Filing Bankruptcy

Bankruptcy is a legal tool to change and recalibrate a person’s life. Bankruptcy does not mean failure. Bankruptcy clients often are suffering from financial issues that result from circumstances outside of their control, such as serious illness or injury, special needs of a child, job loss, reduction in business income, or an overly aggressive and unreasonable creditor, that throw their financial life out of balance.

Living paycheck to paycheck can quickly turn into coming up short across any and all tax brackets. In fact, my practice focuses on assisting business owners and clients who have assets, but limited liquidity to deal with their financial problems. Bankruptcy is a way to take control of financial problems and look toward a future without debt holding you back.

Chapter 7 Bankruptcy

A chapter 7 bankruptcy filing is essentially a collection of financial information and disclosures that are presented to the court and creditors for the purpose of receiving a bankruptcy discharge. A bankruptcy discharge cancels out eligible debts if the creditor to whom the debt is owed receives proper notice of the bankruptcy and the Trustee determines that the filer (known as the debtor) has complied with everything required under the law.

While a chapter 7 case allows the debtor to get in and out of the bankruptcy process quickly, there is a common misconception that this type of bankruptcy is “easy.” It is a matter of filling out the correct paperwork, right? Wrong. Chapter 7 can offer a quicker and more streamlined process when it is a good fit for the client. If the client does not fit within the income requirements and/or has assets (which are now known to the court, trustee, and other creditors) that cannot be protected with exemptions, then a chapter 7 bankruptcy may result in the client’s situation going from bad to worse. An experienced bankruptcy attorney is essential to any chapter 7 bankruptcy filing.

If you meet with an attorney who only offers chapter 7 bankruptcy filings without discussing other options, think twice! Many attorneys “dabbling” in bankruptcy will only offer and file chapter 7 bankruptcies for clients under this misconception that the cases are “easy” and this may be a sign that the attorney you are meeting with may not have the needed experience.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a reorganization option for individuals. A chapter 13 bankruptcy case can give a person more control over the bankruptcy process and is a great option for clients who have any of the below issues, just to name a few:

1. Behind on mortgage, homeowner’s association, or real estate tax payment for real property;
2. Need to catch up on child support or alimony;
3. I.R.S. debt;
4. Valuable assets that you want to keep, but limited income; or
5. Need assistance with a car (purchased at least two-and-a-half years ago) where the payments are too high to manage.

Many clients fear chapter 13 because it is a different and longer process than a chapter 7 case. Procedurally, it is very similar to a chapter 7 bankruptcy until the 341 meeting of creditors with the chapter 13 trustee. After the meeting of creditors, there are additional hearings called confirmation hearings. Confirmation hearings are where the chapter 13 trustee and creditors discuss your plan with the bankruptcy attorney. It is rare for the client to have to attend any hearings after the meeting of creditors. The chapter 13 plan is a payment plan that is usually from thirty-six (36) to sixty (60) months. The chapter 13 bankruptcy plan is proposed by you and the process is ongoing until the chapter 13 trustee acknowledges that the plan meets all the requirements under the bankruptcy code and recommends approval to the bankruptcy judge.

If done right, a chapter 13 bankruptcy can work to save a good amount of what you own before liquidation is your only option.

Bankruptcy Litigation

Bankruptcy is a summary proceeding where multiple disputes can be resolved in one case rather than defending a number of lawsuits in different courts at different times. Bankruptcy provides resolutions that are affordable and allows debtors to move forward into their future without the fear of a dispute popping up at any time.

Bankruptcy litigation occurs when a creditor or trustee initiates discovery, depositions, or complaint inside of the bankruptcy case. There are two types of litigation in bankruptcy, contested matters and adversary proceedings.

Contested matters are disagreements over a matter of fact or law that need to be resolved before the bankruptcy case can move on or be completed. In a chapter 7 filing, common contested matters include negotiations with the chapter 7 trustee over the value of non-exempt assets, or the existence of an asset. In chapter 13 cases, the chapter 13 trustee may find issue with the debtor’s income calculations or whether the expenses provided are reasonable or necessary.

Adversary proceedings are lawsuits inside of a bankruptcy case. These cases are often initiated by (a) upset creditors, usually investors in the debtor’s business that take the position that they were deceived by the debtor; or (b) the chapter 7 trustee who alleges that a creditor was paid more value than it was entitled, before the bankruptcy was filed. Said another way, a creditor may be sued as a part of the bankruptcy.

Roberts Law, PLLC is experienced in representing creditors, debtors, and their family members in all chapters of bankruptcy litigation. Schedule a consultation to discuss your pending matter today.

Debt Negotiation

Debt settlement is when a creditor agrees to accept a lesser amount in full satisfaction for a debt. Many clients who fear the stigma of bankruptcy choose this option. However, it is important to understand the positives and negatives of this option before selecting a debt settlement or negotiation in place of bankruptcy.

Pros:

• Avoiding Bankruptcy – If you only have a few credit cards that are already in default, then this is a good option for you to avoid bankruptcy.
•  Less damage to your credit than a chapter 7 bankruptcy – Once settled, the account will show as “Paid” or “Settled” on your credit report.

Cons:

• You need settlement funds – In order to get the creditor to accept a reduced amount, the creditor will likely want a lump sum payment.
• It can destroy your credit – Generally, a creditor will not agree to settle for a lesser amount when you have shown that you can afford to continue to make the regular payments as they come due.
• It requires the cooperation of all your creditors – If you can only settle half of your debts, then you are left with the other half in default. If these unsettled debts are larger accounts, then you may still find yourself in bankruptcy to avoid lawsuits and judgments.
• Any forgiven debt will have tax consequences – You will receive a 1099 forgiveness of debt from the creditor for the forgiven amount. The creditor will independently report the forgiven amount to the IRS who will impute the forgiven amount to you as income.