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Bankruptcy Practice Area
 What is Bankruptcy?Bankruptcy is a federal law/program which allows individuals to either have all of their unsecured debt (credit cards, utilities, medical bills, etc.) discharged and keep all of their property through filing what is called a Chapter 7 bankruptcy; or one can use the bankruptcy filing to cure the arrearages and possibly restructure secured debt such as a mortgage or car loan, this is called a Chapter 13 bankruptcy. The filing of a bankruptcy stops all creditors from taking any actions against you, and forces them to stop contacting you and only dealing with you through your attorney. A bankruptcy filing will stop civil lawsuits, home foreclosure, automobile repossession, bank and/or income garnishments, utility shutoffs, and all forms of creditor harassment. Due to the different types of bankruptcies, the first question I am always asked is what is the difference between the different types of bankruptcies. The types of bankruptcies are 7, 11, 12 and 13. With regard to Chapters 11 and 12, Chapter 11 is only for corporations, not individuals; Chapter 12 is only for family farmers. Therefore, the two Chapters that apply to individuals are 7 and 13. The main difference before getting into specifics is that in a Chapter 13, a person is required to make a monthly payment to the court through the trustee assigned to the case, whereas, a Chapter 7 requires no payments. CHAPTER 13 BANKRUPTCY I will start with an explanation of Chapter 13. A Chapter 13 bankruptcy is most commonly filed for one of three reasons: 1. The first scenario is, a person's home is in foreclosure and may be scheduled for a sheriff sale. This is the most common reason for a Chapter 13, and in most cases, the only way to prevent one's home from being sold at a sheriff sale. The Chapter 13 filing stops the foreclosure proceedings and/or sheriff sale, and allows the home owner to propose a payment plan to cure any arrears on the mortgage. One month after the bankruptcy is filed the filer must resume making the monthly mortgage payments, and also begin making the monthly payment owed to the trustee. The monthly payment to the trustee normally lasts for a period of five (5) years (sixty (60) months). As long as the monthly trustee payment cures all arrears and fees/costs/penalties owed to the mortgage company, the case is approved by the bankruptcy court, and the person's home is safe from foreclosure. After the five (5) period ends, as long as all payments have been made, the bankruptcy case is closed, and the person goes back to being current and even with the mortgage company. (The same process used to stop a foreclosure, can be used to prevent vehicle repossessions). 2. The second scenario is, a person(s) has overwhelming credit card debt or other non-secured debt, owns a home and either has no mortgage or is current with the mortgage, but has too much equity (Value of home - debt against home = equity) in the home. Under the Federal Bankruptcy Law, a person is entitled to a certain amount of equity in a primary residence. A person filing alone is permitted to have up to $20,200 in equity; a married couple filing together is allowed up to $40,400 in equity. In addition to the 20k or 40k allowed, 10% of the home's value can be deducted as estimated closing costs if the property were to be sold. If the home's equity exceeds the amounts just stated above, the court, as an alternative to the house being sold, requires the excess equity be paid to creditors over a five (5) year payment plan. The amount paid is then divided evenly among the creditors, and upon the five (5) year period ending, any amount still owed to the creditors is forgiven, the case is closed, and the person moves forward free of any credit card or other unsecured debt. 3. The third scenario is, a person simply makes too much money. When filing a bankruptcy a person must disclose all income and expenses, and submit the income and expenses to a calculation called the "Means Test." The purpose of such is to determine if the person has any disposable income after all allowed expenses are paid, and if so, is there too much disposable income. If it is determined a person has too much disposable income, then the only option to deal with any credit card or other unsecured debt, is to file a Chapter 13, and pay the disposable income amount to the trustee over a five (5) year period. As in scenario #2 above, the payments are divided equally among the creditors, and whatever the creditors are owed at the end of the five (5) year period are forgiven, and the case is closed and the person moves forward free and clear of any credit card or unsecured debt. CHAPTER 7 BANKRUPTCY A Chapter 7 is simply when a person does not fall into any of the categories above. If a person owns a home and is current with the mortgage, they can still file a Chapter 7 as long as the home does not exceed the allowable equity. Also, the person's other property cannot exceed the allowed equity under the law. If one is eligible for a Chapter 7, it is approximately a six (6) month process from beginning to end. Once the Chapter 7 Bankruptcy is filed, within about one (1) month, the person must attend a fifteen (15) minute court hearing. After the court hearing, barring any issues needing to be resolved, the person, within a three to four month period, will receive an order from the court discharging (forgiving) the person of all credit card and other unsecured debt. |