Wednesday, October 1, 2014

Should You File Bankruptcy?

Nobody files for bankruptcy protection because they want to. It is a serious decision and scares many people. As I will discuss below, there is no shame in making the right decision for you, your family, and your community.

There are many reasons not to be scared of bankruptcy. Once you consult with an experienced attorney and weigh your options, there is no reason to delay or be scared once you decide it is the right decision for you.

Here are a few questions to ask yourself right off the bat:

1.      Have you consulted with a reputable financial adviser?
2.      Do you feel your financial situation is uncontrollable?
3.      Are you not answering your phone or sick of getting calls about debt collection?
4.      Are you using credit or borrowed money to pay for necessities?
5.      If I asked you “how much debt do you have?” would you be able to answer that question?

Each of these questions are important when deciding to file for bankruptcy protection. Generally, you need to think of it on a 7-10 year timeframe. After about 7 years, your bankruptcy will likely not appear on your credit report any longer (although it will be a public record). The harshest consequence of filing bankruptcy (in my opinion) is that it appears on your credit report, although there are other personal issues I discuss with my clients as a counselor.  

That being the case, will your financial situation improve in the next 7 years? If you are only making the minimum payments on credit cards, racking up new debt to pay for necessities, and not in control of your finances—then most likely your financial situation will still be bad in7 years.  

If you file bankruptcy now, most of your debt will be gone immediately. In 7 years, the bankruptcy damage to your credit will begin to repair. So essentially, after that period, the harshest consequence to filing bankruptcy is mitigated. Again, the courts and Congress have made the point of bankruptcy law clear: it is to get people a fresh start so that they can be productive members of society.

Depending on other circumstances, you may see improvements in your credit worthiness after filing bankruptcy within a year or so. I have written about how retirees and other categories of people have no reason not to file bankruptcy if they cannot live a productive life with their current debt.


The point of bankruptcy is to invoke some ancient rules that go all the way back to the Old Testament. These rules are designed to make you and your community better by offering you the opportunity to become a productive citizen again. We want you working gainfully, not just paying off old debts for the rest of your life.

UPDATE:
Thanks to a follower on Facebook, I have decided to do an update to this article. She questioned the 7 year time frame I speak of above. Here is how it is put by Free Credit Score.com:

"Credit reports and scores were designed to assist lenders in deciding who was more or less likely to fulfill their financial obligations.  When someone files for bankruptcy, it's extremely damaging to their credit score as it's a failure to meet all (or almost all) of their financial obligations.  While through discipline and hard work, it is possible to quickly bounce back from the financial implications of a bankruptcy, the credit implications will last for at least seven years.  During that time period, it is unlikely that a person will be approved for new loans or credit accounts, and if they are the terms are likely to include high fees and interest rates."


As I wrote above, the credit damage begins to repair. Essentially, the bulk of the negative effects are worn off by the point. So I stand by my 7 year time frame, although it is definitely 10 years for the full recovery.

Free Bankruptcy Lawyer Consultation: www.bankruptcylawyerdirecttalk.com

Wednesday, July 23, 2014

Retirement and Bankruptcy

I have filed cases for older people who are simply ready to get rid of their debt and start moving forward with enjoying retirement. Obviously, you are better off if you plan for retirement. Many people have either not planned well or have had circumstances that have undermined their plans. This can include the accumulation of lots of debt. If this happens to you, bankruptcy may be a useful tool in retirement.

First, I strongly suggest consulting with a retirement planning expert. There are non-profits that offer such services as well as professional firms. No matter how hard you try, you will never know enough to make these decisions on your own. You need someone who specializes in retirement planning.

If your retirement planner sees that you have a lot of debt, he/she may recommend bankruptcy. Click here for an article on “What is Bankruptcy.”

Qualifying for Chapter 7

Our first consideration will be the question of whether you qualify for Chapter 7 or not. Most people would much rather go into Chapter 7 than any other chapter. If you don’t qualify for Chapter 7, then we will look at a Chapter 13, which is a longer and more expensive process.

To qualify for Chapter 7 bankruptcy, your last six-months of income must be below a certain threshold, unless over half your debt is “non-consumer debt” (in which case your income is irrelevant). The definition of non-consumer debt is extremely broad and even includes student loans. Your last six-months of income will depend on many factors as there is a long and complicated formula for determining this number and the threshold that applies to you. If you are over 65, you get a boost in qualifying. As part of my free consultation, I will give you a free legal opinion as to whether you qualify for Chapter 7. I promise not to pressure you to go forward after that.

So let’s say that you don’t qualify for Chapter 7. We still have plenty of options. First, since you are beginning retirement, we assume your income is about the drastically decrease. So that gives us the possibility of starting a Chapter 13 and later converting to a Chapter 7 when you qualify. Also, we are allowed to simply wait a few months until your last 6-months of income is below the threshold. These options will also give us more time to engage in pre-filing planning. Finally, there are several factors that we are allowed to take into account to bring your income number down and increase the threshold number—including whether you are over 65 or have financial dependents over the age of 65.

Protecting Your Assets

Our second consideration will be whether your assets will be protected in bankruptcy. If you read my essay on “What is Bankruptcy,” you saw that the court will appoint a trustee to manage your assets, with the goal of selling them to pay off creditors. However, we will not file bankruptcy for you unless we are sure that your assets are “exempt” or “excluded” from this selling-off process. The exemption process is one of the primary duties of a bankruptcy attorney.

Most retirement accounts, including most IRA’s, 401K’s, pensions, deferred compensation accounts, and other retirement assets are going to be protected (i.e., exempt from selling-off) up to a very high amount. Social Security income is exempt. For very wealthy retirees, you may run into a problem here, but most people will not.

Your House:

One big issue we see is in protecting a retiree’s house. Homes and real estate are not treated differently for retirees, relative to other classes of bankruptcy filers. However, as a practical matter, many retirees actually own their homes outright, with no liens or mortgages.

Fear not. The exemption for the value of your home is pretty high. If your home’s value is far above the exemption amount, then we still have options. Often, this would be a reason we would look at a Chapter 13, but we bankruptcy attorneys have to deal with this problem on a case-by-case basis.

How Will Filing Affect My Chances of Getting Accepted Into a Retirement Home?

If it is a facility that accepts Medicaid, they cannot discriminate on this basis. If they don’t accept Medicaid, they may discriminate on that basis. However, if you have a lot of debt, they probably were not going to take you anyways.

So here is what you should know. They will look at your debt-to-income ratio before anything else. The best thing to do in this case is file sooner rather than later. After you rid yourself of oppressive debt and get some time between your application to a retirement home and your bankruptcy filing, your chances will begin to go up significantly.

In Conclusion

If you are considering retirement and you have a lot of debt, you should definitely consider bankruptcy. You should first consult with a skilled retirement planner. Then, if he/she recommends it, come to me and we will see what your options are in bankruptcy. 
 


Tuesday, July 15, 2014

Bankruptcy and Foreclosure

So you haven’t been able to pay your mortgage. In Ohio, as in America, we really believe in the sanctity of a person’s home. That is why we have a very extensive process of foreclosure before you can lose your home. To handle these difficult situations, you need to be educated on several different aspects of the process.  

1. Learn About the Rules of Foreclosure
To learn details about how the foreclosure process works in Ohio, see this website: http://www.savethedream.ohio.gov/index.aspx. This website will explain things better than I ever could. Meanwhile, bankruptcy provides a few tools for dealing with foreclosure. There are two main types of bankruptcy that individuals generally consider: chapter 7 and 13.  

2. What if you Get Into an Emergency Situation?
Bankruptcy rules can possibly help you if you get into a financial emergency. Before you consider bankruptcy, you should understand the difference between secured and unsecured debt; and how it is treated in bankruptcy. Here are a few things to understand:

·        Secured debt means that the creditor can take some property from you if you don’t pay the debt. That means that the property is collateral on the loan.

·        Unsecured debt means that there is no collateral on the loan or that there is nothing the creditor can take from you, simply because you didn't pay. Rather than take property from you, the creditor will have to go through the debt collection process. This generally involves filing notices on your credit reports and filing a law suit. 

The company that provides your mortgage is a secured creditor and your debt under the mortgage is a secured debt--meaning they can take the house from you if you don't pay them what you owe. Under bankruptcy law, secured creditors have more rights. Generally, they can either demand to be paid or take the property back. Debtors have three choices: 1) redemption (basically a refinance), 2) reaffirmation, and 3) surrender. 

The surrender option is the most powerful. This option gives the bankrupt debtor the option to: 1) discharge the debt owed, and 2) get out of the contract. This is a good option if the debtor is willing to give up the property and start over somewhere else.

Reaffirmation means that the debtor wants to continue making payments and keep the property. However, the creditor does not have to reaffirm if the debtor is not keeping up with payments.

Chapter 7 and Foreclosure
A Chapter 7 is a relatively quick bankruptcy process that eliminates most debt types and usually only takes a few months. If you are going through the foreclosure process on your home, Chapter 7 can slow it down, but it can only stop it if you have a way of catching up on the payments you owe.

The filing of a bankruptcy will institute an “automatic stay.” This stay forbids creditors from attempting to collect a debt without court permission. If you are not caught up on your mortgage, you can bet the mortgage company will ask the court for permission to re-institute the foreclosure. If you are not caught up on your mortgage, they’ll probably get that permission. However, the stay gives you some time to catch up—which gives you a good chance of reaffirming.

Chapter 13 and Foreclosure
Under a chapter 13 bankruptcy, the debtor will get into a payment plan. As part of this plan, the debtor will pay the unpaid payments on the mortgage, while continuing to make current mortgage payments. Basically, this option gives you an opportunity to pay the mortgage payments over a longer period of time. Meanwhile, the process will allow you to ultimately get your unsecured debt under control, so that you can afford the payment plan.

Chapter 13’s are very complicated and require an attorney’s consultation to fully understand.

Please feel free to contact our law office for more information. 
(614) 284-4394
josh@joshbrownesq.com 

 

Thursday, July 10, 2014

What is Bankruptcy?

Bankruptcy is something many people have heard of but they don't exactly know what it is. In fact, many people use the term "bankrupt" very imprecisely. Politicians for example, often exclaim "the United States is bankrupt!" or "that guy is morally bankrupt!"

Essentially, bankruptcy means that you have filed a petition with a bankruptcy court, asking the court to initiate some ancient rules--rules that are referred to in the Old Testament. There are two main rules in play.

  • First, is the "stay" or "automatic stay." The stay is an order from the court to the world that no debt collectors are to attempt to collect a debt from the petitioner (called a "debtor") unless the court approves of it. This stops all wage garnishments, court proceedings, phone calls, etc.. You name it. 
  • The second rule is the "discharge." If the court believes you qualify, it will grant a discharge of all the debtor's debt, except for that which Congress has decided is not dischargeable. That is mainly (but not solely) child support, alimony, and (ironically) certain taxes. Since ancient times, bankruptcies are available every 7 years. In the U.S. it is available every 8 years, with some exceptions. 

The purpose of asking for the initiation of these bankruptcy rules, is because they provide a process for getting a financial "fresh start." In fact, bankruptcy courts often refer to bankruptcy's purpose as "getting a fresh start." The discharge gets rid of oppressive debt; while the automatic stay gives you a breathing space to undergo the process of getting a discharge. The theory is that the government would rather have you working productively, than solely working to pay your bills. If you are only working to pay bills, then you may not have an incentive to work at all. Especially if the end is never in sight. Many people in that situation would simply stop working.

When considering the debtor's rights, the bankruptcy courts will look to make sure that the debtor doesn't have enough money available to pay debts and expenses on a periodic (generally month-to-month) basis. Those debtor's rights will depend generally on the money the debtor has available and the debtor's income--although several other factors may come into play as well.

Congress has set up a system of bankruptcy "chapters" that provide a framework for debtors to exercise their bankruptcy rights. Generally, individual and business debtors use chapter 7 and individuals sometimes use chapter 13 (on rare occasions, both might file under chapter 11). Generally, you consult with an attorney to decide which chapter to file for. We'll only address individual bankruptcies here and not chapter 11's which are rarely used.

Filing bankruptcy immediately creates a bankruptcy estate. The bankruptcy estate consists of all the assets of the debtor that are not "exempted" from the estate. Generally, a debtor's bankruptcy petition will exempt most or all of their personal belongings from the estate--at least that is what we attempt to do. Congress has created broad rules defining what is exempt. Those rules attempt to exempt items that debtors need to survive, plus a little extra.

The Courts will appoint a Trustee to manage the affairs of the estate. The Trustee's job is to sell the assets of the estate in order to pay the debtor's creditors. The Trustee gets to keep a percentage for himself. If any asset of the estate is not exempt, the estate Trustee will take it and sell it off to creditors if the Trustee thinks there is enough value in the item to make it worth his efforts. The theory behind this, is that the courts should not discharge a debtor's debt unless the debtor's assets are used to pay off creditors first.

After the Trustee has administered the assets of the estate (or determined that there are no assets) then the U.S. Department of Justice has an office that will take a look at the petition. Their office is called the U.S. Trustee's Office (not to be confused with the estate Trustee--there is no connection between the two). This office plays an oversight role and basically tries to root out petitioners who are not playing by the rules.

So in summary, bankruptcy is a two-handed process where--on one hand--a person petitions a court to grant the petitioner a stay on collection of debt until the court can grant a Discharge Order. On the other hand, the court will put the petitioner's non-essential (i.e., non-exempt) belongings into a bankruptcy estate and sells off the assets of the estate to pay off creditors.






Tuesday, July 8, 2014

15 Ways to Avoid Bankruptcy

Article by Michael Berger

Click here for the Article. 

My Thoughts:
The link above goes to a great article about different things that people should know. The article really addresses more general financial advise. However, I agree with the author that this advise arises from our experience with looking at the financial affairs of clients in bankruptcy. We see a lot of the same problem arise in many cases.

My own feelings are that every person needs to be careful about taking on debt. Keep in mind that taking on debt is borrowing, not only from the creditor, but from your future self. You don't know what situation your future self will be in.

Next, you have to consider what the "real world" is like out there. I believe in the Christian concept of "original sin," which means that all people are sinners. That doesn't necessarily mean every person is untrustworthy. Rather, it means that we Christians are surrounded by people who are not under the influence of God and must be very careful about what people in this world are capable of.


People who are scammers are experts and gaining your trust. Sometimes, they don't even realize they are doing it because it may be their company or bosses who are actually scammers, or they may simply be selling you a product that isn't right for you. Until I opened my law firm, I was na├»ve about that. I always thought that people were general good and that you could trust them until they proved otherwise. After what I have seen as a bankruptcy lawyer, I now take the opposite view.

You have to understand that nobody will look out for your interests for you. Even if you have dependable friends or parents, they will never understand your situation and mentality the way you do (or should). You have to first assume that people that want to loan you money are not acting in your best interests. Then if you are proven wrong after much thought and deliberation, go ahead and make a decision.

I strongly recommend going to reputable credit and financial credit counseling classes to learn how to make these decisions. Dave Ramsey has a good class that is given at many churches. However, although I was happy with the class myself, my girlfriend took his advise on a jewelry exchange and was ripped off by the exchange. Even when choosing a class, keep in mind that there are scammers and incompetents out there. You have to learn to use discretion.

I always suggest to my clients who are going through a life changing experience--using bankruptcy as a tool to get a fresh start--to find a good church and surround yourself with the kind of people you want to be like. You will become more like the people that are around you everyday. Find people of good discretion to talk to and be around and your own discretion will begin to improve.

Sunday, July 6, 2014

Can the Rich File Chapter 7 Bankruptcy?

Bankruptcy is a good option for many rich people with debt problems. The best way to file is under Chapter 7 of the Bankruptcy Code. Chapter 7 bankruptcies normally last about 3 months (if you have a good attorney and no major complications) and the debtor gets a relatively easy discharge for most debt. They are relatively painless for the debtor. The vast majority of the work is done before the bankruptcy petition is filed with the Court. This is a powerful tool but is limited to those to qualify--although, there is an exception as noted below.

To qualify, the debtor has to show that his/her income over the last 6 calendar months is less than a certain amount. Those amounts change over time and are supposed to be a "median income" for people in your area. This is guess-work by the government, but Congress wanted it this way to reduce Chapter 7 filings. The government's theory is that, if you are high income, you should be in a Chapter 13 or 11. There are some cases where those chapters are preferable, but generally, most people would greatly prefer a Chapter 7 because it is so much easier.

If you are slightly over that income qualification amount, there is a formula that may bring your effective income down below the mark. Basically, we see if you qualify, and if you are close, we apply the formula to see if we can get below the mark. Some of the big factors that we look for to bring down your income is whether you: 1) are financing or leasing a vehicle, 2) have child-care expenses, 3) have health-care expenses, 4) provide expenses for others to the extent that they may be financially dependent on you--especially children or elderly people, 5) have extraordinary expenses associated with your employment, 6) have extraordinary involuntary deductions from your paycheck such as union dues or retirements plans, 7) have extraordinary energy costs associated with your home, and 8) are a veteran.

If you are well above the income level and we cannot find anything in the formula to bring your income low enough, then we will look at your debt closely to determine if we can file you as a non-consumer debtor. If over 50% of your debt is non-consumer, then the income test discussed above does not apply at all. In fact, we'll actually give the form to the Court blank when we file.

The definition of non-consumer debt is quite broad. This is where you need a skilled bankruptcy attorney. If you determine that Chapter 7 is right for you, then you obviously want the debt to be defined in the way that favors a Chapter 7. Non-consumer debt includes student loan debt, taxes, and any debt acquired for a business purpose. A business purpose would include anything that you used for seeking a profit.

Many wealthy people accumulate a ton of debt by engaging in failed business enterprises. For thousands of years, governments have determined that they would rather see you put that debt behind you and move on to another enterprise. We don't want you losing the incentive to work because of excessive debt. I have served clients who could not move forward in their lives because of business debt they accumulated by being part of a failed business or even victimized by a scandalous business. I can tell you that they are not proud to file, but they were faced with a situation where they had no incentive to work anymore.

Luckily, the system is designed to get them back to productive work again. At some point, when your debt is so high, there is no reason to work at all anymore, because all your money is going to debt service. In many cases, excessive debt may create a situation where you might as well stop working, reducing your past income till you qualify for Chapter 7. The non-consumer Chapter 7 provides and way to stay on the job while you go through the process.

These people often think they cannot qualify for a Chapter 7. We would be glad to sit down with you and review your debt, to make that determination.

Wednesday, December 4, 2013

Why Is My Bankruptcy Taking So Long?

by Dana Wilkinson, Attorney at Law
December 3, 2013

Click HERE for full article

My Thoughts:
This article really addresses a serious problem for bankruptcy lawyers. Often, we get hounded by our clients about getting certain things done. However, there is nothing we can
forms
do if the client doesn't do his/her part.

When I first start a bankruptcy case, I need two things: 1) the documents I request and 2) the legal fee.


I cannot tell you how smoothly it goes when a client walks in with a well-organized folder that has everything I requested in it. I can get that petition done in a couple days and we can feasibly have it signed and filed within a week or so.

You have to respect your bankruptcy lawyer. You have to do what they ask your to do or things are going to drag out or get messed up. Many other firms will have you working with several lawyers. I don't do that. I work with all my clients directly. That keeps my fee low and keeps me apprised of everything going on in the case.

The article I linked to above is a great essay on this subject.