¨STOP Bill Collectors!
Continue on just as you have been doing
Do the Bankruptcy papers yourself, and represent yourself in Court "Pro Se"
Use a paralegal/attorney to do the work for you and supervise them
Struggle after the Bankruptcy with a poor credit report
Clear your credit report after the Bankruptcy
What you don't know can cost you!
The information contained in this manual will be subject to applicable laws which may vary from state to state or change over time. Therefore, this manual is provided with the understanding that the author is not an attorney and not engaged in rendering legal advice. The author holds no responsibility for the actions in which the reader conducts their business, nor assumes any responsibilities or liabilities pertaining to any existing or new laws for any state. The author is not in the practice of law, and in no way infers or advises users of this manual to practice law. This disclaimer is used specifically to hold harmless the author and publisher of this manual.
The reader is cautioned that his Bankruptcy will proceed properly only to the extent these directions are followed correctly and competent legal counsel is retained and supervised. Read all the manual before you begin.
Consumer Credit Counseling Service of the Gulf Coast Area, Inc. is allowed to place free ads in the newspaper. I've seen ads as large as 6½" by 6½", with 1¼" letters stating "BANKRUPTCY: It may be legal but is it right for you?" The ad continues: "Bankruptcy is a common legal procedure that can absolve you of your personal debt. Sounds great, right? But before you decide to plunge into bankruptcy, consider this: a bankruptcy remains on your credit record for up to ten years making it almost impossible to finance a home, car or any major purchase..."
First, let's consider exactly who CCCS actually is. They are funded by the credit card companies, and set up as a not for profit corporation so they can place "free" ads in the newspaper, and appear to be performing a public service. CCCS was set up to talk you out of filing for bankruptcy and discharging your consumer debts, primarily Visa, MasterCard, American Express, and Discover. This makes them an agency of your creditors, the ones who have been charging you that 19% interest rate on your debts -- the ones who want you to pay the debt, and NOT file bankruptcy. This is also where the idea of "stigma of bankruptcy" came from.
Second, bankruptcy is intended to give the debtor a "fresh start." To help you actually GET that "fresh start," there actually ARE ways to get the derogatory items removed from your credit report -- even the report of bankruptcy.
Stigma is defined as "some marking or indication which is inherent or obvious from the natural or supernatural state"; thus, to say that I am stigmatized with the mark of leprosy means that I carry a mark of leprosy on me until some other force intervenes and takes it away. There is absolutely, flatly and irrevocably no stigma, mark or any other insignia that identifies a person who has filed bankruptcy.
The term "stigma of bankruptcy" had its beginning from the ancient concepts of debtors' prison where debtors were thrown into prison and in many cases "branded" as cattle are branded today so that everyone seeing the debtor would be able to forever recognize the poor, unfortunate fellow as someone who had, at one point in time, owed money.
As you know, there have been more than several revolutions since the date of stigmatizing debtors with branding irons. There is simply no relationship between what occurred during the debtor prison era and the (almost) Twenty first Century.
For someone needing to file Chapter 7 because there is no realizable way to resolve a debt problem, there is neither a stigma nor an undesirable sign or label of any type. Instead, there is a relief and freedom from oppressive debt concerns that is immeasurable. I am of the opinion that a person who ignores a debt problem, like an ostrich with his head in the sand, is the one who will be continually ostracized and criticized in the community.
IS BANKRUPTCY NECESSARY FOR YOU?
Chapter 7 Bankruptcy is the willingness of the Debtor to voluntarily surrender all nonexempt assets in exchange for a discharge.
In order to determine what is meant by "nonexempt" assets, we must first determine what is exempt. Exemptions are property interests which legislatures (State and Federal) have stated in various laws that a person who owes money can keep. It would take a large book to list all of the possible exemptions which exist.
Only people are entitled to exemptions. Corporations receive no exemptions. When a corporation files Chapter 7, it gives up all of its assets and ceases to exist, since it does not receive a discharge from its debts, as individuals do. Individuals in Texas can select either Texas or Federal exemptions. Please refer to the appendix for a list of property which is exempt.
State exemptions involve the ability of the Debtor to own and maintain a home, regardless of value, that is located on one acre or less of land in a city, town, village, or urban area. If in a rural area, the Debtor is entitled to a homestead exemption of 100 acres if not married and 200 acres if married.
The primary benefit of the Federal exemptions to a Debtor is that it allows him to partially exempt some cash or liquid assets. While the State exemptions do not permit a cash asset exemption, it is possible to exempt cash or other liquid assets under Federal exemptions up to a maximum of $4,150 if the individual is not married, or up to a maximum of $8,300 if married and filing jointly.
To determine what must be "given up" one must look very carefully at the exemption statutes and determine what may be claimed as exempt. Since 1979, Debtors who file bankruptcy have been able to claim Federal exemptions. Under present interpretation of exemption statutes, retirement plans are exempt under State exemptions regardless of the size. Under Federal exemptions, however, retirement plans may not be totally exempt. Courts look to the size of the plan and the amount reasonably necessary to provide for support after retirement. No such determination need be made if State exemptions are chosen.
WHAT ARE THE UNDERLYING CONCEPTS IN A BANKRUPTCY FILED UNDER CHAPTER 7?
There are two basic concepts that are the underpinning of any Chapter 7 bankruptcy case. They provide the answers to many of the issues a debtor frequently faces.
The debtor who files a Chapter 7 agrees to
voluntarily disclose all information concerning the debtor's assets or liabilities
at the date of filing a Chapter 7. The
debtor must be willing to disclose all relevant information that will lead to
the recovery of assets, wherever located.
The debtor who files a Chapter 7 case agrees at the date of bankruptcy filing to voluntarily surrender all nonexempt assets in exchange for a discharge.
The first concept requires a willingness to divulge any and all information that is deemed relevant. The information that may be required to be disclosed may extend back for a number of years. Usually, courts will require disclosures which may be considered excessive. If the information sought would directly or indirectly relate to any of the following issues, it must be concluded that disclosure is likely to be required:
a. Location of debtor's assets.
b. Whether the debtor followed the basic bankruptcy rules, to wit:
1. Disclosing all assets and liabilities.
2. Disclosing all transfers of assets to third parties prior to bankruptcy (possibly as much as four years previously).
3. Disclosing all payments to creditors of a large amount (more than $600) within one year before filing.
4. Disclosing information that might relate to whether the debtor has committed any act of fraud, deceit or misrepresentation in conjunction with a debt that is owed.
5. Disclosing information that might relate to whether the debtor has in some way breached a responsibility of trust concerning past relationships with a creditor.
A debtor should never file a Chapter 7 without fully understanding that the act of filing constitutes an ABSOLUTE LEGAL SURRENDER OF ALL ASSETS which are not claimed as exempt under the exemption statutes. Prior to filing, every effort should be made to have a minimal working knowledge of those parts of the exemption statutes which are applicable to the debtor so there can be no misunderstanding as to what is exempt and what is not exempt.
There are many exemption statutes. It would be impossible to list all such statutes in this manual, but I have attempted to summarize the basic Federal and State exemption statutes at the end of this booklet. I urge anyone contemplating the possibility of filing a Chapter 7 to carefully read the discussions on exemptions in this manual.
The basic concept is that all non-exempt assets must be surrendered in exchange for the discharge. Does this mean that all nonexempt property will be surrendered?
No... not necessarily. Property that is surrendered is surrendered to the trustee. The trustee is only interested in property having value (equity). The trustee is an officer of the Court, appointed to act as the Court's representative to secure assets, sell or dispose of assets and distribute the proceeds based upon legal priorities to the creditors.
The trustee is not interested in assets which have no equitable value and assets that are costly to sell and may produce no realizable value. The following examples relate to assets not being claimed as exempt, and the values are fair market values at disposal or what the assets could be sold for on the open market without improvements and with reasonable time to sell. Let's assume the following:
1.Value of assets..................................... $100,000
Secured debt against asset.......................... 95,000
Possible value............................................ $ 5,000
Even though there may be possible value to the estate (to the trustee for ultimate distribution to creditors -- which is known as the "estate"), the trustee would probably abandon the asset in that it would be difficult or impossible to find someone who would be willing to either pay off the secured debt or desire to assume such a large debt, which represents 95% of the asset value.
2. Now let's assume an asset valued at $5,000.
But the asset is being held by a third party who is claiming an interest or adverse claim. The trustee probably will abandon the asset because the cost of recovering it (which could include legal fees and other costs) will probably exceed the highest possible value of the asset.
3. Thirdly, let's assume money on deposit in a bank which the debtor cannot claim as exempt.
Let's say, for example, that the debtor has $200 on deposit in a bank. Such small sums will always be abandoned by the trustee in a case which is otherwise without assets. This occurs because the trustee will conclude that it will cost more money to administer such a small amount of money, and no benefit will be received by creditors.
Planning for a Bankruptcy involves selling non-exempt property, and placing all proceeds of the sale into an exempt asset; such as a retirement plan.
To determine if Chapter 7 is necessary, you must first determine the amount of your disposable income. Disposable income is computed very simply. Add up the net take-home pay of you and your family.
Then, after very carefully budgeting the monthly outgo of the family, label that outgo "cost of living." Cost of living should include rent or mortgage payment, car payment, food expense, utility expenses, automobile maintenance and upkeep, personal living costs, such as clothing, laundry and other necessary expenses, including taxes not deducted from your wages, insurance premiums, a modest amount for entertainment and pleasures (in a tight budget situation, this should never exceed 3% of your net monthly take home pay) and any other expenses which are unique to your family and occur on a monthly or regular basis.
If the expenses occur quarterly, you should attempt to annualize those expenses so that a true monthly cost of living can be determined. After that total is reached, simply subtract the figure representing the total from the monthly take home pay. What remains is your disposable income.
If you find it
difficult to determine your cost of living, a very rough rule of thumb can be
used. For a middle class family, a
living expense factor of $1,000 per month should be allowed for the first
member of the family, $750 per month for the second member of the family and
$500 per month for each additional member.
This is simply an easy way of coming up with a reasonably accurate cost
of living figure. Nothing, however, is a
good substitute for actual calculations and computations.
While filing Chapter
7 may be perceived as drastic, it should never be considered an event so
traumatic that it will leave a permanent scar or a stigma of any kind. In my opinion, there is nothing negative
about Chapter 7.
To the contrary,
bankruptcy represents a positive statement by you of your concern about your
present economic/financial condition and your willingness to allow a new
financial day to be born so that, free from the monumental load which comes
with financial problems, you can again handle your affairs with confidence.
Make a positive statement about your life and make a decision to resolve your financial problem, as opposed to doing what our friend the ostrich does quite well, and that is to bury his head in the sand when the enemy surrounds him and pretend the problem does not exist.
WHAT WILL CHAPTER 7 DO FOR
DISADVANTAGES OF A CHAPTER 7
Impact on credit. We are a nation which thrives on credit. We know more how to use a credit card than to pay for goods and services with cash. The "credit happiness" has been ingrained in us, usually not by our parents, but by the proliferation of media advertising, by fellow workers and by requests from banks and S & L's to enjoy numerous benefits by using one of their cards.
Credit for durable goods, or large ticketed items, will be needed by everyone at one point or time in their life, such as when buying a home or car. You should know how you are judged from a credit perspective and will be judged as a credit risk.
When credit grantors check credit status, they consider four factors: credit history, disposable income, evidence of financial solvency (dollars in a bank account) and stability. Let's consider these factors.
a.Credit history. This involves what you have done in the past with your life from a credit perspective, as well as such things as number of jobs held and possibly number of residences over the last two years.
Your credit report is composed of three elements:
(1)Public records such as Bankruptcy, judgments and foreclosures. Statements of whether or not Bankruptcy has been filed within the last ten years.
(2)Debts. List of debts that are owed and unpaid.
(3)Ways debts have been paid. Succinctly stated, this is how you have paid debts in the past. This could be statements like "pays on time," "late paying" or any other information relating to what has been done in reference to debt payment.
he overriding benefit of a Chapter 7 discharge as it relates to a credit report is that discharged debts, and then, even the bankruptcy may be removed from your credit report through proper understanding of the Fair Credit Reporting Act of 1971 (FCRA).
The consumer has a legal and statutory right under this Federal law to challenge any entry on their credit bureau report. Any entry on your credit report not verified within a reasonable period of time must be removed from the report.
After a Chapter 7 bankruptcy discharge is received, I would recommend all credit bureaus be contacted, and the steps in the Credit Repair Manual followed. You will probably be able to remove at least 90% of the derogatory items on your reports.
b.Disposable income. Disposable income is the amount of income available for an individual or family over and above the necessary costs of living.
Usually credit problems after bankruptcy evolve became of low or nonexisting disposable income or no evidence of financial solvency. I would suggest that you first determine disposable income by using a simple formula for computing cost of living on a monthly basis: Net take-home pay (NTHP) minus cost of living (CL) equals disposable income (DI).
NTHP - CL = DI
The difficult problem in determining disposable income is to find some way to forecast cost of living for future months and years. While income levels may fluctuate slightly, cost of living or expense costs will tend to fluctuate wildly over several years.
One approach to predicting cost of living is "economic modeling." This is the same process we touched on briefly earlier. Generally, where no extraordinary expenses exist in addition to customary family expenses, we can suggest that, based upon present cost of living experience, anticipated family cost of living expense can be calculated as follows, with a suggested accuracy of plus or minus 3%:
c.Financial solvency. The most important factor in the entire credit equation after your credit has been cleared is evidence of financial solvency, or monies on deposit in a financial institution. These must be monies which are not pledged to any credit grantor to secure the payment of debt. While past history may be 25% of the decision to grant credit, disposable income and evidence of financial solvency are the remaining 75%, with the greater weight on deposits of money.
d.Stability. Lack of stability is a negative factor in cases where a person may have moved repeatedly; and might have received the reputation of a person who is not stable. This designation also might exist if a person has frequently changed jobs and held each job for no more than a month or so.
A general rule to test stability is what is referred to as the six month/two year rule. If a person has resided in the same place for six months or more and has been employed by the same employer for six months or more, he/she should be able to qualify for minimal automobile financing or credit card debt, assuming adequate disposable income is present and evidence of minimum economic solvency. In order to qualify for extended financing or long term debt (such as home financing), or long term business debt, generally a two year period for employment or residency is considered minimal.
Credit grantors, of course, are free to consider any of the four factors we have discussed (history, disposable income, evidence of financial solvency and stability) with any weight they wish to give. Some credit grantors believe that history is 90% of the credit equation, and even more believe history may well represent only 25% of the credit equation and the remaining factors represent 75%. Your ability to repair your credit will relate to the amount of disposable income and the current evidence of financial solvency you can produce.
In the final analysis, we must understand that credit is a privilege and not a right. Credit can be denied for no reason or for totally subjective reasons or opinions. Unless credit is denied for reasons of discrimination, such as race, color, sex or creed, no right of action exists to sue for credit refusal.
Tax Obligations. Tax obligations (Federal, State & County) are generally not forgiven or discharged in bankruptcy, but income taxes may be discharged if they are for a tax year more than three years prior to filing and assessed more than 240 days prior to filing. Please refer to the detailed discussion on tax liability.
A motion, filed pursuant to 11 U.S.C. § 522(f) may avoid and cancel a judicial lien on real property used as the debtor's residence, under 28 U.S.C. § 1334 because it would impair exemptions to which the debtor(s) would be entitled under 11 U.S.C. § 522(b). This motion is in addition to, and should be filed when, or soon after the Bankruptcy petition and schedules are filed.
Nonpossessory, nonpurchase-money security interests or liens on debtor's household and personal goods impairs exemptions to which the debtors would be entitled under 11 U.S.C. § 522(b); and may be avoided. Debtor's attorney should file this motion in addition to the Bankruptcy petition and schedules when the bankruptcy is filed.
Guaranteed Student Loans. If a student loan is older than seven years (as measured from the date it would have first become due and payable or the first date that it is payable under an extension agreement to the present date), then the student loan may be discharged under Chapter 7. Debtor's attorney should file this motion in addition to the Bankruptcy petition and schedules when the bankruptcy is filed.
Inheritances. If the debtor receives an inheritance because of a death occurring, either before filing a Chapter 7 petition or within 180 days after the petition was filed, any money received as a result of the death or inheritance must be surrendered to the trustee in bankruptcy for distribution among all creditors unless a portion of the inheritance may be claimed as exempt under Federal exemption statutes. The money may be received many years in the future, but that fact does not prevent the trustee in bankruptcy from taking the funds if the death occurred within the 180 day window.
Careful estate planning will bring assets of this nature to you in the form of a retirement plan that will be exempt from seizure by the trustee.
Fraud, deceit and misrepresentation. Debts become non-dischargeable because of specific acts and conduct in which the debtor may have been involved. Although the acts may have been thought to be inconsequential or unimportant when they occurred, it may be necessary to explain the basis for any statements that are alleged to be false if an objection to the discharge of a debt is filed.
A discharge under Chapter 7 may be received no more often than once each six years.
THE PLAYERS: YOU, ATTORNEYS, PARALEGALS AND THE TRUSTEE
Your paralegal's/attorney's jobs are as follows:
1.Provide information and education such as is contained in this manual.
2.Provide procedure. If you file Bankruptcy, your paralegal/attorney should perform such procedures as are necessary to accomplish your objective: proper and complete filing of your petition, schedules and any necessary motions to avoid liens or student loans, discharge of ALL dischargeable debts and fresh financial start.
Your role is as follows:
1.Educate yourself. You simply cannot approach Chapter 7 without having a basic knowledge as to how it works. This can only occur if you take the time to read this manual, ask questions and be willing to tell the paralegal/attorney frankly when you do not understand. The attorney's fee should be based on completing the job... not the amount of time involved.
2.Make decisions. Although decisions are sometimes hard to make, the paralegal must rely on you to make decisions which are necessary to begin.
3.Provide paralegal with complete, accurate and honest information. The paralegal/attorney must totally rely on your facts and data. He can not examine the information that you present to him for the purpose of changing it or adjusting it. If you fail to provide accurate information through indifference, neglect or falsification, you may be denied your discharge and/or subject yourself to other more serious penalties. Your bankruptcy papers will be signed by you under oath. Minor errors can be corrected.
The trustee's role is as follows:
1.Examine the statements, schedules and other documents filed by the debtor to determine if the basic bankruptcy rules have been followed and generally determine whether the debtor has disclosed all relevant information concerning assets and liabilities, including any transfers of property or payment of debt occurring prior to bankruptcy.
The trustee determines, primarily from the debtor's testimony and information received from any interested creditors, that the statements and schedules have been properly prepared and that the debtor's obligations and duties in filing a case have been met. If there are any additions, corrections, or deletions that are deemed necessary, the trustee can request such amendments be made.
The trustee may object to the debtor's claim of exemptions if the exemptions that are claimed are not permitted by law. The trustee may also object to the debtor's discharge, or discharge of all debts. This would happen in a case where the debtor has grossly and intentionally failed to comply with the underlying bankruptcy rules and law. Any objection filed by the trustee relates to all of the debtor's debts and not to any specific debt.
2.Sell and dispose of nonexempt property which is not exempt, or property which cannot be exempted under the applicable Federal or State statute, the trustee will accumulate that property and sell and dispose of it for the benefit of the creditors by taking the proceeds from the sale and, after depositing it in a special trust bank account at the conclusion of the case, paying it in equal shares based upon legal priorities (who gets paid first), depending upon the amount of their claim, to creditors who have timely filed a Proof of Claim.
Even if a debt is admittedly owed to a creditor and that creditor fails to file a Proof of Claim from, then the trustee cannot pay that creditor any money. A creditor can only be paid if the creditor files a Proof of Claim form.
3.Determine if any third parties have received unfair advantage and, if so, take action to set aside such advantage. Such action usually falls into two categories:
a.Transfers to third parties within one year prior to filing the petition (four years in some cases).
b.Recovery of preferential payments to creditors prior to filing bankruptcy.
STEPPING THROUGH THE BANKRUPTCY PROCESS
here are three major stages to a Chapter 7, and they are referred to as follows:
1.Documentary/Filing Phase. This phase involves intensive interviews and preparation of all required documents, which are usually referred to as the "statements and schedules."
The final determination of the accuracy of the list of creditors and assets is and must be your obligation. Check and double check the list of assets and liabilities to make sure that they are complete and accurate.
2.The Meeting of Creditors. This is a time when the debtor meets the trustee, whose job is primarily to make sure that all of the provisions of law have been complied with and, as such, the debtor is entitled to a discharge. Wear your track shoes... you'll be in and out of the creditor's meeting in about 10 minutes. The meeting will be held in a conference room, not a courtroom, and chances are that the only people present will be (1) yourself and your attorney, and (2) the trustee.
Questions you may be asked include:
a.The status of secured debts, including the location of the security, its value and whether insurance is in place, if applicable.
b.Information relating to assets and their status, as well as information as to how and when assets might have been sold, transferred or conveyed prior to filing bankruptcy.
c.Information relating to possible acts of fraud, deceit and misrepresentation. While rather broad authority exists for a creditor to inquire as to acts of this type, a debtor is not required to answer questions which are accusatory, inflammatory or questions which have some other purpose than just getting information.
3.The Discharge Phase. This occurs when the Court enters the Order of Discharge. Unless there are certain special circumstances, such as a reaffirmation agreement which might require a hearing before a Judge, no hearing is held for the discharge. The Debtor is discharged automatically with the appropriate order of discharge coming in the mail.
No more than one week should elapse from the time you present all the information necessary for your bankruptcy to be filed to the paralegal/attorney, until the bankruptcy is ready to be signed and filed with the Bankruptcy Court. After you submit all necessary information to the paralegal/attorney the petition and schedules will be prepared for your signature.
NOTE: Insure any Motions to Void Liens or similar pleadings are completed and accompany your schedules. Your paralegal should file pleadings with the Court at least weekly. Insure that you receive a "file stamped copy" of all pleadings you have paid your attorney to file for you -- this is your right -- what you PAID the attorney to do for you.
As soon as the bankruptcy is filed, the Court will appoint a trustee for your bankruptcy and set a time for the meeting of creditors. This meeting will take place about one month after filing.
From the first date set for the meeting of creditors until your discharge date is 60 days. Your discharge will come to you some time later in the mail; and be retroactive to the proper date.
The discharge effectively terminates any legal obligation to pay discharged debts. Payments on debts which involve property that is to be kept, such as a car or house, should be made without fail.
THE AUTOMATIC STAY
he automatic stay is a stay against the commencement or continuation of all actions of any type by a creditor to collect a debt and obligation owed by the Debtor or a debt which is jointly owed by the Debtor with other parties or concerning property interests in which the Debtor own an interest. It prevents:
1.Commencement or continuation of a lawsuit of any type to recover a claim of any nature.
2.Enforcement against the Debtor or property of the Debtor of a judgment obtained before the commencement of the case.
3.Any act to obtain possession of property of the Debtor or to exercise control of the property of the Debtor.
4.Any act to create, perfect or enforce any lien against property of the Debtor.
5.Any setoff of any debt owed by the debtor that arose before the filing of the case. ["Setoff" refers to actions by depositories or lending institutions who attempt to charge a debt against property which might be on deposit, for example a bank account balance.]
6.The commencement or continuation of any proceeding in the United States Tax Court concerning the Debtor.
SECURED DEBT OPTIONS
ecured debt occurs when certain documents have been executed, and thus, a security interest is retained by a creditor to permit that creditor to foreclose on the described property or to recover possession if payments are not made. Usually, when talking about property, we must determine whether it is real property (land and buildings) or personal property (things and/or cash or deposit of some nature).
As to real property, there are three possibilities which exist under Chapter 7. The debtor may:
1.Agree to surrender the property and seek a discharge.
The surrender, or loss, of the property should usually be contemplated within 60 to 90 days after filing the bankruptcy action. It involves a voluntary giving back of the property. A creditor may ask that the period of time to give it back be shortened, but the filing of the Chapter 7 gives to the debtor a minimum period of time in order to make arrangements to substitute some other property for that being surrendered. Even if a motion to modify stay is filed immediately after the debtor's petition, the minimum period of post-petition use of the property should be not less than 60 to 90 days.
If the creditor holding the lien does not file a motion to modify the stay, possession of the property can be maintained until discharge (five to six months after filing). After discharge, the creditor may take any action to recover the property.
2.Keep the property and make payments as they are due and payable.
If you wish to retain the property, and you have every right to do so, I urge you to make all payments as they become due. So long as these payments are being made, I am of the opinion that the debtor has the right to keep the property after bankruptcy without the necessity to reaffirm the debt.
3.Reaffirm the debt and obligation.
On the date of filing a Chapter 7, debts and legal obligations generally come to an end and are not revived unless the debts are non-dischargeable either automatically under law (child support, alimony, etc.) or the Court enters an order denying discharge of a certain debt or permits reaffirmation of the debt by the debtor through a Court order.
The process of reaffirmation came into the Bankruptcy Code in 1979. It involves the Court entering an order which gives "new life" through the process of reaffirmation to the debt which existed prior to bankruptcy.
Reaffirmation is a process which grants to creditors the right to sue for any post-bankruptcy deficiency. Deficiency means the amount of the debt remaining after the collateral or property has been sold and the amount received has been applied against the debt. Thus, reaffirmation is sought by many creditors to accomplish that objective.
In addition, many debtors desire reaffirmation because of a perceived "moral" commitment. Of course, I cannot comment on the moral aspects of reaffirmation or of any need to reaffirm purely on a moral basis. It is a decision which must be made by the individual debtor in consideration of such personal factors as may be deemed appropriate and necessary.
I would suggest that the best course of action that a person can pursue is not to be concerned about "moral commitments," but instead, to concentrate primarily on supporting themselves, their family and other present living obligations. Remember, nothing prevents a debtor from paying any debts which existed prior to bankruptcy after the petition is filed. That is your free right. You should, however, understand the legal significance of such payments.
While debts existed prior to bankruptcy, they technically do not exist during the term of the automatic stay and never exist after discharge; therefore, payments on preexisting debts after the date of filing constitute nothing more than the giving of free will gifts to people and entities who were formerly creditors.
I encourage this practice where sufficient funds exist, but before embarking upon a gifting program, I urge you to determine the existence of sufficient income to adequately support yourself and your family. In my opinion, gifting pre-existing creditors should never occur unless a person is able to provide for all of their personal and the family's current living expenses, as well as to reserve at least 10% of the net take-home pay each month as a contingency for emergencies. This money should be reserved in a checking or savings account with a minimum balance of not less than $5,000.
Gifts to entities who were creditors pre-petition without adequate financial reserves may well lead one back into financial peril, which should be avoided at all times.
As to personal property, that is a property interest which is mortgaged or pledged to secure the payment of the debt, the options are basically the same, with one additional option added. The options, again, are:
(1)To make payments as they become due and payable.
(2)To surrender the property and seek a discharge.
(3)To reaffirm the debt.
(4)To redeem the property.
The process of redemption as it exists in the Bankruptcy Code provides a debtor the right to pay to the creditor the fair market value of the property at the date the bankruptcy action was filed without reference to the amount owed. The fair market value is paid in one lump sum as opposed to time payments. Therefore, where the property is of value of more than several hundred dollars, it is in most cases very difficult for redemption to be used in that the funds to redeem the property interest are rarely available.
Redemption should only be considered when there is sufficient cash on hand to compensate the creditor for the value of the property without otherwise endangering the economic stability of the family. As you can readily see, where the value of the property is more than several hundred dollars, this is extremely difficult to do. The redemption value is agreed to by the debtor and creditor; relying upon appraisals of the property or may be finally determined by a Court if the debtor and creditor (lienholder) cannot agree. It is payable in one lump sum at a time the parties agree to and usually prior to the date of final bankruptcy discharge.
here is a special provision relating to nonpurchase money security interest in personal property found under § 522(f) of the Bankruptcy Code. It provides that the debtor may avoid a lien under certain defined circumstances. Lien avoidance is a subject that most bankruptcy attorneys either don't tell the debtor about; or handle incorrectly (to make themselves more money). Generally, the circumstances where liens may be avoided are:
1.Judgment liens that affect homestead property (real estate).
2.Non-purchase money security interests, where property (usually household goods) are pledged to secure the payment of debt. This is only available where the debtor claims Federal exemptions.
3.Certain liens which might be unperfected (not properly documented).
IF I CHOOSE TO REAFFIRM, WHAT IS THE PROCEDURE?
eaffirmation procedure is precisely controlled under the provisions of the Bankruptcy Code. For a reaffirmation to be legally binding, it must meet certain standards and criteria.
The agreement must be made before the discharge is granted and must contain a statement that it can be rescinded at any time prior to discharge or within a period of 60 days thereafter. The attorney representing the debtor must file a statement with the Court that the agreement represents a fully informed and voluntary agreement by the debtor and does not impose an undue hardship on the debtor or a dependent of the debtor. As a general rule, the Court will not require a separate hearing on reaffirmation and will enter an order approving the reaffirmation. However, the Court may require a hearing. If one is required, it is necessary that the hearing be attended.
he subject of exemptions is very complex in its application to the many different property interests which people contemplating bankruptcy frequently have. A determination as to what specific items of property fit into the separate statutory categories must be made before filing is to occur.
The only way that we can determine if property interests are exempt is to carefully and painstakingly inventory all assets that are owned, controlled or in which the prospective debtor has an interest. An inventory should be prepared listing all assets of any type or class, including real property, personal property, cash and other liquid cash assets.
It is also extremely important to value the assets realistically and fairly. The owner of the assets is charged by law with setting the value. The rule for determining value is to view value based upon Fair Market Value at Disposal, or what a buyer would pay for each item at sale in the condition in which it is presently found, the sale being between a willing seller and a willing buyer.
The Bankruptcy Code provides that a debtor may choose between either the Federal or State exemption packages.
There are types of property which are exempt under either Federal or State Law by reason of the character of the property involved and in some cases are exempt regardless of what exemption package is chosen. The following list is not by any means conclusive, but representative of some of the non-standard exemptions:
a.Social Security benefits
b.Military retired pay annuities
c.Foreign Service retirement and disability
d.Longshore and Harbor Worker's Compensation Act death and disability benefits
e.Railroad Retirement Act (annuities and pensions/employment insurance)
f.Wages of Seamen, Apprentices and Fishermen
a.Death benefits to survivors of Law Enforcement Personnel
b.Policemen and Firemen's pensions, retirement systems and disability benefits
c.Workmen's Compensation benefits
d.Crime Victim's reporting awards
f.Funds of various retirement systems, including teacher, judicial, county, district and municipal
In addition, under present Federal and State Law, all retirement funds acquired through a federally qualified regulated retirement program are usually exempt. However, should be exercised to determine if the program involved meets the criteria of the statute. Other exemptions not listed are rarely encountered.
EXEMPTION CHOICES: If the property interest does not fit into the non-standard category but is of a standard or ordinary type, then either the Federal or State exemption package must be selected.
(The exemptions are for one individual and can be doubled for joint petitioning debtors - husband and wife.)
1.An interest in real estate not to exceed $7,500 which is used as a residence or a burial plot. Exemptions apply to equity values, not overall values. If the equity value is less than $7,500 or no residence is claimed as exempt, the unused part of the exemption up to $4,150 may be used to exempt any other non-exemptible asset, including cash or liquid assets.
2.An interest in one motor vehicle, up to $1,200.
3.An interest, not to exceed $200, in any one item up to $4,000 total in household goods and furnishings, wearing apparel, appliances, books, animals, crops or musical instruments that are used by the family.
4.An interest, not to exceed $500, in jewelry used by any family member.
5.An interest, not to exceed $750, in professional books and tools of the trade used by any family member.
6.Up to $4,000 cash surrender value in an insurance policy under which the debtor or a dependent of the debtor is insured.
7.Payment under a stock bonus, pension, profit sharing, annuity or similar plan, payable on account of illness, disability, death, age or length of service that is qualified under applicable tax oriented law.
1.A homestead, if located in a city, town, village or unincorporated urban area, not exceeding one acre (regardless of value), or 200 acres in a rural area for a family (minimum of husband and wife), or 100 acres in a rural area for a single person.
2.Personal property generally of any kind used by a person as a part of a homestead, including any number of automobiles and light trucks, of a total value not to exceed $30,000 for a single person and $60,000 for a family, or if held for the production of income, the list may include no more than two of the following classes of transportation property:
3.Jewelry is limited to an amount not to exceed 25% of the personal property exemption. Thus, jewelry, which can be included as a part of the personal property exemption, is limited to $7,500 for a single person or $15,000 for a married person.
It should be remembered that all values are based upon the fair market value at disposal formula. An easy formula for determining value would be fair market value, less any existing liens, equals value to be included.
4.The cash surrender value of any insurance policy.
5.State law also provides a broad list of other exemptions, but the abbreviated list here represents the exemptions most frequently used.
HOW DISHONEST BANKRUPTCY ATTORNEYS "RIP YOU OFF"
he most prominent scheme Bankruptcy attorneys use to get more of your money is the "13 to 7." In this scheme the attorney first advertises a "$-0- down bankruptcy filing (to get you in his office). The attorney then shames you into filing a Chapter 13 instead of a Chapter 7. He may lead you to believe the total cost of your bankruptcy will be only about $300. Here are the steps that then follow:
1.The attorney draws up the Chapter 13 Plan for you. He collects $300 and then lists himself as a "Priority Creditor" in the amount of perhaps $1,400 to $2,000. A priority creditor is paid under a Chapter 13 plan before any other creditor; so he gets this money from your plan payments before any other creditor gets anything at all.
2.The plan is set by the attorney with payments that will be difficult to impossible for you to meet. When you go to him and advise him you can't make the plan payments... he's waiting for you.
3.The attorney advises you to not worry... you have the absolute right to convert to a Chapter 7 bankruptcy.
4.Filled with relief and gratitude to the attorney who knows the law so well; you advise him to go ahead and convert you to a Chapter 7.
5.The attorney prepares new Chapter 7 schedules and charges you $800 to $1,500 for this new work.
The result is that you have paid this charlatan between $2,500 and $3,200 to do an $800 job -- and probably never even knew about $1,400 of it. Many of the most prominent bankruptcy firms file 90% of their cases as Chapter 13's -- 50% of these cases are later converted to Chapter 7.
These firms typically file at least 20 Chapter 13's per week. At a minimum this grosses the firm $146,200.00 per month. Adding in the 50% conversions to Chapter 7 at $1,000 each; the gross monthly proceeds to the firm total a whopping $189,200.00 or $2,271,000.00 annually. Can this man who is grossing over 2 million per year understand your plight in bankruptcy? Does he care that you overpaid him $1,700.00 because of his bad advice? Do we need legal reform?
BANKRUPTCY ATTORNEYS WHO ARE FAIR AND KNOWLEDGEABLE
1.Firmin A. Hickey, Jr., a Chapter 7 Trustee, Board Certified in Bankruptcy
11511 Katy Freeway, Ste. 225, Houston, Texas 77079
2.E. Sue Wittie, eight (8) years experience as bankruptcy attorney.
1314 Texas, Ste. 1700, Houston, Texas 77079
3.Kathleen Rolston Robbins, Auto Accidents, DWI, Wills, Trusts, Probate, Family Law, Bankruptcy; 1314 Texas, Ste. 2000, Houston, Texas 77002.
4.Nancy E. Lusk; Criminal, Bankruptcy and General Practice; 13313 S.W. Fwy., Ste. 240, Sugar Land, Texas 77478
1.Bill Carr, IRS & Tax Specialist, 5400 Memorial, Ste. 602, Houston, Texas 77007.