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Bankruptcy 2018-05-27T08:47:36+00:00

Let’s Talk About Your Choices

If you have decided that filing a bankruptcy is an option for you, then we need to determine whether you would file chapter 7 or chapter 13. The process and procedure is different between the two. Let’s address your options.

Chapter 7 Bankruptcy

In a chapter 7 bankruptcy case, the process can be summarized as: we gather a lot of information about you, and organize this into the 60 to 70 pages of federal court forms that are required. Once you have certified the information as correct and true to the best of your knowledge, we file your case.

Just before we can file your case you will be required to receive an outside independent credit counseling session from a government approved credit counseling agency. Credit counseling is not a problem. It is not a screen. You are not graded. You do not pass or fail, it is just something that is required so you can receive a certificate of counseling, which we must have in order to file your case.

What follows next is very simple. You are required to do a second course, this one is about personal financial management. This can be done online or over the telephone.

After that is completed the main task left is your attendance at the Meeting of Creditors. This will take place at the federal court house in Greenville, TN. This meeting is not going to court, you are not appearing in a courtroom, and you are not appearing in front of a judge. Your meeting of creditors takes place in ta meeting room in the federal court house. Although your creditors are invited to come, few creditors actually show up. In your case we would be able to predict whether or not any particular creditor would come to the meeting. What you are there for is to be interviewed by an attorney called the bankruptcy trustee. This persons job is to review the information you have submitted and determine if you have too many assets. This is also the person who decides if you have any surplus wealth, and it is their job to sell these items and raise money to pay your creditors. In most cases there is no surplus wealth to be distributed to creditors. For most of my clients this meeting and the interview is relatively brief.

Chapter 13 Bankruptcy

In a Chapter 13 case, the initial process is similar, but in in addition you are proposing a PLAN to repay some portion of your unsecured debt, along with a PLAN of how to deal with secured creditors over a 36 to 60 month plan.

Chapter 13 involves reorganizing your debts.  Your plan may call for your auto payment to be reduced.  You can schedule to catch up past due payments on your home.  You may be able to eliminate a second mortgage altogether. A description of the alternatives available to you in a Chapter 13 case is too extensive to be listed here.

Most of our clients do NOT file a Chapter 13 case. Because it lasts between 36 to 60 months it is not used unless it offers you a superior benefit to a discharge in Chapter 7. Chapter 13 is vastly more expensive, given that you are paying for an attorney for up to 5 years; and you are paying back part of your unsecured debt.

A Chapter 13 is a complicated and expensive way to resolve your debt problems.  We use it in appropriate cases, but find that most of the time the shorter and less expensive Chapter 7 cased will resolve your problems.

Pre Bankruptcy

The Protection given to you in Bankruptcy

One of the most beneficial aspects of filing a bankruptcy case is the “Automatic Stay,” a federal law in the United States Bankruptcy Code that protects you from the moment you file a bankruptcy case.

In my office, we would prepare a lengthy number of documents for you to file a bankruptcy case. After you sign those documents we email those to the bankruptcy court and you have filed a case. You will have a bankruptcy case number; and at that point you and your possessions are protected by federal law; which is backed up by a federal court.

  • Creditors are prohibited from taking any action to collect a debt from you.
  • They are prohibited from filing or continuing lawsuits.
  • They are prohibited from repossessing anything.
  • They are prohibited from initiating or concluding any foreclosure sale.
  • Garnishments must cease.
  • Letters and phone calls have to stop.

Outside of enforcing child support orders and criminal court proceedings everything other debt collection action is required to stop. If someone violates the Automatic Stay they can be punished by the bankruptcy court.

From the time you are in bankruptcy your creditors can not take action against you. At the end of case you receive an Order of Discharge.  An Order of Discharge is a permanent injunction to your creditors ordering them to never try to collect your debt again. If your debt is discharged in bankruptcy you have a court ordered injunction to protect you from that debt forever. This can also be enforced in the Bankruptcy Court by way of Contempt of Court proceedings against the creditor.

As a result, we see very few intentional attempts collect a debt that a creditor knows has been discharged. If it happens to you, call us right away!

Mistakes my clients make

Moral of the story: Don’t make financial decisions in a debt crisis, consult a professional first.

There are things that you might consider doing to resolve your financial problems on your own that can make your situation much worse.

  • Don’t give away valuable possessions. Some people transfer assets out of their name in the hope of protecting them.  I not talking about a legitimate sale of something you own for a fair price – that’s OK. If you have a car worth five thousand dollars and you sell it for four thousand dollars that is a legitimate sale. But – If you give away an asset or transfer an asset for a lot less than it is worth, you and the person you transferred too may get in trouble. Giving away assets or selling them cheap to friends or family is called a Fraudulent Transfer. The transfer can be reversed.  The asset can be recovered from the transferee and title put back in your name.  Then it will be taken from you and sold to pay your creditors.

We urge that you do not sell or transfer assets out of your name unless you consulted with us first. We will need to advise you as to what are legitimate transfers and what might be a Fraudulent Transfer.

  • Don’t repay family members or favored creditors.  Another thing you can do to hurt yourself and others is to repay debts that you owe to family or friends.  It seems natural and fair to pay debts to your family over other creditors, but it is a problem if you file a bankruptcy case.  If you make payments to a family member within a year of filing a bankruptcy they may be considered to have received “preferential treatment “over your other creditors. If you have chosen to pay your family over other creditors then both you and they may have a problem. The problem is that the bankruptcy trustee will look for things like this. If you have transferred assets to your family you will be asked under oath to reveal that information. If you choose not to reveal the information you have committed a felony. If you do the information your family member may be told to repay the money.

I assume you do not want your family members involved in your bankruptcy case. Therefore, do not transfer assets to them. Do not pay back debts to them unless you have consulted with us to make sure what you are doing is legitimate.

  • Don’t use retirement funds to pay off debts. We also recommend you never consider spending money out of pension plans to solve debt problems. You make exhaust yourself of one of the assets you need when you retire. Pensions and retirement plans are normally protected assets which you can expect to keep in a bankruptcy case.
  • Don’t commit a felony! The worst thing a person can do is to hide assets and fail to disclose them in their bankruptcy schedules.

DO NOT ASK US TO HELP YOU COMMIT A CRIME!

That will also get you kicked out of bankruptcy and you will not receive a discharge or a fresh start. You must disclose all of your assets. If you cooperate with the system and do not take any actions to have your motives questioned, we can get you through a bankruptcy case without making it an ordeal for you or your family members.

Post Bankruptcy

Post Discharge Credit Report

A DISCHARGE IN BANKRUPTCY STARTS THE REHABILITATION OF YOUR CREDIT REPORT AND CREDIT SCORE

  • A discharge in bankruptcy has a significant impact on your credit report.
  • Your bankruptcy will appear on your report for the next 10 years.
  • Any debt discharged will show a zero balance.
  • All discharged accounts are closed.
  • No more reports will be made about your payment histories.
  • You must file a dispute if a discharged debt is still being reported despite being discharged.  If the debt is not removed, then you must report that to your bankruptcy attorney.  Any creditor that refuses to remove the information can be punished by the Bankruptcy Court.   through the court.
  • Your discharge starts the rehabilitation of your credit score.  The effect of bankruptcy on your credit score is not what you think would happen. Most of our clients file bankruptcy with a credit score in the 400 – 500 range.  Because you have no debt and no more negative reports, the longer your credit report stays healthy and you avoid future financial problems, you will see a large improvement in your score, maybe over 100 points within the first 18 months post discharge.
  • You will become a car loan and car sale solicitations magnet. Once my client a receive a discharge they receive offers to buy or finance cars; and get offers of credit cards and loans.

Bankruptcy does not destroy your credit score or damage your credit report. Bankruptcy is a known way to improve your credit score.
Bankruptcy is a known way to improve your credit score.

Post Discharge Reestablishing Credit

After you exit the bankruptcy process you may want to borrow money for a car, or refinance a home.  The question is “what kind of credit can I get if I have been through a bankruptcy.”

The first thing to remember about credit for big items, like homes and vehicles, is that it is largely individualized and depends deeply on your income at the time of seeking a loan.

When our clients go through a bankruptcy they become prospects for vehicle loans. You will be contacted by dealers, and finance companies soliciting you to buy a vehicle. They want your business because you have discharged all of your debts and you are beginning your fresh start.

We do not normally recommend you consider those due to the loans high interest rate. If you can wait a year or more you will most likely be able to rebuild your credit score enough to buy a car with a much lower interest rate.  But if you need a vehicle while in a bankruptcy case, or shortly after concluding your case, there are many sellers.

Homes are quite different.  A new home loan applicant may face up to a 2 to 3 year waiting period after completing your bankruptcy case. This is not true for all home mortgage lenders.  Each situation being individualized and we can not predict if you could buy a home or refinance a home.

You will be offered credit cards and other types of loans after your discharge; and we discourage taking these offers. We do not find it is necessary to take on a debt in order to prove you have reestablished yourself.

Please avoid new debt if you can: You have gone through a hard experience because you had a problem with debt.  We recommend you avoid using credit unless it is necessary, for as long as possible.

“We Want You To Succeed.”

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