WHY ME and HOW WILL IT HELP?
Many things can lead to bankruptcy. Usually it's a drop in income, large medical bills or prescription expenses, or it follows a divorce. It can happen to anyone, unexpectedly, for many reasons. In fact, I've filed bankruptcies for everyone from single mothers earning minimum wage to Doctors, Lawyers, and Bankers - people from all walks of life. Most people felt "this could never happen to me." I know better. After 25 years of helping people who have experienced some sort of unexpected financial problem, I realize it could happen to me as easily as anyone else (a catastrophic family illness, for example). The key is to put the past problems behind you, deal with today's basic living expenses, and plan for the future.
Bankruptcy helps different people in different ways. You may find that if you can stop paying on your unsecured debts (credit cards, medical, etc.), you have a better monthly budget and can better afford to take care of current expenses and plan for the future by saving a little money each month for family, retirement, or whatever future goals you may have. Or, you may have already stopped paying on your unsecured debts because you simply couldn't afford to. In this situation, bankruptcy will not "put any more money in your pocket," each month, because you have not been making those payments anyway, but will accomplish the two other main goals of filing bankruptcy:
(1) To prevent unsecured creditors from taking legal action against you: suing you, seizing assets, garnishing wages, etc.
(2) To clean up your credit. I've talked to many Bankers and
Lenders about re-establishing credit (some of whom I've filed
bankruptcy for). Most of them tell me it only takes a couple of
years to obtain excellent credit after bankruptcy. (You can get
credit immediately after bankruptcy but, at first, it will be at
higher interest rates.) You'll get excellent credit, though,
after only a couple of years. This is because (1) you don't have
all those old debts to pay and can concentrate on the new loan
you are applying for, (2) you may have some good credit
references for items you are keeping, (3) you cannot file
bankruptcy again for eight years, so they feel very safe with
you, and (4) if they didn't make loans to people who have filed
bankruptcy, they wouldn't have enough customers! In fact, there
are almost twice as many bankruptcies filed each year in
this country than divorces. You are not alone. Out of all the people you know, a number of them have probably filed bankruptcy before, but just never told you. On the other hand, without filing bankruptcy, it is hard to ever get credit again because the credit report shows all those old debts and a lender does not want to take the chance of lending money to you when the lender feels that it will be difficult for you to pay it back because you have to pay the old debts and you are in danger of being sued by those creditors and having wages garnished or some other action taken against you. Incidentally, many people do not realize that, even if bad debts do not show up on their credit report after many years have gone by, those debts are still out there. For instance, if one of the creditors has obtained a judgment against you, that judgment is good for up to twenty years. Even though it may not show up on your credit report, nineteen years from now that creditor may take some action against you based on that debt.
QUALIFYING FOR BANKRUPTCY
There is no specific dollar amount of debts to qualify for
bankruptcy. I have filed bankruptcies for people who owe
anywhere from $2,000 to $200,000 or more. The question is
whether or not you can fit the payments on those debts into your
monthly budget. The main requirement for filing a bankruptcy is
that you not have a great deal of excess income. In other words,
if you have a very high monthly income and fairly low monthly
expenses (not counting the credit card or other payments which
would be eliminated by the bankruptcy), this may show that you
have the ability to repay at least some of your debts. (There is
actually a kind of formula that is based on your income and
household size. For example, with two people that make
under about $45,000 a year or a household with four people and
make under about $60,000 a year (not including social security
income), then it is easier to qualify for a regular Chapter 7
bankruptcy.) Other
than this, simply residing in this district and not having
received a prior bankruptcy discharge during the last eight years mean that you are eligible to file bankruptcy. Finally, if you have filed a Chapter 13 bankruptcy which was not completed, you can file a Chapter 7 bankruptcy now without waiting the six year period.
THE STEPS
1. Once you retain (with as little as $50.00), you can then tell creditors that I am your attorney and they cannot contact you; they have to go through me. There is no deadline on paying the total attorney's fees, but we usually suggest that you pay a little bit at least every couple of months until the fees are paid in full to keep me on retainer.
2. You finish paying your fees (and the court fee which I
hold for you and I pay the court with it). Then, I send you a questionnaire form to give me up-to-date information about yourself.
3. You return the questionnaire to me and I prepare a "Petition."
4. I send the Petition to you to sign and then file the case with the bankruptcy court. This is called your "Filing Date" and this is the important day - bankruptcy is like a snapshot of one day in time with the question being what you own on that day and what you owe. For most practical purposes, you start fresh the very next day.
5. About five weeks later you will have a meeting of
creditors which primarily turns out to be a meeting with the
bankruptcy trustee who is assigned to your case by the court. He
is an attorney that represents the creditors. This meeting is an
informal, short meeting where the trustee needs to make sure
that the papers are in order. The real reason that even
this step needs to be done in person is that the trustee needs
to check your identification.
6. Approximately three months after that meeting, you will receive an "Order of Discharge" signed by the judge which means that your debts are permanently removed.
(There are also some new requirements, these
are fairly simple and we can help you with them.)
HOW BANKRUPTCY WORKS
The general idea of bankruptcy is to eliminate your unsecured debts. In return, sometimes you have to give up certain things you own. If this applies to you, the money or property that you give up to the court is used to pay your bills. Most people don't have to give up anything because of the "exemptions" mentioned on the next page. Bankruptcy law allows you to keep the basics needed by everyone. If you had extra assets, you probably already sold them to pay debts, or we may discuss how to protect them.
WHAT DEBTS DO I GET RID OF?
Bankruptcy removes most unsecured debts. Unsecured debts are debts where there is no collateral. They can include credit cards, medical bills, broken leases, signature loans, etc. Secured debts are debts where they are collateral, such as a house loan or car loan. Bankruptcy does not remove these debts. If you want to keep the house or car you need to keep paying on them. On the other hand, if you feel that you want to get out from under a car payment, for example, and are willing to let the car go, bankruptcy can allow you to "wash your hands" of the whole car loan and give back the car without being responsible for any difference. If you did not file bankruptcy, the car loan holder would take the car back, probably sell it for about half of what you owed on it, and sue you for the remainder of what you owe. Bankruptcy prevents this from happening. The creditor can have the collateral back but cannot come after you for any more money.
There are certain unsecured debts that are not discharged by bankruptcy. Some examples follow:
1. Child Support, Alimony, or other debts ordered to be paid through a divorce.
2. Fines and Restitution.
3. Student Loans.
4. Some Tax Debts
5. Debts where someone is suing you from a car accident case that you caused if (1) You were intoxicated or under the influence of drugs and (2) Bodily injuries resulted to the other person. Both of these things must be present. If there was no bodily injury, or you were not intoxicated, you can eliminate these debts.
6. Intentional injury to someone else. This would be where you
assaulted and injured another person.
7. Debts involving fraud. One example might be where you sold significant collateral for a loan and did not pay any of the money to the lien holder. However, in most cases where you simply sold some furniture or household items that a "finance company" was supposed to have a lien on, you will still be able to discharge this debt.
8. Credit Card Abuse. This would involve a case where a credit card company does not object to the whole bankruptcy, but objects to its debt being covered by the bankruptcy based on the fact that you "ran up" the credit card just prior to the bankruptcy. This would have to be fairly significant for it to be a problem. For instance, if you used one particular credit card to get cash advances of more than $3,000 or $4,000 in the last few months before the bankruptcy, there is a good chance that the creditor might threaten to have its debt not included and we may have to work out a settlement with that creditor or allow it to win and not be included in the bankruptcy. Generally, the use of a credit card for less than $1,000 per card within the last couple of months before a bankruptcy does not present a problem.
WHAT DO I HAVE TO GIVE UP?
In return for getting rid of debts, sometimes you have to give up certain things that you own. However, there are what I like to call certain "umbrellas of protection" for things you own. These are actually exemptions provided under the law. A partial list of these exempt items (things you get to keep) follows:
1. The home you are living in on the day of the bankruptcy
as long as it is under 1/2 acre of land if it is inside of any city limits. If it is outside of city limits, it can be up to 160 acres of land.
(There are some tricky situations sometimes, but we'll go over
them with you and make sure your home is not in danger.)
2. Up to $1,000.00 per person in equity toward a vehicle. This means, that if you have a car you own free and clear, and it is worth $1,000.00 or less, you can keep it. It also means that if you have a car that you owe money on and it is not worth much more than what you owe on it, you can still keep that car if you keep paying on it because there is no significant "equity" in it.
3. Up to $1,000.00 per person of miscellaneous property, which usually covers household furnishings and personal effects. (We are only going by "resale" prices, so it's fairly easy to keep you under this limit unless you have a large or expensive house.)
4. All funds in retirement accounts, IRAs, 401-Ks, Annuities, etc.
5. A pending worker's compensation claim you may have.
6. Your wages from your job, social security income, disability income, etc.
Incidentally, you are free to do whatever you like with these items after the bankruptcy. For instance, if you sell your house later, any proceeds are yours; they do not have to go to the court or your old creditors.
These are the main items that most people are concerned with keeping in a bankruptcy. If you are slightly over your limit on some of these items, usually we work out a deal with the bankruptcy trustee so that you make monthly payments for the amount that you are over your limit and you end up keeping all of these items anyway. If you feel you are significantly over the limit on any of these items, we
will discuss it to see if there is a way to protect all of your
assets.
Items you typically have to give up in bankruptcy are as follows:
1. Accounts Receivable - where someone owes you money. This can also include a commission that you were due (if you are a salesperson) on the day of the bankruptcy but had not yet received until after the bankruptcy. It does not include future commissions for sales you make after the date of filing.
2. Personal Injury cases or other claims you have against someone to get money for yourself. The reason you would have to give this up is because it is similar to an account receivable. If the accident occurred before the bankruptcy and you are to receive some money afterwards, then this is something you actually own on the day of the bankruptcy, even though it has not been determined whether you will receive it or how much it will be.
3. Inheritances and Life Insurance, and money received from divorce settlements. This is the one exception to the rule that the court only counts what you own on the day of the bankruptcy. If, within six months after the bankruptcy is filed, you receive, or become entitled to receive, an inheritance, life insurance as a result of the death of someone, or some money from a divorce property settlement, this would belong to the Trustee.
4. Mutual Funds or other investments or money that you have in the bank that are not part of some retirement account.
This list is an example of some of the items that you would have to give up when filing bankruptcy, but it is not complete. Remember that the idea is that you give up everything you own except for your exempt items or the ones that fall under the "umbrellas of protection." If you have a significant amount of items that you would give up, this is something that we probably would have already talked about or you should call to the attention of me or your paralegal.
COMMON MYTHS
1. Some people have heard that the bankruptcy Trustee or creditors get to come in their home and take what they want. This is not true. First, the odds are very low that anyone would ever come to your home. It's true
(but unlikely) that the Trustee can appoint an appraiser to look at and estimate the value of your assets, but the appraiser doesn't take anything. If an appraisal is done, it might show your household belongings to be worth more than the $1,000.00 allowed for a single person, or the $2,000.00 allowed for a married couple. (They don't count things in your home that belong to other family members.) If you are over your limit by $1,200 for example, we would probably negotiate where you would pay the court $100 per month for one year, until the excess $1,200 was paid. This way you keep everything anyway.
2. Some people have heard about a
"new" bankruptcy law passed in 2005 that makes it harder to
qualify, or requires monthly payments on debts. This is
NOT true. The "amendment" to the law is estimated to
only affect less that 5% of people-those with very high incomes.
3. Others have heard that your creditors will "grill" you at
the one short meeting that you need to go to (I'll handle all
court proceedings - this is just a short, informal meeting).
This is not true. In fact, attorney's, trustees, and judges
don't even call it a meeting of creditors. It's called a
"341 meeting" because this is the Code Section that requires
that the meeting be held. It's probably more of a burden
on the trustee than on you or me, but it's required that they
see you in person and check your identification.
SUMMARY
You don't need to punish yourself for being in your position. You probably feel bad enough already without anyone (like harassing creditors) trying to make you feel worse. I take great pride in helping people. My staff and I provide excellent legal representation, while being supportive to our clients. Almost everyone feels better after the Bankruptcy, and has a simpler, happier life, with more financial independence. My goal is to help you financially and emotionally, while treating you with respect.
Sincerely,
Peter C. Blinn.
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