Bankruptcy Attorney at Law in Birmingham, AL
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General Overview
The Basics of Bankruptcy
Bankruptcy is a very serious matter. Individuals should give very serious consideration as to whether to file a bankruptcy case. Bankruptcy should be viewed as a “last resort” for protecting property or getting out of debt. I will arrange a consultation to assist you with deciding if bankruptcy is right for you.
The following information is offered as an overview of available options under the U.S. Bankruptcy Code. Individuals experiencing problems due to unpaid debts should consult an attorney for further information. There are two types of Bankruptcy cases that are available to most individuals: Chapter 13 Bankruptcy (also known as “Debtors Court” or “Debt Consolidation”) Chapter 7 Bankruptcy (also known as “Straight Bankruptcy”).
Is it more difficult to file a bankruptcy case after Congress amended the Bankruptcy Code in 2005?
In April 2005, Congress overhauled the bankruptcy laws by implementing the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This revision of bankruptcy laws became effective October 17, 2005. The new bankruptcy laws have an obvious intent to promote personal responsibility for debts. It is now more difficult and expensive to file a bankruptcy case. However, it is my opinion that people who really need to file a bankruptcy case may still do so.
The following are some of the most talked about features of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. There are numerous new provisions that are not covered here.
Before anyone can file a bankruptcy case, they must obtain a certificate of pre-bankruptcy credit counseling. This certificate must be obtained from an approved nonprofit credit counseling agency. A person considering filing a bankruptcy case will receive a briefing on opportunities for available credit counseling and will be assisted in performing an individual budget analysis.
Chapter 7
Also known as a "straight bankruptcy"
A Chapter 7 bankruptcy case is a proceeding under federal law in which a person seeks relief under Chapter 7 of the Bankruptcy Code. A person who files a Chapter 7 case seeks to obtain a “discharge.” A discharge is a court order releasing a person from all of his dischargeable debts. Creditors may not attempt to collect debt that has been discharged. A person is released from and does not have to repay a debt that is discharged. Creditors may not send bills, make collection phone calls, file lawsuits, garnish wages or do anything else to collect debt that has been discharged.
Chapter 7 is designed for individuals with financial difficulty who do not have the ability to pay their existing debt. In a Chapter 7 case, an individual files a petition with the Bankruptcy Court requesting that the Court discharge or get rid of his debts.
Some of the reasons for filing chapter 7 bankruptcy include:
- Individual cannot pay his/her bills as they become due
- Individual has debts that are dischargeable under Chapter 7 case
- Garnishments
Generally speaking, the following types of debts can be discharged, or wiped away, in a Chapter 7 case:
- installment loans
- credit card debt
- other unsecured debt
- medical bills
- deficiency balances due after a foreclosure or repossession
Typically, the following types of debt cannot be discharged in a Chapter 7 case:
- most taxes
- child support
- alimony
- student loans
- court ordered fines and restitution
- debts obtained through fraud or deception
Creditors cannot ask you to repay debts which have been discharged.
Under certain circumstances you may keep property that you have purchased subject to a valid security interest such as a house, car, furniture, etc. An attorney can explain the options that are available.
Payment of Attorney fees and court costs can be arranged with the attorney.
Chapter 7 stays on an individual’s credit record for ten (10) years. An attorney will answer further questions about reestablishing your credit.
Yes. A person is not permitted to file a Chapter 7 case unless the person has obtained a Credit Counseling Certificate from an approved nonprofit budget and credit counseling agency that outlines the opportunities for available credit counseling and assists the person in performing a budget analysis. This briefing may be conducted by telephone or on the internet. When the Chapter 7 case is filed, a certificate from the agency must be filed with the court.
The filing fee is $338.00 for either a single or a joint (husband and wife) case. The filing fee is payable when the case is filed.
Yes. A husband and wife may file a joint case under Chapter 7.
A husband and wife should file a joint Chapter 7 case if both of them are liable for one or more significant dischargeable debts. If both spouses are liable for a substantial debt and only one spouse files under Chapter 7, the creditor may later attempt to collect the debt from the nonfiling spouse, even if he or she has no income or assets.
The filing of a Chapter 7 case automatically suspends virtually all collection and other legal proceedings pending against a person. A few days after a Chapter 7 case is filed, the Court will mail a notice to all creditors ordering them to refrain from any further actions against the person. This courtordered suspension of creditor activity is called the automatic stay. Any creditor who intentionally violates the automatic stay may be held in contempt of court and may be liable in damages to the person filing a bankruptcy case. Criminal proceedings and actions to collect domestic support obligations are not affected by the automatic stay. The automatic stay does not protect cosigners and guarantors of the person filing, and a creditor may continue to collect debts from cosigners and guarantors after the case is filed.
It will usually make a person’s credit rating worse. The fact that a person has filed a Chapter 7 case can appear on his credit report as long as ten (10) years. However, there are some financial institutions who openly solicit business from a person who have recently received a Chapter 7 discharge, apparently because it will be at least eight (8) years before the person can file another Chapter 7 case. If there are compelling reasons for filing a Chapter 7 case that are not within the person’s control (such as an illness or an injury), some credit rating agencies may take that into account in rating the person’s credit after filing.
When a Chapter 7 case is filed, it becomes a public record and the names of the persons filing may be published by credit reporting agencies. However, newspapers do not usually report or publish the names of consumers (individuals) who file Chapter 7 cases.
Employers are not usually notified when a Chapter 7 case is filed. However, the trustee in a Chapter 7 case may contact an employer seeking information as to the status of the person’s wages or salary at the time the case was filed or to verify a person’s current monthly income. If there are compelling reasons for not informing an employer in a particular case, the trustee should be so informed and he or she may be willing to make other arrangements to obtain the necessary information.
No. Filing a Chapter 7 case is not a criminal proceeding, and a person does not lose any civil or constitutional rights by filing.
No. It is illegal for either private or governmental employers to discriminate against a person as to employment because that person has filed a Chapter 7 case. It is also illegal for local, state, or federal governmental agencies to discriminate against a person as to the granting of licenses (including a driver’s license), permits, student loans, and similar grants because that person has filed a Chapter 7 case.
When a Chapter 7 discharge is granted, the court enters an order prohibiting creditors from later attempting to collect any discharged debt from the person filing. Any creditor who violates this court order may be held in contempt of court and may be liable to the person for damages. If a creditor later attempts to collect a discharged debt from the person, the person should give the creditor a copy of his Chapter 7 discharge and inform the creditor in writing that the debt was discharged in the Chapter 7 case. If the creditor persists, the person should contact an attorney. If a creditor files a lawsuit on a discharged debt, it is important to inform the court in which the lawsuit is filed that the debt was discharged in bankruptcy. The lawsuit should not be ignored because even though a judgment entered on a discharged debt can later be voided, voiding the judgment may require the services of an attorney, which could be costly.
The Chapter 7 discharge releases only the person or persons who filed the Chapter 7 case. The liability of any other party on a debt is not affected by a Chapter 7 discharge. Therefore, a person who has cosigned or guaranteed a debt for the person filing is still liable for the debt.
A person can only file a Chapter 7 case once every eight (8) years.
The attorney for the person filing performs the following functions in a typical Chapter 7 consumer case:
- Analyze the amount and nature of the debts owed by the person filing and determine the best remedy for the person’s financial problems.
- Advise the person filing of the relief available under Chapter 7 and other chapters of the Bankruptcy Code, and the advisability of proceeding under each chapter.
- Assist the person in obtaining the required prebankruptcy budget and credit counseling briefing.
- Assemble the information and data necessary to prepare the Chapter 7 forms for filing.
- Prepare the petition, schedules, statements and other Chapter 7 forms for filing with the bankruptcy court.
- Filing the Chapter 7 petition, schedules, statements and other forms with the bankruptcy court, and if necessary, notify certain creditors of the commencement of the case.
- If necessary, assist the person filing in reaffirming certain debts, redeeming personal property, setting aside mortgages or liens against exempt property, and otherwise carrying out the matters set forth in the statement of intention.
- Attending the meeting of creditors with the person and appearing with the person at any other hearings that may be held in the case.
- Assist the person filing in attending and completing the required instructional course on personal financial management
- If necessary, prepare and file amended schedules, statements, and other documents with the bankruptcy court in order to protect the rights of the person.
- If necessary, assisting the person in overcoming obstacles that may arise to the granting of a Chapter 7 discharge.
Chapter 13
Also known as "debtor's court" or "debt consolidation"
A Chapter 13 bankruptcy case (also known as “Debtor’s Court”) is similar to a debt consolidation plan where a person may repay all or a portion of his debts. Payments are made to a Chapter 13 Trustee who collects the money and disburses it to creditors.
The filing of a Chapter 13 case automatically stops all lawsuits, attachments, garnishments, foreclosures, and other actions by creditors against a person or a person’s property. A few days after the case is filed, the court will mail a notice to all creditors advising them of the filing of the Chapter 13 case. Certain creditors may be notified sooner, if necessary. Most creditors are prohibited from proceeding against the person during the entire course of the Chapter 13 case. If the person is later granted a Chapter 13 discharge, the creditors will then be prohibited from collecting the discharged debts from the debtor.
The basic difference between a Chapter 7 case and a Chapter 13 case is that in a Chapter 7 case, the person filing the case seeks to get rid of debt, while in Chapter 13 case, the person proposes to make arrangements to pay as much debt that is feasible under the person’s circumstances.
Chapter 13 is usually preferable for a person who:
- wishes to repay all or most of his debts and has the income with which to do so within a reasonable time;
- has valuable property which may be lost in a Chapter 7 Case;
- is not eligible under means testing or other reasons to receive a discharge in a Chapter 7 Case; or
- has debt that cannot be discharged in a Chapter 7 case such as child support, taxes, student loans, etc.
In a Chapter 13 case, the bankruptcy court can provide relief to the debtor that a private debt consolidation service cannot provide. For example, the court has the authority to prohibit creditors from garnishing wages, attaching property or foreclosing on a person’s property. Private debt consolidation services have none of these powers.
It is a court order releasing a person from all of his dischargeable debts and ordering creditors not to collect them from the debtor. A debt that is discharged is one that the person is released from and does not have to pay. There are two (2) types of Chapter 13 discharges: (1) a full discharge which is granted to a debtor who completes all payments called for in the plan, and (2) a partial discharge which is granted to a debtor who is unable to complete payments called for in the plan due to circumstances for which the debtor should not be held accountable.
A Chapter 13 plan is a debt repayment plan which is presented to the bankruptcy court by a person that states how much money or property the person will pay to the Chapter 13 trustee, how long the person’s payments to the Chapter 13 trustee will continue, how much will be paid to each of the creditors, and certain other matters.
A Chapter 13 trustee is the person who collects payments from the debtor, makes payments to creditors in the manner set forth in the debtor’s plan and who administers the Chapter 13 case until it is closed.
Any debts whatsoever, whether they are secured or unsecured. Even debts that are nondischargeable, such as debts for students loans or child support may be paid under a Chapter 13 Plan.
No. While priority debts, such as debts for domestic support obligations and taxes, and fully secured debts must be paid in full under a Chapter 13 plan, only an amount that the debtor can reasonably afford must be paid on most debts. The unpaid balances of most debts that are not paid in full under a Chapter 13 plan are discharged upon the completion or termination of the plan.
The debtor must begin making payments to the Chapter 13 trustee within 30 days after the Chapter 13 case is filed with the court.The payments must be made regularly, usually on a weekly, biweekly, or monthly basis. If the debtor is employed, some courts require that the payments be made directly to the Chapter 13 trustee by the debtor’s employer by withholding the payments from a debtor’s wages.
The required length of a Chapter 13 plan depends on the debtor’s income. If the debtor’s annual income is less that the median family income for the debtor’s state and family size, the length of the plan must be three (3) years, unless the debtor can justify a longer period, which may not exceed five (5) years. If the debtor’s annual income exceeds the median family income, the length of the plan must be five (5) years unless all unsecured claims can be paid off in a shorter period.
No. A Chapter 13 plan must be approved by the court, not by the creditors.
A cosigned or guaranteed debt is a debt that has been cosigned or guaranteed by another person. If a cosigned or guaranteed consumer debt is being paid in full under a Chapter 13 plan, the creditor may not collect the debt from the cosigner or guarantor. However, if a consumer debt is not being paid in full under the plan, the creditor may collect the unpaid portion of the debt from the cosigner or guarantor. A consumer debt is a nonbusiness debt. Creditors may collect business debts from cosigners or guarantors even if the debts are to be paid in full under the debtor’s plan.
An individual (i.e., natural person) is eligible to file a Chapter 13 case if he (1) resides in, does business in, or owns property in the United States, (2) has regular income, (3) has unsecured debts of less than $383,175 (4) has secured debts of less than $1,149,525 (5) is not a stockbroker or a commodity broker, (6) has not intentionally dismissed another bankruptcy case within the last 180 days, and (7) has received a briefing from an approved credit counseling agency within the last 180 days (unless this requirement is not in effect in the local bankruptcy court.) Corporations, partnerships, limited liability companies, and other business entities are not eligible to file a Chapter 13 case. (The eligibility dollar amounts are subject to change.)
A husband and wife may file a joint Chapter 13 case even if only one of them has regular income.
If both spouses are liable for any significant debts, they should file a joint Chapter 13 case, even if only one of them has income.
It may make a person’s credit rating worse. The fact that a person has filed a Chapter 13 case can appear on his credit report for as long as seven (7) years. However, if most of a person’s debts are ultimately paid off under a Chapter 13 plan, that fact may be taken into account by credit reporting agencies.
When a Chapter 13 case is filed, it becomes a public record and the name of the person may be published by some credit reporting agencies. However, newspapers do not usually publish the names of individuals who file Chapter 13 cases.
In most cases, yes. Many courts require a debtor’s employer to make payments to the Chapter 13 Trustee on the debtor’s behalf. Also, the Chapter 13 trustee may contact an employer to verify the debtor’s income. However, if there are compelling reasons for not informing an employer in a particular case, it may be possible to make other arrangements for the required information and payment.
No. A Chapter 13 case is a civil proceeding and not a criminal proceeding. Therefore, a person does not lose any legal or constitutional rights by filing a Chapter 13 Case.
No. It is illegal for either private or governmental employers to discriminate against a person as to employment because that person has filed a Chapter 13 case. It is also illegal for local, state or federal governmental agencies to discriminate against a person as to the granting of licenses, permits, student loans, or similar grants because that person has filed a Chapter 13 case.
Most debtors have to appear in court at least twice: once for a hearing called the meeting of creditors, and once for a hearing on the confirmation or approval of the Chapter 13 plan. The meeting of creditors is usually held about a month after the case is filed. The confirmation hearing is usually held about two months after the case is filed. If difficulties or unusual circumstances arise during the course of a case, additional court appearances may be necessary.
If the court will not approve the plan initially proposed by a debtor, the debtor may modify the plan and seek court approval of the modified plan. If the court does not approve a plan, it will usually give its reasons for refusing to do so, and the plan may then be appropriately modified so as to become acceptable to the court. A debtor who does not wish to modify a proposed plan may either convert the case to a Chapter 7 case or dismiss the case.
If a person is temporarily out of work, injured, or otherwise unable to make the payments required under a Chapter 13 plan, the plan can usually be modified so as to enable the person to resume the payments when he is able to do so. If it appears that the person’s inability to make the required payments will continue indefinitely or for an extended period, the case may be dismissed or converted to a Chapter 7 case.
Only two types of credit obligations or debts incurred after the filing of the case may be included in a Chapter 13 plan. These are (1) debts for taxes that become payable while the case is pending, and (2) consumer debts arising after the filing of the case that are for property or services necessary for the debtor’s performance under the plan. All other debts or credit obligations incurred after the case is filed must be approved by the court (for example, a person would need to obtain approval from the court before incurring debt to purchase a home or an automobile while the case is pending.)
A person has the right to either dismiss a Chapter 13 case or convert it to a Chapter 7 case for any reason. However, if the debtor simply stops making the required Chapter 13 payments, the court may compel the debtor or the debtor’s employer to make the payments and to comply with the orders of the court. Therefore, a debtor who wishes to discontinue a Chapter 13 case should do so through his attorney.
A person who is unable to complete the Chapter 13 payments has three options:
- dismiss the Chapter 13 case,
- convert the Chapter 13 case to a Chapter 7 case, or
- if the debtor is unable to complete the payments due to circumstances for which he or she should not be held accountable, close the case and obtain a partial Chapter 13 discharge.
The debtor’s attorney has the following roles in a Chapter 13 case:
- Examining the person’s financial situation and determining whether a Chapter 13 case is a feasible alternative for the debtor, and if so, whether a single or a joint case should be filed.
- Assist the person in obtaining the required prebankruptcy briefing on budget and credit counseling.
- Assist the person in preparation of a budget.
- Examining the liens or security interests of secured creditors to ascertain their validity or avoidability and taking the legal steps necessary to protect the debtor’s interest in such matters.
- Devising and implementing methods of dealing with secured creditors.
- Assisting the person in devising a Chapter 13 plan that meets the needs of the debtor and is acceptable to the court
- Preparing the necessary pleadings and Chapter 13 forms.
- Filing the Chapter 13 forms and pleadings with the court.
- Attending the meeting of creditors, the confirmation hearing, and any other court hearings required in the case.
- Assisting the debtor in obtaining court approval of the Chapter 13 plan.
- Checking the claims filed in the case, filing objections to improper claims, and attending court hearings thereon
- Assisting the person in overcoming any legal obstacles that may arise during the course of the case.
- Assisting the debtor in attending and completing the required instructional course on personal financial management
- Assisting the debtor in obtaining a discharge upon the completion or termination of the plan.