Wednesday, 09 July 2014 00:00

CHAPTER 13 RESOURCE LINKS

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United States Bankruptcy Courts 
The official website of the United States Bankruptcy Courts includes a variety of useful information about bankruptcy.

Bankruptcy glossary 
A glossary of bankruptcy terminology that explains, in layman's terms, many of the legal terms that are used in cases filed under the Bankruptcy Code.

Bankruptcy fees 
Bankruptcy filing fees, maintained by the Administrative Office of the U.S. Courts on behalf of the U.S. Courts.

Bankruptcy forms 
Official Bankruptcy Forms, Procedural Forms and the Bankruptcy Forms Manual.

Chapter 13 basics 
General information about individual debt adjustment under Chapter 13 of the Bankruptcy Code.

Bankruptcy information for consumers 
General information regarding consumer debt and bankruptcy from the American Bankruptcy Institute.

National Foundation for Credit Counseling (NFCC) 
The NFCC's website includes numerous educational resources including credit facts, budget calculators and more.

  1. Experian 
    Information for consumers about credit reports, establishing credit, risk scores and more.

Trans Union LLC 
Frequently asked questions about credit reports.

Copyright © 2019 Chris Bush, Attorney at Law.

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

Wednesday, 09 July 2014 00:00

REBUILDING YOUR CREDIT AFTER BANKRUPTCY

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Bankruptcy has a long-lasting impact on a person's credit rating and on his or her ability to obtain credit in the future. The impact is not entirely negative. In some cases, filing bankruptcy may actually improve a bad credit rating. In addition, there are a number of steps a person can take to improve his or her credit after bankruptcy. An experienced bankruptcy attorney at DebtDoc in San Diego, CA, can offer valuable advice about how credit can be improved after a bankruptcy, and how to work for a better financial future.

Discharge results in an improved debt-to-income ratio

Most of the debtors who consider filing bankruptcy already have poor credit histories. Their credit ratings have suffered because of slow payments, late payments, repossessions, extended credit, charge-offs, foreclosures or judgments. After their bankruptcy, however, the discharged debts will no longer count against their income, so their credit may be better after the discharge than it was before. In addition, while a bankruptcy case will remain on an individual's credit report for up to ten years; late payments stay on for up to seven years, so the effects are similar. Bankruptcy, however, gives consumers a chance to improve their credit faster because they will have an improved debt-to-income ratio after discharge.

Using credit cards wisely

In some cases, individuals may be able to keep one of their credit cards even after bankruptcy. They may retain a card that they already have but that has no debt on it, or they may reaffirm a debt on a card, which means that they sign a contract with the credit card company after filing bankruptcy that says the debt will be paid anyway if the holder is allowed to keep the card. Some companies are willing to agree to this arrangement because they will be paid for the debt, whereas without reaffirming the entire debt could be discharged in the bankruptcy proceeding.

A secured credit card is another option for rebuilding credit after a bankruptcy. A secured credit card is issued by a bank and backed up by money that is kept on deposit with the bank that issued the card. The bank account is the security for the card. If the bill for the credit card is not paid on time, the bank may use the money in the account to cover the payment. The limit on the card can be increased by increasing the balance in the linked bank account. The issuers of secured credit cards report about their customers to the credit bureaus, just like the issuers of other credit cards, so any subsequent positive payment history will be available to future creditors. The interest rates for secured credit cards are often higher than the rates for non-secured cards, but they still can be worth the extra cost by virtue of the redeeming value of the new and reported financial stability.

Co-signed loans

Still another way to re-establish credit after a bankruptcy is to obtain a loan with a co-signor whose positive credit convinces the bank or other lender that the loan is a safe bet. As payments are made on the cosigned loan, the positive credit history affects both borrowers.

"Credit-repair" services

One "credit repair" method to avoid after bankruptcy is seeking help from an unscrupulous "credit-repair service." Many consumers pay substantial sums of money to so-called "credit clinics" to "fix" their credit reports when, in actuality, only time can improve bad credit. A credit repair service or clinic can legally do nothing that a consumer cannot do on his or her own, for free. Some credit-repair companies actually encourage consumers to commit fraud by attempting to create a second identity. The Federal Trade Commission has investigated these often-fraudulent services and warns consumers to be wary of promises that seem shady or too good to be true.

Speak to a bankruptcy lawyer

In order to make the most of a bad situation, debtors must learn from bankruptcy and demonstrate greater financial responsibility in the future. A lawyer experienced in bankruptcy law at DebtDoc in San Diego,CA, is in a strong position to advise consumers not only before and during the bankruptcy process, but also after, guiding them through the necessary steps to improve their credit ratings and avoid future financial catastrophes.

Copyright © 2019 Chris Bush, Attorney at Law.

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

Wednesday, 09 July 2014 00:00

CHAPTER 13 BANKRUPTCY - AN OVERVIEW

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The bills are stacking up, demanding calls and letters are arriving with increasing frequency and despite the best of efforts, the overdue debts just cannot be paid. In such cases, filing bankruptcy under Chapter 13 of the Bankruptcy Code may provide a solution to what seems like an insurmountable problem. Once considered a last resort, bankruptcy has evolved into an accepted method of resolving serious financial problems. If you are facing serious financial challenges, it is important to seek the counsel of an experienced bankruptcy attorney at DebtDoc to determine whether filing under Chapter 13 is right for you.

Q: How does a Chapter 13 bankruptcy case work?

A: Chapter 13 of the federal Bankruptcy Code allows a consumer to repay all or a majority of his or her debts through a payment plan approved by the Bankruptcy Court. When the plan is in place, creditors generally are prohibited from collecting debts directly from the debtor. Instead of paying his or her creditors directly, the debtor pays a certain amount every month to the Chapter 13 Trustee, and the Trustee distributes the money to the creditors, as provided in the Chapter 13 plan. When the last payment is made, the debtor is no longer liable for the remainder of his or her dischargeable debts.

Q: How long does it take to complete a Chapter 13 plan?

A: A Chapter 13 plan lasts for three years (36 months) unless the debtor can pay off all debts in less time. Under certain circumstances, the court may approve a plan that lasts as long as five years.

Q: How is Chapter 13 different from Chapter 7 from the point of view of the debtor?

A: The essential difference between Chapter 7 and Chapter 13 is in the handling of the debtor's property. In a Chapter 7 case, all nonexempt property owned by the debtor is sold, and the proceeds are used to pay as many of the debtor's debts as possible. In a Chapter 13 case, a debtor's income is applied towards payment of as many of the debtor's debts as possible, but a Chapter 13 debtor typically retains more of his or her nonexempt property. In addition, the discharge issued in a Chapter 13 case is usually broader than a Chapter 7 discharge, and will relieve the debtor of liability for several types of debts that are not discharged by a Chapter 7 case.

Q: Why would a debtor choose Chapter 13 over Chapter 7?

A: Chapter 13 is the preferred choice for a person who wishes to repay most or all of his or her unsecured debts, and whose income is sufficient to allow him or her to do so in a reasonable amount of time. In addition, if the debtor has a considerable amount of nonexempt property, or a lot of valuable exempt property used as security for debts, this property could be lost in a Chapter 7 case, and so Chapter 13 may be the preferred option. Some other types of debtors, whose debts might not be discharged under Chapter 7 and those with one or more large debts that may be discharged only under Chapter 13, might opt for Chapter 13 over Chapter 7.

Q: What debts are paid by a Chapter 13 plan?

A: The plan may pay any and all debts of the debtor, including secured and unsecured debts, and even debts that are non-dischargeable, such as student loans and spousal and child support.

Q: How much must the debtor pay to the trustee?

A: The law says that all of a debtor's "disposable income" received during the time of the plan must be paid to the trustee. The law defines "disposable income" as all income earned or received by the debtor that is not reasonably necessary for the support of the debtor and the debtor's dependents.

Q: Who is the trustee?

A: The trustee in a Chapter 13 case is someone who is appointed by the Bankruptcy Court to receive the regular payments from the debtor, distribute those payments to the creditors according to the Chapter 13 plan and administer the bankruptcy case until it is closed. The debtor is always required to cooperate with the Chapter 13 trustee.

Q: May a self-employed person file under Chapter 13?

A: Yes. A self-employed person meeting the eligibility requirements may file under Chapter 13 and may continue to operate her or his business during the resolution of the bankruptcy case and the completion of the plan.

Q: Should a married couple file a joint Chapter 13 petition?

A: If both the husband and wife owe a significant amount of money, they may wish to file jointly under Chapter 13, even if only one of them has income. Otherwise, the non-filing spouse could still be liable for the unpaid debts.

Q: May a debtor convert a Chapter 7 case to a Chapter 13 case?

A: Yes. A Chapter 7 case may be converted to a Chapter 13 case at the request of the debtor at any time before the case is closed, unless the case was converted previously from Chapter 13 to Chapter 7.

Copyright © 2019 Chris Bush, Attorney at Law.

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

When a Chapter 13 debtor enters into a wage-earner plan, he or she commits the next three years' disposable income — that portion of the debtor's income not required to meet the necessary needs of the debtor and his or her dependents — to the repayment of debt. Often, a debtor's income will increase after the plan is in place, and the question arises as to what becomes of this increase in income. A lawyer at DebtDoc in San Diego, San Diego, can answer these and other Chapter 13 questions as they arise, providing information, reassurance and competent and zealous advocacy throughout the bankruptcy process.

The debtor may be allowed to retain the increase in income unless the increase is significant and there are no offsetting increases in expenses.

The Bankruptcy Code requires that the debtor contribute his or her projected disposable income toward the plan payments for the first three years (36 months) of the plan. Although the Code imposes this requirement only when the trustee or a creditor demands it, in reality the trustee always requires it, at least at the beginning of the plan. Whether changes in salary will change the payment plan depends on a complete consideration of all of the relevant circumstances.

It is possible that a debtor's income could change after he or she files the petition, but before the court has confirmed the plan, which makes it binding on the creditors. A debtor may change jobs, get a raise or start a second job. During the time between filing and confirmation, the trustee will watch the debtor's disposable income to make sure that the payments fit with the debtor's income level and make any changes to the plan.

If the debtor's income changes within the first three years (36 months) of the repayment plan, it may not be necessary to make changes to the payment amounts. However, if the debtor's income increases by a significant amount, the trustee may ask that payments be adjusted accordingly. The trustee generally is not responsible for closely monitoring the debtor's income. After three years of a confirmed plan, if the plan even extends that long, there is no specific requirement in the Bankruptcy Code that disposable income be contributed to the plan, so an increase in income at that point in time would probably make little difference.

The trustee will consider not only the salary increase, but also whether there has been a corresponding increase in disposable income on which the payments are based. Disposable income is the amount of the debtor's salary that is left after deducting all reasonable living expenses. If the debtor's expenses increase along with his or her salary, the debtor's disposable income may not change and the payment plan will not change either. If the debtor's disposable income increases by a substantial amount, the trustee may ask for the payments to also increase. If the plan goes beyond 36 months, the increased payments may actually reduce the length of the plan. This would mean that the debtor has paid off his or her debts sooner and would receive a discharge earlier.

Speak to a bankruptcy lawyer

It could be disheartening to a debtor to receive a raise and have to turn it all over to the trustee for debt repayment, but that is not always the effect of a salary increase. A lawyer at DebtDoc in San Diego, CA, can put your mind at ease when questions about a Chapter 13 bankruptcy arise.

Copyright © 2019 Chris Bush, Attorney at Law.

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

Wednesday, 09 July 2014 00:00

DEBTS THAT REMAIN AFTER A CHAPTER 13 DISCHARGE

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A Chapter 13 discharge affects only those debts provided for by the plan. Any debts not provided for in the plan will remain, and the debtor will have to pay them in full, even after discharge. Additional exceptions to a Chapter 13 discharge include, generally, claims for spousal and child support; educational loans; drunk driving liabilities; criminal fines and restitution obligations; and certain long-term obligations, such as home mortgages, that extend beyond the term of the plan. A lawyer at DebtDoc in San Diego, CA, can explain which debts are "erased" as a result of a Chapter 13 discharge and which will remain the obligation of the debtor.

Taxes

Taxes more than three years old are not dischargeable if a return was never filed, the return was filed within two years of filing bankruptcy or they arose in connection with a fraudulent return or willful attempt to evade taxes. 11 U.S.C. § 523(a)(1). Also nondischargeable are debts incurred to pay a state or local tax that otherwise would have been nondischargeable. 11 U.S.C. § 523(a)(14).

Fraudulently incurred obligations

Obligations obtained by false pretenses, a false representation, actual fraud or the intentional provision of false or incomplete financial information respecting the debtor or an insider on which the creditor relied are nondischargeable. 11 U.S.C. § 523(a)(2).

Unscheduled debts

Unscheduled debts, or debts not disclosed in the debtor's petition, are nondischargeable unless the creditor had actual or constructive knowledge of the debtor's bankruptcy. 11 U.S.C. § 523(a)(3).

Spousal support and child support

Domestic support obligations and obligations owed to a spouse, former spouse or child as a result of divorce or separation are nondischargeable. 11 U.S.C. § 523(a)(4) and (a)(15). The term "domestic support obligation" means a debt owed to or recoverable by a spouse, former spouse or child of the debtor in the nature of alimony, maintenance or support pursuant to a separation agreement, divorce decree or property settlement agreement. 11 U.S.C. § 101(14A).

The effect of a discharge on child and spousal support obligations depends upon whether the debtor filed under Chapter 7 or Chapter 13 of the Bankruptcy Code. Whereas a Chapter 7 filing will have little effect on such obligations, a Chapter 13 proceeding may stop the collection activities, at least temporarily. The difference between chapters arises because, although all bankruptcies stop or "stay" creditors' efforts to collect debts, the Bankruptcy Code excludes actions to collect child support or spousal maintenance from the stay unless the creditor attempts to collect from the "property of the estate," and the different chapters of the Code define this term differently.

In a Chapter 7 proceeding, "property of the estate" includes all possessions, money and interests the debtor owns at the time he or she files. Money earned after the bankruptcy is filed, however, is not property of the estate. Since most child and spousal support is paid out of the debtor's current income, the bankruptcy should have little effect. Under Chapter 13, however, the Code considers the debtor's earnings as property of the estate, since the wage-earner plan is based on making payments from the debtor's current income rather than from liquidated assets. As a result, support collections may be stayed. The court can decide to remove the stay to allow for withholding alimony and child support from the debtor's income. Whether it does so may depend on how well the wage-earner plan provides for child and spousal support. If the court does not believe that the plan includes adequate provisions, it may decide to lift the stay.

Neither a Chapter 7 nor a Chapter 13 discharge affects post-discharge child or spousal support obligations. In other words, even at the conclusion of the bankruptcy proceeding, these on-going obligations remain.

Student loans

Educational loans guaranteed by the United States government are generally not discharged by a Chapter 7 or Chapter 13 bankruptcy. They may be dischargeable, however, if the court finds that paying off the loan will impose an undue hardship on the debtor and his or her dependents. 11 U.S.C. §(a)(8). In order to qualify for a hardship discharge, the debtor must demonstrate that he or she cannot make payments at the time the bankruptcy is filed and will not be able to make payments in the future. The debtor must apply before the discharge of the debtor's other debts is granted. Application for a hardship discharge is not included in the standard bankruptcy fees, and must be paid for after the case is filed.

The Bankruptcy Code does not specifically define the requirements for granting a hardship discharge of a student loan. Courts have applied different standards, but they often apply a three-part test to determine eligibility:

  • Income — if the debtor is forced to pay off the student loan, the debtor will not be able to maintain a minimum standard of living for himself or herself and his or her dependents
  • Duration — the financial circumstances that satisfy the income test will continue for a significant portion of the repayment period
  • Good faith — the debtor must have made a good-faith effort to repay the loan prior to the bankruptcy

Speak to a bankruptcy lawyer

It is tempting to believe that a Chapter 13 discharge will leave the debtor completely debt free, but that is not the case. Certain debts remain even after bankruptcy. An experienced bankruptcy attorney at DebtDoc in San Diego, San Diego, can explain the differences between dischargeable and non-dischargeable debts and paint a realistic picture of your post-bankruptcy financial situation.

Copyright © 2019 Chris Bush, Attorney at Law.

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

Debtors who have faced obstacles to paying off their debts when due have no doubt received more than their fair share of demanding letters and phone calls, and the thought of filing bankruptcy and getting rid of their debts, and thus the constant demands, can be quite appealing. Before making a decision to pursue that route, which can have long-term effects on credit rating and the ability to make large purchases, debtors may wish to consider other, less drastic alternatives. Talking through these options with an experienced bankruptcy attorney at DebtDoc in San Diego, CA, can help make sense out of the myriad complex and confusing choices that must be made at an already stressful time.

Informal methods of debt resolution

If the debtor's financial problems are only temporary, he or she may want to ask creditors to accept lower payments or to schedule payments over a longer period of time. Creditors may be receptive to these ideas if the debtor has been a prompt payer in the past, or if the specter of bankruptcy is raised, since creditors know that once a bankruptcy proceeding is initiated they will probably collect only a portion of what is owed. In addition, creditors may wish to avoid the difficulties of a court proceeding to collect on the debt, which can be time-consuming and expensive.

Consumer credit counselors can also help creditors work out a repayment plan. Some so-called "credit counselors," however, prey on overwhelmed consumers, promising "a clean slate," often for a flat, up-front fee. They may promise to contact creditors and convince them to accept lower payments or to charge lower fees and interest rates. In many cases, unfortunately, the only ones who end up in better financial shape as a result of these "efforts" (or the lack thereof) are the counseling organizations themselves, while the consumers are left with even fewer resources as a result of high fees and more delinquent debts.

Beware of scams

Although reputable credit-counseling agencies that actually provide valuable services to financially overwhelmed consumers do exist, vulnerable debtors often fall prey to less scrupulous services. Tips that can help consumers avoid scams discussed below.

  • Beware of promises that sound too good to be true; claims of helping you "get out of debt easily" are a red flag.
  • Deal with a reputable agency by checking with state consumer agencies and the local Better Business Bureau to make sure there have been no or few complaints against the organization, and that the complaints that have been raised were favorably resolved.
  • Verify that the organization provides counseling and education, as well as debt consolidation and payment services, to help consumers achieve financial stability and remain debt-free.
  • Carefully read through and have your lawyer review any written agreement that a credit counseling organization offers to make sure it describes in detail the services to be provided; the payment terms for these services, including their total cost; how long it will take to achieve the desired results; any guarantees offered; and the organization's business name and address.
  • Avoid paying up-front fees — reputable agencies do not charge big up-front fees, but may take a small monthly fee for a debt repayment service; the initial consultation should always be free.
  • Beware of any high fees or required contributions, like high monthly service charges, that may add to the overall debt load and defeat efforts to pay off bills.

Confirm payments with creditors. Some debt repayment services require the consumer to periodically send it a lump-sum check that it divides among the creditors. Debtors who enter into these types of arrangements should verify with their creditors that the payments are actually being made.

Speak to a bankruptcy lawyer

If a debtor's financial troubles are long term or if his or her creditors will not informally agree to an alternative payment plan, bankruptcy may be the best way for the debtor to get out from under an insurmountable debt load. Although it is not without its adverse consequences, bankruptcy can be the right option to enable debtors to make a fresh start. An experienced bankruptcy attorney at DebtDoc in San Diego, CA, can advise clients about whether bankruptcy is the right choice for them.

Copyright © 2019 Chris Bush, Attorney at Law.

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

For some individuals, one unfortunate or tragic event can lead to bankruptcy; for others bankruptcy results from their inability to curb overspending. If you are faced with the possibility of bankruptcy, contact an experienced attorney to discuss your options and whether Chapter 13 fits your situation.

Chapter 13 Bankruptcy Information

Are you overwhelmed by debt and just need some breathing room? At the California law offices of Chris Bush, we help people with Chapter 13 filings that restructure your debt to make it manageable. Find out how we can help during your initial consultation. Contact us today. Call (619)295-3322.

Chapter 13 Bankruptcy - An Overview

The bills are stacking up, demanding calls and letters are arriving with increasing frequency and despite the best of efforts, the overdue debts just cannot be paid. In such cases, filing bankruptcy under Chapter 13 of the Bankruptcy Code may provide a solution to what seems like an insurmountable problem. Once considered a last resort, bankruptcy has evolved into an accepted method of resolving serious financial problems. If you are facing serious financial challenges, it is important to seek the counsel of an experienced bankruptcy attorney at DebtDoc in San Diego, CA, to determine whether filing under Chapter 13 is right for you.

Bankruptcy law provides two basic forms of relief: (1) liquidation and (2) rehabilitation or reorganization. Most bankruptcies filed in the United States involve liquidation, which is governed by Chapter 7 of the Bankruptcy Code. A reorganization or rehabilitation bankruptcy under Chapter 11 or 13 of the Bankruptcy Code is, however, the option often preferred by the courts. Under Chapters 11 and 13, creditors may be provided with a better opportunity to recoup what they are owed.

Read More

Alternatives to Filing Bankruptcy

Debtors who have faced obstacles to paying off their debts when due have no doubt received more than their fair share of demanding letters and phone calls, and the thought of filing bankruptcy and getting rid of their debts, and thus the constant demands, can be quite appealing. Before making a decision to pursue that route, which can have long-term effects on credit rating and the ability to make large purchases, debtors may wish to consider other, less drastic alternatives.

Read More

Debts that Remain After a Chapter 13 Discharge

A Chapter 13 discharge affects only those debts provided for by the plan. Any debts not provided for in the plan will remain, and the debtor will have to pay them in full, even after discharge. Additional exceptions to a Chapter 13 discharge include, generally, claims for spousal and child support; educational loans; drunk driving liabilities; criminal fines and restitution obligations; and certain long-term obligations, such as home mortgages, that extend beyond the term of the plan.

Read More

Effects of a Salary Increase on a Wage-Earner Plan Under Chapter 13

When a Chapter 13 debtor enters into a wage-earner plan, he or she commits the next three years' disposable income — that portion of the debtor's income not required to meet the necessary needs of the debtor and his or her dependents — to the repayment of debt. Often, a debtor's income will increase after the plan is in place, and the question arises as to what becomes of this increase in income.

Read More

Rebuilding Your Credit After Bankruptcy

Bankruptcy has a long-lasting impact on a person's credit rating and on his or her ability to obtain credit in the future. The impact is not entirely negative. In some cases, filing bankruptcy may actually improve a bad credit rating. In addition, there are a number of steps a person can take to improve his or her credit after bankruptcy.

Read More


Chapter 13 Resource Links

United States Bankruptcy Courts 
The official website of the United States Bankruptcy Courts includes a variety of useful information about bankruptcy.

Bankruptcy glossary 
A glossary of bankruptcy terminology that explains, in layman's terms, many of the legal terms that are used in cases filed under the Bankruptcy Code.

Bankruptcy fees 
Bankruptcy filing fees, maintained by the Administrative Office of the U.S. Courts on behalf of the U.S. Courts.

Bankruptcy forms 
Official Bankruptcy Forms, Procedural Forms and the Bankruptcy Forms Manual.

Chapter 13 basics 
General information about individual debt adjustment under Chapter 13 of the Bankruptcy Code.

Preparing to Meet with Your Bankruptcy Attorney

1. Do you have loans that are “secured” with your property? Yes / No 
Examples of secured loans are your mortgage and your car loan.

2. Do you have debts that are exceptions to discharge?Yes / No 
Examples of debts that are not dischargeable are student loans and child support. Note: Some debts that are not dischargeable in a Chapter 7 bankruptcy may be dischargeable in a Chapter 13 bankruptcy. An experienced bankruptcy practitioner can help you determine whether certain debts will be discharged in a Chapter 13 case.

3. Are you past due on your mortgage or car payments? Yes / No

4. Do you anticipate incurring additional debt in the near future? Yes / No

5. Have you filed bankruptcy within the last eight years? Yes / No

6. Are some of your debts “cosigned” or guaranteed by others? Yes / No

7. Do you have any debts to family members or close friends? Yes / No 
You must list those debts on your bankruptcy schedules because all of your debts must be listed.

Copyright © 2019 Chris Bush, Attorney at Law.

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

Bankruptcy Glossary

Bankruptcy law is primarily federal law and varies little from state to state. The United States Constitution grants to Congress the power to establish uniform bankruptcy laws throughout the United States, which ensures uniformity in how bankruptcy proceedings are conducted, encourages interstate commerce, and promotes national economic security. The individual states do, however, retain jurisdiction over certain debtor-creditor issues that are not addressed by or do not conflict with federal bankruptcy law, such as which property remains exempt from creditors' claims.

Bankruptcy law provides two basic forms of relief: (1) liquidation and (2) rehabilitation, also known as reorganization.

  • Chapter 7 Liquidation. Most bankruptcies filed in the United States involve liquidation, which is governed by Chapter 7 of the Bankruptcy Code. In a Chapter 7 liquidation case, a bankruptcy trustee collects the debtor's nonexempt property and converts it into cash. The trustee distributes the resulting fund among the creditors in a particular order of priority described in the Code. Not all creditors will receive the full amount owed through this process, and some may receive nothing. When liquidation and distribution are complete, the bankruptcy court may discharge any remaining debts of an individual debtor. If the debtor is a corporation, it ceases to exist after liquidation and distribution, and there is therefore no real reason for further discharge because the creditors cannot seek payment from an entity that no longer exists.
  • Chapter 11 or Chapter 13 Rehabilitation. In a rehabilitation or reorganization, the option courts often prefer, creditors may be provided with a better opportunity to recoup what they are owed. Chapter 11 or Chapter 13 of the Bankruptcy Code governs this type of bankruptcy. Chapter 11 usually applies to individual debtors with excessive or complex debts, or to large commercial entities like corporations. Chapter 13 usually applies to individual consumers with smaller debts. (Farmers and municipalities may seek reorganization through the Code's special chapters, Chapters 12 and 9, respectively.) Reorganization provides a greater opportunity to retain assets if the debtor agrees to pay off debts according to a plan approved by the bankruptcy court. If the debtor fails to do so, however, the court may order liquidation.

Means Test. Debtors must meet a means test to determine if they are financially eligible for straight Chapter 7 liquidation. In brief, if a debtor can repay out of his adjusted current monthly income $1000 each month to unsecured creditors, over a span of 60 months, he may not avail himself of Chapter 7 and must go into Chapter 13.

Voluntary Bankruptcy. In most instances, the bankruptcy case is filed by the debtor, which is considered a voluntary bankruptcy. Once the debtor files the bankruptcy petition, he or she is immediately entitled to relief from creditors through the bankruptcy procedure known as the automatic stay. The automatic stay freezes all debt-collection activity and forces the creditors to allow the bankruptcy proceeding to determine how payment will be made.

Involuntary Bankruptcy. Under Chapters 7 and 11, creditors, too, have the option of filing for relief against the debtor, which is known as an involuntary bankruptcy. Involuntary bankruptcies are allowed only when there are a minimum number of creditors and a minimum amount of debt. The debtor has the right to file a response, after which the court determines whether the creditors are entitled to relief. If the court dismisses the involuntary bankruptcy filing, finding that it has no merit, the creditors may have to pay the debtor's attorneys' fees, damages for any losses the debtor experienced because of the bankruptcy, and even punitive damages to punish the creditors for the frivolous or abusive filing of a petition.

Lawyers specializing in bankruptcy law can help both debtors and creditors overcome obstacles to the repayment of debt. Their expertise often extends beyond bankruptcy to include debt repayment and collection options that can circumvent the need for a bankruptcy filing. The following are just some of the areas in which bankruptcy lawyers can assist their clients.

Collections and repossession are remedies sought by creditors against debtors who have defaulted on their obligations. Collections include any technique to get the debtor to make up the remaining debt, including use of a collection agency or the courts. Creditors may also have outstanding debts legally recognized, and then enforced against a debtor's property involuntarily with garnishments, liens, or levies. Repossession of collateral is another technique used when property is pledged to secure a debt.

Commercial bankruptcy is a remedy available to businesses that are unable to pay their debts. Options include liquidation, in which many of the business's assets are sold and the proceeds are divided among the creditors, and reorganization or restructuring, in which the business continues to operate according to a plan that allows for at least partial payment to creditors.

Consumer bankruptcy is a method through which individuals may be able to get out from under insurmountable debt and make a fresh start, albeit with a negative impact on their credit ratings. As in commercial bankruptcy, there are two options: liquidate assets to pay off creditors, or file a wage-earner plan that allows the debtor to retain more assets while working to pay off his or her debts.

Creditors' rights include a full range of options available to creditors to collect unpaid debts. These rights include collection actions, repossession, foreclosure, garnishment, replevin, attachment, obtaining a court judgment, liens, and forcing the debtor into involuntary bankruptcy.

  1. Discharge is the bankruptcy term for wiping out many of the debtor's remaining debts at the conclusion of the bankruptcy proceeding. A discharge is available to only certain debtors, however, and only certain debts are dischargeable.
  2. Foreclosures are the actions taken when a mortgagor fails to make the required mortgage payments on time and the lender, or mortgagee, forces the sale of the property — often the debtor's home — to pay off the debt. Foreclosures can be either judicial, which requires court involvement, or pursuant to a clause in the mortgage that allows for such sales.
  3. Garnishment is a creditor's remedy aimed not directly at the debtor but rather at a third party who owes money to the debtor or holds some of the debtor's property. The garnishment process notifies the third party that the creditor intends to apply the third party's property to satisfy the debtor's debt. Typical garnishees, as the third parties are called, include the debtor's employer and the bank in which the debtor has his or her accounts.

Reorganization and restructuring are methods by which a bankrupt business may reorganize itself in order to keep operating and pay off creditors at least part of what it owes. This commercial bankruptcy option has many advantages over liquidation, which requires selling off many assets and after which the business ceases to exist.

  1. Workouts are non-bankruptcy agreements between debtors and creditors in which the creditors agree to take less money than the full amount owed or accept payments over a longer period of time than originally anticipated. Workouts have the advantages of being voluntary, less complicated, and less negatively perceived than bankruptcy.

Copyright © 2019 Chris Bush, Attorney at Law.

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

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Auto Loan Delinquency Rising

Late Car Payments?

The number of people 90 days late in car payments approaching peak levels since the subprime crisis of 2010.

If you’re late on your car payments, come in for a Chapter 13 consultation!

Compassionate. No-nonsense. Great job. Saved me $85K!

I had three choices: two large groups, or DebtDoc. I chose DebtDoc because of their numerous excellent reviews from clients as well as other attorneys. Also, I wanted someone to provide personal service and have a vested interest in my difficult student loan case.

I certainly made the right choice. DebtDoc's attorneys personally answered two of my phone calls and regularly answered my emails, even on one Sunday evening.

After 30 years of student loan "prison", he got me freedom AND he even got the US Dept. of Justice to dismiss 25% of my loans, which saved me $85K.

I feel like I have a new lease on life because of DebtDoc. I wish I could recommend 10 stars.

Client Testimonial

To whom it may concern,
DebtDoc's attorneys are extremely knowledgeable with the complexities of Federal Student Loans.
I went from a thriving career to full medical disability, ending with an SSDI placement. Unfortunately, I lost everything and became unable to continue making the student loan payments, so it was in deferment for over five years. When the SSDI settled I tried to negotiate an affordable payment plan with the loan holders but they refused my efforts, instead demanding over twice the amount I could afford.
I contacted DebtDoc and found them to be courteous, responsive and quick to assess my situation. They were sure they could help and took time to answer all questions, which relieved much anxiety. Within months they successfully resolved the debt! With much confidence, I highly recommend DebtDoc.
Sincerely,
 CJWaldenSignature
CJW