Do the new Bankruptcy Laws enacted in 2005 still allow me to declare Bankruptcy?
Absolutely! The new Bankruptcy laws changed some of the requirements for information that must be submitted by attorneys and creditors, but it absolutely still allows a person to declare Bankruptcy. Some of the new changes required by attorneys include the completion of a Means Test calculation and more income verification. Some of the changes required by debtors include a Pre-Petition and Post Petition Credit Counseling Certificate.
Can I still declare a Chapter 7 if I am behind on my mortgage or car payments?
Yes. A debtor will declare a Chapter 7 (as opposed to a Chapter 13) Bankruptcy when they are behind on their mortgage or car payments and they generally do not intend on keeping that possession. The advantage to declaring a Chapter 7 when someone does not intend on keeping their house or car lies in the fact that a deficit often exists between what that possession will sell for versus what they owe on that item. By declaring a Chapter 7, the debtor is relieving themselves of the responsibility for paying for that deficit by having that debt discharged through the Chapter 7. If a debtor did not declare the Chapter 7 in that case, they would be responsible for paying the difference between what that items sells for and what they owe to the creditor.
What is a Chapter 7 Bankruptcy?
A Chapter 7 Bankruptcy is used when a debtor is looking to get rid of all unsecured debt. If a debtor intends to file a Chapter 7 Bankruptcy, they must be caught up on any payments they owe on secured debt (like a house or car) the debtor intends to keep. If the debtor is not caught up on these payments, they should not reaffirm the debt through the Bankruptcy and include the house or car in the Bankruptcy to eliminate that debt. This makes sense since the debtor probably owes more than the house or car is probably worth and the debtor can thus get rid of that debt through the Bankruptcy.
The main advantage to a Chapter 7 is that the debtor can get rid of this debt without having to make plan payments to the Trustee. It is an extremely clean process that is usually cut and dry.
What is a Chapter 13 Bankruptcy?
A Chapter 13 Bankruptcy is used when a debtor is behind (also called arrearages) on making payments on secured debt and intends on keeping that debt. This is a common type of Bankruptcy and is typically used when someone is behind on mortgage or car payments and cannot get caught up. When someone declares a Chapter 13, they continue making their normal mortgage or car payments but also make an additional payment to the Trustee. This payment is determined by calculating excess income of the debtor on a monthly basis and using that amount to determine what the payment should be (also called plan payment). If the plan payment exceeds what they would owe for any arrearages of secured debt, tax arrearages, Trustee Fees, and Attorney’s fees, the remaining plan payment may be used to pay off some unsecured debt. Sometimes the amount left to payback unsecured debt is far less than what is owed, and that amount is thereafter discharged through the Bankruptcy. In some cases, the amount paid back to unsecured creditors is 100% and sometimes it is pennies on the dollar. It really depends on the excess income determined to exist.
The plan payment must be pad between 36 and 60 months to the Trustee. The amount of months is determined by the excess income and how long it will take to pay back arrearages to the secured creditors.
The greatest advantage of a Chapter 13 is that a debtor may keep the possessions securing the debt (house or car) as long as they make the plan payments to the Trustee and the normal payment they owe to the creditor of the possession securing the debt. A second advantage lies in the fact that the payment is paid back without any additional interest accruing to the debtor. This means that the creditor must account for how much the debtor owes as of the date of filing a file and file a “proof of claim” which shows how much is owed. Thereafter, the creditor cannot add any more late charges, interest, penalties, etc. to what the debtor already owes. This is a major advantage to the debtor and is often the major reason why a debtor can pay back their dents through the Chapter 13 Plan with much less money and time than it would take to try and pay on their own with out the “help” of the bankruptcy laws.
Is there a limit on the amount of credit cards I can get discharged through a Bankruptcy?
There is very high limits on the amount of credit card debt that can be discharged through a bankruptcy. However, a debtor must be careful not to use their credit cards at least 60 days prior to filing the bankruptcy petition. In addition, the Trustee may find there is abuse of the Bankruptcy laws if the debtor took cash advances from the credit card being discharged if they were used within a year of the Bankruptcy petition being filed. In that case, the Trustee may file a motion to dismiss the Bankruptcy.
Where do Chapter 13 Plan Payments get sent?
The mailing address of the place where plan payments are sent depends on who is assigned as the Trustee of the Plan. The plan payments should be sent every 30 days starting after the filing date of the Petition. The address of the Trustees are as follows:
FREDERICK L. REIGLE, TRUSTEE
P.O. Box 680
Memphis, TN 38101-0680
WILLIAM C. MILLER, TRUSTEE
P.O. Box 1799
Memphis, TN 38101-1799
What is the cost to file a Bankruptcy?
The court fees to file a Chapter 7 are $299 for an individual or couple. The court fees to file a Chapter 13 are $279 for an individual or couple. In addition, the Trustee will charge an 10% fee of your overall plan.
What is the Means Test?
The Means Test is a calculation used to determine if a debtor has too much income to declare a Bankruptcy. The Means Test makes this calculation by pulling information compiled by the IRS that shows what the average cost of living expenses and income are for a debtor in the county they reside. The test will incorporate other factors such as the age of the debtor’s vehicle, the number of dependents, whether their spouse is also declaring bankruptcy, etc. to make the determination whether a person makes too much money relevant to the average person in the county the reside and other aforementioned factors. This test is roughly 55 lines long and looks similar to an income tax return in size and scope.
Is my Income too high to file a Bankruptcy?
The Means Test calculation is one factor used to determine whether a debtor makes too much money to declare a Bankruptcy. There are many factors that go into the calculation so making a blanket statement about whether a person makes too much is nearly impossible. The biggest factor in trying to determine whether a person can muster the Means Test standard lies in their monthly expenses. As an example, if a person has car payments, a mortgage, student loan debt, court ordered payments, etc., they will be able to pass the Means Test more easily if they have a higher income.
In addition to the Means Test, the Trustee may also look at the difference between income and expenses on schedules I and J, respectively, to determine if a debtor makes too much income to declare a Bankruptcy.
Can I get school loans discharged?
School loans cannot be discharged except in certain hardship circumstances. One of the hardship circumstances would be a medical condition that is generally permanent in nature. During our consultation I will discuss whether this is a possibility.
Can I get the principal loan on my mortgage reduced through the bankruptcy?
This is an extremely important question with some exciting developments. In early 2009, Congress has looked at and will be voting on legislation that will enable consumers who file bankruptcy to request a bankruptcy judge to reduce the principal amount of their mortgage down to the value of their house if the value of their home is less than the amount they owe on the mortgage. This has been used before in bankruptcy proceedings for cars or second mortgages on homes and has often been referred to as a “cram down”. However, there has never been a law that allows judges to reduce the debt on the principal or first mortgage of a home. With the obvious decrease in home prices suffered by many Americans, this would give much greater teeth to the bankruptcy laws and make bankruptcies a much more valuable option than they already are.
If I am married, do we both have to file bankruptcy or can only one spouse file bankruptcy?
Just because one spouse files for Bankruptcy does NOT mean the other spouse must file for Bankruptcy. The disadvantage of only having one spouse file for Bankruptcy lies in the situation where the spouse not filing for bankruptcy is a joint debtor with the spouse that is filing for bankruptcy. In that case, the non-filing spouse will still be responsible for paying debt they are a joint debtor on while the filing spouse will be relieved of their responsibility on the debt that is discharged. In addition, if both spouses file, the cost associated for a dual filing are much less than if each spouse eventually files Bankruptcies on different dates.
What is a 341 meeting?
A 341 meeting is also called a meeting of the creditors. Generally speaking, when a person files a Bankruptcy petition, the Trustee will schedule this 341 meeting approximately 4-6 weeks later. At this meeting, the Trustee will examine the Petition and may ask questions to the debtor related to the Bankruptcy Petition. These questions are usually general in nature but could delve into issues of whether potential income, expenses, or assets exist that were not disclosed on the initial petition. This is why full disclosure of all income, expenses, and assets is necessary when filing a Bankruptcy Petition.
Can I declare Bankruptcy if I already declared Bankruptcy before?
You can declare a Bankruptcy multiple times if the statutory period of time has elapsed between each Bankruptcy and the court has not dismissed a previous Bankruptcy with prejudice. In addition, disclosure of a previous Bankruptcy is a requirement when filing a new Bankruptcy petition. There are different statutory periods of time that apply depending on the previous type of bankruptcy you filed. If you filed a Chapter 7, the law states you may not file another Chapter 7 for 8 years from the time of the initial filing of the previous bankruptcy. If you previously filed a Chapter 7 that was successfully discharged, you may file a Chapter 13 4 years after the previous Chapter 7 was filed. There are other rules that apply depending on the type of the previous Bankruptcy and the one you are currently considering.
Do people know if I file Bankruptcy?
Filing a Bankruptcy Petition is subject to limited public knowledge. However, the ability for the public to obtain knowledge related to the Bankruptcy is generally (but not only) limited to court proceedings, 341 meetings, and information on the docket of the court in which the Bankruptcy is filed. The court docket is not open for public access.
What information should I provide to file a Bankruptcy?
To file the Bankruptcy Petition, it is necessary for the debtor to provide the attorney with 2 years worth of tax returns (if they were necessary to be filed), proof of income for the 6 months leading up to the Bankruptcy Petition being filed, proof of auto/home insurance, a credit report (I will obtain for you), any other debts which are not contained in the credit report (such as medical bills), and a Competitive Market Analysis Report of the home (if the debtor intends on keeping the home).
How fast can I file a Bankruptcy?
A Bankruptcy Petition can be filed as fast as the debtor obtains the Pre-Petition Credit Counseling Certificates and completes my initial interview for information related to the Bankruptcy. It takes approximately 1 to 1 ½ hours top complete the Pre-Petition Credit Counseling Certificate and may be completed over the telephone or internet.
Will the Bankruptcy stop a foreclosure (sheriff sale)?
A Bankruptcy will stop a foreclosure or sheriff sale. However, the new law requires a Pre-Petition Credit Counseling Certificate to be obtained prior to the filing of a Bankruptcy Petition. Thus, if it is the desire of the debtor to stop (also called stay) the foreclosure action, time must be allowed to complete the interview necessary to obtain the Pre-Petition Credit Counseling Certificate. This might take a day or longer to schedule depending on the Credit Counseling Agency used. In addition, it is imperative that if a person intends to file a Bankruptcy Petition to stop a foreclosure, that the debtor actually intend and meet the requirements necessary to complete the Bankruptcy. In other words, a debtor should not simply file the Petition to stop the foreclosure if they know they would not be able to complete the Petition because they don’t meet some other requirement. This might happen, for example, if a debtor makes $200,000.00 in income per year and they know that they would not being able to pass the Means Test but they file the Bankruptcy Petition to stop the foreclosure proceeding anyway. If they do, the debtor could be held responsible for abusing the Bankruptcy proceeding.
How long will the Bankruptcy stay on my credit report?
The Bankruptcy will stay on your credit report for 7-10 years.
Is it better to consolidate my debts or file the Bankruptcy?
There are many companies out there that attempt to sell you on their ability to negotiate your debt down and consolidate your debt. These debt consolidations services may charge you a flat fee or an ongoing fee each month. In addition, some debt consolidation services will try to consolidate your debt by selling you a home equity loan that is secured by your home.
I believe that debt consolidation services generally do not work. I have seen too many people come into my office after paying several thousand dollars only to tell me they cannot afford it anymore. One of the biggest reasons they fail is that those who try to make payments with these companies don’t have the discipline necessary to make the payments over time. In the short, intermediate, and long run, debt consolidation or debt negotiation services will cost you a LOT more to eliminate your debt. It is especially dangerous if you are securing your home with a home equity loan to payoff unsecured debt. This is due to the fact that, generally speaking, you can eliminate your unsecured debt with a Chapter 7 Bankruptcy rather than encumber your home and pay out of pocket expenses with unnecessary debt payments. In addition, these companies will intentionally fail to tell people using their services that credit card companies will often send them a 1099 on any debt that was negotiated down. For example, if a credit card company agrees to negotiate your dent from $20,000.00 to $5,000.00, you will receive an IRS 1099 form for $15,000.00. This means that person will be responsible for paying taxes on $15,000.00.
I strongly urge everyone to consider their Bankruptcy options before making the decision to try debt consolidation or debt counseling. Many people tell me they don’t want their credit to get any worse and they want to try and make payments through the consolidation services. The logic behind that doesn’t make sense because that debtor generally already has bad credit and it will cost them many times more to go down that road rather than look into the Bankruptcy.
In addition, these debt consolidation companies and debt counseling companies will tout the negative implications of a Bankruptcy action to scare you away from that solution. A lot of the information is simply wrong.
What are the disadvantages to a Bankruptcy?
The disadvantages to a Bankruptcy are the fact that it will stay on your credit report for 10 years. During that time, especially at the beginning, it might be more difficult to obtain credit. This will depend on your income, remaining secured debt, and discretionary income.
How long will it take my credit to recover after the Bankruptcy is done?
This is not as complicated an answer as you might think. Remember, your credit score measures your credit worthiness. Your credit score looks at the amount of your debt, whether you are making timely payments on secured debt such as a car or home, how long you have been making those payments, and the amount of available credit you have. After the bankruptcy, you should have virtually $0 unsecured debt. If you are making timely payments on your mortgage or car payments, you should notice your credit score rise rather fast. There are no guarantees here, but you will be able to obtain a car and/or house loan faster than you would ordinarily think.
When do creditors top harassing me after I file for a bankruptcy?
Creditors must stop calling immediately after you file a bankruptcy and they have received notice of the filing. Generally speaking, creditors receive a notice approximately 10 to 15 days after you file the bankruptcy. If a creditor does contact you after filing, please report this to my office immediately. This could be a violation of the Bankruptcy Laws and Fair Debt Collection Reporting Act.
What are the advantages to a Bankruptcy?
The advantages to a Bankruptcy are twofold. The first and most obvious advantage is that a debtor has the opportunity to eliminate all unsecured debt they would ordinarily be responsible for paying. To achieve this, the debtor is only responsible for paying attorney fees and court fees. These costs are small and create an extremely powerful reason to declare a bankruptcy when compared to debt consolidation or debt negotiation options.
The second advantage to declaring a bankruptcy is that a debtors’ credit will actually improve over time. This is due to the fact that a bankruptcy will eliminate debt and increase the capacity of a debtor to borrow, thus raising the credit score of the debtor. If you look at it another way, the elimination of debt through the Bankruptcy eliminates the monthly debt payments by the debtor. The elimination of these debt payments increases the discretionary income of a debtor. By having more discretionary income, and no dent to pay back, the creditor will view the debtor as a lower risk to lend money to.
