Bankruptcy: Can It Help You?
When families are experiencing difficult financial times, more often than not they do not want to consider the possibility of filing bankruptcy. To many people the word bankruptcy carries a negative connotation. However, what most people do not understand is how much bankruptcy can help families who are struggling to make ends meet for a variety of reasons. Bankruptcy can possibly help you or your family in the following situations:
- Medical Bills – If you have numerous medical bills from an accident or illness that your insurance will not cover
- Job Loss – If you become unemployed and can no longer make payments on your house and/or vehicles
- Illness – If you or someone in your family becomes ill and you are forced to miss work to take care of them resulting in reduced wages
- Foreclosure – If foreclosure proceedings have been filed in Circuit Court, filing bankruptcy and paying your arrearages though a payment plan may save your home.
- Negative Equity – If you need to move for a new job, family illness or any other reason, but cannot sell your house due to negative equity.
These are just a few of the many reasons why people decide to file bankruptcy. Bankruptcy can provide a fresh start to those that can no longer make payments to their creditors for a variety of reasons. Tools such as payment plans or the liquidation of certain assets can be implemented by the Bankruptcy Trustee to help individuals manage their debts in a more effective manner.
The Basics of Bankruptcy: Which Chapter to File?
While there are many Chapters under the U.S. Bankruptcy Code, there are two Chapters in particular under which individuals and couples typically file for relief. These are Chapter 7 and Chapter 13 of the U.S. Bankruptcy Code. Filing under Chapter 7 of the U.S. Bankruptcy Code will give you a true fresh start as long as your property and assets are able to be exempted. When debtors file under Chapter 13 of the U.S. Bankruptcy Code, they establish a payment plan with the Trustee to repay all or a portion of their debts.
To file for relief under Chapter 7 of the U.S. Bankruptcy Code, there are certain requirements that must be met. The debtor must qualify under what is called the Means Test. This test insures that that the debtor is not abusing the Bankruptcy Code. This test takes into consideration the Median Family Income for the current year when determining if a debtor passes the means test. A copy of the Median Family Income based on State/Territory and family size for 2015 can be found here. Maryland has one of highest Median Family Income allowances in the United States.
When filing for relief under Chapter 13 of the U.S. Bankruptcy Code, the debtor (or their attorney) proposes a payment plan to repay either all or part of their debts. The plan is based on several different things: the amount by which your income exceeds the means test, the amount of assets you would have been unable to exempt if you had filed under a Chapter 7, the amount of pre-petition arrearages on your home and/or any unpaid taxes and factors. These plans usually last three to five years depending on the debtor’s income and allows the debtor to retain the property while paying the debt over time. In most cases, the debtor is able to pay significantly less than all debts and have the balance discharged. However, if the debtor fails to make the plan payments to the Trustee, the case can be dismissed without the discharge of the debts.
The Debt: Secured Versus Unsecured and Dischargeable Versus Non-Dischargeable
Words like “secured”, “unsecured”, “dischargeable” and “non-dischargeable” often get thrown around when describing debt. But what do they really mean? And what does it mean for your bankruptcy case?
There are two main questions surrounding the nature of every debt when it comes to bankruptcy: is it secured or unsecured and is it dischargeable or non-dischargeable? Secured debts are debts that are backed by a pledge of collateral, mortgage or other form of lien. This type of debt allows a creditor to take the pledged property when the debtor defaults on the payments. These debts typically include mortgages on real property, car loans, and some furniture or other “big ticket” consumer credit purchases. However, typically you may retain your secured property by making timely payments on the secured loan. Unsecured debts are those that the creditor does not have any lien to provide assurance of payment. These debts are typically based on the creditor’s assessment of the debtor’s ability to pay in the future. The major type of debt in this category is credit card debt.
Dischargeable versus non-dischargeable debts is another issue that can arise. Dischargeable debts are those that the Bankruptcy Court allows the personal liability of the debtor to be eliminated. Typically these debts can include medical bills, credit card bills and other debts owed to businesses and individuals. Most law suits brought by an unsecured creditor are dischargeable. Non-dischargeable debts are quite the opposite. These debts remain as a liability of the debtor after the close of the bankruptcy case. Student loans, taxes and tax liens, alimony and child support are some of the most common non-dischargeable debts.
The First Step to Filing Bankruptcy: Finding an Experienced Attorney
If you or someone you know is considering filing bankruptcy, the first thing you should do is consult an attorney. An experienced bankruptcy attorney will know the ins and outs of bankruptcy law and will be an excellent guide to assist you throughout the process. The attorneys and staff at Dolina/Hobbs, LLC will take the time to review your unique situation to determine under which Chapter of the United States Bankruptcy Code would be best for you to file and the timeline for filing your petition. For your initial consultation with the attorney, you should have a general idea or estimate of the following:
- Your Current Assets: including any real property, personal property, vehicles, bank accounts, investment accounts, debts owed to you
- Your Current Liabilities: including mortgages or liens, student loans, medical bills, credit card bills, debts owed to others and/or businesses
- Your Annual Income: including wages from employers, social security benefits, unemployment benefits, business income and the like
- Your Monthly Expenses: including monthly rent or mortgage, house hold expenses like water, gas and electric, monthly car payments and maintenance
- Your Household Income: including wages from employers, social security benefits, unemployment benefits, business income and the like
This information will help the attorney determine under which Chapter of the U.S. Bankruptcy Code you are eligible to file.
Step Two: Gathering Documents and Preparing the Petition
For your second meeting with the attorney or his paralegals, you will need to bring documents that will help to provide your complete financial situation to the attorney. The Dolina/Hobbs, LLC Bankruptcy Checklist will help you to prepare the important documents you should bring to your meeting with the attorney so that he can determine your financial situation and begin the preparation of your Voluntary Petition for Relief.
The Voluntary Petition for Relief under the U.S. Bankruptcy Code is comprised of schedules that report to the Court information regarding creditors of the debtor, sources of income for the debtor, property owned by the debtor and the monthly living expenses of the debtor. The following schedules can be attached to the Petition depending on the facts of each case:
- Schedule A: Real Property Owned by the Debtor (all properties)
- Schedule B: Personal Property Owned by the Debtor (includes clothing, jewelry, household furniture, cars, bank accounts, investment accounts, retirement account and any of the like)
- Schedule C: Property Claimed as Exempt (your attorney will inform you what property is exempt)
- Schedule D: Secured Claims (see above)
- Schedule E: Unsecured Claims with Priority (unsecured claims that are non-dischargeable)
- Schedule F: Unsecured Claims (see above)
- Schedule G: Contracts and Unexpired Leases
- Schedule H: Co-debtors
- Schedule I: Current Income of Debtors
- Schedule J: Current Expenses of Debtors
Step Three: Credit Counseling
The U.S. Bankruptcy Court requires that all debtors take a credit counseling course prior and Financial Management Course subsequent to filing bankruptcy. Upon completion of each credit counseling course, the debtor will be presented with a certificate. The first credit counseling course must be completed prior to filing the Petition as a copy of the certificate is to be included with the Petition. The post-filing credit counseling course is to be completed after the Petition has been filed, but must be completed prior to receiving a discharge.
These courses can be completed online or by telephone by a variety of credit counseling services. Your bankruptcy attorney has a particular program he utilizes most often and can provide the company information to you.
Step Four: Filing your Petition and Meeting of Creditors
Once all your documents are gathered, your credit counseling course is complete and your attorney deems your petition ready, your Voluntary Petition for Relief is filed with the U.S. Bankruptcy Court. When your Petition is filed, your case is assigned to a Bankruptcy Trustee. The Trustee will review your petition and documents submitted to see if you qualify for relief under the Chapter you filed. If you filed a Chapter 13, the repayment plan is due no later than fourteen days from the date of filing of your petition. You can also file it with your Petition.
There is a Meeting of Creditors that takes place anywhere from thirty to sixty days after your Petition is filed. This meeting is where the Trustee meets with you and your attorney. You are placed under oath and asked to answer questions about your Petition and financial status by the Trustee. While it is called the Meeting of Creditors because your creditors are allowed to attend this meeting, more often than not your creditors will not be present.
The Confirmation Hearing: Chapter 13 Cases
Within forty-five days of the Meeting of Creditors, a Confirmation Hearing is held for Chapter 13 Cases to determine the validity of the plan to repay debt that was filed by the debtor’s attorney. The Court can either confirm the repayment plan and begin making payments to creditors from the funds paid to the Trustee by the debtor or they can reject the plan. In the case of a rejected plan, the debtor’s attorney can usually file a modified repayment plan under 11 U.S.C. § 1323.
The Final Step: Your Discharge
If you filed a Petition for Relief under Chapter 7, approximately sixty days after your meeting of creditors, a Discharge and Final Decree will come from the U.S. Bankruptcy Court. The discharge releases the debtor of all dischargeable debts and the Final Decree closes the bankruptcy case.
For Chapter 13 cases, the Discharge is granted upon the completion of all plan payments. There are other requirements, such as time since the last filing of bankruptcy and the payment of domestic support, to obtain a discharge for Chapter 13 cases. Your attorney will let you know when you meet these requirements. Similar to a discharge for a Chapter 7 case, the discharge for a Chapter 13 case releases the debtor of all dischargeable debts.
Click here to view a glossary of the most common terms encountered throughout the bankruptcy process.
The United States Courts website has some additional important information and an overview of bankruptcy proceedings.
Disclosure: This is for informational purposes only and is not a substitute for legal advice. Please contact our office for a free consultation to see if you may qualify to file bankruptcy.