Bankruptcy Information

Consumer Bankruptcy Lawyers in Grand Rapids, Michigan

Bankruptcy is a legal procedure allowed under federal law designed both to protect an individual or business that can't meet its financial obligations and to protect the creditors involved. The law is found in Title 11 of the United States Code. Bankruptcy law supersedes state laws so the act of filing bankruptcy can stop state court lawsuits, garnishments, foreclosures and seizures of assets. To begin the process, proper papers must be filed. A petition is signed by an individual debtor or by a married couple.

There are specific chapters of the federal bankruptcy law. Proceedings under Chapter 7 (known as straight bankruptcy) involve taking non-exempt property. Non-exempt property is property that falls outside the exemptions which debtors are allowed to keep. A qualified bankruptcy attorney will be able to advise you what exemptions are available. The court appoints a trustee to sell off the non-exempt assets and distribute the cash among the creditors. In most chapter 7 cases, however, the debtor does not have assets that exceed exemptions. Exemptions may vary from state to state.

Proceedings under Chapter 13 involve proposing a plan for repaying all or a portion of the debt in installments from the debtor's income. Under Chapter 13, there is no seizure of assets belonging to the debtor. As long as payments are made according to the chapter 13 plan approved by the Bankruptcy Court, the debtor generally does not lose any assets. In this way, the debtor will keep the house, car, and all belongings. The Chapter 13 Trustee is appointed by the Court and collects the payments over 3 to 5 years and pays the money to creditors over time. Payments are normally payroll deducted. Chapter 13 payments may reduce the monthly cost of people in debt depending on the kinds of debts involved and the ability of the debtor to pay. Analysis of the debtor's income, living expenses, property and debts must be thorough and accurate to formulate a plan that will work and be approved by the Bankruptcy Court.

Chapter 11 of the federal Bankruptcy Act is generally used by corporations and not by consumer debtors. Its proceedings are expensive and complex. Consumer debtors normally use Chapter 7 or Chapter 13.

Once the bankruptcy proceeding ends, the debtor is no longer liable since debts generally are discharged by Bankruptcy Court order. This occurs when the bankruptcy court enters a Discharge. In legal terms, the court has discharged the borrower from the debts. The borrower then starts over again with a clean financial slate, but the record of the bankruptcy will remain on the borrower's credit record for up to ten years (seven years for chapter 13 payment plans).

Bankruptcy may be the best, or only solution for financial hardship. It is said that bankruptcy should be utilized exclusively as a last resort, since it always has long lasting consequences for credit, but many people wait too long before consulting a qualified attorney. For example, many borrowers take second or third mortgages on their home, borrow from their retirement or make new loans in order to attempt to pay off their debts. Many of these attempts fail in the long run or are partial fixes. For example it may sound like a good idea to borrow money against your home equity and lower the overall payments, but you must realize that you are jeopardizing your home ownership if you cannot make those payments. Also home equity loans and mortgages last for decades so you are saving nothing in the long run in many instances. It is best to consult a qualified attorney before taking out loans or making financial decisions about debts that cannot be easily repaid. Be sure to consult a qualified professional such as an experienced or board certified attorney before resorting to borrowing money as a means of solving your economic troubles.

What happens to my house and car ?
How will lawsuits be affected?
Can employers discriminate?
Can taxes and student loans be included?
What does chapter 13 do to credit ?
Foreclosure of property?

What happens to my house and car?

If you get behind in payments on debt secured by a lien against your home or car, creditors can repossess these items. Cars may normally be repossessed without any advance notice to you if you are in default on the payments. Under repossession, the items will be sold, and money from the proceeds will be applied to the debt. If the sale proceeds are not enough to satisfy the lien and the expenses of the repossession sale, you may be held responsible for the difference. At this point, creditors can take whatever legal action is necessary, including filing a lawsuit against you.

Chapter 13 plans usually include payment for the automobile loan since all your debts are consolidated together. The payments are more affordable, and even if you are behind, the vehicle cannot be repossessed as long as you maintain full coverage insurance and make the chapter 13 plan payment. At the end of the chapter 13 plan, the car is paid off and you will own it free and clear. Under chapter 13, you may have the opportunity to stop the repossession or to pay the debt under controlled circumstances with payment terms that you can afford. Sometimes it's even possible to have the repossessed property returned if it has not been sold at auction and a Chapter 13 case is commenced in time. The filing of a Chapter 7 bankruptcy action cancels the debt, so that you will have no further obligation to pay, or you can reaffirm the car loan if you want to keep the car and maintain the payments.

How will lawsuits be affected?

Filing of the bankruptcy petition results in an automatic court order called an "automatic stay." This Bankruptcy Court Order prevents any lawsuits from being filed or judgments entered against you. It protects you from harassment, garnishment, seizure of assets, phone calls, threats and collection action. If you file bankruptcy and a lawsuit against you for debt collection is pending, it can go no further. If a judgment has been taken, its enforcement can go no further without first getting permission from the bankruptcy court.

If there are potential lawsuits against you, often the bankruptcy court will offer a forum where the dispute can be rapidly settled--thus avoiding the time and expense of taking the matter to state court. Even potential debts or claims should be listed on the bankruptcy schedules.

Can employers discriminate?

It is illegal for an existing employer to discriminate against an employee that files for debt consolidation under Chapter 13 or Chapter 7 straight bankruptcy. This includes both private and governmental employees. In addition, it is illegal for local, state, or federal governmental agencies to discriminate against a person as to the granting of licenses, permits, and similar grants because that person has filed debt consolidation.

For more information on employer discrimination in bankruptcy cases, talk with an attorney experienced in bankruptcy law.

Can taxes and student loans be included?

There are debts that are not generally dischargeable in bankruptcy. Federal law provides that student loan obligations cannot generally be discharged in any type of bankruptcy proceeding. The only exception to this rule is if repayment of the student loan would cause the individual or family an "undue hardship." Undue hardship is a very strict legal standard and is very difficult to prove in court. Generally we assume that student loan debts are not dischargeable unless special circumstances, such as a permanent disability or long term hardship, are shown. Taxes usually survive Chapter 7 bankruptcy and must be included for payment under a Chapter 13 payment plan.

Nevertheless, inclusion of a student loan or tax obligation in a Chapter 13 debt consolidation proceeding may provide some benefit. For instance, the Automatic Stay provisions apply to taxing authorities and student loan creditors, even though a student loan is not dischargeable. Therefore, the filing of a debt consolidation petition will stop telephone calls, harassment, wage garnishments and lawsuits from proceeding while the chapter 13 plan is pending. Taxes must generally be paid under Chapter 13 but payments may be lowered and consolidated along with your other debts.

What does Chapter 13 do to credit?

Chapter 13 bankruptcy is a form of bankruptcy in which the debtor agrees to pay back his or her debts in smaller, regular payments. Therefore, this form of bankruptcy often results in the repayment of debts. Many lenders view Chapter 13 payment plans in a more favorable light than straight bankruptcy because there is a record of payments made over 3 to 5 years, which proves that the debtor was able and willing to pay debts back to the best of his or her ability. We have many clients that have filed Chapter 13 and are able to qualify for home loans after showing a good chapter 13 payment record. In order to rebuild credit, we would suggest that all payments be made timely, that rent, mortgages and utilities be paid on time, that insurance is never allowed to lapse and that the debtor work a steady job for a long time in order to show stability and reliability. Sometimes filing the bankruptcy petition is actually the best way to get the debts under control, get them behind you, and start rebuilding credit.

Foreclosure of property?

Foreclosure of property is the legal process that enforces a mortgage and results in the public sale of property for payment of a defaulted loan. Under state law, this procedure may be initiated once the debtor on the loan has failed to comply with the obligations under that loan. Normally in order to save a house from foreclosure, the debtor should file a Chapter 13 before the foreclosure sale and propose a payment plan that catches up the missed payments. Bankruptcy will stop a foreclosure proceeding from continuing until the Bankruptcy court grants approval for its continuation. Often the Bankruptcy Court will refuse to allow the foreclosure to continue if the individual filing bankruptcy has proposed for the payment of this debt in his or her Chapter 13 plan. Permission to continue with the foreclosure proceeding may also be denied if there is substantial equity in the property and a sale of the property will not only pay off the loans against that property, but also provide funds to the debtor and to the other creditors.

Many people are forced to file Chapter 13 plans to save their homes from foreclosure and if they have the ability to maintain the payments, plus pay extra over time to catch up on the missed payments, the plan may be successful. Chapter 13 must be filed in time, before the property is foreclosed at sheriff's sale in order to catch up the missed payments.

Many homeowners have borrowed money against their homes attempting to pay off debts. Second and third mortgages, home equity loans or refinancing can be very dangerous to the home equity. While Chapter 13 payment plans can pay off unsecured debts at reduced rates without jeopardizing the home, placing a lien on the property often results in loss of the house to a foreclosure when the borrower can no longer make the payments. Since mortgages take 10 to 30 years to pay off, the long-term cost is enormous to these borrowers. Before a decision is made to borrow money to pay off loans or debts that are burdensome, you should take advantage of a free interview with a qualified attorney to explore the options. Once the mortgage or home equity loan is finalized, the new mortgage debt cannot be restructured without putting the home at risk.

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