requirements vary from state to state.  But, the first step is always to determine whether a petitioner’s median household income is the less than the median income of a household of the same size in that state.  If this is the case, the test is passed and Chapter 7 bankruptcy protection is available.

Even if a petitioner’s income is more than the state’s median income, that person may still qualify for Chapter 7 protection.  If a person has income higher than the state median, the courts then look at how much of that income is disposable.  The court deducts necessary expenses based on regional standards to determine how much money a person has available to pay his or her bills.  Expenses that would reduce a petitioner’s disposable income include, but are not limited to, taxes, health insurance costs, unreimbursed healthcare costs, court ordered payments, child support, childcare, education expenses, charitable contributions, car payments, mortgage payments and costs for the care of an elderly, infirm, or disabled person in the petitioner’s household.  The information needed to make these determinations is submitted to the Bankruptcy Court in Official Form 22A, which is attached to every bankruptcy petition.

In the event that a petitioner does not qualify for Chapter 7 bankruptcy protection, the Bankruptcy Court will not discharge that petitioner’s debts.  Bankruptcy protection may still be available to that petitioner under Chapter 13 which requires making monthly payments and adhering to a strict budget.  There are benefits and drawbacks to filing a Chapter 13 instead of a Chapter 7, but ultimately, those who do not pass the Bankruptcy Means Test may have no choice as to how they choose to file.  A lawyer will help to determine what expenses should be listed on Official Form 22A to make sure that as many options are available to his or her client as possible.


Monday, March 27, 2017

Five Assets That Won’t Be Taken by the Bankruptcy Court

When a person files for bankruptcy protection, his or her assets must be collected by the bankruptcy trustee and liquidated to reimburse debtors before the petitioner’s debts can be discharged. In order to keep bankruptcy petitioners from falling below the poverty line, there are certain assets that can be retained as exempt. This is not an exhaustive list, but covers the most commonly used federal bankruptcy exemptions.

1. Homestead exemption: If a bankruptcy petitioner owns a home, he or she may protect up to $22,975.00 worth of equity in the home. If the home does not have $22,975.00 worth of equity, a bankruptcy petitioner may only claim as exempt the amount of equity available to claim. Those petitioners who do not own homes do not have the benefit of claiming the homestead exemption. Some states allow petitioners to exempt the entire value of his or her home’s equity, no matter how large.

2. Vehicle exemption: Throughout much of the country, it is difficult to work or earn money without an automobile. Federal law allows a person to keep his or her automobile with a value up to $3,675. If the car is worth more than the amount allowed by the exemption, an individual may seek additional funds from other exemptions to keep the asset. Alternatively, the vehicle will be sold and the exemption amount given to the petitioner.

3. Personal property exemptions: These include $1,550.00 for jewelry, $2,300.00 for specialized tools and educational materials related to employment, and $12,250.00 for household goods, appliances, furnishings, clothing, etc.

4. Personal Injury exemption: The proceeds of a personal injury award may be held as exempt up to $22,975.00.

5. Wildcard exemption: A person is permitted to exempt as much as $1,225.00 for any other property he or she wants to keep after the bankruptcy above the other exemptions. This can be applied to increase the amount permissible to another exemption, most commonly the vehicle exemption. If the petitioner so chooses, he or she may opt to use the exemption on liquid assets, leaving the petitioner with more cash on hand after the bankruptcy is complete.

States may make other exemptions available or use different values than the federal exemptions. Nineteen states and the District of Columbia allow petitioners to use these exemptions.


Monday, February 20, 2017

What happens when a creditor doesn’t comply with the automatic stay in bankruptcy?


When a bankruptcy petition
is filed in the United States, the bankruptcy court issues an automatic stay on all collection activities against the individual who filed the petition. This means that any person or company who holds a debt against the petitioner is prohibited from seeking payment of the debt in any form or from repossessing the asset against which the debt is leveraged. This is designed to preserve the role of the bankruptcy court to consolidate and liquidate a petitioner’s assets as necessary to make creditors whole, as well as its responsibility to discharge certain debts at the end of a bankruptcy.

When a creditor continues to make collection efforts after an automatic stay has been granted, it can be penalized by the bankruptcy court. The court may award a bankruptcy petitioner punitive damages and attorney’s fees for the creditor’s noncompliance with the stay. In order to do this, a petitioner must advise his or her attorney of the violation and ask to file a motion to enforce the stay. The more flagrant the violation, the more money might be awarded in punitive damages. A single collection call is less flagrant than the filing of a lawsuit to collect the owed amount. It is not necessary to send notice of the bankruptcy to the creditor, as all creditors are notified by the bankruptcy court at the inception of each case. If the collection attempt was made by a third-party debt collector, an attorney might be able to make a claim under the Fair Debt Collection Practices Act, or the FDCPA.

There are many cases , however, when such a motion will not be successful. Sometimes, a creditor asks the court for permission to lift the stay where the debt owed is secured and a debtor is behind on payments. If proper paperwork is not completed within 30 days of a petitioner’s filing, the automatic stay may be lifted without any requests being filed with the court. A specific request for the stay to continue must be filed for some petitioners who have previously filed for bankruptcy. Court actions for child support, alimony, taxes, and certain evictions may proceed even though a stay was issued. 


Sunday, January 22, 2017

What is Pre-bankruptcy Credit Counseling?


Today, individuals who are seeking relief under Chapter 7 or Chapter 13 of the Bankruptcy Code are required to complete credit counseling with an agency approved by the U.S. Trustee's office. The purpose of pre-bankruptcy credit counseling is to determine if the debtor qualifies for bankruptcy or whether an informal payment plan is a better option.

In any event, credit counseling is necessary even if a payment plan is not feasible.
Read more . . .


Monday, December 26, 2016

What Happens to My Car When I File Chapter 7?

If an individual filing for Chapter 7 bankruptcy owns an automobile, that vehicle may become the property of the bankruptcy estate used for the purpose of making creditors whole. If the car has a lean on it from the lending institution, the loan must be reaffirmed or redeemed, or the vehicle must be surrendered.  If the loan is reaffirmed, the individual who took out the loan must sign a contract agreeing to continue making payments to the lender. The car loan will be unaffected by the bankruptcy, and the debt will not be discharged. An individual in bankruptcy may use the opportunity to renegotiate the terms of the loan for his or her benefit, though the new agreement must be approved by the bankruptcy court. 

When an individual chooses to satisfy a car loan through redemption, that person must work with the lender to determine the current value of the automobile. The individual must pay the lender that amount, thereby settling the debt for less than its full value. If a person is not able to meet either of these sets of conditions, the car must be surrendered to the bankruptcy estate and the debt associated with it will be discharged. The creditor cannot take the car until after the bankruptcy is completed unless it files a motion with the court to repossess the vehicle earlier.

If there is no loan on the car, a bankruptcy petitioner still has options available. Both federal and state rules allow individuals to exempt personal possessions and motor vehicles up to a maximum value from the bankruptcy estate. If a bankruptcy petitioner is able to declare the entire value off the car as exempt or if the non-exempt value is negligible, the bankruptcy trustee will allow the petitioner to keep the car. If an automobile in bankruptcy is worth significantly more than the amount allowed by the exemption, the petitioner may pay the trustee the balance between the value of the car and the exempt portion. Althernatively, the petitioner may surrender the automobile to the bankruptcy trustee who will sell it and return the exempt portion to the petitioner. In any case, the petitioner has the right to decide what should happen to his or her car.


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