GENERAL INFORMATION ABOUT BANKRUPTCY
Call Cooper Law Firm at 501-776-4009 for a free appointment to discuss your situation.
I. THERE ARE TWO TYPES OF CONSUMER BANKRUPTCY
A) Chapter 7 - Straight Bankruptcy/liquidation
Chapter 7 is for persons whose income is below the median income for the area and owe more unsecured debts than they can afford to repay.
B) Chapter 13 - Reorganization or "Wage Earner" pay out plan
Chapter 13 is for persons who earn a regular wage, for small business owners, and for individuals who have a regular source of income and can afford to repay at least part of their unsecured debts.
Why we do NOT recommend Chapter 13.
Chapter 13 plans are for from 3 to 5 years in length. The budget for living expences can be very difficult to stick to for that period of time. As a result, only about 25% of Chapter 13 plans actually payout. Chapter 13 Debtors are often surprised that they must go to Court many times during their case and frequently have to raise their monthly plan payments. Because of this, we recommend Chapter 13 as a last resortt. Only if you are several months behind on your car note or house note and cannot bring the note current prior to filing, or otherwise do not qualify for Chapter 7, do we recommend Chapter 13.
II. SECURED DEBT vs. UNSECURED DEBT:
A. Secured debt is a debt where the Creditor can take back (repossess or foreclose) an item in satisfaction of the debt. In other words, a mortgage company can foreclose on your house; a bank or finance company can repossess your car; a furniture company can take back your furniture. Where the Creditor extends to you the credit to buy the consumer good, that is a secured debt.
B. An unsecured debt is a debt where a creditor cannot repossess an item or foreclose on any property to collect the debt if you fail to make payments. Examples of this type of debt are: Credit cards, such as Master Card, VISA, department store and gas cards; Signature Loans; and medical bills.
III. CHAPTER 7:
Chapter 7 is a straight bankruptcy. It is liquidation. A liquidation is where the trustee appointed to your case collects all of your assets and sells any assets which are not exempt, for the benefit of your unsecured creditors. Your debts are wiped out and you get a "Fresh Start".
In a Chapter 7, after the Bankruptcy Court enters an Order of Discharge, you do not have to repay any of the debts that were included in your Chapter 7 case. Your debts are "discharged". All of your secured assets go back to the creditor (unless you wish to continue to make the payments and retain the asset). You do not owe any of your unsecured debts after the discharge. Certain unsecured debts cannot be discharged, such as alimony, child support, certain taxes, or student loans.
You must list all of your assets and all of your debts. We must also obtain your CREDIT REPORT to insure that we list all of your creditors in your bankruptcy. You are required by law to obtain the correct address of each CREDITOR (not collection agency) and certify their correctness and accuracy, or that debt may not be discharged.
You may keep certain assets such as your house, your car or your furniture, by agreeing in writing to continue to be responsible for payment on those debts. This is called reaffirming a debt. To do this, you must sign a voluntary "Reaffirmation Agreement" with that secured creditor. You will still owe that debt and you must continue to pay it even after your discharge in bankruptcy. In order to reaffirm the debt, it must be current. In other words, if you are three or four months behind, then you must pay the back payments which are due in order to reaffirm it and retain the asset.
The 2005 changes to the bankruptcy laws attempt to limit persons from filing Chapter 7 if their income is too large. It is assumed that they can pay some of the debt in a Chapter 13 if their income is above the median income for the area. You will need to complete a worksheet disclosing all assets, all debts and all living expenses in order to determine if you qualify for Chapter 7.
Chapter 7 discharge can be denied by the Court under certain circumstances such as concealing property, destroying or falsifying records, or fraud. These actions may also be bankruptcy fraud and may be prosecuted by the US Attorney.
Real Estate can be sold by the trustee in a Chapter 7 if there is significant equity in the property. In other words if you owe much less than what the property is worth the trustee can sell it, pay off the loan and disburse the remaining proceeds to your unsecured creditors. Consult your attorney immediately if you have significantly paid down your house note.
Proceeds from a personal injury lawsuits must be paid to the trustee in a Chapter 7 if the net proceeds exceed the amount of your allowed exemption. Consult with your attorney if you have, or have ever had, a personal injury claim.
You must ATTEND A CREDIT COUNCELING COURSE BEFORE you file your petition. This can be done on the internet, which we recommend, or over the telephone. You must obtain a certificate of completion and provide it to us.
IV. CHAPTER 13 (Reorganization) Bankruptcy:
We do not recommend filing Chapter 13 unless there are absolutely no alternatives available to you. A Chapter 13 bankruptcy is a reorganization of the terms of repayment of your debts. Instead of having to pay all of your creditors immediately, you can repay them over a period of between 3 and 5 years. However, there are major limitations on what you can do with your finances over the course of those years. Your funds will continue to be under supervision of the Court and the Chapter 13 Trustee.
In the Chapter 13 plan you pay the Chapter 13 Trustee your plan payment each month and they then disburse the money to your creditors for you. Secured creditors will normally receive 100 cents on the dollar plus interest. Unsecured creditors also get 100 cents on the dollar, unless you can show that because of the amount of your income and your living expenses you cannot afford to pay 100 cents on the dollar. In that case the unsecured creditors may get less than their entire debt, maybe 70..50.. or even 10 cents on the dollar. Of course, there is an automatic stay injunction put into effect when you file your bankruptcy case which prevents any creditor from suing you, from issuing any garnishment against you, repossessing your car, foreclosing on your house, or doing any other act to collect a debt which is included in your Chapter 13 repayment plan, including harassing with phone calls.
V. STUDENT LOANS:
Student loans are not dischargeable EXCEPT in cases of severe hardship, which are rarely found by the Bankruptcy Court. A debtor must file a separate complaint to determine dischargeability. This is not a part of a simple Bankruptcy filing. Additional attorney fees may be incurred to attempt to discharge a student loan debt. In most cases, debtors do not qualify to have their student loans discharged.
VI. TAXES:
Generally, back taxes cannot be discharged.
However, under certain limited circumstances, income tax debts can be discharged in bankruptcy if they are more than three calendar years old, all tax returns have been timely filed, and the tax has not been assessed within the 9 months before the filing of the bankruptcy petition. Liens placed by the IRS may also prevent discharge. You should consult with your bankruptcy attorney if you have tax debts. A complaint to determine the dischargeability may need to be filed. This is not a part of the simple Bankruptcy filing. Additional Attorney fees may be incurred.
Obviously, tax debts can be paid out during a Chapter 13 plan and the taxing authorities are also prevented from enforcing any liens or other collection procedures during the bankruptcy.
VII. MISCELLANEOUS:
A Bankruptcy will stay on your credit record from the time of filing until the credit reporting agency's roll over period. This is usually eight years, and can be as much as 10 years. However, reestablishing good credit after a bankruptcy can be done in as little as two to three years.
XIIV. COURT APPEARANCE
When you appear in Court, always dress conservatively and maturely. Court is not a place for show. Do not dress fancy or flamboyant. Keep jewelry to a minimum. Do NOT wear furs. Do NOT wear expensive jewelry. Do NOT wear: shorts, tank tops, sandals, sleeveless shirts, or T-shirts.
