Reasons to Delay: Future Debts, Mortgage Modifications, and Income Changes

You may want to consider waiting to file for bankruptcy if any of the following statements apply to you:

• You recently took a pay cut or lost your job.
• You want to change the terms of your mortgage in the near future.
• You think you have more debts on the way.

Your Pay Recently Decreased

It sounds counter-intuitive, but this could be harmful if you are hoping to file for Chapter 7. Remember, Chapter 7 bankruptcy is based on financial need, and is reserved for debtors who cannot realistically afford to accommodate the three- to five-year repayment plan which characterizes Chapter 13.  For the sake of determining who is (and is not) eligible for Chapter 7, all prospective filers must take the Means Test, which compares your average income over a six-month period against the median income for a household of your size in your state.

Since the Means Test looks to the past six months, if you were just laid off or demoted, your pay cut will not be accurately reflected in your recent history.  If you wait, the Means Test will have a more accurate basis for assessing your income.

You Want a Refinance Your Mortgage

When interest rates drop, many people will refinance their mortgage to save money on their monthly payments. However, if you have filed for bankruptcy, you will be subjected to a waiting period before you qualify. This waiting period begins on the date of your discharge, not the date of the filing of the case. Depending on the type of mortgage, the waiting period could be anywhere from one to four years.

Nonetheless, if you are considering refinancing, a bankruptcy still might be required. While anyone who files for bankruptcy will have to abide by the waiting period, there are still the financial requirements everyone applying for refinancing must meet. Chances are, if you are seriously considering bankruptcy, you are probably not eligible for refinancing. If that is the situation, filing for bankruptcy could still be the fastest way to right your economic ship and put yourself in a position to qualify with a reputable financial institution. You should discuss your options with our experienced New Jersey bankruptcy attorney.

More Debts Are Coming

If you anticipate incurring more debts in the near future, it may be wise to delay filing a little longer.  While it is possible to make multiple filings, federal law places strict waiting periods on the time between discharges.  The waiting periods for multiple bankruptcy cases are as follows:

• You filed for Chapter 7 — You must wait eight years before receiving another Chapter 7 discharge, and four years before receiving a Chapter 13 discharge.
• You filed for Chapter 13 — You must wait two years before receiving another Chapter 13 discharge, and six years before receiving a Chapter 7 discharge.

Remember, any given case only covers debts which you incurred prior to the filing.  You can file again for your new debts as soon as they arise — but you will still have to wait for years before you can actually receive a discharge.

Other Reasons to Delay Filing

There are many other reasons to consider delaying filing for bankruptcy. For example, you could be moving to a state with more favorable exemptions. It is possible that you will want to wait until you have established residency in the new state. Likewise, if you just moved into the area and are considering filing, you will have to wait until you qualify under the residency requirement.

In some cases, a potential filer will want to maximize the use of their exempt assets. However, and this is critically important, you should not do anything without first consulting with Firebaugh & Andrews 734-722-2999 If the court deems that any actions taken were meant to defraud your creditors, your bankruptcy could be denied and you could be subjected to fines and other penalties. For example, you could sell some non-exempt assets to pay off mortgage arrears. However, if you transfer property to a relative or friend, the transfer could be considered fraudulent and nullified by the court.

Many people considering bankruptcy have borrowed from friends and relatives. If you have recently paid any of these individuals back, you should delay filing for bankruptcy. Any payment made to a family member more than $600 one year before filing could be required to be returned and distributed to other creditors. State law could increase the length of time, so you should consult with a knowledgeable King of Prussia bankruptcy attorney.

If you are planning to file under Chapter 13 and have a car payment, you could be entitled to cram down the amount you owe if you purchased it 910 days before the filing date. This means if you owe $15,000 on a car that is appraised at $10,000, you would only have to pay $10,000 through your bankruptcy plan. The remaining balance would be considered unsecured debt. Depending on your circumstances, it might be advisable to wait until the 910 days passes to take advantage of this option.

Tax refunds are often yearly financial windfalls for families. However, if you are unable to exempt an anticipated refund, you could lose it when you file for bankruptcy. Waiting to use the refund for essential living expenses or pay down a secured asset could be a good idea.

If you recently purchased a luxury good with a credit card, you should delay filing for at least 90 days. If you do not, this debt could be challenged as non-dischargeable. It is essential to disclose any recent purchases to your Bucks County bankruptcy lawyer.

Under certain specific circumstances, some older taxes are dischargeable in a Chapter 7 bankruptcy. To meet the requirement, the tax return must have been due three years before the filing date, the return was filed within two years before filing for bankruptcy, and the IRS has not assessed your return for at least 240 days. Additionally, you cannot be guilty of fraud or tax evasion. Therefore, waiting might be essential if you wish to discharge an outstanding tax obligation.

Reasons to Act: Collections, Repossession, and Foreclosure

While there are several good reasons to consider postponing your petition, you may want to act sooner rather than later if you are worried about your assets or property being seized by creditors. But why?

Bankruptcy gives debtors special protection from creditors through something called the automatic stay.  True to its name, the automatic stay comes into effect immediately upon filing (though of course it may take several days for your creditors to receive notification of the bankruptcy proceedings).

The automatic stay is an injunction, or court order, which says creditors must cease all collection actions against the debtor while the bankruptcy is in process. If you are worried about your car being repossessed or your home being foreclosed on, filing will postpone these actions and buy you time to potentially reach an alternative arrangement with your creditors.

A bankruptcy could stop a sheriff’s sale as late as the morning of the sale itself, as long as the filing is time-stamped before the property was auctioned. While this might appear to be a powerful tool, you should never wait until the last minute because there is no guarantee that the proper paperwork and requirements will be met before the sale of your home.

Other Reasons to File Bankruptcy Quickly

There are other reasons why not hesitating to file for bankruptcy is in your best interests.

If your landlord is trying to evict you, a bankruptcy could slow the process down. If you cannot pay your back rent, you will be evicted. Nonetheless, filing for bankruptcy will temporality stop the eviction, giving your time to make the required payment. However, if your landlord has obtained a judgment for eviction, the bankruptcy will provide no relief.

If your wages are being garnished or your bank accounts are frozen, filing for bankruptcy will free your funds. In many cases, bankruptcy is the only way to stop your creditors from using all the legal tools at their disposal.

Likewise, if a creditor is suing you, you will want to file for bankruptcy before they obtain a collection judgment. This judgment allows creditors in New Jersey to garnish wages and gives creditors in Pennsylvania a lien against your real property, including your house. If you can stop a judgment before it is entered, you could save yourself several problems in the future.

Filing for bankruptcy will help you restore your utilities if they have been turned off. Furthermore, if you have a turn-off notice, filing for bankruptcy could prevent the disabling of your current service. Once your service has been cut, you could incur additional fees on top of the payments you are already behind.

If you are about to start a better paying job, you might no longer qualify for a Chapter 7 bankruptcy. The means test looks at the six months of average monthly income before the filing date. Any delay in filing will increase your monthly income average on the required test – possibly prohibiting you from taking advantage of Chapter 7.

If you are moving to a state with less advantageous exemptions, you might consider filing before you move.

Call Our Experienced Bankruptcy Attorney to Discuss When You Should File

When you file for bankruptcy is a critical decision. The filing date could impact what chapter you are eligible to file for, how your assets will be treated, and your available options. On a final note, remember that declaring bankruptcy is not a decision to be rushed into or taken lightly. Even if you think now is the time to act, you should always consult with an experienced lawyer before you commit to any major legal decisions. To start discussing your financial situation in a free and confidential legal consultation, call Firebaugh & Andrews 734-722-2999

Consumers who were over their head in debt and distressed businesses submitted 434,540 bankruptcy filings through September, according to a report on the federal court system from Supreme Court Chief Justice John Roberts.

That’s an almost 30% drop from the 612,561 bankruptcy cases filed at the same point in 2020. And even that number was also lower than the 776,674 bankruptcy cases filed in 2019, the report added.

Even before the pandemic, bankruptcy cases in recent years were already well off the high numbers during the Great Recession. There were approximately 1.6 million cases in the first nine months of 2010.

Most bankruptcy cases are filed by consumers, the report noted. Cases can give a person a fresh financial start after they enter a court-supervised plan to pay back creditors via repayment plans or liquidated assets.

“Increased government benefits” throughout the year — such as third round $1,400 stimulus checks, supplemental jobless benefits and monthly child tax credit payments — were one reason for the drop, the report said.

So were eviction moratoriums, including a now-lapsed federal halt on evictions. The year-end report also pointed to “state lockdown orders that decreased personal expenditures.”

‘There are many forces that are pushing people to not file bankruptcy right now and definitely throughout 2021.’— Professor Pamela Foohey, a consumer bankruptcy expert teaching at Yeshiva University’s Benjamin N. Cardozo School of Law

As of November, there were 369,690 cumulative bankruptcy filings in the 50 states and Washington D.C., according to separate American Bankruptcy Institute data. By the same point last year, there were 523, 917 cases filed.

Are these numbers a sign of the benefits from stimulus checks and monthly child tax credit payments? Or a sign of a rebounding economy during a job-seekers market? If so, should that raise concern for 2022 as more government aid goes away?

“There are many forces that are pushing people to not file bankruptcy right now and definitely throughout 2021,” said Professor Pamela Foohey, a consumer bankruptcy expert teaching at Yeshiva University’s Benjamin N. Cardozo School of Law.

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Before bankruptcy, Foohey said it can take people around two years of financial struggle that ends with a crisis like an eviction notice. But it’s unclear when the clock on that struggle might be occurring in the current context, she added.

Without Congressional action, the last enhanced child tax credit came and went on Dec. 15. The pause on federal student loan payments runs through May 1. Meanwhile, inflation keeps running hot and hurting American spending power.

Excluding mortgages, household debt balances for obligations like auto loans, credit cards and student loans rose by $61 billion to $4.25 trillion in the third quarter, according to the Federal Reserve Bank of New York.

She just doesn’t know to what extent that translates into bankruptcy cases. “People want to pay their bills and want to be financially secure, and they put off filing bankruptcy in the hope they will become financially secure,” she said.

“2022 could be the year of financial reckoning where people start having to pay more on their debts,” Foohey said.

If you find yourself not being able to keep your head above water call us for a free consultation 734-722-2999 Firebaugh & Andrews

Income Tax

For the current year, you aren’t legally required to pay off
income tax debt until the first day of the next year. Many people turn to
Chapter 13 bankruptcy in order to pay off large tax debts. If you’re planning on doing so,
you should wait until the first day of January so that the tax debt from
the previous year is counted as a pre-petition debt.

Purge Debt from the Holidays

It’s currently estimated that Americans
spend nearly $10 more on average each day in the month of December than they do in any other month of the year.
When added up, this creates a $300 increase in spending that is likely
done with a credit card. This is why it makes sense to file for bankruptcy
at the beginning of the New Year.

Credit Card Debt Specifications

As you would assume, there are some stipulations that come along with purging
credit card debt. Credit card companies are savvy when it comes to borrower
deception, and many will notice unusually frequent use of credit just
before a borrower files bankruptcy. Some purchases made just prior to
bankruptcy
may be legitimate. The Courts look at your intent, which means when you incurred the debt
did you have the intention and means to pay it back.

We always advise our clients that when they decide to file for bankruptcy
they should
stop using their credit cards and also stop paying on them. This way the funds that were being paid to the credit cards can be used
to cover the attorney and Court fees to get the bankruptcy case filed.

It is further detailed in the Bankruptcy Code that goods and services are
not labeled under “luxury” if they are absolutely necessary
to the borrower or a dependent of theirs. For example, gas for work travel
that is charged to a credit card doesn’t qualify as being a luxury
expense. However, $1,000 spent on a new computer would qualify as an unnecessary
luxury expense.

If you carried a credit card balance of over $650 for goods such as groceries,
gas, and home necessities, you would be in the clear. Not carrying a debt
over $650 will prevent you from having to even explain any charges in
the first place.

Something to Think About Before Your File Bankruptcy

Once you make the decision to work with an attorney on a bankruptcy case,
cease use of your credit cards at once. Using credit while you are openly
filing for bankruptcy is a direct indication that you likely have no intentions
of paying it back. This is known as fraud, and you could easily be charged
in a court of law for doing this.

Call Firebaugh & Andrews for a free consultation 734-722-2999

Why would I file for bankruptcy without an attorney?
Filing for bankruptcy without a lawyer can help save you money. Lawyers generally charge between $500-3,750 for Chapter 7 and $2,500 and $6,000 to file Chapter 13. These numbers exclude the $335 filing fee for Chapter 7 or the $310 filing fee for Chapter 13 bankruptcy. So putting in some research and extra effort by filing the Chapter 7 yourself can go a long way in helping you get debt-free without taking on more debt in the process just to get some legal assistance. However, the U.S. Government strongly recommends you seek out an attorney’s advice in every Chapter 7 and 13 case, since bankruptcy can have long-term financial and legal ramifications.

When does it make sense to file for Bankruptcy without a lawyer?
You may not need a lawyer to successfully declare bankruptcy in a simple Chapter 7 bankruptcy case (Chapter bankruptcy 7 is the fastest route to completely wipe out most kinds of debt). The bankruptcy laws are relatively easy to apply to a simple Chapter 7 bankruptcy case, so you can get your debts discharged (debt wiped out) if you are willing to put in a bit of research and work, as we’ll outline below. We’d recommend only filing by yourself in Chapter 7 cases that meet the following conditions:

1. You pass the means test
   You need to make under the average yearly income in your state to qualify for Chapter 7 or Chapter 13 bankruptcy. You need to be making less money to file for Chapter 7 than you do for Chapter 13. To file for Chapter 7 in Detroit, your household income has to be equal to or lower than $51,411 per year for a household of one, equal to or lower than $62,000 for a household of two, equal to or lower than $75,951 for household of three, equal to or below $92,720 for a household of four, and equal to or below $101,742 for a household of five. You can access the means test forms on the U.S. Government’s website.
2. You own few to no assets
   The court defines property as an asset, since they can sell it and use the money to pay back your creditors (people you owe money). The court considers all of your property as part of your bankruptcy estate (objects they can sell to pay back your creditors) once you’ve filed. But don’t worry, you can still keep your house before, during, and after you file for Chapter 7 bankruptcy as long as you stay current on your mortgage payments. In Michigan, you can protect your home from creditors, so be sure to declare this when you fill out these files for bankruptcy. Chapter 7 bankruptcy enables you to continue paying your mortgage instead of using that money to pay off other debts, including debt on credit cards
3. You own few priority debts
   Bankruptcy really helps give you a “fresh-start” by wiping out many kinds of debt. But it does not wipe out priority debt. Priority debt refers to debts that get paid first as soon as money is available to creditors. Priority debts do not get wiped out when you file for bankruptcy.

Below are the main forms of priority debt that bankruptcy does not wipe away:

Fines, penalties, and money owed for violating the law
Taxes
Spousal support, child support or other support obligations
Intoxicated driving debts
Homeowners’ association dues after you file for bankruptcy
Loans for retirement plans
Money borrowed to pay off a bill that bankruptcy does not discharge (get rid of), such as taxes
Debts that weren’t discharged (wiped away) from a previous bankruptcy
Student loans (unless you can prove in court that keeping the loan will really hurt your financial situation)
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Call 734-722-2999

4. Your creditors (people you owe money) do not claim fraud (that you tried to lie to or hurt them) against you
5. You’re willing to go through the filing process yourself
   Filing for bankruptcy is a lot of work: you’ll need to figure out if you qualify, determine the legal and financial long-term results of filing on your finances, declare property you’d like to keep, take a debtor and creditor course, fill out files, submit them to court, and attend a meeting in court without professional guidance.
6. You are ready to learn bankruptcy law
   In order to file for bankruptcy, you will need to become comfortable with the laws and procedures that govern Chapter 7 bankruptcy and the filing process. It’s important that you read through the laws when filing by yourself to ensure you file correctly.

Anyone can file there own bankruptcy
Yes, you can successfully file for bankruptcy without an attorney. However, it may still be worth it to hire a qualified attorney in a simple Chapter 7 bankruptcy filing, since you still need to spend a great deal of time researching bankruptcy laws, deciding how they apply to you, gather your financial information, and attend court. An attorney can easily and quickly guide you through this entire process, answering your questions when needed, and guaranteeing that your debts get successfully discharged (wiped out). An attorney will also make certain you will not need to declare bankruptcy again by providing you with specific guidance before, during, and after you file.

When You Definitely should NOT File On Your Own
Chapter 13 bankruptcy
You most likely need an attorney when filing Chapter 13, since it involves complex processes that are really difficult to navigate on your own. Declaring Chapter 13 involves creating a plan of how you will pay back the money you owe the debtors which the court will then approve. It’s very time-consuming to make this plan unless you have expensive financial software that many attorneys own to make creating this payment plan much faster and easier.

Chapter 13 cases filed without an attorney often get dismissed by the court. Chapter 13 cases are so difficult to file properly that the court may not even look at filings that were not prepared by a lawyer. Many attorneys avoid taking on Chapter 13 cases as the laws and procedures are so nuanced and challenging to apply. Be sure to check your attorney’s track record in Chapter 13 cases to determine whether they’ll help get your case discharged. Therefore, paying for a qualified attorney can help you get out of debt in these complex scenarios by actually ensuring your case gets discharged.

How will your lawyer help you file for Chapter 7 or Chapter 13 bankruptcy:
Before filing, your lawyer will:
Help decide whether you should file for bankruptcy altogether. Many qualified attorneys will meet with you for an initial meeting which is often free. During this meeting, they will explain the bankruptcy process and laws to you in an easily understandable way. They’ll ask you specific questions about your financial situation, your debts, and other factors to determine whether and for what kind of bankruptcy you should file.
Help decide if you should file for Chapter 7 or Chapter 13 bankruptcy
Inform you whether you can discharge (get rid of) your debt. A good lawyer will discuss this information in the meeting before you hire them as well. This will help you decide whether filing for bankruptcy makes sense for you and your family.
Answer any of your questions before you actually file–from where to take the debtor and creditor course, how filing for bankruptcy will affect your spouse or children, to what property you can and can’t keep after bankruptcy based on your specific situation. An attorney will also discuss the legal and tax consequences of filing in the initial meeting.
When you file, your lawyer will:
Help you fill out and submit all the forms. There are many forms that you will need to fill out throughout the process. Your attorney will help you understand what you need to fill out and make the process as easy as possible to complete.
Assist with almost every aspect of your bankruptcy case. This includes preparing your case, filling out and filing the forms, preparing for and attending the meeting with the creditors, as well as appealing the court’s ruling if necessary.
Prepare you for what life will be like after you’ve successfully declared Chapter 7 or 13 bankruptcy.
After you file, your lawyer will:
Check-in with you after the process to ensure you’re doing well and you are on the road to a debt-free future.
In summary
Yes, you can file and declare bankruptcy without a lawyer. However, it may only be worth it to file without a qualified attorney in a Chapter 7 bankruptcy case where it’s relatively easy to apply the bankruptcy laws on your own if you research the rules and learn what to expect. It’s very unlikely to successfully file for Chapter 13 or complex Chapter 7 cases without a lawyer, as navigating the laws can be very challenging. A qualified attorney should provide you with sound advice and guidance before, during, and after the filing process, affording you the ability to successfully get out of debt and receive your fresh start.

Give Firebaugh & Andrews a call for your free consultation 734-722-2999

When the pandemic slammed into America’s economy last spring, some observers said it was a matter of time before consumers turned to bankruptcy to free themselves of debt.

But the surge never came, at least not in 2020. The total tally of bankruptcy cases dropped 30% from a year earlier.

The trend has continued so far this year. The nearly181,000 bankruptcy cases filed by May 2021 is 29% lower than the same point last year, according to statistics compiled for the American Bankruptcy Institute.

Now, a new study suggests the wait will continue — and possibly at a great cost to the people who are facing climbing debt loads.

By filing for Chapter 7 bankruptcy, a liquidation, or Chapter 13 bankruptcy, an installment plan, people and their creditors can work out court-approved arrangements to pay off balances and discharge debts.

People wait an average of 22 months after their first 90-day past-due notice to file for bankruptcy.— Researchers at Brigham Young University and MIT Sloan School of Management

But it can take a while to get to that point, with people waiting an average of 22 months after their first 90-day past-due notice to file for bankruptcy, according to Brigham Young University and MIT Sloan School of Management researchers.

But it can take a while to get to that point, with people waiting an average of 22 months after their first 90-day past-due notice to file for bankruptcy, according to Brigham Young University and MIT Sloan School of Management researchers.

“For an average consumer, as they delay bankruptcy they are likely digging a deeper hole,” said Ben Iverson, a BYU finance professor who is one of the study’s authors.

“A lot of this increase comes in what we call ‘shadow debt,’ which is debt that is not on credit reports,” he said. That includes debts like bounced checks, unpaid rent and certain medical costs.

The new study is in line with past research examining the lead up to bankruptcy. Two-thirds of people in a previous study said they “seriously struggled” with debt for two years before filing, a 2018 study said.

Shadow debt is not included on credit reports, and includes debts like bounced checks, unpaid rent and certain medical costs.

The new findings put a price tag on the wait. Borrowers racked up $4,000 in unsecured debt on average for every month they delayed filing, researchers said.

Unsecured debt means it’s not backed by collateral like a house. Past-due credit card and medical bills are two forms of unsecured debt.

The “shadow debt” can also rise an average $7,200 for every month of filing delay, the study said.

Overall, people owed an average $240,000 by the time they filed for bankruptcy, the latest research concluded.

Overall, people owed an average $240,000 by the time they filed for bankruptcy, the latest research concluded. They combed through more than 550,000 consumer bankruptcy cases filed between 2001 and 2018 when writing the paper, which was distributed this week by the National Bureau of Economic Research.

Rather than curtailing the benefits of bankruptcy’s fresh financial start, the authors said another idea might be encouraging “potential defaulters to enter bankruptcy more quickly to free up cash flows for future consumption.”

To be sure, filing for bankruptcy is a serious step that people shouldn’t rush into.

For example, a Chapter 7 bankruptcy sticks on a person’s credit reports for 10 years and a Chapter 13 bankruptcy gets deleted from credit reports 7 years after filing.

Chapter 7 bankruptcy sticks on a person’s credit reports for 10 years. Chapter 13 gets deleted from credit reports 7 years.

During that time, a person’s credit score can drop and it may be more expensive for them to obtain loans. It also wipes out the credit history before that point, and, as one bankruptcy attorney previously said, that past history may be worth erasing.

While bankruptcy cases keep dropping for now, the economy is rebounding from 2020’s shockwaves. For example, May’s jobless rate hit a pandemic low of 5.8% and job openings hit a record high 9.3 million in April, amid a labor shortage.

So the timing and extent of any pandemic-related surge in consumer bankruptcy cases remains to be seen.

“Continued stabilization efforts by the federal government, forbearance by lenders and sustained low interest rates have helped keep many businesses and households afloat during the crisis,” Amy Quackenboss, the American Bankruptcy Institute’s executive director, said when the organization released the May filing numbers.

“As the pandemic relief runs its course, however, mounting financial challenges may result in more households and companies seeking the shelter of bankruptcy,” she said.

The new study was working off data from pre-pandemic bankruptcy cases, Iverson emphasized. So the effects of pandemic-related initiatives like supplemental unemployment insurance were not included, he said.

Bankruptcies usually don’t occur without a trigger, like wage garnishment, foreclosure or a seized vehicle, Iverson noted. The slew of moratoriums — like the Centers for Disease Control and Preventions’ pause on evictions — help explain the drop, he said.

But the CDC’s eviction pause is currently set to expire June 30 and a legal challenge to effectively end the pause sooner is pending before the Supreme Court.

Whenever the various moratorium expire, Iverson said he expects “bankruptcy rates to begin to rise as debtors start to face the music.”. Call Firebaugh & Andrews for your free consultation 734-722-2999

Does bankruptcy provide immediate financial relief?

Yes, bankruptcy provides a debtor with breathing room. When a bankruptcy case is commenced, an Automatic Stay goes into effect immediately. All pending lawsuits, foreclosures and other actions against the debtor are immediately stayed, which means that creditors are not allowed to send a demand letter or take any action to collect against the debtor. (There are some limited exceptions.) The Automatic Stay does not apply to actions against guarantors or other parties to litigation. Creditors can ask the bankruptcy court for permission to proceed, which may be granted if certain criteria are met. Creditors that violate the Automatic Stay may be sanctioned. Creditors’ positions are determined as of the date a case is filed. If a creditor is properly secured as of the filing, and there is collateral that secures the debt, the creditor will be treated as secured during the bankruptcy case. Once the bankruptcy case is filed, it is too late to record any liens (except for some narrow exceptions), because that would be a violation of the Stay.

What if I need to shut down my business and have someone else liquidate it?

Chapter 7 provides for orderly liquidation. If the debtor files a Chapter 7 bankruptcy case, a trustee will automatically be appointed, the business is shut down, and its assets liquidated. After the case is filed, only the trustee has authority to act on behalf of the debtor. It is the trustee’s job to liquidate assets, and file lawsuits to pursue claims if appropriate to bring money into the estate for the creditors. It can take years before a chapter 7 is completed and there is a distribution to creditors. Trustees are paid a percentage of the funds that they distribute to creditors, so they are motivated to find assets. Creditors are invited to a meeting of creditors (341 Meeting) that takes place in 4-6 weeks after the commencement of the case to ask questions about assets, or provide other information.

What if I want to control the liquidation of my company or sell it as a going concern?

In a Chapter 11, debtors can liquidate their own assets or reorganize. If a debtor files a Chapter 11 bankruptcy case, the debtor will retain control of its assets (unless a trustee is appointed for cause), and will attempt to develop a plan to either reorganize or liquidate. The court oversees the bankruptcy process, and creditors receive notice of the debtor’s actions. Bankruptcy may be used to sell assets of an operating company to a purchaser who wants to buy assets without the fear of creditors’ claims following the assets. Some buyers require the seller to file a bankruptcy, so that they can be sure that the assets are free of creditors’ claims. For debtors who want to reorganize, bankruptcy allows the debtor to reduce debts and pay creditors over a period of time, so that they can continue in business. Debtors try to pay as little as they can over time, subject to statutory limitations. Creditors hope to receive as much as possible, and often believe that the debtor can pay more. For some creditors, having the debtor survive is a factor. There is a new type of Chapter 11, commonly known as a Subchapter V for debtors that have debts (secured and unsecured) of less than $7.5 million, that is meant to be less costly and quicker to proceed through bankruptcy. There are advantages and disadvantages under this chapter.

What rights do creditors have in a bankruptcy?

Once a debtor files bankruptcy, creditors can have wide access to all of the debtor’s financial information and other matters that relate to the debtor’s operations, if it impacts payments to creditors. Creditors are given opportunities to object to various transactions if appropriate. Creditors can monitor Chapter 11 cases. In most cases with assets, a committee of unsecured creditors (Creditors’ Committee) will be appointed, and that committee will oversee the debtor’s case. All creditors are invited to the 341 Meeting in a Chapter 11. Debtors are required to file monthly operating reports, and from time to time report to the court on the status of the case. Creditors can also review the filings, ask for copies of pleadings and tax returns or contact counsel for the debtor or the Creditors’ Committee. Creditors can also ask to depose the debtor (called a 2004 Examination) and third parties (who have knowledge of the debtor’s financial affairs ) to look for assets. There is a big role for creditors in a Chapter 11,  and the Court gives consideration to creditors’ reasonable concerns and tries to balance those with the debtor’s statutory rights. A creditor should carefully analyze when it is appropriate to intervene in a bankruptcy, and what steps it needs to take to protect its interests. Pre-bankruptcy planning can be just as important for the creditor as it is for a debtor, if the creditor is concerned about a filing.

Will bankruptcy allow a debtor to exit a long-term lease?

Yes, bankruptcy may limit lease liability. Bankruptcy also allows debtors to limit damages when getting out of leases. The bankruptcy code limits the amount owed on leases that are rejected to one year or 15% of the rent for the remaining term, not to exceed three years (Capped Damages). Landlords still have a duty to mitigate damages, but can maximize their claims by filing claims for funds owed for the pre-petition period, the Capped Damages, and rent owed for the period after the bankruptcy is filed (Administrative Claim). All creditors that provide services to the debtor post-bankruptcy are entitled to administrative claims, which have priority over unsecured creditors Terminating a lease in bankruptcy often allows debtor’s to reorganize in a way that they would not be able to do outside of bankruptcy.

As a creditor should I be concerned that a debtor or trustee will try to claw back payments that I received?

Creditors who receive payments within 90 days (1 year for insiders) of the commencement of the bankruptcy case are at risk for having those funds clawed back as Preferences if they are payments on antecedent debts, made while the debtor was insolvent, and allow the creditor to receive more than the creditor would have received in a chapter 7, subject to defenses. Bankruptcy affords the debtor powerful tools to recover pre-petition payments to a creditor. Defenses are factually intensive. Payments made or liens recorded pursuant to workouts, and forbearance agreements made within the 90 day period risk avoidance by a trustee if certain defenses are lost, based upon the structure of the agreements. Payments should be deposited as soon as possible to avoid delay if a creditor thinks that a debtor may file a bankruptcy since the 90 days is measured based on when the check clears the debtor’s bank account.

Can a corporate bankruptcy ever result in personal liability?

Fraudulent transfers may be pursued in bankruptcy. Transfers for less than equivalent value or made with the intent to hinder, delay, or defraud a creditor can be avoidable as Fraudulent Conveyances, and may give rise to personal liability where there was none before. In addition, officers and directors owe Fiduciary Duties to creditors when a company is insolvent, and care must be taken not to run afoul of those duties. Transfers which violate those duties could result in personal liability. While the avoidance of a fraudulent conveyance and breach of fiduciary duty action could result in personal liability outside of bankruptcy, the appointment of a trustee or creditors’ committee, and the disclosure of financial records increases the ability of a trustee or committee to pursue such actions.

Are there alternatives to bankruptcy?

A debtor can try to do a workout with one or all creditors. Multi-party workouts can be effective, but all parties should know what they would get in a bankruptcy in comparison to a workout, and creditors need to feel confident that the debtor is truthful and reliable. Full disclosure is critical.

In addition, under some state laws, such as California, a debtor can opt to do an Assignment for the Benefit  of Creditors. When there is an Assignment for the Benefit of Creditors, a third party is selected to be the assignee. That assignee will liquidate the debtor’s assets. The assignee can sell an ongoing business in much less time than a sale in a Chapter 11 , or the assignee can liquidate the assets in an another format, such as an auction. Since businesses  usually don’t operate  in a Chapter 7,  an Assignment for the Benefit of Creditors can be preferable if there are insufficient funds to do a Chapter 11 and the debtor wants to sell its operations as an ongoing business. Because there is no court supervision (in California), an assignment can save time and expenses. Like a bankruptcy, creditors share pro rata in the distribution of assets. An Assignment for the Benefit of Creditors is a useful tool if the debtor does not need the hammer of the automatic stay, but it has limitations. Buyers may try to control whether an assignment can be used, or if they want the protection of a bankruptcy court order. If a company does not have the cash to operate in a chapter 11, an Assignment for the Benefit of Creditors may be its only choice.

Questions call us for your free consultation 734-722-2999

Can I file a Michigan Bankruptcy again is a question we get a lot.  Even if you have received a Chapter 7 or Chapter 13 discharge in the past, you may be able to file bankruptcy in Michigan again. However, there are certain requirements that must be met in order to receive a discharge. An experienced Detroit area bankruptcy attorney  can evaluate your situation to verify if you are qualified.

PRIOR CHAPTER 7 BANKRUPTCY

If you have filed Chapter 7 bankruptcy in the past – and received a discharge of your debts –  you are required to wait 8 years from the filing date in order to file a Chapter 7 bankruptcy again. An individual can file a Chapter 13 bankruptcy anytime after exiting a Chapter 7.  However, you are required to wait 4 years after the prior Chapter 7 filing in order to receive a discharge under Chapter 13.   Filing a Chapter 13 bankruptcy may benefit an individual even if they are not eligible for a discharge.  For example, you may be able to pay your obligations in a more affordable payment plan, stop foreclosures and catch up on past due mortgage payments.  If you have filed Chapter 7 bankruptcy before and are considering filling again, a qualified Michigan bankruptcy attorney can help guide you through the process.

PRIOR CHAPTER 13 BANKRUPTCY

If your first discharge was under Chapter 13 and you now wish to file a Chapter 7, the waiting period is six years unless the prior Chapter 13 either paid 100% of unsecured claims or paid 70% of unsecured claims and was in good faith and your best effort. If you have filed a Chapter 13 Bankruptcy and received a discharge, you are required to wait two years to file another Chapter 13.

FILING AGAIN EVEN THOUGH YOU CAN’T RECEIVE A DISCHARGE

After receiving a chapter 7 discharge, you might still be able to benefit from filing a Chapter 13 petition immediately even though you can’t receive a second discharge (bankruptcy attorneys love to call this a “Chapter 20 bankruptcy”). The benefits would depend on your personal situation and the laws in your state. Essentially you’d be looking to make payments with the protection of the bankruptcy court through a Chapter 13 plan.

Filing for bankruptcy a second time can be more complex than the first time around.  You can expect bankruptcy creditors and trustees to conduct a more thorough review of your finances before allowing a discharge. At Firebaugh & Andrews our experienced bankruptcy professionals will discuss with you whether you are eligible for a second filing for free call us today 734-722-2999

But summer is actually an excellent time to file chapter 7 bankruptcy and get rid of crushing and out of control debt. I have learned this after many years of feedback from clients.

There is a tendency in summer to let things slide. Kids are out of school, fishing and bar-b-ques beckon, and the heat makes people want to kick back and enjoy some of our beautiful Colorado weather.

But, in fact, it is hard to relax with serious money problems hanging over your head. Clients have expressed to me that they are off with family or planning a vacation, and are overwhelmed by anxiety because they are afraid of what awaits them from creditors when they return.

For this reason, many people want to begin their summer with a fresh start and start the bankruptcy process right away. A clear mind is a relaxed mind and taking a proactive step to solve your financial problems allows real relaxation to occur.

Also, summer goes by quickly and many clients want to take care of things before school starts again when time is short and money is shorter with the expenses that arise when the kids go back to school.

So, if you may need a chapter 7 bankruptcy to clear yourself of overwhelming debt, give Firebaugh & Andrews a call at 734-722-2999 for your free consultation so we can explain how to solve your problems and achieve some real peace of mind.

While declaring bankruptcy might seem like the perfect solution, bankruptcy ruins credit, makes it difficult to keep bank accounts and credit cards, can cause the loss of valuable possessions and makes it difficult to get on with the necessities of life, such as buying or renting a home or car, getting insurance or finding a job. In fact, most financial advisors look at bankruptcy as a last resort – Call Firebaugh & Andrews for your free consultation 734-722-2999

If you plan to file for bankruptcy protection, you are required to take a credit counseling class from a government-approved organization within 180 days before you file. You also have to complete a debtor education course before your debts can be discharged. For more information on these courses and to verify if the course is government-approved, please visit the United States Courts website at http://www.uscourts.gov/services-forms/bankruptcy/credit-counseling-and-debtoreducation-courses.

Generally, bankruptcies can be divided into two types: liquidation (Chapter 7) and reorganization (Chapter 13). These types are explained below.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy comes under the liquidation category. It’s called liquidation because the bankruptcy trustee may take and sell (“liquidate”) some of your property to pay back some of your debt. However, you may keep property that is protected (also called “exempt”) under state law. Not everyone can file for Chapter 7 bankruptcy. For example, if your disposable income is sufficient to fund a Chapter 13 repayment plan, after subtracting certain allowed expenses and monthly payments for certain debts, you won’t be allowed to use Chapter 7 bankruptcy. However, if you do file Chapter 7 it typically lasts three to six months.

In Chapter 7 bankruptcy, some of your property may be sold to pay down your debt. In return, most or all of your unsecured debts (that is, debts for which collateral has not been pledged) will be erased. You get to keep any property that is classified as exempt under the state or federal laws available to you (such as your clothes, car, and household furnishings). Many debtors who file for Chapter 7 bankruptcy are pleased to learn that they can keep some of their personal property.

If you owe money on a secured debt (for example, a car loan for which the car is pledged as a guarantee of payment) you have a choice of allowing the creditor to repossess the property, continuing your payments on the property under the contract (if the lender agrees), or paying the creditor a lump sum amount equal to the current replacement value of the property. Some types of secured debts can be eliminated in Chapter 7 bankruptcy.

Chapter 13 Bankruptcy

There are several types of reorganization bankruptcies, but Chapter 13 is the most common type for consumers. In Chapter 13 bankruptcy you keep all of your property, but must make monthly payments over three to five years to repay all or some of your debt.

In Chapter 13 bankruptcy you must have a reliable source of income that you can use to repay some portion of your debt in order to file for Chapter 13. When you file for Chapter 13 bankruptcy, you must propose a repayment plan that details how you are going to pay back your debts over the next three to five years. The minimum amount you’ll have to repay depends on how much you earn, how much you owe, and how much your unsecured creditors would have received if you’d filed for Chapter 7 bankruptcy. Your debts must be within limits set by the federal government. If you have secured debts, Chapter 13 gives you an option to make up missed payments to avoid repossession or foreclosure. You can include these past due amounts in your repayment plan and make them up over time.

Both Chapter 7 and Chapter 13 bankruptcy have many rules, and exceptions to those rules, regarding which debts are covered, who can file, and what property you can and cannot keep. Though bankruptcy can eliminate many kinds of debts, such as credit card debt, medical bills, and unsecured loans, there are many types of debts, including child support and spousal support obligations and most tax debts, that cannot be wiped out in bankruptcy. You may want to consult with an attorney if you have questions regarding the types of bankruptcy and whether it is a good option for you.

Each of these bankruptcy laws has been taken from the bankruptcy code, and they possess particular parameters that must be fulfilled for the debt to be considered ended.

Debt repayment (chapter 13), family farmer or fisherman (chapter 12), reorganization (chapter 11), as well as liquidation (chapter 7) are the fundamental kinds of bankruptcy. Bankruptcy laws are treated differently and so should be the kinds of bankruptcy.

The chapter 7 assures payment of debts through assets owned by the debtor. Properties and equipment shall be evaluated by a court appointed trustee. He also keeps the assets. If these assets are assessed and their worth known, they would be transformed into cash.

The cash would then be paid to your different creditors. Once the court proclaims that you have filed a chapter 7 bankruptcy this action will remain on your public bankruptcy record for around ten years. The process of bankruptcy is varied with the other forms of bankruptcy.

Companies, meanwhile, can take opportunity of chapter 11. This encourages reorganization of the company so the corporation can earn more profits. These money shall then be utilized to settle all debts to creditors.

You could utilize the time in repayment of debt to search methods on how you can handle obligations more efficiently so you could pull your corporation from financial predicaments. A lawyer can help you discover the ideal free credit repair. It’s also smart to seek their advice as chapter 11 could be a very complex procedure.

Fishermen and family farmers could now repay their obligations with their earnings in the future. Chapter 12 is specifically created for that purpose and for those kinds of individuals alone.

You could pay your obligations over a specific period with chapter 13. If approved by the court, you could have until 5 years to pay your debts.

A legitimate financial problem would be subject to a direct stay order to be issued by the court when you’re filing for bankruptcy. This way, your creditors shall have to deal with your lawyers with regards to payment terms. Your creditors cannot ask you personally.

Bankruptcy is very complex and is always best to consult with the professionals so you know which direction is best for you.

Call Firebaugh and Andrews for a free consultation 734-722-2999