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Unfortunately bad things happen to good people. Fortunately, Federal Bankruptcy laws are in place to help. Kevin J. Barnes offers exceptional expertise to assist you in obtaining a fresh start free from debt. We are a debt relief agency under federal law.
A decision to file for bankruptcy should be made only after determining that bankruptcy is the best way to deal with your financial problems.
What is bankruptcy?
Bankruptcy is a legal proceeding in which a person who cannot pay his or her legal bills can get a fresh financial start in life. The right to file for bankruptcy is provided for by federal law and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law.
What can bankruptcy do for me?
Bankruptcy may make it possible for you to:
· Eliminate the legal obligation to pay most or all of your debts. This is called a “discharge” of debts.
· Stop foreclosure on your home and allow you an opportunity to catch up on missed payments.
· Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
· Stop wage garnishment, debt collection harassment, and similar credit actions to collect a debt.
· Restore or prevent termination of a utility service.
What different types of bankruptcy cases should I consider?
There are four types of bankruptcy cases that individuals general consider:
1. Chapter 7 is known as a “straight” bankruptcy of “liquidation”. It requires an individual to give up property which is not “exempt” under the law, so the non-exempt property can then be sold to pay creditors.
2. Chapter 11 is known as a “reorganization and is used by businesses and individuals whose debts are very large.
3. Chapter 12 is reserved for family farmers and fisherman.
4. Chapter 13 is a type of organization used by individuals to pay all or a portion of their dabts over a period of time using their current income.
Most people filing bankruptcy will want to file under either chapter 7 or chapter 13. Either type of case may be filed individual or by a married couple filing jointly.
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 property, except for “exempt” property which the law allows you to keep. In most 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 probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.
If your income is above the median family income in your state, you may consider filing a chapter 13 case. Median family income is different in each state. For example, in 2012, the median income for a family of four ranged from a low of just under $56,365 in New Mexico to $105,175 in New Jersey. Other states fall in between. Higher-income consumers who are above the state median must fill out “means test” forms requiring detailed information about their income and expenses. If the forms show, based on standards in the law, that they have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that that they cannot file a chapter 7 case, unless there are special extenuating circumstances.
Chapter 13 (Reorganization)
In a chapter 13 case you file a “plan” showing how you will pay off some of your past-due and current debts over three to five years. The most important thing about chapter 13 case is that it will allow you to keep valuable property-especially your home and car-which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular monthly payments to get caught up on the amount you have fallen behind.
You should consider filing chapter 13 plan if you:
*Own your home and are in danger of losing it because of money problems;
*Are behind on debt payments, but can catch up if give some time;
*Have valuable property which is not exempt, but you can afford to pay creditors from your income over time.
You will need to have enough income during chapter 13 case to pay for your necessities and to keep up with required payments as they come due.
What Does It Cost to File for Bankruptcy?
It now costs $306 to file for bankruptcy under chapter 7 and $281 to file for bankruptcy under chapter 13, whether for one person or a married couple. The court may allow you to pay this filing fee in installments if you cannot pay it all at once. You will also have to pay the attorney fees you agree to.
If you are unable to pay the filing fee in installments in a chapter 7 case, and your household income is less than 150 percent of the official poverty guidelines (for example, the annual income figures for 2012 are $22,695 for a family of two and $34,575 for a family of four), you may request that the court waive the chapter 7 filing fee. The filing fee cannot be waived in a chapter 13 case, but it can be paid in installments.
What Must I Do Before Filing Bankruptcy?
You must receive a budget and credit counseling from an approved credit counseling agency within 180 days before your bankruptcy case is filed. The agency will review possible options available to you in credit counseling and assist you in reviewing your budget. Different agencies provide the counseling in-person, by telephone, or over the Internet. If you decide to file bankruptcy, you must have a certificate from the agency showing that you received the counseling before your bankruptcy case was filed.
Most approved agencies charge between $20-$50 for the pre-filing counseling. However, the law requires approved agencies to provide bankruptcy counseling and the necessary certificates without considering an individual’s ability to pay. If you cannot afford the fee, you should ask the agency to provide the counseling free of charge, or at a reduced fee.
If you decide to go ahead with bankruptcy, you should be very careful in choosing an agency for the required counseling. It is extremely difficult to sort out the good counseling agencies from the bad ones. Many agencies are legitimate, but many are simply rip-offs. And being an “approved” agency for bankruptcy counseling is no guarantee that the agency is good. It is also important to understand that even good agencies won’t be able to help you much if you’re already too deep in financial trouble.
Some of the approved agencies offer debt management plans (also called DMPs). A DMP is a plan to replay some or all of your debts in which you send the counseling agency a monthly payment that it then distributes to your creditors. Debt management plans can be helpful for some consumers. For others, they are a terrible idea. The problem is that some counseling agencies will pressure you into a debt management plan as a way of avoiding bankruptcy whether it makes sense for you or not. You should not consider a debt management plan if making the monthly plan payment will mean you will not have money to pay your rent, mortgage, utilities, food, prescriptions, and other necessities. It is important to keep in mind there important points:
*Bankruptcy is not necessarily to be avoided at all costs. In many cases, bankruptcy may actually be the best choice for you.
*If you sign up for a debt management plan that you can’t afford, you may end up in bankruptcy anyway (and a copy of the plan must be filed in your bankruptcy case).
` *There are approved agencies for bankruptcy counseling that do not offer debt management plans.
It is usually a good idea for you to meet with an attorney before you receive the required counseling. Unlike a credit counselor, who cannot give legal advice, an attorney can provide counseling on whether bankruptcy is the best option. If bankruptcy is not the right answer for you, a good attorney will offer a range of other suggestions. The attorney can also provide you with a list of approved credit counseling agencies, or you can check the website for the United States Trustee Program office at www.usdoj.gov/ust.
What Property Can I Keep?
In a chapter 7 case, you can keep all property which the law says is “exempt” from the claims of creditors. It is important to review with your attorney the exemptions that are available in the state where you live. (If you moved to your current state from a different state within two years before your bankruptcy filing, you may be required to use the exemptions from the state where you lived just before the two-year period). In some states, you are given a choice when you file bankruptcy between using either the state exemptions or using the federal bankruptcy exemptions. If your state has “opted” out of the federal bankruptcy exemptions, you will be required to choose exemptions mostly under your state law. However, even in an “opt-out” state, you may use a special federal bankruptcy exemption that protects retirement funds in pension plans and individual retirement accounts (IRAs).
If you are allowed to use the federal bankruptcy exemptions, they include:
*$21,625 in equity in your home;
*3450 in equity in your car;
*$550 per item in any household goods up to a total of $11,525;
*$2175 in things you need for your job (tools, books, etc.);
*$1150 in any property, plus part of the unused exemption in your home, up to $10,825;
*Your right to receive certain benefits such as Social Security, unemployment compensation, veteran’s benefits, public assistance, and pensions –regardless of the amount.
The amounts of the exemptions are doubled when a married couple files together. Again, you may be required to use state exemptions which may be more or less generous than the federal exemptions.
In determining whether property is exempt, you must keep a few things in mind. The value of the property is not the amount you paid for it, but what it is worth when your bankruptcy case is filed. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement.
You also only need to look at your equity in property. That means you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $90,000 house with a $80,000 mortgage, you have only $10,000 in equity. You can fully protect the $90,000 home with a $10,000 exemption.
While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases, you will have to pay the mortgages or liens as you would if you didn’t file bankruptcy.
What Will Happen to My Home and Car If I File Bankruptcy?
In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to the creditors in chapter 13.
However, some of your creditors may have a “security interest” in your home, automobile, or other personal property. This means that you gave the creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not make these security interests go away. If you don’t make your payments on that debt, the creditor may be able to take and sell the home or the property, during the bankruptcy case if the creditor gets permission from the court, or after the bankruptcy case is closed.
In a chapter 13 case, you may be able to keep certain secured property by paying the creditor the value of the property rather than the full amount owed on the debt. Or you can use chapter 13 to catch up on back payments and get current on the loan.
There are also several ways that can keep collateral or mortgaged property after you file a chapter 7 bankruptcy. You can agree to keep making payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth. In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt. If you put up your household goods as collateral for a loan (other than a loan to purchase the goods), you can usually keep your property without making any more payments on that debt.
Can I Own Anything After Bankruptcy?
Yes! Many people believe they cannot own anything for a period of time after filing for bankruptcy. This is not true. You can keep your exempt property and anything you obtain after the bankruptcy is filed. However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after filing bankruptcy, that money or property may have to be paid to your creditors if the property or money is not exempt.
Will Bankruptcy Wipe Out All My Debts?
Yes, with some exceptions. Bankruptcy will not normally wipe out:
*Money owed for child support or alimony;
*Most fines and penalties owed to government agencies;
*Most taxes and debts incurred to pay taxes which cannot be discharged;
*Student loans, unless you can prove to the court that repaying them will be an “undue hardship”;
*Debts not listed on your bankruptcy petition;
*Loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
*Debts resulting from “willful and malicious” harm;
*Debts incurred by driving while intoxicated;
*Mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).
Will I Have to Go to Court?
In most bankruptcy cases, you will only have to go to a proceeding called the “meeting of creditors” to meet with the bankruptcy trustee and any creditor who chooses to come. Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and financial situation.
Occasionally, if complications arise, or if you choose to dispute a debt, you may have to appear at a hearing. In a chapter 13, case, you may also have to appear at a hearing when the judge decides whether your plan should be approved. If you need to go to court, you will receive notice of the court date and time from the court and/or from your attorney.
What Else Must I Do to Complete My Case?
After your case is filed, you must complete an approved course in personal finances. This course will take approximately two hours to complete. Many of the course providers give you a choice to take the course in-person at a designated location, over the Internet (usually by watching a video), or over the telephone. Your attorney can give you a list of organizations that provide approved courses, or you can check the website for the United States Trustee Program office at www.usdoj.gov/ust. If you cannot afford the fee, you should ask the agency to provide the course free of charge or at a reduced fee. In a chapter 7 case, you should sign up for the course soon after your case is filed. If you file a chapter 13 case, you should ask your attorney when you should take the course. A certification from the course provider that you completed the course must be filed with the bankruptcy court. If it is not filed, you will not receive a discharge of debts.
What Else Should I Know?
Utility services – Public utilities, such as electric company, cannot refuse or cut off service because you have filed for bankruptcy. However, the utility can require a deposit for future service and you do have to pay bills which arise after bankruptcy is filed.
Discrimination – An employer or government agency cannot discriminate against you because you have filed for bankruptcy. Government agencies and private entities involved in student loan programs also cannot discriminate against you based on a bankruptcy filing.
Driver’s license – If you lost your license solely because you couldn’t pay court-ordered damages caused in an accident, bankruptcy will allow you to get your license back.
Cosigners – If someone has cosigned a loan with you and you file for bankruptcy, the cosigner may have to pay your debt. If you file under chapter 13, you may be able to protect cosigners, depending upon the terms of your chapter 13 plan.