BANKRUPTCY

Are you overwhelmed by your financial situation? Are you behind in mortgage payments? Do you feel like there is no way out? The Law Offices of Anca D. Iacob, PLLC helps individuals get rid of personal debts by filing Chapter 7 and Chapter 13 bankruptcies. Our firm understands the needs of such individuals that find themselves in tough financial situations. In current economic times, many individuals are faced with foreclosures or loss of jobs. Although it is not an easy decision to make, sometimes it might be the best decision for you and your family. We have valuable tools that will be used to benefit you and your family.

What is Bankruptcy? – it is a person’s legal right to file a petition in federal court that allows that person to seek to discharge all or most of their debt. 

Types of BK for individuals

1. Chapter 7 – liquidation – a person filing for a chapter 7 will have most if not all debts wiped off
2. Chapter 11 – is used mostly by businesses and companies that have large debts and complex situations
3. Chapter 12 – is strictly used for farmers
4. Chapter 13 – reorganization - it is another popular type of bankruptcy for individuals, which proposes a 3 to 5 year plan that will allow the petitioner/debtor to pay some if not all of the debts back.

Should you file? No one should take this decision lightly. It is a last resort for debtors that cannot manage their debts anymore. Unfortunately, there are times when bankruptcy is the best or only option to take the stress off one’s shoulders. You could file for BK if you cannot pay your bills anymore, if you cannot take the phone calls anymore, when your wages are garnished, when your bank accounts are depleted, when a particular crisis such as illness or loss of job makes it impossible to pay bills.

Chapter 7 bankruptcy is one of the fastest and most common ways for an individual to get rid of most debts. A chapter 7 bankruptcy is available to individuals as well as businesses. Since 2005, a person can file for a chapter 7 if he/she qualifies, and in order to determine whether one qualifies, a “means test” must be conducted. In other words, a person that wants to file for bankruptcy must determine what their income has been in the last six months. The number arrived at will be compared to the median income for the state in which you live. If the number is below the median, one will most likely be able to file a chapter 7. If the number is above the median, a chapter 7 is less likely possible. If you qualify, this is your chance to start anew and rid yourself of tormenting stress in a relatively short period of time.

Process

1. A petition, schedules and a statement of financial affairs must be filed with the bankruptcy court along with statement of proof of income and a credit counseling certificate.
   
   
2. A petitioner must take two classes during the course of this process. These classes can be taken on line, via telephone or in person. The debtor must take these classes only from Arizona Supreme Court approved agencies.
   
   
1. One class, namely credit counseling, must be taken prior to filing for bankruptcy but must not be taken 180 days or more prior to filing.
   
   
2. A second class called a financial management class must be taken after the petition with all supporting documentation is filed and must be filed with the court no later than 45 days after the meeting of creditors.
   
   
3. Once the petition is filed, a trustee is appointed and a meeting of creditors or a 341 meeting is scheduled. It is generally scheduled within 30-40 days from the date of filing. This is the time to meet with the trustee who is the individual assigned to administratively oversee the case. Also, this is the time set for creditors to come and ask questions of the debtor. Usually there are no creditors that show up and it takes about 5 to 10 minutes.
   
   
4. Sixty days after the 341 meeting, creditors have the right to object to your discharge.
   
   
5. If no special problems come up, a discharge is ordered within 3 months from the time of the first meeting of creditors.

Benefits of a chapter 7 bankruptcy

1. The automatic stay is one of the greatest benefits of filing for bankruptcy and individuals feel such benefits immediately after filing. Once the petition has been filed, creditors must cease all communication with the debtor, including taking any further action against the debtor, pursuing or continuing a court case against the debtor, seizing any property. The stay covers repossessions, foreclosures, attachments, garnishments, property tax sales, evictions. There are exceptions to the automatic stay.Creditors must obtain permission from the Bankruptcy Court if they want to further communicate with the debtor. In other words, declaring bankruptcy will immediately end garnishments, lawsuits, or any other kind of creditor harassment.
   
   
2. Liquidate debts – dischargeable vs. non-dischargeable
   
   
1. Dischargeable debts
   
   
1. Unsecured debts – most unsecured debts are dischargeable. Unsecured debts are debts that have no collateral to back them up. Example - credit card debts, medical debts, most personal loans, deficiencies on repossessed vehicles, payday loans
   
   
2. Secured debts – they have collateral that backs them up, like a piece of real property, or a car, or furniture. You can get rid of the debt by returning the collateral to the creditor and not being liable for the difference between what you owe and what was sold for (deficiency).
   
   
2. Non-dischargeable debts
   
   
1. Secured debts – if you want to keep the property that secures the debt, you cannot get rid of the debt. You must keep paying for your property in order to keep it.
   
   
2. Priority unsecured debts – these are taxes, child support or spousal alimony, fines and penalties owed to governmental agencies, student loans, debts incurred by driving while intoxicated, debts incurred to pay taxes (paying taxes with a credit card will not save you), debts the debtor agreed to pay even after BK by signing a reaffirmation agreement (reaffirm the loan on your car), debts incurred by certain types of fraud, debts for willful or malicious injury to another or property of another. 

Is Chapter 7 right for you? It is in the following circumstances:

1. If you have low or no income
2. If you have little or no money left after paying your necessary living expenses each month
3. If you rent or have little equity in the home
4. If you have few or no assets outside your furniture, clothing and other necessities

Chapter 13 bankruptcy allows a debtor (never businesses) to repay all or a portion of their debt. Depending on the income, this could be a 3 to 5 year plan. All your disposable income will be paid monthly to your trustee who will then distribute it to your creditors. (Disposable income – all income less all necessary living expenses) Not everyone qualifies for a chapter 13. In order to qualify, you must satisfy the following three requirements:

1. Must have regular income
2. Must have enough disposable income to make regular payments to pay the required debts under the plan
3. Your secured debts cannot be larger than $1,010,650.00 and unsecured debts cannot be larger than $336,900
4. Must have filed your taxes in the last four years

Process – you start by filing the petition together with schedules and statement of financial affairs. The automatic stay will enter into effect. A 341 meeting will also take place. Immediately after filing the petition, a repayment plan has to be filed with the court as well. The plan will have to be approved by the court and this can be accomplished during the confirmation hearing. A chapter 13 debtor must make the first payment within the first 30 days after filing. In order to obtain a discharge, the debtor must keep paying the amount of disposable income for the next 3-5 years. Also, a credit counseling class and a financial management course will have to be taken and filed with bankruptcy court.

Benefits

1. It allows you to become current on your house payments (takes care of arrearages)
2. You can pay tax debts with no additional interest adding on
3. It allows you to keep property that you would otherwise have to give up in a chapter 7 (non-exempt property)
4. You cannot file another chapter 7 for 8 years but you can receive a discharge in a chapter 13 in 4 years after filing a chapter 7 
5. Consolidate student loans
6. Protect co-debtors
7. Most importantly, under the current law, the judges can eliminate second mortgages if the current fair market value (FMV) of the property is less than the senior mortgage
8. It allows you to reduce the amount you owe on secured debts to the value of the collateral (for example, if you owe $20k on your car but it is worth $15k, you can reduce the debt to $15k and pay off that amount in equal installments over the life of the plan.) This is called a cram-down.

Repayment plan – it is a legal agreement between you and your creditors. The creditors are required to forgive a portion of your debts in exchange for your commitment to repay your reduced debts over time. While you are making these payments, creditors cannot harass you, take any action against you and they must abide by the terms of the plan. Plans can be modified to address new problems but creditors have a right to object to the modification.

What debts must be repaid? – unsecured priority debts must be paid in full over the course of a chapter 13 (taxes and child support) as well as all secured debts if you want to keep the collateral. Chapter 13 requires you to pay some of your debts in full and as much of your remaining debts as you can (unsecured creditors must be repaid an amount at least equal to the value of your non-exempt property that you would have lost in a chapter 7) Non-dischargeable debts are debts not listed in your schedules, back child support and alimony, court imposed fines and restitution, student loans, some back taxes, debts arising out of willful or malicious acts or drunk driving.  
Bankruptcy can be a difficult process and it is best to consult with an attorney. Please call The Offices of Anca D. Iacob, PLLC, for a free initial consultation. We can discuss your particular situation and determine whether you should file for bankruptcy, and whether  a chapter 7 or a chapter 13 is the best fit for your individual situation.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.