Bankruptcy

Filing Bankruptcy is a difficult decision to make. Millions of Americans continue to file personal bankruptcy every year in order to improve their financial situation. The amount of bankruptcy filings continue to be surpassed each year. Bankruptcy can help you prevent foreclosure of your home, stop debt collector harassment and get a fresh financial start. Many people turn to a bankruptcy attorney for help. Choosing the right attorney is a crucial decision that can impact your present case as well as your ability to have a fresh financial start. As a bankruptcy lawyer, I can help explain the bankruptcy laws and ensure that the bankruptcy process goes as smoothly as possible. If you’re considering bankruptcy and need help understanding your options, I can help. We offer a free consultation to review your potential case. When you set up an appointment, I will personally meet with you to discuss your situation. Our firm is dedicated to giving you professional, courteous and knowledgeable assistance!

General Information Regarding Chapter 13 & Chapter 7

The following information is provided as a public service by The Gil Law Firm. Please remember that the law often changes. Each case is different. This information is meant to give you general information and not to give you specific legal advice.

Chapter 13 Versus Chapter 7

In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out or discharge your debts in exchange for your giving up property except for exempt property which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to the creditors.

If you want to keep property like a home or a car and are behind on the payments, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.

In a chapter 13 debt consolidation, you file a plan showing how you will pay off some of your past due and current debts over three to five years. The most important thing about a chapter 13 case is that it will allow you to keep valuable property—especially your home and car—which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. In most cases, you will be required to make your regular monthly mortgage payments, utility bills, grocery bill, etc. and have money left over to pay into the bankruptcy trustee.

You should consider filing a debt consolidation plan if you:

  1. Own your home and are in danger of losing it because of money problems;

  2. Are behind on debt payments, but can catch up if given some time;

  3. Have valuable property which is not exempt, but you can afford to pay creditors from your income over time.

You will need to have enough income in a debt consolidation plan to pay for your necessities and to keep up with the required payments as they come due.

What Is Chapter 13 Debt Consolidation?

Debt Consolidation, or Chapter 13, is that part of the Federal Bankruptcy Code under which a person may repay all or a portion of his or her debts under the supervision of the Bankruptcy Court. The most important thing about debt consolidation is that it will allow you to keep your valuables—especially your home and car—which might otherwise be lost. In a debt consolidation case, the person who files must submit to the Court a plan for the repayment of all or a portion of his or her debts. The plan must be approved by the Court to become effective. Once the Court approves the plan, it will prohibit your creditors from collecting their claims from you during the course of the case. You must make regular payments to a person called the Chapter 13 Trustee, who collects the money paid by you and disburses it to your creditors as called for in the plan. Upon completion of the payments called for in the plan, you will be discharged from liability for the remainder of your debts.

You should consider filing a Chapter 13 plan if you:

  1. Own your home and are in danger of losing it because of money problems;
  2. Are behind on debt payments, but can catch up if given some time;
  3. Have valuable property which is not exempt, but you can afford to pay creditors from your income over time.

You will need to have enough income in a debt consolidation plan to pay off your necessities and keep up with the required payments as they come due.

Frequently Asked Questions About Chapter 13 Debt Consolidation

Can I File Debt Consolidation With No Money Up Front?

In many jurisdictions, most debtors are allowed to file a debt consolidation petition without paying any attorney's fee or a filing fee up front. The attorney's fee is approved by the Court together with the other administrative costs, is paid out of the monthly plan payments which you make to the Trustee. There are some exceptions to this general rule and you should discuss your situation with an attorney.

In order to schedule a free consultation with the Gil Law Firm. where we will discuss everything in detail with you, simply click on your state or go to our phone directory to find the office nearest to you.

Can Foreclosure Be Stopped?

When you get behind on your house payments, your creditor, perhaps a mortgage company, savings and loan bank, credit union or even an individual, may foreclose on your property. The number of months you are behind may vary, but at some point in time the creditor may refuse monthly payments unless you pay all of the arrearage. If you cannot, the entire amount owed on the note may be accelerated and the full amount will be due at once, and your home posted for foreclosure. You should receive proper notice of the foreclosure, at least three (3) weeks prior to the actual sale of your home.

At foreclosure, the property is sold to the highest bidder, usually the creditor itself. If your mortgage is guaranteed, such as a VA or FHA loan, the creditor will be paid off.

The creditor, or its guarantor, will then sell the home and apply the proceeds against the costs of foreclosure, fix-up, resale and the balance of your mortgage. If the proceeds of this sale are equal to or more than this amount, you will have no further liability. If the proceeds of this sale are less than this amount, which is usually the case, there is a resulting deficiency. You are obligated to pay this deficiency. Like any other debt, the creditor can pursue whatever collection action it deems appropriate.

The filing of a debt consolidation petition prior to the actual sale of your home may give you the opportunity to stop the foreclosure, keep your home and pay the arrearage over a reasonable period of time while continuing to make future mortgage payments. The mortgage holder can only continue with the foreclosure if it receives permission from the Court. In most instances, the Court will not allow the foreclosure to proceed if you are capable of making your current mortgage payments and catching up what you are behind within a reasonable period of time.

If your mortgage payments are behind, you should immediately determine your debt consolidation options. Quick action can possibly avoid the foreclosure altogether allowing you to keep your home and avoiding expensive additional costs and fees.

Can Automobile Repossession Be Stopped?

When you get behind on the payment of a debt which is secured by a security interest or lien on your car, furniture, jewelry, or other personal items, the creditor can proceed to repossess these items. Upon repossession, the items are sold and proceeds are credited to the amount you owe. If the sale proceeds are equal to or greater than the debt, you have no further liability. If the sale proceeds are less than the debt, which is quite often the case, you owe the amount of the deficiency. Like any other debt, the creditor can take whatever collection actions it deems appropriate, including filing a lawsuit against you.

The filing of a debt consolidation petition may give you the opportunity to stop the repossession, keep the item and pay for it under controlled circumstances at a rate you can afford.

Will I Lose My Possessions?

The filing of a Chapter 13 debt consolidation petition will usually allow you to keep all of your possessions. In a debt consolidation proceeding, creditors are usually paid out of your income and from your property. You are, in fact, repaying your debts. Accordingly, you are usually allowed to keep your property.

What Is The Automatic Stay?

Sometimes, the most valuable feature of a debt consolidation proceeding is the Automatic Stay gained instantaneously upon the filing of a petition. When a person gets behind in paying his debts, creditors begin to take various actions to collect:

  • Telephone calls at home, at work, to family, to neighbors or friends.
  • Personal contact by bill collectors creating embarrassment in front of family, friends, fellow employees or your employer.
  • Co-signers may be called upon to make payment.
  • Foreclosure proceedings may be started against your home.
  • Automobiles, furniture, jewelry, appliances or other personal items may be repossessed.
  • If you owe the IRS or other taxing authorities, they may garnish your wages, put a lien on almost all your property, seize your bank account or even close your business.
  • Lawsuits can be filed and judgments taken against you.

The filing of a debt consolidation petition automatically stops a creditor from further collection efforts. No more phone calls, letters, bill collectors, foreclosures, repossessions, demands on co-signers in some instances, garnishments or seizures by the IRS, lawsuits or judgments; all collection efforts stop without the creditor first filing a request with the court to get permission to continue collections. Beyond all this, the Automatic Stay affords an opportunity for the debtor to have a breathing spell, a chance to sort things out, through the additional time gained to solve problems.

Can I Include Student Loans?

Often, the filing of a debt consolidation petition can provide benefit to an individual facing student loan obligations. Federal law provides that student loan obligations are generally non-dischargeable in any type of bankruptcy proceeding. The only exception to this general rule is if the loan repayment would cause the individual "undue hardship".

Nevertheless, inclusion of a student loan obligation in a debt consolidation proceeding may provide some benefit. Importantly, the Automatic Stay provisions of a debt consolidation proceeding apply to student loan creditors even though a student loan is not dischargeable. Accordingly, the filing of a debt consolidation petition will stop telephone calls, harassment, lawsuits, and garnishments from proceeding without permission of the Court. Also, if you are able to satisfy your entire student loan obligation during the term of your debt consolidation plan, you may avoid interest and late charges which would otherwise become due on such obligation. If you are delinquent on your student loan obligations, you should consider the filing of a debt consolidation petition.

Can I Include Taxes?

Although taxes cannot be avoided through a debt consolidation proceeding, they can be repaid over a period not to exceed five (5) years and, often, in a monthly amount the taxpayer can afford, rather than the amount of the IRS is demanding. Debt consolidation is the only tax repayment relief available to the tax payer for non-dischargeable taxes other than having the IRS agree to your terms of re-payment.

Once debt consolidation is filed, the IRS cannot garnish your wages, seize your bank account, close your business, perfect a tax lien or take any other collection effort. There are generally two kinds of tax obligations. One is a secured obligation, where the IRS has perfected a tax lien on your property and the other type is unsecured.

If you file a debt consolidation petition and your tax obligation is unsecured, then the tax obligation accrues no further interest or penalty charges. This could amount to a substantial savings over a five (5) year period of repayment. If you have an unmanageable tax obligation, you should act immediately to determine your debt consolidation options and avoid the possibility of having the IRS take collection measures against you or perfect a tax lien which means you may have to pay interest and penalties on the tax obligation.

How Will It Affect My Credit?

A major concern that most of our clients have is to what extent their credit will be affected by filing a debt consolidation proceeding. Your credit will be adversely affected. There is no question about that. The fact of your filing will be reflected on your credit report for a period of ten (10) years from the date your petition is filed. That, however, is not the main issue. It is important to recognize that your underlying financial problems are the real cause of your negative credit, not the debt consolidation. Actually, filing a debt consolidation petition can be the first step in reestablishing your credit. As stated, a debt consolidation filing will be on your credit report for a period of ten (10) years. However, any negative or bad information currently on your credit report will stay on your credit report for a period of seven (7) years and that time period does not start until you pay off your creditors in full or it is "written off as a bad debt." As a practical matter, your credit will be affected for a period of at least seven (7) years without your doing anything. The reason we say that filing a debt consolidation may be the first step in reestablishing your credit is that it provides a cut-off, or a beginning point for you to obtain a fresh start.

How Long Will The Proceeding Last?

A debt consolidation plan generally lasts for three (3) years to five years, unless all debts can be paid off in full in less time. A debt consolidation plan cannot last longer than five (5) years.

How Will Lawsuits Be Affected?

The filing of a debt consolidation proceeding prevents any lawsuits from being filed or judgments taken against you. If you file a debt consolidation petition and a lawsuit against you is pending, it can go no further. If a judgment has been taken, its enforcement can go no further, all without first getting permission from the bankruptcy court.

If there are potential lawsuits against you, often the bankruptcy court offers a forum where the dispute can be rapidly settled--thus avoiding the time and expense of litigating the matter in state court. If a judgment has already been taken against you, you may be able to arrange payment and satisfaction of the judgment over a period not to exceed five (5) years. If lawsuits or judgments are either a threat or an existing problem, there may be relief available for you.

May Employers Discriminate Against Me For Filing Debt Consolidation?

An employer may not discriminate against you for filing a debt consolidation. It is illegal for either private or governmental employers to discriminate against a person as to employment for filing debt consolidation. It is also illegal for local, state, or federal governmental agencies to discriminate against a person as to granting of licenses, permits, and similar grants because that person has filed debt consolidation. It is also illegal for governmental student loan or grant unit to deny a student loan or grant solely on the basis of filing.

How Does Chapter 13 Differ From A Private Debt Consolidation Service?

Under Chapter 13, the court has powers to aid you that private debt consolidation services do not have. For example, the court has the power to prohibit creditors from attaching or foreclosing on your property, the power to force unsecured creditors to accept a Chapter 13 plan that pays only a portion of their claims, and the power to discharge a debtor from the unpaid portion of debts. Private debt consolidation services have none of these powers.

When Is Chapter 13 Preferable To Chapter 7?

Chapter 13 is usually preferable for a debtor who:

  1. Wishes to repay all or most of his or her unsecured debts and has the income with which to do so within a reasonable time,
  2. Has valuable nonexempt property or has valuable exempt property securing debts either of which would be lost in a Chapter 7 case,
  3. Is not eligible for a discharge under Chapter 7,
  4. Has one or more substantial debts that are not dischargeable under Chapter 7 but are dischargeable under Chapter 13,
  5. Or has sufficient assets with which to repay most debts, but needs temporary relief from creditors in order to do so.
Must All Debts Be Paid In Full?

Not all debts must be paid in full in a debt consolidation proceeding. While certain debts, such as tax debts and fully secured debts, must be paid in full under a Chapter 13 plan, only an amount that you can reasonably afford must be paid on most debts. The unpaid balance of most debts that are not paid in full under a Chapter 13 plan is discharged upon completion of the plan.

How Will Debt Consolidation Affect Co-Signers?

If you seek relief to repay your debts under a debt consolidation proceeding, an individual co-debtor is protected, to the extent that the plan proposes to repay the debt in full, and if the following conditions are met:

  1. The debt is a consumer debt;
  2. The debt is not a debt incurred pursuant to a business transaction;
  3. The co-debtor was not the sole beneficiary of the debt.

As long as your debt consolidation is pending, then the creditor cannot act to collect all or any part of the obligation, including the filing of a lawsuit, without first getting permission from the bankruptcy court.

This permission will not ordinarily be granted if your plan of repayment has been approved and you are making the required payments under your plan.

The purpose of this provision is to allow you the opportunity to repay your debt without permitting your creditor to bring undue pressure on you by approaching a co-debtor for repayment.

Do Both Husband And Wife Have To File Debt Consolidation?

A husband and wife may file jointly under Chapter 13 and should do so if both are liable for any significant debts. There is no mandatory requirement, however, that a husband and wife both file under Chapter 13. Whether or not you and your spouse should file jointly should be determined following a consultation with an attorney.

What If I Cannot Complete My Debt Consolidation Payments?

A debtor who is unable to complete his or her debt consolidation payments has three (3) OPTIONS:

  1. Dismiss the debt consolidation proceeding.
  2. Convert the debt consolidating to Chapter 7 straight bankruptcy, or
  3. If the debtor is unable to complete the payments due to circumstances which he or she cannot be held accountable, close the case and obtain a second type of discharge offered in debt consolidation proceedings which gets rid of some but not all of your debts
Income Taxes in Bankruptcy

As a general rule, older income taxes (more than 3 years old) can be wiped out in bankruptcy; newer income taxes (less than 3 years old) cannot. A debtor/employer can wipe out the employer’s portion of older, but not newer, payroll taxes. The dischargeability of state and local, such as sales and use taxes, will depend upon their true nature, i.e., whether they are excise or withholding taxes. The trust fund portion of payroll taxes is generally not dischargeable. Prior to filing bankruptcy, the debtor should have his own particular tax situation assessed.

Test For Discharging Income Taxes

The Test for discharging income taxes in Chapters 7 & 13 include:

  • The tax return was due more than 3 years prior to the filing;
  • The tax return has been on file for at least 2 years prior to the filing;
  • The tax has been assessed for at least 240 days prior to the filing;
  • The tax is not based on a fraudulent return;
  • There was no willful tax evasion by the debtor.

In Chapter 13, income taxes can be wiped out if the return was due more than 3 years prior to the filing, and was assessed at least 240 days prior to the filing. In some cases, the tax may be dischargeable even if not assessed prior to the filing.

SHOULD YOU HAVE ANY QUESTIONS PLEASE DO NOT HESITATE TO CONTACT THE GIL LAW FIRM @ (334) 673-0100