Bankruptcy Questions

Bankruptcy is a federal court proceeding offered to residents of the United States who are unable to meet their financial obligations as they become due. The Bankruptcy code is that part of the federal law that sets out the rules and procedures for filing a bankruptcy proceeding. The Bankruptcy code is divided into different sections called chapters. While all of the chapters are still considered bankruptcy they each provide a different set of rules so as to permanently relieve you from your debt obligations.

The two most often used chapters to relieve debtors from consumer debts are Chapter 13 which allows you to repay a portion if not all of your debts over a period of three to five years, or Chapter 7, which provides for the complete liquidation of all of your debts.

When a person gets behind in paying their debts, creditors begin to take various actions to collect:

• Telephone calls at home, at work, to family , to neighbors or friends
• Personal contact by bill collectors creating embarrassment in front of family, friends, fellow employees or your employer;
• Co-signers may also be called upon to make delinquent payments;
• Foreclosure proceedings may be started against your home; or
• Automobiles, furniture, jewelry, appliances or other personal items may be repossessed.

If your creditors have obtained a court order judgment against you they may then garnish your wages, put a lien on your property or even seize your bank accounts. If you qualify for protection under the United States Bankruptcy laws all of these collection efforts will be stopped instantly.

The filing of a bankruptcy will automatically prohibit a creditor from further collection efforts. This means there will be no more phone calls, dunning letters or repossession attempts. Foreclosure actions, lawsuits and IRS seizures will also be stopped.

One of the basic misconceptions about bankruptcy is that you will lose all of your assets or property. This is not true! Under Indiana law you are guaranteed the rights to keep those certain items necessary to help you with your fresh start. Those items which cannot be taken from you are called your exempt property. An experienced attorney will be able to provide you with sound legal advice and a well measured option as to what, if any, of your property stands a chance of being lost. Should you choose to file a bankruptcy proceeding, it is quite likely you will be allowed to keep all of your property.

When you get behind on your house payments your mortgagor will eventually take action to collect on your delinquent account. Most collection activity usually takes the form of a foreclosure action, which could result in a forced sale of your property by the County Sheriff.

The filing of a bankruptcy prior to sheriff sale of your home may either cancel the mortgage debt so that you will have no further obligation to your mortgagor, or it may give you the opportunity to stop the foreclosure, keep your home and pay the arrearage over a reasonable period of time while continuing to make future mortgage payments.

If your mortgage payments are behind, you should immediately contact an attorney to determine your bankruptcy options. Quick action can possibly avoid the foreclosure altogether and avoid expensive additional costs and fees.

Since a bankruptcy filing most often occurs after financial difficulties arise, in most cases an individual’s credit report has already been damaged before a filing takes place. Chances are one or more creditors have already turned in reports of delinquent accounts or judgments. However, it is possible future creditors may consider the reasons that caused you to file bankruptcy, such as loss of job, illness, unexpected expenses, divorce or a death in the family.

While the filing of a bankruptcy will not have a positive effect on your credit report, it is possible to rebuild your credit. Some practical suggestions to accomplish this are to hold a steady job, don’t move from place to place, take out a loan and repay it early, pay our bills after the bankruptcy on an ongoing basis or save some money in a bank account to show you have the responsibility to put money aside.

When you get behind on the payment of a debt which has been secured by a piece of your property your creditors can then attempt to repossess the property which you have pledged as security. Should the creditor gain possession of the secured property they are then able to sell this property and thereafter apply the cash from the sale to your delinquent account. If the money resulting from the sale is equal or greater than the amount you owe then you will have no further liability to your creditor. However if the sale brings less than the amount you owe (which is most often the case) then the creditor will most likely sue you for the outstanding balance due on your account.

The filing of a bankruptcy either cancels this debt so that you have no further obligation to or it may give you the opportunity to stop the repossession, keep the item and pay for it under controlled circumstances at a rate you can afford.

If you are currently behind on any of your secured obligations you should contact an attorney quickly so that you may see what options are available to you so that you may take the proper steps to protect your property.

There are a variety of ways to deal with taxing authorities, all of which are too complicated to explore during this short presentation. However it is important to note that some taxes may be completely cancelled out should you file Chapter 7 bankruptcy proceedings. So long as your tax liabilities are for taxes older than 3 years old, for income tax or gross receipt obligations, and all those which a tax return has been filed, a Chapter 7 may dissolve these tax obligations.

If you have taxes which cannot be discharged in a Chapter 7 bankruptcy, you should consider filing a Chapter 13 bankruptcy. The Chapter 13 is a court ordered repayment plan which allows individuals and business proprietors to repay tax and other liabilities at a reasonable rate over a three to five year period. The Chapter 13 will freeze the interest and penalties on unsecured tax liabilities. The freezing of interest can amount to a substantial savings over a three to five year period. In some cases, the Chapter 13 will also reduce penalties which the IRS has already assessed against the taxpayer in the past. If you are a business proprietor, the Chapter 13 will also immediately stop the IRS or the State from closing down your business or seizing your bank account.

If you have tax problems you should immediately contact an attorney to determine your bankruptcy options and avoid IRS or State collection actions before they levy your wages, seize bank accounts or perfect a tax lien on your property.

The filing of a bankruptcy automatically stays (or stops) virtually all collection and legal proceedings pending against you. A few days after your bankruptcy is filed the court mails a notice to all your creditors ordering them to stop all further legal action against you. If necessary a notice of your bankruptcy may be given to your creditors earlier by your attorney. Any creditor who intentionally continues to contact you or attempts further collection and be held in contempt of the court and may be liable for damages.

Criminal proceedings and actions to collect alimony or support are not affected by the bankruptcy filing.

If lawsuits, judgments or court dates are a threat, relief may be available to you. Talk to an attorney to learn your rights.

If you file a Chapter 7 bankruptcy your debts will be discharged, that is you will not be required to repay them. This will allow you to meet your future obligations. If you file a Chapter 13 bankruptcy then you can propose a plan of repayment to your creditors at amounts you can afford. When proposing this plan of repayment you must first determine your expected future monthly income, or take home pay. All types of income can be considered, for example: wages, commissions, child support, alimony, social security, workman’s compensation, unemployment and disability benefits, retirement, dividends, etc. so long as it is income.

After determining income, you must next subtract the amount of money needed to provide for your reasonable and necessary living expenses. The amount of income remaining after providing for living expenses is the amount you pay to your creditors over the next three to five years.

If you are unable to repay your debts in full, then you are eligible to consider a Composition Chapter 13 plan or repayment. This is also called a best effort plan or partial repayment plan. The idea is to pay as much as you can afford and at the end of the play any unpaid debt is discharged, that is you don’t have to repay this unpaid debt.

In any event, Chapter 13 almost always reduces your payments to an amount you can afford.

A Chapter 7 will not protect co-debtors, co-makers, co-signers, guarantors, or any other party who may also be liable to your creditors for a joint debt. However, should you file a Chapter 13 all guarantors should be protected to the extent the Chapter 13 proposes to repay the debt.

As long as the Chapter 13 is in effect then the creditor should not be able to collect all or any part of the obligation, including the filing of a lawsuit against the co-signer so long as the debtor is making the required payments under the plan, and paying the creditor everything it is entitled to.

The purpose of this provision of Chapter 13 is to allow a debtor the opportunity to repay the debt without permitting the creditor to bring undue pressure on the debtor by approaching a co-debtor for repayment.

If you do not want a co-debtor involved, there may be a solution to this problem. If you are having problems talk to an attorney and learn more about your rights under the bankruptcy laws.

1. Call the State Disciplinary Commission (the agency which regulates and supervises attorneys) and find out whether any grievances or disciplinary actions have been filed against your candidate. This information is a matter of public record and available to the public.
2. See Martindale-Hubbell. This is a national publication which rates all attorneys based upon the attorney’s experience and reputation. The ratings reflect the opinions of the attorney’s peers. When you find the listing you will notice a letter rating such as “Av” or “Bv”. a. “A” stands for very high to pre-eminent b. “B” means high to very high c. “C ” means fair to high Martindale-Hubbell is known for thoroughness and impartiality.
3. Ask your prospective lawyer how many hours of continuing education they have for the particular area of practice you need. All lawyers are required to participate in so many hours of continuing education per year to keep them up to date on changes in the law. If you need a bankruptcy, wouldn’t you want a lawyer who has attended bankruptcy seminars it the past year? While a lawyer might still do a fine job, he might not be current on any change that may have occurred in the past year. Also, ask if your prospective lawyer has taught any seminars in the past year. Usually the pre-eminent attorneys in their field are the ones who teach the continuing educations seminars to other attorneys.
4. See if the candidate is Board Certified. Many states now offer an additional test the attorney can take with regard to a particular area of specialty. If the candidate passes this test, he/she is able to advertise that they are board certified in that particular area of law.
5. Ask what publications the attorney subscribes to. It is very important for attorneys to keep up to date on recent developments within particular areas of expertise. Since the law is always changing, it is very important to review new case law and to subscribe to trace magazines so as to have the most up-to-date information on a particular area of practice.
6. Lastly, call other attorneys who do not practice in the particular area of law you require. If they do not practice, say in bankruptcy, they can refer you to who they feel is best in the field. After calling five or six attorneys, you should start to hear the same names. Usually, attorneys know who are the best attorneys in the field.