Bankruptcy

PURPOSES, BENEFITS AND COSTS OF BANKRUPTCY

The United States constitution provides a method whereby individuals burdened by excessive debt, can obtain a "fresh start" by filing a bankruptcy and pursue productive lives unimpaired by past financial problems. It is an important alternative for persons strapped with more debt and stress than they can handle.

The Federal Bankruptcy Laws were enacted to provide good, honest, hard-working debtors with a fresh start and to establish a ranking and equity among all the creditors clamoring for the debtor's limited resources.

Bankruptcy helps people avoid the kind of permanent discouragement that can prevent them from ever re-establishing themselves as hard-working members of society.

To the extent that there may be money or property available for distribution to creditors, creditors are ranked to make sure that money or property is fairly distributed according to established rules.

This discussion is intended only as a brief overview of the types of bankruptcy filings and of what a bankruptcy filing can and can not do. No one should base their decision as to whether or not to file bankruptcy solely on this information. Bankruptcy law is complex, and there are many considerations that must be taken into account in making the determination whether or not to file. Anyone considering bankruptcy is encouraged to seek the advice and assistance of our experienced attorney who has been practicing Bankruptcy Law for twenty (20) years.

TYPES OF BANKRUPTCY

The Bankruptcy Code is divided into chapters. The chapters which almost always apply to consumer debtors are Chapter 7, known as a "straight bankruptcy", and Chapter 13, which involves an affordable plan of re-payment.

An important feature applicable to all types of bankruptcy filings is the "automatic stay". The automatic stay means that the mere request for bankruptcy protection automatically stops and brings to a grinding halt most lawsuits, repossessions, foreclosures, evictions, garnishments, utility shut-offs, and debt collection harassment. It offers debtors a breathing spell by giving the debtor and trustee assigned to the case time to review the situation and develop an appropriate plan. In most circumstances, creditors can not take any further action against the debtor or their property without permission from the Bankruptcy Court.

CHAPTER 7

In a Chapter 7 case, the Bankruptcy Court appoints a Trustee to examine the debtor's assets to determine if there are any assets not protected by available "exemptions". Exemptions are laws that allow a debtor to keep, and not part with, certain types and amounts of property. For example, exemption laws allow a debtor to protect a certain amount of equity in the debtor's residence, motor vehicle, household goods, life insurance, health aids, retirement plans, specific future earnings such as social security benefits, child support and alimony, and certain other types of personal property. If there is any non-exempt property, it is the Trustee's job to sell it and distribute the proceeds among the unsecured creditors. Although a liquidation case can rarely help with secured debt (the secured creditor still has the right to repossess the collateral if the debtor falls behind in the monthly payments), the debtor will be discharged from the legal obligation to pay unsecured debts such as credit card debt, medical bills and utility arrearages. However, certain types of unsecured debt are allowed special treatment and can not be discharged. These include most student loans, alimony, child support, criminal fines and most taxes.

REQUIREMENTS FOR CHAPTER 7

You must list all of your debts, (including claims against you which you dispute, personal loans, etc.), assets and other information in the Petition.

About three (3) to four (4) weeks after the Petition is filed, a Hearing, (known as a 341 Creditors' Meeting) is held in Wilmington to give your creditors an opportunity to question you and to determine if the Petition is in order. A Trustee is assigned to your case, and he/she will ask whether you are familiar with the Petition, whether you have listed all your debts and assets, and how you got into financial trouble.

Your assets which are not exempt will be required to be turned into the Court to be divided among all your creditors.

About two (2) to three (3) months after the Creditors' Meeting, you will receive a Final Discharge of all dischargeable listed debts.

Even if a debt can be discharged, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan with the bank to keep your car, to promise to pay that debt, you must sign and file a Reaffirmation Agreement with the Court. Reaffirmation Agreements are under special rules and are voluntary. They are not required by Bankruptcy Law or by any other Law.

They must be:

Voluntary and must not place too heavy of a burden on you and your family and must be in your best interest.

Can be cancelled anytime before the Court issues your Discharge or within sixty (60) days after the Agreement is filed with the Court, whichever gives you the most time.

If you reaffirm a debt and then fail to pay, you owe the debt the same as though there was not a Bankruptcy filed. The debt will not be discharged and the creditor can take action to recover any property on which it has a lien or mortgage. The creditor can also take legal action to receive a Judgment against you.

DISADVANTAGES TO CHAPTER 7

If you receive a Discharge in a Chapter 7, you can not file again for eight (8) years. This means if any medical, hospital, or other bills arise in the next few years, you can not file Bankruptcy to free yourself from them until eight (8) years have passed.

You may find it difficult to become bonded after you file a Bankruptcy.

Even if you file a Bankruptcy, co-signers on your debts are still held liable.

Once you file a Petition with the Court, you can not voluntarily dismiss your case. A Motion to Dismiss has to be filed and the Trustee and Creditors have an opportunity to object.

If you have paid any monies to creditors within ninety (90) days from the filing of the Petition for Bankruptcy or any payment to family members within one (1) year, the Court may request this payment back so that it can be evenly disbursed to your other creditors.

CHAPTER 13

In a Chapter 13 Bankruptcy Case, the debtor puts forward a plan, following the rules set forth in the Bankruptcy Laws, to repay certain creditors over a period of time, usually from future income. A Chapter 13 Bankruptcy Case may be advantageous in that the debtor is allowed to get caught up on a mortgage or car loans without the threat of foreclosure or repossession, and is allowed to keep exempt and non-exempt property. The Debtor's Plan is a document outlining to the Bankruptcy Court how the debtor proposes to dispose of the claims of the debtor's creditors. The debtor's property is protected from seizure from creditors, including mortgage and other lien holders, as long as the proposed payments are made and necessary insurance coverage's remain in place. The plan generally requires monthly payments to the Bankruptcy Trustee over a period of three (3) to five (5) years. If you are employed, arrangements will be made to have these payments made automatically through payroll deductions after the confirmation of your Chapter 13 Bankruptcy Plan.

REQUIREMENTS FOR CHAPTER 13

You must list all your debts, (including claims against you which you dispute, personal loans, etc.), assets and other information in the Bankruptcy Petition.

About three (3) to four (4) weeks after the Bankruptcy Petition is filed, a Hearing, (known as the 341 Creditor's Meeting), is held in Wilmington to give your creditors an opportunity to question you and to determine if the Bankruptcy Petition is in order. A Trustee is assigned to your case, and he / she will ask whether you are familiar with the Bankruptcy Petition, whether you have listed all your debts and assets, and how you got into financial trouble.

About three (3) weeks after the Creditor's Meeting, a Hearing will be held to confirm your plan. If the plan meets the Court's approval, you will pay the Trustee a sum of money every month. This money will, in turn, be distributed to your creditors.

If you have real property, you must continue to make your regular monthly mortgage payments directly to your mortgage company.

WHAT BANKRUPTCY CAN AND CAN NOT DO

Bankruptcy may make it possible for financially distressed individuals to:

Discharge liabilities for most or all of their debts and get a fresh start. When the debt is discharged, the debtor has no further legal obligation to pay the debt.

Stop foreclosure actions on their home and allow them an opportunity to catch up on the missed payments.

Prevent repossession of a car or other property, or force creditors to return property even after it has been repossessed.

Stop the wage garnishment and other debt collection harassment, and give the individual some breathing room.

Restore or prevent termination of certain types of utility services.

Allow debtors and opportunity to challenge the claim of certain creditors who have committed fraud or who are otherwise seeking to collect more that they are legally entitled to.

Bankruptcy however, can not cure every financial problem. It is usually not possible to:

Eliminate certain rights of secured creditors. Although a debtor can force secured creditors to take payments over time in the Bankruptcy process, a debtor can not keep the collateral unless the debtor continues to pay the debt.

Discharge types of debts singled out by the Federal Bankruptcy Statutes for special treatment, such as child support, alimony, student loans, certain Court Ordered payments, criminal fines and some taxes.

Protect all co-signers on their debts. If a relative or friend co-sign a loan which the debtor discharges in the Bankruptcy Petition, the co-signer may still be obligated to re-pay what ever part of the loan not paid during the pendency of the Bankruptcy Case.

Discharge debts that are incurred after the Bankruptcy Petition is filed.

BANKRUPTCY'S EFFECT ON YOUR CREDIT

By Federal Law, a Bankruptcy can remain part of the debtor's credit history for ten (10) years. Whether or not the debtor will be granted credit in the future is unpredictable, and probably depends, to a certain extent, on what good things the debtor does in the nature of keeping a job, saving money, making timely payments on secured debts, etc.

COLLECTION ATTEMPTS AFTER FILING FOR BANKRUPTCY

The creditor MUST stop calling or harassing you IMMEDIATELY after you file your Bankruptcy Petition with the Court. ALL wage attachments must IMMEDIATELY stop. However, they may not receive notice for approximately three (3) weeks. You will receive a letter from my office immediately after you file the Bankruptcy Petition which will state your case number, Chapter number, whether you file a Chapter 7 or a Chapter 13, and the date of filing. If the creditors should call during this period, please just give them this information.

Bankruptcy problems require great representation. Contact a bankruptcy attorney at the Wilmington office of Poole, Mensinger, Cutrona & Ellsworth-Aults, LLP for your needs. Call Poole, Mensinger, Cutrona & Ellsworth-Aults, LLP at 302-358-2679 or write to us using this convenience online form.