We are still experiencing continued corporate and government downsizing, which means there are still many more people suddenly losing their jobs, and can no longer meet the financial obligations incurred during more prosperous times.
The first way to deal with debts is to communicate simply and honestly with creditors. Everyone knows the economic situation. Suing for money owed is as annoying and costly for the creditor as it is for the debtor. The key here is: Don’t make any promises you can’t keep and keep all promises that you make.
We’ve seen some people write checks that they know will bounce, in their desperation to get an annoying bill-collector off their backs. A bounced check is a broken promise. It can subject you to criminal prosecution and will almost always make that creditor harder to deal with in future.
Constant harassment by collection agencies is another problem faced by those in financial trouble. State and federal laws regulate the practices of debt collectors, and certain tactics are prohibited. When unfair tactics do take place, a letter from a lawyer is often enough to provide relief. If not, various legal remedies are available.
When things have gone too far to work out with creditors, the Federal courts can offer protection under bankruptcy laws, designed to protect you, and give you a fresh start. There are several types of bankruptcy, each named after a chapter of the United States Bankruptcy Code. Of these, Chapters 7 and 13 are the two that most concern the consumer.
Chapter 7 is what most of us think of when we think of bankruptcy. In a Chapter 7 proceeding, all of your property which is not exempt by law is sold, and the proceeds are distributed to your creditors. At least that’s the theory. In practice, with the exemptions provided by law, and careful planning, an average middle class family would not give up anything at all. Their assets would be deemed exempt, and the creditors get nothing. The final result is that your debts are discharged, and you are permanently free of those obligations.
However, there are some debts that cannot be discharged in a Chapter 7 proceeding. For example, education loans cannot be discharged unless one can show extreme hardship. Other non-dischargeable debts include damages from a willful tort claim, certain taxes, loans obtained through false financial statements, debts incurred through fraud, deception, or embezzlement, consumer debts of $1000.00or more, for luxury goods or services owed to a single creditor and incurred within 180 days before you filed your bankruptcy petition, cash advances of more than $1000 obtained within 180 days before you filed your petition, court-ordered fines and restitution, and personal injury debts caused by driving while intoxicated or taking drugs. In some cases, a creditor must file a special proceeding in the Bankruptcy Court to determine whether the debt is non-dischargeable. A creditor can also sue you to prevent the discharge of a debt if you transferred or concealed assets or refused to explain the loss of assets.
Chapter 13 is available for any individual with a steady income and debts which do not exceed $360,000 in unsecured debt and $1,081,000.00 in secured debt (“Secured debt” is when the creditor holds a mortgage or some other sort of lien on the property.). It allows you to submit a plan to pay off your debts, in whole or in part, over a period of three or five years. You don’t need a regular paycheck to qualify, but you must have income stable and regular enough to make payments under a plan.
One advantage of Chapter 13 is that it allows you to keep your assets even if they are not exempt. This can be important if you own a lot of equity in a home. Another advantage is that, if you owe a debt jointly with someone else, such as a relative who co-signed a note for you, Chapter 13 will provide some protection for the other person, while Chapter 7 will not.
Some debts which could not be discharged under a Chapter 7 proceeding can be discharged after partial payments under a Chapter 13 plan. These include some types of educational loans, damages for willful torts, and some taxes. You may, at any time, voluntarily dismiss a Chapter 13 proceeding or convert it into a Chapter 7 proceeding. But if you dismiss it, your debts will not be discharged, and you will still owe the unpaid amounts.
Chapters 11 and 12
Chapter 11 allows businesses and individuals to restructure large debts. It generally is used for people who want to restructure their debts but have more assets or debts than the limits for a Chapter 13 case. Creditors vote on whether to accept or reject a plan, which must also be approved by the court. Its provisions are quite complicated and generally require the assistance of an attorney familiar with Chapter 11 proceedings.
Chapter 12, enacted during the 1980s, is a special form of debt work- out for family farmers. In many ways, it is similar to Chapter 13, but eligibility is limited to people whose income derives primarily from a family- owned farm.
When you file a bankruptcy case, an Automatic Stay takes effect immediately on all collection efforts by all creditors. Evictions, foreclosures, repossessions, lawsuits, annoying telephone calls all must stop, and any creditor who refuses to comply can be held in contempt of the Bankruptcy Court. If you hear from any creditors, we can generally get them to back off by writing them a letter informing them of your bankruptcy filing.
Secured creditors can ask the Bankruptcy Court for permission to continue collection actions against you. A motion for relief from the Automatic Stay is heard and decided by the Bankruptcy Judge.
Chapter 13 not only provides an automatic stay for you, but if you owe a debt jointly with someone else (such as a relative who co-signed a note), it provides a stay for the co-debtor as well.
For any bankruptcy case, you must file a complete schedule of your assets, liabilities, income, and expenditures and answer a questionnaire about your financial affairs. The most daunting aspect of filing a bankruptcy case is the need to compile a thorough and accurate list of this information.
The success of a bankruptcy proceeding depends on the accuracy and completeness of the petition. We have a set of forms which we have designed to help you compile all of this information, and are easier to deal with, than the official bankruptcy forms. Once we have all of your information, we convert it to the format required by the bankruptcy court. You will also find, that many questions on the form don’t apply to you, and can be answered with a simple “NA” or “None.”
If you are filing a Chapter 13 case, we must also propose a plan for a partial or full repayment of your debts. Any Secured and Priority debts must be re-paid in full. Unsecured debts can be paid partially. The Plan must also provide for a required fee to the Chapter 13 Trustee. When you file a Chapter 13 Plan, you must begin making regular payments to the plan. Most plans are amortized over 60 months.
For solutions to all of your financial problems, and rebuilding your credit, contact the law offices of Paul M. Allen. We promise that help is just a phone call away. Consultations are free, but by appointment only. We have two offices to serve you. Call today. Glendale 818-334-5445 or Cerritos 562-356-9931.
(This article is for information purposes only, and does not necessary reflect the company’s opinions and views on general issues. We make no warranty, prediction nor representation, nor do we assume any legal liability for the completeness of any information and its effect on any case. Each case is different and results depend on the facts of each case. Consult with and retain counsel of your own choice if you need legal advice.)