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Which Option Is Best For Me…Chapter 7 or Chapter 13?
It is my job to know whether a Chapter 7 or a Chapter 13 is the better option for my clients. The questions that I ask at the initial consultation asked 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 blog 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 my initial consultation it is important for me to determine what type of debt my clients have. 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, I often have clients who have filed a Chapter 7 bankruptcy in the last 8 years, but they are getting garnished by a new creditor. They come to see me 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. We 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. We have experienced lawyers here that deal with all types of cases every single day. It is our job to analyze your debts, assets, income and expenses and have in-depth knowledge of the bankruptcy code. If you are considering bankruptcy or would like to speak with an experienced bankruptcy attorney in the St. Louis area, please do not hesitate to give our office a call. We offer free consultations at five different locations across the St. Louis area.
Why Should I Hire an Attorney for Bankruptcy?
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.” The answer is: 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.
Last week, I saw a number of pro se cases that had problems 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.
If you are considering bankruptcy and would like more information about your options, call our office and make an appointment to see one of our attorneys. We offer free consultations and you can discuss what chapter of bankruptcy will best suit your situation.
Rebuilding Your Credit After Bankruptcy
What will bankruptcy do to my credit? This is probably the question most often asked by our clients and potential clients when they are considering bankruptcy. While each client will have a different experience based on their individual circumstances, the question to the answer remains the same. It is absolutely possible to rebuild your credit after filing for bankruptcy.
Bankruptcy is an option available to consumers and businesses to help them recover. It is not an end of the world scenario or a fork in the road as to whether or not they will ever be able to get credit in the future. Filing for bankruptcy will cause your credit score to drop considerably at the time of filing. However, it is possible and common to be able to rebuild your credit score within two or three years after a bankruptcy. While the bankruptcy remains on your credit report for ten years, it will not prevent you from being able to get credit. In fact, the best way to rebuild your credit is to use credit again.
A large factor in your ability to get credit is your income to debt ratio. After filing for bankruptcy and getting your past debts discharged, your income to debt ratio will probably be at its best level in a very long time. Many clients tell us they get credit card offers within weeks and sometimes days after filing or getting their debt discharge date. The important thing to realize is that the interest rates on these credit cards will be higher than they were before. Bankruptcy petitioners are required to complete a credit counseling course that will explain this and help you to guard against getting into the same situations that led to a bankruptcy. Using credit responsibly by buying based on needs instead of wants will help to keep your balances at levels you can handle. It will make you able to pay more than just the minimum payment, or the entire balance, and prevent the interest from tacking on to what you owe.
Living within your means is perhaps the most important step in rebuilding your credit after filing for bankruptcy. Since the economic recession hit a few years ago, nearly everyone has had to cut back on luxuries and everyday expenses to make ends meet. Nightly news stories and newspaper articles constantly show people who have been able to adjust and budget themselves into success and regained prosperity.
Whether it was a lost job, unforeseen medical expenses, a downturn in business, poor financial planning, or youthful inexperience that led you to needing to consider bankruptcy, the most important thing to remember is that bankruptcy is there to help you get back on your feet and not to ruin your credit for the rest of your life.
“Can I Keep My Car?”
This question has to be one of the most frequent questions I hear as a bankruptcy attorney. 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 Missouri, 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 have questions about this, or anything else related to bankruptcy, it is my recommendation that you consult with a St. Louis Bankruptcy Attorney today. We offer free consultations at a number of locations.
Secured Debts vs. Unsecured Debts 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.
If you have questions about this article or any other general questions regarding bankruptcy I would advise you to contact a St. Louis bankruptcy attorney today. We offer free consultations at several locations and would be happy to take some time to speak with you about any questions or concerns that you might have regarding your finances.
Head of Household Exemption in Bankruptcy
If you decide to come in and speak with an attorney regarding a bankruptcy filing it is likely that the 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. Section 513.430 sets out the “Head of Household” exemption and 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. That is why, if you are thinking about filing for bankruptcy, it is very important to speak to an experienced bankruptcy attorney. We offer free consultations at several locations in the St. Louis area. Please contact us if you would like to speak with someone about your options.
Can I Keep My Vehicle If I File Bankruptcy?
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.
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. If you have questions about this article or anything else related to bankruptcy, it is my recommendation that you consult a St. Louis Bankruptcy Attorney today. We offer free consultations at a number of locations in the area.
Payday Loans in Bankruptcy
Payday loans, or paycheck advances, are high interest rate loans designed to help the borrower receive some quick cash to help any financial burdens until they receive their next paycheck. Since these payday loans have such a high interest rate, they become very devastating to borrowers. If borrowers are relying heavily on these loans, their financial situation will often times become much worse before it gets any better. The debtor will then normally look for relief and wonder if these loans can be discharged in a bankruptcy. Normally, these payday loans will be treated as unsecured debt and will be discharged like most unsecured debts would be discharged in a Chapter 7 bankruptcy.
A Chapter 7 bankruptcy allows debtors to discharge unsecured debts without having to pay any of that debt back to creditors. As long as the payday loan has not been secured by some sort of collateral, the loan can be listed as unsecured debt in the bankruptcy petition and discharged through the bankruptcy. If the borrower does not meet the requirements to file a Chapter 7 bankruptcy, and instead files a Chapter 13 bankruptcy, some or all of the unsecured debt may have to be paid back over a period of 36-60 months.
It is also important to note that the contracts that come with these payday loans often have a provision stating that the loans cannot be discharged in a bankruptcy. This is false. Language such as this is used to try to scare borrowers into believing that they cannot include these debts in their bankruptcy. Again, if the payday loan is unsecured debt, it can be discharged.
It also important to note that if you give the lender a post-dated check at the time of signing the contract, the payday loan company can, and will, cash that check even after filing of your bankruptcy even though they will likely be required to pay that money back to you. It is normally a good idea to close the bank account attached to the written check before filing your bankruptcy so that this does not happen to you. Even though we can often get the money back, it sometimes takes time and you will still be responsible for any overdraft fees your bank charges as a result of the cashed check.
In closing, payday loans can be helpful in the short term, but in the long-term can be detrimental to your financial situation. If you have become overwhelmed with debt, have questions about this article or anything else related to bankruptcy, it is my recommendation that you consult a St. Louis Area Bankruptcy Attorney today. We offer free consultations at a number of locations.
Are Homeowner Fees Dischargeable?
A common misconception of filing a Chapter 7 bankruptcy and surrendering your house, or “walking away” from it, is that once your case is filed you no longer are responsible for taking care of that property. That simply is not the case. Until the bank actually comes in and forecloses on the property you remain responsible for any taxes, fees or assessments that come with owning that property. These taxes, fees or assessments are said to “run with the land”. That means that for as long as you are holder of the deed of that property you are responsible for taking care of that property. The bankruptcy will discharge the debt you owe on the mortgage, but until the deed is actually taken back by the bank, the homeowner remains responsible for taking care of that property, which includes the payment of condo, homeowner, or subdivision fees. This law is supported by Section 523(a) 16 of the United States Bankruptcy Code.
If these fees, taxes and assessments have accrued to the point of becoming difficult to pay back or a lien has been placed on your property, and you want to keep your house, filing a Chapter 13 bankruptcy may be a good option for you. These fees can be paid through a Chapter 13 bankruptcy plan over a period of 36-60 months. If a lien is placed on your house and you eventually would like to sell that property, the title will be unmarketable. With that said, it is very important that any homeowner fees or assessments are paid in full to remove any lien that has been placed on your property. Once the fees have been paid, the lien will be removed and you will be able to sell your house. It is also very important to keep in mind that you will have to continue to pay monthly or annual dues even while you are in this Chapter 13 bankruptcy or you will run into this same problem all over again.
If you have any questions about this or anything else related to bankruptcy, it is my recommendation that you consult a St. Louis Area Bankruptcy Attorney today. We offer free consultations at a number of locations.
The Tenancy By Entirety Exemption In Missouri
A Tenancy by the Entirety (TBE) is a form of property ownership in Missouri, and a few other states, reserved for married couples. Missouri recognizes TBE ownership in both real and personal property. Property owned as tenants by the entirety belongs to the marriage, which means that both husband and wife own the property as one person, and thus, both of them own 100% interest in the property.
Something that all bankruptcy attorneys should be thinking about when they have an initial consultation with a client is how they can protect their clients from having to turn over property to the trustee. When meeting with a prospective client that is married, the tenancy by the entirety exemption should immediately come to mind. If you do own the property with your spouse in TBE you may be able to exclude the property from your bankruptcy estate. That means that no matter how much equity you have in your home or other property, if owned by both spouses (and meeting the other criteria), your property will be protected.
In Missouri, we have the Homestead Exemption. That means that you can protect $15,000 of equity in your home. This could present a problem for people with built up equity in their house. If, for example, the house is worth $200,000 and $150,000 is owed on it, then there is $50,000 of equity, $35,000 of which would be unprotected. This would likely lead to a Chapter 13 filing where the unexempt equity would have to be paid over to the trustee over a period of 3-5 years and paid out to your unsecured creditors. Rather than having to do this, the tenancy by entirety exemption could protect that unexempt equity. In Missouri, personal property such as checking accounts or automobiles could also be protected under this exemption.
There are certain factors that need to be met in order to qualify for this sort of protection. The first thing, as stated above, is that you need to be married. However, you must be filing the bankruptcy without your spouse to get the protection. If you file jointly, your property will not be protected. The next factor is that all of the debts that you are trying to discharge (credit cards, medical bills, etc.) are yours alone; none are joint debts with your spouse. The property, however, that you are trying to protect, will need to be owned as tenants by the entirety. That means that you acquired the property together, while you are married and took possession of it at the same time. Those are the requirements to protect your property with the tenancy by the entirety exemption.
If you have any questions about this or anything else related to bankruptcy, it is my recommendation that you consult a St. Louis Area Bankruptcy Attorney today. We offer free consultations at a number of locations.
