BANKRUPTCY: THE PROCESS & PROCEDURE (Part 1)

BANKRUPTCY: THE PROCESS & PROCEDURE

By: Joel S. Treuhaft, Esquire

Introduction

Nobody wants to see a bankruptcy attorney. It is often the hardest decision that potential clients have to make. The acknowledgment that finances have become out-of-control often leads to anxiety and depression for individuals, and strains relationships. The truth of the matter is, however, that the decision to investigate the bankruptcy process often proves to be a liberating experience as well as a practical method to regain control of a person’s financial situation.

There are any number of good reasons why people get into financial difficulty. People suffer injuries or illness, go through a divorce, lose a job, experience a business failure, or are laid-off. Improvident credit card spending can also lead to a situation where current monthly income is not sufficient to meet monthly expenses. However, other than advancing the proposition that one’s first obligation is to you and your family before your credit card obligations, and that it does not make sense to have to grow reliant on food stamps or aid for dependent children in order to pay your Sears bill, I am not nearly as concerned with how potential clients got into debt as I am concerned by what they are going to do about it. I don’t want my clients looking over their shoulder. I want them focused on what’s ahead, and how they can help themselves and their families.

A Brief History of the Debtor-Creditor Relationship

The beginning of the concept of the adjustment of the debtor-creditor relationship arises in the Old Testament, where it suggests that debts should be forgiven after seven years. The word “bankruptcy” comes from the Roman era when most merchants operated in marketplaces and their individual shops were actually long, narrow stone benches. If the merchant wasn’t paying his suppliers, his bench at the marketplace would be broken to show the general public that he wasn’t paying his bills on time (the word “bankruptcy” means “broken bench”).

The American legal system is a descendant of the British legal system. In Britain, a concept developed in the 1600’s which became known as debtor’s prison. The idea was that a person’s family would be so embarrassed if they had a member in jail for not paying his debts that the family would be motivated to make good for the poor soul. That worked out well if you were lucky enough to be born into the 3% or 4% of the population that was wealthy. However, for the 96% or 97% of the general population, it didn’t make a lot of sense. Not only was the head of the household kept in jail, often for years, but the rest of the family was left to fend for itself. An alternative to debtor’s prisons were debtor colonies. Georgia and parts of Australia were originally founded as debtor colonies.

When the founding fathers at the Constitutional Convention drafted the Constitution and the Bill of Rights, two of the provisions were that there would be no debtor’s prison in the United States, and that Congress would enact uniform bankruptcy laws. The purpose of this was twofold. First, it became apparent that debtor’s prison did not work. Second, the founding fathers realized that hard working people could get into financial difficulties when trying to establish themselves and make a living in new, unsettled areas of the country. At the time of the drafting of the Constitution, a greater part of the population was farmers. Often it was necessary to mortgage lands which had been in families for generations in order to economically survive a planting and growing season until it was harvest time. For any number of reasons, many of which had nothing to do with a farmer’s hard work, harvests failed. Events such as a fire, flood, blight, drought, or any number of other occurrences could cause property which had been in the family’s name for generations to be lost through no intentional bad act on the part of the land owner. For reasons such as those, Congress developed the philosophy that an honest debtor is entitled to a fresh start, not a head start, but a fresh start. Accordingly, this philosophy was incorporated into the Constitution through the two provisions mentioned above. These provisions ensure that, with relatively little variation, the adjustment of the debtor-creditor relationship is consistent on a nationwide basis.

As a young boy I used to watch cartoons early in the morning and on Saturdays. My favorite cartoons were the ones that were drawn in the 1930s, 1940s and 1950s. In those cartoons, whenever someone went into bankruptcy Court, they would come out dressed only in a barrel. In reality, the cartoons were not so far from the truth. The first permanent bankruptcy law enacted by Congress was known as the Bankruptcy Act and it was drafted in 1897. There was not a wholesale revision of that law until 1978. By that time, the outmoded exemption provisions and punitive aspects of the bankruptcy laws were found to be no longer appropriate for a society and economy which no longer resembled that which existed in 1897. The new bankruptcy laws provided standard federal exemptions, or allowed states to enact their own exemption laws to reflect the particulars of state law. Exemptions were intended to allow debtors to keep a reasonable amount of personal property which would be shielded from administration by the bankruptcy Court, and out of the reach of creditors of all types. Florida, for example, is a State which chose to opt out of the federal exemptions, and adopt its own. Therefore, Florida has been able to allow its state Constitutional Homestead provisions to remain intact, and to ensure that a Florida Homestead cannot be lost to creditors, except in a few rare circumstances, at least as of this date (there is currently legislation pending in Congress which may restrict Florida’s ability to retain its unlimited Homestead exemption).

Liquidation and Reorganization

Currently, the bankruptcy laws define situations in one of two ways, liquidations or reorganizations. Most people recognize bankruptcy as the Chapter 7 liquidation. This type of bankruptcy allows the debtor to choose how to treat their secured debts, and be able to wipe out most of their honestly incurred unsecured debt. Reorganizations require that money will be paid to creditors over a period of time. Reorganizations are divided into commercial and consumer subsets. Commercial reorganizations include municipalities (Chapter 9); corporations, other business entities, or persons who do not qualify for other types of reorganizations (Chapter 11) or; family farm reorganizations (Chapter 12). Chapter 13 is primarily for consumer debt, and requires a repayment plan for certain debts. It is officially titled “Adjustment of Debts for Individuals with a Regular Income.” The Chapter 7 liquidation acts as a starting point for all types of bankruptcy. Accordingly, most of the following discussion will be focused on the common elements, and the specific options offered by each of the reorganizations will be briefly touched upon at the end.

All forms of bankruptcy are started by the filing of a bankruptcy petition. A petition can be filed by an individual, a husband and wife, or an authorized legal entity, such as a corporation, partnership, etc. The Chapter 7 liquidation divides a petition filer’s life into assets and liabilities, and then looks to the petition filer’s income and expenses to see if a fair evaluation of the debtor’s budget could result in a meaningful payment to creditors in a Chapter 13 adjustment of debts. Assets are defined by law as items owned by the petition filer. By liabilities, the law means things that a petition filer owes, or their debts. Liabilities are comprised of the petition filer’s debts and are categorized into three types. The first category is priority debt. Priority debt consists of obligations such as wages and benefits owed by an employer to employees, security deposits held by landlords, certain farming and fishing warehousing concerns, and federal, state, and local taxes. The second category is secured debt. Secured debt consists of items which have been pledged as collateral for the repayment of an indebtedness in a legally valid and recognized way, such as a mortgage recorded in the proper county to secure the repayment of a loan for the purchase of a house, or a lien on a car title to secure a loan for the purchase of the vehicle. The third category is unsecured debt. Unsecured debt consists of everything else, such as credit cards, medical bills, signature loans, etc.

Priority and Secured Debt

Not surprisingly, the largest form of priority debt is clearly taxes, especially federal taxes. The same government which collects those federal taxes is the same government which enacted the bankruptcy laws, and which determined that most of those taxes would not be dischargeable (wiped out) in bankruptcy. With secured debt, the Court gives a petition filer four choices: (1) the petition filer can keep the item which secures the indebtedness and continue to make the regular monthly payments; (2) the petition filer can surrender (give it back) the item which secures the indebtedness, and owes no more money for that item; (3) the petition filer can “redeem” the item which secures the indebtedness, and only pay the fair market value for the item being redeemed and; (4) the petition filer can file a Motion for Lien Avoidance (discussed below). To better understand the concept of redeeming collateral, bankruptcy law only allows a creditor to be “secured” up to the value of its collateral. Any debt which is owed in excess of the value of the collateral would be considered an unsecured debt, and treated the same as all other unsecured debts. An example would be my desk. My favorite desk sells for about $900.00 new. If a furniture store were to sell me that desk on credit and retain a purchase money security interest (P.M.S.I.) in the desk, I would have to make regular monthly payments, including interest, until the desk was paid off. However, in bankruptcy, I could pay the holder of the P.M.S.I. the fair market value of the desk and treat the remaining balance as an unsecured debt. Now you may ask, what is the fair market value of my desk? My response would be that, in a garage sale, I would be lucky to get $50.00 for my executive desk. Now, you want to know, how do you get my desk for $50.00?

In order to get the desk for fair market “used desk” value, a Motion to Redeem must be filed in a Chapter 7 case, or a Motion to Value Collateral must be filed in a reorganization case (Chapter 11, 12 or 13). In order to file this motion, a basis for the opinion of the value must be attached to the motion requesting the bankruptcy Court to determine value. One method of valuation is the opinion of the owner of the property. However, unless the owner of the property has some special or expert knowledge with regards to the property owned, it is likely be determined that somebody who deals on a regular basis in the property to be valued would have a more credible opinion of that property’s value. Therefore, in order to establish values, a person filing a motion to redeem or motion to determine secured status usually needs to get an appraisal from somebody who deals in used goods of the kind, or to hire a professional appraiser (professional appraisers often work with bankruptcy attorneys, and a professional appraiser who works in your area can be referred to you upon request). Once a written estimate of value is obtained, it is attached to the motion, filed with the Court, and served on the party which holds the security interest in the collateral being valued. The party holding the security interest then gets a period of time to file a response which either agrees with the proposed value, or to suggest a value of the collateral that it thinks is more reflective of the fair market value (if no response is filed, the Court will generally grant the motion based on the value alleged in the motion).

If a Response is filed, and the value of the collateral is not agreed upon, the Court will conduct a hearing. To return to the example of the desk, let us say a Response was filed to my Motion to Redeem whereby the secured creditor alleged that the resale value of my desk was $200.00. My motion supported by an appraisal alleges that the fair market value of the used desk is $50.00. The appraiser would testify to this based on the age and condition of the desk, its original value, and the value that similar desks in the local marketplace would bring. Although there may be evidence to support that in a retail establishment a used desk similar to mine might bring $200.00, that would constitute the retail price after the cost of repossession, reconditioning, storage, re-advertising and commission. The Court will consider all the evidence before it to determine the value of the desk.

The same concept works with regard to a vehicle. Let us say I purchase a new car which costs $26,000.00. The minute I drive it off the lot I am lucky to get $20,000.00 for the same car. The problem is, if I have $20,000.00 lying around, I probably do not need to file a Chapter 7 bankruptcy. However, in a reorganization, such as a Chapter 13, a high value item such as a vehicle (but not real property) can be valued through a Motion to Value Collateral, and paid for, at the Court-determined value, plus a reasonable interest rate over 36 months or less (more time may be available if the secured creditor consents to payments over a period greater than 36 months). However, in the reorganization, a portion of the unsecured balance of the item being valued must be paid as well.

The fourth way secured debt can be treated is called a lien avoidance. A lien avoidance occurs in one of two instances. First, for people who own homesteads, if a judgment is obtained against them, and then re-recorded in the county where their homestead is situated, most title companies in the State of Florida will consider the judgment a cloud on title until there has been a judicial determination that the real property was homestead at all times the judgment lien attached to the subject property. The bankruptcy Court has the jurisdiction and power to determine homestead property and avoid judgment liens which purport to attached to them. To accomplish this, a Motion to Avoid Lien is required to be filed.

The second method of lien avoidance is when you go to a finance company and they agree to loan you money, but require that you pledge items in your house or tools of your trade as collateral for the loan. This type of loan is different from the purchase money security interest loan, because, unlike the P.M.S.I., you already own the property you pledged as collateral to the finance company. In this case, as long as you retained possession of your household goods or tools of the trade, a loan of this type (non-purchase money, non-possessory security interest) can be determined to be an avoidable lien in bankruptcy. Once again, the appropriate Motion to Avoid Lien must be filed. Once the Bankruptcy Court determines that a loan is this type, it can enter an order avoiding the lien, and treat the debt as unsecured, usually wiping it out completely.

Unsecured Debt

All other types of debt, i.e., credit cards, medical bills, signature loans, informal agreements, installment payment agreements without a valid security agreement, etc., are unsecured debt and are discharged completely (wiped out), with several exceptions. The major exceptions are set forth as follows, however, if you have any particular concerns, be sure to bring it to the attention of the attorneys you speak to.

Exceptions to Discharge

The first requirements to obtain a discharge are disclosure and cooperation. Congress is willing to give an honest debtor a fresh start in exchange for complete disclosure. The documents filed with the Bankruptcy Court are signed under the penalty of perjury, and they require an honest and diligent effort to supply the information requested in the preliminary papers, as well as to the trustee (or United States Trustee) who is appointed to your case. Debtors are also required to make a reasonable attempt to maintain records, and explain any loss of assets in the recent past. Attempts to deceive a trustee or creditors by intentionally concealing or failing to disclose assets or financial records are grounds to deny a discharge in total.

 

BANKRUPTCY: THE PROCESS & PROCEDURE (Part 2)

BANKRUPTCY: THE PROCESS & PROCEDURE

By: Joel S. Treuhaft, Esquire

There are several categories of debt which are individually accepted from discharge under certain circumstances. These exceptions constitute a basis for objecting to your bankruptcy, in part, or automatic exceptions of certain types of debt which you will continue to owe despite the fact that you have filed bankruptcy. These exceptions are grouped into several categories, and are discussed below.

The first category of debt which the bankruptcy law does not wipe out is most state, local and federal taxes.

Income taxes which were due at least three years prior to the bankruptcy’s petition filing date and which were filed at least two years prior to the filing date may be dischargeable, however, this requires an additional, separate procedure and fee in order for this to be accomplished.

It’s important to understand, however, that most taxes which are owed prior to filing bankruptcy will not be discharged. They will still be due and owing after the bankruptcy.

The next category of debt which bankruptcy law does not wipe out is property, credit or service that is obtained by fraud. For instance, selling someone the Brooklyn Bridge when you really do not own it, or filling out a false financial statement to induce someone or some institution to extend credit based on false information, such as you own the all the Beatles’ guitars or the Eiffel Tower. Another example of debt considered to be incurred by fraud is purchasing at least $1000 worth of luxury goods, or taking at least a $1000 cash advance, on a particular credit card within 60 days of filing a bankruptcy. These types of debt are considered to be made with knowledge that you were in financial trouble, or that you knew you had no ability to repay them at the time that the charges were made. Any debt in this category is not wiped out in bankruptcy, however, the creditor must file an adversary proceeding (which is a lawsuit inside your bankruptcy), which makes your bankruptcy a contested matter, and for which to defend will require an additional, separate fee.

Another category of debt which bankruptcy law does not wipe out is for people or institutions which do not have complete names and/or addresses so as to be unable to give them notice of the pending bankruptcy. If the creditor, real or disputed, does not receive notice of the bankruptcy, they have no opportunity to participate in or object to the bankruptcy within the 90-day period the bankruptcy law provides. If these creditors do not receive notice and are excluded from having the opportunity to object to your bankruptcy while your bankruptcy is pending, the presumption is that the debts to these creditors are not wiped out.

Under certain circumstances, it may be possible to re-open your bankruptcy case to add additional creditors once the discharge has been issued. This procedure requires the filing of an adversary proceeding where the burden of proof is on the debtor to show that the failure to include the additional creditors was due to an inadvertent mistake, and that the creditor was not prejudiced by your failure to include them in the original bankruptcy filing. The filing fee to the bankruptcy Court to reopen a closed case is nearly as much as the filing fee for the original case, and the cost of prosecuting the adversary proceeding is more extensive and requires an additional, separate fee as great or greater than the cost of the filing of your original bankruptcy case. Therefore, you are greatly encouraged to list any and all persons that you think you might owe as the cost of obtaining their complete names and addresses now is a lot less than trying to add it in the future. This is especially true since the electronic bankruptcy filing software allows us to directly import the names and addresses of your creditors and collection agencies from at least two of the credit reporting agencies.

A fourth category of debt which is not wiped out in a Chapter 7 or 11 bankruptcy is fraud in a fiduciary capacity, larceny or embezzlement. An example of this type of non-dischargeable activity would be an Escrow Agent, or one who holds property in trust, who then uses that property to finance a trip to Europe instead of its intended purpose. Suffice it to say this type of debt would not be discharged in bankruptcy.

A fifth category of debt which is not wiped out by bankruptcy is Alimony/Maintenance/ Support or Child Support. Property settlements may be discharged under certain circumstances, but alimony or support is never dischargeable.

The sixth form of non-dischargeable debt is willful or malicious injury or damage to persons or property, such as when you take a crow bar and break your neighbor’s kneecaps or their car’s windshield. Other types of intentional conduct may also not be discharged in bankruptcy.

Guaranteed Student Loans are only dischargeable in bankruptcy if they constitute an undue hardship. An undue hardship has been interpreted as not only being a debt that you cannot pay back now, but one you will never be able to pay back. Accordingly, this is a standard that is incredibly difficult to meet.

An eighth form of non-dischargeable debt are fines imposed by state agencies (ex. polluting) or by criminal Courts for restitution. A similar type of non-dischargeable debts are fines or restitution from drunk driving convictions and/drug abuse offenses.

Another type of non-dischargeable debt is a debt which could have been discharged in a prior Chapter 7 bankruptcy, but for one of these reasons was not.

Funding commitments of officers, directors or shareholders of failed saving & loans institutions or banks are not discharged in bankruptcy.

Condominium association or homeowner’s dues or assessments for property you continue to live in after you file bankruptcy will continue to be your responsibility.

All the rest of your credit card, medical bills or unsecured debt will be wiped out completely.

YOU SAY THAT SOUNDS GREAT, WHAT IS THE CATCH?

Real Property

The catch is that you are only allowed to keep a limited amount of property. What are you allowed to keep? In Florida, as of now, you are allowed to keep your homestead, regardless of its value, as long as you continue to make the regular monthly payments on it. Other forms of real property, such as rental property are generally not exempt from administration by the Bankruptcy Court and Trustee, and most likely will be turned over to the Trustee, liquidated, and the proceeds applied to the administration of the bankruptcy estate, and to the repayment of creditors.

PERSONAL PROPERTY

Everything but real property is personal property. Under Florida law (which is adopted for exemption purposes, or the things you are allowed to keep), each person who files is entitled to keep: (i) up to 6 months’ worth of wages if they are not co-mingled with other monies, (ii) the Cash Surrender Value of your Life Insurance or Annuities, (iii) ERISA qualifying pension plans, 401K or similar plans, (iv) some pre-paid college tuition plans, (v) $1,000.00 of equity (the value of the vehicle versus what is owed on the vehicle) in one vehicle, plus (vi) $1,000.00 of other personal property based on garage sale or other liquidation values. Jewelry or higher value items could be based on pawn shop or jewelry store values.

Antiques, collections, objects of art, gold, silver, precious metals, stocks, bonds diamonds, crystal, china, or other objects of value are generally not exempt, and are not able to be kept in a Chapter 7 bankruptcy. Stocks, bonds and/or small businesses also will usually be taken by the Trustee. This type of property may be kept in a different form of bankruptcy, such as a Chapter 13, which envisions that you will pay back money over a period of time, in addition to its other advantages. However, when you base things on a garage sale or liquidation value, most people keep most or all of their personal property, and are able to discharge their unsecured debt.

WHAT IS THE CHAPTER 7 BANKRUPTCY PROCESS?

The first thing that needs to be done is the compilation and preparation of the information needed to file the bankruptcy petition. The petition is signed under the penalty of perjury, therefore it is important that the information that you provide is truthful and accurate. A questionnaire will be provided to you to assist you with the preparation of the required information. The information will then be reviewed with you, and then given to a legal staff member to enter into a computer system which will allow for the electronic filing of most or all of your bankruptcy papers. Your bankruptcy protections do not begin until the original paperwork is filed with the Court and the filing fees have been paid. That is when the protection of the Automatic Stay begins.

In 2005, Congress added new requirements for people filing consumer bankruptcies. They were concerned that bankruptcy attorneys were not exploring enough non-bankruptcy options with their clients, and developed a requirement that anyone seeking to file bankruptcy must first be screened by an independent non-profit credit counseling agency at least one calendar day before a bankruptcy petition is filed. This class normally takes about thirty minutes, and focuses on the consumer’s monthly income and expenses. A certificate is then issued and must be included when the bankruptcy petition and other initial papers are filed with the Bankruptcy Court. This initial certificate is often referred to as the “ticket in.” Additionally, Congress also requires people who have filed bankruptcy to take a second class, the Debtor Education class, and upon completion of this 45-minute class, to file a Certificate with the Court showing the course was completed. This certificate is often referred to as the “ticket out.” Finally, Congress also now requires that attorneys representing people filing bankruptcy pull an independent credit report which lists the names and addresses of a filer’s creditors. Accordingly, this has also added an additional layer of costs to the filing of a bankruptcy case (about $50 each for the “ticket in,” “ticket out,” and the credit report).

Prior to filing, you should advise your creditors when you have retained an attorney (once you have retained an attorney) to deal with your debt resolution situation. Under a different federal law (the Fair Debt Collections Practices Act), once you have notified a creditor that you have retained an attorney to deal with the collection matter, all further communications must go through the lawyer’s office. However, this does not stop the creditors from continuing to sue you until the bankruptcy is filed. Therefore, you are encouraged to file your bankruptcy as quickly as possible.

Once your information has been processed, we will meet again to review the bankruptcy papers, and if they are accurately prepared and reflect your current financial situation, you will sign the verification forms, and once all attorney and filing fees are paid, then your bankruptcy case will be filed and the protection of the Automatic Stay begins. This automatic stay is the device which prevents creditors from further bothering you. They are not supposed to call you, write to you or even drive down your street and give you a dirty look. If they do, they may be sued, and responsible for paying your actual and punitive damages, costs and attorney’s fees.

Once the bankruptcy petition is filed, you commence your fresh start. If you go out the next day, buy a lottery ticket and win, you get to keep the money. If you incur new debt after you file the bankruptcy, you get to pay for it and the debt is not discharged.

Approximately 30 days after the bankruptcy petition is filed, you will have your only required Court appearance (a 341 Meeting of Creditors) unless someone files some form of objection to your bankruptcy. The Court appearance is in front of your Trustee, and five to six other 341 meetings scheduled every ½ hour. The purpose of the meeting is to verify that you provided and reviewed the information contained in the papers filed with the Court, whether you listed all of your liabilities and assets, how you arrived at the value of your assets, whether you have sued anyone or have the right to sue anyone over the last 4 years, and the reasons why you have filed for bankruptcy. Creditors have the right to attend the 341 Meeting, however, most creditors do not show up to the creditors’ meetings unless they intend to object to your bankruptcy (which is very rare).

After the conclusion of the 341 Meeting of Creditors, the Trustee, the U.S. Trustee (a division of the Department of Justice) and your creditors get the opportunity (60 days) to object to your bankruptcy (based on those types of objections listed above), the Trustee gets 30 days to object to your claim of exemptions (or the property you claim you are allowed to keep), and the U.S. Trustee can review your case for substantial abuse situations (the ability to make a meaningful payment to creditors in a Chapter 13), such as a failure to keep important business records, or records of substantial business or financial transactions. If no one objects during that 60-day period, the objection period will end and you will receive your bankruptcy discharge in the mail. If you change your address during the pendency of the bankruptcy, it is your responsibility to notify our office so that we can notify the Court of your new address, and you can receive the information the bankruptcy Court sends you in the mail.

Once you receive the bankruptcy discharge, your part of the bankruptcy is substantially over. If someone were to file an objection to your bankruptcy, your bankruptcy would become a contested matter, more hearings will be required, and additional fees will be required for our continued representation. However, objections are rare, and only occur in situations similar to those outlined above.

OTHER FORMS OF BANKRUPTCY

Bankruptcy law requires that you be aware that there is more than one type of bankruptcy, including the reorganization Chapters of 11, 12 and 13. These Chapters necessitate that you are going to repay money to creditors over a period of time. They have a greater cost and take longer to complete. Additionally, they also look to monthly or quarterly payments to be made to your creditors.

Chapter 11 – Reorganization

Chapter 11 is a full blown corporate reorganization which is mostly for businesses or people with more property than someone is allowed to keep. This is the type of bankruptcy Enron and WorldCom filed. Smaller corporations are also eligible for the reorganization options offered by Chapter 11.

Basically, all of the company’s back debts go into deep freeze, and the company continues to operate its business, hopefully adjusting its operations in order to operate profitably. If the company can begin to operate profitably, it can then propose a plan of reorganization which will then be voted on by the creditors. If the creditors accept the Plan of Reorganization, that is all payments they will receive. If the company’s creditors reject the Plan, the Company is usually closed, the case is converted to a Chapter 7, the assets repossessed by the secured creditors or liquidated by the Trustee, and unsecured creditors receive a pro rata distribution, if any, of the assets of the business.

The cost of the Chapter 11 cases requires at least a $15,000.00 retainer, plus over $1,700 in filing fees.

Chapter 12 – Family Farmer Reorganization

Chapter 12 cases are like smaller versions of a Chapter 11, except there are certain requirements, such as at least 80% of your income and at least 50% of your debt is a result of farming. If you do not meet these requirements, you are not eligible to file a Chapter 12 bankruptcy.

Chapter 13 – The Adjustment of Debt for Individuals with a Regular Income

The adjustment of Debts for Individuals with a Regular Income is for people with a steady income stream, and are either behind on tax, house, or car payments (or for people doing vehicle valuations), have more non-exempt property than they can keep in a Chapter 7 bankruptcy, or have the ability to make a meaningful repayment plan to creditors over a period of 3 to 5 years. It is generally for people who need help saving their house, or to obtain relief from the IRS.

A Chapter 13 Plan gives filers 5 years to pay back taxes with no penalties or interest, and at least 3 years to catch up on back house or vehicle payments (sometimes longer if written consent can be obtained). The Chapter 13 Plan also requires a meaningful payment schedule to unsecured creditors, and the contribution of all disposable income during the life of the Plan.

A Chapter 13 usually costs between $3,000.00 and $3,500.00, and unless you are in one of the special situations set forth above, why should you pay my office more money for the privilege of re-paying a portion of your debt, when a Chapter 7 is cheaper, easier, quicker, and wipes out your debts completely?

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