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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.

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.

The Tenancy By Entirety Exemption In Missouri

December 7, 2012 Leave a comment

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.

Will I Lose My Home If I File Bankruptcy?

November 12, 2012 Leave a comment

The short answer is no…you do not have to surrender your home if you file for bankruptcy.  If you are having financial trouble and problems making your ongoing mortgage payment, I would first recommend contacting your lender and trying to modify your mortgage.  Some lenders will work with you, but if they are not willing to do, a Chapter 7 or Chapter 13 bankruptcy may be the right option for you.

If you are filing a Chapter 7 bankruptcy and you want to keep your house, you will have to be current on your mortgage.  You will also need to continue to make payments on that mortgage and enter into a reaffirmation agreement with your lender.  When you reaffirm your debt, you are agreeing to repay a debt (in this case, you are agreeing to continue to pay your mortgage) that would other be discharged in your bankruptcy.  You would then need to continue making payments to the mortgage company under the reaffirmation agreement.  If you breach this agreement and fail to make the monthly payments that have been agreed upon, the bank could then start foreclosure proceedings because you would have breached your promise to pay them.

If you are filing a Chapter 13 bankruptcy and you want to retain your home you can do so by continuing to make your ongoing mortgage payments.  The advantage of filing a Chapter 13 when you want to keep your home is that you will have the ability to pay the mortgage arrearage over a period of 3-4 years through your bankruptcy plan.  For example, if you have a $1000 mortgage payment per month and you have not paid anything to the mortgagor in 6 months, you will owe them $6,000 in arrears.  In a Chapter 13 plan, you can pay this $6,000 over a period of 3-4 years and the bankruptcy will stop any foreclosure proceedings that may have been started or would ultimately be started.

Some people also have equity in their homes.  In Missouri, we have the Homestead Exemption.  You can exempt $15,000 in your home, according to MO. Ann. Stat. §513.475.  That means that if you owe $100,000 on your home and it is worth $130,000, you will have $30,000 in equity.  The Homestead Exemption will allow you to exempt $15,000, but you will still have $15,000 of non-exempt equity.  The trustee will  have you pay them the amount of non-exempt equity so that they can distribute it to your unsecured creditors.  Rather than paying this amount to the trustee in one lump sum, you can pay this amount over time in your Chapter 13 plan and still be able to keep living in your home.

Both the Chapter 7 and the Chapter 13 bankruptcy options may enable you to keep your home, but it is in your best interest to contact a local attorney and speak to them about whether filing for bankruptcy will be a good option for you.  They will be able to tell you how the bankruptcy laws will work in your situation and enable you to keep your home.

When to File Chapter 13, by Bankruptcy Attorney in St. Charles, MO Tobias Licker

If facing foreclosure or repossession, a Chapter 13 bankruptcy filing may be the right option for you

Filing for bankruptcy is an option for some people who are simply buried in debt. An individual, couple or company may file for bankruptcy due to a change in income or a loss of revenue. Certain circumstances may force an entity into bankruptcy, like medical bills or a change in lifestyle, such as a divorce. For individuals and couples, the common options for bankruptcy are filing a Chapter 7 or Chapter 13.

What is Chapter 13?

If facing foreclosure due to some missed mortgage payments, or to keep a car from being repossessed a Chapter 13 filing will allow the individual or couple to create a payment plan to catch up with missed payments. The payment plan may span over a three to five-year period, depending on the household income and the monthly amount of the payment plan.

While the bankruptcy is in process, an automatic stay is put in place to keep creditors from repossessing or foreclosing on property. A few weeks after the initial filing, the Court will schedule a meeting of creditors where the bankruptcy trustee will meet with the debtor to verify the information on the bankruptcy petition. After the creditors’ meeting the court schedules a confirmation hearing to which the debtor does not need to appear. Only those creditors that object to the filing will appear and state their objections to the Trustee. In most cases, there are no objections and the chapter 13 plan can be confirmed.

The Chapter 13 Payment Plan

The Chapter 13 plan sets forth a payment plan for the secured, unsecured, and priority debt of the filer(s). Payments are received by the Trustee and distributed to creditors. A few weeks after the plan is filed with the court, a hearing is held to confirm the plan. If the Trustee does not object and finds that documents provided are “confirmable,” the judge will confirm the plan.

The debtor will make monthly payments to the trustee in form of a money order or cashier’s check. Should the unforeseen happen, and the debtor is unable to keep up with the plan’s payments, other options are in place to reduce payments or to convert the case to a Chapter 7 bankruptcy. A Chapter 7 bankruptcy generally liquidates the debtor’s non-exempt property to pay creditors.

The bankruptcy process is very complicated, and many forms must be filed in a timely manner in order to comply with the mandates of the court, as well as the requests of the Trustee. Retaining the services of an attorney who specializes in bankruptcy in your area is highly recommended to make sure all necessary documents are filed in accordance with the court’s schedule. If you are considering filing for bankruptcy, consult an attorney to find out more about whether you should file a Chapter 7 or Chapter 13.

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