BANKRUPTCY LAW

The decision to file bankruptcy may be the best “worst decision” of your life. We understand that your contemplation of this decision brings with it a lot of stress, uncertainty and many times some feelings of embarrassment. The following information is intended to provide you some basic information about the bankruptcy process so that you, with our assistance, can make informed decisions about your future.

SOME GENERAL THOUGHTS ABOUT BANKRUPTCY

Alternatives to bankruptcy

Please ask us about alternatives to filing bankruptcy. In certain circumstances, working out or settling a lawsuit or credit issue or consolidating your debts through home refinancing may work to your advantage. Please ask us about these options.

Bankruptcy is your legal right

Once you have decided to file for bankruptcy protection, you should not feel bad about that decision, but rather look at it as a chance for a fresh start or as your legal right to obtain help with whatever trouble has fallen on you. Many times your decision to consider or file bankruptcy is the result of a death or illness or an unexpected loss of job. At other times, it is the result of miscalculating future events or it simply may become necessary because of poor financial decisions made in the past. Whatever the reason, filing bankruptcy is your legal right given to you by the United States Constitution. What this means is that if our founding fathers had not considered a person’s ability to get a fresh start to be of benefit to society, then we, as citizens or residents of this country, would not have been given this right. As a result, you should not be embarrassed or feel guilty. Thousands of people file for bankruptcy protection on an annual basis in Mecklenburg County alone. Many of them have used bankruptcy as an opportunity for a new beginning and have enjoyed great financial success as a result of it.

Types of bankruptcy and their basic purpose

Consumer bankruptcy is divided into 2 categories as follows:

Chapter 7: Chapter 7 bankruptcy is usually referred to as liquidation. The basic purpose of it is to protect a person’s future income.
Chapter 13: Chapter 13 bankruptcy is usually referred to as re-organization. The basic purpose of it is to protect a person’s current assets.

Stop Foreclosures/Repossessions: By filing a Chapter 13 Bankruptcy Case, you are able to stop any foreclosure or repossession proceeding so long as the process has not been completed. As to foreclosures, for any NC property, the foreclosure process is deemed completed once the 10-day upset bid period expires at 5:00 pm on the 10th day following the foreclosure sale. For any SC real estate, ordinarily there is no upset bid period so that the foreclosure is complete and a borrower’s ability to prevent foreclosure ends at the foreclosure sale. If you are trying to prevent a motor vehicle from being repossessed, the bankruptcy case has to be filed before the lender takes possession of the car, although under some circumstances the lender can be forced to return the vehicle for a limited time.

Once a Chapter 13 bankruptcy has been filed, your home may be retained by paying the lender’s arrearage over the course of the bankruptcy (36-60 months) along with any regular payments coming due after the bankruptcy is filed. A past-due amount on a vehicle would work the same way. There are a number of nuances depending on the individual circumstance of your case. For example, if you owe more money on the first mortgage than your house is worth, you may be able to “strip” any second mortgage or home equity loan so that these secondary loans can be reduced and cancelled by the end of your bankruptcy case. Similarly, if you own a car/truck that was purchased more than 2 ½ years ago and you owe more money than the vehicle’s value; you may be able to pay less than what you owe.

Credit Harassment: Just as much as a bankruptcy can stop a foreclosure or repossession (see above), it can also end most lawsuits and collections activity. This is referred to as the “Automatic Stay” against creditor action. At times, a bankruptcy can even void a judgment already in place (not always). The automatic stay applies to both Chapter 7 and Chapter 13 bankruptcies.

Debt Consolidation: Sometimes bankruptcy is not the right answer for you. In our experience, however, bankruptcy works better than debt consolidation because if you qualify for a bankruptcy, your creditors do not have a choice as to whether they want to participate or acknowledge the bankruptcy. However, if you have only a few creditors it may be possible to work out an arrangement. Also, bankruptcy does not discharge student loan debt or certain tax debt. For more information, make an appointment for a free consultation and we will be happy to discuss your options.

Chapter 7: Chapter 7 is often referred to as “liquidation.” The basic goal of a Chapter 7 is to wipe out unsecured debt (credit cards, signature loans, medical bills, repossession and foreclosure deficiencies) while protecting your future income. A Chapter 7 does not mean that you will automatically lose your home or your vehicle. However, if you want to keep any property that serves as collateral for a loan, the loan must remain current throughout the bankruptcy process and afterwards.

Chapter 13: Chapter 13 is often referred to as “reorganization.” Just like liquidation, the term is somewhat misleading. Most people who file a Chapter 13 do so because they are behind on house or motor vehicle payments. Others file because they make too much money to file a Chapter 7, have some unencumbered property that would have be turned over to the Chapter 7 trustee, or because they filed a Chapter 7 within the previous 8 years and have new debt. There are some other reasons to file a Chapter 13 rather than a Chapter 7. However, there are also reasons why a Chapter 7 would benefit a person the most.

THE IMPORTANCE OF RECEIVING COMPLETE INFORMATION

In order to assist you in the bankruptcy process, we must receive a complete disclosure of all of your financial affairs. This includes debts, assets, income, potential assets and income, potential debts, lawsuits, inheritances, contracts and any other facts which may impact your financial life at this time and during the bankruptcy process. Failure to disclose these matters completely will not only make it impossible to represent you competently, but may also lead to loss of that property, dismissal of your case or a successful objection to the discharge of a particular debt. As a result, please answer our questionnaire as thoroughly as possible. If you have any questions or are uncertain about a particular issue, then do not hesitate to ask about that matter. It is always better to over-disclose information than it is to withhold anything.

You also have to be able to document your financial statements. Account statements, bank statements, appraisals, tax returns, contracts, deeds, testaments and other such documents should be collected, organized and retrieved as comprehensively and quickly as possible.

HOW BANKRUPTCY CAN HELP

Discharge Of Most Debts: Most unsecured debt can be discharged through bankruptcy, therefore providing a relief from general debt overload.

Protection Of Property: Bankruptcy stops all foreclosure, repossession or other formal legal proceedings, at least temporarily. These may or may not be resumed, depending on the course of the bankruptcy.

Ability To Modify Or Eliminate Secured Debts: Bankruptcy provides a reasonable time to cure arrearages of home mortgages or car loans. Sometimes judgments may be avoided because they impair exempt property. Second mortgage payments may be reduced or over-secured and undervalued property may be returned without penalty. This may result in the client’s ability to keep a home, a car, or other essential property that may otherwise be lost.

Automatic Stay: This forces an abrupt stoppage of creditor actions immediately upon the filing and notice of a bankruptcy. In addition to the protection of property discussed above, this will prevent utility shut-offs, evictions, and general creditor harassment. This benefit will give you time to sort out your affairs and will reduce the stress brought on by your current financial situation.

Protection From Non-monetary Consequences Of Not Paying A Debt: Many times the inability to pay a debt or an obligation can result in loss of licenses, privileges or even jail through contempt of court proceedings. Again, bankruptcy may buy additional time to resolve these matters, even if eventually the debts will have to be paid.

Miscellaneous Possible Advantages: You may be able to avoid tax penalties and interest with a Chapter 13. You may be able to avoid denial of a student loan. It may be advantageous to litigate a dispute in federal rather than state court.

THE BASIC REQUIREMENTS

In order for your case to succeed and your debts to be discharged (wiped out), the Bankruptcy Court requires that certain information is provided. The most important requirement is full financial disclosure. Even if you think something may not apply, note it down so that we may discuss it.

In order to file for bankruptcy, many requirements have to be met. The basic ones are listed in this section and have to be complied with by every bankruptcy debtor:

• Copy of driver’s license or equivalent identification card and social security card have to be provided to the bankruptcy trustee at least 7 days prior to the 341 Creditors Meeting
• All of your federal and state tax returns have to be filed and a copy of your most recent year’s filed returns have to be sent to the trustee at least 7 days prior to the 341 Creditors Meeting
• You have to attend the 341 Meeting of Creditors, typically scheduled approximately 30 days following the filing of the Case
• If you file a Chapter 13 Case, your 1st payment is due 30 days after filing the case and has to be received by the trustee no later than 30 days following the filing (certified checks or money orders only)
• You have to complete a credit counseling course and obtain a certificate of completion at least 1 day prior to filing the Case. You have to complete a financial management course (within 45 days after the 341 Meeting of Creditors if you filed Chapter 7) prior to discharge. You have to report your current income as well as your income for the 6-month period prior to the month of filing your Case (Example: if you file October 15, your income has to be broken down to indicate how much money you earned from April 1 through September 30)
• As stated above, you have to list all other relevant financial information.
• Chapter 7 debtors who retain houses or vehicles which are subject to a loan must be current on the payments throughout the bankruptcy process.

POTENTIAL PITFALLS

The following may create problems for you and may cause you to lose property, cause certain debts to survive the bankruptcy or prevent a discharge:

• Property inherited or obtained through a windfall (lottery, life insurance) within 180 days following the filing of the case (Chapter 7) or during the duration of the case (Chapter 13) belongs to the trustee. Debts incurred within 90 days prior to filing the case will have to be paid back.
• Debts incurred while “planning on filing” may have to be paid back.
• If you use the Tenancy-By-The-Entirety exemption (own home with spouse as husband and wife on the property deed and there is equity in the home) then make sure there is no joint debt or medical debt, otherwise you will lose your home.
• Debts not listed or listed with incorrect addresses may not be discharged (i.e. cancelled)
• Property acquired within 90 days prior to the case filing may not be protected.
• If income or assets are not stated correctly and truthfully, then the Court can dismiss your case and charge you with fraud.
• Judgments may need to be specifically set aside through a separate Court Order, so do not omit such information.
• Retirement plans are only exempt (yours to keep) if the retirement plan is standard, tax deferred plan.
• Failure to attend the Creditors Meeting with the trustee in person will result in dismissal.
• Failure to file your tax returns, pay your child support and provide social security card and driver’s license will result in dismissal.
• Chapter 13 debtors must make trustee payments as scheduled.
• Any tax refund due at the time the Petition is filed may be collected by the trustee.
• Any money held in a credit union account may be seized by the credit union if money is owed to the credit union.
• Property transferred to a friend or family member (or similar person or entity) within 2 years before the filing of the Petition may be recaptured by the trustee. Money paid to or on behalf of family or friends may be recaptured by the trustee.