Articles Posted in Chapter 13

Choosing to go through bankruptcy is usually a final attempt by people in a difficult financial situation, who are trying to salvage what they may of their lives. They are sinking – due to the market collapse, a job loss, business going under, unexpected medical emergencies and the attendant sky-high bills, a mortgage they can no longer afford, the kids’ college tuition, or maybe just from poor money management – whatever the reason, their financial boat is under water. Creditors are threatening to take the few assets they’ve managed to keep and they’re facing utter ruin. At this point they need to find the best bankruptcy lawyer they can – the best one for them, specifically.

To this end, they must ask qualifying questions of their prospective lawyer:

  • What kind of bankruptcy should I file: Chapter 7 or 13, or is my situation more complex than that?

Bankruptcy is a federal law that allows people and businesses (even cities and municipalities) to manage or eliminate debt.  Bankruptcy is available to most everyone, and you do not even need to be insolvent to file. Bankruptcy is important because it imposes an immediate “automatic stay” on all creditors, and these creditors must stop all collection efforts.  If the creditors continue to call, send letters, file lawsuits, etc., those creditors are in violation of bankruptcy law and could be fined or required to pay sanctions.  This automatic stay gives the bankruptcy filer (or debtor) a breathing spell.

There are different chapters of bankruptcy depending on your needs or factual situation. There are Chapters 7, 9, 11, 12, and 13.  The most common chapters for everyday consumers are Chapters 7 and 13.

Chapter 7 provides a discharge of certain debts if the debtor agrees to give up all of his or her non-exempt property to a trustee for sale for the benefit of the debtor’s creditors.   Most people will find that there are very little to no assets available for creditors after the exemptions.  For example, in Florida, a person’s home can be exempt, retirement accounts can be exempt, up to $1,000 of a person’s vehicle can be exempt, property held jointly with a non-debtor spouse can be exempt, etc.

By Alfred Villoch, III, with Savage, Combs & Villoch, PLLC

Divorce is often the catalyst for bankruptcy.  After divorce, finances are stretched. There are new budgetary constraints.  One partner might lose health insurance or the insurance might become more costly for the ex-spouse.  Alimony and child support become additional expenses to pay.  Some start having to pay new expenses such as child care, and others will find their expenses increased because no longer are they splitting bills and living expenses with their former partner.

A particular trigger for bankruptcy is the former marital home and the mortgage. When a married couple owns a house, typically one spouse keeps possession and the other spouse will agree to make or help out with the mortgage payments.  Unless the couple refinances the mortgage, both partners will remain legally responsible for the mortgage debt.  The problem arises when, for whatever reason, the mortgage goes unpaid and falls into default.  This drags the co-obligor – who doesn’t even live in the home – into a foreclosure lawsuit and starts to severely damage that person’s credit score.  One spouse can file for bankruptcy, leaving the other spouse adrift and fully responsible for the mortgage.

By Alfred Villoch, III, with Savage, Combs & Villoch, PLLC

In a previous blog post, I explained the purpose of a 341 meeting of creditors.  A trustee holds a 341 meeting in every bankruptcy case.  You can access that blog post HERE.  Before a 341 meeting, a bankruptcy trustee usually requests certain documents to verify the information provided in the bankruptcy petition and schedules. Without the production of this information, a trustee may reschedule or adjourn the meeting until the documents are provided.  Below are 5 things that a bankruptcy often requests to review at least one week before the 341 meeting.

1.  Tax returns for the last two years.

By Alfred Villoch, III, Esquire, with Savage, Combs & Villoch, PLLC

The judges of the United States Bankruptcy Court for the Middle District of Florida are considering new rules and proposed amendments to the Local Rules. The proposals are available HERE for public comment beginning on March 9, 2015. The public comment period ends on April 24, 2015. When promulgated by the judges, the amended and new Local Rules will become effective on July 1, 2015.
While many proposed changes are stylistic, some of the proposals will affect daily bankruptcy practice.  For instance, one proposed amendment reduces the time during which Electronic Filing Users must retain paper copies bearing original signatures from four years to two years. One new rule requires subpoenas before trial to be filed with the Court in addition to being served on each party to the adversary proceeding or contested matter.  Another change involves amendments to lists and schedules.  The amendment requires that the Notice of Deadline to File Proof of Claim, if any, be served upon newly added creditors in amended Schedules D, E and F.

By Alfred Villoch, III, with Savage, Combs & Villoch, PLLC

Only an individual (not businesses) with regular income can seek relief under Chapter 13 of the Bankruptcy Code.  Chapter 13 allows individuals with regular income to propose a plan to repay all or part of their debts. Under Chapter 13, individuals file a proposed repayment plan to pay installments to their creditors over three to five years. If the individual’s monthly income is less than the applicable state median (see U.S. Trustee website, State Median Family Income by Family Size), the plan will last for only three years unless there is “cause” for additional time needed. If the individual’s current monthly income is more than the median, the proposed plan generally must be for five years. Courts will not allow plan periods of over five years. 11 U.S.C. §1322(d). During the plan period, creditors cannot start or continue collection efforts.

There are certain advantages in Chapter 13 over liquidation in a Chapter 7 case. One of the most significant advantages, Chapter 13 offers individuals an opportunity to save their homes from foreclosure. Individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. That said, individuals must still make all monthly mortgage payments on time during the Chapter 13 plan. Another advantage is that Chapter 13 allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the chapter 13 plan. Doing this may lower the payments. Chapter 13 also may protect third parties who are liable with the debtor on “consumer debts,” specifically co-signers or guarantors. Last, in Chapter 13, the individual makes plan payments to a Chapter 13 trustee who then distributes payments to creditors. Individuals do not have direct contact with creditors while under Chapter 13.

By Alfred Villoch, III, Esquire, with Savage, Combs, & Villoch, PLLC

No. An employer is strictly prohibited from terminating your employment or discriminating against you in any way solely because you filed bankruptcy. Section 525 of the Bankruptcy Code is entitled “Protection against discriminatory treatment.”  Subsection (b) specifically states that no private employer may terminate the employment of, or discriminate with respect to employment against, an individual who filed bankruptcy simply because he or she filed bankruptcy.  

Similarly, if your employment requires a license or permit, for example, a doctor, nurse, lawyer, or financial adviser, the governmental unit that issues such license or permit cannot deny, revoke, suspend, or refuse to renew such license or permit simply because you filed bankruptcy.  11 U.S.C. § 525(a).  By way of further example, a state medical licensing board cannot revoke a doctor’s license to practice medicine simple because the doctor filed bankruptcy.

By Alfred Villoch, III, with Savage, Combs & Villoch, PLLC

Contrary to pop culture belief, bankruptcy existed long before the game show Wheel of Fortune.  Remember when contestants would lose their prize money if they spun the wheel and randomly landed on the ominous black wedge, “BANKRUPTCY”?  Bankruptcy also existed way before celebrities like M.C. Hammer, Billy Joel, Burt Reynolds, and Mike Tyson each filed for bankruptcy protection. P.T. Barnum, a famous American showman and businessman, filed bankruptcy in 1877.  K-Mart filed bankruptcy in 2002.

Bankruptcy in the United States dates back to the United States Constitution itself. Article I, Section 8 of the U.S. Constitution gives Congress the power to enact uniform laws on the subject of bankruptcies. Although Congress had this power beginning in 1787, Congress did not pass a bankruptcy law until about 13 years later in 1800 and, even then, the law passed was short lived and was limited to involuntary bankruptcy proceedings brought against merchant and traders. In 1803, Congress repealed the Bankruptcy Act of 1800, citing excessive costs and corruption.

By Alfred Villoch, III, with Savage, Combs & Villoch, PLLC

On November 12, 2014, the New York Times published an article entitled “Debts canceled by bankruptcy still mar consumer credit scores.”  In the article, the author, Jessica Silver-Greenberg, explains that “Tens of thousands of Americans who went through bankruptcy are still haunted by debts long after — sometimes as long as a decade after — federal judges have extinguished the bills in court.”  This article was also featured in the Tampa Bay Times on Friday, November 21, 2014.

Lawyers with the United States Trustee Program, a group charged with overseeing federal bankruptcy cases, are investigating certain banks, such as JPMorgan Chase, Bank of America, Citigroup and Synchrony Financial (f/k/a GE Capital Retail Finance), because these banks are suspected of violating bankruptcy law and ignoring the discharge injunction. Section 524 of the bankruptcy code provides a “discharge injunction” where creditors are no longer allowed to pursue debts canceled or discharged in the bankruptcy case.  The banks allegedly ignore the discharge injunction when they know (or should have known) the debt was canceled but still seek to collect the debt, whether by continuing to report it on the person’s credit report, sending letters, or making telephone calls about the canceled debt. Often times, these are not clerical errors, but debt-collection tactics.  In some cases, the banks purportedly refuse to correct the “mistakes,” insisting that the canceled debt be paid.  An example cited in the article was The Vogts, a couple in Denver, who paid JPMorgan $2,582 on a debt that was discharged in bankruptcy because they needed a clean credit report to get a mortgage.

By Alfred Villoch, III, with Savage, Combs & Villoch, PLLC

If you miss car payments, the company that loaned you the money to purchase the car can likely take back your car in what is called “repossession.” The right to take back your car for nonpayment usually comes from the terms of the signed loan paperwork when you buy your car. Usually, a few missed payments and the loan company will start calling you and sending you warning letters. Warning calls and letters will ultimately lead to repossession. Once the loan company repossesses, it can then sell your car at an auction and apply that money to pay down the amount that you still owe. This can also happen with car title loans (e.g., where you receive a loan and agree to give the loan company your car title as security and part of your promise to pay back the loan. This is called a security interest). In situations where the car is part of your promise to pay back a loan, the answer is “yes”: you could lose your car if you don’t make your car payments. Bankruptcy can immediately stop this process.

If you haven’t paid other bills, like a credit card or a payday loan, you could still lose your car, but the situation is a bit different and the company must take a few extra steps. For example, the company must first sue you to get a judgment in court. With a judgment in hand, the company can then apply to the court to have the sheriff take your car and sell it. This process is similar to repossession and is called a writ of attachment. The company would then use the money from the sale of your car as payment down on the amount that you owe. Bankruptcy can immediately stop this process too.

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