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Why file a bankruptcy?:
- STOP FORECLOSURES
- STOP LAWSUITS
- STOP TAX SALES
- STOP I.R.S. SEIZURES OR GARNISHMENTS
If your creditors are nipping at your heels, harassing you, and threatening to file lawsuits or to attempt to seize and sell your assets (which they can do), you should talk to a bankruptcy lawyer. Filing a bankruptcy will AUTOMATICALLY STOP ALL FURTHER COLLECTION ATTEMPTS AND LAWSUITS. Bankruptcy can protect your assets to a degree that would surprise you. The basic purpose of filing a bankruptcy is to obtain discharge of debt, and to allow you to get a "fresh start"...this is what Congress specifically had in mind when enacting the initial Bankruptcy Act and its subsequent amendments and revisions, now called the Bankruptcy "Code".
You may have heard about more recent changes to the Bankruptcy Code, which took effect in October 2005. Many sources, including creditors' representatives and debt collectors, try to paint these changes as making it impossible to file for bankruptcy, but they do nothing of the sort. The main changes were designed to catch "abusers" of the system, and to steer more people into filing a Chapter 13 re-payment plan as opposed to a Chapter 7 (no repayment) case. In many situations, especially in foreclosure situations, tax sales, IRS seizures, lawsuits, or judgments, Chapter 13 may actually be the better alternative. However, no matter which "chapter" of the Code is appropriate for your situation, bankruptcy relief is still available.
The similarities and differences between Chapter 7 and Chapter 13: In both cases, a Trustee is appointed to review your case and determine whether you have listed all of your assets and liabilities. In both cases, you will have the benefit of choosing either federal or state exemptions, which are explained below. You may or may not "qualify" for a Chapter 7 case if your income exceeds certain gross income figures. In that event, we would recommend that you file a Chapter 13 case, which will still get to the final goal, that is, a discharge, but will require you to pay back a part of your debt. In a Chapter 7 case, you meet with a Trustee and, upon his recommendation, could obtain your discharge within about five months of the filing of the case.
Federal and State exemption law: Federal law provides "exemptions", which means that Congress decided that certain amounts of property (real or personal property) may be retained without regard to your bankruptcy, and that neither your creditors nor your Trustee can get at those assets to satisfy your debts. The Federal exemptions are fairly generous in this regard, for example, allowing each Debtor to exempt, or keep, up to $8,000.0 -plus in household goods. Many other Federal exemptions are equally generous, for example, because of the 2005 amendments, allowing almost unlimited protection of virtually every type or retirement account or IRA.
Recent changes/concerns/updates: This portion of this site will, from time to time, be updated with significant legal updates which affect consumer debtors. For the moment, because various issues created by the 2005 Code revisions are still being litigated, it is too early to tell how the appeals courts will determine these issues; therefore, it is somewhat premature to offer an opinion.
However, it is important to note that, of the many cases filed by my office over the last year under the revisions, in most of the cases, the choice of which chapter to file has not been changed; nor has the fact that bankruptcy relief is still available.
Why a Chapter 13: There are three main reasons for choosing (or perhaps being forced to choose) a Chapter 13:
- Mortgage or car loan defaults: If you are behind in your mortgage, or car payments, you, with our assistance, will create a (Chapter 13) "Plan" to catch up on the past-due amounts. In Chapter 13, you have much more flexibility in dealing with those creditors who have liens or mortgages on your property, because the Bankruptcy Code says what you can and cannot do, not your mortgage company or car lender. Lenders will generally not extend your loans beyond certain very short periods of time, and will make unreasonable demands for "immediate" of lump sums which you cannot possibly afford. A Chapter 13 Plan, created with your input and your counsel's expertise, can spread payments out over a long period of time, and allow you to keep these important assets.
- IRS or other tax obligations: IRS obligations can, in many cases, be totally discharged, if the tax is older than three years. There are complicated rules and exceptions, so you must consult a bankruptcy professional. Many tax "professionals", who advise to try Offers in Compromise, may actually be doing you a disservice, because in so doing, you must automatically extend the period of time within which the IRS can collect the tax. In our substantial experience, such Offers have not generated many beneficial results for the client, and have, in fact, done more harm than good when the client finally gets to our office to file a bankruptcy. Our office does generally not recommend such Offers, except in exceptional circumstances. Even if the tax is not dischargeable, the tax can be paid, without additional interest or penalty, over a three to five year period of time, thus totally and finally retiring the tax obligation. Trust fund taxes (940 and 941 and certain state taxes) can also be paid, over time, without additional interest and penalties, in most cases.
- Your available income and your asset "mix": In many cases, your current income is being "eaten alive" by your continued payment of the "bad debt" among your debts, that is, your credit card payments. Our office did an analysis for a client who had a good paying job, but credit card debt of approximately $40,000.00; the client was paying, just to service the credit card debt, about $1,000.00 per month....our analysis concluded, however, that if the client paid the minimal monthly payments on the credit cards, and never charged another dollar, it would have taken the client another forty years to pay off the debt. The client, at the end of that period of time, would have been 110 years old. That is not a reasonable solution for anyone, so we opted to file a Chapter 13 and pay a substantial amount to the Chapter 13 Trustee on a monthly basis. However, the client now pays about $600.00 per month, instead of the $1,000.00, and will gain the benefit of the discharge, and no further interest, late fees, or over-the-credit-limit fees can be imposed or collected. In addition, the client can now "breath" again on a monthly basis, better able to budget and not worry about which creditor will demand a payment by phone or threaten a bank account.
Therefore, sometimes it just makes economic sense to file a Chapter 13. You must also consider the emotional and psychological toll that the continued stress of living "paycheck-to-paycheck"; financial stresses can be very debilitating and dangerous.
If you have substantial assets which are not capable of exemption, you may still be able to clear other debt by filing a Chapter 13 and paying back your other, unsecured creditors some portion of their claims. Again, this analysis is somewhat complicated, and requires, in our opinion, the assistance of a bankruptcy attorney.
We pride ourselves on staying current with the latest developments in the law. Attorney Kercher is a member of the National Association of Consumer Bankruptcy Attorneys, a nationwide, specialized group of attorneys and experts from across the nation, devoted to efforts to protect ordinary debtors and to prohibit abuses by lenders, credit card companies and collection agencies. A link to the website of NACBA is provided.
Credit card company abuses and "fake" debt relief agencies: Attached to this page are two interesting articles, one dealing with the abuses that credit card companies engage in every day, and of which you may not be aware, and one dealing with alleged debt relief agencies which promise to negotiate your debt downward, many of which have been determined to be frauds in their own right. |
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