SPALDING LAW OFFICE
2950 Breckenridge Ln. Suite 3
Louisville,KY 40202
456-2100
1-888-456-2175

 When You Can't Pay Your
Debts

Introduction
     There are many reasons for financial difficulties, such as loss of a job, illness, death of a bread winner or too many creditcard purchases. Money problems can be emotionally wrenching and seriously damage family relations.

     However disturbing the idea of bankruptcy might initially seem, in fact, bankruptcy laws are there to help those who are unable to pay their bills.  This informational page reviews your alternatives under the bankruptcy laws.  I can advise you about your options so that you can get the maximum advantage of the bankruptcy laws.

Alternatives To Bankruptcy
     Ask Wallace H. Spalding III about the alternatives to seeking relief under the bankruptcy laws.  One alternative is to contact your creditors to request a discount or additional time to pay. Another alternative is to borrow money to pay off your debts, replacing them with a single loan and one monthly payment. Such refinancing can make sense if the repayment period is extended at a lower interest rate.

     Both of these alternatives has benefits and disadvantages that Wallace H. Spalding III can explain.

Choosing A Bankruptcy Option
     There are two options under the bankruptcy laws: a liquidation or a repayment plan.

     In a liquidation, also called a Chapter 7 bankruptcy, you sell non exempt property and use whatever cash is generated to fully satisfy creditor claims. You will be allowed to keep certain kinds of property under the exemptions allowed by federal and state bankruptcy laws. The definition of "exempt property" differs in each state, and it can include clothing, furniture, household appliances, tools of your trade and perhaps your home or car.

     In a repayment plan, sometimes called a Chapter 13 bankruptcy, you pay a portion of your monthly income to a trustee for distribution to your creditors. A repayment plan is useful when you are behind on your home or car loan.  The repayment plan can be used to extend, for up to 5 years, the time period for paying your bills and might allow you to pay less than you owe. The extended payment period has the advantage of allowing you to make smaller payments.

     To qualify for a Chapter 13 repayment plan, you must have regular income and your unsecured debts must not exceed $290,525. If your unsecured debts exceed $290,525 you may be able to qualify for a repayment plan under Chapter 11.

     Bankruptcy proceedings under Chapter 11 are more complicated than those available under Chapter 13.
After you begin bankruptcy liquidation, you may not start another Chapter 7 bankruptcy for 6 years. There is no waiting period after a Chapter 13 bankruptcy.

     Wallace H. Spalding III will study your situation and advise whether to seek a liquidation or repayment plan. The best bankruptcy alternative for you depends on a number of things, including the source of your income, the amount and types of your bills, your desire to protect your cosigners and guarantors, and the importance to you of maintaining your record of paying debts.

Starting Bankruptcy Proceedings
     Bankruptcy proceedings begin with the filing of bankruptcy forms at the federal courthouse.  The forms are comprehensive and include thorough lists of your income sources, property, debts, and living expenses.

     About a month after your bankruptcy forms have been filed, a meeting of your creditors will take place. You will be required to appear at this meeting with your records. Although most creditors do not attend the meeting, those who do can question you about your income, property, and debts. The main purpose of this questioning is to confirm that the information in your bankruptcy forms is correct and complete. Wallace H. Spalding III can help you prepare the bankruptcy forms, attend the meeting with the creditors and serve as your advocate with the judge, trustee, and creditors.

Dealing With Creditors
     Wallace H. Spalding III can help you deal with your creditors before, during and after bankruptcy proceedings.  Before starting bankruptcy proceedings, you are protected by laws that prohibit creditors from harassing you to collect the money. Bill collectors may not contact you at unreasonable times at home, and they may not embarrass you by telling your friends, relatives or employers about your debt. Bill collectors may not contact you at work if they know your employer disapproves. If you have a lawyer, bill collectors may only contact your lawyer.
     During bankruptcy proceedings, you will receive additional protection from bill collectors. At the beginning of the proceedings, the court will order your creditors to stop their collection activities, including lawsuits, wage garnishments, repossessions and telephone calls demanding payment.

     It is unlawful for your employer to fire you for seeking bankruptcy protection.

Working With Your Trustee
     The bankruptcy court will appoint a trustee for your case shortly after bankruptcy forms are filed. In a liquidation proceeding, the role of the trustee is to sell property and distribute the proceeds to creditors. The trustee can also set aside fraudulent transfers and preferential transfers made to creditors prior to the bankruptcy proceedings. The trustee will also determine which items of your property are exempt from sale to pay your debts.

     In a repayment plan proceeding, the trustee coordinates the arrangement between you and your creditors. The Bankruptcy Court is also responsible for approving any new credit obligations that you undertake before the completion of your Chapter 13 repayment plan.

What is a bankruptcy trustee?  Who is the United States Trustee?  What is the difference?

     In all chapter 7 and 13 cases, a case trustee is assigned.  The trustee's job is to administer the bankruptcy estate, to make sure creditors get as much money as possible, and to run the first meeting of creditors, (also called the "Section 341 meeting," because 11 U.S.C. 341 of the Bankruptcy Code requires that the meeting be held).  The trustee either collects and sells non-exempt estate property, as in the case of  a chapter 7, or collects and pays out money on a repayment plan, as in the case of a chapter 13.  The trustee can require that you provide, under penalty of perjury, information and documents, either before, after, or at the meeting.  You should always cooperate with the trustee, since failure to cooperate with the trustee could be grounds to have your discharge denied.  Trustees are not necessarily lawyers.

     The United States Trustee's Office is part of the U.S. Department of Justice, and is separate from the court.  The United States Trustee's Office is a watchdog agency, charged with monitoring all bankruptcies, appointing and supervising all trustees, and identifying fraud in bankruptcy cases.  The United States Trustee's Office cannot give you legal advice, but they can give you information about the status of a case, and you can contact them if you are having a problem with a trustee, or if you have evidence of any fraudulent activity.  In monitoring cases, the United States Trustee reviews all bankruptcy petitions and pleadings filed in cases, and participates in many proceedings affecting the case, but they do not administer the case themselves.  They can bring motions in the bankruptcy, such as ones to dismiss the case, or to deny the debtor's discharge.

What is the creditorís meeting?  What can I expect will happen at it?

     A "meeting of creditors" is the single hearing all debtors must attend in any bankruptcy proceeding.  It is held outside the presence of the judge and usually occurs between twenty (20) and forty (40) days from the date of the original petition is filed with the court. 

     The hearing permits the trustee to review the debtor's petition and schedules with the debtor face-to-face.  The debtor is required to answer questions under penalty of perjury concerning the debtor's acts, conduct, property, liabilities, financial condition and any matter that may affect administration of the estate or the debtor's right to discharge.  This information enables the trustee or representative of the United States Trustee's Office to understand the debtor's circumstances and facilitates efficient administration of the case.  Additionally, the trustee or representative of the United States Trustee's Office will ask questions to ensure that the debtor understand the positive and negative aspects of filing bankruptcy.

     The hearing is referred to as the "meeting of the creditors" because creditors are notified that they may attend and question the debtor about the location and disposition of assets and any other matter relevant to the administration of the case.  However, creditors rarely attend these hearings.  The hearing usually lasts only a few minutes and may be continued if the trustee or representative of the United States trustee's Office is not satisfied with the information provided by the debtor.  If the debtor fails to appear and provide the information requested at the hearing, the trustee or representative of the United States Trustee's Office may request that the bankruptcy case be dismissed or that the debtor be ordered by the court to cooperate or be held in contempt of court for willful failure to cooperate.

Keeping Your Property
     Wallace H. Spalding III will advise you about the protection available for your property with a bankruptcy proceeding. For example, in a liquidation proceeding, the bankruptcy laws allow you to keep your exempt property.

     You may convert your nonexempt property into exempt property. You will be subject to severe penalties if you try to hide your property.

     In a liquidation proceeding, you may be able to keep mortgaged property like a home or car if you "reaffirm" your loan with your lender. Reaffirming a loan means you agree to pay it. The "reaffirmed" loan will not be affected by the discharge that you receive at the completion of the bankruptcy proceedings.

     Any property you receive after 180 days from the start of the bankruptcy proceedings is yours to keep, including inheritances, gifts and life insurance.

Effects Of The Bankruptcy
     The end of your bankruptcy proceedings can provide you with a "fresh start." The court order will end your responsibility for dischargeable debts. The order will not affect nondischargeable debts such as alimony, child support, educational loans, taxes or debts you incurred by deliberately injuring someone. After the bankruptcy, your creditors may no longer try to collect the discharged debts.

     Your bankruptcy proceedings will be noted on credit records for up to 10 years after your bankruptcy filing. during that time, lenders, stores, and finance companies may consider your bankruptcy among the many factors they review when you apply for a loan or credit card. Surprisingly, since you cannot file again for Chapter 7 for 6 years, it may be easier for you to obtain a mortgage loan or installment credit for an auto or home appliance. An application for such credit is easier if you wait at least a year before applying for credit and show a history of paying bills on time after the bankruptcy.

Fees And Expenses
     The bankruptcy courts charge a filing fee to cover court costs. The fee is paid to the clerk when you file your bankruptcy forms at the courthouse. Additionally, the Chapter 13 trustee will receive a fee of about 5% of the amounts paid to your creditors if you choose a repayment plan.

     The fee charged by me will depend on the complexity of your case. In bankruptcy matters, a lawyers expertise usually results in savings that far outweigh the amount of legal fees.

Conclusion
     You may need the protection of the bankruptcy laws if you are unable to pay your bills on time. Bankruptcy proceedings can help protect you against aggressive bill collectors and preserve as much of your property for you as possible.

     Wallace H. Spalding III can advise you about your bankruptcy options and help you make the best of your situation. If you cannot manage your bills call me immediately to learn about your rights and avoid missing advantages that can be lost with the passage of time.

What is a Discharge?
     The filing of a chapter 7 petition is designed to result in a discharge of most of the debts you listed on your bankruptcy schedules. A discharge is a court order that says you do not have to repay your debts, but there are a number of exceptions. Debts which may not be discharged in a chapter 7 case include, for example, most taxes, child support, alimony, and student loans; court-ordered fines and restitution; debts obtained through fraud or deception; and personal injury debts caused by driving while intoxicated or taking drugs. Your discharge may be denied entirely if you, for example, destroy or conceal property; destroy, conceal or falsify records; or make a false oath. Creditors cannot ask you to pay any debts which have been discharged. You can only receive a chapter 7 discharge once every six (6) years.

What are the Effects of Reaffirming a Debt?
     After you file your petition, a creditor may ask you to reaffirm a certain debt or you may seek to do so on your own. Reaffirming a debt means that you sign and file with the court a legally enforceable document, which states that you promise to repay all or a portion of the debt that may otherwise have been discharged in your bankruptcy case. Reaffirmation agreements must generally be filed with the court within 60 days after the first meeting of the creditors.

     Reaffirmation agreements are strictly voluntary - they are not required by the Bankruptcy Code or other state or federal law.  You can voluntarily repay any debt instead of signing a reaffirmation agreement, but there may be valid reasons for wanting to reaffirm a particular debt.

     Reaffirmation agreements must not impose an undue burden on you or your dependents and must be in your best interest. If you decide to sign a reaffirmation agreement, you may cancel it at any time before the court issues your discharge order or within sixty (60) days after the reaffirmation agreement was filed with the court, whichever is later. If you reaffirm a debt and fail to make the payments required in the reaffirmation agreement, the creditor can take action against you to recover any property that was given as security for the loan and you may remain personally liable for any remaining debt.

What is redemption?

     Redemption allows an individual debtor to keep tangible, personal property intended primarily for personal, family, or household use by paying the holder of a lien on the property the amount of the value of the property.  Otherwise, in order to retain the property, the debtor would have to enter into a reaffirmation agreement and become legally obligated on the debt again.

     With redemption, a debtor can often get liens released on personal household possessions for much less than the underlying debt on those secured possessions.  Redemption must generally be made in one lump sum payment to the creditor.

What can I do if a creditor keeps trying to collect money after I have filed bankruptcy?

     If a creditor continues to attempt to collect a debt after the bankruptcy is filed in violation of the automatic stay, you should immediately notify the creditor in writing that you have filed bankruptcy, and provide them with the case name number and filing date.  If the creditor still continues to collect, the debtor may be entitled to take legal action against the creditor to obtain a specific order from the court prohibiting the creditor from taking further collection action and, if the creditor is willfully violating the automatic stay, the court can hold the creditor in contempt of court and punish the creditor by fine or incarceration.  Any such legal action brought against the creditor will be complex.

My ex-spouse has filed bankruptcy.  He/She has listed me as a co-signer on a scheduled debt.  What can I do?  Does my divorce decree protect me?

     If you are a co-obligor with your ex-spouse on a debt, the creditor can require payment from you.  Depending on the terms of your divorce decree, you may be able to have certain support obligations under it determined to be non-dischargeable by the bankruptcy court or in state court.  You should seek legal advice for a thorough explanation of your rights and obligations in this area as soon as you find out that your ex-spouse has filed a bankruptcy.

How many years will a bankruptcy show on my credit report?  How long will it take before I can get credit?

     The bankruptcy petition, schedules and plan are a public document and are available to the general public at the Clerk's Office.  Credit reporting agencies regularly collect information from the petitions filed and report the information on their credit reporting services.  Bankruptcies normally will remain on your credit report for up to ten (10) years and may be taken into consideration by any person reviewing a credit report for the purpose of extending credit in the future.  The decision whether to grant you credit in the future is strictly up the creditor and varies from creditor to creditor depending on the type of credit requested.  There is no law which prevents anyone from extending credit to you immediately after the filing of a bankruptcy nor will a creditor be required to extend credit to you.  The best way for you to obtain credit in the future is to generate adequate and regular income in the future and pay all of your financial obligations in a timely and responsible manner.

Other Bankruptcy Options
     You have a choice in deciding what chapter of the Bankruptcy Code will best suit your needs. Even if you have already filed for relief under chapter 7, you may be eligible to convert your case to a different chapter.

     Chapter 7 is the liquidation chapter of the Bankruptcy Code.  Under chapter 7, a trustee is appointed to collect and sell, if economically feasible, all property you own that is not exempt from these actions.

     Chapter 11 is the reorganization chapter most commonly used by businesses, but it is also available to individuals. Creditors vote on whether to accept or reject a plan, which also must be approved by the court. While the debtor normally remains in control of the assets, the court can order the appointment of a trustee to take possession and control of the business.

     Finally, chapter 13 generally permits individuals to keep their property by repaying creditors out of their future income. Each chapter 13 debtor writes a plan which must be approved by the bankruptcy court. The debtor must pay the chapter 13 trustee the amounts set forth in their plan. Debtors receive a discharge after they complete their chapter 13 repayment plan. Chapter 13 is only available to individuals with regular income whose debts do not exceed $1,162,075 ($290,525 in unsecured debts and $871,550 in secured debts).

Please speak to Wallace H. Spalding III if you need further information or explanation, including how the bankruptcy laws relate to your specific case.

456-2100
1-888-456-2175

The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.

Copyright(c) 2004 wallacespalding.com. All rights reserved.
attorney@wallacespalding.com