Chapter 7 Bankruptcy

In October 2005, new bankruptcy laws came into effect which made significant changes in the way bankruptcy cases are handled. The new law, the Bankruptcy Abuse and Consumer Protection Act (BAPCPA), was pushed through Congress in large part as a result of successful efforts by lobbyist for powerful credit card companies. These companies successfully argued (and convinced Congress) that bankruptcy abuse was injuring them and that consumers should be required to pay at least part of their unsecured debt. They argued that if consumers have significant "disposable" income at the end of the month after paying their normal living expenses and debts -- like installment loan payments on their cars and mortgage payments on homes -- they should not be entitled to bankruptcy relief without paying at least some part of their unsecured debt such as credit card debt, medical bills and the like.

As a result, in order to initially qualify for "straight bankruptcy" under Chapter 7 (meaning that the court will not automatically presume that your bankruptcy filing is an attempt to abuse the system) you are required to show that you pass what is known as the "means test". You will pass that test if you earn less than the Florida adjusted median income for a household of your size. But even if your income does exceed the median Florida income, you may still qualify after reducing certain allowed personal living and housing expenses, insurances, taxes, court ordered payments, and payments on secured debt for your home and cars from your income. If not, you will probably be required to file for protection under Chapter 13 of the Bankruptcy Code.

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Chapter 13 Bankruptcy

Unlike Chapter 7, a Chapter 13 bankruptcy case involves proposing a "plan" for repayment of all or part of your debts - the plan is court approved ("confirmed") and supervised by the Chapter 13 trustee. Generally, filing a case under Chapter 13 of the Bankruptcy Code is a way to protect assets you might otherwise lose by filing for protection under Chapter 7. For example, assume you are several months behind on your home mortgage (due to temporary unemployment, illness, or any other reason beyond your control) but you still want to try to keep your property. Filing under Chapter 13 would allow you to creating a plan to pay off the arrearage on your mortgage over a period of three to five years. But, keep in mind that even if you're not behind on your mortgage or you're not interested in keeping your house because you're "upside down" on your mortgage, you may still need to file this type of bankruptcy. Generally, as mentioned above, that will happen if you can't pass the "means test" because your income exceeds the median income for a household of your size in Florida or because you have sufficient disposable income after meeting your reasonable living needs and making payment on your secured debt (cars, mortgage etc. ) that you are still able to make a significant payment toward your unsecured debt over time without a hardship.

I will be more than happy to work with you to analyze your financial situation and determine what type of bankruptcy case is best suited to meet your needs or will be required under current bankruptcy law.

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Home Foreclosures

Under the "automatic stay" provisions of the U.S. Bankruptcy Code which automatically come into effect when you file for protection using either a Chapter 7 or a Chapter 13 bankruptcy case, there is an immediate halt to nearly all debt collection efforts by your creditors - even mortgage companies and banks that may have already started foreclosure proceedings. But that protection will not last forever when you are dealing with the mortgage on your home or payments on your car or other secured debt unless you are able to make your regular monthly payments and keep up with taxes and insurance. This is particularly the case if you don't have any equity in the asset in question because, for example, the home values in your area have eroded such that your debt(s) exceeds the current fair market value of the property. In that situation, a Chapter 13 bankruptcy is really your only realistic hope in bankruptcy unless you can successfully negotiate a mortgage modification agreement with your lender.

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IRS/Tax Debts

There's a lot of confusion about the discharability of debt resulting from unpaid federal income taxes - the common myth is that you can never discharge debts due to the IRS. That's just not so. Generally, debts that are related to taxes that were due more than 3 years before filing for bankruptcy can be discharged. But there are certain conditions that must be satisfied first - most importantly you must have actually filed the required tax return. And if your tax return was filed late under circumstances that the IRS determines demonstrates that you have not made a good faith effort to meet your tax obligations you might be precluded from discharging the debt. If you can't meet the requirements to completely discharge back taxes, filing Chapter 13 bankruptcy may reduce the financial burden.

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Stop the repossession of your car, boat, motorcycle or any other asset(s) by filing bankruptcy. To keep an asset however you must catch up on your payments and you may have to sign a reaffirmation agreement - basically an agreement between you and the creditor by which you agree to treat the debt as if you hadn't filed for bankruptcy protection. After filing for bankruptcy, renegotiating your payment is another option. You may be able to get the creditor to adjust the debt, the interest rate and/or the term of your loan so that it is more in line with the actual value of the item you are seeking to keep.

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Home Liens

Bankruptcy eliminates your personal liability for debt that is discharged but it does not eliminate any liens placed on your property by a creditor. During your bankruptcy you may be able to eliminate or reduce a lien but that is not automatic - you must file a "motion" which basically asks the bankruptcy court to grant you relief by stripping the lien from your property. If you are successful in eliminating the lien, you are able to keep the property without paying the associated debt.

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Credit Card Debt

Do not allow credit card companies to misinform you about your rights under bankruptcy law. Many creditors have used the new bankruptcy laws to mislead or discourage people from seeking the protection and "fresh start" they are entitled to for their own advantage. Most people can still find relief by filing bankruptcy, even if they have significant debt, assets and income.

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Consumer Credit Counseling

A consumer credit counseling course must be completed before and after filing bankruptcy. Only then can you obtain relief under the new bankruptcy law. This is another bankruptcy requirement that was enacted as part of the 2005 legislation. The requirement is simply a hurdle, not an obstacle. The courses are easy, informative, and neither costly nor time consuming.

I will be happy to give you the names of several course providers that make the required courses available to you by Internet or phone. After successful completion, the provider will send me a copy of your "Certificate of Completion" so that I can file with the bankruptcy court in your case to satisfy your obligations under the Bankruptcy Code.

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Discharge of Debts in Bankruptcy

It is true that there are some debts that can't be discharged in bankruptcy, for example, debts arising from fraud (false statements made on a credit application about your financial condition with the intent to deceive the lender); debts arising out of willful and malicious acts; most alimony and child support; recent debts for luxury goods or services and/or cash withdrawals made with the knowledge that you can't afford to pay them or were intending to file bankruptcy, to mention a few - there are others. Also, if you fail to list a debt it may not be discharged, but that is generally not the case if there are no assets available for distribution to creditors anyway. Similarly, a judge can deny your discharge if you destroy or hide property, disobey a court order, falsify records or lie.

Clare Keijer is a Deland bankruptcy lawyer for consumers facing mortgage foreclosure, repossessions or tax debts.  If you are filing for bankruptcy or thinking about your options, please contact the offices of Keijer Law to learn more about bankruptcy, as each case is different and laws are changing constantly. 

Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act of 1978 ("FDCPA") is federal law designed to promote ethical business practices and protect consumers from unscrupulous and unfair debt collection practices by "debt collectors." The term debt collector is a term of art that generally limits coverage to debt collection agencies, debt buyers, collection lawyers and mortgage servicers that obtain collection or servicing rights after the loan or other debt is in default. Several states have adopted laws largely mirroring the FDCPA's broad standards, including Florida where the corresponding state statute is the Florida Consumer Collection Practices Act ("FCCPA").

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