When It Comes To Bankruptcy, You Need To Know Your Choices
If you have decided that filing a bankruptcy is an option for you, then we need to determine whether you would file Chapter 7 bankruptcy or Chapter 13 bankruptcy. The process and procedure is different between the two. Let’s address your options.
Begin Gathering Information
We gather a lot of information about you, and organize this into the 60 to 70 pages of federal court forms that are required. Once you have certified the information as correct and true to the best of your knowledge, we file your case.
Independent Credit Counseling
You attend a credit counseling session from a government-approved credit counseling agency. It is not a screen. You are not graded. You do not pass or fail, it is just something that is required so you can receive a certificate of counseling required to file your case.
Your Case is Filed
Once you have certified the information we gathered in step one as correct and true to the best of your knowledge then we file your case.
Meeting of Creditors
This will take place at the federal courthouse in Greenville, TN. This meeting is not going to court, you are not appearing in a courtroom, and you are not appearing in front of a judge. Your eligibility to file for Chapter 7 is confirmed.
Financial Management Course
After you file for you and before you get your discharge, you will need to complete one final class. We then file a form with the court certifying you have attended.
You Receive Your Discharge
In three to six months after you file, you’ll receive your bankruptcy discharge in the mail. Then in an additional few days or weeks, you discharge is granted, your case will be officially closed.
In a Chapter 7 bankruptcy case, the process can be summarized as: we gather a lot of information about you, and organize this into the 60 to 70 pages of federal court forms that are required. Once you have certified the information as correct and true to the best of your knowledge, we file your case.
The most common type of bankruptcy nationwide is Chapter 7.
Chapter 7 is a relatively short proceeding, lasting under four months. The main requirement for to a Chapter 7 bankruptcy is that you must give up your “Surplus Possessions” if you own more than you are allowed to keep. You can not remain wealthy and have a lot of valuable possessions while seeking a discharge of your debts.
The possessions you are allowed to keep are called “exempt property.” Most people do not lose any of their possessions in a chapter 7 bankruptcy proceeding. Whether you would lose any possessions requires an in depth consultation with one of the bankruptcy attorneys.
Whether or not you lose possessions in a chapter 7 bankruptcy case is only one of many considerations that have to be evaluated before we would recommend that you file a Chapter 7 case.
Chapter 7 ends with an Order of Discharge that protects you from all discharged debt in the future.
Many people keep car loans, home loans, and other debts. This is no problem. To be legally accountable for a debt after bankruptcy you must reaffirm the debt, which is a form you complete and file with the court. Often we make other arrangements with a creditor that allows my clients to keep possessions subject to a lien, like a car, home, or mobile home, and continue to make payments on them.
You can repay any debt that has been discharged after your Discharge voluntarily, in whole or in part.
There are many other FAQ’s and videos that we have on our website and posted on YouTube that I invite you to read and watch that discuss in more detail aspects of a bankruptcy case.
In a Chapter 13 bankruptcy case, the initial process is similar, but in in addition you are proposing a PLAN to repay some portion of your unsecured debt, along with a PLAN of how to deal with secured creditors over a 36 to 60 month plan.
A Chapter 13 bankruptcy is a long-term repayment plan to repay some or most of your debts. A Chapter 13 repayment plan has to last at least 3 years, or up to 5 years. It may be a shorter plan if you’re able to pay off all your debts in less than 3 years, but essentially you’re required to devote as much income as you can to the repayment of your debts for the next 3-5 year period.
Some individuals, referred to high-income earners, are limited to a 5-year plan that they must file and make 60 consecutive payments to their creditors.
The basic difference between Chapter 13 and Chapter 7 is the length of time. In Chapter 13, it will be several years before you receive a discharge of your debts and a fresh start. It is clearly going to be more expensive because you are paying back some amount of money to your creditors.
Even though a Chapter 13 bankruptcy is more expensive and will last longer than a Chapter 7 bankruptcy, there are provisions that allow for things to happen that cannot be done in Chapter 7.
One of the most important uses of a Chapter 13 is to help a homeowner get their mortgage caught up and back on track. In a Chapter 13 bankruptcy, if you are behind on your mortgage, you can schedule an extra amount to be paid along with your regular mortgage payment that will eventually get your loan caught up and current, so you can no longer be in default on your mortgage. If you are behind on a car, you can completely reorganize the car loan. If you owe taxes, you can use this as an opportunity to put your taxes in a repayment plan.
There are many good reasons to consider filing a Chater 13, but they are normally restricted to people who have special circumstances that fit that profile. As a result, most cases we file are under Chapter 7, and for those who do need reorganization or have special problems, we use Chapter 13.
Chapter 13 involves reorganizing your debts. Your plan may call for your auto payment to be reduced. You can schedule to catch up past due payments on your home. You may be able to eliminate a second mortgage altogether. A description of the alternatives available to you in a Chapter 13 case is too extensive to be listed here.
Most of our clients do NOT file a Chapter 13 case. Because it lasts between 36 to 60 months it is not used unless it offers you a superior benefit to a discharge in Chapter 7. Chapter 13 is vastly more expensive, given that you are paying for an attorney for up to 5 years; and you are paying back part of your unsecured debt.
A Chapter 13 is a complicated and expensive way to resolve your debt problems. We use it in appropriate cases, but find that most of the time the shorter and less expensive Chapter 7 cased will resolve your problems.
One of the most beneficial aspects of filing a bankruptcy case is the “Automatic Stay,” a federal law in the United States Bankruptcy Code that protects you from the moment you file a bankruptcy case.
In my office, we would prepare a lengthy number of documents for you to file a bankruptcy case. After you sign those documents we email those to the bankruptcy court and you have filed a case. You will have a bankruptcy case number; and at that point you and your possessions are protected by federal law; which is backed up by a federal court.
- Creditors are prohibited from taking any action to collect a debt from you.
- They are prohibited from filing or continuing lawsuits.
- They are prohibited from repossessing anything.
- They are prohibited from initiating or concluding any foreclosure sale.
- Garnishments must cease.
- Letters and phone calls have to stop.
Outside of enforcing child support orders and criminal court proceedings, every act involving debt collection is required to stop. If someone violates the Automatic Stay they can be punished by the bankruptcy court.
From the time you are in bankruptcy your creditors can not take action against you. At the end of case you receive an Order of Discharge. An Order of Discharge is a permanent injunction to your creditors ordering them to never try to collect your debt again. If your debt is discharged in bankruptcy you have a court ordered injunction to protect you from that debt forever. This can also be enforced in the Bankruptcy Court by way of Contempt of Court proceedings against the creditor.
As a result, we see very few intentional attempts collect a debt that a creditor knows has been discharged. If it happens to you, call us right away!
Moral of the story: Don’t make financial decisions in a debt crisis, consult a professional first.
There are things that you might consider doing to resolve your financial problems on your own that can make your situation much worse.
- Don’t give away valuable possessions. Some people transfer assets out of their name in the hope of protecting them. I not talking about a legitimate sale of something you own for a fair price – that’s OK. If you have a car worth five thousand dollars and you sell it for four thousand dollars that is a legitimate sale. But – If you give away an asset or transfer an asset for a lot less than it is worth, you and the person you transferred too may get in trouble. Giving away assets or selling them cheap to friends or family is called a Fraudulent Transfer. The transfer can be reversed. The asset can be recovered from the transferee and title put back in your name. Then it will be taken from you and sold to pay your creditors.
We urge that you do not sell or transfer assets out of your name unless you consulted with us first. We will need to advise you as to what are legitimate transfers and what might be a Fraudulent Transfer.
- Don’t repay family members or favored creditors. Another thing you can do to hurt yourself and others is to repay debts that you owe to family or friends. It seems natural and fair to pay debts to your family over other creditors, but it is a problem if you file a bankruptcy case. If you make payments to a family member within a year of filing a bankruptcy they may be considered to have received “preferential treatment “over your other creditors. If you have chosen to pay your family over other creditors then both you and they may have a problem. The problem is that the bankruptcy trustee will look for things like this. If you have transferred assets to your family you will be asked under oath to reveal that information. If you choose not to reveal the information you have committed a felony. If you do the information your family member may be told to repay the money.
I assume you do not want your family members involved in your bankruptcy case. Therefore, do not transfer assets to them. Do not pay back debts to them unless you have consulted with us to make sure what you are doing is legitimate.
- Don’t use retirement funds to pay off debts. We also recommend you never consider spending money out of pension plans to solve debt problems. You make exhaust yourself of one of the assets you need when you retire. Pensions and retirement plans are normally protected assets which you can expect to keep in a bankruptcy case.
- Don’t commit a felony! The worst thing a person can do is to hide assets and fail to disclose them in their bankruptcy schedules.
DO NOT ASK US TO HELP YOU COMMIT A CRIME!
That will also get you kicked out of bankruptcy and you will not receive a discharge or a fresh start. You must disclose all of your assets. If you cooperate with the system and do not take any actions to have your motives questioned, we can get you through a bankruptcy case without making it an ordeal for you or your family members.
A DISCHARGE IN BANKRUPTCY STARTS THE REHABILITATION OF YOUR CREDIT REPORT AND CREDIT SCORE
- A discharge in bankruptcy has a significant impact on your credit report.
- Your bankruptcy will appear on your report for the next 10 years.
- Any debt discharged will show a zero balance.
- All discharged accounts are closed.
- No more reports will be made about your payment histories.
- You must file a dispute if a discharged debt is still being reported despite being discharged. If the debt is not removed, then you must report that to your bankruptcy attorney. Any creditor that refuses to remove the information can be punished by the Bankruptcy Court.
- Your discharge starts the rehabilitation of your credit score. The effect of bankruptcy on your credit score is not what you think would happen. Most of our clients file bankruptcy with a credit score in the 400 – 500 range. Because you have no debt and no more negative reports, the longer your credit report stays healthy and you avoid future financial problems, you will see a large improvement in your score, maybe over 100 points within the first 18 months post discharge.
- You will become a car loan and car sale solicitations magnet. Once my client receives a discharge they receive offers to buy or finance cars; and get offers of credit cards and loans.
Bankruptcy does not destroy your credit score or damage your credit report.
After you exit the bankruptcy process you may want to borrow money for a car, or refinance a home. The question is “what kind of credit can I get if I have been through a bankruptcy.”
The first thing to remember about credit for big items, like homes and vehicles, is that it is largely individualized and depends deeply on your income at the time of seeking a loan.
When our clients go through a bankruptcy they become prospects for vehicle loans. You will be contacted by dealers, and finance companies soliciting you to buy a vehicle. They want your business because you have discharged all of your debts and you are beginning your fresh start.
We do not normally recommend you consider those due to the loans high interest rate. If you can wait a year or more you will most likely be able to rebuild your credit score enough to buy a car with a much lower interest rate. But if you need a vehicle while in a bankruptcy case, or shortly after concluding your case, there are many sellers.
Homes are quite different. A new home loan applicant may face up to a 2 to 3 year waiting period after completing your bankruptcy case. This is not true for all home mortgage lenders. Each situation being individualized and we can not predict if you could buy a home or refinance a home.
You will be offered credit cards and other types of loans after your discharge; and we discourage taking these offers. We do not find it is necessary to take on a debt in order to prove you have reestablished yourself.
Please avoid new debt if you can: You have gone through a hard experience because you had a problem with debt. We recommend you avoid using credit unless it is necessary, for as long as possible.
We Want You To Succeed!
There is no charge for consultation