Bankruptcy

Bankruptcy

If you are facing bankruptcy? You are not alone in the bankruptcy process. Let us serve as your guide, helping you secure maximum debt relief through whichever type of bankruptcy is best suited to your specific case. Contact us today to get started.

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What Is Bankruptcy?

Bankruptcy is a type of legal proceeding that involves a judge and a court trustee. During the proceeding, they examine the assets and liabilities of an individual or business that is unable to continue paying their bills. The proceeding ends with a decision as to whether or not to discharge debts so the person or entity is no longer legally obligated to pay them.

Bankruptcy laws exist to give people and businesses with excessive financial burdens an opportunity to start over. Under certain circumstances, filing for bankruptcy is the best financial move to make.

Types of bankruptcy

The U.S. Bankruptcy Code includes five types of bankruptcy for debts owed in the U.S. (the sixth, Chapter 15, deals with debt encompassing more than one country). Each one applies to a specific type of debtor. Each chapter has its own goal, offering either liquidation, in which certain assets are used to repay creditors, or restructuring, when a payment plan is created to pay a part or all of the debt owed.

Chapter 7

Chapter 7, also known as liquidation, allows individuals or businesses to give up nonexempt assets and walk away from most debts. To qualify, debtors must pass the means test — that is, their income must be less than their state’s median income.

Not all debt can be discharged, and discharge is not automatic in Chapter 7 bankruptcy. Individuals who successfully discharge eligible debt are no longer liable for the debt.

Chapter 9

This section allows municipalities to reorganize debt. Whether it’s a school district, city or county that’s facing financial hardship, Chapter 9 bankruptcy allows it to restructure the debt and create a plan without selling its assets.

Municipalities that file for Chapter 9 can reorganize debts by lowering the interest rate on existing debt, reducing the principal amount, extending the repayment term or refinancing.

Chapter 11

Also known as reorganization, Chapter 11 bankruptcy is for individuals — and, more commonly, businesses — to restructure debt. It allows the filer to draft a plan to repay some debt while retaining assets.

Corporations filing Chapter 11 bankruptcy don’t risk putting shareholders’ personal assets at risk since the business is considered a separate entity from share owners. In a sole proprietorship business, on the other hand, the owner and debtor are the same person, so both personal and business assets are considered in a Chapter 11 filing.

Chapter 11 is much more complicated, and therefore expensive, making it financially feasible mainly for businesses and very wealthy individuals.

Chapter 12

Chapter 12 allows family farmers and fishermen with regular income to reorganize debt. Although it works similarly to Chapter 13, this option is more advantageous to farmers who have larger debts and don’t meet Chapter 13 wage-earner classifications. It’s also more straightforward than the Chapter 11 process. Repayment usually stretches out over three years, but a court can also decide to extend the repayment period up to five years if it finds this time period justified.

After the debtor fulfills all payments in the reorganization plan, their debt is discharged. Certain debts, like child support or alimony, aren’t dischargeable through Chapter 12 bankruptcy.

Chapter 13

Similar to Chapter 11, Chapter 13 is available to individuals who need to restructure their debt loads. Some creditors will be paid back in full with interest, while others will be repaid a percentage of the debt. Typically, the repayment period is from three to five years.

This type of bankruptcy requires debtors to have regular income, and there are debt thresholds that restrict eligibility. Unsecured debt under this filing must be less than $394,725, and secured debts must be less than $1,184,200. A benefit of Chapter 13 is that the debtor’s home is not at risk of foreclosure during these proceedings.

How the Bankruptcy Process Works

Determining Eligibility

The first step in bankruptcy is to determine if you are eligible to file. The law now requires that you complete credit counseling within 180 days of your filing. At our firm, we can provide you with the list of accredited agencies so you get this requirement completed. If you don’t provide the court with a certificate of completion of accredited credit counseling, your bankruptcy case cannot proceed.

Means Test

The second step is the means test. This test evaluates your assets and liabilities to determine if you are eligible to seek Chapter 7 bankruptcy protection. If you don’t meet the eligibility requirements, you can file for Chapter 13 bankruptcy.

Assignment of Trustee

After all of your paperwork has been filed, a bankruptcy trustee is assigned to your case. The trustee can determine if you currently own any assets that could be liquidated to pay off any portion of your debt. There are exemptions that allow you to keep assets up to a certain value, including vehicles, value in your home, tools of your trade and other items. We can help you to understand how the state or federal bankruptcy exemptions may affect your personal situation, but in a large majority of cases, the petitioner loses nothing other than debt.

Submission of Forms

The proper forms must be submitted to the bankruptcy court and all of this data must be absolutely accurate. Any source of income that you don’t disclose could lead to a belief that you were attempting to commit bankruptcy fraud. It is extremely important that every asset and debt are listed on the various schedules that are submitted along with your petition to the bankruptcy court.

Meeting of Creditors

The first meeting takes place, called a “Meeting of Creditors.” At this meeting, you can be asked certain questions about your financial condition and the information on the forms you submitted to the court. You are under oath during this questioning. Creditors who want to challenge the discharge of a debt can appear, but in most cases, no creditors appear. In either case, our firm can assist you in the entire process, which ordinarily is fairly short.

Confirmation of Eligibility

By this step of the process, you are confirmed to be eligible for Chapter 7. If there is a question about eligibility, you may have the option to file Chapter 13.

Liquidation of Nonexempt Property

If you have assets that can be liquidated to pay debt, or nonexempt property, the trustee managing your case may make the decision whether or not to seize the property. This is a very important point in the process to have an attorney to work with the trustee to allow you to keep some or all of your nonexempt property.

Reaffirmation of Secured Debts

During this step, the trustee may work with you on you secured debts – those secured by collateral, such as a car or your home. You have the ability to reaffirm the debt, which essentially means you intend to continue making payments.

Financial Management Course

You are required to attend a course in financial management, an educational course about budgeting and finances, with the goal of training you so that you are not in this position again in the future. You may be required to submit a form to prove that you have completed this course.

Debts Are Discharged

In this step of the process, your unsecured consumer debt is discharged, and your bankruptcy is completed and the case closed. The initial debt is completely gone and you may not be contacted by those creditors. The types of debts that are eligible for discharge may include credit card debt, medical bills, utility bills, personal loans and other similar debts. At the end of your bankruptcy, you are free from these debts and able to move forward with a fresh financial start.

How to file for bankruptcy

Your first step in filing for bankruptcy should be to consult with an attorney who can advise you on whether that’s the right choice, and also, to let you know which chapter of bankruptcy is most suitable for you. From there, you’ll need to gather certain documentation to help your attorney make that determination, such as:

  • Recent tax returns
  • Pay stubs or proof of income (or lack thereof) over the past six months
  • Bank account statements
  • Investment or retirement account statements
  • Copies of your mortgage or vehicle registration, if you own a home or car
  • A list of your existing debts
  • A list of all other notable assets you might have, such as artwork, jewelry, and other items of value

Before you’re even allowed to file for bankruptcy, you’ll be required to take a credit counseling course. Part of the purpose of that course is to help you determine whether bankruptcy is your best course of action.

Once you’ve completed that course, you’ll need to file the bankruptcy forms associated with the chapter you’re pursuing with your local court. An attorney can help you complete this step of the process. From there, a bankruptcy trustee will be assigned to oversee your case to perform the required tasks such as selling off your assets under Chapter 7, or ensuring that you’re sticking to your personal plan of debt reorganization under Chapter 13.

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How much does it cost to file bankruptcy?

The costs of filing for bankruptcy can be great. How much you’ll pay a bankruptcy attorney depends on where you live, the chapter you’re filing, and how complex your case is. You can expect to pay between $1,000 and $1,500 for a Chapter 7, and between $2,500 and $3,500 for a Chapter 13, but these are just ballpark estimates.

You’ll also need to cover the court fees associated with filing for bankruptcy, which are $335 for Chapter 7 and $310 for Chapter 13. You’ll also pay a modest fee of $20 to $50 for your credit counseling course, but if your income is low enough, you may be eligible to have that fee waived.

When should I declare bankruptcy?

You might consider filing for bankruptcy when your debts are such that you see no reasonable way to keep up with your payments. The purpose of bankruptcy is to give people (or companies or municipalities) a chance either to wipe out some of their financial obligations and start over with a clean slate, or to repay those obligations in a more affordable fashion.

However, to be clear, bankruptcy is not an option to consider if your debt is fairly new, or if you’re going through a temporary financial crisis that’s likely to improve (such as being out of a job). There are consequences associated with filing for bankruptcy, and it’s most certainly not a “get out of jail free” card. So you should really consider bankruptcy only as a last resort if you’ve tried paying off your debts but keep digging yourself deeper into a hole.

Consequences of bankruptcy

Filing for bankruptcy might seem like a great solution to your debt-related woes. But there are repercussions you’ll need to be aware of. For one thing, under Chapter 7, there’s a good chance you’ll lose your home, if you own one. You’ll also risk losing other valuable assets, such as family heirlooms, jewelry, and other items worth money.

Additionally, bankruptcy proceedings are a matter of public record, which means the people you know could, in theory, find out detailed information about what your assets look like and how much money you owe. In other words, say goodbye to your privacy.

Pros of Bankruptcy

  • Fresh financial start. Bankruptcy gives debtors a second chance by clearing past debts so they can start again.
  • Creditor protection. Creditors must cease attempts – including calling you – to get repayment as soon as you file for bankruptcy.
  • Businesses can continue operating. Under Chapter 11 bankruptcy, a business may be able to continue operating while repaying its debts.

Cons of Bankruptcy

  • May lose property. Your non-exempt property may be taken by the courts and sold to repay your creditors.
  • Affects credit score. Chapter 7 bankruptcy remains on your credit report for up to 10 years.
  • Business may be sold. In a Chapter 7 bankruptcy and sometimes a Chapter 11 bankruptcy, the business may be sold and liquidated to repay creditors.
  • Investors lose. In most cases, investors in businesses that go through bankruptcy recoup none or very little of their investment.
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What happens to your credit?

Filing for bankruptcy is a sign that you’re unable to manage your bills and debts responsibly. Therefore, your credit score will go down to reflect that. Oddly enough, the higher your credit score prior to filing for bankruptcy, the more of a hit it will take. By contrast, you’ll feel less of an impact if your credit score isn’t great to begin with. If your credit score is 700 or above, it could drop by a good 200 points with a bankruptcy filing. But if your score is lower, it might drop less than 150 points.

How long is bankruptcy on your credit score?

A Chapter 13 bankruptcy filing will stay on your credit record for seven years. On the other hand, a Chapter 7 filing will stay there for 10 years. During that time, you may have difficulty borrowing money, or borrowing affordably. You may also have difficulty getting approved to rent a home.

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Where bankruptcy doesn’t help

Although bankruptcy is a good way to deal with unsecured debts, there are certain debts it won’t wipe out. These include:

  • Back taxes owed to the IRS
  • Child support payments
  • Alimony payments
  • Debts resulting from you breaking the law, such as overdue fines

Also, filing for bankruptcy won’t prevent you from losing your home if you’re unable to get current on your mortgage payments and keep up with your future payments.

What Is a Bankruptcy Lawyer?

A bankruptcy lawyer specializes in giving legal advice to a client about bankruptcy, prepares legal documents for the client and represents the client in court. An attorney must hold a law degree and be licensed in the state where they do business.

As your guide through the bankruptcy process, a lawyer can advise you about matters such as:

  • Whether to file for bankruptcy
  • Which type of bankruptcy to file
  • How the bankruptcy process works
  • Which court-provided forms need to be completed
  • What kinds of debts can be reduced or eliminated
  • Whether you’ll be able to hang on to your home, car or other property after the bankruptcy case is finished

Overall, a bankruptcy lawyer can steer you in the right legal direction. If you handle a bankruptcy case without a lawyer, you may make legal mistakes that carry long-term financial consequences.

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What To Expect From a Bankruptcy Lawyer

If you hire a bankruptcy lawyer, here’s what to expect:

  • A written agreement, or contract, between you and the lawyer. The agreement will likely include an overview of the lawyer’s work for you.
  • A description of payment arrangements. For example, will the lawyer charge an hourly or a flat fee? How much will the fees be?
  • Ongoing discussions. You’ll talk about how the lawyer is handling your case.
  • An agreement. You’ll agree on how and how often the lawyer will update you about your case.
  • A list of documents. The lawyer should provide you with a complete list of documents needed for your bankruptcy case.

Do I Need a Bankruptcy Lawyer?

Representing yourself in court is an option. Whether it’s the right option for you depends on your situation. Keep in mind that you have better odds of a successful bankruptcy when hiring a lawyer. According to a 2018 study by the American Bankruptcy Institute, Chapter 7 pro se filers are nearly 10 times more likely than lawyer-represented filers to have their cases dismissed or some debt discharge requests denied.

Filing for bankruptcy can stay on your credit report for seven or 10 years, depending on the type of bankruptcy. Therefore, it’s important to consider hiring a bankruptcy lawyer. Here are three reasons you may need one:

  1. You’re uncomfortable dealing with the bankruptcy case on your own. It can be intimidating to represent yourself in court, and a bankruptcy lawyer can take care of legal matters on your behalf.
  2. You’re worried about the paperwork. Court cases typically involve a lot of documents. If you incorrectly fill out paperwork or turn it in past the deadline, for instance, it could endanger your bankruptcy case. A bankruptcy lawyer can keep the paperwork on track, including any documents (like credit card bills) that you must submit.
  3. You’re tired of hearing from debt collectors. If debt collectors are constantly bugging you, a bankruptcy attorney can deal with them instead. Once you tell a debt collector that a lawyer represents you, the collector is supposed to communicate with the lawyer, not you.

Keep in mind that if you can’t afford to hire a bankruptcy lawyer, you may qualify for free legal services where you live. Contact your local or state bar association to find free legal services in your area.

How To Find a Bankruptcy Lawyer

If you decide to hire a bankruptcy lawyer to handle your case, you’ll want to pick one who’s reputable and qualified. Here are some ways to find a trustworthy bankruptcy lawyer.

However you identify them, talk with at least two lawyers before settling on the one who’ll take on your case. Among other things, you should inquire about their experience with bankruptcy cases and the fees they charge.

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What Is Chapter 7 Bankruptcy?

Bankruptcy is a serious business, so you need to understand it clearly. Chapter 7 of Title 11 in the U.S. bankruptcy code controls the process of asset liquidation. A bankruptcy trustee is appointed to liquidate nonexempt assets to pay creditors; after the proceeds are exhausted, the remaining debt is discharged. There are eligibility requirements to file Chapter 7, such as the debtor must have had no Chapter 7 bankruptcy discharged in the preceding eight years and the applicant must pass a means test. This process is also known as “straight” or “liquidation” bankruptcy.

What is Chapter 13 Bankruptcy?

The Chapter 13 federal bankruptcy laws are an especially useful resource for debtors who have or expect to have a steady income and can use a portion of their income to pay down their existing debts.

Instead of wiping debt off the books, such as in a Chapter 7 procedure, Chapter 13 petitioners agree to pay back a portion of their existing debt.

What’s the difference between Chapter 7 and Chapter 13 bankruptcy?

Chapter 7

Form of bankruptcy: Liquidation.

Eligibility:

  • You must pass the means test, which looks at your income, expenses and family size.
  • Cannot have had a previous Chapter 7 discharge in the past eight years or a Chapter 13 in the past six years.
  • Cannot have filed a bankruptcy petition (Chapter 7 or 13) in the previous 180 days that was dismissed for certain reasons, such as failing to appear in court or comply with court orders.

How long it takes to achieve a discharge: Usually under six months.

Mark on credit report: Remains on your credit report for
10 years from filing date.

Benefits:

  • One of the fastest routes to resolve overwhelming debt.
  • Filing a bankruptcy petition halts collection efforts and legal action from creditors.

Drawbacks:

  • Though rare, the trustee can sell nonexempt property.
  • Generally for unsecured debt; does not protect from foreclosure or repossession.

Chapter 13

Form of bankruptcy: Reorganization.

Eligibility:

  • Unsecured debt cannot exceed $419,275, and secured debt cannot exceed $1,257,850.
  • Must have regular income and be current on tax filings.
  • Cannot have had a Chapter 13 filing in the past two years or Chapter 7 in the past four years.
  • Cannot have filed a bankruptcy petition (7 or 13) in the previous 180 days that was dismissed for certain reasons, such as failing to appear or comply with court orders.

How long it takes to achieve a discharge: Usually three to five years, depending on the repayment plan.

Mark on credit report: Remains on your credit report for
7 years from filing date.

Benefits:

  • Can help you resolve your debts while retaining certain assets or getting caught up on secured debts, like an auto loan or mortgage.
  • Filing a bankruptcy petition halts collection efforts and legal action from creditors.

Drawbacks:

  • The length and cost of the repayment plan is challenging for many filers.

How to Decide Which Type of Bankruptcy Is Best

Your first step? Check whether your debts qualify for a bankruptcy debt discharge and if you can protect your property in your state using bankruptcy exemptions.

If you can, the next step is determining if you qualify for Chapter 7 bankruptcy by passing the bankruptcy means test. If you pass the Chapter 7 means test, you’ll likely want to file for Chapter 7 bankruptcy, but always be sure to consult with a bankruptcy attorney.

If you don’t qualify for Chapter 7 bankruptcy, or if you have other problems, such as you want to keep a home out of foreclosure or prevent your car from being repossessed, you’ll likely want to consider filing for Chapter 13 bankruptcy.

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