Is bankruptcy right for me?
This is a question that requires a factual and legal analysis from an experienced Bankruptcy practitioner. Generally speaking, if the majority of an individual’s debt is unsecured, including credit cards, promissory notes, bank loans, and the Debtor does not own a significant amount of assets that are subject to liquidation, Chapter 7 will be the most viable option. Chapter 13, conversely, is much more complex and involves a three to five year payment plan, but it will protect Debtors from having their unencumbered assets seized or liquidated in order to satisfy outstanding debt. Chapter 13 also incorporates a restructuring or modification of mortgage arrearages, which will allow Debtors to possibly retain their real property. To learn more please contact our Orlando bankruptcy attorneys.
My bankruptcy case has been filed for some time and I am still receiving calls from debt collectors and letters.
Our Orlando bankruptcy attorneys will fiercely advocate for your legal needs when and if this occurs, which it commonly does. Your Lyons Law advocate will provide you with a creditor call log in which you can keep track of any incoming calls from debt collectors or creditors. Depending on your procedural posture in the Bankruptcy case, we will promptly serve the party who contacted you with a legal demand letter to cease and desist from contact and if collection efforts continue subsequent to the service of the demand letter, we will prosecute your case in either Federal Court or state court, depending on the violation. We have been successful in obtaining money judgments in the past against collection agencies in Federal Court and have procured settlements for clients from major banks and debt collection agencies for such violations.
Will filing bankruptcy stop creditor harassment?
One of the major benefits of filing Bankruptcy is that immediately after the petition is filed, even a Skeletal Emergency Petition, the court issues an “automatic stay” which acts operatively to essentially freeze any state court litigation including a foreclosure sale, even if the filing is done the same day as the sale, although our lawyers do not recommend this. It is akin to a restraining order against your creditors and prevents them from contacting you to recover money, seize your property or place liens on your home. We have seen the relief that clients experience when they are no longer harassed by creditors.
Can I get rid of a second or third mortgage or equity line debts or other junior liens in Bankruptcy?
Many homeowners do not possess any equity in their homes. If this is the case, you may have a first mortgage in which you owe more than the home is worth. Even though you owe more on the first mortgage, you also have payments owed on a second or third mortgage. By filing Chapter 13 or Chapter 7 Bankruptcy, you may be able to get rid of your junior liens provided that there is no equity in the property for the lien to attach to. This will result in the liens being stripped and the Debtor will never have to repay it. For more information on lien stripping please reach out to our Orange County Florida bankruptcy lawyers.
Will I be able to obtain credit again after I file bankruptcy?
Yes. Most of our clients receive pre-approved credit applications in the mail shortly after their bankruptcy is discharged and some will receive offers to receive credit during the pendency of the case, before discharge. However, you will probably have to pay higher interest rates. This is one of the biggest concerns our bankruptcy clients have. Contact our Orlando bankruptcy attorneys and we will be happy to answer any and all questions you have regarding how to better your financial life by filing bankruptcy.
Do I have to hire an Attorney to file bankruptcy?
All debtors have the right to appear “pro se” in a bankruptcy proceeding, however, in light of the procedural obstacles and complexities with Bankruptcy, it is not advisable to proceed without an experienced practitioner. Therefore, it is best to seek the advice and counsel of an experienced bankruptcy attorney who is qualified and available to guide you through the process and answer the many questions that will arise throughout the proceeding and after.
Which debts are not discharged in Bankruptcy?
In the majority of cases, a Debtor cannot discharge Federal student loans, back child support or certain tax liabilities. You may not be able to discharge student loans, back child support or certain taxes. Debts such as these and others may have to be repaid pursuant to the Bankruptcy Code.
What is Chapter 7 bankruptcy?
This is a liquidation of assets or “straight bankruptcy.” In a Chapter 7 bankruptcy, debtor’s non-exempt assets, if any, are sold by the Chapter 7 trustee that is assigned to the case and the proceeds distributed to creditors according to the priorities established in the Code. Eligibility to file Chapter 7 is determined by the means test instituted with the 2005 amendments to the bankruptcy code. In the majority of consumer cases, all the assets are exempt, and therefore there are no assets to liquidate and there is no dividend paid to creditors. Chapter 7 is generally the simplest and quickest form of bankruptcy and is available to individuals, married couples, corporations and partnerships.
What is Chapter 11 bankruptcy?
Chapter 11 bankruptcy is a reorganization generally used by businesses or by individuals with substantial assets that would be lost in a straight bankruptcy. In a Chapter 11 proceeding, creditors are temporarily stayed from taking any collection action while the debtor tries to work out a proposed plan of re-organization and debt settlement. The creditors vote on the proposed plan and it must then be approved by the court. This type of proceeding is designed to preserve an ongoing business that would otherwise peril in a straight liquidation bankruptcy.
What is Chapter 13 bankruptcy?
Chapter 13 bankruptcy is a repayment plan for individuals and sole proprietorships who have steady and above the median incomes, and usually own assets. In Chapter 13, you must propose to the Court to pay back all or a portion of your debt over the life of the plan, which will either be three or five years, dependent on income. If the court approves the plan of payment and all of the payments are made, the debts are settled in this manner, even if the debtors’ creditors object to the plan. If the Debtor makes the payments as required pursuant to the plan approved by the Court, the Debtor will not be required to surrender the property to a trustee and all assets can be retained and liquidation avoided
Can married people file bankruptcy jointly?
Married debtors can file a joint bankruptcy petition for a single filing fee, and Lyons Law will charge the same legal fee for joint cases as we charge for individual cases. Married couples who are jointly liable on most debts should file a joint bankruptcy. Conversely, if only one spouse is liable on the majority of the debt liabilities, it makes logical sense to preserve the other spouse’s credit.
Do I have to take a credit-counseling course before I file bankruptcy?
The new bankruptcy law requires all debtors to fulfill two education requirements: a credit counseling course prior to filing and a financial management course after the filing date. Your case cannot be filed until you complete the pre-bankruptcy course and you will not receive a discharge of your debts unless you complete the personal financial management course and file the required certificates with the Court. The Chapter 13 Trustee offers the required personal financial management course to Chapter 13 debtors, but Chapter 7 debtors are required to take the courses on their own. All bankruptcy education courses are available in person, by phone, or over the internet with agencies that are approved for the district in which you are filing. Most courses take less than one hour to complete and costs less than $50. Your attorney will provide you with a list of approved agencies.
Bankruptcy Means Test
Bankruptcy Reform Act was enacted in 2005, which instituted a requirement that any Orlando resident who considered filing a Chapter 7 Bankruptcy must pass a “means test” to ascertain their eligibility. This test involves a highly technical and detailed formula designed to prevent people with higher incomes from filing for Chapter 7 bankruptcy.
The means test evaluates whether a debtor has the financial “means” to repay a substantial part of his or her debts through a repayment or reorganization plan in Chapter 13 bankruptcy. If the Debtor has the “means,” eligibility will not exist for Chapter 7, but they may elect to file a Chapter 13. If a Debtor’s income does not meet the median income for Orlando, the Debtor may be exempt from the means test. There is a unique exception to the rule, if the Debtor’s total debt is comprised of more than 50 percent of “non-consumer” liabilities such as student loans, mortgages on investment properties, tax debts, business debts, the Debtor may invoke the exemption from passing the means test.
If your CMI exceeds Florida’s median income, then the means test applies a more complicated expense formula to arrive at your eligibility for Chapter 7 bankruptcy. The formula starts with your CMI and then deducts several categories of allowed expenses to calculate your “net monthly income” which is presumed to be available to pay general unsecured creditors. The means test deducts the following expense categories from “current monthly income” to arrive at your “disposable income.”
Your reported income on your federal tax return cannot be used in the means test calculation. There are many rules that apply but your bankruptcy attorney can assist you in these calculations. If your CMI is higher than Florida’s median income, the means test requires a more complicated formula to determine eligibility for Chapter 7 bankruptcy. Under this formula other expense categories may include standard living expenses, housing expenses, transportation costs, child care, income tax withholding, medical and dental care, tuition, alimony, child support, care for elderly parents, food costs, and clothing expenses. Such expenses can sometimes be deducted from your CMI to determine your net monthly income or disposable income.
Standard Living Expenses. Your Bankruptcy Attorney can deduct an amount of “standard living expenses” established and published by the IRS. Debtors may claim living expenses with substantiated documentation up to 5 percent above the IRS standard if such expenses are defined as “reasonably necessary.”
Housing Expenses. The IRS also publishes “local standards” of transportation and housing expenses which can be used for guidelines in the means test calculations. The local housing allowance varies for each county in Florida and further deviates depending on household size. The housing allowance includes estimated cost of home ownership and operating expenses such as utilities and taxes. For debtors who owe a mortgage, they are allowed to deduct from their CMI the amount of mortgage payments due during the following five years. However, if debtors are paying a mortgage, the local housing allowance will be reduced by the amount of its assumed ownership expense so that the mortgage payments are not counted twice in the means test formula. Renters are restricted to the IRS local standard allowance.
Transportation Expenses. Transportation expenses are comprised of two separate expense categories related to vehicle ownership: “operating expenses” and “ownership expenses.” Operating expenses are standard published expenses which vary according to the number of cars owned and where the debtor resides in the country. The deductible ownership expense is computed as the higher of (1) the IRS national standard ownership allowance based on the number of family cars; or (2) actual car payments during the ensuing five years after filing divided by 60. Other Expenses. Debtors may also deduct from their CMI actual expense for categories the IRS specifies as “other necessary expenses.”
These expenses include, but are not limited to, the following:
- federal income tax withholding
- medical and dental expenses including medical insurance for debtor’s family
- term life premiums
- child care
- alimony, child support, and other court ordered payments
- care of elderly or disabled dependents
- health savings accounts
- actual expenses for food and clothing up to 5 percent above the IRS allowance
Secured Debt Payments. Payments due secured creditors, such as scheduled home mortgages and car loans during the five years after the bankruptcy filing date. This amount also includes required payments to creditors secured by personal property such as appliances or furniture.
Priority Debts. Required debts such as taxes or domestic support obligations.
Debtors may deduct the greater of either the IRS local housing allowance or the total of actual mortgage payments plus allowed home maintenance expenses, such as utilities. For cars, debtors can deduct either secured debt payments or the IRS car allowance, whichever is greater.
Your current monthly income, less your allowed expenses summarized above, is your Net Monthly Income (NMI) which is a defined term under the new bankruptcy law. If your NMI is more than $166.66 per month, you fail the means test which means there is a “presumption of abuse” applied to your filing a Chapter 7 bankruptcy. If your NMI is between $100 and $166, the law applies a complicated and highly detailed mathematical formula to discern if “substantial abuse” of a Chapter 7 bankruptcy exists.
Failing the means test means there is a “presumption of abuse” and the Debtor cannot file a Chapter 7 bankruptcy, but this presumption may be rebutted if special circumstances exist that can adjust your income or expenses. For example, job loss, a medical condition or unusually high child care expenses may qualify as a special circumstance warranting an adjustment. To establish such a special circumstance and invoke this exception, the Debtor will have to prove that expenses incurred are reasonable and that no reasonable alternative exists. Judges are given discretion to determine if special circumstances allow filing a Chapter 7 bankruptcy by a debtor who cannot pass the means test formula.
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