When it comes to bankruptcy, the primary source of law is the Bankruptcy Code (Title 11 of the United States Code). Title 11 of the United States Code provides a comprehensive overview of all the substantive laws dealing with bankruptcy. Title (11) is broken down into 9 Chapters, 28 subchapters and 1,532 sections.
Chapter 1 deals with “General Provisions,” and is broken down into 12 sections. The first section, “Definitions,” essentially defines keywords to be found throughout the Bankruptcy Code. These words include “attorney,” “claim,” “consumer debt,” corporation,” “debtor,” etc. This particular section is helpful to refer back to frequently when trying to understand the Code. The remainder of this Chapter sets out to establish “General Provisions,” such as the power of the courts, and who may file for bankruptcy.
Chapter 3 is entitled “Case Administration,” and explains how the bankruptcy case is to be administrated. Chapter 3 contains 4 subchapters. The first subchapter is “Commencement of a Case,” and its sections explain how a bankruptcy case is to get started. Subchapters 2 through 4, talk about “Officers,” “Administration,” and “Administrative Powers.” Within these subchapters there is information regarding: the duties and qualifications of a trustee, attorney interaction with debtors, the Meeting of Creditors, examination of debtors, the bankruptcy estate, dismissal of cases, opening and reopening of cases, adequate protection and most importantly the Automatic Stay.
Chapter 5 is “Creditors, The Debtor and The Estate.” This chapter contains 3 subchapters. The first subchapter deals with “Creditors and Claims.” Information regarding proofs of claim and liability can be found in this subchapter. The second subchapter deals with “Debtor’s Duties and Benefits.” This subchapter enumerates the debtor’s duties, exemptions and information regarding discharge and debt relief agencies. The third subchapter is entitled “The Estate.” This subchapter sets out to explain how the bankruptcy estate is formed and works throughout the case.
Chapters 7, 9, 11, 12, 13 and 15, deal with specific types of bankruptcies. Chapter 7, “Liquidation,” deals with what some people call a “straight bankruptcy.” Chapter 7 bankruptcies are the most common type of bankruptcy filed in the United States. Chapter 9, “Adjustments of Debts of a Municipality,” is available only to municipalities. A Chapter 9 allows and assists municipalities to reorganize and restructure their debt. Chapter 11, “Reorganization,” is similar to a Chapter 9, in that it allows for reorganization and restructuring of debts, but it is aimed towards businesses. Chapter 13, “Adjustments of Debt of an Individual with Regular Income,” is the same reorganization process mentioned above for individuals as supposed to businesses or municipalities. Chapter 12, “Adjustments of Debt of a Family Farmer or Fisherman with Regular Annual Income,” is only available to farmers and fisherman and is essentially the same as a Chapter 13, but with some additional provisions. Chapter 15, “Ancillary and Other Cross-Border Cases,” allows for corporations across borders to gain access to United States Bankruptcy Courts.
Homeowers often wonder whether they could file Bankruptcy if they had previously filed one.
Yes, you can file bankruptcy multiple times. In fact, there is no limit to the number of times that you can file. However, if you have received a discharge in a previous case, a certain amount of time must pass before you can receive a discharge again. The amount of time that must elapse depends on which chapter you previously filed, and which chapter your plan on filing now.
If you have previously filed a Chapter 7 bankruptcy, you must wait eight years to file and receive a discharge in a new Chapter 7. If you have filed a Chapter 7 in the last eight years and received a discharge you can still receive the protection of bankruptcy (automatic stay) by filing a Chapter 13. If more than four years has elapsed since you filed your Chapter 7, you can receive a discharge in your new filing.
If you previously received a discharge through a Chapter 13, you can receive a discharge in a Chapter 7 if six years has passed since your Chapter 13 filing. Note, that the clock starts as soon as your case is filed, not when you receive your discharge. If six years, has not passed, you can receive a discharge through another Chapter 13 as long as two years has passed since the previous Chapter 13 filing.
But what if you can’t receive a discharge? Can you still benefit from filing? Absolutely! Student loans and taxes are generally not dischargeable in a Chapter 7. After your Chapter 7 has concluded, student loan creditors can resume garnishing up to 25% of your paycheck. The IRS is even worse. They can take over 90% of your paycheck to pay on back taxes. Even though you may not be eligible for a discharge, you can still receive the protection of bankruptcy by filing a Chapter 13 and your student loan creditors will not be able to garnish your wages. A small monthly payment may give you up to five years of protection from lawsuits, garnishments, levies and liens.
Just because you have previously filed a bankruptcy doesn’t mean you can’t file again. Even if you can’t receive a discharge, you can still enjoy the protection that bankruptcy provides.
Using An Attorney for Bankruptcy Proceeding
You may be asking yourself, “Why do I need to hire an attorney to file bankruptcy?” You may also think, “I’ve done some research and I’ve seen the forms to fill out. It seems simple enough.”
While our package deals with Pro Se Foreclosure defense litigation, Bankruptcy proceeding is a totally different arena. Therefore homeowners are advised to seek counsel for representation. Bankruptcy isn’t as easy as a process as you may think. Time and again, we have people come to us telling us that they tried to file bankruptcy for themselves but their case was dismissed. In truth, the cost of fixing errors that are made in representing yourself can add up and you probably would have been better off having an attorney handle your case in the first place.
Representing yourself in a bankruptcy matter is referred to as filing pro se. Just like a traffic ticket, you are welcome to represent yourself in bankruptcy. However, as many people find out later (when it is too late), it is often necessary to have appropriate representation from an attorney with experience to make sure your interests are protected and you get the most favorable outcome available to you in the matter.
Many pro se cases usually experience problems starting when the petitioners came to their First Meeting of Creditors. This is a meeting where you are asked questions by the trustee of your bankruptcy to make sure everything in your petition is correct. Frequently, pro se filers make mistakes that require amendments to their petitions and coming back to attend future meetings. While it is not impossible for a mistake to be made in a petition filed by an attorney, the chances of having your bankruptcy go smoothly without any problems is a lot better if you have representation.
An attorney will know where your debts and assets need to be listed to prevent problems. Many times I will hear pro se filers say things like “I didn’t think I needed to list THAT.” Your attorney will be able to tell you what needs to be listed and what does not. Also, your attorney will be able to give you advice on when the best time to file will be. If a petition is filed too soon or too late, there may be debts that would have been discharged but will not be if the petition was filed at the wrong time. Finally, your attorney will know how to properly use the available exemptions to protect your property. This can become an issue if you have moved from one state to another within the last two years prior to filing. Some states provide for more property to be exempted from the bankruptcy estate than others. In some situations, the even more generous Federal exemptions may be available to a petitioner.
Why Do you need an Attorney in Bankruptcy
It is an Attorney’s job to know whether a Chapter 7 or a Chapter 13 is the better option for their clients. Attorneys will ask you proper questions at the initial consultation to make this determination. Most clients want to file a Chapter 7, but that is not always the best option for them. Each case is different and the rest of this post will show the differences between the two options so you can have a better understanding of both.
A Chapter 7 is less expensive than a Chapter 13 and it is cheaper. In initial consultation it is important for an Attorney to determine what type of debt his client has. There are three types of debt: priority, secured and general unsecured. Priority debt consists of recent tax debt and domestic support obligations, such as alimony or child support. If someone owes taxes from the last few years and/or a domestic support obligation, a Chapter 7 will not get rid of this debt. Secured debt is another type of debt. Secured debt consists of car loans, mortgages or statutory liens. Secured debt can be taken from you if you are not making the payments. If the client is current with their mortgages and car loans a Chapter 7 may still be a good option for them. However, if they are delinquent on secured debts, a Chapter 13 may be in their best interest. Alternatively, if someone has a high interest rate on a vehicle or the monthly payment leaves them with no disposable income, a Chapter 13 may be a good way to stretch out those payments on the vehicle to free up some other money to take care of other things they may need or start savings. The last type of debt is unsecured debt. Unsecured debt is credit card debt, medical bills, old utility bills, pay day loans, etc. This type of debt is discharged in a Chapter 7, which means it is wiped out. This type of debt is the reason that many potential clients feel they need to file bankruptcy.
As I said, Chapter 7’s are quicker than Chapter 13’s. They usually last 4 months or so, while the Chapter 13 will last from 36-60 months, but Chapter 13’s do have some advantages over Chapter 7 bankruptcies. Below I will list some of the reasons why people may want to file a Chapter 13, rather than a Chapter 7.
For some people, a Chapter 7 is not an option. They may not be eligible. In order to be eligible for a Chapter 7 you are not allowed to have filed one in the last 8 years. Additionally, some people make too much money or have too much monthly disposable income to be able to file a Chapter 7. If any of these restrictions apply, you can still file a Chapter 13. Another great reason to consider a Chapter 13 is if you are behind on your mortgage or car payment. Rather than lose your house to foreclosure or your car to repossession, you could file a Chapter 13 and get protection under the law. A case filing will stop all attempts at the mortgage company selling your house or the car creditor picking up your car. A Chapter 13 will also allow you to catch up on your back mortgage payments over the course of 5 years and stretch out your car payments over the same amount of time.
Chapter 13 bankruptcies are also a great option for people who are “upside down” on their house and have a 2nd or even a 3rd mortgage. In a Chapter 13, if you have no equity in your house in regards to the 1st mortgage, then we can “strip off” the second mortgage. That means these 2nd or 3rd mortgages would become unsecured debts and could be discharged at the end of the Chapter 13 and you would still be able to keep your house. Some people are also often behind on tax debt or domestic support payments and need time to catch up. They might be afraid of a bank levy or a criminal charge. A Chapter 13 will give them the time to become current without facing further penalties. These debts can be paid through the plan in a structured way to make it easier to handle for the debtor.
A Chapter 13 is also the only option when you are trying to discharge a debt that was assigned to you in a divorce decree. It is a good idea if you have gotten a divorce to show the decree to your attorney. If you have assigned debts through that divorce that you want to discharge it cannot be done through a Chapter 7. A good, knowledgeable bankruptcy attorney will be able to sort through all of this paperwork and let you know what the best option is for you.
Additionally, some clients who have filed a Chapter 7 bankruptcy in the last 8 years, will find themselves in a situation where they are getting garnished by a new creditor. They come to see Attorneys hoping to stop the garnishment but cannot file a Chapter 7. Often it is a good idea to file a Chapter 13 to stop the garnishment. Seasoned Attorneys can always file a Chapter 7 later to discharge the debt, but the Chapter 13 will stop the garnishment to free up money so you can pay your rent and utilities and not get further behind on your bills. These garnishments are often up to 25% of your paycheck, which can be devastating to many people.
Another advantage of Chapter 13 bankruptcies is that they can often be cheaper up front since attorney fees can be paid over the course of 5 years. We are very willing to work with clients on payment arrangements in a Chapter 13 if they are employed and have the ability to make the monthly plan payments to the Trustee.
This decision on what kind of bankruptcy to file is a complicated one and should not be taken lightly.
Attending the 341 Meeting of Creditors
Shortly after you file for bankruptcy, the Court sends you a notice to appear at a meeting of creditors, also called a “341 meeting”. This meeting will take place roughly about a month after your case is filed. The notice will contain the date, address, time and the name of the trustee that will be handling your case. This meeting is mandatory. If you do not attend the meeting, your case will be dismissed.
For most people, the meeting goes very quickly. Often, there are no creditors there and it will normally just be you, the trustee and your attorney (assuming you have retained one) involved in the meeting. When your name is called by the trustee, you will need to be prepared with your photo ID and social security card in your hand and ready to give to the trustee. This will keep the process moving along smoothly. The trustee will then swear you in, verify your identification and begin asking you questions regarding your bankruptcy schedules that were filed with the court.
The trustee is interested in recovering non-exempt assets in your estate so that he or she may obtain them, sell them and distribute the proceeds to your unsecured creditors. The trustee will ask you questions regarding the value of your home or your car, and how you came up with the values that you listed on your bankruptcy paperwork. They will also ask you about anticipated tax refunds. Often times, your anticipated tax refund will be an asset of your bankruptcy estate. The trustee may ask you to turn over any non-exempt portion of that tax return so that they can distribute it to creditors.
Additionally, the trustee will be looking for inconsistencies in your paperwork. It is very important that you are honest, both when filling out your bankruptcy paperwork and when you are in front of the trustee at the creditors’ meeting. If your answer to a trustee’s questions is different from what is listed in your bankruptcy paperwork, that will give the trustee a reason to believe that you have not been completely honest and it will make it more difficult for you to get a discharge. Make sure you review your paperwork carefully before filing it with the court because ultimately you are responsible for the information listed on the schedules, even if you did not prepare them.
This is a big step for you in the process of filing bankruptcy. You will likely be a little nervous and apprehensive to go to the meeting and answer more questions in front of someone you have never met before. If you have answered all questions honestly, you have nothing to be worried about. The meeting will likely be brief and you will walk out of there with a fresh start and a real opportunity to get your life back on the right track financially.
How Secured and Unsecured Debts are Treated in Bankruptcy
If you are considering filing a Chapter 7 or Chapter 13 bankruptcy it is important to be able to classify your debts as secured and unsecured. These debts are treated very differently in both Chapter 7 bankruptcies and Chapter 13 bankruptcies. If you file a Chapter 7 the unsecured debts will be discharged in the bankruptcy. If you file a Chapter 13 it is possible that all of your unsecured debts will be discharged, but for some people, a portion or sometimes even all of the unsecured debt will have to be paid back through the Chapter 13 plan.
The most common types of unsecured debts are credit cards. Unsecured debts are debts that are not secured by any of your property. If you were to default on these debts, the only way the creditor could collect money from you would be to file a case in court and get a judgment rendered against you for the contract price. Once this happens, the creditor could begin to garnish wages or place a levy on your bank account, essentially freezing it and whatever cash you have in it. This is where a Chapter 7 or Chapter 13 bankruptcy will help you out. The bankruptcy will stop the garnishment or levy and eventually discharge the unsecured debt. Other types of unsecured debts are medical bills, pay day loans, overdraft charges on bank accounts, old utility bills, deficiencies on repossessed vehicles or foreclosures and, in some case, tax debt.
Secured debts are debts that are linked to some sort of collateral (or personal property). The most common type of secured debt is a home mortgage. The mortgage is the debt and the collateral is the house. In a bankruptcy, if you wanted to keep the property (the home) then you would have to pay the secured debt; the mortgage. If you wanted to surrender the house, then the debt would be listed as unsecured debt, would be discharged in the bankruptcy, and you would not have to pay back any money owed on the mortgage. Another type of secured debt is your car loan. The loan is the debt and the security interest is the vehicle. If you are not paying on your vehicle, the finance company can have the vehicle repossessed. If you file a bankruptcy, you can keep these secured debts. If they have equity in them it may be in your best interest to file a Chapter 13 or you may have to surrender them. However, if you have no equity in your secured debts and meet the other requirements for a Chapter 7 bankruptcy then that may be the best option for you.
Exemption on your children
During consultation, attorney will ask you how many children you have living with you that are under 21. These children that are living with you that you are helping take care of are your dependents and will be listed as such in your bankruptcy filing.
You may wonder why that is important. The bankruptcy laws are set up to help the debtors protect certain assets. The attorney that prepares your petition will use these laws to exempt certain property (such as cars, furniture, money in bank accounts and even your home) from your bankruptcy estate. That is, the Trustee would not be able to get a hold of these assets, liquidate them and pay off your unsecured debt with the money they collect. That is good news for the debtor.
It is obviously important then for a bankruptcy attorney to know the law and the exemptions that are available to use. State statutes sets out the “Head of Household” exemption. In some States for example, Missouri, it states that the debtor is allowed to claim a $1250 exemption if they are head of household and they may also claim an additional $350 for each unmarried dependent child under the age of 21. This means that if you want to file a Chapter 7 bankruptcy, but you have some money in the bank or are expecting a fairly large tax refund, your attorney may still be able to help you protect these assets.
Here is how the exemption would work…debtor wants to file a Chapter 7 to stop a wage garnishment, but they are expecting a $2000 tax refund in 2 months. That tax refund is an asset of the bankruptcy so the Trustee could require you to turn it over so that he or she could pay off your creditors with it. However, you have 3 children under the age of 21 that are all living at home with you. Your attorney can apply the Head of Household exemption for $1250, plus $350 per child (for a total of $1050 for 3 children). These would be a total of $2300 that the law allows you to exempt, which would cover the entire tax refund that you are to receive in 2 months. That means you would not have to wait to file your bankruptcy, you could stop the garnishment right away and still be able to retain all of your tax refund.
These exemptions are important and you obviously will want to protect as much property as you can.
Protecting your Home:
Homeowners often wonder if they could lose their home in Bankruptcy.
The short answer is no…you do not have to surrender your home if you file for bankruptcy. If you are having financial trouble and problems making your ongoing mortgage payment, I would first recommend contacting your lender and trying to modify your mortgage. Some lenders will work with you, but if they are not willing to do, a Chapter 7 or Chapter 13 bankruptcy may be the right option for you.
If you are filing a Chapter 7 bankruptcy and you want to keep your house, you will have to be current on your mortgage. You will also need to continue to make payments on that mortgage and enter into a reaffirmation agreement with your lender. When you reaffirm your debt, you are agreeing to repay a debt (in this case, you are agreeing to continue to pay your mortgage) that would other be discharged in your bankruptcy. You would then need to continue making payments to the mortgage company under the reaffirmation agreement. If you breach this agreement and fail to make the monthly payments that have been agreed upon, the bank could then start foreclosure proceedings because you would have breached your promise to pay them.
If you are filing a Chapter 13 bankruptcy and you want to retain your home you can do so by continuing to make your ongoing mortgage payments. The advantage of filing a Chapter 13 when you want to keep your home is that you will have the ability to pay the mortgage arrearage over a period of 3-4 years through your bankruptcy plan. For example, if you have a $1000 mortgage payment per month and you have not paid anything to the mortgagor in 6 months, you will owe them $6,000 in arrears. In a Chapter 13 plan, you can pay this $6,000 over a period of 3-4 years and the bankruptcy will stop any foreclosure proceedings that may have been started or would ultimately be started.
Some people also have equity in their homes. I’ll use Missouri again as an example here. In that State, they have the Homestead Exemption. You can exempt $15,000 in your home, according to MO. Ann. Stat. §513.475. That means that if you owe $100,000 on your home and it is worth $130,000, you will have $30,000 in equity. The Homestead Exemption will allow you to exempt $15,000, but you will still have $15,000 of non-exempt equity. The trustee will have you pay them the amount of non-exempt equity so that they can distribute it to your unsecured creditors. Rather than paying this amount to the trustee in one lump sum, you can pay this amount over time in your Chapter 13 plan and still be able to keep living in your home.
Both the Chapter 7 and the Chapter 13 bankruptcy options may enable you to keep your home, but it is in your best interest to contact a local attorney and speak to them about whether filing for bankruptcy will be a good option for you. They will be able to tell you how the bankruptcy laws will work in your situation and enable you to keep your home.
Protecting Your Car:
A common concern for debtors that are considering filing for bankruptcy is whether or not they are going to lose their vehicle if they file a bankruptcy. The answer to this question depends on several factors so it would be in your best interest, if this is a concern of yours, to consult a bankruptcy attorney in your area.
Most people believe that if they file a bankruptcy they are going to lose everything, including their vehicle. That, in most cases, is just simply not true. In some States, you can protect up to $3,000 in vehicle equity during a bankruptcy. If you are married and filing jointly $6,000 of equity in your vehicle will be protected by the Missouri Motor Vehicle exemption. Vehicle equity is the fair market value minus the amount of money owed on the vehicle. For example, if your car is worth $10,000 and your loan on that vehicle is $9,000, your equity is $1,000. You can look up the fair market value of your vehicle on KBB.com or NADA.com.
If you do not have more than $3,000 of equity in your vehicle, keeping your car will not be a problem. You can file a Chapter 7 bankruptcy, reaffirm the debt on the vehicle and keep making the payments. When you do have more than $3,000 of equity in your vehicle and want to keep it, Chapter 13 is possibly a better option for you. A Chapter 13 bankruptcy will allow you to keep your vehicle, paying back the un-exempt portion of the equity to the Trustee over a period of 3-5 years. This money paid to the Trustee will be distributed to your unsecured creditors and you will be able to keep your vehicle. A Chapter 13 bankruptcy is also helpful when you are behind on your car payments and the finance company is threatening to repossess the vehicle or already has done so.
It is also alright to own multiple vehicles. There is no limit to the number of vehicles you can keep during your bankruptcy. You can split up the exemption and apply it to as many vehicles as you would like. The types of vehicles that qualify under the Motor Vehicle Exemption in Missouri are defined as a self-propelled vehicle designed primarily for use on highways. That definition covers most cars, trucks and motorcycles.
If you do have more equity in your vehicle than what is allowed by the exemption and you still want to file a Chapter 7 then the Trustee is likely to sell your car and distribute the money to your unsecured creditors. That is a decision you and your bankruptcy attorney can make before the filing of your case and something that should be discussed before the 341 meeting with the Trustee.
If you are filing a Chapter 7 bankruptcy, which will discharge all of your unsecured debts, you still may be able to keep your vehicle, but it mostly depends on whether or not you have equity in that vehicle. For example, if you own a vehicle without a loan on it and your vehicle is worth $5000, the trustee will take an interest in that vehicle. The trustee’s job is to find assets, liquidate them and then disperse the money to unsecured creditors to pay off your bills. In Missouri, we have exemptions that can protect your personal property. If you are a single filer, you can protect up to $3000 of equity in your vehicles. If you are a joint filer with your spouse, the exemptions allow you to protect a total of $6000 in your vehicles. To sum it up, if you have a loan on your vehicle and your vehicle is worth less than what you owe on it or if your vehicle is worth more than what you owe, but less than $3000 more, then you will not have any issues keeping your vehicle. If your vehicle does have equity, then you have a couple of options. Those options include surrendering your vehicle to the trustee, making a cash offer to the trustee that will enable you to keep the vehicle or filing a Chapter 13 bankruptcy and paying off the equity through the course of the Chapter 13 plan.
A Chapter 13 bankruptcy is a good option if you have equity in your vehicle. You could pay back the equity over the course of the plan and that money would go to some of your unsecured creditors to help pay them back what you owe them. Additionally, a Chapter 13 can also save a car if you are behind on your payments or, in certain circumstances, if your car has been repossessed. If you were to file a Chapter 13 bankruptcy, your loan balance for your vehicle will be put inside the plan and paid off over 60 months at the court’s interest rate, which is often a lower interest rate than you received in your original contract with your lender. Additionally, if you are having a hard time making your car payments because they are too high, a Chapter 13 can stretch those payments out over 5 years and make it more affordable.
To summarize, the bankruptcy laws are written to give the debtor an opportunity to protect their personal property, but the laws can be complex and it is always a good idea to speak to an attorney so you know exactly what your rights are in regards to your vehicle and any other property you might own.
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