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Which Option Is Best For Me…Chapter 7 or Chapter 13?

August 16, 2013 Leave a comment

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?

July 10, 2013 Leave a comment

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.

Will My Judgment or Settlement be Discharged in Bankruptcy?

May 23, 2013 Leave a comment

A common question that people considering bankruptcy may have is whether or not a judgment that has been entered against them will be discharged through their bankruptcy. The short answer is that in many cases the answer is yes, but there are some circumstances that won’t discharge the debt.

For example, let’s say someone has gone to court and obtained a judgment against you for past due rent. Typically, this judgment can be discharged through a Chapter 7 bankruptcy and that debt will no longer be owed. While the landlord would still be able to follow through with an eviction before filing, the debt could be discharged in bankruptcy.

However, let’s say a municipal utility company gets a judgment against you for a past due utility on your home. In this case, the judgment may remain if the utility company seeks to add a lien on your property with that judgment. The judgment lien would remain on your property if you go through bankruptcy. If you were to sell your home at a later date, the lien would be paid out of the proceeds of the sale of the house.

In another example, let’s say you have entered into a settlement agreement with someone who brought a claim against you. Some settlement agreements contain standard language that doesn’t contemplate the defendant filing for bankruptcy at a later date. If this is the case, the settlement can be discharged through bankruptcy under the right circumstances.

Some settlement agreements will contain language that will protect the plaintiff in case the defendant files bankruptcy. Some examples of this would be requiring a guarantor for the defendant or having a third party make the payments to the plaintiff on behalf of the defendant. If the settlement agreement requires a guarantor then the defendant would be discharged of the debt through bankruptcy, but the plaintiff would still be paid by the guarantor. If the third party is contracted to make the payments, the plaintiff would have protection from the bankruptcy trustee attempting to recover the settlement payments.

However, some settlements or court ordered payments are not dischargeable. The bankruptcy code takes public policy considerations and prevents certain debts from being discharged. Obligations like alimony and child support will not be discharged through bankruptcy. If a settlement is the result of a defendant’s “bad act” it may survive bankruptcy as well. For example, if you have a settlement to pay due to a drunk driving accident, it is very unlikely to be discharged. But, the plaintiff will have to file suit again in bankruptcy to preserve the settlement and prevent discharge. In this situation, if the settlement agreement contains an admission of fault by the defendant then the settlement is nearly guaranteed to survive bankruptcy. If it does not, the issue of fault will need to be determined by the bankruptcy court. Other examples of non-dischargeable settlement obligations would be those involving repayment for property obtained by false pretenses, such as fraud or embezzlement. Again, the language of the settlement agreement would determine if the issue of guilt would need to be litigated again.

To find out your options with bankruptcy and any judgments or settlements you may have, contact our office and talk with one of our attorneys.

Secured Debts vs. Unsecured Debts in Bankruptcy

March 27, 2013 Leave a comment

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.

Payday Loans in Bankruptcy

December 20, 2012 Leave a comment

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?

December 20, 2012 Leave a comment

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.

I’ve filed Bankruptcy Before, Can I file Again?

            Yes, you can file bankruptcy multiple times. In fact, there is no limit to the number of times that you can file. However, if you have received a discharge in a previous case, a certain amount of time must pass before you can receive a discharge again. The amount of time that must elapse depends on which chapter you previously filed, and which chapter your plan on filing now.

            If you have previously filed a Chapter 7 bankruptcy, you must wait eight years to file and receive a discharge in a new Chapter 7. If you have filed a Chapter 7 in the last eight years and received a discharge you can still receive the protection of bankruptcy (automatic stay) by filing a Chapter 13.  If more than four years has elapsed since you filed your Chapter 7, you can receive a discharge in your new filing.

            If you previously received a discharge through a Chapter 13, you can receive a discharge in a Chapter 7 if six years has passed since your Chapter 13 filing. Note, that the clock starts as soon as your case is filed, not when you receive your discharge. If six years, has not passed, you can receive a discharge through another Chapter 13 as long as two years has passed since the previous Chapter 13 filing.

            But what if you can’t receive a discharge? Can you still benefit from filing? Absolutely! Student loans and taxes are generally not dischargeable in a Chapter 7. After your Chapter 7 has concluded, student loan creditors can resume garnishing up to 25% of your paycheck. The IRS is even worse. They can take over 90% of your paycheck to pay on back taxes.  Even though you may not be eligible for a discharge, you can still receive the protection of bankruptcy by filing a Chapter 13 and your student loan creditors will not be able to garnish your wages. A small monthly payment may give you up to five years of protection from lawsuits, garnishments, levies and liens.

            Just because you have previously filed a bankruptcy doesn’t mean you can’t file again. Even if you can’t receive a discharge, you can still enjoy the protection that bankruptcy provides. Schedule your appointment today with one of our experienced bankruptcy attorneys. He or she will be able to evaluate your situation and determine what is best for you.

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