Four Main Reasons People File for Chapter 13

There are four main reasons to file a chapter 13.

1. You may be considering Chapter 13 as a result of falling behind on your mortgage, the most common reason that people file for Chapter 13. Once you have accrued a delinquency on mortgage payments, very often the mortgage company refuses to work with you. Chapter 13 allows you to repay the amount you are behind (arrears) in installment payments through the Chapter 13 Trustee. For example, if you are $9,000.00 behind with your mortgage, you could propose to repay that $9,000.00 without interest by making 36 monthly payments of $250.00 to the Chapter 13 Trustee, who will distribute the money to your mortgage company. Upon completion of your Chapter 13 plan, your mortgage loan is reinstated. However, in order to cure mortgage arrears through Chapter 13, you must have enough income to pay your regular monthly living expenses (including current mortgage payments as they come due throughout your case) plus be able to afford to make a monthly payment ($250.00 per month in the above example) to the Chapter 13 Trustee. If you don't have the income to fund a Chapter 13 plan, and you are so far behind on your mortgage payments that your mortgage company will not work with you, then the only other options are to refinance your house, sell, or file a Chapter 7 and surrender your house.
   
   
2. You may be considering filing Chapter 13 because you have an asset that would be liquidated (sold) by the court in a Chapter 7. There are limits (exemptions) imposed by state and federal law on the amount of assets you can have and still qualify to eliminate all your unsecured debt in a Chapter 7. Assets include money in the bank, stocks, bonds, rights to inherit, among others. The most common asset, however, is interest in real estate, like your home. If, for example, you have a house worth $200,000.00 with a mortgage of $150,000.00 and state law allows you to protect (exempt) $10,000.00 of equity in your home, then you have $40,000.00 of unprotected equity. In this situation, if you filed a Chapter 7 bankruptcy, the Trustee has the power to sell your house and use the sale proceeds of $40,000.00 to pay your unsecured creditors. This is called the "Chapter 7 Liquidation Test" and Congress enacted it to prevent you from wiping out all your debts, when you could have sold an asset and used the proceeds to pay those debts. If you want to keep your house, you could file a Chapter 13, provided, however, that you propose to pay your unsecured creditors at least $40,000.00, interest free over three to five years, which is what your creditors would have received immediately if you had filed Chapter 7 and the Trustee sold your house. You should call an attorney at our office if you would like an attorney to evaluate if you need to do a Chapter 13 to protect the equity in your assets.
   
3. You may have to file Chapter 13 because you simply have too much income to qualify for a Chapter 7. In order to qualify for a Chapter 7, you may not have any "disposable income." Disposable income is money that is left over at the end of the month after you have paid your basic living expenses, including your rent or mortgage, car payment, utilities, food, transportation costs, and the like. Accordingly, if you take home $2,000.00 after taxes per month from your pay checks, and your monthly living expenses total only $1,400.00, then you do not qualify to wipe out your unsecured debt in a Chapter 7, and must file a Chapter 13, committing the $600.00 per month in disposable income to repay your debts to the extent possible over a minimum of three and maximum of five years. So, for example, if you have $70,000.00 in credit card debt and medical bills, and have $600.00 per month disposable income, then you must repay $600.00 per month for 36 months, for a total of $21,600.00, or 31% of your debt. The other 69% of your debt is discharged upon successful completion of your Chapter 13.
   
4. The fourth most common reason to file Chapter 13 is that the debts you have are non-dischargeable in Chapter 7, but can be paid through a Chapter 13. Debts that are not or may not be discharged in a Chapter 7 are debts incurred by fraud (such as debts incurred right before filing or based on false disclosures on credit applications), government fines and penalties (such as moving violations or parking tickets), or debts resulting from intentional injury to another person or property. For example, if the only debt you have is $15,000.00 in parking tickets and moving violations, then you would be unable to discharge those debts in a Chapter 7, and you would have no way to pay down the debt. In a Chapter 13, the court orders the municipality to reinstate your license and allows you to pay down the fines, interest-free over three to five years.

If none of the above situations applies to you, then you likely could file a Chapter 7. If any of the above situations applies to you, then you should file a Chapter 13. It is not uncommon for more than one of the above situations to apply to one particular case. Consult an attorney at Legal Helpers, to help sort out your options.

http://www.legalhelpers.com/legal_helpers/brc_articles_four_reasons_chapter13.html

The "Cram Down" Benefit of a Chapter 13 Bankruptcy

A major benefit of Chapter 13 bankruptcy is that it allows you to lower the amount that you owe on most secured debts (called a "cram down"). Secured debts are those that if you do not pay, then you will have to return that item, such as a car, furniture or house (however, the cram down option is not available for your house). When you finance a car or furniture, you typically make a number of monthly payments to repay the loan. In most cases, the value of the item you are financing decreases faster than the loan is being repaid (for example, a car purchased two years ago is now worth $5,000.00 but the amount still owed on the loan is $10,000.00). This is known as being "upside down." A year or two after you make a purchase, the value of the item you are paying for is usually much less than the remaining balance owed. Debts like these can be "crammed down" in Chapter 13, by paying the value of the property (usually your car or furniture) in full plus interest with the remaining balance paid as little as a penny for every dollar owed.

Another great benefit of Chapter 13 bankruptcy is that you can reduce the interest that you have to pay on a secured loan (however, you cannot lower the interest on your mortgage by filing a Chapter 13 bankruptcy). Many people have car or furniture loans where they agreed to pay 15%-30% interest, and sometimes even more. In a Chapter 13 bankruptcy you only have to pay most secured debts at the prime rate plus 1-3%, depending on the circumstances of your case. Millions of people in Chapter 13 bankruptcy will save billions of dollars each year.

The combination of cramming down a secured loan and reducing the interest rate can save you a lot of money. If you are behind on payments for a secured loan or if you simply cannot afford the monthly payment due to the high interest rate, then consider filing a Chapter 13 bankruptcy.

http://www.legalhelpers.com/legal_helpers/brc_articles_cram_down.html

Bankruptcy Legal Advice

How to choose a bankruptcy attorney

In times of financial crisis when bankruptcy legal advice is needed, choosing the right attorney is a critical decision. Consider the following points in making any decision to retain legal counsel:

1. Experience. Choose an experienced attorney who understands the law and the finer aspects of bankruptcy procedure. When you have a high fever, you certainly don't go to the podiatrist. In the same way, attorneys specialize in everything from criminal law to corporate mergers. Some attorneys obtain experience at the expense of their clients. Make sure you choose a seasoned bankruptcy attorney who understands the local rules, the Trustees' preferences, the local judge's rulings, and how to work with the local creditor attorneys.

2. Reputation. Choose an attorney with a record of success who has earned the respect of his colleagues. Since the work done by your bankruptcy attorney will have an impact on your financial life for years, it pays to choose an attorney with a record of successful bankruptcy filings.

3. Reasonable fees. Choose an attorney whose fees are fair. Attorney fees run the table from affordable to cost-prohibitive. Your bankruptcy attorney should work with you to establish a fair fee and provide you with a flexible payment plan. Like a good accountant, a good bankruptcy attorney can save you much more than you have to pay in fees. With good exemption planning, careful analysis of any transfer issues, and expert advice on how to handle different kinds of debts both before and after filing, good bankruptcy legal advice from experienced attorneys can save you a significant amount of money.

4. Law firm size. Choose an attorney who works for a larger firm. In many cases, large firms have advantages over small firms. For example, at a larger firm it is likely an attorney will be available to discuss with you a pressing issue. A sole practitioner may not be available in a moment of crisis. You do not want to be at the mercy of a single attorney's schedule.

5. Attorney-client relationship. The foundation of effective legal representation is an attorney-client relationship built on trust and respect. It is important that you feel comfortable with the attorney you choose, he will guide you through a very difficult period in your life. However, do not be blinded by former allegiances. The general practice lawyer down the street might be a great person, might have worked with you in the past, and might quote you a really good price, but that doesn't make him or her the best choice.

6. Free Consultation. An attorney who places his clients needs first will provide a free consultation. If an attorney insists on a consultation fee, for bankruptcy legal advice, look for another attorney.

7. Proximity. Proximity to your home is only one consideration when choosing a bankruptcy attorney. In today's electronic age, paperwork can be handled via mail, fax or E-mail. It's far more important that you choose an experienced, qualified attorney, than to choose an attorney because his office is down the street.

8. Willingness to answer questions. Choose an attorney who is receptive to your questions. You must understand the bankruptcy process before you decide to hire an attorney.

9. Credit Restoration. Choose an attorney who will help you rebuild your financial life. The attorney you choose should have the resources to help you dispute credit report errors and provide a list of bankruptcy friendly lenders. Your attorney ought to provide you with the tools necessary to execute your plan to rebuild your financial life.

http://www.legalhelpers.com/legal_helpers/brc_articles_bankruptcy_attorney.html

Bankruptcy Reform

Bankruptcy reform legislation has more lives than a zombie in a Stephen King thriller. Bankruptcy reform has passed both houses of Congress on three occasions since 1998, only to be vetoed, or die on the vine due to political squabbling. Ironically, the common feature among these bills is that experts from all corners do not believe the proposed legislation will work.

Bankruptcy reform seeks to reverse the soaring bankruptcy rate, prevent more consumers from going broke, generate a higher dividend for creditors and decrease the likelihood an individual will file another bankruptcy. To that end, the proposed legislation creates a means-test to determine whether an individual has the financial resources to repay a portion of his debt. However, a study by the American Bankruptcy Institute found that only 3 percent of consumer filers would be required to continue making payments to their creditors.

Commentators argue that the proposed legislation, drafted at the pleasure of the monolithic credit card industry, fails to address the factors that have created the bankruptcy boom. In the rush to force more consumers to take responsibility for their debts, Congress focused exclusively on the debtor. Meaningful bankruptcy reform must focus on both the debtors and the lending industry. Legislators ought to examine the lending industry and make changes that will force lenders to get smarter about the risks they take. Effective legislation will need to include changed usury laws, consumer education and heightened disclosure requirements.

To illustrate the point, take a look out your window as you drive home from work. You will likely see more Payday Loan stores than fast food restaurants. These predatory lenders litter America's strip malls and urban neighborhoods. They offer cash in a pinch at interest rates over 500 per cent. If families have to pay 10 times the market rate for a loan, they are certainly in no shape to afford the loan in the first place. To stem the tide of insolvency, regulations need to cap the amount of interest predatory lenders can charge. In 1980, approximately 300,000 consumers filed bankruptcy. In 2003, 1.6 million consumers filed. The lending industry was deregulated in the late 1970's and a crush of consumer debt ensued. There seems to be no mistaking the correlation between the deregulated lending industry and the meteoric rise in bankruptcy filings.

Consumer groups have pushed for legislation to compel lenders to disclose the costs of carrying consumer debt. Consumer advocacy groups have lobbied for laws that would require credit card companies to disclose to customers how long it will take to pay off a balance if only minimum payments are made, and how much interest the borrower is likely to pay. In the last bankruptcy bill, lenders watered down this provision so that it required them only to tell borrowers how long it would take to pay off a generic $500 debt.

In addition to changed usury laws, a comprehensive solution to the glut of bankruptcy filings ought to take into account the rising costs of health care. Medical bills are a factor in one-third of consumer bankruptcies, and medical bills are a direct cause of 10 per cent of the filings. Conversely, medical bills are a negligible factor in countries with universal health insurance. In Canada, for example, the consumer bankruptcy rate per capita is less than one-third that of the U.S. However, the problem goes beyond the uninsured. As more employers shift the burden of insurance costs to their workers, many families are finding themselves unable to meet higher co-payments and out-of-pocket deductibles. Nothing short of universal insurance would end this problem, although almost any effort to extend coverage to the 43 million uninsured Americans would have some effect in curbing the bankruptcy rate.

The Draconian "solution" that has wound its way through the halls of Congress since 1998 is a heavy-handed attempt by the lending industry to have its cake, and eat it too. The solution to the problems that ail the American consumer, and the consumer credit industry, lies in a careful examination of both consumer's borrowing and spending habits and creditor lending practices.

Source: "The Fragile Middle-Class: Americans in Debt" by Teresa A. Sullivan , Elizabeth Warren and Jay Lawrence

http://www.legalhelpers.com/legal_helpers/brc_articles_bankruptcy_reform.html

Going Bankrupt - Now More Than Ever

These days, it seems as if everyone has heard of someone who has filed bankruptcy. In this year alone, more people will file bankruptcy than will suffer a heart attack, graduate from college, or undergo cancer treatment. In fact, more people will file bankruptcy this year than during the entire decade of the 1960s.

The reasons behind these startling statistics are varied. Some debtors (those who owe debts, as well as those who file bankruptcy) have lost their jobs, incurred unexpected medical bills, or become disabled. Other debtors simply have become overwhelmed by their general level of debt that has grown over a number of years. A growing number of bankruptcy cases result from debtors who have had their identities stolen. Occasionally, a few potential debtors try to commit fraud by filing bankruptcy without disclosing their true financial position.

Bankruptcy law is federal law, and a qualified bankruptcy attorney can assist you in determining whether you qualify to file Chapter 7 or Chapter 13. The idea that filing bankruptcy is morally wrong keeps many Americans from even investigating whether bankruptcy may improve their financial health and their credit scores. In fact, a recent study suggests that almost half of all American households could benefit from filing bankruptcy. It is understandable, indeed laudable, that most Americans would repay their debts if they had sufficient funds to live and to repay their creditors over time.

Unfortunately, time is in short supply when dealing with creditors and bill collectors, who have powerful tools under state law to collect debts owed to them. The tactics many creditors and bill collectors use to intimidate debtors bring many Americans to consider filing bankruptcy. Late-night, repetitive phone calls, phone calls at work, and phone calls to relatives all drive even the most bankruptcy-wary individual to consider all of his options in order to end the harassment. If you are in this situation, you should consider consulting with an experienced bankruptcy attorney who may be able to stop this harassment. As time goes on, the harassment grows and increases the stress and anxiety felt by the person who owes the debt, as well as her family members and friends.

Despite harassment by creditors and bill collectors, many potential clients still worry about the effect of filing bankruptcy on their credit score. What many people do not realize is that their credit score is already suffering, even if they are current on some or all of their obligations, when their debts outpace their income. Debt-to-income ratios have risen dramatically in the last two decades, based in part on the new availability of so-called "sub-prime lending." Sub-prime lenders make funds available to those who would not otherwise qualify for credit based on less-than-desirable credit histories. The negative aspect of sub-prime lending is that it can overload borrowers with more credit than they reasonably can repay.

However, one positive aspect of sub-prime lending is its ability to help bankruptcy debtors re-establish their credit. Sub-prime lenders can provide debtors with access to credit after their bankruptcy cases have been discharged, allowing bankruptcy debtors to rebuild their credit much more quickly than even 10 years ago. Furthermore, the tight profit margins in today's credit industry benefit bankruptcy debtors who may qualify for lower interest rates than those who have not filed bankruptcy. If a debtor rebuilds his credit responsibly after his bankruptcy discharge, he often can qualify for unsecured credit cards, auto financing, and even home mortgages within 1-3 years after his bankruptcy case is complete. Furthermore, if a debtor already owns a home, keeps the payments up-to-date, and retains the property after his bankruptcy case, a debtor can rebuild his credit and raise his credit score even more quickly.

The moral of the story is that all potential clients should investigate their bankruptcy options with an experienced bankruptcy attorney. Gone are the days when a bankruptcy debtor had to fear endless credit rejections after filing bankruptcy. These days, debtors would be wise to consider the advice of financial professionals such as some mortgage advisers, who advocate that some of their clients file bankruptcy to improve their financial situation, and even their credit scores, in a shorter period of time than the time it would take to repay an overwhelming level of debt.

http://www.legalhelpers.com/legal_helpers/brc_articles_going_bankrupt.html

Deregulation or take the money and run

In the late 1970's and early 1980's, with no debate, Congress quietly deregulated the home-mortgage lending industry and the credit card industry. The deregulation of the consumer credit industry produced many good things. There is an abundance of credit available. People can go out and borrow money at low interest rates. However, deregulation has also spawned a monster that is slowly devouring the heart of the American middle class. This monster has many faces, the ugliest of which is sub-prime lending, that is, lending to an individual or family that is already in financial trouble.

For example, a credit card company offers you a credit card at 6 percent interest, but if you run into financial trouble and miss a payment the interest rate skyrockets to 29 percent. Or, suppose you own your home with a mortgage at 6 percent. If you lose your job, or miss a few mortgage payments, there is an industry that will descend on you with offers to refinance to provide you cash in a pinch. However, the interest rates on sub-prime mortgages often double. In 2001, standard mortgage loans carried a 6.5 percent interest rate. The average sub-prime mortgage rate was over 15 percent. Obviously, there are enormous profits to be made. These vultures circle the financial carcasses of American families to the tune of tens of billions of dollars every year. Banks have every incentive to throw credit at any warm body they can. Wall Street bankers wearing Italian leather shoes and starched shirts are now charging interest rates that loan sharks didn't charge 25 years ago.

Sub-prime lenders defend their practices by arguing that they help more families own their own homes. However, 80 percent of sub-prime mortgages involve refinancing existing mortgages. The consequence of this burgeoning industry is that families are placing their homes on a roulette wheel, and increasingly families lose. Home mortgage foreclosures are up 300 percent in the last 20 years and bankruptcy filings are at an all time high. At the same time, the banking and credit card industry will generate over $70 billion in interest charges this year alone. The fastest growing sector of the lending industry is sub-prime lending.

To make matters worse, the banking and credit card industry has lobbied hard for years to pass bankruptcy reform legislation to make it more difficult for people of modest means to use the bankruptcy code to eliminate their debt. The bill, passed into law in 2005, gives the credit card industry what they've wanted for years. Not surprisingly, banks and credit card companies are among the most generous political donors. MBNA American Bank is the second largest issuer of credit cards and one of the top donors to President Bush's campaign. Until Congress decides to regulate the practices of these predatory lenders, beware of the wolf in sheep's clothing.

http://www.legalhelpers.com/legal_helpers/brc_articles_deregulation.html

The Golden Age of Debt Collection

Debt collectors, people who buy debt for pennies on the dollar and then harass debtors to pay, are experiencing unprecedented growth. While almost non-existent 10 years ago, debt collection has experienced an annual growth of 30% in the last three years. What does this mean to debtors? The simple answer is an onslaught of harassing phone calls.

The economics of the industry are simple. A bad debt of $100 can typically be purchased for less than $1. If the debt collector can collect even $2 from the debtor, they make a profit. These debt collectors will go to any lengths to collect this debt. Some of their techniques include:

• Threatening to sue the debtor over bad debt.
• Claiming the debt is a new debt on credit reports to extend the time they have to attempt collection.
• Offering to remove the negative credit report on the debt for a small payment. Often they do not follow through, but making payments can also extend the period of time the collectors have to collect.
• Placing degrading and abusive phone calls to the debtor's home and work hoping the debtor will pay to stop the calls.

Unfortunately for the debtor, debt collectors are often acting in violation of the law. In Texas and California for example, once a debt is four years old, collectors are supposed to stop trying to collect. In many cases, however, debt collectors ignore these laws.

There are a few things you can do to try and protect yourself from aggressive debt collectors. First and foremost, be familiar with the laws in your state. If a debt collector is trying to collect in violation of the law DO NOT PAY THEM. In addition to extending the time limit they have to collect, paying the debt collector may actually hurt your credit by updating the delinquency, which may lower your overall credit score. The best advice is to simply hang up on the harassing callers. As most debtors already know, however, ignoring the calls will not make them stop.

If the harassment is getting to be more than you can handle, the best option may be bankruptcy. Unlike the other debt management choices, chapter 7 and chapter 13 are the only solutions that carry with them the weight of federal law. Once your bankruptcy is filed, all creditors, including debt collectors, are barred from contacting you. Upon discharge of your bankruptcy case, you will be free of financial obligations. If you are considering bankruptcy, your window of opportunity may be limited. Congress is in the process of passing legislation that may limit your options under bankruptcy law. For more information on the law change and how you may be affected, please see the article on this website entitled " Update on Bankruptcy Law Changes."

http://www.legalhelpers.com/legal_helpers/brc_articles_debt_collection.html

Foreclosures Skyrocket Nationwide

The real estate boom that Americans have seen for the past several years is beginning to subside. In January 2006, Realtytrac (www.realtytrac.com) reported a 45% increase in foreclosures nationwide over the same time period last year. This is an astounding increase in one year. It was also a 27% increase over the previous month. The biggest reason for this increase has been attributed to the rising interest rates and the amount of homes on the market. This increase has put the nationwide foreclosure rate closer to the historic average of 1% of all homeowners.

Georgia, Nevada, Colorado, Texas and Indiana Hit Hardest

The rates were especially high in the states of Georgia, Nevada, Colorado, Texas and Indiana. In fact, new foreclosures in Colorado tripled from December 2005 to January 2006. This was the highest rate of new foreclosures nationwide. Other states with the highest numbers of new foreclosures were Florida, California and Ohio. In Florida, there is one new foreclosure per every 707 households. This is almost double the national average. California was still well below the national average, but was gaining rapidly. The jump in new foreclosures does not bode well for the long term success of the California real estate market, which is traditionally one the most expensive.

Possible causes for foreclosure increase

Theories as to why we are seeing such an increase include the saturation of the market with new homes, the apparent slowing of property valuations in most markets, rising interest rates, and the new bankruptcy code. One of the effects of the new bankruptcy code was to increase the minimum payments for credit card bills. As a result, this is leaving homeowners will less disposable cash to pay their mortgages with.

Another significant reason is the rise in interest rates. Many people were purchasing homes with interest only loans. This allowed people to purchase more house then they could afford because they could make smaller payments by only paying the interest on their loan for typically three to five years. The problem these homeowners are realizing now is that they cannot refinance at a rate they can afford making their mortgage payment unmanageable. These is going to lead to an increase in bankruptcies that are fueled by people who are looking to either surrender their homes or get current on their mortgage payments.

A look ahead

The increase in foreclosures will undoubtedly raise the amount of bankruptcies that are going to be filed in 2006. Many homeowners will look consolidate their mortgage arrears and other bills with Chapter 13 bankruptcies. While others will file Chapter 7 bankruptcies to walk away from property that has become unaffordable with higher interest rates.

Conclusion

If you are at risk of losing your home and would like to find out what your legal options are, give us a call at 888.743.5787 or fill out our free legal evaluation form. The evaluation is free, no obligations attached.

http://www.legalhelpers.com/legal_helpers/brc_articles_foreclosures.html