Making Your First Chapter 13 Payment

In a Chapter 13 bankruptcy case the debtor proposes a plan to pay back creditors.  That plan is composed of monthly payments to satisfy all or part of the creditors’ claims over three to five years.  Monthly payments are made to the Chapter 13 Trustee, who then pays your creditors. 

There is often confusion over when the first plan payment due. Section 1326 of the Bankruptcy Code directs that the first payment must be made within 30 days after filing the bankruptcy case, even if the debtor’s bankruptcy plan has not yet been approved by the court.  Often the first meeting with the Trustee (also known as the “341 meeting” or “meeting of creditors”) is scheduled more than 30 days after the filing date, so the Trustee expects your first payment before that meeting.  The Trustee will hold all payments until the plan is approved by the Bankruptcy Court (called “confirmation”), and then make distributions to creditors. 

It is critical that you make this initial payment within thirty days after filing.  It is especially important to monitor the status of this first payment when you have instructed your employer to pay the Trustee from your wages.  It is your responsibility to ensure that this first payment is made, and neither the Trustee nor the Bankruptcy Court gives much latitude to a debtor who misses the first deadline in the case.

Making a timely first Chapter 13 payment allows your plan to proceed to confirmation and will expedite the bankruptcy process.  Failure to commence making payments can result in delays, additional expenses, or even dismissal.  Consult with your bankruptcy attorney regarding payment details, and make that first payment on-time!

How Bankruptcy Can Stop A Wage Garnishment

Garnishing a debtor’s wages is one of the most common and effective means a creditor has to get paid.  A garnishment is a typically a court order (in some rare cases a garnishment can come from another source), and directs the debtor’s employer to withhold a certain amount or percentage from the employee’s pay.  This amount may be limited by state or federal laws, depending on the type of debt and the income source, and the debtor may be able to assert certain “exemptions” that restricts the amount of the garnishment each pay period.  The garnishment usually comes unannounced and is delivered just before the debtor’s payday, to ensure that the creditor receives the maximum amount from the garnishment. 

Certain income sources receive increased protection from garnishment like Social Security, retirement plan benefits, public assistance, workers’ compensation, and unemployment or disability benefits.  However, certain debts like child support can collect from most of these income sources. 

When a garnishment is taking more than you can afford to pay, it may be time to consider filing bankruptcy.  The federal bankruptcy laws will stop debt collection including garnishments.  The moment the bankruptcy case is filed a temporary injunction known as the “automatic stay” stops all creditor actions immediately and automatically – even if the creditor has no knowledge of the bankruptcy filing!  This stay continues throughout your bankruptcy case unless terminated or modified by the bankruptcy court.  For most garnishments, the debt will be discharged at the end of the bankruptcy case and the creditor can no longer collect from you. 

Once you have filed your bankruptcy and the garnishment has stopped, it may be possible to have wages that were withheld from your check returned to you, provided your employer has not already sent the funds on to the court or to the creditor.  Ask your attorney whether you can have funds returned once you file your case. 

If you have a wage garnishment, consider your options by consulting with an experienced bankruptcy attorney.  Your attorney can explain how the federal bankruptcy laws can stop your wage garnishment and put your wages back into your pocket.

The Medical Bankruptcy Myth

Each year many Americans find themselves facing bankruptcy through no fault of their own.  The American Journal of Medicine reported in 2009 that medical bills contributed to more that 60 percent of U.S. personal bankruptcies.  A catastrophic medical condition can wipe out savings, assets, and even cause loss of income. 

The study conducted by researchers from Harvard Law School, Harvard Medical School and Ohio University found that more than 75 percent of these bankrupt filers had some form of health insurance, two-thirds were homeowners, and three-fifths had gone to college.  Many of the debtors were average middle-class families who saw their lives tossed upside-down after a serious illness. 

“Our findings are frightening. Unless you’re Warren Buffett, your family is just one serious illness away from bankruptcy,” said lead author Dr. David Himmelstein, an associate professor of medicine at Harvard Medical School. 

While medical expenses can lead to bankruptcy, the federal law requires the debtor to include all debts in a bankruptcy case, including auto loans, mortgages, and credit cards.  A “medical bankruptcy,” when the debtor only discharges medical debt, is a myth.  The bankruptcy laws do not allow the debtor to pick and choose which debts are included and which are excluded.  Debts are treated fairly and equally in bankruptcy, and the debt classes are structured to avoid preferential treatment of one creditor over another within the same class. 

For example, a hospital and a credit card company are generally classified as unsecured creditors and will receive the same treatment during the bankruptcy.  If there are no assets available to pay these debts, both debts are discharged at the end of the case.  However, while a debt may be discharged and no longer legally enforceable, the debtor may always voluntarily repay the creditor. 

If your family is faced with high medical expenses, consult with an experienced bankruptcy attorney and discover your options.  The federal bankruptcy laws can discharge your medical bills and provide a fresh start on a better financial future.

Don’t Be On Your Own During Bankruptcy

A person who files a bankruptcy case without an attorney is called a pro se debtor.  “Pro se” is Latin meaning “for oneself;” in other words, you are on your own.  Being on your own during your bankruptcy may save a few upfront dollars, but can cost you plenty in the long run.  There are many negative consequences that are often unexpected and sometimes disastrous. 

The savings pro se debtors receive is minimal and the risk is great.  Attorney fees during bankruptcy are supervised by the United States Bankruptcy Court.  The federal bankruptcy law allows an attorney to collect reasonable compensation for services rendered during a bankruptcy case.  Consequently, bankruptcy attorneys charge similar fees in order to stay competitive, and attorneys must disclose their fee to the bankruptcy court.  

When you are represented by an experienced bankruptcy attorney you receive several benefits.  Your attorney brings years of experience and knowledge in areas including the Federal Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, the bankruptcy court’s local rules, federal bankruptcy case law, and state and federal exemption and collection laws.  Your attorney is also familiar with the bankruptcy judge, the bankruptcy trustee, and local creditor practices. 

When you are represented, you will have counsel at the Meeting of Creditors with the bankruptcy trustee.  The trustee assumes that a pro se debtor has made errors in the bankruptcy, and will grill the pro se debtor and scrutinize the bankruptcy case.  When you are represented, your attorney helps you answer any trustee questions, and can file motions and responses via the court’s electronic filing system.  When you are on your own you must mail or personally file documents with the court and must appear before the bankruptcy judge to reaffirm a debt. 

The federal law guarantees open access to the courts and permits self representation in lawsuits, including bankruptcy proceedings.  However, the benefit of having an experienced bankruptcy attorney at your side far outweighs any savings proceeding on your own.  Consult with an experienced attorney and discover how the federal bankruptcy laws can help you.

More Elder Americans Are Filing Bankruptcy

A recent study by the University of Michigan School of Law has found that an increasing number of people over the age of 65 are filing for bankruptcy protection.  The study states that even before the financial meltdown of 2008, the percentage of older Americans filing bankruptcy had risen steadily, from 2 percent in 1991 to 4 percent in 2001 to 7 percent in 2007. 

The reasons for these older people filing bankruptcy are varied, but the study found that “the dominant force appears to be overwhelming burdens related to credit cards.”  Researchers found that elder bankruptcy debtors reported 50% more in credit card debt than younger bankruptcy debtors.  Credit card interest and fees were cited as a reason for filing bankruptcy 50% more frequently.  This suggests that elder debtors rely upon their credit cards more that younger debtors.  The author of the study, law professor John Pottow, states, “These findings are both striking and ominous.” 

Debtors over 65 had a median credit card debt of $22,562, while younger debtors had a median of $13,615.  Nearly 60 percent of elder debtors said their financial troubles resulted from medical bills. 

Financial struggles can be especially overwhelming for someone on a fixed income.  While younger debtors may be able to juggle finances, increase income, or decrease expenses in order to pay off debt, in most cases an older debtor’s fixed income pays only for the bare necessities.  There are few options to paying off high interest credit card debt.  In some extreme cases an elder debtor may forego necessary medicine, food, or utilities in order to pay monthly credit card payments. 

If you have an older loved-one who is experiencing credit card debt, speak with an attorney and discover how the federal bankruptcy laws can relieve burdensome credit card bills.  Bankruptcy is powerful protection against creditor harassment, lawsuits, and income garnishments.  For most elder debtors, credit card debt can be discharged without losing any property.  Call today and protect your property and your peace of mind.

Your Bankruptcy Discharge

The word bankruptcy is derived from two Latin words, bancus, meaning “bench,” and ruptus, meaning “broken.”  The term was used to describe the breakup of a tradesman’s business (often resulting in physically breaking the tradesman’s table or bench, signifying the end of the business).  Early bankruptcy laws were concerned with protecting creditors from insolvent businesses.  Usually this meant total liquidation of the business.  In some cases a creditor could have the tradesman imprisoned for non-payment of a debt. 

Modern bankruptcy law in the United States is more forgiving and promises the individual creditor a fresh start.  The United States Bankruptcy Code is enacted by Congress via authority granted by Article I, Section 8 of the United States Constitution.  United States bankruptcy laws have evolved to protect the honest, but unfortunate debtor and provide a discharge of overwhelming debts.  Debtor’s prisons were abolished in the United States. 

The cornerstone of the bankruptcy fresh start is the bankruptcy discharge, a permanent court injunction that prohibits creditor collection against the debtor.  The bankruptcy discharge is available to individual debtors and is generally ordered at the end of the bankruptcy case.  A discharge is not available to a non-individual, like a businesses or corporation.  The discharge order forbids creditors from contacting the debtor to collect on a debt, or taking legal action against the debtor personally.  The bankruptcy discharge is very broad and is enforced through a contempt action with the bankruptcy court. 

Certain debts are not affected by the bankruptcy discharge including child support obligations, debts obtained by fraud, criminal fines or restitution, most student loans, and certain taxes.  While these debts are non-dischargeable for policy reasons, other common debts like medical bills and credit card debts are discharged by the bankruptcy.  The Bankruptcy Code offers certain protections to the debtor to repay non-dischargeable debts during a bankruptcy case. 

If you are struggling with debts and need a fresh start, discuss your options with an experienced bankruptcy attorney.  The modern bankruptcy law offers many legal options for paying or discharging personal debt.  Learn how a bankruptcy discharge can start you on a path to a fresh financial start.

Auto Redemption in Chapter 7 Bankruptcy

During a Chapter 7 bankruptcy all unsecured debts are discharged.  Debts that are secured by collateral (e.g. car loans) must be paid or the collateral must be returned to the lender.  Occasionally an individual considering Chapter 7 bankruptcy will own a vehicle that is worth less than what is owed.  This situation is often referred to as “upside down” and usually involves a late model vehicle that has depreciated faster than the person has paid on the loan.  It doesn’t make any sense to pay for something that is “upside down,” but often an individual needs to keep the vehicle for transportation to work and for family use. 

Fortunately, a provision of the Chapter 7 bankruptcy code allows an individual to keep a vehicle and pay only its current market value.  This process is called “redemption.”  During a redemption the value of the vehicle is determined (either by agreement between the debtor and creditor or by the bankruptcy judge after a hearing) and a court order is issued directing the creditor to accept a sum from the debtor in exchange for a release of its lien.  In plain terms the lender is paid a lump sum and the lien on the vehicle is released.  For example, a debtor that owes $15,000 on an auto that is worth $10,000 will only pay $10,000. 

Unfortunately, the payment must be made in a one-time lump sum to the lender at the time of the redemption order.  If the debtor is unable to pay for the vehicle, there are finance companies that make redemption loans for debtors in bankruptcy.  Before making a redemption loan these finance companies require a loan application and certain assurances of repayment.  The interest rate can be high for a redemption loan, however the resulting monthly payment is often lower than the original payment.  It is important to carefully consider all of the advantages and disadvantages before making a decision to redeem a vehicle: 

Advantages of a redemption loan:

• Retention of the vehicle;
• Vehicle is no longer “upside down;”
• The creditor cannot repossess the vehicle;
• Usually results in a lower monthly payment. 

Disadvantages of a redemption loan:

• High interest rate. 

Redemption is not the only option for keeping a vehicle after a bankruptcy.  A skilled bankruptcy attorney can explain all of your options and help you obtain the best deal for your family.

Lien Stripping Second Mortgages

While the Bankruptcy Code does not permit a bankruptcy court to modify the terms of a home mortgage, a second mortgage that is entirely unsecured may be stripped away during a Chapter 13 bankruptcy.  For example, if you own a home that is presently worth $200,000 and the first mortgage balance is 200,001, any additional mortgage lien may be stripped away since that debt is not secured by any value in the home.  The debt is reclassified as unsecured, is treated as unsecured during the bankruptcy, and is subject to discharge at the end of the case.  However, if the debtor does not successfully complete the Chapter 13 case, the lien stripping benefit is lost. 

The most important part of the lien stripping process is obtaining an accurate valuation of the property.  Most courts agree that the appropriate time for valuing the property is at the time of the Chapter 13 confirmation hearing, not at the time the bankruptcy case was filed.  This may be several months after you file your Chapter 13 case.  A professional appraisal and other evidence of the value of the property are necessary for successful lien stripping. 

Lien stripping may not require both debtors to file bankruptcy.  In a recently decided case in Michigan, a married couple owned property, but only the wife filed bankruptcy.  She then filed an adversary case against a lien holder to strip away an entirely unsecure second mortgage.  The lien holder attempted to join the husband to the lawsuit, but the bankruptcy court refused.  The court granted the wife’s lien stripping motion saying that, since there was no equity,  the bankruptcy estate had no interest in that property.  Under Michigan law (and in many other states) a married couple holds a home jointly as tenants by the entirety.  This is a special legal ownership status where each party owns an undivided whole of the property, as a single legal entity.  The bankruptcy court found that both spouses do not have to be included in the lawsuit even though both spouses receive the benefit of the stripped lien.  This case is currently on appeal. 

In today’s economy where many homes have lost value, lien stripping second mortgages in bankruptcy is becoming commonplace.  If you have a second mortgage and need bankruptcy relief, consult with an experienced bankruptcy attorney and discuss your options.  There are many ways to save your family home using the powerful federal bankruptcy laws.

Chapter 13 Co-Debtor Stay

The “Co-Debtor Stay,” also known as the “Co-Debtor Automatic Stay,” is a feature of a Chapter 13 Bankruptcy designed to protect a debtor by insulating him from indirect pressures from his creditors exerted through friends or relatives.  The Co-Debtor Stay stops all collection actions against any individual who is obligated on a consumer debt owed by the debtor.  The Co-Debtor Stay continues until the Chapter 13 case has concluded. 

The Co-Debtor Stay is not a direct protection intended for the co-debtor.  The debtor’s Chapter 13 Bankruptcy will not discharge the co-debtor’s responsibilities to the creditor.  It will, however, prevent collection action by the creditor against the co-debtor (e.g. lien perfection or even adverse notation on the co-debtor’s credit report) during the pendency of the Chapter 13 case.  

The Co-Debtor Stay does not prohibit collection on a debt incurred in the ordinary course of business by the debtor.  Additionally, tax debt is generally not considered a consumer debt.  It is important to note that the Co-Debtor Stay does not apply at all to Chapter 7 Bankruptcy cases. 

The Co-Debtor Stay is effective immediately upon the filing of the debtor’s Chapter 13 petition and continues until the case is closed, dismissed, or converted to Chapter 7 or 11.  The Bankruptcy Court can also modify or terminate the Co-Debtor Stay upon the motion of a creditor.  The creditor may be successful in this type of motion if the codebtor received “consideration” for the debt (e.g. you cosigned a car loan for your brother, who actually owns the car), if the debtor’s Chapter 13 plan proposes to not pay the debt, or if the creditor’s interests would be irreparably harmed by continuation of the Co-Debtor Stay. 

A knowing violation of the Co-Debtor Stay is contempt of court and punishable by damages, including attorney’s fees.  Any collection action taken by a creditor in violation of the co-debtor stay is void. 

The Co-Debtor Stay is a powerful tool to prevent collection action in Chapter 13 Bankruptcy.  If you are contemplating a bankruptcy filing and have co-debtors, consult with an experienced bankruptcy attorney.  An experienced bankruptcy attorney can explain your options and work with you to find the best result.

Bank Overdrafts Can Make Financial Trouble Worse

Every day is a new opportunity to make good financial decisions.  If your income has been significantly reduced, one decision that may help is to ensure that your bank does not charge you overdraft fees on your debit card purchases. 

A new federal banking regulation that took effect July 1, 2010 requires banks to obtain a customer’s consent before charging overdraft fees for debit card purchases whenever there are not sufficient funds to cover those purchases.  Consumers who do not “opt-in” may have their debit cards declined at the cash register.  

When an individual suddenly has a reduction of income, it is often difficult to keep track of monthly finances.  This could result in bank overdrafts.  A $5.00 burger and soda could wind up costing $35 or $40 after bank fees are assessed.  In some cases overdraft fees can quickly multiply to hundreds of dollars.  Additionally, some banks charge negative balance fees that may be assessed on a daily basis.  A prolonged negative balance could result in closure of the account and a consumer report to Chex Systems, making it more difficult to open another bank account. 

Bank fees are avoidable debts that can only complicate a bankruptcy case.  Many debtors in bankruptcy want to maintain a good relationship with their local bank, and consequently will pay the bank debt.  In cases where the debt is not paid, a new bank may not agree to open a new account for you until the debt to your former bank is paid – regardless of whether that debt was discharged in bankruptcy. 

When money is extremely tight, consider using cash to pay for ordinary purchases like lunch, groceries, or gas.  Cash may be less convenient than using your debit card, but it is easier to keep track of your money and see how it is being spent.

If you are experiencing financial difficulties due to a sudden reduction of income, consider opting out of overdraft fees from your bank.  A small inconvenience at the cash register could save you from a considerable headache later.  Your bankruptcy attorney can advise you on additional ways to avoid further difficulties by making to adjustments to your finances.  Consult with an experienced bankruptcy attorney and learn how the federal bankruptcy laws can help you.

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