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Bankruptcy Law

The decision to file for bankruptcy is a decision that can both emotional and moral. It is difficult for people going through financial hardship to consider bankruptcy. Persons who reach this stage feel as though they failed or are engaging in activities that are in some way unethical. This could not be further from the truth. Filing bankruptcy is a decision that should be based on the amount of your debt and your ability to repay over time.

Struggling with the burden of debt and just hanging on by making minimum payments will benefit only your creditors. Making the minimum payments creates a never-ending cycle many have referred to as "debt slavery," where, despite significant payments made each month, the balances never go down because of high interest rates.

We at Compass Law Center LLP., are here to tell inform you this cycle can be broken. Our team of attorneys have successfully guided our clients through the insolvency process. Whether you have developed debt from credit cards, student loans, medical bills, late mortgage payments, or taxes, we can give you the insight you need to make the best decision for your circumstances.

Chapter 7 Bankruptcy, your Path to a Fresh Start

Chapter 7, sometimes called "liquidation bankruptcy" or "straight bankruptcy," is generally the simplest and quickest form. Chapter 7 is available to individuals, married couples, and all forms of businesses, including corporations and partnerships. With this filing, you will turn over all nonexempt property to the trustee, who then converts it to cash for distribution to your creditors. In most cases, all of the filer’s assets are exempt, which means they can quickly achieve a clean slate without losing property through liquidation. The primary purpose of liquidation is to discharge certain debts so you can have a "fresh start." You will have no personal liability for discharged debts after the filing and completion of your case.

To qualify for Chapter 7 bankruptcy, you must meet certain income requirements, which the Bankruptcy Court evaluates through their bankruptcy schedules. Essentially, your necessary living expenses must use most of your income so that no money is leftover at the end of the month.

Once our bankruptcy lawyers have filed your Chapter 7 bankruptcy case, an "automatic stay" is automatically ordered by the court, which stops all creditor collection actions against you. Approximately 30 days after the Chapter 7 bankruptcy petition is filed, a meeting called the "meeting of creditors" will be conducted by the bankruptcy trustee. Although it is called a "meeting of creditors," it is extremely uncommon for creditors to attend this meeting. You are required to attend this meeting and provide honest answers to the bankruptcy trustee's questions.

 

Once the bankruptcy trustee is satisfied that the information you provided is accurate, you will become eligible to have your debts discharged. Most Chapter 7 bankruptcy cases take about six months from the initial bankruptcy filing to be discharged.

Chapter 13

Chapter 13 bankruptcy is sometimes referred to as a wage earner’s plan, because the person filing is still employed and earning regular wages. As such, this form of bankruptcy enables individuals with regular income to present a plan to repay all or part of their debts.

Under the Chapter 13 bankruptcy law, debtors propose a repayment plan in which they will make installment payments to creditors over a period of three to five years. If your current monthly income is less than the applicable state median, the plan may be for three years, unless the court approves or requires a longer period of repayment under the law. If your current income is greater than the applicable state median, the insolvency plan generally must continue for five years. The plan cannot provide for payments over a period longer than five years. During the established repayment time, whether it be three or five years, the law forbids creditors from initiating or continuing collection efforts.

Chapter 13 acts like a consolidation loan under which the debtor makes the plan payments to a trustee who then disburses payments to creditors evenly. For the most part, unsecured debt is dischargeable in both Chapter 7 and Chapter 13, and backed-up secured debt, like back mortgage payments, can be “caught up” in Chapter 13, which is common practice.

There are a great many benefits associated with filing for Chapter 13 bankruptcy. This filing gives you the opportunity to save your home from foreclosure by creating a repayment plan for mortgage lenders. By filing under Chapter 13, individuals can stop foreclosure proceedings, and have the opportunity to cure delinquent mortgage payments over the course of the time established for completing the plan.

Another advantage is that it allows individuals to re-amortize secured debts (other than a mortgage for their primary residence) and pay them over the life of the plan. Taking this action may lower the payments and make them more affordable.

On the other hand, Chapter 13 bankruptcy also has some inherent negatives. While in the Chapter 13 repayment plan, the debtor must still make on time payments for all debts outside the Chapter 13 bankruptcy. Payments include all mortgage payments in full and on time as they come due. Chapter 13 law also has a special rule that protects third parties who are liable with the debtor (co-debtors) on “consumer debts.” This co-debtor “stay provision” protects co-signers during the plan.

A corporation or partnership may not file for Chapter 13. Further, for an individual to file, whether self-employed or operating a business, the individual’s unsecured debts (not used as collateral for debts) must be less than $336,900, secured debts (collateral for debts) must be less than $1,010,650.00 and the person must demonstrate that their plan is set up in a way that allows the debtor the ability to make their Chapter 13 plan payments over the 3 or 5-year period.

At Compass Law Center, LLP, we have represented many clients through the bankruptcy process. We are prepared to represent you and help you secure a stronger financial future. We offer free consultations to prospective clients, and we would love the opportunity to help you understand the options available and the choice that fits your situation best.

If you have any questions or concerns, please contact our offices and one of our attorneys will be happy to assist.