This article will try to answer the questions, What Is Bankruptcy and how can bankruptcy help with debt issues? Bankruptcy is a legal proceeding filed in the United States Bankruptcy Court. If you cannot pay your bills and your creditors are calling, or if you fear losing your home in foreclosure or your car to repossession, then you may seek the protection of the Bankruptcy Court. Bankruptcy eliminates some debts and allows you to modify other debts so that the amount owed and/or the payment is more affordable. Creditors may receive partial payment of their claims in bankruptcy, either by liquidating some of the debtor’s assets to pay their debts or by creating a repayment plan from the debtor’s wages. Bankruptcy laws also protect financially troubled businesses. This post will explain the bankruptcy process and laws affecting consumers and families.
You Have The Right To Ask For Bankruptcy Help With Debt Issues
Our founding fathers established our bankruptcy courts in the U.S. Constitution because they recognized how important it was for people to have a way to deal with their debt issues. The Bankruptcy Code establishes and protects your right to be debt-free. Bankruptcy cases are handled in federal court. Some states have “insolvency” laws that are similar to bankruptcy, but these laws are little known, and rarely used.
Filing A Bankruptcy Case
A bankruptcy case begins by filing a petition, a statement of your social security number, and a list of your creditors with the bankruptcy court in the district where you live. When you file these documents, you only start your case. You must file several other statements, schedules, and disclosures within 2 weeks or your case could be dismissed. Be aware of these deadlines. Your bankruptcy court has information on Chapter 7 Deadlines and Chapter 13 Deadlines on their website.
What Does It Cost To Get Good Bankruptcy Help?
Court Filing Fees
The Bankruptcy Court charges $338.00 to file a Chapter 13 case and $313.00 to file a Chapter 7 case. The debtor usually pays the filing fee. Some attorneys will include the filing fee in the amount they charge. You may ask the court to allow you to pay your filing fee in one to four monthly payments. If your total household income is less than 150% of the poverty line, you may ask the Court to waive the filing fee in your case. If the court does not grant your request, it will usually allow you to pay the fee in one to four installment payments.
In addition to the court filing fees, your attorney will charge a fee. Bankruptcy Attorney’s fees vary. Attorneys charge between $1,500.00 and $2,500.00, depending upon the complexity of the case.
Financial Education Courses
Debtors must take two bankruptcy educational courses, a credit counseling course, and a Personal Financial Management Instructional Course (sometimes called the debtor education course). Debtors must complete the credit counseling course before the case is filed. There are several approved vendors who offer these classes in person, over the telephone, or online. Be sure to pick a legitimate course provider. There are scam artists posing as debt counselors. Your attorney can recommend a course provider or you may select one from a list of approved vendors. The cost of these courts vary by provider but are usually between $20.00 and $50.00.
You must send notice of your bankruptcy to all of your creditors. A credit report is essential to identify and notify each of your creditors because the debt of a creditor who does not receive notice of your bankruptcy case might not be discharged. Your attorney will often be able to order your credit reports for a fee, usually $35.00 to $55.00. You may order a report directly from the major reporting agencies, Experian, Trans Union, and Equifax. Their fees vary but are usually less than $25.00. Once a year, you may be able to obtain a free credit report may be available from these agencies at http://www.annualcreditreport.com (During the Covid-19 crisis, you can obtain your free credit report every week!)
Income Tax Transcripts
Income tax debts are a major reason that people file for bankruptcy. Tax debts may be discharged if the debtor filed a tax return for that year. If you do not have a copy of your return, your attorney may obtain a transcript of the information on your returns from the IRS. Fees for this service vary.
Property Records, Deeds, Mortgage Documents.
If you own real estate, you will need copies of the deed and mortgage. Many county recorder’s offices will download these documents for a fee. Fees can be $1.00 per page or more.
How Can Bankruptcy Help Me With Serious Debt Issues?
Bankruptcy is a powerful tool. Bankruptcy help with your debt issues. Get control of your debt issues in the following ways:
- The “Discharge” of debts. A discharge makes it unlawful for a creditor to attempt to collect a debt from you, or from your personal belongings.
- The “Automatic Stay”. When you file a bankruptcy, you create an “Automatic Stay” that will stop all attempts to collect a debt. The stay is particularly effective at stopping foreclosure, repossession, and garnishment activities.
- Filing the case can give you time to catch up on the missed mortgage, rent, or car payments. If you require more than a month or two to catch up, Chapter 13 allows you to make a “Plan” to pay your ongoing monthly payment and make catch up payments over time. Your plan can repay missed payments over as long as 5 years.
- Recover a repossessed car or other property. Force a creditor to return repossessed property when you file your case before the car is sold.
- Stop wage garnishments, bank account garnishments and state income tax refund garnishments.
- Stop collection agency calls and creditor harassment.
- Restore or prevent termination of gas, electric or other utility services. (Utilities may require you to pay a deposit to restart services after a cut-off)
- Reduce the amount of creditor debt claims, or eliminate false, inflated, unfair or unproven creditor claims.
Which Bankruptcy Chapter Should I Choose To Help With My Debt Issues
There are several types of bankruptcy cases. Consumers file bankruptcy under Chapter 7 or Chapter 13. Your choice of the chapter will depend on what works for your particular circumstances. Each chapter has its own benefits and risks. Your choice will vary depending upon the debts you have, your income and household expenses, the assets that you own, and other factors.
Chapter 7 Liquidation Bankruptcy
Chapter 7 is known as “liquidation” bankruptcy. A liquidation case is usually very quick. A debtor may receive a full discharge of all debts in as little as three or four months. Many debtors think bankruptcy is a quick and painless way to deal with their debt issues and most of the time it is. Sometimes it isn’t simple at all.
The Chapter 7 Trustee Wants To Sell Your Non-Exempt Assets.
In every case, the court will appoint a Chapter 7 trustee. The Chapter 7 trustee’s job is to identify all the debtor’s “non-exempt property” and to sell as much of that property as the law allows. A debtor does not make payments to creditors in a Chapter 7 case. The Trustee pays creditors from the debtor’s valuable assets. A debtor may claim important assets as “exempt” and is required to give up all property that is not exempt. The debtor’s “non-exempt property” can be sold with the proceeds used to pay creditors. Bankruptcy law gives all debtors generous exemptions to protect essential property. Most debtors are able to exempt (protect) their home, cars, tools, clothing, furniture, household goods, checking, savings and retirement accounts, and even jewelry.
Most debtors can keep all of their property. Valuable property, property the debtor cannot afford and property that is collateral for a loan are at risk. A qualified attorney is best able to advise debtors about how to protect their assets. A Chapter 7 case is probably not the best choice for you if you are behind on your mortgage or automobile loan payments and want to keep your home or car. Chapter 7 doesn’t eliminate a lender’s right to sell the collateral and may not give you time to catch up on payments.
Bankruptcy Laws Do Not Favor Chapter 7 Consumer Cases (neither do your creditors).
Debtors whose monthly income is above average are urged to seek bankruptcy help in a Chapter 13 case because creditors are paid more in Chapter 13. If your family’s monthly income is above the average income (“median family income”), you will have to pass a “means test” in order to stay in Chapter 7. The means test determines if an above-average income debtor will be able to make a small payment to creditors after they pay reasonable living expenses. If the debtor doesn’t have any money left over to make a small but meaningful payment, they pass the means test and can stay in Chapter 7. But, if they are able to make a small but meaningful payment to their creditors, they fail and the trustee and/or creditors may push you into a Chapter 13 case.
You should consider a Chapter 7 bankruptcy when
- You are unemployed without regular income or recently regained employment;
- Your only income is Social Security or government pensions;
- Your monthly income isn’t enough to pay your living expenses and you don’t know which debts to pay first;
- You do not own a car or a home;
- You own a home but you owe nearly as much as the home is worth;
- Your home mortgage or lease payments are paid up.
- Your car note is current and up to date;
- You do not have many valuable assets;
Chapter 13 Liquidation Bankruptcy
Chapter 13 is called a “Reorganization” because it allows debtors who have regular income to create a “Plan” that allows them to make reasonable monthly payments to their creditors under the court’s protection. Debtors in Chapter 13 pay all or a portion of their debts in a three to five-year plan. Payments are made from current income and these payments are used to catch up on missed or delinquent obligations over time. During the repayment plan creditors are forced to stop all attempts to collect their debts and all the debtor’s assets are protected. A plan usually takes three to five years, but can be completed sooner.
A Chapter 13 Reorganization Plan May Be A Good Alternative To Chapter 7
A Chapter 13 Reorganization Plan is a very good alternative for debtors who have debt issues and need bankruptcy help, but they have valuable “non-exempt” assets and fear that those assets could be sold if they filed a liquidation case. Chapter 13 is a good option because the Chapter 13 trustee, unlike a Chapter 7 Trustee, does not have the power to sell the debtor’s property. A Chapter 13 trustee makes payments to creditors from the debtor’s wages and income, not from their property.
You should consider filing a chapter 13 plan if you:
- Own your home and you are in danger of losing it in foreclosure. Chapter 13 can help you stop foreclosure.
- Are behind on debt payments, but can catch up if given some time;
- Own valuable property that is non-exempt, but you can afford to pay creditors from your income over time.
- You will need to have enough income during your chapter 13 case to pay for your necessities and to keep up with the required payments as they come due.
Are you looking for bankruptcy help with debt issues? Seeking real bankruptcy help is an important first step to addressing your debt issues and obtaining a fresh start and freedom from debt. We recommend that you always consult with an experienced Chapter 7 Bankruptcy Attorney near you. Call your attorney at Bredow Law PLC. Ask about our Zero Down Bankruptcy Program. You don’t have to live with debt anymore.