What’s the difference between Chapter 7 and Chapter 13?

Chapter 7 and Chapter 13 are different tools that are used to handle different financial problems. Chapter 13 is a debt consolidation plan used to repay debt in full or in part over a period of years. Chapter 7 is a fresh start or liquidation case that is usually finished after only a few months.

In Chapter 13, you can force secured creditors like mortgage lenders or car lenders to allow you to cure defaults over time, whether they agree or not. In Chapter 7, unsecured debts are discharged without payment, and you indicate your preference (intent) as to whether or not you want to “reaffirm” and keep paying your secured creditors. Alternatively, you may surrender the collateral and discharge the debt.

Read more “What’s the difference between Chapter 7 and Chapter 13?”

Effect of Filing Chapter 13 on Foreclosure: Questions and Answers

Q: I fell behind on the house payments. My bank stopped accepting payments, and I received a letter saying that my mortgage has been “accelerated”, and that the matter has been referred to a lawyer for foreclosure. What does that mean? Will filing Chapter 13 help this situation?

A: “Foreclosure” is the process by which the lender on real estate takes title back from the borrower because of a default, usually by missing payments. There is no minimum number of missed payments that will trigger this action. If payments are not made according to the schedule set out in the note, the bank has the discretion to foreclose.

Until foreclosure takes place, the property belongs to the borrower. After foreclosure takes place, it belongs to the lender. “Referring an account for foreclosure” means that lawyers have been hired to start the process of foreclosure, which takes weeks to accomplish. “Accelerated” means that the whole debt is due so that that just catching up the “arrears” will not satisfy the lender. Neither means that the bank now owns your property.

The procedure by which foreclosure happens is determined by state law. Foreclosure in Georgia is done without any court action. To do this, the lender must advertize in the newspaper in the county where the property is located that a foreclosure “sale” is scheduled for a particular date. The advertizement must run for four consecutive weeks. Afterwards, foreclosure may be “cried” on the courthouse steps at the county courthouse. Foreclosures in Georgia must take place on the first Tuesday of a month, and not otherwise. Thus, it takes a least a month after a mortgage has been “referred for foreclosure” before the foreclosure can take place.

When you file a Chapter 13 bankruptcy, an “automatic stay” goes into effect that instantly freezes the ability of a lender to proceed with foreclosure …whether the lender knows of the bankruptcy filing or not. (If a foreclosure has already taken place, however, a bankruptcy will not retroactively reverse it).

Q: What is the effect of filing a Chapter 13 on foreclosure?

A: A Chapter 13 bankruptcy involves the filing of a “plan” that may propose to “cure” a mortgage default by having the Chapter 13 Trustee catch up “arrearages” over a period of years. In a normal plan, the debtor makes future mortgage payments in the regular amount directly to the lender after the case is filed. In addition, the debtor pays the Chapter 13 Trustee his “plan payments” which are used by the Trustee to catch up mortgage arrearages and pay other debt such as car notes and credit cards. So long as the debtor meets his obligations under the plan (including the obligation to “amend” the plan when circumstances change), creditors must accept the bankruptcy as approved by the Court. Thus, after a case is filed, creditors may not employ state law collection remedies to enforce their contracts. This includes foreclosure.

Thus, debtors have power in Chapter 13 to stop foreclosures permanently. They can keep their property and take years to catch up defaults, whether the lender agrees or not.

Call attorneys H. Brooks Cotten or Gina Karrh at 678-519-4143 to discuss your particular situation, and they can discuss your options with you. 

Does Filing Chapter 13 Have Any Effect on Obligations Arising in Divorce?

It’s common knowledge that you can’t “bankrupt on child support or alimony”. Obligations “in the nature of support” (even if they are labeled something else in the divorce decree) have never been dischargeable in bankruptcy. This means that you can’t get rid of them without payment.

Even so, it is possible to stop (“stay”) a contempt proceeding on past due obligations and catch up those debts over a period of years in Chapter 13. Chapter 13 is often used to avoid going to jail on a contempt proceeding. However, the bankruptcy judge will not rewrite a divorce obligation no matter how unfair it is, and no matter what has changed since the divorce was final. Only the Superior Court can do that. The reason is that a divorce is strictly a matter that is governed by state law in state court (Superior Court), whereas bankruptcies are federal. Federal courts will not interfere in matters that are traditionally the subject of state jurisdiction.

Over the years, this principle has become stronger and stronger. It is no longer possible to discharge a property settlement (as distinct from a support obligation) in Chapter 7. Thus, you should not expect to “fix” a bad result in divorce court by filing a Chapter 7 bankruptcy. It may be possible however, under limited circumstances, to pay property settlement obligations less than in full under a Chapter 13, and still receive a discharge. There is nothing easy or automatic about this, and you would have to discuss your particular situation with a lawyer to be confident about how this would work out for you.

If you are still married and are contemplating a divorce, a joint bankruptcy might make your separate lives easier in the future. Assume that you divorce without filing bankruptcy. If you owe some debts jointly, the divorce decree should direct which of you is supposed to pay each of those debts. If instead the divorce is unclear as to who should pay a debt, cooperation will be necessary for you to maintain the peace. This is often a problem in divorce. It usually works best for each spouse to be totally responsible for paying any given debt.

Moreover, even if the divorce decree clearly assigns each spouse separate debts to pay, that does not affect the right of the creditor to collect from either one of you if both names are on the account. Thus, if the ex is supposed to pay, but does not pay, you can still be sued by the creditor, regardless of what the divorce decree provides. If you are sued, your remedy would be against the ex-spouse, not the creditor. You would have to return to Superior Court to file a Motion for Contempt to make the ex-spouse pay as ordered. Similarly, you may not owe debts jointly with your spouse, but a divorce court still can order you to pay a debt that never was in your name… as part of a “division of marital liabilities”.

When you file for divorce, you want to achieve peace if at all possible. You don’t want to set yourself up for future conflicts either with your ex or with your old creditors. If you file bankruptcy and wipe out these debts, neither one of you will have to pay them in the future, and the divorce decree will not need to address them. This if often the best strategy for avoiding stress and conflict in your future life. Call us at 678-519-4143 to discuss your particular situation with our lawyers. 

Starting the Process of Filing for Bankruptcy

General information is available online, and you can do some research before calling a lawyer. However, in bankruptcy, what happens in an actual case depends on the circumstances of the individual debtor, and to some extent, issues are handled differently depending on which judge or which trustee is assigned. Thus, it is not the case that “one size fits all”. Local knowledge and expertise are important to get the best result for your case. We have that local knowledge and expertise.

Most people prefer to call us first, or even walk into our office to discuss their situation. We can give you informative answers so long as you understand that results depend on all of the facts taken as a whole, and not just on selected facts taken in isolation. You will need to do an in-person interview to actually prepare a case for filing.

When you come into our office, we have simple forms for you to fill out. We answer questions at that time if a question is not clear to you. A paralegal then types your information into an official format. You will have a generous amount of time to talk privately with the lawyer to explore your particular situation and options. We always try to do the job right the first time to reduce worries and uncertainties later on down the line.

In general, any bankruptcy requires that you provide information about your assets and your debts and about your income and your expenses. Information about your “assets” includes values of real estate, cars, and other personal property, whether paid for or not. We often use tax appraisals for values of real estate, and we look up N.A.D.A. values for vehicles. Values assigned to things like household furnishings are more like estimates. We help you with this.

Information about income and expenses is very important. We have to provide copies of “pay advices” (where possible) to back up what is said in your “budget” about your income, and we have to provide the most recently filed tax return. The court can and will require you to file tax returns if you should have filed but did not. The trustees may want proof of other types of income like social security, government assistance, or even support from family members. Sometimes, but not always, we are allowed to use an affidavit (a sworn statement) as “proof” of income where no other proof exists.

Information about expenses is usually clear with regard to the rent or mortgage you pay, or with regard to things like car insurance. Amounts budgeted food and transportation expenses are not so clearly defined, and depend on factors such as household size and how much you drive.

We do not charge fees unless you file the case. If you decide to file, you will need to do “credit counseling”, which is a statutory requirement. This is done in the office by internet, and a secretary guides you through the process. The cost of credit counseling is included with any other fees you pay.

Please call us at 678-519-4143 to discuss your particular situation. With our help, starting the process will be less stressful and easier than what you might think.

Do I Have to Include My Spouse?

Your husband or wife might be opposed to filing bankruptcy with you. The good news is that you are not legally REQUIRED to file a joint case. Many cases are filed singly, regardless of marital status. However, it is often to your advantage to file together to qualify for the benefits that are most important to you. As a practical matter, the benefits that you are seeking might not be achievable any other way.

For example, a bankruptcy discharge will only the cover the person who files the case (the “debtor”). If a debt is owed jointly, the non-filing spouse will not be covered by the debtor’s discharge. Where a debtor and the non-filing spouse owe a joint debt and a Chapter 7 is filed, the debtor would be discharged of the debt. However, the non-filing spouse would continue to owe it, and would continue to be subject to collection activity.

In a Chapter 13 (not Chapter 7), the debtor may protect the non-filing spouse on a jointly-owed consumer debt. The debtor does this by providing in the plan that the debtor will pay the debt in full through the plan. While this protects the non-filing co-obligor, it might make the plan more expensive because plan payments have to be high enough to pay the debt. Otherwise, if the debtor will not pay a joint debt, the court will “grant relief from the automatic stay” to allow the creditor to be paid by the non-filing co-obligor.

Suppose you owe a car note jointly with the non-filing spouse, and you intend to pay for that car through your Chapter 13 (whether the spouse files with you or not). You can do this even if you file by yourself. However, in order to fully protect the other party, you would have to pay the full contract interest on the car. This can make a big difference if the contract interest rate is high. By contrast, if you choose to file a joint case, you may reduce the contract interest rate and receive a discharge without paying that high interest.

Suppose your spouse doesn’t owe any debt, or can handle his or her debt without filing with you. In that case, he or she does not have to file. However, you still have to include the spouse’s income and expenses in your budget. (A non-filing spouse’s name and social security number are not included in the bankruptcy petition, even though the Trustee can and does require “proof of income” from the non-filing spouse. This information is not published publicly). Thus, the bankruptcy should not affect the non-filing spouse’s credit so long as debts are not owed jointly.

The budget includes household income and expenses even in a single filing. If you think about it, your ability to pay debt is very much affected by your spouse’s income, because he or she pays some of the bills. In a Chapter 13, your budget must show that you have the ability to pay what your plan requires you to pay. Otherwise, the plan is “infeasible”. Similarly, in a Chapter 7, your budget must show that you can afford to pay for the debts that you want to “reaffirm”, such as your car or your house. Without your spouse’s income, you probably couldn’t afford to do that.

Please call us at 678-519-4143 to discuss your particular situation with our lawyers. 

Redemption in Chapter 7: Keep Your Car While Lowering the Payments

In Chapter 7, there are three possibilities for dealing with a debt that is secured by collateral, one of which is a redemption. Redemptions are usually only done with regard to vehicles, though it would be theoretically possible to do it with other types of personal property too. This article deals with redeeming cars. This is possible in Chapter 7, but not Chapter 13.

First, with the agreement of the creditor, you may keep the car, and continue your obligation to pay for it. This is called a reaffirmation. The effect is to leave the car out of the bankruptcy and continue to pay for it, usually under the terms of the original contract. A reaffirmation usually requires that you be current in your payments on your car note.

The second possibility is to surrenderthe collateral. In that case, you lose the car to the creditor, and the debt is discharged. The creditor cant collect any money later. This makes sense when you cant afford the debt, or if something is wrong with the collateral so that you prefer to pursue other options. You can certainly surrender the collateral even if you are behind on the debt and a reaffirmationis not possible.

The third possibility is a redemption. Redemption is a remedy that exists only under the bankruptcy code, and so you have to file a Chapter 7 to take advantage of it. It is perfectly legal, and is easily achieved in the right circumstances. You dont need to be current in your payments to redeem. This remedy will surprise you, and is not obvious at all.

The Code provides that if a debtor pays the fair market valueof personal property in a lump sum, that the creditor must accept the money in exchange for its lien rights. The challenge is that debtors do not have enough money to make large lump sum payments. The solution is that a few banks make money by financing a bankruptcy redemption if the circumstances qualify under their guidelines. The practical effect of a redemption is that the debt is refinanced: the old debt is satisfied, and a new, lower debt/loan is created in its place with a new lender. That lender becomes the lienholder in the place of the original creditor.

The right circumstancesare as follows: 1) the car must be relatively new (10 years or less and less than 150,000 miles), and 2) the debt must not be co-signed, 3) the debt should significantly exceed the value of the collateral securing it, and 4) your provable income should be high enough to make the payments.

The debt might exceed the value of the collateral for several reasons. One is where the debtor rolled a pre-existing debt into the price of his car when he bought it (in other words, the trade-in was not paid off). Another circumstance is where the lender (usually a credit union) has cross- collateralizedthe car note with some other debt, such as a loan or credit card. In that case, the car may be collateral for both the car note and for the other unsecureddebt based on the language in the loan agreement. Third, high finance charges, late-fees, or other charges may have driven up the pay-off to a figure that is much more than the value of the car.

If your car is relatively new and is worth significantly less than what is owed on it, we can explore

redemption options for you. A successful redemption is accomplished by allowing us to contact the potential lender on your behalf by telephone right on the spot. If the lender agrees, we file a Motion to Redeemwith the Court, which would be granted so long as the we can reach an agreement with the creditor as to the amount of the fair market valuewhich may be negotiated.

The beauty of a redemption is that everyone is happy… the payments to you are invariably lower than before, the payoff is lower than before, and the original creditor is happy to receive a lump sum. Our attorney fees are included in the new loan, so you dont have any out of pocket expense. Whether you meet the necessary guidelines is not hard for us to determine, and many loans qualify.

Call one of our lawyers for an appointment at 770-519-4143 and we can explore this possibility for you. 

Tax Refunds, Lawsuit Recoveries, and Inheritances

If the state or federal government owes you money for a tax refund that you have not yet received, this is considered to be an assetowned by you similar to money in your bank account. Assets should be disclosed in bankruptcies. You are then allowed to exemptor protect those assets within certain dollar limits depending on what the asset is, and depending on how many people own it.

In some Chapter 13’s, but not all of them, you might be required under your plan to pay in part of future tax refunds to pay creditors if they would not be paid in full otherwise. You should ask the lawyer about this if you are filing Chapter 13.

In either Chapter 7 or Chapter 13, disclosing assets is the proper way and best way to protect them. Hiding or failing to disclose assets can result in the loss of protection that you would otherwise have, and creditors and Trustees can make problems for you if they allege that you failed to disclose something that should have been disclosed.

Similarly, if you have a claimagainst someone else, regardless of whether you have filed suit, and regardless of whether you have retained a lawyer, this claimis also an asset that should be disclosed and exempted in a bankruptcy. It doesnt matter if the exact value of the claim is known or not. Valuecan be listed as unknown. Personal injury, products liability, workers compensation, and employment discrimination are common examples of this type of claim. Claims should be disclosed whenever they arise, even after a bankruptcy has been filed.

If you are due to inherit money or property from someone who has died, your share is an asset, even if the inheritance has not been distributed. If someone dies within 180 days (six months) after you file, that inheritance is also an asset, and your share should be added to the schedules and exempted for your protection.

The disclosure of assets does NOT necessarily mean that you will lose them. Assets can be protected within limits in a Chapter 7 by exemption, and you are not subject to losing assets in Chapter 13 at all (even though it might or might not impact the minimum amount of your monthly payments). A Chapter 13 is a voluntary proceeding. If the burdens of continuing the case outweigh the benefits, you can just terminate the proceeding. Thus, people very seldom lose anything that they dont want to lose when they bankruptcy, assuming they consult an attorney about the rules in advance to make informed decisions.

Each case is different. In the vast majority of cases, debtors safely own assets, disclose assets, and protect them. If it turns out that you are subject to losing something that you dont want to lose, the best approach is to discuss it specifically with the lawyer ahead of time. The best answer often involves balancing benefits and burdens in that particular case. This will eliminate unnecessary worry about losing assets.

Please call us at 678-519-4143 today to discuss your specific situation. 

Pick Your Lawyer Carefully, Then Trust That Person

We frequently receive calls from people who filed their bankruptcy case with another lawyer, and now want to change lawyers. Sometimes its because the first lawyer wont return calls. Sometimes the client just doesnt understand requirements and procedures. Sometimes they have received objections, and believe their case has been thrown out, or will be thrown out, no matter what they do. Sometimes clients suspect that they are not receiving the best deal possible.

To be successful, bankruptcies require that the paperwork be done accurately. Each case is different, and one size definitely does not fit all. The lawyer needs documentation (paystubs, tax returns, bills, letters, etc.) to fill out the forms at the beginning and on an ongoing basis so that the Trustee or creditors do not object. Debtors often believe that approximations are good enough, and that they are free to pick and choose which debts to file. Approximations work occasionally, but not always. You are always supposed to list all of your debts, even if you are keeping the property or paying for it outsidethe bankruptcy. The general rule is that everything is disclosed, even though there may be considerable freedom in deciding how debts or assets are treated in the plan or statement of intentions.

Our experience is that taking time to be accurate on the front end greatly reduces anxiety, and reduces complications in both simple and hard cases. Naturally, hard cases, like business cases or repeat filings, take longer to get right than simple cases. Sometimes clients believe that their case is hard, when really its easy, and sometimes they think its easy, when its complex for reasons they did not anticipate. Either way, it works best when everyone understands the challenges and benefits as early as possible. The best way to make that happen is to be prepared with paperwork. Keep appointments. Listen carefully to questions, and trust that the lawyer really is on your side even if he warns you about constraints. Trust that the lawyer wants you to succeed, and get what you want as badly as you do.

If you are wondering about filing a bankruptcy, call first and ask general questions. Listen for whether you are being treated with respect, and expect to get some meaningful answers to your questions. However, you shouldnt expect highly specific answers if you havent met the lawyer in person and provided all the information needed to write detailed plans and schedules.

After you file, trust the lawyer that you have chosen. The procedures and requirements are too numerous to understand everything at once, especially things that may or may not happen in the future. Sometimes you have to be patient and let your questions come into focus.

After you have chosen to file with a particular lawyer, its not proper for a different lawyer to give second opinions and second guess decisions that your lawyer has made. When people who are already represented ask me questions, I may feel like offering my own opinion and solutions, but I almost always refrain. A person who offers a second opinionoften hasnt understood everything. Its disrespectful to both the lawyer and the client to make superficial suggestions without an adequate grasp of the facts.

Please call us at 678-519-4143 to discuss your particular situation. With our help, starting the process will be less stressful, smoother, and more successful than what you might think. 

Saving a Title Pawn in Chapter 13

Under the Georgia Code, title pawns are not the same as auto loans. Auto loans are “purchase- money” loans used to finance the purchase of a vehicle, whereas title pawns are similar to the sale of a vehicle to a pawnbroker at the time the “loan” is made… subject to a specific “right of redemption”. As the result, the treatment of a title pawn in bankruptcy is different from the treatment of an auto loan, and poses problems. Read more “Saving a Title Pawn in Chapter 13”

Judgements : What are they and how do they effect you?

A judgment is preceded by the filing of a law suit:

Let’s assume that you have not filed bankruptcy. Under general contract law, if a person borrows money, and is late in repaying it, the lender may sue to collect the debt. A lender starts a law suit by filing a “summons and complaint” that usually states that payments have not been made as required in the contract. A Summons and Complaint are papers are issued by a court, and are not merely collection letters from the creditor. The papers are usually pink or yellow. A suit requires that the defendant/borrower file an “answer” within 30 days. The answer should state a reason why the borrower is not legally obligated to pay the debt as stated in the complaint.

If the borrower files an answer on time, a hearing will be assigned. Otherwise, if the borrower fails to answer, or if his answer is legally inadequate, then the creditor will win, and a Judgment will be entered against you. The creditor may then use that judgment as the basis to “garnish wages” or “levy a bank account” to collect the money owed to it. Alternatively, if you own real estate, a judgment could be recorded in Superior Court’s real estate records. A recorded judgment functions like a second mortgage, and if you wanted to sell or refinance that real estate at a later date, the judgment would have to be paid to deliver clear title to the buyer or bank.

A “garnishment” is a separate proceeding where the creditor requires the borrower’s employer to pay a percentage of the debtor’s wages into the court until the judgment is satisfied. A garnishment is served on the employer, not on the employee. It is not necessary for the creditor to notify the borrower of the garnishment after a judgment has been entered, and the garnishment may take the borrower totally by surprise.

Alternatively, a judgment creditor may collect by means of a “levy”. Here, the creditor causes the debtor’s bank account to be frozen, and require the bank pay the monies over after a brief waiting period. Again, the borrower does not need to be directly notified, and is often surprised to find that he can’t pay bills or draw money out of his account. A levy may attach to a joint account even if the other owner(s) of the account have nothing to do with the debt owed to the creditor.

Effect of Filing Bankruptcy

Filing either a Chapter 13 or a Chapter 7 will stop a creditor from starting suits or from entering judgments that have not already been entered. It will stop the recording liens that have not been recorded yet, or from continuing garnishments and levies. Depending on your situation, after you file bankruptcy it is often/usually (but not always) possible to “avoid a judicial lien” by the lawyer filing a certain motion in a bankruptcy case. If successful, this means that the lienn will be nullified, and the underlying debt is treated like any other unsecured debt. It may be discharged or paid the same way that similar debts are treated in your particular case.

Please contact one of our lawyers at 678-519-4143 to discuss how this applies in your particular situation.

Reorganizing Student Loans

There is more outstanding student loan debt in the United States today than there is credit card debt. Today, excessive credit card debt is being made worse by exploding student loan debt. The situation is likely to continue, because acquiring a higher education is increasingly important to landing a good job in a competitive environment. The cost of that education is skyrocketing, and it is easy to borrow student loan money before you are sure that you will have the ability to repay those loans.

A common misperception is that you can’t do anything about student loans in bankruptcy. For one thing, the bankruptcy code does provide for the possibility of a “hardship discharge” in Chapter 7. However, a hardship discharge is available only under extremely limited circumstances, and even then, it requires expensive litigation. Thus, as a practical matter, unless you are old or in terrible shape, you probably won’t qualify, and should not waste time thinking about discharging your student loans without payment.

Even so, you may be able to substantially reduce your student loan payments during the five- year term of a Chapter 13. In the Chapter 13, you can make lower payments to get around the short term pinch. At the conclusion of the plan, your other debt will be wiped out. Then, you will only owe the unpaid portion of the student loan. In this way, you can get out of danger from an immediate disaster, and give yourself several years to develop a long-term solution, usually by making more money in a higher paying job as the result of acquiring your education.

Attorneys Brooks Cotten and Gina Karrh have over 30 years experience in helping people with their financial situations. Call us today at 678-519-4143