Articles Posted in Chapter 7 Bankruptcy

I’m speaking mainly to those who know that they need to file a Chapter 7 bankruptcy case.  If you wait until you are back to work for several months and everything is going well again (except for what is now the older debt), you run the risk of becoming ineligible to file a Chapter 7 case.  Eligibility is not based on how much debt you have – it’s based on your household income for the past six months and whether or not you have any “disposable” income that could go toward paying some or all of your unsecured debt.  The court looks at the past 6 months of your income, compares it to certain qualified expenses, and determines what is left over (your disposable income) that could go toward paying your other debt.  This process is called the Means Test.

For example, today I met with a newly married couple and they both were out of work for several months.  When things were bad, they did some research online about bankruptcy, talked to some friends, and pretty much knew that a Chapter 7 would be their best bet to pull out of this bad situation.  Their credit card bills, medical bills, and various other unsecured debts were all past due, but they had managed to keep their house and car payments current. In this instance a Chapter 7 would be their best option.  They did well in their research and friends had pointed them in the right direction, to my office.  They both got hired at really good paying jobs. However…..they waited and put off contacting me.  They didn’t have any idea how important the timing of the Chapter 7 bankruptcy filing would be. The hardest job I have is convincing people to come and see me early, sooner rather than later. Many times we just talk and make plans to file later on. But at least they would have the information and knowledge about what they need to do and when to do it.

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homeNot unless you would like to! It is understandable to be concerned about your home when thinking about filing bankruptcy to deal with other debt concerns. As long as you are current on your payments, the mortgage company cannot and will not foreclose.  They will send out a Reaffirmation Agreement (and more than likely offer you a loan modification as well).  The Reaffirmation Agreement is a document where you “sign back up” for your home loan either with the same loan/note details or possibly better if a loan modification is offered.

We also need to check and see if the equity in your home is over the Mississippi exemption or not.  If it is not over, your home is fully protected. If it is over, depending upon how much, there will be options to discuss.For example, your home is worth $100,000. You owe $90,000. Your equity is $10,000.  This easily falls under the Mississippi exemption ($75,000).  But if your home is worth $100,000 and is paid off, then you are over the Mississippi exemption by $25,000 and we would need to discuss options prior to filing your bankruptcy case.  It doesn’t mean that you cannot file, it simply means we have some things to take a stronger look at and discuss first.

Exemptions are protections for your property given to you by Mississippi Law. Exemptions are not the same in every state.  These protections allow you to keep the stuff that you already have, so you don’t have to start all over again with nothing.

I’m sure you are coming across a great deal of unfamiliar terms and phrases while researching the process of filing bankruptcy. This jumble of information may make references to getting a “bankruptcy discharge,” for example. So what is a “bankruptcy discharge”? If your debts are “discharged” through your bankruptcy case, then you are no longer obligated to pay them and your creditors are prohibited from ever making any effort to collect the debt.  So receiving a “bankruptcy discharge” is a good thing – it’s what you want to happen – what you want your final result to be.

It’s important to note that if the debt has property that is collateral for the loan, the creditor may still be able to repossess the property if you do not pay.  In other words, filing bankruptcy won’t give you a free car.  You will either pay for the car or you will surrender it back to the creditor with all responsibility for any difference in amount owed, etc being gone.  Any debt of yours that is cosigned or guaranteed by someone else can still be collected from that person (your cosigner or guarantor), but not from you.  Your legal obligation to pay has been “discharged”.

Will all debts be discharged?  Most of the debts you owe at the time you file your case will be discharged, but certain types of debt cannot be discharged no matter what.  These non-dischargeable debts include: income taxes that are less than 3 yrs old, child support, alimony, government fines and restitution, and student loans.  Other debts that you may not be able to discharge include debts you may have incurred by fraud or willful or malicious actions.

Filing a chapter 7 bankruptcy can eliminate unsecured debts such as credit cards or credit accounts, all medical bills, any payday loans or other types of signature loans, etc.  It stops lawsuits, no matter what stage the lawsuit is in.  It stops wage garnishments.  It stops harassing phone calls and letters from debt collectors.  It gives you a new beginning, a true, financial fresh start.

In some instances, it may be advisable to file Chapter 7 bankruptcy to stop repossession, foreclosure, student loan collection efforts, and other types of debt related activity that might normally be handled through a Chapter 13 bankruptcy.  It’s a matter of what you need short term and long term.  Your attorney will discuss the pros and cons of both types of bankruptcy.

Being free from overwhelming debt is possible for you.  Take advantage of the opportunity the law allows to be debt free. The government understands that people have financial problems because they have experienced a job loss, hours cut, a failed business, divorce, illness, severe injury, or other unforeseen financial hardship.

Most unsecured debts will be wiped out in a Chapter 7 bankruptcy.  Unsecured means that the debt does not have any property pledged as security.  This includes credit cards, medical bills, lines of credit, payday loans, overdraft protection, signature loans, and personal loans.  There are certain types of unsecured debts that cannot be eliminated in bankruptcy.  The two most common types of debt that people think cannot be done away with are student loans and taxes.  These can be wiped out, but only if you meet special circumstances.  Student loans are not wiped out in bankruptcy, unless you can prove that paying them would create an undue financial hardship for you or your family.  Income tax debts can be eliminated, under certain circumstances, if they are more than 3 years old before the date you file the bankruptcy.

Secured debts are debts that have some sort of property pledged as security. When you get a loan to buy a car or a house, you take out a secured loan.  The car or the house is the security or collateral for the loan.  Secured debts can either be wiped out in a Chapter 7 bankruptcy or not – you have a choice with secured debts.  You can keep the car, house, or property and continue to pay the debt or you can give the property up and walk away, owing nothing.

A secured loan creates two obligations for the loan.  The first obligation is the security interest that allows the lender to repossess or foreclose the property if you stop making payments.  The second obligation is your obligation to pay the loan.  If the car is repossessed or the house is foreclosed, the loan company can come after you for the money you still owe on the loan.  This is known as the deficiency balance.  Chapter 7 bankruptcy eliminates your personal obligation to pay the loan and if the property is repossessed or foreclosed, the company cannot come after you for the deficiency.  If you choose to continue paying and retain the car, house, etc – the creditor provides what is called a Reaffirmation Agreement.

In chapter 7 bankruptcy cases you may be asked to sign a reaffirmation agreement for a loan, secured by collateral, that you wish to keep such as a vehicle, furniture, etc. A reaffirmation agreement is an agreement that says you want to keep the vehicle or the furniture and you will continue to pay the debt after the bankruptcy is over.  The creditor must agree to the reaffirmation, but in most cases they will agree because they want you to keep the property and continue to pay them.  They don’t want the property back.

A valid reaffirmation agreement places a legal obligation over you to continue to pay a debt that would have been wiped out in the bankruptcy.  If you become behind on payments after the bankruptcy, the creditor can repossess or foreclose on that property and sue you for the deficiency balance on the loan.

The Bankruptcy Code has many requirements that must be met for reaffirmation agreements to be valid. You should think long and hard about whether to reaffirm a debt and discuss options with your bankruptcy attorney, as this limits the benefits of your bankruptcy discharge.

car loveNot unless you want to! It is unusual for someone to lose a car or any other property that they do not want to lose in a bankruptcy case.  It’s common for people to file bankruptcy in order to get rid of a vehicle.  They lose it because they want to lose it. The payments may be too high or the vehicle is simply not worth keeping due to the current condition and/or when comparing the current condition to the amount still owed on that vehicle.   For example, your car is worth $5,000 but you owe $10,000 because of interest, high mileage, and/or other current issues with the vehicle that has decimated the value.

But if you want to keep your vehicle and other debts are the issue needing to be addressed, as long as you are current on your car payments, the finance company will not repossess your car as a result of filing bankruptcy.  The creditor (finance company) will send you a Reaffirmation Agreement that outlines your current loan (amount owed/monthly note amount, etc) and you will sign the Reaffirmation Agreement to keep the vehicle. It goes through the bankruptcy untouched.

The finance company wants you to keep the vehicle and pay for it.  They really don’t want it back – that’s why many people end up filing a chapter 7 bankruptcy to force them to take the vehicle back and to wipe out the responsibility of any further debt related to that vehicle.

Yes and No. In most cases as long as you are up to date on your house payments you can keep your home. If you are not current, the bankruptcy filing protects the home from foreclosure and this could give you the time you need to get caught up, if you were only a couple of months behind.

If you arehouse significantly behind on your house payments, then a chapter 13 is the only way to go if you want to save your home. The most important thing is to file the bankruptcy as soon as possible so they don’t foreclose on your home. Both a chapter 7 or 13 bankruptcy filing stops foreclosure.  The mortgage company would have to then get permission from the bankruptcy court to start the foreclosure process up again.  It’s important to meet with an experienced bankruptcy lawyer to lay out a proper strategy for dealing with your debts in a way that protects the property you wish to keep.

 

VehiclesYes and No.  In most cases as long as you are up to date on your vehicle payments you can “reaffirm” the debt and keep your vehicle. The finance company has to agree to allow you to keep the vehicle and they will always agree if you are current.

If you are not current, the bankruptcy filing protects the vehicle from being repossessed and this could give you the time you need to get caught up. Most finance companies do not want the vehicle back, so if you are a behind they will give you a chance to catch up or they can redo your payments. The most important thing is to file the bankruptcy as soon as possible so they don’t repossess the vehicle. They hardly ever negotiate before you file the bankruptcy because they don’t believe you will actually file. After you file and they are faced with getting no money and maybe having to take the vehicle back, they can be more lenient and easier to deal with.