By Tanna M. Friday, sponsored content
TRUSSVILLE — Many of us have been making New Year’s resolutions, including losing weight or saving more money. For people struggling with overwhelming debt, one resolution may be finally taking control of their hardships and filing for bankruptcy. If you are considering bankruptcy as an option, you should not only consult with an experienced bankruptcy attorney, but also keep in mind the following considerations regarding bankruptcy.
According to local attorney Tommy French, bankruptcy can be a very complicated and expensive process that could impact your credit for up to 10 years. So when it comes to personal finances, bankruptcy should be the last resort. French says it is imperative to think through the decision to file since bankruptcy could effect a future job application status or prevent large purchases in the future.
“In a nutshell,” French says, “bankruptcy provides a solution to people to get out of substantial debt while treating creditors in a fair manner.”
“The Bankruptcy Code it is there for them,” said French. “It is one of the few courts that is actually all about the debtor. It really is. The judge wants the debtor to come out of this situation in the best possible position. Not all judges and courts are that way. The judge is not for the creditor or the debtor in anyway other than to make sure that when you leave the court, you are standing in the best possible position you can to get a fresh new start.”
According to French, bankruptcy falls into one of two types – Chapter 13 (Liquidation) or Chapter 13 (Individual Debt Adjustment).
Chapter 7 bankruptcy: In exchange for wiping out qualifying debt, you must agree that the trustee (a person who represents the debtor’s estate) can take and liquidate (sell) some of property to pay back debt. However, you can keep (exempt) property protected under state law.
“If your income is correct under the means test (test to determine whether one’s income exceeds a certain amount), equity in your home follows exemption laws, mortgage is current, and your personal property is within $7,500 worth of personal exemptions, then you would generally qualify for a Chapter 7 bankruptcy,” said French.
“Some people are nervous when they hear the word liquidation,” said French. “It actually means anything over and above the statutory exemptions allowed in Alabama. As long as one can keep their estate total under the exemptions, there will not be any liquidation. Now if you have extra cars, RVs, and boats, the court will take it, sell it, and liquidate it. In addition, child support and alimony as well as federal student loans and federal and state taxes cannot be discharged and will remain.”
“For example, the exemptions for Alabama total $7,500 ($15,000 if filing joint) worth of personal exemptions. (furniture, electronics, personal items),” said French. “In regard to homestead (house) is $15,000 filing single ($30,000 if filing joint). As long as your equity in your home is that amount or less, one would qualify for a chapter 7 bankruptcy.”
French said that there are exceptions. “If you are behind in payments on your mortgage, this will disqualify you from a chapter 7 and place you into a chapter 13 bankruptcy.”
“The reason is that if you are not current on payments, the bank could foreclose with or without bankruptcy,” said French. “They have a right pursuant to the contract and the mortgage to foreclose. If you are behind on it by two or three months and you are facing foreclosure, you can stop it but it will be through a chapter 13. It is important that you speak to an attorney about your options.”
“You can walk out with little to no debt and start fresh,” said French.
Chapter 13 bankruptcy: Chapter 13 bankruptcy reorganizes debt for high-income earning individuals (although it is available to others, too). Although you can keep all of your property, you must pay creditors the value of any nonexempt assets as part of a three- to five-year Chapter 13 bankruptcy payment plan as well as any additional discretionary income (as determined by the bankruptcy rules).
“Let’s say that one doesn’t qualify for a chapter 7 bankruptcy for income purposes, such as making to much money or have too much equity in their home, and the catch all that I see a lot, it that they’re behind on their mortgage,” said French. “Those throw people into chapter 13.”
“A chapter 13 is paying the debt back also called an Individual Debt Adjustment,” said French. “One must provide the trustee with all of their disposable income which is anything left over after payment of necessary bills each month. Based on one’s income, they may qualify for a 36 month to 60 month plan. This process, like the chapter 7 bankruptcy is determined through a means test. Payments are made directly to the trustee.”
The benefit to those who file bankruptcy, creditors are required to stop and cease contact, which is required by law and referred to as an automatic stay (halts actions by creditors).
“By the time people come to me, they have already been harassed by creditors,” said French. “Creditors are notified either by email or through the mail. If they are still receiving calls, answer the phone and give them your case number. This will give people peace of mind, which most appreciate.”
“After the wage earner plan has been established, monthly payments are made to the trustee for either 36 or 60 months,” said French. “At the conclusion of these payments, the bankruptcy is discharged (a permanent order that also prohibits creditors from taking any form of collection action on the discharged debts).”
In addition to qualifying for either chapter 7 or chapter 13 bankruptcy, French adds that there are requirements for all individuals who file jointly or separately.
“All parties who file for bankruptcy are required to complete pre-bankruptcy credit counseling and pre-discharge debtor education,” said French. “Credit counseling must take place before you file for bankruptcy; debtor education must take place after you file. Once this has been completed, your attorney will receive the certificate.”
“What you are trying to determine if bankruptcy is the right thing for them, if you can walk out quicker, get rid of most of your debt, and keep what you need to keep, thats what you need to do,” said French.
Additional things to consider before filing bankruptcy:
- Bankruptcy will affect your credit;
- A bankruptcy can stay on your credit record for up to 10 years; and
- Since bankruptcy provides a fresh start, you may be in a better position to pay your current bills once discharge has been granted. Therefore, you may be able to get credit when you have the ability to pay it back.
**No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers.