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Bankruptcy Law Firm
Who Can File for Bankruptcy Protection?
With only certain limited exceptions, an individual (alone
or together as a married couple) or a business (a sole
proprietorship, partnership, or corporation) may file for
bankruptcy protection. While debtors filing for bankruptcy
protection are usually "insolvent" (meaning that they are
either unable to pay their debts as they become due, or that
their liabilities are greater than their assets), insolvency
is not a requirement for a voluntary bankruptcy filing.
What Are the Potential Benefits of a Bankruptcy Case?
A bankruptcy filing is often used as follows:
• By individuals to eliminate overwhelming credit card debt,
medical bills, and other types of debt;
• By individuals or businesses to save their house or other
real property from foreclosure or to save their car or other
assets from repossession;
• By businesses, under a cash flow squeeze to obtain a
"breathing spell" from their creditors in order to
reorganize their financial affairs or to sell off assets;
• By individuals or businesses to extend or resolve
burdensome tax liability; and
• By businesses to stop eviction from leased real property
or repossession of leased equipment.
The above uses of bankruptcy are not exclusive and a
bankruptcy case can be used for other purposes. However, an
individual or business contemplating filing a bankruptcy
case should carefully review their goals with a bankruptcy
attorney since bankruptcy law can be complex. A bankruptcy
attorney will be able to determine whether the above goals
can be achieved depending upon the particular circumstances
of a situation.
Can a Credit Rating Be Rebuilt After a Bankruptcy Filing?
Persons and businesses contemplating filing for bankruptcy
protection are often undergoing serious financial problems
that have already, or will shortly in the future, appear on
their credit reports. While a bankruptcy filing would also
appear on a person's credit report, the bankruptcy filing
has the advantage of dealing with and potentially solving
some of the financial problems inherent in the situation.
Therefore, after a bankruptcy filing, a person is often
better situated to repay new creditors and in time can be a
better credit risk than they were prior to the bankruptcy
filing. A bankruptcy attorney can advise persons filing for
bankruptcy protection as to the methods by which they can
rebuild their credit rating.
When can or should a bankruptcy case be filed?
A bankruptcy case becomes an option when a person or family
is unable to pay its bills as they become due. If this is a
temporary problem and it is possible to catch up with unpaid
bills, a bankruptcy case may not be necessary. But if the
problem persists and the household is falling further
behind, than the bankruptcy option should be considered.
When credit cards and other bills are not paid for several
months they start to call to demand payment. When they fail
in resolving their debt they turn over the account to
collection attorneys who start litigation to obtain a
judgment. This process usually occurs between five (5)
months to one (1) year. Therefore if a client is overwhelmed
with bills and does not expect their finances to improve in
the coming months the bankruptcy option should be
considered. If a client has been in collections already and
there are judgments threatened or already obtained against
the client, it is detrimental to the client’s finances and
to their credit rating to allow such difficulties to persist
and a bankruptcy case to protect their wages, bank account,
assets and credit rating becomes advisable in the majority
of situations. The bankruptcy case will immediately protect
clients from their creditors and help them to discharge or
eliminate the obligation to pay the vast majority of debts,
such as credit cards, personal loans and hospital bills. In
most cases clients will be able to keep their cars and home. |
Types of Bankruptcy
CHAPTER 7
A Chapter 7 Bankruptcy Case can eliminate most/all of a
client's debt, and will allow the client to obtain a fresh
financial start. A Chapter 7 case is a highly effective tool
in dealing with burdensome credit card and other unsecured
debts such as medical bills and personal loans. A Chapter 7
case is especially helpful when the client cannot pay their
present bills and faces the prospect of creditor harassment,
collection actions and bad credit. The Chapter 7 case will
allow the client to immediately protect themselves from
their creditors and obtain legal forgiveness for their debt
so that they can obtain a “fresh start” and be able to
rebuild their credit. As soon as the case is filed the
“automatic stay” protects the client from their creditors
and at the end of the case the bankruptcy discharge allows
the client to obtain legal forgiveness for their debt. Most
clients discharge all their unsecured debt, although clients
are able to voluntarily keep of or “reaffirm” certain debts.
Most clients keep all of their property including their
vehicles, homes and personal possessions as long as they
stay current with the payments on these items and do not
have too much equity in such property.
Chapter 7 is the most frequently used type of bankruptcy
case and is often used by individuals who are overwhelmed by
debts - including credit card debt, medical bills,
repossession/foreclosure deficiencies or other debt - to
eliminate their legal obligation to pay (or to "discharge")
such debt. Persons qualifying for Chapter 7 relief need to
have average six (6) months gross income that is below a
certain level or pass a means test which takes into account
the client's expenses in determining if the client qualifies
for Chapter 7 relief. A Chapter 7 case like all bankruptcy
cases allows a client immediate protection against their
creditors with an "automatic stay" (a court order which
requires creditors to stop all collection activity and
calls). At the end of a Chapter 7 case, which usually takes
approximately five (5) months, the client receives a
"discharge order" (a court order granting the client legal
forgiveness for their debt). Most chapter 7 cases are highly
effective in allowing a client to quickly deal with and
resolve their problems by eliminating their obligation to
pay debt that is beyond their ability to pay. However, a
bankruptcy attorney needs to carefully review a client's
circumstances with the client to determine that the client
does not have issues that may complicate the case, like
major assets with significant equity; income that may be too
high; alleged “avoidable transfers”; and/or debt taken by
the client that may be deemed to be abusive and/or in bad
faith.
CHAPTER 13
A Chapter 13 bankruptcy case is often used by persons in
foreclosure to stop the foreclosure process, including
foreclosure sales, so as to cure their mortgage arrears over
a period of time. Debt other than mortgage arrears, such as
credit cards, is also cured under the Chapter 13 plan, often
without interest and at a reduced rate. Under a Chapter 13
case, a monthly payment plan is developed which allows the
gradual curing of all of the client's debt including
mortgage arrears over time, up to five (5) years.
Chapter 13 is a very effective type of bankruptcy case and
is used by individuals in various situations to reorganize
and reduce debt, including mortgage, car loan arrears,
credit cards, taxes and student loans over a five (5) year
plan that is binding on their creditors. Chapter 13 is often
filed by individuals seeking to overcome difficulties due to
house foreclosures or vehicle repossessions. Chapter 13 is
also used extensively by individuals who seek to deal
effectively with their overwhelming debt, but who should not
file in Chapter 7 due to incomes or asset values that exceed
certain levels where a Chapter 7 may entail risks or
potential difficulties or may not be possible. The filing of
a Chapter 13 case will instantly cause an "automatic stay"
to go into effect which will stop all creditor activity
including imminent foreclosure sales or repossessions. At
the end of the Chapter 13 plan which is usually five (5)
years or sixty months (60) in duration, but can be paid
earlier, the client's debt is usually "discharged" or
legally forgiven. Most Chapter 13 cases are highly effective
in giving clients an opportunity to reorganize and reduce
debt over a protracted time while being protected from their
creditors. However, Chapter 13 cases, like other types of
bankruptcy cases can be complex, and to effectively proceed
in a Chapter 13 case an individual would usually need to be
represented by a bankruptcy attorney.
During the Chapter 13 case the client will on a monthly
basis go back to making post-petition mortgage payments and,
in addition, the client will make Chapter 13 plan payments
to a court-appointed trustee. The combination of such
payments will allow the client not to fall further behind in
mortgage arrears while at the same time catching up and
curing the arrears that existed before the filing of the
case. A budget, a Chapter 13 plan and bankruptcy schedules,
as well as significant other documentation, need to be
submitted to the Chapter 13 trustee and Bankruptcy Court as
part of the process necessary to confirm the Chapter 13
plan.
If a client had had two (2) or more chapter 13 cases pending
before the Bankruptcy Court in the last year a Chapter 13
case may not be able to stay a foreclosure sale against your
property. To obtain a stay in such situation (of two or more
pending bankruptcies in the last year) you will need to
retain a bankruptcy attorney to quickly move by Emergency
Order to Show Cause in front of the Bankruptcy Court and
demonstrate strong financial “changes in circumstances” that
positively affect you chances of success in another Chapter
13 case.
"Secondary loan cram downs” (or “strip downs”) are a
possibility in Chapter 13. If a client has a secondary
mortgage or home equity loan which is totally unsecured, in
a Chapter 13 case it can be deemed to be an unsecured debt
and paid at a vastly reduced amount. To accomplish this our
law firm would need to start an adversary proceeding in the
Chapter 13 case and show the Court the complete lack of
equity in the property. The client needs to stay in Chapter
13 for the full duration of the plan for this form of relief
to have permanent effect.
CHAPTER 11
Reorganizations can be either within or outside the context
of a bankruptcy case. Outside the context of a bankruptcy
case a business or an individual may try to workout formal
agreements with several of its creditors in what is
considered to be a reorganization. Within the context of a
bankruptcy case, a Chapter 11 reorganization case allows a
business or an individual with significant debts and assets
to protect itself from its creditors while it concentrates
on reorganizing its affairs. A Chapter 11 reorganization
case requires the debtor to offer a plan of reorganization,
which extends, and in some instances, reduces many of the
debtor's obligations. A Chapter 11 reorganization is an
involved and potentially lengthy bankruptcy case and
requires special knowledge and expertise.
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