August 17, 2017

Bankruptcy FAQ

 

FILING BANKRUPTCY  VS  CREDIT COUNSELING/DEBT MANAGEMENT

Credit Counseling or Debt Management plans typically does not provide the promised results while at the same time severely harming ones credit.

DEBT SETTLEMENT

Debt settlement can be even worse. Under these plans there is an extended period during which the unsecured debt goes several past due.  After this period that it is possible to negotiate a lower payoff of the debt.  However, during this period the debtor’s credit will hit a severe low so that the lender will write off the balance owed or “charge off” the balance.  This also reflects badly on the credit report.  And then to add injury to insult the lender will reports the charge off to the IRS as a bad debt on a Form 1099-C.  The IRS will treat the charged off amount as income to the taxpayer who will then owe income tax on the charged off amount.

 

WHAT IS THE MEANS TEST?

 

Effective October 17, 2005, Congress amended the bankruptcy law to impose new income-related requirements for all debtors who file for either Chapter 13 or Chapter 7.  It was Congress’ intent in enacting the means test to screen out those debtors that could propose a feasible Chapter 13 plan and repay some portion of their unsecured debt and limit Chapter 7 cases to only those debtors that could not propose a feasible Chapter 13 plan.  Whether this Congressional intent has been realized is a question for considerable debate.  However, all prospective Chapter 7 debtors must pass the means test in order to file Chapter 7.  The Bankruptcy Administrators Office (“BA’s Office”) reviews all Chapter 7 cases to insure that the debtor has properly complied with the means test.  If the BA’s Office determines that the debtor does not pass the means test, then a motion to dismiss the debtor’s Chapter 7 case is filed by the BA’s Office and a hearing is held by the court.  This is an area of the bankruptcy law that the debtor will rely heavily upon the debtor’s counsel.

 

 

WHAT SHOULD I DO IF I OWE MONEY TO MY BANK OR CREDIT UNION?

If the bank or credit union at which a debtor has a checking or savings accounts is also a creditor, then it is possible that the bank will freeze all of the funds in the account(s) on the date the bankruptcy petition is filed.  Such a freeze will cause checks that have not cleared the bank to bounce.  Therefore, a debtor should open a new bank account with a bank that he/she does not owe money to prior to filing bankruptcy and cease using the old checking or savings account several weeks prior to filing their bankruptcy petition.  It is not necessary to close the old account(s), but all but a few dollars should be withdrawn from these accounts.

 

If a paycheck is automatically deposited to the account, it is not necessary to change the deposit.  Any funds that are deposited into the account after filing bankruptcy cannot be frozen.

 

SHOULD I FILE A CHAPTER 13 OR A CHAPTER 7 BANKRUPTCY?

 

Ultimately the debtor must decide for him/herself whether filing bankruptcy is the proper action to take, and if so, under which Chapter they should file.

 

Factors to consider are as follows:

 

1.  If the debtor does not make enough money to pay their current living expenses, then a Chapter 13 plan would not be feasible.

 

2. Chapter 7 has the advantage of discharging all debts within 90 days enabling the debtor to begin a “fresh start” immediately.  A Chapter 13 plan requires the debtor to   make payments for 3 to 5 years.

 

3.  However, there are three reasons a debtor may be required to file chapter 13.  These reasons are; 1) the debtor has a particular asset(s) whose value is above the allowable exemptions.  If the debtor filed Chapter 7 the Chapter 7 trustee would sell the asset(s), but the debtor wants or needs to keep the asset.  In this case filing Chapter 13 save the asset(s); 2) the debtor does not pass the means test and his only option for relief is to file Chapter 13; or 3) the debtor is in default on a secured loan and needs to file Chapter 13 to stop a foreclosure or repossession and cure the default.

 

4. Initial fees are generally higher to file Chapter 7, but total fees over the life of a Chapter 13 plan are generally higher than the total fees incurred to file Chapter 7.

 

 

WHEN DO I GET RELIEF FROM MY CREDITORS?

Immediately.  Upon the filing of a bankruptcy petition, the court sends an order to all of the creditors listed in the petition enjoining or forbidding them from taking any action to collect the debt.  The creditors may not to call a debtor at home or at work, continue a foreclosure or repossession or take any other action to collect the debt due them.

 

WHAT SHOULD THE CREDITORS BE TOLD

Once a debtor has retained an attorney to file bankruptcy then any creditor that contacts the debtor should be told that an attorney has been retained and give the creditor the name and telephone number of the attorney.  The attorney’s office should also be told that the debtor has given this information to the creditor so that the attorney is ready to talk to the creditor should the creditor contact the attorney or the office.

 

HOW DO I GO ABOUT FILING BANKRUPTCY?

If you know at the point that you think you need to file or at least have a consultation with the attorney to discuss the need for filing, complete the downloaded questionnaire and call or email the office through this website to schedule an appointment for a free consultation.  The consultation will take about 45 minutes to an hour.  You will need to provide, if applicable, the following information at the time of consultation:

A.  The last bank statement you received for all bank accounts in your name.

B.  The last six (6) months of  pay stubs you have received from your employer.

C.  Last two years of federal income tax returns.

D. A recent Credit Report and/or a complete list of all creditors including addresses and amounts owed.  Also please bring any billing or debt collections letters as well as any legal papers, foreclosure pleading and law suits you have received.

E. A current drivers license and social security card.

 

WHAT DO YOU CHARGE AND WHEN MUST IT BE PAID?

The attorney fee for a consumer Chapter 7 bankruptcy case is determined by the  complexity of the case.  A fee quote will be made at the time of consultation.  In addition to the professional fee, there is a Court filing fee of $306.00 and the cost for the pre-filing credit counseling which averages between 34.00 and 50.00 depending on which service is used.

The attorney fees in Chapter 13 consumer bankruptcy cases are set by the court at a standard fee of $3,700.00.  In very complex cases the fee may be higher, but any professional fee above the standard fee must be reviewed by the Bankruptcy Administrators Office and approved by the court.  A portion of the attorney fee is paid before filing with the balance being paid through the Chapter 13 plan.  The court filing fee for a Chapter 13 case is $281.00 and the credit counseling fee is the same as for a Chapter 7 case.  Fees and cost may be paid in installments payments, but payment must be made in full before the bankruptcy petition can be filed.

WHAT PROPERTY IS EXEMPT?

Exempt property is simply property that a debtor may keep and protect from his creditors and the claims of the Chapter 7 or 13 Trustee’s.  The basic purpose of bankruptcy is to allow a debtor that has become overburdened with debt to free himself of that burden and get a “fresh start.” The law allows a debtor to keep certain property to facilitate this fresh start.  Exemptions are broken down into categories and are determined under North Carolina law if the debtor has resided in North Carolina for at least two years at the time of filing.  If the debtor has not resided in North Carolina for two years, the exemptions are determined under either the exemption statutes of the law of the state in which the debtor resided for the six months prior to moving to North Carolina or under the exemptions provided for in Section 522(d)(1) of the U. S. Bankruptcy Code.  For a debtor that has resided in North Carolina for two (2) years prior to filing the exemptions per person are as follows:

 

1. Up to $35,000.00 of equity in the debtor’s primary residence

2. Up to $3,500.00 of equity in a motor vehicle

3. Up to $5,000.00 of equity in the debtor’s household goods and furnishings plus $l,000.00 per dependent up to 5

4. $2,000.00 of equity in the debtor’s tools and equipment used in a trade or business

5. Depending on the amount of equity in the debtor’s primary residence an additional exemption that can be applied to any other property. This is referred to as the wild card exemption.

6. The cash value of a whole life insurance policy in most cases

7. Health aids used by the debtor

8. Compensation for certain types of pre-filing injuries

9. Qualified college savings accounts up to certain limits

10. ERISA qualified retirement benefits

11. Certain qualified government benefits

12. Wages earned by the debtor within a specified time before filing.

13. Alimony and child support also referred to as domestic support

14. Possibility other exemptions

 

Real property owned by the debtor and spouse as tenants by the entirety may be exempt under the common law provisions of tenancy by the entireties.  This is not a statutory exemption but has the effect of an exemption.  This area of the law should be review carefully by the debtor’s attorney.