What Is Protected?
Who Is Eligible?
What Options Are Available?
What Should I Expect?
In my years of practicing bankruptcy law, I have heard countless times from clients regarding the stigma of bankruptcy and the shame they feel at having to file for it. My response has always been the same: That is an incorrect way of thinking.
Bankruptcy is a protection afforded us by our laws, and when someone needs to have recourse to it, there is nothing wrong with doing so. Hundreds of thousands of individuals and entities down through the ages have filed for bankruptcy: rich, poor, and everyone in between.
Prices of products and services, interest rates, credit ratings, are all arrived at by taking bankruptcy into consideration. Business entities know that there will always be a certain percentage of non-performing accounts, and they factor that into their pricing structure. This results in higher prices for goods and services on performing accounts. Thus, a person filing for bankruptcy relief may not realize that he or she has been helping fund the bankruptcies of others with every request for services and every purchase that he or she has ever made. If others have taken advantage of this legal protection, partially financed by you, the reader, when they needed it, there should be no stigma involved if now you need to avail yourself of this legal benefit.
Many Federal statutes and court decisions affecting the lives of U.S. citizens are quite complex and require great effort, even on the part of attorneys, to master and understand. The bankruptcy code is no exception. However, with the aid of a skilled, professional bankruptcy attorney, a person filing for bankruptcy relief can navigate the legal system successfully and take advantage of the laws that have been developed to benefit us.
I have been practicing bankruptcy law for years, in law firm settings large and small, and can help people obtain the debt relief they are looking for. Because I am now a sole practitioner, I can offer personalized service and attention to a person's case. I do not have the overhead that large firms have, so I am able to offer expert legal services at substantial savings, with easy payment plans.
Call now for a free consultation to determine whether bankruptcy is the right option for you and, if so, how to complete the process successfully.
Dennis J. Reidy, Esq.
Section 362 of the bankruptcy code provides for an automatic stay, which is a protection against creditors. It goes into effect immediately upon the filing of a case, although creditors may not be aware of the filing right away. This stay is what protects a person from continued garnishment, repossessions, and other creditor activity. Certain actions are not subject to the stay and may continue even though there is an active bankruptcy case. Whether something is subject to the stay is determined by the circumstances of a particular case. Click below to find out more about these protections.
Protection for Wages
A garnishment is an act to collect a debt and usually follows upon the receipt of a judgment by a creditor. It can result in the freezing of bank accounts or a continuing garnishment of wages. Most garnishment actions must stop upon the filing of a bankruptcy case. If a debtor who files for bankruptcy protection is garnished within what is called “the preference period” (90 days prior to the filing of a case), the debtor may be able to file a preference action in order to get those funds returned, depending on the circumstances of a given case.
Protection for Real Estate and Automobiles
When there is a second mortgage on a residential property but the amount owed on the first mortgage equals or exceeds the value of the property, a person filing for bankruptcy can “strip” the mortgage, i.e., have the second mortgage treated as unsecured debt and possibly discharged, in whole or in part. This is true in a Chapter 13 and, as of June 2014, still true in a Chapter 7 in the Northern District of Georgia, although that may change sometime in the near future. Lien stripping is a valuable benefit in bankruptcy, as it can save homeowners thousands of dollars while at the same time protecting one of their most important assets: their home.
The filing of a bankruptcy petition, under either Chapter 7 or Chapter 13, legally stops the foreclosure of protected real estate and prevents the repossession of vehicles and other items covered by the automatic stay. Chapter 13 is an excellent way to prevent a foreclosure and allows a homeowner the opportunity to get caught up on any missed mortgage payments while retaining ownership in his or her property. Vehicles repossessed immediately prior to filing for Chapter 13 become property of the estate and must be returned to the owner under most circumstances. An exception would be where there is a title loan encumbering a vehicle.
Protection for Other Assets
The bankruptcy code is a creation of the U.S. Congress and is therefore Federal law, but the code interacts with the laws of each state, which results in differing treatment for the citizens of different states. Each state has enacted its own bankruptcy exemption scheme to be applied to bankruptcy cases in that state. When a person has not resided in a particular state for the requisite period set out in the bankruptcy code, another state's exemptions, or the Federal exemptions, must be applied. An exemption can be thought of basically as a protection of assets. Certain categories of property are “exempt” up to a certain value, and this allows for the protected property to be exempted, or withheld, from the bankruptcy estate, putting that property beyond the reach of trustees or creditors.
In 2005, the U.S. Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). This Federal statute requires a person filing for Chapter 7 or Chapter 13 whose debts are mainly consumer debts to go through what is known as “means testing.” The means test is a Federally constructed test that determines eligibility for either Chapter 7 or 13. Roughly speaking, it takes into account a person's household size (meaning the number of people) and household income (including that of a non-filing spouse) and allows certain deductions, to arrive at a bottom line figure. That figure can be, but is not necessarily, a determining factor in establishing which chapter of the bankruptcy code someone files under. If a Chapter 13 is contemplated, the bottom line figure serves as a factor in establishing to what extent, if any, unsecured creditors should be repaid during the course of a Chapter 13 plan.
The most commonly used bankruptcy types are Chapter 7 and Chapter 13. Click below to find out which option may be right for you.
Chapter 7 is known as liquidation, or “straight up,” bankruptcy. It offers a person a fresh start and discharges debts that are dischargeable. A discharge is the release of a legal obligation to pay a debt.
Certain debts are not dischargeable. Some common examples of nondischargeable debts are: recent tax debt, student loans, and domestic support obligations. There are other debts that are not dischargeable, but things like old credit card debt, medical debt, and obligations that are still outstanding, such as the debt on a past repossession, are dischargeable.
Secured debts, such as car loans and mortgages, are treated in various ways, depending on the circumstances of a particular case. If a particular lienholder agrees, things like cars and residences can be retained while at the same time unsecured debts get discharged.
Assets that are not exempt (i.e., protected from becoming part of the Chapter 7 estate and thus out of the reach of trustees or creditors) are subject to being liquidated, i.e., sold, by a trustee in order to pay unsecured creditors.
For example, a person owns a vehicle, and there are no liens against that vehicle. The vehicle is worth $30,000. Georgia law and Federal law allow some of the value of that vehicle to be protected, but in the filing of a Chapter 7, a trustee would be able to sell the vehicle. He or she would have to pay the debtor any exempt portion, but the rest would be available to help satisfy creditors.
In that case, the creditors would get paid something by the trustee on a pro rata basis after the sale of the vehicle. If there were not enough funds from the sale to satisfy all the creditors, the rest of the unsecured dischargeable debt would be discharged, and the debtor would be released from the legal obligation to pay the debt.
The typical Chapter 7 case lasts approximately four months in the Northern District of Georgia.
Chapter 13 is known as reorganization bankruptcy. In the proper case, as in a Chapter 7, it can discharge debts that are dischargeable, depending on the particular circumstances involved. At the same time, it protects a person's assets and allows that person breathing space to catch up on things such as mortgage arrears, homeowners association arrears, lease arrears, and domestic support obligation arrears. Financed vehicles are also paid through a Chapter 13 plan.
The typical Chapter 13 case lasts anywhere from three to five years in the Northern District of Georgia.
As in many other things, in filing for bankruptcy relief, there is a procedure that is followed more or less universally. The following is a short outline of what to expect.
1. FREE PHONE CONSULTATION. This is the time that a person can discuss the preliminaries with an attorney to see whether bankruptcy is a viable option.
2. FREE OFFICE CONSULTATION. For those who prefer discussing things in person, free office consultations are available at convenient times and places.
3. INTAKE PROCEDURE. After consulting with an attorney, if it is determined that bankruptcy is the route that should be taken, it will be necessary to go through an intake procedure, which is basically filling out the paperwork involved in filing a bankruptcy petition.
4. CREDIT COUNSELING. Before filing the paperwork with the court, a credit counseling course has to be taken, either online or over the phone, after which a certificate is issued. Credit counseling courses are offered by agencies approved by the U.S. Trustee and are inexpensive. They range anywhere from $9.95 to $25, depending on the agency used.
5. FILING THE PETITION. After the credit counseling is taken and the bankruptcy petition and paperwork are completed, the petition is filed electronically with the court.
6. CASE ASSIGNMENT. Shortly after a case is filed, it will be assigned to a court, and a trustee will be assigned to administer the estate created by the bankruptcy filing.
7. COURT HEARING(S). There is at least one court hearing required in every bankruptcy case. Some cases require more. The hearing is known as the meeting of creditors and takes place approximately a month after the case is filed. Creditors may show up for this hearing, but it is rare in the Northern District of Georgia that any do so. At this hearing, the petitioner (the person who filed for bankruptcy relief) is put under oath to answer questions from a trustee in regard to the case. A typical meeting of creditors lasts less than 10 minutes.
8. FINANCIAL MANAGEMENT COURSE. This is another online or phone course that must be taken before the end of a case. It is inexpensive, like the credit counseling course.
9. DISCHARGE. When the case is ready to end, the court will enter an order discharging the debts that are includable in a discharge and will later close the case. A typical Chapter 7 case lasts approximately four months from the time it gets filed to the time it closes. Chapter 13 cases typically last anywhere from 36 to 60 months.
There are other hearings that may take place during the course of a bankruptcy case, depending on the circumstances, but the above is a general outline of what can be expected in a typical case.
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