In the late 1990’s and into the early 2000’s, the finance industry ( Visa, MasterCard, the major National Banks, the major automotive loan finance companies, the mortgage industry) complained to Congress about Americans who were filing bankruptcy. Why were they complaining?
“We are losing money”, whined the companies-that-charge-you-outrageous-interest-on-your-credit-cards. “You people are getting away with murder by filing bankruptcy when you really don’t need to”. These “needless” bankruptcies supposedly were bad for the bottom line of the finance industry.
Indeed!!! I have been practicing for more than 37 years and I have NEVER had a client file a bankruptcy without there being an actual need to do so.
” Plus, these bankruptcy filers – they are all liars. They are hiding gobs of money and assets that they never tell anyone about.”
“And….. and….. and ….. you know what else?” said the whiny industry. ” It is way too easy to file a bankrutpcy. We need to make it harder”.
And so they did.
Millions of dollars were spent lobbying Congress and after years of lobbying efforts in Washington, a new bankruptcy law was voted into being by Congress. Welcome to BAPCPA, the Bankruptcy Abuse Prevention and Consumer Protection Act, enacted in April, 2005 and Effective October 17, 2005. (See what I mean? Congress used the word “abuse prevention”. ) As a bankruptcy attorney, my life became much more complicated once the new law went into effect. In fact, I know quite a number of attorneys who stopped handling bankruptcy cases once the new law went into effect. They found the learning curve too steep. What our Senators and Representatives did with the enactment of the current law which governs the bankruptcy process was to create a paper monster. I wish I owned the trees from which the paper is created for all the documents that are needed in order to properly prepare a bankruptcy petition.
Stay tuned. There is more to come.
Many clients ask me: Why do I have to take a credit counseling class? The simple answer is: the Bankruptcy Code requires it.
You may have paid your lawyer all of the fees required, you may have provided your lawyer with all the information necessary for a petition to be properly prepared, your petition may have been prepared, you may have signed it….but if you have not taken the pre-filing credit counseling session and provided a certificate of completion to your attorney, your petition cannot be filed. Note that the bankruptcy petition cannot be filed the same day as the date of the certificate; the filing of the petition must be at least one day later than the date of the certificate
Many clients are fearful of the credit counseling: What will they ask? I don’t know what to say? What if I don’t pass? How much does it cost?
The credit counseling itself is extremely simple; you cannot fail. You will be asked about income and living expenses; estimated answers are fine. The counseling can be done on the Internet, by telephone or in person. Make certain that you use an approved agency. There is a HUGE list of approved agencies at the following link:
The credit counseling is not expensive at all. There are some that are extremely inexpensive. Your attorney can provide with the “cheap” ones; our office does.
Keep in mind that in order to receive your Court-Ordered Discharge, which finalizes your bankruptcy, there is a second class that you must take called a Financial Management Class. Again, this can be done on the Internet, by telephone or in person. If you are filing a Chapter 13 Bankruptcy in the Northern District of Illinois, our Chapter 13 Trustees offer the counseling free of charge AND…my clients told me that they actual learning something about budgeting and managing money.
What is Chapter 13?
Chapter 13 is a payment plan procedure to pay back your debts. The petition and plan are file with the bankruptcy court so it is one of the two bankruptcies available to consumers. Just about all of your debts are consolidated and instead of paying them individually, you make one monthly payment to the Chapter 13 Trustee for the county in which you live. The Trustee will use the monthly payment that you send in to repay your creditors over a period of time from three to five years.
Why does someone file Chapter 13 instead of Chapter 7?
There are a number of different reasons. Here are a few of them:
1) You filed a Chapter 7 less than eight years ago so you can’t file another one now
2) You own something worth too much money and it would be taken from you by a Chapter 7 Trustee and sold in order to pay your creditors from the sale
3) You cannot pass the Median Income/Means Test
4) You have one or more debts that you need to pay, such as a past due IRS debt
5) You want prevent a foreclosure from being filed or stop a foreclosure that has started. The monthly Chapter 13 plan payments will repay, over a period of time, the mortgage payments that have fallen past due.
As with a Chapter 7, the process involves the gathering of information and documents in order to prepare a petition that is filed with the bankruptcy court. There is a meeting scheduled a few weeks after filing with the Chapter 13 Trustee’s office, followed a few weeks later by a court date for the matter to be recommended to the Judge for confirmation (approval) by the Chapter 13 Trustee. Upon completion of the plan, as with a Chapter 7, you receive an Order of Discharge signed by the Judge and you are now debt free, other than mortgages that you might have and possibly auto loans.
How much is the monthly payment? How many years will the plan run? Will creditors be paid in full or a percentage of what is owed them.
Determining a proper Chapter 13 plan ( proper meaning based upon the bankruptcy law) contains too many variable for this blog. Chapter 13 is almost much more complicated than a Chapter 7. Make sure that your attorney has sufficient experience and knowledge in the handling of Chapter 13 bankruptcies.
What is Chapter 7?
It is the most common type of consumer bankruptcy.
Why would I file?
A Chapter 7 bankruptcy is filed in order to eliminate your obligation to pay your creditors: credit cards, pay-day loans, medical bills of all kinds, balances still due on repossessed automobile loans or foreclosed mortgages, etc., etc.
How is it started?
A petition needs to be prepared and filed with the Clerk of the U.S. Bankruptcy Court. Your lawyer will prepare the petition. The petition contains a great deal of financial information about you, including but not limited to: a list of creditors, a list of assets, a budget, answers to a series of financial questions and the Median Income Test. Preparing the petition requires the accumulation of many documents, among other things: copies of bills, collection letters, loan statements, law suits filed against you, tax returns pay stubs, etc., etc.
What happens after the Petition is filed?
As soon as your petition is filed, you are now protected against your creditors. Telephone calls must stop, nasty collection letters must stop, lawsuits cannot be started or continued, wage garnishments cannot be started or continued.
Meeting with the Trustee
Four to eight weeks after filing, you will have a meeting with the bankruptcy trustee that is assigned to your case. This is not a court appearance; it is simply a meeting and is generally much easier than you can possibly imagine and quite painless. The purpose of the meeting is to verify that you will be allowed to keep those things that you own that you want to keep, whether bank accounts, vehicles, real estate, furniture, etc. Very few people who file Chapter 7 have anything taken from them. (A reason to file the other type of consumer bankruptcy, Chapter 13, is to keep an asset that is worth too much money. If your uncle gave you a brand new automobile six months ago, and you came to see me to file a Chapter 7 to get rid of $50,000.00 worth of credit card debt and medical bills, I would tell you that you need to file a Chapter 13 and repay some of your debt to keep that car; that if you filed a Chapter 7, your car would be sold by the trustee.)
What happens after the meeting? You will soon have no more debt!
Just about 4 months after your petition has been filed, you will receive a document called “Order of Discharge”. The Order of Discharge is the document that officially eliminates, forever, your legal obligation to pay the creditors that you owed at the time you filed your Chapter 7 petition. Your case will not take 2 months, nor will it take 8 months; just about 4 months after it has been filed is when you will receive your discharge. Chapter 7 bankruptcy is the only legal process that I know of where you know how long it will take and what will happen.
How Do I Know If I Should File?
Are you making just minimum payments on your credit cards? Do those credit card balances never get smaller? Are collection agencies calling you? Have you been summonsed to court? These are all signs that a bankruptcy may be of great value to you.
Contact a local experienced bankruptcy attorney for advice. The initial consultation is free at any of our six offices; many bankruptcy attorneys also offer a free initial consultation. Don’t be afraid to disclose everything requested about your finances. Honest people who qualify for Chapter 7 receive a discharge of their debts.