Federal law recognizes that bad things sometimes happen to good people, and consumers sometimes simply do not have the ability to comply with creditors’ repayment demands. In some cases, there are circumstances beyond the consumer’s control which can only be addressed through the cancellation or modification of debt.
In bankruptcy, the property a debtor is entitled to keep is determined by the state's exemptions. Exemptions allow an individual to exempt, or keep, certain kinds of property. Your exemptions will be determined by the state in which you resided during the two years prior to filing for bankruptcy. We can determine before you file what exemptions may apply to your particular situation.
Chapter 7 Bankruptcy
Chapter 7 is often the quickest way for a debtor to regain control of their financial situation. Chapter 7 bankruptcy is most helpful for a person with a lot of unsecured debt, such as:
Past due accounts
Deficiencies from foreclosures
Chapter 7 is a liquidation bankruptcy in which an eligible debtor is discharged from their debt. In order to determine if you are eligible for Chapter 7, we examine your income and your assets. In certain situations, a debtor may have more assets than the law exempts for you. In those cases, the debtor may choose to forfeit their assets for liquidation or buy back their non-exempt equity from the bankruptcy estate.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a reorganization or repayment type of bankruptcy. It allows the debtor to consolidate many of their debts into one payment. Chapter 13 is designed to save homes from foreclosure. The delinquent mortgage payments may be caught up over a 60-month period, or a debtor may ask to participate in the bankruptcy mortgage mediation program which takes place according to an Order entered by the bankruptcy Judge. In a Chapter 13, a 2nd and 3rd mortgage, or home equity line, that is no longer secured by any value in the property can be stripped. Other secured debts, like car payments, will be re-amortized over the life of the plan at a market interest rate. In certain instances, if you have owned a vehicle more than 910 days, we may be able to "cram down" the payment to what the vehicle is worth, instead of what you owe. Priority debt like delinquent taxes or child support will also be paid under the provisions of a Chapter 13 plan.
There are many factors that determine whether or not you will have to pay anything back toward your unsecured debt. If you have to pay anything back toward your unsecured debt, it is often a small fraction of what you owe.
A Chapter 13 plan payment is often much less than the total of the separate payments you are making to each creditor. Creditors may not take any legal action against you or make any collection efforts while you are protected by a bankruptcy stay. Additionally, most of the attorney’s fees can be paid through the Chapter 13 plan as well.
Chapter 13 Mortgage Modification Mediation Program
If you wish to keep your home but cannot afford to pay your regular payment plus your arrearages, you may consider participating in the bankruptcy court's Mortgage Modification Mediation Program. Under the terms of this program, the debtor would pay the lesser of your contractual mortgage payment or 31% of your gross monthly income through the Chapter 13 Plan while you are being reviewed for a loan modification.
If approved, your loan could be permanently modified and you could have a lower payment, interest rate reduction and in some cases, principal balance deferment or forgiveness.
The Mortgage Modification Mediation Program is different than working directly with your mortgage company, as there is more transparency and oversight to this process. Your attorney works with the mortgage company and their attorney regarding your paperwork. A mediation is scheduled where the parties can discuss the submitted application and the options available to the homeowner. All communication and document submission is done through a secure portal which helps to eliminate confusion about which documents have been submitted or are still needed.
Filing for bankruptcy puts an automatic stay into effect, which acts as an injunction against your creditors. This injunction forces creditors to cease any and all collection activities against you. The automatic stay immediately stops:
Creditor phone calls
All other forms of harassment, intimidation and scare tactics by creditors
Once a bankruptcy case is successfully completed, the consumer receives a discharge from the bankruptcy court. The discharge releases the debtor from the legal liability of any of the debts included in the bankruptcy. Creditors are left with no legal cause to contact you or pursue debts listed in the bankruptcy documents. For those debts that are not dischargeable (i.e.: student loans, certain tax liabilities, child support payments), a repayment plan can sometimes be established.
A debt workout is accomplished by negotiating with creditors so that the creditor agrees to accept less than what is owed. Many debts can be settled for a percentage of the amount owed by paying a lump sum. It is also possible to negotiate repayment terms other than the terms contained in the original agreement, like a reduction in interest rate or an extended repayment period. In addition to the legal ramifications of a debt workout, you should also consult with your accountant or tax professional regarding the tax consequences of settling debt.
Answers to our most frequently asked questions can be found here.
If you are a creditor and someone who owes you money has filed for bankruptcy, the Law Office of Candyce M. King, P.A. offers affordable and diligent representation for creditors in Chapter 7, 13 and 11 bankruptcy cases. We will evaluate the debtor's case in order to determine your likelihood for recovery and advocate to ensure that your interests and collateral are protected and provided for during the bankruptcy process. Corporations cannot represent themselves in legal matters, so hiring an experienced and knowledgeable bankruptcy attorney is essential in order to recover funds or collateral that is owed to you.