Fisette is a Fizzle – Minnesota Chapter 13 Lien Strip Decision Inconclusive

Can the lien of the second mortgage be removed from my house? - Bankruptcy
Can the Second Mortgage be removed in Chapter 13 Bankruptcy?
Can the Second Mortgage be removed in Chapter 13 Bankruptcy?

What I am about to say here applies only to Minnesota and the other states in the swath of territory here in the middle of the US which is served by the 8th Circuit Court of Appeals.  It is only my opinion.  You may find other attorneys who would disagree.

We have been waiting for the 8th Circuit Court of Appeals to make a final decision on lien stripping.  I’ve been telling people for months that I would really like to see what the appeal court has to say before I get seriously into lien strip work.

In a bankruptcy context, when  you see talk about “lien stripping,” it is about a process in Chapter 13 cases where a second mortgage can be treated as if it was unsecured.  This can be done, if it is permissible at all, in Chapter 13 cases where the value of the house is lower than the balance on the first mortgage, so that there literally is no security to support the second mortgage.  The second mortgage becomes no longer a mortgage on the house, no longer a lien that must be paid if you want to keep the house.  It is to be treated like any other unsecured debt.  Usually in Chapter 13 the unsecured creditors get paid very little, only a fraction of the full amount of the debt.

A lower court – the Bankruptcy Appellate Panel (or BAP) – ruled about two years ago in the Fisette case that the procedure is permissible.  The decision was promptly appealed to the 8th Circuit Court of Appeals, and we have been waiting for a decision ever since.  Finally the big decision was released yesterday.  I practially held my breath as I tried to figure out what the decision said. I printed a hard copy for myself to I could go over it more carefully.   It started out reading in a fairly positive way. As I flipped through the pages, at first I thought I was seeing a decision in favor of lien stripping.  A footnote on page 3 of the decision listed a string of cases from other courts which say that lien stripping is an acceptable procedure.  The opinion, however, comes to an abrupt end with the words, “The appeal is dismissed for lack of jurisdiction.”

Only “final” orders can be appealed.  The court said they didn’t think the order being appealed was final.  They sent it back to the lower court for “further judicial activity,” whatever that means.  They don’t seem to have decided a thing, and it’s very disappointing.

It is true that they did not overturn the BAP decision.  That means that the BAP decision, which said that lien stripping is OK, is the current law of the 8th Circuit.  However, the lower court judge this is apparently being sent back to is reputed to be very much against the lien stipping idea.  There is likely to be another lower court decision which again will be appealed.  It’s hard to tell, but the process could take years before we have the clarity I was hoping for.

It will take a while before the legal community in these parts has this decision fully digested.  It is very early to say what the meaning of it really is.  I’ll try to keep you posted.

This post is for general information purposes only, is not legal advice, and does not create an attorney-client relationship.  Please consult the attorney of your choice concerning the details of your case.  I am a debt relief agency, helping people file for relief under the federal bankr

Will Filing Bankruptcy Reduce my Monthly Payments?

Protecting your home and your stuff

Very often, the impetus for filing bankruptcy is mounting debt and unmanageable monthly payments. Refinancing can help to some degree but if the monthly payments are more than you can handle on your present income, something else has to be done. You may wonder if filing bankruptcy will reduce the amount you have to pay out each month to your creditors.

Under a Chapter 7 bankruptcy, your unsecured debt is usually completely removed by the bankruptcy discharge. There are certain exceptions such as some taxes, child support and student loans.  If you want to keep your car as part of your Chapter 7, you will have to keep paying your car loan even though the debt is discharged.  Similarly, if you want to keep your house in Chapter 7, paying the mortgage or mortgages is still required.  Many of our Chapter 7 clients wind up not owing any of their creditors anything. Many others don’t actually owe anything because the debts are discharged, but still voluntarily pay a car loan or a house payment so they can keep their house or car.  Some get rid of all their debt except for their student loans.  Others get rid of all their debt except for their taxes.  In cases where the taxes are old enough, usually over three years since the return was filed, some even do manage to get rid of their tax debt.  This allows you to get a fresh start in life. You can rebuild your credit and get a better handle on your financial life.

With a Chapter 13 debt reorganization plan, your income is first evaluated. All sorts of income can be used including your earned wages, child support, commissions, social security, spousal support, disability benefits, unemployment benefits, workman’s compensation and retirement incomes – as long as the income is received on a regular basis.  Gifts might also be included if they are recieved with regularity.

The next step in Chapter 13 is to determine your normal living expenses. This amount is set aside. Whatever is left after your living expenses is available for debt repayment. If you are unable to repay all of your debts within three to five years, a plan that allows you partially pay down your debt over that time frame is established, sometimes called a “best efforts” plan. The purpose of the partial repayment plan is to pay back as much of what you owe as possible. When you reach the end of the specified time, any amount remaining is discharged. In the majority of Chapter 13 cases, the amount of the monthly payments is set at a relatively low amount that the Debtor can afford. Also, in most Chapter 13 cases, only a small percentage of the overall debt is repaid.

With Chapter 7 you can end up with no monthly payments on unsecured credit related debt. With Chapter 13 you will more than likely have reduced monthly payments. It is best to discuss this with your bankruptcy lawyer to determine the best course of action for your situation.

This post is for general information purposes only, is not legal advice and does not create an attorney-client relationship.

How Is My Credit Affected By Bankruptcy?

Bankruptcy Credit Repair

Bankruptcy Credit RepairCredit rating is very important in our society. It determines how much money you can borrow to buy a car, a home or how much you can charge on credit cards. A strong credit rating gets you the best credit with the lowest interest rates because creditors see you as a good risk. Many people avoid filing bankruptcy because they fear the effects it will have on their credit rating.

Kelly Law Office does not do credit repair work.  From our perspective, those who claim to be able to repair credit appear to be making very questionable claims.  In the course of doing bankruptcy work, however, we get a lot of feedback from clients as to how the bankruptcy has affected their credit and their lives in general.  The overwhelming majority of the feedback is positive.

Just how a bankruptcy will impact your credit rating if you file a Chapter 7 bankruptcy or a Chapter 13 debt reorganization plan depends primarily on what your credit rating looks like when you make the filing. If your credit is very good, a bankruptcy of any kind will have a serious negative impact on your credit rating.  As a practical matter you will not have credit for several years.  What we hear is that the credit bureaus keep the bankruptcy filing on the credit report for ten years.  However, usually after three or four years, based on what we have been hearing from our clients, credit will start to improve.  Typically in any given year, Dave Kelly will regularly get phone calls from clients who filed three or four years earlier asking for copies of documents from their bankruptcy files.  Why are they asking for the info?  Because they want to use it as part of a credit application.  They have a banker or a lender who is about to give them a car loan or extend some other sort of credit.  Caution is recommended once credit is available again.  We would rather not see folks again for another bankruptcy years later.

If, however, your financial difficulties have been mounting for some time and your credit rating is already significantly damaged or will be in the near future, filing for bankruptcy might be the best move you can make.  It may, in fact, help you improve your credit.

Once you have completed the bankruptcy process, you are essentially debt free. While you have a bad credit score, you now have the ability to repay any new creditors. This makes you a better risk than when you were carrying all the debt. You may be penalized for bankruptcy and poor credit with higher interest rates but it is an opportunity to start rebuilding your credit. Under Chapter 7 protection, you can only file once every eight years. This gives you plenty of time to rebuild your credit once you are debt free.

If it has been less than eight years since you filed a Chapter 7 bankruptcy, you can still file a Chapter 13 bankruptcy, providing you are meeting the pre-established percentages for the debt you must repay.  There are time limits on getting at a discharge under Chapter 13 as well, but usually by the time the payment plan is completed in the Chapter 13, the time limit would have expired and the debtor would be eligible for the discharge.

Will Bankruptcy Stop the Creditor Harassment?

Debt Collector

Debt CollectorFacing financial difficulty is stressful enough. Dealing with credit collections can be miserable. Many collections agents are reasonable and will work with you. It always pays to be honest. Explain your situation and some may offer to renegotiate your terms, reduce your payments or offer some other type of assistance. You won’t know unless you talk to them.

Other collections agents are not so agreeable. While there are laws that govern the allowable behavior a collector can reasonably use, many will still attempt to coerce payment from you with threats and intimidation tactics. If you have tried to explain your situation to them and work something out but the harassment continues, your life can become increasingly stressful and depressing, affecting both your personal and professional life.

In this situation, you may need to talk to a bankruptcy attorney. Filing a Chapter 7 bankruptcy forces strict collection and contact laws to go into effect. It effectively prevents the creditors from contacting you. Their dealings must all be with your attorney or the court. If they continue to contact you or in any way attempt to collect on the debt you owe once the Chapter 7 bankruptcy has been filed, they can be sanctioned. If their violations are serious enough, usually involving multiple debtors, they can even lose their business license.

When a bankruptcy case is filed, a court order called the automatic stay goes into effect.  This order requires all the creditors to leave the debtor alone.  This stay remains in effect until the debts are discharged, at which point the creditors are required to not try to collect because the debtor no longer owes the debt.  After the automatic stay expires, however, a creditor with security can foreclose or repossess the security if the payments on the debt are not up to date.  So debtors who wish to keep a home, for example, would ordinarily have to keep making the payments on the mortgage.

Harassment is against the law and your bankruptcy attorney can help you put an end to the misery that accompanies financial hardship and collections actions. If you are being hounded at home and at work and are unable to find a reasonable solution on your own, a bankruptcy attorney may be the answer you are looking for. Don’t let the creditors to rob you of the chance to live in peace when help may be just a phone call away.

Are Your Co-Signers Protected Under Bankruptcy?

Plan ahead before you sign the marriage license.

Bankruptcy - Are CoSigners ProtectedIn some situations, you may have needed a cosigner to secure a loan or credit card. This is because there wasn’t enough data to support giving you the loan or credit on your own or because you were rebuilding credit after having had past issues. The purpose of the cosigner is to assure the lender that the debt will be made good. Often the cosigner is a close friend or family member which can make the topic of bankruptcy an especially sticky one. Whether or not your cosigner is protected under bankruptcy varies with the circumstances and type of bankruptcy you are filing for.

If you are filing under Chapter 7, the terms of the debt agreement you and your cosigner signed come into play and the creditor may be able to proceed against the cosigner. However, the cosigner is protected if you file under Chapter 13 Debt Adjustment providing the following criteria are met:

  • It must be consumer debt
  • The debt may not be the result of doing ordinary business
  • No benefit from the debt can pass to the cosigner

As long as you make the scheduled payments under the repayment plan, the creditor cannot attempt collection from the cosigner. Chapter 13 allows you to still pay off your own debts and protects your cosigner. However, if you miss your payments, the creditor may be able to attempt collection from your cosigner

The reason why the cosingers are protected in Chapter 13 is that the automatic stay – the court order issued when the case is filed telling creditors to leave you alone – extends to codebtors in Chapter 13.   The  automatic stay remains in effect during the payment plan, which usually would be five years.  Few Chapter 13 plans involve paying off all the debt.  Most of them pay only a small portion, after which the Debtor receives a discharge for whatever is unpaid.  The cosigner, however, does not receive a discharge unless he or she filed his or her own bankruptcy.  So after the payment plan is over, the creditor may once again pursue the cosigner.

If you are unable to maintain your payments under your Chapter 13 schedule, you can still apply for bankruptcy protection under Chapter 7. This will, however, make your cosigner immediately susceptible to collection attempts from your creditor.

Naturally, it is important to choose the right option when you consider bankruptcy, particularly if a cosigner is involved. Consult with a qualified bankruptcy attorney before you file for bankruptcy and possibly put your cosigner at risk too.

Recent Purchases Before Filing for Bankruptcy

When filing for a Chapter 7 bankruptcy, many debtors are concerned about the status of large or luxury purchases they may have made in the weeks or months before filing.

These purchases may have been for expensive jewelry, cars, boats, or other items. Whether these items can be retained by the debtor after filing for bankruptcy depends on the nature of the item and how and when it was purchased.

Credit Card Purchases

The trustee in a Chapter 7 bankruptcy will look to any major purchases you made in the past 90 days or even beyond in some cases. Also, a creditor may challenge your use of their credit card if it can show that your actions indicated an intent to not repay them.

For example, if you bought a $2,500 bicycle on your MasterCard three months ago and made no payments before filing, the creditor is very likely to file an objection to the discharge of that particular debt.  You will be accused of intending to run the debt through bankruptcy at the time it was incurred.  “Fraud” is the term the bankruptcy code uses to describe this behavior.   The creditor’s objection will be likely to prevail.

For some large items bought on a particular credit card, you may have unwittingly signed a purchase money security agreement. In this situation, the creditor could claim title to the item and demand you either return it, pay the current market value of it, or make monthly payments.

Reaffirmation and Redemption

For other expensive purchases made with cash, you may or may not be able to retain the item. Your assets and debts make up your estate. According to law, you have certain assets that are exempt from seizure by the trustee and assets that are nonexempt. Your exempt property is usually protected only up to a certain amount. For example, most states allow a limited homestead exemption regarding your equity. You can also exempt one automobile valued up to a certain amount.

 Automobiles and boats

If you just purchased an expensive car for cash, it is unlikely you can keep the vehicle since its market value will likely exceed the exempt amount.  Under the Minnesota exemptions, you can claim one car of a value up to $4,600;  or if you choose to use the federal exemptions, which are also available in Minnesota, you can claim up to $3,450.00 of equity in a vehicle as exempt.  So with the exemption being lower, why would you choose the federal exemptions?  Because the federal exemptions also include a wild card exemption which you can use for anything up to $11,975.  Excess equity in a car, or anything else that doesn’t fit in one of the specific categories, can be claimed as exempt under the wild card.  If you have assets that you are unable to exempt, however, you can expect the trustee to seize them unless you have the ability to buy the assets back from the trustee.

If you have a loan on the car, some of the lenders will require that you reaffirm the debt with a reaffirmation agreement as a condition of allowing you to keep the vehicle.  Most of the lenders, however, will let you just keep making the payments without a reaffirmation – a procedure called retain and pay.  A reaffirmation agreement is a contract which reinstates the loan as if the bankruptcy never happened.  Such agreements are to be avoided if at all possible.  Since 2j005 the bankruptcy code has not included retain and pay as one of the options, but most lenders will do it anyway.  Another option, one  which is still in the bankruptcy code, is redemption.  Redemption means paying in one lump sum – the full value of the vehicle or other security.  There are a few lenders out there who will finance redemptions, at a very high interest rate, but in general this is rare.

There are no specific exemptions for boats.  If the boat is a very modest one, you might be able to exempt it with the wild card.  Unless you can use the wild card, the trustee will likely sell any boat, and that money will go to the trustee and the creditors.  The best thing to do with a boat is usually to sell it before filing the bankruptcy – for fair market value of course.  You can use the proceeds to hire your lawyer.

Jewelry

Most states have a jewelry exemption.  Under Minnesota statutes the only jewelry exemption is for wedding rings  – up to $2,817.50.   The federal exemptions exempt $1,450 of any kind of jewelry. Your attorney will ask to determine the liquidation value of the jewelry, or how much you could get if you sold it.  A formal appraisal may be needed.  In some cases, the liquidation value is considerably less than what you paid for it and it may fit within an exemption.

If you bought the jewelry on credit and the creditor has a perfected security interest in the item, it could demand you return it or continue making payments. Taking legal action against you and then selling the item is generally an expensive process. In many cases, the creditor may agree to work out a payment arrangement or you could pay the redemption value in one lump sum.  Typically a payment plan would be written up as a reaffirmation agreement.

Reaffirmation agreements have to be filed with the court prior to the date of discharge for them to be legally enforceable.  This means the window during which they can be done is quite narrow.

If you have non-exempt jewelry, as with any asset that is non exempt, you can negotiate with the trustee to buy back the jewelry, if no security interest exists on it, once you determine its resale value.

In any of these scenarios, it is best to consult with a bankruptcy attorney before you file for Chapter 7 protection and to see if a Chapter 13 is more applicable or some other financial option is available.  The bankruptcy code is a mine field of “gotchas,” and it’s not a place you want to go without a lawyer.

The author of this article resides in Minnesota, and the references to exemption laws are intended only to apply to Minnesota residents.  The exemption scenario is different in every state; and if you are not from Minnesota, it could be very different in the state where you live.

This article is intended for general information purposes only and it not intended to be legal advice

The Most Common Reasons People File for Bankruptcy

Unemployment Cartoon

Unemployment CartoonWith the recent downturn in the economy, bankruptcy has become an increasingly popular way for people to relieve their debts. There are hundreds of reasons why a person may choose to file bankruptcy, but some reasons are more prominent than others. Here are the four most common reasons people file for bankruptcy in America:

  1. Medical Bills: With the number of uninsured citizens in the United States rising by the day, many families have high medical debt for accidents they could not pay for on their own. Medical bills can be upwards of $100,000 for one person, and that debt is typically more than one person can pay off. Bankruptcy provides patients with the opportunity to relieve their medical debts and start fresh in the future.
  2. Unemployment: Loss of work is another common cause of bankruptcy in the modern world. As people lose the ability to work, they lose the ability to pay their bills. Thus their debt piles up, and bankruptcy becomes the only solution they have to get back on their feet.
  3. Excessive Debt: Some people just make poor financial decisions, and they end up in debt because they over-exceeded their financial limitations. This is often the case with young adults who are not used to living on their own. Credit card debts and high car loans are some of the biggest financial problems in America, and they are among the most significant causes for bankruptcy.
  4. Divorce: Divorcees often encounter debt that was once part of a marriage. This, combined with the cost of divorce as a whole, may cause someone to build up enough debt to qualify for bankruptcy.

There are plenty of other reasons why you may feel pressed to file bankruptcy, but those are the most common ones at this time. If you happen to fit into one of those categories, you might want to speak with a debt relief attorney to assess your options.

Can I Keep My House If I File Bankruptcy?

Can the lien of the second mortgage be removed from my house? - Bankruptcy

Can I keip my house - BankruptcyOne of the most common questions we hear from our customers who are considering filing for bankruptcy is;

 If I file for bankruptcy can I keep my house?

Unfortunately, it isn’t a simple yes or no. The short answer is sometimes.

Here we will look at the factors that determine whether or not your house can and should be saved.

Chapter 7 Bankruptcy:

When filing Chapter 7, the debtor may or may not be able to keep their house. This liquidates all of your assets to pay your creditors. Your home is included by federal law.

The catch is that most states have their own form of “homestead law” that protects a portion of the equity of a debtor’s home from the bankruptcy process.

If a debtor has less equity than is protected by his state law, they should be able to keep their home as long as they keep making payments. Your home’s equity exemption is determined by the homestead laws of which state you reside.

Chapter 13 Bankruptcy:

When filing Chapter 13, the debtor can generally keep their house as long as they continue to make the mortgage payment.  If your equity in your home exceeds the amount protected by your local homestead laws, then Chapter 13 may be for you.

You might be able to stretch every dollar to make that mortgage payment, but should you? For instance, if you owe creditor’s more than your home is currently worth, your bankruptcy filing might be a good time to cut your losses and walk away.

Do I Want To Keep My House When I File for Bankruptcy?

There are other considerations which also determine your practical ability to keep your home. Are you caught up on payments? How much non-exempt equity do you actually have?  When making the decision whether to try and keep your home or let it go you will want to speak to an attorney in your area who is knowledgeable about local bankruptcy laws.

At the end of the day, it is all a question of whether your house represents an asset or a financial hardship.

When Bankruptcy Won’t Work

Bankruptcy is considered the ultimate relief of financial burdens, but that does not mean that it is right for everyone. In some cases, even bankruptcy may not be able to help you out of your debts. Before you rely on this procedure to remove the pressure from your shoulders, you need to assess your life after bankruptcy. Do you think you could make it then? If not, going bankrupt may be a poor choice

You are usually allowed to keep your vehicle, home, and some other property when you file for bankruptcy, which means that you may still have loans to carry after the process is complete. If your income has been reduced to the point that you can no longer afford to pay for the home you live in and the car you drive, you need to first settle your finances before you can use bankruptcy for assistance. This means that you may have to give back your home, car, or both to get into something you can afford. You can then use the bankruptcy to wipe away any excess money owed to your former lending institutions.

Be realistic about your financial prospects so you do not end up in the same situation later on. After a successful Chapter 7 you will not be able to file Chapter 7 again for another eight years, and you certainly won’t be able to rebuild your credit if you have excessive loans to pay after the process. Rather than getting into that kind of bind, you need to figure out if bankruptcy is right for you at this point in time.

As you know by now, bankruptcy is not an option for everyone. Instead of jumping into this process with the hope of making your life better, you should assess the situation you will be in afterward. If your bills do not fit your current income, no bankruptcy specialist is going to be able to help you out.

How Does Bankruptcy Work

Payday loan worries

Filing for bankruptcy is often seen as an irreversible act that is only to be reserved for dire and desperate circumstances. For many, the very thought of filing brings to mind images of long shameful court battles and loss of wealth, reputation, and good credit standing.

In truth this undesirable image is largely exaggerated and undeserved. What many people don’t realize is that filing for bankruptcy protection is often the first step in climbing out of the dark hole of debt and into the light of financial recovery.

Oh No! Not the “B” Word

Much of the mystery and taboo associated with the subject comes from a general lack of understanding about how bankruptcy works and what it means for the person who is filing. Here we hope to dispel some of the myths and misinformation that surrounds the subject by offering you a brief look into how bankruptcy works.

In the U.S., bankruptcy is constitutionally required to be placed under federal jurisdiction. Thus congress has enacted a number of statutes governing bankruptcy law and proceedings. Likewise, bankruptcy cases must be filed in United States Bankruptcy Court. Although cases are filed under federal jurisdiction, state laws greatly affect certain aspects of the process so it is important to understand that bankruptcy laws vary significantly from state to state.

Six Shades of Debt Relief

Bankruptcy is a blanket term that refers to a variety of legal arrangements that are available to a debtor seeking to liquidate, restructure or resolve his debt. Under Title 11 of U.S. Bankruptcy Code there are six distinct chapters or types of bankruptcy available to debtors depending on who they are and their financial situation.

All attorney David Kelly handles, however, are Chapter 7s and Chapter 13s, so discussion here will be limited to those two kinds of bankruptcy.  We we will focus on the those two types of bankruptcy available to most individuals who have fallen on hard times and are seeking relief from creditors. We will take a look at each process and how each type of bankruptcy works.

How Does Chapter 7 Bankruptcy Work?

Chapter 7: Basic Liquidation

As the name suggests, Chapter 7 is sometimes decribed as the basic liquidation is the sale of the debtor’s non-exempt property and the distribution of the proceeds to creditors. One might think that Chapter 7 is generally the “harshest” form of bankruptcy as it can involve the mandatory sale of ones assets and generally does not involve structured reorganization of debt or a payment plan.

In most states bankruptcy proceedings are handled by a U.S. Trustee operating under the authority of the department of justice. In most Chapter 7 proceedings the process starts with the debtor filing a petition with the bankruptcy court that serves the area where the debtor lives, does business or houses their principal assets.

Along with the petition, the debtor must also submit a collection of documents that provide a detailed account of the debtor’s financial situation.  This includes but is not limited to income, assets, living expenses and debt obligations.

Exempt Property:

Please know that most of the Chapter 7 clients at Kelly Law Office don’t have any assets liquidated at all.  Most if not all of their assets can be claimed as exempt, so that they may keep them.  For assets which are not exempt, the Trustee may allow the Debtor to buy the asset back by paying it’s value rather than surrendering the item itself.

Among the documents filed is a schedule of the debtor’s exempt property. This allows the debtor to retain all property that falls under federal and state protection from the liquidation process. It is important for a person filing for bankruptcy to consult with an attorney to determine which of his assets are exempt from the process.

Stop Collection:

Filing for Chapter 7 stops collection actions against the debtor. As soon as the debtor files for bankruptcy the assigned clerk gives notice to creditors and collection agents listed in the filing to stop all lawsuits and collection efforts against him.

Conclusion:

While the process can involve all eligible assets being repossessed and sold in an effort to satisfy all or a portion of the debtor’s outstanding debts, it is unusual for our clients to lose any assets at all. If any assets are lost, it is usually relatively minimal.  Once the case is completed, most remaining debt is discharged and, with certain exceptions such as student loans, the Debtor no longer owes anything to the creditors listed in the filing.

Side Effects:

Filing for Chapter 7 Bankruptcy has several effects on the debtor in addition to the obvious outcome of debt relief. The filing is recorded on the debtor’s credit history and also affects their ability to file bankruptcy again using the same or other chapter filings.

Chapter 13: Individual Debt Adjustment (Personal)

Chapter 13 Bankruptcy is somewhat similar to Chapter 11 in that the debtor is working to formally or legally restructure and adjust their debt burden in a way that allows them to move forward without the constant hardship of collection activity.

Stop Collection:

Filing for Chapter 13 stops most collection actions against the debtor. As with Chapter 7 filings, the stay or stop in collection activity may only be temporary if one of the creditors is able to get an order lifting the stay with regard to the particular debt owing to that creditor. As soon as the debtor files for bankruptcy the assigned clerk gives notice to creditors and collection agents listed in the filing to stop all lawsuits and collection efforts against him.

Save Your Home

One notable advantage of Chapter 13 filings is that the Debtor may be able to use the Chapter 13 payment plan as a tool to get mortgage payments caught up.  This can obviously help avoid foreclosure of his home. With a Chapter 7 filing, foreclosure may be delayed, but the Debtor is on his or her own to get the payments brought up to date.  While bringing payments up to date in Chapter 13, the Debtor must also start and continue making the regular payments on the mortgage which come due after the case is filed.  Many succeed at this, but often it is very difficult..

Conclusion

A Chapter 13 Bankruptcy may be preferable to a Chapter 7 for the debtor who wishes to get caught up on a mortgage which is behind.  Income taxes which are behind can also be brought up to date in a similar manner under Chapter 13.  The payment plan is not based on the amount of the debt but upon what the Debtors can afford to pay.  Debtors are required to devote their entire disposable income – what’s left over after reasonable living expenses – to their Chapter 13 Plan payments.  If the Trustee is satisfied that a good faith effort is being made, the creditors have little choice but to accept the proposed plan.  Little if any negotiation is involved in most cases.

Summary:  How Bankruptcy Works

Bankruptcy is a legal procedure or device that follows standard guidelines. Here’s how it works:

  1. Debtor or Creditor brings to the attention of the court a debt or group of debts which the debtor has demonstrated he is unable to otherwise pay or resolve.  In Chapters 7 and 13 all debts must be listed.
  2. Debtor (or sometimes the creditor) initiates bankruptcy filing which establishes the chapter under which said bankruptcy is to be carried out.
  3. Debtor is required to furnish a significant body of evidence detailing his financial standing and inability to pay the debts in question.
  4. Creditors are given the opportunity to review the evidence and have the opportunity to file certain objections if they believe that the Debtors do not qualify for the relief they are requesting.
  5. If all goes well, the Debtors will receive a Discharge after a certain period of time, which is essentially a court order which says all or a substantial part of the debts are gone.

This is a basic guide to how the most common forms of bankruptcy work. For more information we recommend you contact an attorney to determine your best course of action given your particular set of circumstances. Bankruptcy law varies greatly from state to state and circumstance to circumstance. We want to make sure you have the tools and knowledge to address your unique set of circumstances as best as possible. It is strongly suggested that you call attorney David Kelly for a no-cost screening over the phone (952-544-6367).