Bankruptcy FreedomOne of the primary questions I get as a Cumming, Georgia bankruptcy lawyer is how long does it take to recover from bankruptcy. While the financial fallout and rebuilding of credit will vary by person, so too will the emotional fallout.

Understandably some people are a nervous wreck throughout the process while others are actually quite glad to see me and get their case processed and done with. Those who have the easiest time dealing with their bankruptcy are completely emotionally committed to the process. Those sort of dipping their toe into the water, have a harder time with their case. Based on this, my advice is to not file bankruptcy until you are 100% sure this is the right step.

The typical chapter 7 case lasts 4-6 months. As I explain to my clients, about 75% of the effort is put into the filing of the case. Once the case is filed, the debtor certainly has to appear in court for their meeting of creditors and take a financial management course, but those are relatively simple requirements. The hearing is usually five minutes and the trustee questioning the debtor usually respectful of the debtors’ situation.

Various motions or request for documents could be filed during the case, but these usually don’t require too much effort of the debtor, if any. The debtor also might sign a reaffirmation agreement along the way. I usually tell my clients after their trustee meeting that “no news is good news” and basically just go on with your life and expect to get a discharge in 2-3 months. This usually puts them at ease.

Even though they have not yet secured their discharge, the fact that their court appearance is done, the required paper work has been completed, their court costs and attorney fees have been paid and creditors are not sending them letters or making phone calls, is enough to put them at ease even though they don’t yet have the discharge.

Post discharge I occasionally communicate with my clients and they usually express happiness that the process is over but no regret that they decided to file. While they know if they are applying for a new loan or a new apartment lease, they might have to deal with the fallout from the pulling of a credit report that reveals a bankruptcy filing, the ones that deal with it best are the ones that know the issue might occasionally creep into their lives, but it’s not in the forefront like it was prior to their filing.

A chapter 13 process is a different animal, as it is a 3-5 year repayment plan. Unlike the chapter 7 meeting of creditors, the chapter 13 client’s meeting of creditors is more involved, as the testimony there impacts the debtor’s monthly trustee payment. The typical chapter 13 debtor is therefore more on edge about his/her case until it finally gets confirmed.

Once it gets confirmed, the debtor hopefully enjoys some normalcy again as he now has a set monthly payment he delivers to the trustee. Of course anything can upset that, like a medical emergency, and the debtor often needs adjusting to the plan. So the chapter 13 debtor can’t move away from the experience nearly as quickly as the chapter 7 debtor, because the 13 debtor is in it much longer. That being said, the chapter 13 debtor probably has more income than the typical chapter 7 debtor. He often has a good employment situation, which enables him to not be as stressed as a chapter 7 debtor would be trying to pay monthly living expenses.

This article was written by Peter Bricks, who is a Jonesboro, Georgia bankruptcy attorney with satellite offices in Atlanta and Cumming, Georgia.

Image courtesy of Leo Reynolds.

R is for ReorganizationA chapter 13 bankruptcy is often called a “reorganization.” In a reorganization you are allowed to catch up on mortgages or automobile loans over a period of time.

When a bank or other creditor is uncooperative you can force them to work with you by filing a chapter 13 bankruptcy case. As long as you can catch up under the plan you can force the creditor to let you keep the property while you make up the back payments. Depending on your situation you may be able to strip off an unsecured second or third mortgage. There must be no property value securing the loan and you must successfully complete your plan payments.

Chapter 13 cases also allow you to keep non-exempt property. In a chapter 7 you are allowed to keep only exempt property and non-exempt property would be sold for the benefit of the creditors. In the chapter 13, you can keep the non-exempt property if you pay for it over the life of the plan, usually a three to five year period.

Chapter 13 Eligibility

In order to qualify to file a chapter 13 you must be an individual with regular income and be within certain debt limits. As of the time of this writing, you may not have over $1,081,400 in secured debt (mainly consist of mortgages and car loans) and no more than $360,475 in unsecured debts (generally credit cards, medical bills, student loans, and income taxes). A corporation or partnership may not file a chapter 13.

You may not file a chapter 13 or any other chapter unless you have taken an approved credit counseling course within the preceding 180 days.There are very few emergency exceptions allowed.

You may not file under any chapter if within the preceding 180 days you had a prior bankruptcy petition dismissed due to your willful failure to appear before the court or comply with court orders, or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property on which they hold liens.  11 U.S.C. section 109(g), 362(d) and (e).

Chapter 13 Plan

The plan is your description of when creditors will be paid, how much they will be paid and how they will be paid. After you pay your living expenses, the balance of your income goes into plan payments. Creditors can object if not all your disposable income goes into the plan or if they think they are being treated unfairly under the plan terms. The trustee will review your plan and make sure that it meets the legal requirements and that you have enough regular income to fund the plan. The trustee must approve your plan.

Many people make the mistake of waiting for trustee approval to begin making their plan payments. You must begin making these payments within 30 days of filing your bankruptcy case. The trustee will hold your payments until the plan is approved and then begin to pay them out to creditors. If you do not make your plan payments, your case will likely be dismissed.

Your plan can be modified if you lose your job or there are other changes. There is also a provision for a hardship discharge and you may convert your chapter 13 to a chapter 7 at any time.

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Q is for Qualified Written RequestA Qualified Written Request allows borrowers to obtain information from their servicer without having to file a lawsuit. You want to save your house and a foreclosure is looming but you’re pretty certain that the lender is claiming you owe more than you actually do. While not part of the bankruptcy code, 12 U.S.C. 2605 is a tool that may assist a debtor to keep their home with or without a bankruptcy filing.

It is common for a lender or mortgage servicer to claim that you owe more money than you think you do. Sometimes these accounting errors even cause you to default on your loan. Some of the common errors are:

  • Compounding interest when not allowed
  • Failure to make timely tax payments thus incurring late charges
  • Failure to properly apply payments made to your account
  • Improperly crediting payments you make
  • Charging impermissible late fees
  • Refusing to accept your payments because there is a difference in balance due and sum paid
  • Forcing insurance on you when you already have shown proof you carry it

Send a Qualified Written Request

The Real Estate Settlement Procedures Act (RESPA) provides for the Qualified Written Request (QWR). As Max Gardner says, “a reasonable QWR can provide the attorney for the Chapter 13 debtor with some of the very best discovery outside of a contested case or Adversary Proceeding.”The servicer must acknowledge your request within 20 work days of receipt and respond to your inquiries within 60 work days. You must include enough information in your request so that the servicer can identify your mortgage account. Usually an account number along with your name and the property address will work. You should also include any errors you believe occurred and clear requests for information.

Ask for a complete transaction history of the loan including all payments and charges. Also ask for the transaction codes and definitions so you can understand the history. You’ll also want any Pooling agreements; the name and contact information of a person to speak with about your account; the name of the current holder of the note; and copies of all correspondence, communication and collection documents related to your account. With this information you will be able to find out what is happening to your account and who owns your mortgage.

What If My Lender Won’t Respond?

There is also a provision in 12 U.S.C. 2605(f) that allows for reasonable attorney fees and costs if the lender or servicer fails to comply with your request.

Other Q articles:

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O is for Organize

Organizing is something that may be hard to do. Many of my clients have been putting their heads in the sand and leave mail unopened and unorganized until they see me. It is a normal tendency to ignore things that feel out of control. When those bills and collection letters come flooding into your mail, it can be overwhelming.

The first step to getting a handle on things is to tackle organizing those bills and other unopened mail. It doesn’t matter what is in there for now. It could be unopened mail, opened mail, or all mixed up. You need to find and organize all your financial information before you can file a chapter 7, or chapter 13 bankruptcy.

Set aside a block of time, even if it is only a twenty or thirty minute window. Gather up all that paper and find a place to begin to sort it. Somewhere you can leave the project and return to it is ideal. Have several bags or boxes handy. You may want one for trash, one for recycling and one for documents that need to be shredded. Label each bag or box.

Start with the steps below and get as far as you can in your scheduled time. When you are ready set aside another block of time and continue through the steps. Repeat until complete.

Organizing Mail Steps

  1. Open it everything. Use a letter opener or some other tool to make it easier. Toss all the envelopes that the bills and statement arrived in into your recycle bag. There is no need to keep that extra outside wrapper.
  2. If you are unable to pay the bills and are planning to file bankruptcy, or you pay your bills online, you can also toss the return envelopes into your recycle bag.
  3. Sort by type – medical in one pile, credit card bills in another. Utility bills and ongoing household expenses in another, etc.
  4. Sort each type file by creditor or sender. All PG&E together, all Chase cards together and all Aunt Susie’s letters together. Put all Chase collection letters (from agencies and lawyers) with the original Chase bills.
  5. If you have more than one account with a creditor (like two separate American Express card accounts) separate those accounts in different piles.
  6. Organize each creditor pile by date with the most recent on the top.
  7. Finally, place each stack into a file folder and label the folder with the creditor name and the last 4 digits of the account number. In my office we prefer that you do not use staples. If you bring in paper we will scan it and return it to you and staples only slow down the process.

Congratulations! Your bills are now organized and ready to work with whether you are looking at debt consolidation plans, a bankruptcy or just want to know how much you owe. For some tips on charting your financial future click here to read Cathy Moran’s article.

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What is this “Means” Test I Have to Pass?

The means test is used by the courts to determine eligibility for Title 11 of the United States Code Chapter 7, or payments in Chapter 13 bankruptcy. It was designed to prevent debtors who have sufficient financial means to pay a portion of their debts from liquidating them entirely in a chapter 7 bankruptcy.

During the Great Depression, the test was used to screen applicants for such programs as Home Relief in the United States, and starting in the 1960s, for benefits such as those provided by the Food Stamp Program. In 2005, the United States bankruptcy laws changed by adding a means test to purportedly prevent wealthy debtors from filing for Chapter 7 Bankruptcy. This 2005 BAPCPA change is found in 11 U.S.C. § 707(b).

If you are in the military or have a majority of non-consumer debt you are exempt from the means test income guidelines. Non-consumer debts are mainly those incurred for business or profit purposes, tax debt and tort debt.

Is Your Income Less Than the Median?

Debtors whose income is below the state’s median income pass the means test. To check your median income you must first determine your household size. Gross wages, business income, pension, family support, unemployment, regular gifts and other income is included. Social security payments are not included.

The median California incomes as of March 2012 are:

1 person – $47,683

2 persons – $61,539

3 persons – $66,050

4 persons – $74,806

5 persons or more – Add $7,500 for each person in excess of 4.

If your income is below the median you go no farther with the form or the calculations. STOP you are done. You can file for chapter 7 and do not need to complete the rest of the form.

What If My Income is Over the Median?

In Marin County we often see the situation where the income exceeds the median but there is not enough left to pay the creditors. In this case the long form of the means tests must be completed. The long form factors in expenses like mortgage payments, payments for taxes, insurance, costs of education, healthcare costs and insurance costs. Most people who need help find that they pass the means test.

If you pass the means test it means that you can file a chapter 7 bankruptcy. Just because you can file under chapter 7 doesn’t mean it is the best chapter for you to file under. If you are trying to catch up with mortgage payments or have unsecured liens on your property a chapter 13 would likely benefit you more.

Please see the following for more M posts:

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J is for Joint Filing

Is Joint Bankruptcy Filing For Us?

Couples often ask me if they should file separate bankruptcy petitions. “We have our own debts and don’t think we should file together,“ they say.

California is a community property state

Those debts the couples think are separate usually are not. Unless the debt was incurred prior to the marriage it is a community debt even if it is only in one name. In addition, if there is not enough separate property to pay separate debts the community assets can be reached by creditors.

Filing Jointly

If both spouses need the protection of the bankruptcy court it is usually easier, more efficient and more economical to file jointly. A joint filing will only require one filing fee. Separate filings will require two filings fees, one for each party. All community and separate assets and liabilities are listed whether filing jointly or separately. If the couple files separately, they need to list everything anyway so it may make sense to file one time and list everything together.

Separate Households

If a couple has been separated for a while and set up two distinct households it might be easier to file separately. Sometimes the spouses cannot communicate well and one spouse doesn’t have all the information needed on the other spouse’s income and expenses. In that case it would be better to file an individual bankruptcy.

Nothing in the law requires a couple to file jointly. The decision should depend on the specific circumstances of the couple involved.

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