What is the best type of bankruptcy to file?

When someone is struggling financially, bankruptcy may be the best option for them to get out of debt and get their lives and their credit back on track.  Bankruptcy generally eliminates or reorganizes your debts to give you a fresh financial start.

Bankruptcy professionals, such as paralegals, attorneys, petition preparers, lawyers and others are often asked "What is the best type of bankruptcy?"  There are 5 types, or chapters, of bankruptcy.  Each is designed to do something different for different situations.  While there isn't necessarily a "best" chapter of bankruptcy overall, there may be a best chapter of bankruptcy for your particular situation.  In order to understand the best type of bankruptcy for you, you first must understand the different types of bankruptcies.

Chapter 7 bankruptcy is the most common form of bankruptcy.  Chapter 7 is often referred to as a "fresh start bankruptcy," a "total bankruptcy," or a "complete bankruptcy."  Many individuals find this type of bankruptcy to fit their situation the best, and it is generally the most simple and successful form of bankruptcy.  Chapter 7 bankruptcy may be filed by either an individual or a business (although businesses that file Chapter 7 must go out of business).  For individuals, Chapter 7 bankruptcy provides you with a quick resolution to a fresh start.  Chapter 7 bankruptcy relies on the theory that the Debtor provides the Court all of their assets (except for exempt assets) in exchange for a discharge (release) from their debts.  It is important to know that very few people lose anything in a Chapter 7 bankruptcy.

Chapter 7 bankruptcy generally only lasts 3-4 months and has almost a 100% success rate.  Generally, all a debtor has to do is file the appropriate paperwork (professionally prepared by Simplified Document Solutions or a competitor), go to a quick hearing to verify the identity of the person and verify the paperwork, and wait for the discharge.

Chapter 7 does have some limitations.  For instance, you must qualify for chapter 7 bankruptcy protection based on your income and expenses.  This keeps some people who have incomes in excess of the median income for their state from filing for Chapter 7 bankruptcy protection.  Georgia has pretty generous exemptions, but some people with valuable property may decide that bankruptcy is not the best option for them because they risk losing this property.  Some debts may also not be discharged.  For instance, student loans are not discharged without filing a lawsuit against the government and/or student loan lender, child support, alimony, and property settlements are not dischargeable, and some taxes are not discharged.  Also, the Supreme Court recently stopped bankruptcy judges from "stripping" second mortgages and homeowner's association liens from your home.

Chapter 9 bankruptcy is designed for municipalities.  It is a reorganization to allow cities, counties, and municipal corporations to shed some of their debt and keep operating.  The most notorious example of this was when the City of Detroit filed bankruptcy a few years ago.  It eliminated some of their unsecured debt and pensions to permit the city to begin the rebuilding process.  Less publicized Chapter 9 filings are school boards and municipal hospitals.

Chapter 11 bankruptcy is a reorganization for businesses and individuals with extremely high debts. This is the third most common form of bankruptcy and it is primarily used for businesses (LLC or Inc.).  Individuals who file for Chapter 11 bankruptcy often do so because their debts are in excess of the debt limits for Chapter 13, as such you often hear of celebrities filing for Chapter 11 protection.  Chapter 11 bankruptcy is incredibly complex and should not be attempted without the assistance of a very experienced Chapter 11 attorney (not just any bankruptcy attorney will be competent to handle this).

Chapter 12 bankruptcy is for family farmers and fishermen.  It is similar to a Chapter 11, although less common.  Because people in these occupations often have irregular income and lots of assets, it is more flexible than other forms of bankruptcy for these individuals.  In order to qualify for this type of bankruptcy, most of your income must come from farming or commercial fishing.  Again, I would not attempt this without a very experienced Chapter 12 attorney.

Chapter 13 bankruptcy is a reorganization for an individual (or married couple).  This is often called a "wage earner plan" because it requires regular monthly payments.  A chapter 13 bankruptcy is a repayment plan that lasts 3-5 years.  Nearly all of your debt is rolled into a Chapter 13 plan and the Debtor is expected to make a payment every month to pay some or all of it off.  At the end of the case, most of your debts are discharged.

Chapter 13 bankruptcy does have some major benefits.  For instance, homeowner's filing Chapter 13 are still permitted to strip off their second mortgage or homeowner's association liens.  If you owe money on a car, it may be possible to reduce the interest rate and stretch out the payments to 5 years. If someone has mortgage arrears, child support arrears, behind on car payments, or owes taxes, a Chapter 13 may permit you to catch up on those payments through the plan. High income individuals are also not excluded from filing Chapter 13, although their income is used in determining the monthly payment and the length of the plan.

Chapter 13 has some downfalls as well.  You are expected to pay all of your income in excess of what is reasonably required for the support of yourself and your family for the entire length of the plan, this often means major sacrifices that people are not ready to make.  Also, you are not allowed to re-establish your credit until the case is completed.  The plan can be especially hard if you lose your job during the case or get ill.  Because of this, more chapter 13 cases get dismissed (thrown out) than discharged.  Making things even more difficult is the requirement in most cases that a debtor turn over their tax refund in every year of the case.  People who get large tax refunds hate this requirement.

Because of the complexity of chapter 13 cases, Simplified Document Solutions often encourages people to seek the assistance of an experienced attorney before doing this.  CAUTION:  Bankruptcy attorneys make a lot more money on Chapter 13 bankruptcy than they do on Chapter 7; giving them a perverse incentive to suggest them to individuals who do not really need them.  You should ask your attorney, "Why are you suggesting a chapter 13?"  Ask yourself "Will I be okay with losing my tax refund?"  Is it reasonable to believe that I might change jobs or become ill in the next 5 years?"  Am I ready to give up eating-out for a full 5 years?" Is this house or this car worth struggling for 5 years?" "Will this car even run in 5 years?" Will I be okay without any new debt for 5 years, why haven't I been okay without incurring debt over the last 5 years, what's changed?"  If you are trying to stop repossession or foreclosure of a home or car, it might make since to buy some time with the property by filing chapter 7 and give it up at the end of the Chapter 7. Be aware that your attorney is ultimately in business to make more money and may not have your best interests at heart.  It is ultimately you that must protect yourself, nobody else will.

Things You Should Know Before Filing Bankruptcy in the Winter

Bankruptcy is a very powerful tool that helps millions of Americans get relief from crushing debt every year.  The ultimate goal of a bankruptcy is the bankruptcy discharge, basically an order prohibiting the affected creditors from ever collecting on a discharged debt.  December is typically a slow month for bankruptcy filings, but the subsequent months might be even worse, depending on your situation.

If you used your credit cards for Christmas, they may be nondischargeable. - 11 U.S.C.§ 523(a)(2)(C)(i)(I) states that consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable.

Likewise, if you got cash advances for Christmas, the debt may be nondischargeable. - 11 U.S.C.§ 523(a)(2)(C)(i)(I) states that cash advances aggregating more than $750 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable.

If neither one of those fit your situation, creditors will sometimes ask that a debt be declared nondischargeable due to fraud.  They will essentially say that you made misrepresentations about your financial condition when using your credit cards and you knew that you would be unable to make the payments.  They generally use  11 U.S.C.§ 523(a)(2)(A) to argue this, which states that a discharge does not apply to any debt for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.

If you are considering filing bankruptcy, the longer that you wait between credit card usage and filing your bankruptcy the better.  If you used any credit card for more than $500, it is best to wait at least 90 days before filing your bankruptcy.

If you receive large tax refunds, it might make since to wait until after you have received it and spent most of it.  Chapter 7 bankruptcy is a liquidation bankruptcy.  You turn over all of your unexempt assets over to the trustee.  The trustee may liquidate any unexempt asset that you have the right to receive within 6 months after the filing of the bankruptcy petition.  If you are filing bankruptcy during the winter months, one of the assets may be your tax refund.  The amount of what is exempt depends on state law.  For instance, people in Georgia may be able to protect up to $5,600 pursuant to O.C.G.A. §44-13-100(a)(6), however Louisiana residents can only protect the portion of their refund attributable to the earned income credit, and Florida residents who own a home can only exempt $1,000 in personal property (this includes furniture, clothing, cash, and tax refunds).  Many jurisdictions require Chapter 13 debtors turn over all or most of their tax refund to the trustee every year that their case is pending.

If you generally get large tax refunds, it might make sense to wait to file your taxes until after you have received and spent most or all of the tax refund.  That does not mean that you should go spend the refund as fast as possible for the purposes of filing bankruptcy.  The trustee may ask you to show where you spent the money and can seek judgement against friends and family that have been paid with the refund or even ask that your case be dismissed for fraud.  You can use the money to pay utility bills, catch up rent payments or car payments, make minor home and car repairs, etc.

If you are considering filing bankruptcy, Simplified Document Solutions can help you get a bankruptcy discharge for a low flat $249 fee.  To get more information, please call Charles at (678) 490-5841 or visit our website at www.249bankruptcy.com.


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This is intended as general information, not legal advice.  Your situation may have complexities that are unknown to the author and have not been considered in this blog.  If you have specific questions about your situation, you may wish to obtain information from competent counsel.

Ten Things that your bankruptcy attorney won’t tell you.

Ten Things that your bankruptcy attorney won’t tell you.

After working for 2 bankruptcy law firms as a paralegal, I couldn’t continue to take advantage of people that came to me seeking help when in need.  The lies were getting to me and I could not sleep.  I quit my stable job and started Simplified Document Solutions to help those who were actually in need obtain the bankruptcy relief that they sought for a reasonable fee of $249.00.

It is amazing how many of these attorneys are self-serving and lie to their clients to maximize their profits.  Based on my experience, I have put together a list of things that your bankruptcy attorney won’t tell you.  If you want honest answers, you can contact me at (678) 490-5841 or visit me online at www.249bankruptcy.com.

11.       “You don’t need to hire an attorney to file bankruptcy.”

11 U.S.C. §527(b) requires that an attorney advise you of your bankruptcy options, but most attorneys don’t want you to know so they either glaze over it or simply “forget” to discuss it with you.  The bankruptcy code says that you have 3 options for filing bankruptcy; hire an attorney, proceed by yourself; or hire a non-attorney bankruptcy petition preparer.

If you choose to do everything yourself, the Bankruptcy Court Clerk has packets of all of the forms that you will need and will give them to you free of charge.  If you want someone to help you with the forms, 11 U.S.C. §110 permits a non-attorney to assist you in completing the forms for a nominal charge.  Generally, petition preparers are happy to help you for $300 or less, and may even meet with you in your home.

22.      “A bankruptcy attorney may not know anything about the bankruptcy code.”

When you hire an attorney to help you with your bankruptcy petition, you probably think that he or she is an expert in the bankruptcy code.  While the most experienced attorneys probably are experts, many attorneys are simply not. 

Here is the truth, bankruptcy is a unique area of law.  However, in many law schools a bankruptcy course is not offered and in those where it is offered, it is an elective.  When an attorney takes the bar exam, it is not tested.  Often, bankruptcy firms offer recent law school graduates because they are cheap and rely on support staff and a couple of senior attorneys for most issues.  Others open a “general practice” firm and are forced to take bankruptcy cases to pay the bills.  If you are lucky, they will have a paralegal that knows what is going on, otherwise they will just struggle through it.

33.      “Chapter 13 is probably a bad option for you, but that isn’t going to stop me from recommending it.”

Unlike Chapter 7, Chapter 13 requires that you make payments to the court for a period of 3-5 years.  Most Chapter 13 Cases are either thrown out of court or converted to Chapter 7.  The reason is simple, if you come to me and say “I can’t afford my debt” and my response is “let’s give you another payment,” you probably can’t afford that either. 

Chapter 13 does have some benefits.  If you are behind on your car or home, it will allow you to catch up on the payments (but in most cases, you would be better to file Chapter 7, give up the collateral, and get another house or car with a lower payment and/or lower interest rate).  Some people may not be eligible for a Chapter 7 due to a previous filing, high income, or equity in property, but far too many attorneys steer poor people into Chapter 13s that don’t have any of those situations.

Why would an attorney recommend Chapter 13 to someone who doesn’t really need one?  The simple answer is money.  Attorneys typically charge 3-4 times more for Chapter 13 as they do for a Chapter 7.  After the Chapter 13 gets dismissed, they hope that you re-file and pay them again.  Did I mention that attorney’s get paid before most of the Creditors in a Chapter 13 plan?

I can actually milk nearly $10,000 from someone making $25,000 per year using this technique.  I will charge $4,000-$4,500 for a Chapter 13, when that gets dismissed, I’ll do it again, and finally I’ll charge $1,000-$1,500 to convert the case to a Chapter 7.

44.      “You might be hiring me but that does not mean you will see me in Court.”

So you met with my paralegal to start your bankruptcy, so it must mean that I will be working with you in Court, right?   Wrong.  It is generally cheaper for me to use a contract attorney to introduce you to the trustee than to drive there, park, and take me away from my business.  This person won’t know you or your situation, but it’s okay because any idiot can say “John Smith for the Debtor.”  It does lead one to ask, what does the attorney I hired do?

55.      “Many Bankruptcy Petition Preparers are more familiar with the code than the attorneys.”

We already discussed how attorneys can start practicing bankruptcy law without knowing anything about bankruptcy.  While bankruptcy petition preparers could theoretically do the same thing, it is generally uncommon.  Most bankruptcy petition preparers are current or former bankruptcy paralegals.  Because of the scrutiny that petition preparers are subject to, someone that doesn’t know what they are doing will quickly be shut down.

66.      “I was not at or near the top of my class in law school.”

The top law school graduates are recruited by Ivy League law firms with huge salaries.  These firms generally cater to businesses or celebrities with lots of money.  The top graduates start out making $150,000+, while a first year associate at one of the big bankruptcy firms start out at about a third of that.

77.      “If anything goes wrong, I am going to drop your case like a hot potato.”

In bankruptcy, most things that can go wrong involve an adversary proceeding, a lawsuit within the bankruptcy.  Most attorneys put that their representation does not include adversary proceedings.  If one gets filed, I will either demand additional payment or file a request to withdraw from your case with the Court.  I will also withdraw if you file anything with the Court yourself, you call me too often, or file a grievance with the state bar.

88.      “The price that I advertise is NOT what my actual charge is.”

I always advertise just a down payment, which is generally only the court filing fee or a portion thereof.  My attorney’s fees are never disclosed and will run into the thousands of dollars.  In Chapter 13, I will collect them through the Chapter 13 plan, and I may be willing to take Chapter 7 fees in installments; whether I file your case before I get all my fees depends on how much I trust you and where you live.

99.      “You may be eligible to get your court filing fee waived.”

28 U.S.C.§1930(f) permits a judge to waive the Chapter 7 filing fee if you are living at or below 150% and cannot afford the filing fee.  Many attorney’s don’t give you that as an option, because how can they tell a judge you can’t afford $335 in filing fees after you have spent well over a thousand dollars in attorney’s fees?

110.  “I am going to spend a lot of time and money trying to keep you from finding out this information.  If I need additional resources to protect my income, I can make the taxpayers pay to protect it.”

           

My behavior is bad, but if the public finds out how bad, I will lose my livelihood.  I need an uninformed customer base to keep filing these cases and taking advantage of those in need.  I will put out untrue information about petition preparers in hopes that I can convince someone to use an attorney rather than a petition preparer.

If I’m not successful at this, I will get judges and U.S. Trustee’s to use taxpayer money to slander my competition and put unreasonable restrictions on petition preparers.  For example, in the Eastern District of Wisconsin caps petition preparer fees at an unreasonably low $75 per case, meanwhile attorneys will charge $1,200+ to do a Chapter 7.

If you want honest answers from a qualified Bankruptcy Petition Preparer, contact Charles at Simplified Document Solutions.  You can reach him at (678) 490-5841 or online at www.249bankruptcy.com.

 

What will bankruptcy do to my credit?

            One of the most common questions I am asked when people are considering bankruptcy is “What is going to happen to my credit?”

            The answer is “it all depends.”  There are numerous different scoring models, created by many different companies.  The most common is the FICO score, created by the Fair Isaac Corporation.  Unfortunately, Fair Isaac Corporation and their competitors do not disclose the formula used to calculate your credit scores, so nobody can tell you exactly what will happen to your credit score when you file.

            Some people file bankruptcy while their credit score is still very good.  For instance, if you have always paid your debts on time and have a significant amount of debt, your score may be very high.  However, if you have lost your job and know that you will not be able to make payments going forward, you may consider bankruptcy.  If this describes you, you will likely see a decrease in your credit score, simply because a perfect credit score has nowhere to go but down.

            However, most people who file bankruptcy have several late payments, repossessions, foreclosures, collection accounts, judgments, and/or charge offs on their credit report when they make the decision to file bankruptcy.  These people go into bankruptcy with a very low credit score and they actually see an increase in their credit score, simply because it has nowhere to go but up.

            When creditors see that you have filed for bankruptcy, they see you as a good credit risk.  First, all of your accounts will show a $0 balance and a $0 monthly payment, leaving you more money to pay your new debt.  Secondly, you can only file Chapter 7 bankruptcy once every 8 years, so they know that if you fail to pay, they can simply garnish your wages or bank account without fear that you will file Chapter7 again (although you may be able to file a Chapter 13 before then).  Third, they are not concerned that another creditor will garnish your wages or bank account leaving you without money to pay them.  Finally, people who file a Chapter 7 generally are trying to reorganize their life, pick up the pieces, and turn over a new leaf.

Often people think that they will not be able to get credit for ten years after bankruptcy.  That is simply not true.  While it is true that a bankruptcy shows up on your credit report as a public record for 10 years, the impact will be reduced as time goes on.  In fact, most of my clients receive offers to obtain credit cards or purchase cars right after filing bankruptcy, often at better interest rates than their friends and family who have not filed bankruptcy.  If you maintain any new accounts that you get after your bankruptcy discharge, you will have excellent credit in no time!

If you would like to discuss your specific situation, contact Simplified Document Solutions-$249 Bankruptcy  by calling (678) 490-5841.