Figure 1THINGS EVERY CHAPTER 13 DEBTOR SHOULD KNOW
A chapter 13 bankruptcy case is a long process. There is little pleasure to being a debtor or a claim holder in a Chapter 13 bankruptcy case. It requires commitment, patience and determination to successfully complete a plan. Bankruptcy may not be the best long-term best choice for consumer debtors in ordinary financial distress and it is often possible to get control of your finances without a bankruptcy petition. Non-bankruptcy alternatives should be considered before filing a Chapter 13 case. If you are considering filing a Chapter 13 case, you should consider the following facts. Ask your attorney to explain these Chapter 13 realities.
- Chapter 13 is bankruptcy. Even though a debtor pays debt over time, it is still reported as bankruptcy and future creditors will treat it as such.
- Chapter 13 takes a long time. A Chapter 13 plan runs at least three years and in most cases up to five years. It will take patience and dedication to complete your plan.
- Chapter 13 requires discipline. The debtor must continuously work to make sure the Plan is successful. You will have to make all payments, make annual reports to the Trustee, report changes in income. It is work and takes determination to complete a Plan.
- There are alternatives to bankrupty. Bankruptcy may not be your only option, non-bankruptcy solutions and filing under a chapter other than Chapter 13 is possible. Discuss nonbankruptcy solutions to debt with your attorney.
- You be completely honest. Every debtor, under penalty of perjury, is required to fully, honestly and in good faith, disclose, all income, all assets, all debts both before the case is filed and after the case has been approved.
- Multiple court appearances will be required. At a minimum, a debtor is required to appear at two hearings at the court. A meeting of creditors, and a confirmation hearing. A debtor may also be required to attend other hearings on valuation of collateral, relief from the stay, and the like, if those are issues that arise. In many cases they do not.
- The debtor must make payments. Chapter 13 is not free. The debtor pays for everything—attorneys’ fees, trustee’s fees, payments to creditors, interest, and so forth. Payments into the plan will be required. Debtors should be warned that payments will be deducted from their paycheck—while not a garnishment, it may feel like a garnishment, and that discomfort will last the life of the plan. Payments must be made even if not automatically deducted from the debtor’s paycheck. The debtor is responsible for seeing that the trustee receives what is required by the plan even if it means the debtor must carry a portion of each paycheck to the trustee’s office in person.
- Your payments are deducted directly from your paycheck. Chapter 13 cases are funded through payroll deduction orders to debtors’ employers. Your employer will know of your Chapter 13 case. Federal law prohibits your employer from any discrimination against Chapter 13 debtors.
- Family budgeting will be required. A debtor must prepare a budget of family income and expenses and then live within that budget for the life of the Chapter 13 plan. For many debtors, family budgeting is unknown and discomforting. The debtor accustomed to spending $50 a month on hair styling should know before filing a case that life style changes may be required if confirmation and consummation of a plan are to be realized.
- Luxury items may be lost. The debtor may have to choose between confirmation of a Chapter 13 plan and keeping luxury items that fall outside reasonable maintenance and support for the debtor and the debtor’s family. Chapter 13 debtors are not permitted to pay for luxury automobiles or the like through the plan or deduct their cost from income when calculating “disposable income” to be paid into the plan.
- There will be no more credit. In the Eastern District of Michigan, Chapter 13 debtors are prohibited from incurring debt of more than $2,000.00 without court approval.
- The trustee will be watching. The debtor will be subject to the scrutiny of the Chapter 13 trustee for the duration of the case. The trustee can be expected to police the case to monitor the debtor’s performance, to occasionally communicate with the debtor and require information from the debtor, to be a presence in the debtor’s life for years.
- The debtor is protected from creditors. The automatic stay protects the debtor and any codebtors for the duration of the Chapter 13 case. Garnishments stop, repossession are stopped, foreclosures are prohibited, and so forth. Creditors cannot contact the debtor.
- The debtor remains in control but has fiduciary responsibilities. The Chapter 13 debtor remains in possession and control of all property. However, the debtor is required to use and maintain that property with a higher level of care to which the debtor may be accustomed.
- Secured claim holders can be forced to accept reduced payments. The power to change the terms of loans that are secured by collateral is often the principal attraction of a Chapter 13 case. While there are some restrictions, in a Chapter 13 case a secured claim will be fixed at the value of the collateral, and that value will be paid, with interest, over time. The debt that exceeds the value of the collateral is paid with unsecured claims and often receives “pennies on the dollar”. In many cases the loans terms may be changed, including amount of the monthly payment, length of the loan term, and the interest rates can be changed.
- Unsecured claim holders can be paid over the life of the plan.
Unsecured claim holders are entitled to receive at least what they would be paid in a Chapter 7 case, but that amount can be paid over the life of the plan, and the Chapter 13 debtor has great control over the timing and amount of payments to unsecured claim holders. Unsecured claim holders receive only the amount that they would receive upon if you had filed a Chapter 7.
- Codebtors may be protected. If your plan propose to pay a debt, that creditor may not take any collection actions against a codebtor in a Chapter 13 case. This is a great benefit to the debtor with friends, relatives, or coworkers who have co- signed the debtor’s obligations.
- Utility cutoffs. Chapter 13 can help deal with utility service problems. If a utility is threatening cutoff, a Chapter 13 filing buys the debtor 20 days in which to come up with a reasonable deposit or otherwise to satisfy the utility of the likelihood of paying future bills. If utility service is already interrupted, Chapter 13 can provide a framework for reestablishing utility service that does not include immediate payment of the full balance due.
- Negotiating with creditors. The filing of a Chapter 13 case shifts responsibility for dealing with creditors to debtor’s counsel and the trustee. Debtors need to understand that creditors should not be contacting them and that they should not be contacting creditors.
- Loss of job or employment instability. Chapter 13 is based on periodic payments to a trustee. Any interruption in the debtor’s job or loss of regular income upsets the prospects for consummation of a plan. To make your plan work, a debtor may have to accept or continue in a job that is undesirable. The debtor must report any reduction (or increase) in hours or salary to counsel. The failure to report problems or improvements in employment can jeopardize the Chapter 13 case.
- Illness, temporary disability, and pregnancy. Illness, injury or pregnancy can have a traumatic effect on a family’s income and expenses, but they are manageable in a Chapter 13 case. A planned interruption in family income and planned additional expenses can be dealt with if the debtor’s counsel is informed.
- Maintaining insurance. The debtor must insure all collateral that is be paid under the plan. Lapses in insurance during the Chapter 13 case may lead to disruptive and expensive motions for relief from the stay, to convert, or to dismiss. The cost of insurance must be budgeted.
- Divorce and other marital problems. Divorce is a principal cause of financial distress, and marital problems can threaten a Chapter 13 case. The debtor should be encouraged to communicate any serious marital problem with counsel before a domestic disaster leads to the demise of the Chapter 13 case.
- Tax returns and tax refunds. The debtor remains responsible for filing tax returns both before and after they file a bankruptcy case. A debtor must turn over pre filing and post filing tax returns to the Trustee and must report future income tax refunds to the Trustee, and may have to pay all tax refunds received by the debtor during the case to the Trustee.
- Changes of address. It is essential that the debtor inform counsel and the Chapter 13 trustee of any change of address until the case is closed.
- Signing documents. The debtor must sign the petition, Schedules, and Statement of Financial Affairs.
These documents are not usually signed during the first visit to counsel’s office. A debtor will likely have to return to the attorney’s office or sign the documents by mail. A debtor signs the bankruptcy documents under penalties of perjury. Filing false information is a crime.
- Modification. As an debtor’s circumstances change, a debtor may change their plan both before the final confirmation and after the plan is confirmed by the Court.
- Conversion or dismissal.
Chapter 13 is voluntary and may be dismissed at any time or a debtor may convert their case to Chapter 7 at any time.
- Discharge. If the debtor completes payments under a confirmed Chapter 13 plan, the broadest discharge available under the Bankruptcy Code will be realized. The discharge includes claims that would not be dischargeable under other chapters and includes claims that are compromised and claims that are not paid because no proof of claim is filed.
- Postpetition claims. If a debtor has to use credit after the case is filed, if credit is necessary to the success of the debtor’s plan and if permission of the Court is obtained, that debt may be managed through the plan as if it were a claim arising prior to filing.
Source: Keith M. Lundin & William H. Brown, Chapter 13 Bankruptcy, 4th Edition, Appendix A, Sec. Rev. Apr. 14, 2009, www.Ch13online.com.
BANKRUPTCY LAW IS A FEDERAL LAW. THIS SHEET GIVES YOU SOME GENERAL INFORMATION
ABOUT WHAT HAPPENS IN A BANKRUPTCY CASE. THE INFORMATION HERE IS NOT COMPLETE.
YOU MAY NEED LEGAL ADVICE.
When You File Bankruptcy
You can choose the kind of bankruptcy that best meets your needs (provided you meet certain qualifications):
- Chapter 7 – A trustee is appointed to take over your property. Any property of value will be sold or turned into money to pay your creditors. You may be able to keep some personal items and possibly real estate depending on the law of the State where you live and applicable federal laws.
- Chapter 13 – You can usually keep your property, but you must earn wages or have some other source of regular income and you must agree to pay part of your income to your creditors. The court must approve your repayment plan and your budget. A trustee is appointed and will collect the payments from you, pay your creditors, and make sure you live up to the terms of your repayment plan.
- Chapter 12 – Like chapter 13, but it is only for family farmers and family fishermen.
- Chapter 11 – This is used mostly by businesses. In chapter 11, you may continue to operate your business, but your creditors and the court must approve a plan to repay your debts. There is no trustee unless the judge decides that one is necessary; if a trustee is appointed, the trustee takes control of your business and property.
If you have already filed bankruptcy under chapter 7, you may be able to change your case to another chapter.
Your bankruptcy may be reported on your credit record for as long as ten years. It can affect your ability to receive credit in the future.
What Is a Bankruptcy Discharge and How Does It Operate?
One of the reasons people file bankruptcy is to get a “discharge.” A discharge is a court order which states that you do not have to pay most of your debts. Some debts cannot be discharged. For example, you cannot discharge debts for–
- most taxes;
- child support;
- most student loans;
- court fines and criminal restitution; and
- personal injury caused by driving drunk or under the influence of drugs.
The discharge only applies to debts that arose before the date you filed. Also, if the judge finds that you received money or property by fraud, that debt may not be discharged.
It is important to list all your property and debts in your bankruptcy schedules. If you do not list a debt, for example, it is possible the debt will not be discharged. The judge can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide property, falsify records, or lie, or if you disobey a court order.
You can only receive a chapter 7 discharge once every eight years. Other rules may apply if you previously received a discharge in a chapter 13 case. No one can make you pay a debt that has been discharged, but you can voluntarily pay any debt you wish to pay. You do not have to sign a reaffirmation agreement (see below) or any other kind of document to do this.
Some creditors hold a secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your car). You do not have to pay a secured claim if the debt is discharged, but the creditor can still take the property.
What Is a Reaffirmation Agreement?
Even if a debt can be discharged, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan with the bank to keep your car. To promise to pay that debt, you must sign and file a reaffirmation agreement with the court. Reaffirmation agreements are under special rules and are voluntary. They are not required by bankruptcy law or by any other law. Reaffirmation agreements–
- must be voluntary;
- must not place too heavy a burden on you or your family;
- must be in your best interest; and
- can be canceled anytime before the court issues your discharge or within 60 days after the agreement is filed with the court, whichever gives you the most time.
If you are an individual and you are not represented by an attorney, the court must hold a hearing to decide whether to approve the reaffirmation agreement. The agreement will not be legally binding until the court approves it.
If you reaffirm a debt and then fail to pay it, you owe the debt the same as though there was no bankruptcy. The debt will not be discharged, and the creditor can take action to recover any property on which it has a lien or mortgage. The creditor can also take legal action to recover a judgment against you.
IF YOU WANT MORE INFORMATION OR HAVE ANY QUESTIONS ABOUT HOW THE BANKRUPTCY LAWS AFFECT YOU, CALL US FOR A FREE CONSULTATION
Bredow Law PLC (248) 795-5516
Bankruptcy is a powerful tool for individuals and their families to eliminate debt and to recover from financial hardship. But, filing chapter 7 bankruptcy has risks attached to it. It may not be the best solution for the debt problems that some debtors have.
First, chapter 7 generally won’t help you stop a foreclosure or repossession. If you are facing foreclosure or repossession and want to keep the property, chapter 13 may be the better option.
Second, when an individual files a chapter 7 case the court appoints a “trustee” who has the power to sell certain kinds of property of the debtor. The trustee’s job is to determine what, if any, of the debtor’s property, can be sold at a profit. If there is, the profit may be distributed to creditors. For most debtors, this never happens because the bankruptcy law gives generous allowances that allow debtors to protect most kinds of property from the trustee. But, for those debtors who may own property that is worth more than those generous allowances, there is a risk that the trustee may sell it. If the debtor doesn’t want to lose that property, then chapter 7 may not be the best solution. Your Bredow Law attorney’s primary job is to help you identify your property and help you protect it.
Second, you must qualify to file chapter 7 and some debtor’s do not qualify for chapter 7 relief. A bankruptcy court may dismiss a chapter 7 case filed by an individual with non-business debt if the court finds that the granting a discharge of debt would be an abuse of chapter 7. 11 U.S.C. § 707(b). What is abuse? The Bankruptcy Code requires debtors to qualify to file a chapter 7 case. The bankruptcy law requires the debtor to pass a “means test” to determine whether the chapter 7 filing is “presumptively abusive”. The bankruptcy court will consider debtor’s chapter 7 filing is presumptively abusive:
1) If a debtor’s “current monthly income” is more than the state average household income for a family of the same size as the debtor’s family, and
2) if the debtor has more than $30,800.00 in nonpriority unsecured debts, the debtor has the ability to pay 25% of the total of those debts over the next 5 years (at least $128.34), or regardless of the amount of the debtor’s unsecured debt, the debtor has the ability to pay to unsecured creditors $12,850.00 from their current monthly income over the next 5 years.
Because chapter 7 is not for everyone, debtors should be aware that there are alternatives to liquidation by seeking chapter 7 relief.
Debtors who are engaged in business, including corporations, partnerships, and sole proprietorships, may remain in business and avoid liquidation. Such debtors should consider filing a petition under chapter 11 of the Bankruptcy Code. Under chapter 11, the debtor may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment or may seek a more comprehensive reorganization. Sole proprietorships may file a chapter 11 case but may also be eligible for relief under chapter 13 of the Bankruptcy Code.
Chapter 13 relief is most appropriate for individual debtors who are employed and/or have regular income. Sole proprietors and individual debtors may modify their debts under chapter 13 of the Bankruptcy Code. A particular advantage of chapter 13 is that it provides individual debtors with an opportunity to save their homes from foreclosure or their cars from repossession by allowing them to “catch up” past due payments through a payment plan.
Debtors should also be aware that an attorney can often make out-of-court agreements with creditors to pay off debts at a lower amount or on monthly terms that the debtor can afford. These options may provide an alternative to a bankruptcy filing.
Dealing with consumer credit problems starts with the selection and consultation with a qualified Debt Relief Attorney who specializes in bankruptcy. There can be unfortunate consequences if the law and rules are not followed or if a proper pre-petition analysis of the debtor’s income and assets is not performed properly. Bredow Law specializes in helping consumers get relief from their debts. When you are a Bredow Law client, our experience and skill allow us to give you the highest quality and most cost-effective bankruptcy representation. If you or someone you know has questions about bankruptcy, Contact Bredow Law at (248) 795-5516 or by email firstname.lastname@example.org
*Source: Administrative Office of the U.S. Courts. http://uscourts.gov
Generally, when you borrow money, you may deposit a check in your bank account. If you use a credit card, you receive money, property or services. In both cases, you receive something and own a debt to a creditor. The Internal Revenue Service (IRS) does not consider the value of the money, property or services you receive to be taxable income, because you incurred a debt you have to repay. But, if you no longer have to pay the debt, the IRS considers the canceled debt to be Cancellation of Debt Income. Cancellation of a debt may occur if the creditor cannot collect the debt, or gives up on collecting the debt. It may occur when a creditor forgives a debt that you owe, or accepts a Debt Settlement Agreement that pays off the debt for an amount less than is owed. Cancellation of Debt will also occur due to bankruptcy discharge.
The IRS considers the amount of debt that is canceled to be taxable income. But, there are exceptions to the rule.
The IRS Does Not Consider a Cancellation of Debt by a discharge in Chapter 7, Chapter 11, or Chapter 13 bankruptcy to be taxable. You do not have to report or pay income tax on debts discharged in bankruptcy.
The IRS Does Not Consider Any Of The Following To Be Taxable Cancellation Of Debt Income either:
- Debt canceled in a Title 11 bankruptcy case. (Chapter 7, 11 or 13)
- Debt canceled during insolvency.
- Cancellation of qualified farm indebtedness
- Cancellation of qualified real property business indebtedness
- Cancellation of qualified principal residence indebtedness that is discharged subject to an arrangement that is entered into and evidenced in writing before January 1, 2018.
- Amounts canceled as gifts, bequests, devises, or inheritances.
- Certain qualified student loans canceled under a qualified loan forgiveness program.
- A qualified purchase price reduction given by the seller of property to the buyer.
- Any Pay-for-Performance Success Payments that reduce the principal balance of your home mortgage under the Home Affordable Modification Program
If your debt is canceled, your creditor may send you a Form 1099-C.pdf, Cancellation of Debt Form. This form indicates that the amount of debt that the creditor is canceling. If a debt collector attempts to collect a debt after you received a 1099–C form, or after you receive a discharge in bankruptcy, the creditor may not have canceled the debt and you may not have income from a canceled debt. Or, the debt collector may have canceled the debt but the collector attempting to collect a charged off debt. This is unlawful debt collection activity and if this happens, you should contact Bredow Law PLC for a consultation.
The purpose of the debtor education course is to teach you how to manage money and use credit wisely after bankruptcy. Debtor education and credit counseling are not the same courses. Each debtor is required to take two courses in any bankruptcy case. Debtors must take a Credit Counseling course before they file bankruptcy, and all debtors who file bankruptcy must take the Debtor Education class after they file their case. The Debtor Education course may not be taken in the same session as the credit counseling course. They must be taken separately.
To assist individuals in finding a credit counseling agency, the USTP maintains a list of approved providers on its website: https://www.justice.gov/ust/list-approved-providers-personal-financial-management-instructional-courses-debtor-education
If a debtor is unable to attend a debtor education course (such as an incarcerated or hospitalized client) a person with the debtor’s lawful power of attorney may complete the course on behalf of that debtor, if the power of attorney is valid under state law and grants the representative the authority under state law to file a bankruptcy petition.
If you cannot afford to pay for debtor education a provider is required to inform clients whether the services are available for free or at a reduced rate, based on a client’s ability to pay, before providing any information to or obtaining any information from a client, and before beginning an education session. Fee waiver policies may vary. At a minimum, however, a client whose household income is less than 150 percent of the poverty level is presumptively entitled to a fee waiver or fee reduction. The poverty level is defined by the poverty guidelines updated periodically in the Federal Register by the U.S. Department of Health and Human Services under the authority of 42 U.S.C. § 9902(2). For the 2018 poverty guidelines see the following link: Search Federal Register for Annual Poverty Guideline Updates
Do not delay in taking your Debtor Education Course. In a Chapter 7 case, the course must be taken within 60 days after your Section 341 Meeting of Creditors is first scheduled. In a Chapter 13 case, the course may be taken at any time during a three-year to five-year repayment plan. But, in either a Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, a debtor must complete the debtor education requirements and file a Certificate of Completion of the course before the end of the case, or the Court will not issue a final discharge. If the Certificate of Completion is not filed, the Court can dismiss your case without issuing a final discharge of your debts. If the case is closed, the debtor must file a motion to reopen the case before the Court will allow the Certificate of Completion to be filed. Your attorney is likely to charge you legal fees to file a motion to reopen the case and file the Certificate and the Bankruptcy Court charges $260.00 to reopen a Chapter 7 case and $235.00 to reopen a Chapter 13 case.
If you are facing difficult financial troubles, if you are unable to pay your debts, are facing foreclosure or the repossession of your car, contact Bredow Law PLC, immediately for a free telephone consultation. We can help you understand your options and get you on the way to your own Fresh Start. Follow this link: Contact Us to contact Bredow Law PLC or if you prefer, call us at (248) 795-5516 or email us at email@example.com
Before any debtor files a petition for Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, every debtor, including those with primarily business debts, must take a Credit Counseling course from an approved credit counseling agency. Credit Counseling takes about 2 hours and can be done over the phone or on the internet. There is a fee for the credit counseling course that varies by agency. Credit counseling must be completed within 6 months (180 days) before you file for bankruptcy and you must file a Certificate of Counseling within 14 days after filing your petition.
Credit Counseling is intended to give you information about debt relief, debt management, debt repayment options and is intended to help you decide whether you have the ability to pay your debt without filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. As part of the counseling session, a counseling agency helps you to prepare and understand a budget based on your income and expenses. They will discuss your options for repaying the debt. In many cases, they will advise you that bankruptcy is your only realistic option.
It is very important that you DO NOT file for bankruptcy before you take a credit counseling course and receive a Certificate of Counseling. If you do file your petition before you take the course and receive the credit counseling certificate, your case WILL BE DISMISSED (No exemptions). You cannot reinstate your case or reopen it You will have to file a new bankruptcy case and pay another filing fee. Also, you may not lose important protections provided by the automatic stay in your second case. This means that if you file bankruptcy to stop a foreclosure, or to stop a repossession, and have not taken the credit counseling course before you file, you may still lose your home or your vehicle.
To assist individuals in finding a credit counseling agency, the USTP maintains a list of approved agencies on its website: https://www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111
If a debtor is unable to attend a credit counseling course (such as an incarcerated or hospitalized client) a person with the debtor’s lawful power of attorney may complete credit counseling on behalf of that debtor, if the power of attorney is valid under state law and grants the representative the authority under state law to file a bankruptcy petition. The credit counseling certificate must list both the name of the debtor and the name of the representative along with that representative’s legal capacity (e.g. John Doe, as Attorney-In-Fact for Jane Doe). Alternatively, the debtor’s attorney may file a motion with the Court requesting an order excusing the debtor from the Credit Counseling requirement.
If you cannot afford to pay for credit counseling each counseling agency is required to inform clients whether the services are available for free or at a reduced rate, based on a client’s ability to pay, before providing any information to or obtaining any information from a client, and before beginning a counseling session. Fee waiver policies may vary by agency. At a minimum, however, a client whose household income is less than 150 percent of the poverty level is presumptively entitled to a fee waiver or fee reduction. The poverty level is defined by the poverty guidelines updated periodically in the Federal Register by the U.S. Department of Health and Human Services under the authority of 42 U.S.C. § 9902(2). For the 2018 poverty guidelines see the following link: Search Federal Register for Annual Poverty Guideline Updates
If you are facing difficult financial troubles, if you are unable to pay your debts, are facing foreclosure or the repossession of your car, contact Bredow Law PLC, immediately for a free telephone consultation. We can help you understand your options and get you on the way to your own Fresh Start. Follow this link: Contact Us to contact Bredow Law PLC or if you prefer, call us at (248) 795-5516 or email us at firstname.lastname@example.org
It is well known that Bankruptcy Code generally prohibits the discharge of student loans that are owed to or funded by a government agency or department. The Code provides an exception to the rule of non-dischargability: when the debtor can show that the debt, if not discharged, would cause the debtor, an “Undue Hardship”. Bankruptcy Courts across the country have come up with rules on how to determine what qualifies as an Undue Hardship. These rules make it extraordinarily difficult to discharge student loan debts. If the U.S. Department of Education opposes the discharge, only the most extreme examples of hardship are approved. And, it is widely known, that the U.S. Department of Education vigorously opposes all attempts to discharge student loans, regardless of the hardship and so the costs to litigate these cases can be beyond the means of most consumer debtors. Many consumer bankruptcy attorneys believe that, as a practical matter, it is virtually impossible to discharge a student loan. But, is there change in the wind?
The U.S. Department of Education recently announced that it is considering changing its internal policies regarding the discharge of student loans in bankruptcy. The department wrote that it wishes to enforce Congress’s rules that make student loans non-dischargeable, but it is reconsidering how it defines and determines what an “Undue Hardship” is, but they do not want debtors to be “inadvertently discouraged from filing an adversary proceeding in their bankruptcy case”.
In a surprise move, the Department announced that it is requesting public comment on the factors that is should consider when evaluating undue hardship claims in bankruptcy. See the Announcement in the Federal Register here: Request-for-information-on-undue-hardship-claims-in-bankruptcy-adversary-actions This is a golden opportunity for bankruptcy practitioners to effect needed change in the policies of the Department of Education and to make progress for debtors needing real relief.
If you are having difficulty with your student loan, Bredow Law PLC specializes in debt solutions and bankruptcies for consumers. We can help. When you are a Bredow Law client, our experience and skill allow us to give you the highest quality and most cost-effective bankruptcy representation. If you or someone you know has questions about bankruptcy, Contact Bredow Law at (248) 795-5516 or by email email@example.com
For most individuals and their families there are two kinds of bankruptcy. They are known as: Chapter 7 – Liquidation and Chapter 13 – Adjustment of Debts of an Individual with Regular Income. But, some individual family farmers or fishermen may file a Chapter 12 – Adjustment of Debts Of Family Farmer or Fisherman With Regular Annual Income.
Chapter 7 (Liquidation)
In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up some of you property that is sold at auction to pay some of your creditors. However, the bankruptcy law allows you to protect some of your property and prevent its sale. These are called “exempt” property which the law allows you to keep. The purpose of allowing a debtor to keep some, if not all of their property, is to allow them to have the assets necessary to run their homes and businesses and to carry on daily living. In many cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors. If you want to keep property like a home or a car and are behind on the mortgage or car loan payments, a chapter 7 case may not be right for you. That is because chapter 7 bankruptcy does protect property that was given as collateral for a debt, such as a home mortgage or a car loan. Creditor can foreclose on your home or repossess cars whose debt was eliminated in a Chapter 7 case. There are exceptions to this rule, please talk to a qualified attorney, before you decide to file a Chapter 7 case. If you are having difficulty paying a car or home loan and wish to keep them, and if you are employed or have income, then you may be able to file a chapter 13 case.
You should consider filing a chapter 7 bankruptcy if you:
- Are not employed or do not have enough income to pay for your necessary household expenses and pay your creditors.
- Are being sued or if your paycheck, bank accounts, or income tax refunds are being garnished.
- Are facing foreclosure, do not wish to keep the property, but need time to move.
Chapter 13 (Reorganization)
In a chapter 13 case you can save your home or your car by making payments over time to bring those accounts current. In a chapter 13, a debtor prepares a repayment “Plan”. This Plan tells the court and your creditors how you will re-pay your creditors with payments from your income. The Plan math must “add up”. Your monthly budget must show that your bankruptcy plan payments will bring your secured debts accounts current, pay the expenses of bankruptcy and pay some of your other debts over three to five years. The most important thing about a chapter 13 case is that it will allow you to keep your home and car and other valuable property. Property that was not “exempt” and would have been auctioned off in a Chapter 7 case, to pay your creditors is protected. It is not required to be sold. You may propose a plan where you sell property and pay that money into the Plan, but that is up to you. A chapter 13 Plan must pay the same amount to your creditors that they would have been paid if you had filed a chapter 7 case. But, so long as you can pay your secured and other debts from your income, chapter 13 is probably right for you.
You should consider filing a chapter 13 plan if you:
- Are employed or have other regular income;
- Own your home and are in danger of foreclosure;
- Are behind on car debt payments, but can catch up if given some time;
- Have valuable property which you cannot exempt or protect from creditors, and
- You will need to have enough income during your chapter 13 case to pay for your necessary household expenses and to keep up with the required payments as they come due.
Bankruptcy is a powerful tool for individuals and their families to eliminate debt and to recover from financial hardship. But, the bankruptcy process is complex, no matter which chapter you use. A successful bankruptcy case starts with the selection and consultation with a qualified Bankruptcy attorney who specializes in Bankruptcy. There can be unfortunate consequences if the law and rules are not followed or if a proper pre-petition analysis of the debtor’s income and assets is not performed properly. Bredow Law specializes in bankruptcies for consumers. When you are a Bredow Law client, our experience and skill allow us to give you the highest quality and most cost-effective bankruptcy representation. If you or someone you know has questions about bankruptcy, Contact Bredow Law at (248) 795-5516 or by email firstname.lastname@example.org
Bankruptcy is a legal proceeding in the United States Bankruptcy Court system that helps people who are having difficulty paying their debts get a “fresh start”. The purpose of Bankruptcy is to give to the honest, but unfortunate debtor a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.
Chapter 7 Liquidation.
A Chapter 7 case is what most people think of when they think of bankruptcy; the debtor files a Chapter 7 case and in 3 or 4 months their debt is eliminated. This is referred to as a “discharge”. In exchange for this quick discharge, a bankruptcy Trustee will sell the debtor’s ”non-exempt” assets and distribute those funds (less the Trustee’s fee) to creditors. The Trustee doesn’t take and sell everything a debtor owns, Bankruptcy law recognizes that a debtor will need certain important assets to get a fresh start in life, including their home, car, furniture, clothing, personal items and retirement savings and other assets. The law permits the debtor to protect or to “exempt” the debtor’s most important assets. In most cases, these allowed “exemptions” permit the debtor to keep everything they own and nothing is sold. It’s important to remember, in a Chapter 7 case, the debtor keeps his income, but there is always the possibility that he or she may have to turn over property to the Trustee for the benefit of their creditors. An attorney helps the debtor determine when this is a risk.
Chapter 13 – Adjustment Of Debts Of An Individual With Regular Income
A Chapter 13 case is a repayment plan. It is usually used by people who are employed, but who have fallen behind in their mortgage or car payments and want a chance to become current on those debts and prevent foreclosure or repossession and it is used by people whose wages are being garnished to pay a debt and they don’t have enough to live on. Debtors with a regular income may propose a plan to repay some or all of their debt under the protection of the Court. This plan, is usually a five year plan, but can be shorter in some cases.
Chapter 13 is also for debtors who wanted to file a Chapter 7 liquidation, but have learned that if they file a Chapter y case, a Trustee will sell some of their assets. Sometimes the debtor does not want to lose those assets. These debtors may choose to file a Chapter 13 case, the debtor keeps all of his or her assets, even those “non-exempt” assets that they cannot protect, but they must pay through their plan, the value of the assets that would have been sold by the Trustee, if they had filed a Chapter 7 case.
Chapter 13 also allows the debtor to modify the terms of some of their loan obligation, to reduce the amount of the debt, lowering the interest rate, shorten or lengthen the repayment term or reduce a monthly payment.
At the end of both cases, debtor will receive an Order of Discharge. This order prevents any creditor from attempting to collect any debts that arose before the bankruptcy case was filed. Any creditor that violates this discharge and attempts to collect a debt provided for in his or her plan may be brought before the bankruptcy Court, who may order the creditor to return payments and or pay a substantial penalty. It is this Discharge Order that gives the debtor the fresh start they deserve.
If you are facing difficult financial troubles, if you are unable to pay your debts, are facing foreclosure or the repossession of your car, or if you are an unfortunate debtor seeking a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt as they come due, then I encourage you to contact us at Bredow Law PLC for a free consultation. We can help you understand your options and get you on the way to your own Fresh Start. Call Bredow Law PLC at (248) 795-5516 or email us at email@example.com
Bankruptcy is a debt relief program authorized by the United States Constitution, governed by the United States Bankruptcy Code and a specialized Bankruptcy Court Rules, and operated through the federal court system. The primary goal of the bankruptcy laws is to give debtors a financial “fresh start” from burdensome debts. The United States Supreme Court put it best:
[I]t gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.
Bankruptcy cases have their own court. It’s called the United States Bankruptcy Court. A bankruptcy debt relief program helps debtors who are having difficulty paying their debts. A person, a corporation or other legal entity that is having difficulty paying its debts may declare bankruptcy by filing a Petition with the United States Bankruptcy. At that moment, the debtor receives the Court’s immediate protection from creditors.
Article I, Section 8, of the United States Constitution authorizes Bankruptcy. Congress enacts the bankruptcy laws and rules. Congress enacted the “Bankruptcy Code” in 1978 and the Code has been amended several times since then. It is the law that governs all bankruptcy cases. Bankruptcy Courts have their own rules; the Federal Rules of Bankruptcy Procedure (often called the “Bankruptcy Rules” regulate how the debtor’s case is managed in the court. There are 90 bankruptcy Courts in the United States. Each state has at least one bankruptcy Court, but most states have several courts. Michigan has two Bankruptcy Courts, and those Courts operate in eight locations; Detroit, Flint, Bay City, Grand Rapids, Lansing, Kalamazoo, Traverse City and Marquette.
A bankruptcy case starts with the filing of a Petition. The moment that that Petition is filed, the Bankruptcy law automatically and immediately imposes an order directing all creditors from taking any further collection actions against the debtor’s property and against the debtor and all co-debtors, individually. If a creditor demands payment, garnishes accounts or paychecks or repossesses property after the case is filed, may be sanctioned by the Court. The “Automatic Stay” goes into effect immediately, even when the creditor has no idea that a bankruptcy was even filed. The Automatic Stay is the Court’s powerful protection from creditors.
After the case is filed, the Court will appoint a Trustee to help the Court administer the case. The Trustee’s job is to determine whether the debtor has any income or assets that can be used to pay creditors all or part of the debt. Depending upon the Chapter of the case that is filed, the Trustee has the power to sell property, lease property or receive a portion of the debtor’s paycheck or other income to pay debts. Under the Bankruptcy Code, some of the debtor’s assets and income is “exempt”, meaning the Trustee may not take it or use it to pay creditors. In some cases, all the debtor’s assets are exempt, and in other cases, the Trustee is able to sell some property. It is the debtor’s Bankruptcy Attorney to evaluate the debtor’s income and assets and to advise the debtor whether the debtor’s assets can be sold or how much of the debtor’s income from employment will belong to the Trustee.
A debtor’s involvement with the bankruptcy judge is usually very limited. A typical chapter 7 debtor will not appear in court and will not see the bankruptcy judge unless an objection is raised in the case. A chapter 13 debtor may only have to appear before the bankruptcy judge at a plan confirmation hearing. Usually, the only formal proceeding at which a debtor must appear is the meeting of creditors, which is usually held at the offices of the U.S. trustee. This meeting is informally called a “341 meeting” because section 341 of the Bankruptcy Code requires that the debtor attend this meeting so that creditors can question the debtor about debts and property.
After the 341 hearing, if there are no complications, the debtor may not have to return to Court at all. In a chapter 7 case, in the absence of any objections of creditor’s or the Trustee, the debtor can expect a discharge of his or her debts within about 3 months from filing. In a Chapter 13 case, the debtor will propose a repayment plan to the Court. A Chapter 13 repayment plan may pay debts over three to five years. A plan can be shorter than three years if it pays all creditors 100% of their debts.
There are several types of bankruptcy petitions that can be filed; they are called “Chapters”. Each chapter is designed to a specific type of debtor. Depending upon the chapter filed, a debtor may completely eliminate their debt (called a “discharge”), they may modify the terms of the debt to make it easier to pay, (including reducing the amount owed, change the length of the loan term and the interest rate of debt), or they can pay the debt as it is over time but under the Court’s protection. The Chapters are:
Chapter 7, called a “Liquidation”. In this chapter, a trustee takes over the debtor’s assets. Some of these assets are protected (“exempt”), but if they are not exempt, the Trustee reduces them to cash, and pays the money to creditors. In many cases, all the debtor’s assets are exempt and the Trustee sells nothing at all. The debtor normally receives a discharge just a few months after the petition is filed. The debtor must pass a “means test” to determine whether they qualify to file a chapter 7. If a debtor makes too much income from employment, or has the ability to pay a portion of the debts from their wages, a debtor may not be eligible for chapter 7 relief.
Chapter 9, entitled Adjustment of Debts of a Municipality. Only cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts may file a Chapter 9 case.
Chapter 11, entitled Reorganization, ordinarily is used by large businesses or individuals with unusually large amounts of debt.
Chapter 12, entitled Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income, provides debt relief to family farmers and fishermen with regular income..
Chapter 13, entitled Adjustment of Debts of an Individual with Regular Income. An individual debtor who has a regular source of income proposes a “plan” to repay creditors over time – usually three to five years. . Chapter 13 is often better for a debtor than a chapter 7 because it enables the debtor to keep a valuable asset, such as a house, which would have been sold if the debtor filed a Chapter 7 case. The debtor must complete all payments required under the plan before the discharge is received.
Chapter 15, entitled Ancillary and Other Cross-Border Cases. It is used to manage a bankruptcy of a debtor with income, assets or business in several countries.
The bankruptcy process is complex, no matter which chapter you uses. A successful bankruptcy case starts with the selection and consultation with a qualified Bankruptcy attorney who specializes in Bankruptcy. It is very important to select an attorney that specializes in bankruptcies because the law and rules of bankruptcy are complicated and different from other areas of law. There can be unfortunate consequences if the law and rules are not followed or if a proper pre-petition analysis of the debtor’s income and assets is not performed properly. Bredow Law specializes in bankruptcies for consumers. When you are a Bredow Law client, our experience and skill allow us to give you the highest quality and most cost-effective bankruptcy representation. If you or someone you know has questions about bankruptcy, Contact Bredow Law at (248) 795-5516 or by email firstname.lastname@example.org