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Shannon T. Morgan – Bankruptcy Attorney
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People file for bankruptcy for a great many reasons. Obviously, most people file for bankruptcy when they don’t have enough money to pay their bills. Some incur too much debt to handle based upon their income level. Some are facing financial crisis due to a separation or divorce or other family-related matter. Others have problems stemming from loss of employment. For many, bankruptcy comes when they are faced with medical problems.
Some are thrust into bankruptcy when they based their standard of living on funds from overtime work, which ultimately ended. Many buy a house with a mortgage that’s too big. Unexpected, large expenses with a home or car drive many into bankruptcy. Some people file for bankruptcy because of personal problems that get out of control such as gambling, drinking, drugs or criminal conviction. Whatever the reasons, and this is just a small sampling of the reasons people might need to file, people do sometimes reach the point where they need to consider filing for bankruptcy.
Bankruptcy can be a good tool used to help relieve some stress and get someone back on track to financial freedom where the person has a competent counselor to assist them in the process. Keep in mind you must be committed to rebuilding your credit after bankruptcy to reap the full benefits of a filing.
The primary benefits of bankruptcy are four fold:
The first benefit is that on the filing of bankruptcy, creditors are generally barred from debt collection by what is call the automatic stay in bankruptcy. Creditors’ telephone calls stop, debt collection stops, car repossessions stop and mortgage foreclosures and other law suits are stopped such as garnishments and warrants in debts. Some of these actions are stopped permanently when the discharge of debts is issued, but others are only stopped temporarily even if the discharge of debts is eventually issued.
The second benefit is that most consumer bankruptcy cases end with the issuance of the discharge of debts. The discharge extinguishes most credit card debt and medical debts as well as many other types of debt.
The third benefit is that each individual debtor filing for bankruptcy can exempt/protect certain property from the claims of creditors.
The fourth benefit, available to reorganization type bankruptcy only, such as chapter 13, is that a bankruptcy repayment plan will allow a debtor to pay off taxes, the arrearages on his or her mortgage and cars, and it can allow you in some cases to reduce the interest rate on your car, furniture and some mortgages over a period of up to five years.
We here at Tucker Griffin Barnes work hard with you to help you re-establish your financial freedom and to help you with the stress of overwhelming debt issues.
1. What is a chapter 7 bankruptcy?
A Chapter 7 Bankruptcy is a complete or a liquidation bankruptcy. It is often the tool an individual may use to quickly escape the burden of excessive debt and receive a fresh financial start. The bottom line with a Chapter 7 Bankruptcy is that it is a way to discharge (or have the federal government wipe out) certain debts, including but not limited to medical debt, credit card debt, and personal loans.
The liquidation aspect of a Chapter 7 Bankruptcy means the trustee assigned by the Court to oversee a person’s bankruptcy estate may sell assets that are not otherwise protected under allowed exemptions. There are certain situations where people filing for bankruptcy do wish to surrender a car, home, or some other secured asset in order to be rid of the debt that is associated with the asset and, provided you qualify for a Chapter 7 Bankruptcy, this may be the best option for you if you are behind in your payments and/or are so upside down in your equity that you will not recover in a reasonable amount of time.
However, if one is current on their secured debt (the debt secured by some collateral like a home or a car), does not wish to surrender the asset, has a limited amount of equity in the asset, and has the income to continue to pay the secured debt, the person’s assets may be kept even after the Chapter 7 Bankruptcy provided the person continues to pay on the debt and (in most cases) signs an agreement to make the debt survive the bankruptcy.
There are certain debts that are not dischargeable in a Chapter 7 Bankruptcy (including, but not limited to, child support, most tax obligations, most student loans, or any debt incurred as a result of fraud) and you will need to discuss your unique situation with an experienced attorney to assess if a Chapter 7 Bankruptcy is available for you or if it is your best option.
2. What is a chapter 13 bankruptcy?
A Chapter 13 Bankruptcy allows a Debtor to enter into a Repayment Plan that will address the Debtor’s debts over the course of a thirty-six to sixty month (3 to 5 year) repayment period. The Debtor’s payments are made to the Chapter 13 Trustee (an individual assigned by the Court to manage the Debtor’s payments to creditors under the Repayment Plan) throughout the case and, once the Court has approved the Repayment Plan, the Trustee disperses payments in accordance with the Repayment Plan to all of the creditors.
A Chapter 13 Bankruptcy is an extremely powerful financial tool for an individual who: has fallen behind on secured payments (i.e. those for a car or a home); is facing foreclosure or repossession and wants to keep the asset the creditor is seeking; is significantly upside down on debt owed for a car purchased several years ago; owes tax debt that the person cannot pay off within one year of incurring it; is paying high interest on a secured obligation that can be paid off within the life of the Repayment Plan; has a second mortgage on his or her home where more is owed on the first mortgage than the house is worth; or does not qualify for a Chapter 7 Bankruptcy for certain reasons.
The portion of debt that is repaid through a Debtor’s repayment plan is determined based upon several factors including that person’s income (and their spouse’s income if he or she has a spouse and they are living together) compared to allowable expenses and any equity the person has in unprotected assets. As a Chapter 13 Repayment Plan significantly affects the rights of the Debtor’s creditors, the Court will ultimately need to enter an order confirming the Repayment Plan for it to be effective against the creditors.
Once the Debtor has made all of his or her payments, any dischargeable debt remaining due at the end of the Debtor’s Repayment Plan should be discharged by the Court at the conclusion of the case (often a savings of a majority of the Debtor’s unsecured debt). If you need to file a Chapter 13 Bankruptcy, you will need the advice of an experienced attorney to assist you in preparing your case, filing your case, and representing you throughout the process.
3. How do I qualify for a chapter 7 bankruptcy?
In order to qualify for a Chapter 7 Bankruptcy discharge: you must not have filed a Chapter 7 Bankruptcy that resulted in a discharge in the past 8 years or filed a Chapter 13 Bankruptcy that resulted in a discharge in the past 6 years; your household income must either fall below the median income level for a household of your size in the State of Virginia or you must have allowable expenses that bring your income below the median income level for your household. There are a few other ways an individual may qualify for a Chapter 7 Bankruptcy that are not typical and are very fact specific and should be analyzed by an experienced attorney before you undertake to file a Chapter 7 Bankruptcy.
4. Can I keep my car in a chapter 7 bankruptcy?
If you own a car or cars outright and the value of that car or cars is below the allowable exemptions available to you under the law, then yes, you can keep your car or cars. There are certain limited situations where the Trustee may request you pay a portion of the value of an unprotected car and he will transfer those funds to creditors so that they receive some repayment in exchange for allowing you to keep the asset.
If you own a car or cars that are financed with a creditor, then you may only keep that car or cars if you agree to repay the debt owed on it or them. Repaying that debt usually requires you sign an agreement with the lender that will make that debt survive the bankruptcy (meaning if you later are unable to pay that debt, you may be subject to collection efforts including repossession, lawsuits, judgments, garnishments, and phone calls).
In some circumstances, you might be able to redeem the car by paying a lump sum settlement that is less than the amount owed in exchange for the title. Keep in mind that as set forth above if there is equity in the vehicle or vehicles that cannot be protected using an allowable exemption, then the Trustee may force a sale of the car or may ask you to pay a portion of the value of the car.
5. Is my pension safe from the bankruptcy process?
Depending on the value of the pension, and the legal manner in which the pension is held, your pension may or may not be exempt from the bankruptcy process, depending on what other property you own and what claims are against you and your spouse. A consultation with a lawyer qualified in bankruptcy will be required to adequately answer that question under the facts of a specific case.
6. How do I qualify for a chapter 13 bankruptcy?
In order to qualify for a Chapter 13 Bankruptcy, you must be an individual who has regular income and has debts that are below the debt limits (currently $383,175.00 in unsecured debt or $1,149,525 in secured debt) and not have had a discharge in a prior bankruptcy within the past several years. An experienced attorney can and should describe for you what specific requirements need to be met for successive bankruptcy cases.
7. What is the minimum amount of debt for a chapter 13 bankruptcy?
While there is no minimum amount of debt required to file a Chapter 13 Bankruptcy, you would not want to file for bankruptcy where the debt that you have is manageable with some creative financial budgeting or some other non-bankruptcy alternative. An experienced bankruptcy attorney will work with you to identify if your financial situation is one where you would benefit from filing a bankruptcy or would be better served by some other remedy outside of bankruptcy.
8. What are the fees and expenses?
We encounter questions very often about the cost of filing for Bankruptcy. While we completely understand the people who come to TGB for bankruptcy assistance are suffering from some extremely difficult life situations, we must charge a fee that is as low as is possible but allows us to provide quality, effective representation for our clients. Most attorneys will not estimate the cost of a bankruptcy until they have had an opportunity to meet with you and assess your unique financial situation. However, if you are quoted a price for a Chapter 7 Bankruptcy, please be mindful of what the quoted price covers and especially whether it includes the following (which are required for any case and may be charged in addition to the attorney’s fees):
|Bankruptcy Court’s Filing Fee (required in ALL cases)||$310 -$335||Court|
|Homestead Deed Filing Fee (required in MOST ALL cases)||$21||Court|
|Credit Counseling (required BEFORE case may be filed)||$25 to $50||Approved Credit Counselor|
|Debtor Education (can be paid after case is filed but is required BEFORE case may be discharged and closed by the Court)||$25 to $50||Approved Credit Counselor|
Unlike in a Chapter 7 Bankruptcy where the fees and all costs will need to be paid prior to filing the case, only the Court’s Filing Fee of $310 and the required credit counseling, credit report, and other out of pocket expenses must be paid prior to the filing of a Chapter 13 Bankruptcy case. Typically, all Attorney Fees will be paid through the Chapter 13 repayment plan over time.
9. When will you start working on my case?
After your initial consultation and once you decide to move forward with a bankruptcy filing with our office, we ask that you make an initial non-refundable deposit of $100.00 to be applied toward the total cost of your bankruptcy (regardless of whether you decide to file a Chapter 7 or a Chapter 13 Bankruptcy).
While you do not have to make this payment right away, TGB is not able to begin work on your file until such initial payment is made. This deposit evidences your commitment to proceed with the bankruptcy process and allows us to not only begin processing your information but also allows us to release to you a copy of your consolidated 3-bureau credit report as well as instructions and a payment coupon for obtaining your required pre-bankruptcy credit counseling.
Upon request, we will also provide proof to your creditors that you have retained an attorney for purposes of filing a bankruptcy; this proof is meant to reduce the amount of direct collection calls and communications you receive but its success is dependent on the individual creditor’s policy.
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