Most people never plan to file a bankruptcy or seek debt relief.
- Block Foreclosure
- Stop Garnishments
- Prevent Lawsuites
- Get Rid of Judgments
- Prevent Repossession
- Handle Personal and
They work hard, pay their bills, but unfortunately, that isn’t always enough. An unexpected medical emergency, a divorce, the loss of a job – all of these things can lead to financial disaster. Sometimes, the disaster creeps up little by little, and one day it occurs to you that there is simply more debt than you can handle.
Since the changes in the Federal Bankruptcy laws in fall of 2005, many people believe that they can no longer file a bankruptcy or discharge debt.
That isn’t true. While it is true that requirements are stricter than they used to be, the large majority of people who need to file a bankruptcy still can.
There are four types of bankruptcy filings that can be filed by individuals: Chapter 7, sometimes called a liquidation bankruptcy; Chapter 13 which is a type of financial reorganization; Chapter 11 which is largely used to handle the debt problems of large businesses and individuals with income and debt at higher levels; and Chapter 12 which is formulated specifically to address the problems of farmers and fishermen.
Our Office specializes in Chapters 7 and 13. We use these tools to handle personal and business debt, and in some cases, tax debt, as well.
Chapter 7 Bankruptcy
Income is a factor in determining if an individual is eligible for to file under Chapter 7 of the US Bankruptcy code. But in some cases, even individuals with a fairly high income can file if other requirements are met. Filing a Chapter 7 puts a stop to creditor garnishments, can prevent repossession, and in some cases can also eliminate tax debt. The advantages of a Chapter 7 are that you do not have to make payments over time. Most types of debts are forgiven or discharged in a Chapter 7 Bankruptcy.
For instance, a Chapter 7 cannot really help in the case of foreclosure. Though it may delay the foreclosure for a month or so, it does not have any mechanism whereby a property owner can catch up on missed payments, or negotiate a loan modification. It is also not possible to strip off a second mortgage in a Chapter 7, though this can sometimes be done in a Chapter 13.
Other disadvantages of a Chapter 7 include the inability to protect assets that may have a higher value than is allowed for by the state and federal laws. In a case where assets have higher values than can be protected your bankruptcy attorney may be able to negotiate on your behalf to help you keep assets that are important to you. This situation is handled differently in a Chapter 13.
In the right situation, however, Chapter 7 is an invaluable tool to get out from under the burden of crippling debt. But it is important to work with an attorney who is both experienced and knowledgeable about all the options, and just as importantly, really takes the time to get all the facts, so he can advise of potential problems, help to resolve them, and ensure that your assets, income, business, and other family members are adequately protected.
Chapter 13 Bankruptcy
A chapter 13 Bankruptcy filing not only stops garnishments, it can also prevent foreclosure and give you a chance to catch up on missed mortgage or car payments so in most cases you can keep your house and vehicles. In a Chapter 13 Plan you make payments to a Bankruptcy Trustee for a period of three to five years. Depending on your income you may pay only a small portion of what you owe to your creditors. Most IRS or state taxes can also be handled in a Chapter 13.
If you earn too much income to file a Chapter 7, have assets that may not be protected in a chapter 7, or other factors work against it, a Chapter 13 may be your best option.
A Chapter 13 is a reorganization of your debts. At the heart of a Chapter 13 lies the Chapter 13 Plan. In essence this is a proposal of how you will pay back certain creditors, as well as which creditors you will pay through your bankruptcy. Based on a complex formula that takes into account your income, allowable expenses, assets, and certain other factors, you may pay your creditors anywhere from pennies on the dollar on up. At the end of the plan you receive a discharge. If you owed taxes that were dischargeable or were being paid through the plan, those taxes will no longer be owed. Back child support or car payments can also be reorganized. In fact, paying for a vehicle through a Chapter 13 can be very helpful, depending on how much is owed and the value of the vehicle. If you owe more than your vehicle is worth a cram-down may be possible, thereby lowering your interest rate and possibly the balance owed as well.
Also, many times IRS and state taxes can be handled through a Chapter 13. If you owe taxes that are several years overdue, penalties and interest may comprise a large part of what you currently owe. Some tax years may be dischargeable in full, meaning that they are eliminated through the process of the bankruptcy. Other tax years, though not dischargeable, may be paid through the Chapter 13 Plan. Doing so can have a distinct advantage. Tax penalties are eliminated in Chapter 13. This can sometimes reduce the tax burden substantially.
Another major advantage of Chapter 13 is that junior liens on real property, like second mortgages, equity lines, and judgment liens, can sometimes be stripped. As an example, an individual owes a first mortgage of $200,000 on a home worth $180,000, and a second mortgage of $90,000 and qualifies to strip the second mortgage; at the end of the bankrupcy that individual will no longer owe anything on a second mortgage–he will only owe the first mortgage of $200,000 and will have eliminated $90,000 of mortgage debt. This is a real advantage when property is underwater as it frequently is these days.
Though a simple Chapter 7 can sometimes be filed pro se, meaning prepared and filed by the debtor without the help of an attorney, it is definately not a good idea to file a pro se Chapter 13. In fact, unless your situation is extremely simple, it is not a good idea to file with an attorney who is new to bankruptcy, or with an attorney who churns out multiple filings cheaply but without much care. As in most areas of life, you usually get what you pay for.
However, a careful, detail-oriented attorney who regularly files Chapter 13 plans and keeps abreast of continuing changes in the law cansometimes work apparent miracles. With good research and imaginative problem solving, many debt problems that seem to have no solution can be fully resolved.
Life After Bankruptcy
The right to discharge debt dates back to the Old Testament, and is specifically included in Article 1 of the United States Constitution. Bankruptcy provides a fresh start in life. In as little as two years after discharge it is possible to have good credit and qualify for mortgages and other loans. Educational loans and car loans can typically be obtained immediately after, or even sometimes during, a bankruptcy.