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Bankruptcy is a scary wo
rd to many because: it's something you will never recover from; you'll never buy a home or a car again; you will have to surrender all of your assets and be left with nothing. Good reasons to be afraid, however the above statements could not be more wrong. They are inaccurate and only a part of the stigma that has been created for Bankruptcy.
If you are in jeopardy of losing your home, car, or being sued by a creditor Bankruptcy (Chapter 7 or Chapter 13) is a solution for these problems. The Bankruptcy Code was created to give individuals some protection from their creditors. If you come into my office with an already low credit score you can expect to see an increase in your credit score within the first year of filing. You will also be able to rebuild your credit and find financing again. The most important thing of all is that you have an immediate solution which will allow you to live comfortably without harassing creditors banging at your door, calling you at home, at work or even calling your friends and relatives. Bankruptcy is not the end of the world; it's the beginning of a new chapter. Bankruptcy (Chapter 7 or Chapter 13) coupled with a better understanding of managing your finances can provide you with a fresh start that you had always hoped for. Before you fall for the stigma of Bankruptcy seek the advice of a qualified Bankruptcy Attorney and let them guide you to the happy life you deserve.
Thanks for taking the time to check out a blog whose topic probably seems boring and depressing to a lot of people. My goal here is to show that bankruptcy can actually be very practical and interesting, and for many people it instills a sense of relief, rather than depression.
Just to make it clear, I am an individual, not a bank. I am also a law student, in the summer before my 3L year at the Catholic University of America's Columbus School of Law in Washington, D.C. Unfortunately, I seem to be among the minority of students who have an interest in the topic of bankruptcy, but I have truly come to enjoy it as an academic and career interest; the other area of law in which I have substantial interest is the often-related field of tax law.
My goal is to make this blog relatively devoid of legalese, and accessible to those without a knowledge of bankruptcy specifically, or law generally. The blog will not be carefully cited with footnotes throughout. I want to expose people generally to relevant, practical, and current topics having to do with bankruptcy, and show that it is worth the time to read about. Do I expect that many people will read this? Probably not. But at least I can try.
For those who do read this though, please keep in mind what I wrote above: I am a law student. I am not an attorney. Please do not substitute my writings for consultation with an attorney, which is a highly-advised course of action in the often complicated world of bankruptcy. I make no warranties as to the accuracy or completeness of the information provided, and no attorney-client or other relationship is being created, and I do not have the intent to plagiarize any information.
With that being said, there are some very basic bankruptcy concepts that should be useful as you are reading. With only a few exceptions (such as determining state property law for exemptions from a bankruptcy estate), Bankruptcy Law is federal law. Article I, Section 8 of the Constitution lists the power of Congress to make "uniform Laws on the subject of Bankruptcies throughout the United States," as an enumerated power. The Bankruptcy Code is Title 11 of the United States Code, and contains several different Chapters; people often ask me what the different Chapters mean, often enough in fact that that is probably the most common aspect of bankruptcy law about which I am asked.
Chapters 1, 3 and 5 are not mentioned in daily conversation as much as some of the latter Chapters, but they contain general information, instructions on case administration, and information on some of the parties to a bankruptcy case: the creditors and the debtor (the bankrupt person). Though it is difficult to pick out only a couple fundamental terms, I should mention that at the moment a debtor files for bankruptcy, all of his or her nonexempt property becomes part of a bankruptcy "estate," and an automatic stay is in place - creditors are instantly prohibited from attempting to collect on their debts.
Chapter 7 is liquidation. This applies to both individuals and business entities. A business entity may end its operations, or an individual debtor may have the assets in his estate sold off to satisfy part of the debt owed to his or her creditors. It is, by far, the commonest form of bankruptcy.
Chapter 9 is municipal bankruptcy. I must confess that it is an area in which I know little, as it was not heavily discussed in my bankruptcy class, and I have not encountered it in my independent studying.
Chapter 11 is the form of bankruptcy that likely gets the most media attention - reorganization. This is often discussed in conjunction with the bankruptcies of major corporations (General Motors), and lately with several different Roman Catholic Dioceses. It can also be used by individuals, though - Mike Tyson filed for Chapter 11 in 2003. Here, I should mention that some people have come to me with the notion that all people who file for bankruptcy are "poor." This is not necessarily true; it just means that they are insolvent. Basically, this means one of two things: either their liabilities exceed their assets, or they are unable to pay their debts as they come due.
Chapter 12 is a relatively new Chapter which provides for debt adjustments for family farmers and family fisherman. It was made permanent in 2005 by the ultra-important Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).
Chapter 13 provides for debt adjustment for individuals with regular income. It is not open to business entities. It is meant to be attractive to individuals in that a Chapter 13 debtor will get to keep her assets (her home, in particular), and will pay a portion of the debt off to her creditors over either a three- or five-year period, depending on the circumstances. BAPCPA further provides a "means test," in which debtors with a certain amount of income will be barred from proceeding under Chapter 7, and will instead have to use Chapter 13. The Bankruptcy Code has a preference for Chapter 13.
Chapter 15 is for cross-border cases. This is another area not covered at length in my bankruptcy class, but one I am studying independently at the moment. It is modeled after the United Nations Commission on International Trade Law (UNCITRAL) of 1997.
With the (very) basics out of the way, I plan on adding a new blog entry on a weekly basis. Those entries will, of course, have more specified topics than the current one. Next week I plan on writing about the ability to discharge student loan debt in bankruptcy, in which I hope many will take an interest. I was inspired about that topic because of a recent podcast I listened to from the American Bankruptcy Institute.
So until next week (or whenever I decide to write again), thanks for reading, and please come back for more insolvency enlightenment!
J.P. Morgan
Since we practice law in El Paso, Texas, home of Ft. Bliss, one of the largest military bases in
the USA, we represent many Officers and Enlisted Soldiers. We see lots of prospective clients who are currently in the military and have moved to El Paso from all over the world. For many of these soldiers the stress of moving around, being deployed and all the other surprises that life brings has created a financial strain for them. Several of my clients in the military were afraid to file for fear of getting in trouble with their Chain of Command or losing their security clearance. Actually, we have seen many enlisted soldiers who were sent to us by their commanding officers. It is actually preferred by the military that the soldier’s finances are in order and that they are not in jeopardy of being sued due to defaulting on debts. In order to get your security clearance it is necessary for your financial situation to be manageable. Bankruptcy (Chapter 7, Chapter 13) is considered taking control of the situation. If you are in the military and are in fear of the consequences of falling behind on your debts or your debts are unmanageable – Bankruptcy (Chapter 7, Chapter 13) is a viable option for you.
When filing for bankruptcy a petition must be filed. If the debtor has an attorney the attorney generally fills out the petition based on information provided by the client. The attorney will then meet with the client to have the individual(s) review and sign the petition. While the attorney does fill this out, the debtor(s) are responsible for the information. It is very important that the individual is open and honest with the attorney. It is also very important that the debtor carefully reviews the petition to make sure that all information is accurate and disclosed. If a debtor is unsure of whether an asset should be disclosed it is always better to discuss the matter with an attorney who can give proper legal advice. The debtor will also attend a creditors meeting. The bankruptcy trustee will ask if all information is accurate and all assets and debts have been disclosed. If there is anything missing this is the debtor's opportunity to disclose the information. If information is disclosed at the creditors meeting the schedules filed with the bankruptcy petition will likely need to be amended to reflect that information.In the event that a debtor does not disclose all information on the bankruptcy petition a number of things can happen. Failing to disclose information is considered fraud. Bankruptcy proceedings are federal matters, and are subject to investigation by the United States Trustee and the Federal Bureau of Investigation. Fraud, or attempted fraud, is punishable by fines and/or incarceration in a federal prison.If a debtor fails to disclose creditors that creditor may not be discharged as they did not receive notice and did not have an opportunity to be heard at the creditors meeting. If a debtor realizes that a creditor was omitted the debtor should amend his/her schedules to reflect that information as soon as possible.If a debtor fails to disclose assets a number of things can happen. Depending on the asset the schedules can be amended. If a debtor fails to disclose an asset the trustee can object to exemptions being applied. If the asset is large, or worth any sum of money, the trustee can hold the case open or require the debtor to convert their case. At this time the debtor may be able to pay the trustee for the property, but if that is not an option, may be required to turn over the property. Once a Chapter 7 case is determined to have assets the debtor may not be able to voluntarily dismiss the bankruptcy proceeding. If you have questions about this, or would like to schedule a consultation, contact a St. Louis Bankruptcy Attorney Today.
I have been working with people who have filed bankruptcy (Chapter 13) for about three years now. I never really understood the stress and hardship that bankruptcy can put on a family. It has made me more aware of how to deal with my own finances and to appreciate what I have.
Lifestyle changes can be hard especially when you are used to a particular lifestyle. When you are faced with having to choose between paying your mortgage vs. tuition for a private school, I‘d like to think paying your mortgage wins every time. However, time and time again people continue to maintain the lifestyle they had before they filed bankruptcy. It's sad to say but sometimes you have to reevaluate your priorities. Changing your lifestyle to live within your means does not make you any less of a person or a bad parent; it simply makes you a responsible person looking to build a bright future for you and your family. If people continue to live their life as if society cares what material possessions you own then chances are you will be visiting your bankruptcy attorney again for more help.
Many of our clients have changed their lifestyles once they have filed. I am proud to have helped many through their transition because frankly, I tell them verbatim what I have written. Many clients have thanked me for my 'tough love advice'. Helping people makes my job rewarding because I have been able to successfully communicate that life after bankruptcy is simply a change in mindset.
Bankruptcy requires more than just signing papers and you’re headed out the door. It‘s hardly like that at all. When we present the list of documents required to our clients, I can never stress enough how important these documents are and how important it is to keep them
updated. We don’t ask for the documents to have them in our archives, these documents are extremely important in the bankruptcy process. Your documents are presented to the Chapter 7 Trustee or the Chapter 13 Trustee to show them the information we have presented is complete and accurate. When bringing in your documents, some may say it’s impossible to get a specific document, but no feat is too big if it’s important. We have seen people that needed just one paper from an old employer and although some of us may not want to go back to an old employer and/or the situation may get a bit awkward, they have been successful at retrieving the necessary documents. No one can keep you from getting your information and by law they must keep your records for a specific amount of time depending on the document. There is always something we can do to get a document and without them most of the time, the case cannot be completed. If just one paper is missing, believe me, the Chapter 7 Trustee or the Chapter 13 Trustee will ask for it at your 341 meeting (First Meeting of Creditors) and your case will not continue until you bring in those missing documents.
So once again, I’d like to say, I cannot stress enough how important these documents are and how important it is to keep them updated for the data entry part of your case and to ensure the finalization of your bankruptcy. What’s the simplest part of going through bankruptcy? Answer: the signing of your paperwork.
This may seem counter-intuitive, but owing more on your home mortgage can actually be a godsend in wither a Chapter 7 or Chapter 13 bankruptcy. In a Chapter 7 bankruptcy, the Chapter 7 trustee is an individual appointed by the U.S. Trustee to administer your case. This is a fancy way of saying this person is in charge of selling your non-exempt assets so he or she can distribute some funds to your unsecured creditors (medical bills, credit cards, etc.). You see, immediately upon filing your petition, all your property is now property of the newly created bankruptcy estate, except of course for the property you can exempt under Georgia state law. Exempt property is a dollar amount that you can shield from the grasp of creditors. For instance, in Georgia, an individual can exempt up to $21,500 in his homestead. This means that if the trustee were to sell your home for the benefit of your unsecured creditors, you would receive $21,500, if that much equity existed in your property.
So how does owing more to your mortgage lender help you? Because liens survive bankruptcy, and the mortgage lender is deemed to have a lien equal to the amount that you owe. For example, if you own a house that is worth $200,000 but only owe $100,000 to your mortgage lender, you will have $100,000 in equity. Because the trustee of the bankruptcy estate is now the new owner of this equity, he or she may sell it to recover the $100,000 to be distributed to your creditors. In reality, out of the $100,000, you would receive $21,500, and your creditors would receive whatever is left over after costs of sale and the trustee’s administrative fees are tacked on. If you were to owe $195,000 to your mortage lender, the trustee would not be interested in selling your home since the equity and amount owed to the lender would eat into all the sales proceeds.
In a Chapter 13, you would propose a plan to pay back your creditors over a 3 to 5 year period. One caveat is that you must pay back your creditors at least as much as they would receive if you had filed a Chapter 7. Using the above example, if you were to have $100,000 in equity in you home, you would have to pay back at least $70,000 ($100,000 minus $21,500 exemption minus administrative costs) to your unsecured creditors over a 5 year period. If you did not have any equity in your home, you could get by with only paying back a fraction of that to your creditors.
Posted by Atlanta Bankruptcy Attorney Will B. Geer.
Selecting a good and competent chapter 13 California bankruptcy attorney is not always easy. You have to find someone you trust, yet that attorney must also be competent at what he or she does. One characteristic without the other will not take you very far in terms of the chapter 13 process.
California Chapter 13 Bankruptcies are more involved than chapter 7 cases oftentimes because most clients are subject to Form22C which is the Chapter 13 equivalent of the means test. Furthermore, in chapter 13 cases, the trustee scrutinizes Form 22C much more so than the chapter 7 trustee in a chapter 7 case. That’s because a chapter 13 trustee gets paid administative fees based on how much you are paying into the plan, and oftentimes, Form22C comes into play for above median debtors (for example, a household of 1 person who earns more than around $48,000 gross annually will be subject to filling out all sections of Form22C to determine a baseline of disposable income to repay unsecured creditors).
When Form B22C comes into play, calculations of disposable income must be done by an attorney who has the experience, precision, and capabilities to calculate the numbers properly while applying and understanding applicable case law within the district in which your bankruptcy is filed. However, that is just the beginning of the chapter 13 process. Getting the plan confirmed requires other steps including having the chapter 13 trustee review and confirm the plan, and overcoming any objections by creditors. Also, liens on property may need to be stripped in many cases today in which underwater homes are at issue; taxes issues may need to be resolved all before or during the confirmation process to a chapter 13 case.
So ultimately what do you look for in a chapter 13 attorney? Here is a simple checklist:
1. Ask how many chapter 13 cases the attorney has filed.
2. Ask of those cases filed, how many chapter 13 cases were actually confirmed – meaning a plan was confirmed by the chapter 13 trustee. Understand, this is not the same as asking how many cases received a chapter 13 discharge. Getting a plan confirmed generally means the attorney did his/her job at least intiially, and got the plan, that the client had asked for, approved by the bankruptcy court. However, it is then up to the client/debtor to see the plan through by making plan payments. Failure to do so will result in the chapter 13 case being dismissed by the court for failure to make plan payments and therefore a chapter 13 discharge is never entered due to the client/debtor’s inability to see the plan through. (Sadly, some attorneys have been known to mislead potential clients about how many cases they confirm vs. the ones they file – thus use your judgment and common sense in picking the attorney. Trust your gut on this and consult at least 2 different attorneys, assuming you have the time/luxury to do so).
3. Ask the attorney if he has ever had a plan confirmed over the chapter 13 trustee’s objection. Usually that means the attorney knows how to push issues and understands the laws of chapter 13. A chapter 13 trustee will object where he/she feels the debtor is not paying out enough in the chapter 13 plan’s proposed monthly plan payments. When the trustee objects, a bankruptcy judge will hear the case, assuming the debtor’s attorney fights the issue. Where the attorney overcomes an objection by the trustee, that means legal issues are addressed in court whereby the court makes a ruling that the debtor’s attorney took a proper position in crafting the chapter 13 plan, and that the chapter 13 trustee is not entitled to push for a greater distribution of disposable income.
4. Ask how much the attorney charges up front - usually when an attorney offers to take your chapter 7 case for little or no money down, that is a good sign you have a chapter 13 case that is not legally complex and devoid of any overwhelming obstacles to confirmation of the chapter 13 plan. However, even if your case is straight-forward, don’t expect a good bankruptcy attorney to take your case for free if your foreclosure is scheduled for the next day. That simply will almost never happen.
5. Ask how much the attorney charges for the total chapter 13 case. Oftentimes, unless you really know the attorney is good, those who charge significantly less than the no-look fee of $4000.00 may not be fully competent chapter 13 attorneys. Most good and capable chapter 13 attorneys will not take a chapter 13 case for less or much less than the no-look fee since there is a lot of work to do in chapter 13 cases. To be clear, I am talking about the TOTAL attorney’s fees, not the upfront fees before filing. The total fees must be clearly and fully disclosed in the bankruptcy papers so that it is very clear to all parties. If you are being billed hourly, rather than based on the no-look fee, that should also be clearly disclosed in your bankruptcy paperwork. If you don’t see it, ask your attorney to show it to you before filing.
7. Ask the attorney if you ever have to pay them attorney’s fees directly after the filing of the case. Do not EVER go to an attorney who says you must pay them attorney’s fees directly AFTER the chapter 13 bankruptcy has been filed. An attorney’s chapter 13 post-petition fees are paid through the plan, meaning the chapter 13 trustee will pay the attorney any balance of chapter 13 fee’s owed. If you have filed a chapter 13 case and are asked to pay attorney’s fees directly in addition to making plan payments, contact the United States Trustee’s Office and let them know immediately.
A Guide to the Distressed Florida Homeowner Facing ForeclosurePrincipal Residence – The following applies generally to principal residences in chapter 13 bankruptcy. The rules as to modification of mortgages on non-principal residences in chapter 13 bankruptcy may actually be more liberal. Changes allowing the more liberal modification of principal residence mortgages in chapter 13 are now before Congress and may soon be enacted. Other more liberal rules for modification may also apply to those qualifying as “family farmers” under chapter 12 bankruptcy. Automatic Stay – With certain exceptions, the filing of a chapter 13 bankruptcy stays or stops most creditor collection actions, including mortgage foreclosure. The automatic stay provides a homeowner a “breathing spell” in order to allow him or her an opportunity to reorganize their debt while under the protection of the U.S. Bankruptcy Court.
Timing – Generally, a chapter 13 bankruptcy must be filed before a foreclosure sale if a person desires to attempt to save their home under a chapter 13 bankruptcy plan. A foreclosure sale is normally set by the Florida Circuit Court a number of weeks after the entry of the final judgment of foreclosure.
Chapter 13 Bankruptcy Prior to the Present Real Estate Crisis - Chapter 13 bankruptcy plans typically provided to reinstate first and second mortgages on a principal residence over a five year plan while at the same time paying the ongoing regular monthly mortgage payments. Mortgages secured only by a principal residence are generally not “modifiable” under present chapter 13 bankruptcy laws. Second mortgages that are wholly “underwater” are an exception to the rule against modification and may be avoided and deemed as “unsecured” claims and paid a dividend on the same basis as other unsecured claims such as credit cards. Unsecured claims are usually only paid a small percentage on the dollar under a chapter 13 plan.
Present Real Estate Crisis – Many homeowners owe more on their home mortgages than their present value (“underwater”) and many are unable to pay their monthly payments.
“Making Home Affordable Program” - last week the federal government announced updated information on its “Making Home Affordable Program.” http://www.financialstability.gov/makinghomeaffordable/. This program provides for the refinancing or modification of a mortgage under certain circumstances. More information is available from the federal government’s “Homeowner’s HOPE Hotline” at (888) 995-HOPE.
The Typical Present Distressed Homeowner’s Situation - the typical South Florida homeowner is in a situation where the amounts owed on the first and second mortgages substantially exceed the value of his or her home. Many of the comparable sales are sales of foreclosed homes. Many first mortgages may be adjustable rate mortgages. Property taxes may be high for recent purchasers. Condominium and association fees may have risen due to the default of other unit owner’s default. What is the Typical Homeowner in Crisis Presently to Do? Non-bankruptcy Refinancing or Modification – Most distressed homeowners should immediately contact their mortgage servicers or lenders to attempt refinancing or modifications. Patience may be required as the new provisions of the “Making Home Affordable Program” are now being implemented. Efforts should be made even if you were previously turned down. Participate in Florida Circuit Court Foreclosure Actions- A person who hasbeen served with a mortgage foreclosure action should normally participate in the foreclosure action. There may be opportunities to mediate a modification with the mortgage company. The participation should begin by “answering” the foreclosure complaint within the time period set forth in the summons attached to the foreclosure complaint. The answer may be made by the homeowner himself or through an attorney. Chapter 13 Bankruptcy Protection - If a homeowner is about to lose his or her home in a foreclosure sale, under appropriate circumstances, he or she may consider filing for chapter 13 bankruptcy relief before the foreclosure sale takes place. The Second Mortgage - Most second or junior mortgages are “underwater” and would be avoidable even under the present chapter 13 laws. A wholly underwater second mortgage holder will be avoided and receive a dividend on the same basis as unsecured credit cards. The First Mortgage - The homeowner will seek to refinance or modify his or her first mortgage under the non-bankruptcy “Making Home Affordable Program” or on such other basis as may be available. As the mortgage company will normally have special bankruptcy counsel, a direct line of communication for modification is available facilitating efforts to modify. The chapter 13 plan will typically provide for the first mortgage in the first phase of the plan (i.e. months 1-30) and a dividend to unsecured creditors during the second phase of the plan (i.e. months 31-36). Until a refinancing or modification is reached, the first mortgage company will receive its regular payment or such other lesser amount as may be appropriate. Jordan E. Bublick, Miami and Palm Beach, Florida, Attorney at Law, Practice Limited to Bankruptcy Law, Member of the Florida Bar since 1983
Bankruptcy Attorney Jordan E. Bublick practices Chapter 7 and Chapter 13 bankruptcy law in Ft. Lauderdale and all of Broward County, Florida. Jordan E. Bublick has been a member of the Florida Bar since 1983. Chapter 7 bankruptcy is generally used by people who desire to discharge unsecured debt and who have little non-exempt property. Chapter 13 bankruptcy is used to reorganize secured and unsecured debt as well as to discharge unsecured debt.
Chapter 13 bankruptcy is often used to stop a foreclosure action and proposed a plan of reorganization. Due to the decreased real estate values in South Florida, often a junior mortgage lien may be avoidable as an "unsecured debt."
Certain unsecured debt in not dischargeable in Chapter 7 and Chapter 13 such as certain taxes, student loans, fines, etc.Jordan E. Bublick, Miami and Palm Beach, Florida, Attorney at Law, Practice Limited to Bankruptcy Law, Member of the Florida Bar since 1983
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