What’s the difference between Chapter 7 and Chapter 13?

Chapter 7 and Chapter 13 are different tools that are used to handle different financial problems. Chapter 13 is a debt consolidation plan used to repay debt in full or in part over a period of years. Chapter 7 is a fresh start or liquidation case that is usually finished after only a few months.

In Chapter 13, you can force secured creditors like mortgage lenders or car lenders to allow you to cure defaults over time, whether they agree or not. In Chapter 7, unsecured debts are discharged without payment, and you indicate your preference (intent) as to whether or not you want to “reaffirm” and keep paying your secured creditors. Alternatively, you may surrender the collateral and discharge the debt.

Read more “What’s the difference between Chapter 7 and Chapter 13?”

We’ve Got Your Back in These Hard Times

This virus is hurting some people much more than others, and no one really knows when (or if) their own financial situation will turn around. We know that many people are hurting financially, even though creditor collection activity is way down… at least for now. Foreclosures are down, suits and garnishments are down, and repossessions are down. However, people are in trouble because so many aren’t paying their bills… because they can’t. This non-payment ripples throughout the economy. Lenders and landlords have payroll to meet too, and their own bills to pay. Everyone is intent on getting back to normal, including creditors. It’s getting urgent. 

The courts are still in business, but it’s been different in recent months.  Courts, including the Bankruptcy Court, are avoiding in-person hearings to avoid spreading the virus, and are conducting telephonic hearings instead. This actually works well. It is quicker and it’s not painful, and it allows people to avoid unnecessary travel. People who are out of town for one reason or another can participate in their hearings as if they were attending court in person. 

The pressure is building though. Sooner rather than later, creditor collection activity will probably pick up again dramatically. In that case, you may need the kind of help with your debt that we offer. 

When you file either Chapter 7 or Chapter 13, the Automatic Stay has an instant effect, and prohibits collection calls, suits, garnishments, repossessions and foreclosures. This is a matter of federal law, and it supersedes contrary state law

that usually forms the basis for collections. Violations of the Automatic Stay by creditors are punishable by court-awarded damages. The Automatic Stay freezes creditors’ collection activity until the legal process can work its way out. 

The basic idea in Chapter 7 is that general unsecured debt (credit cards, bank loans, medical debt, repossessions, old tax debt, and the like) are “discharged” (wiped out) without payment. This should free up your disposable income so that you can pay the debt that you might want to keep (like co-signed debt or debt secured by cars or houses), and debt you can’t get rid of, like student loans, recent taxes, and domestic support obligations.  

In most Chapter 7’s, debtors can choose to keep and continue to pay for high priority secured debt like mortgages and auto loans. This is called a “reaffirmation”, and it requires creditor consent. If the debtor is current in his payment on those debts, creditors are almost always agreeable, because they make money on performing loans, and lose money otherwise. In Chapter 7, when a creditor takes back collateral, he can’t collect on the “deficiency” if the collateral is resold for less than the debt that was owed to him, as he might be able to do at state law in the absence of a bankruptcy. 

In both Chapter 7 and in Chapter 13, all of your debt is “listed” (disclosed).  Then, your Chapter 13 Plan or your Chapter 7 Statement of Intentions is used to inform all parties about which items you want to keep and continue to pay for. You do not lose property just because you list it.  

Chapter 13 is a “reorganization” case that usually lasts three to five years. It

is voluntary, so if you come to believe that the burdens outweigh the benefits to you, you can get out of it. In Chapter 13, you do not necessarily have to pay your unsecured debt in full. This can make your monthly debt payments much cheaper.  Moreover, in Chapter 13 you can force secured creditors to accept reduced payments on secured debt like auto loans, and you can cure mortgage defaults over time… even if the loans are in default, and even if the creditors do not consent.  Each case is different, so you have to explore what this means to you personally with an attorney

Bankruptcies provide instant relief, and can be used for temporary or permanent relief from problems that can’t be solved any other way. The economy is being impacted dramatically by the virus, but the negative impacts are inconsistent, and are changing over time. The government has helped some people, but not others. It is not shameful to need help, and it is not shameful to explore your options to get a more specific understanding of the best path for you. 

We have nearly 50 years of combined experience in this field.
Call us at 770-683-3303 for a consultation. We’ve got your back.

Bankruptcy and Your Credit

It seems like you’re drowning in debt. Until now, if you’ve been a little
short, you’ve just borrowed money to pay that last bill. Now you are nearing or
exceeding your credit limits, and you can’t get the money to satisfy all of your
creditors. Maybe you’ve received polite calls about when you intend to pay, or
maybe one or two have threatened to refer their debt to collections, file lawsuits,
repossess collateral, or foreclose. If you pay the most aggressive creditor, you
might not have enough money left to pay the other ones that you can handle, or even
have enough to pay for the roof over your head, for your ride to work, the insurance,
the utilities, or even the grocery bills. Is this your situation?

Everyone needs credit to buy and keep cars and houses, and people also rely
on credit to get out of debt trouble. Credit cards, loans, and family members can be
a source of credit. Nobody wants to hurt their credit. People with good credit say
that filing bankruptcy will destroy your credit, which is a reason why most people
don’t consider bankruptcy until after they’ve tried everything else first. The truth is
that in some situations, filing bankruptcy is a cost-effective option that opens doors
that are closing, and it can be a life saver.

To understand the effect of bankruptcy on credit, you need to know how
credit scores are calculated. At the margins, the three credit reporting agencies
consider many complicated factors to fine tune their scoring. However, as a
practical matter, there are two factors that influence your credit score more than all
the others combined: 1) your credit history, that is, whether you are paying your
debt on time, and 2) your credit utilization ratio, that is, how much of your
available credit is left. Slow payments and maxing out credit hurts the score.

For one reason or another, at some point paying your bills on time may not
be an option that is available to you. You can be caught in a downward spiral. If
bills become delinquent, that alone hurts your credit, and delinquencies can lead to
garnishments, repossessions, and foreclosures which hurt your credit severely if the
debt collection process goes that far. If your credit is not good enough to allow you
to borrow your way out of trouble, then maybe it is time to consider the benefits of
filing for bankruptcy.

There are two types of consumer bankruptcy, Chapter 7 and Chapter 13.
When you file either one, the protection of the Bankruptcy Court is instantaneous,
so that state collection actions are automatically suspended until the legal process
has time to work itself through. Since state collection actions like lawsuits damage
credit scores, avoiding those actions helps credit.

Chapter 7 will wipe out general unsecured debt. If you can afford to keep
paying for secured debt, like houses and cars, you can usually keep those things in
Chapter 7. As for credit, wiping out debt in Chapter 7 actually improves your “debt
utilization ratios”, because after some of your debt is wiped out (“discharged”), a
greater percentage of your income will be available to pay the debt that remains.
Almost all people who file for Chapter 7 will receive a discharge within three or
four months, with very little going on in the meantime.

Chapter 13 is a court-protected reorganization plan that can take up to five
years to complete. In Chapter 13 you can force secured creditors like mortgage
lenders or auto lenders to allow you to cure defaults over time whether the creditor
wants to work with you or not. It is also possible in some plans to pay little or
nothing on unsecured debt, which can make Chapter 13 plan payments much more
affordable.

After filing Chapter 13, a Debtor may not incur additional consumer credit
without first seeking court permission. Although approval is not automatic,
reasonable proposals to refinance or buy houses or cars can be, and usually are,
accomplished by filing a motion with the court. The first step is to talk to the
bankruptcy lawyer for advice about finding an appropriate lender.

Filing Chapter 7 is not a legal impairment to using credit. Whether a lender is
willing to lend is a separate question, and it varies by lender. After bankruptcy,
credit applications just keep coming anyway, and the best decision may be to turn
them down. You may buy cars before your discharge, and some lenders are
specifically set up to lend to bankruptcy debtors. To get a government backed
mortgage, you need to wait about two years after a discharge. However, there are
no time limits imposed by law, and conventional lenders may not require any such
time restriction. In any event, according to a 2019 study by the U.S. government’s
Consumer Financial Protection Bureau, median credit scores increase steadily from
year to year after filing a bankruptcy petition.

Filing bankruptcy is not a financial alternative that people choose if they have
better options. However, financial recovery without it may be next to impossible,
and financial recovery with it is certainly possible. Every case is different. Call us
at 770-683-3303 to discuss your unique situation.

The Effect of Filing Bankruptcy On Evictions and Foreclosures: Updated 2020

The Supreme Court of Georgia declared a “judicial emergency” on March 14, 2020, and
ordered a suspension of jury trials because of health concerns over the spread of the virus. The
judicial emergency also affected many debt collection procedures, including evictions and
foreclosures. The initial Order only lasted about a month, but it has been extended several times
since then. As of the date of this blog, it has most recently been extended to Tuesday, August 11,
2020, at 11:59 p.m. The Order is clear that safety is an overriding concern, so other extensions
are certainly possible.

However, these Orders don’t change the law, and ultimately, they will not wipe out debt,
or prevent landlords, banks, mortgage companies, and other creditors from exercising their
traditional debt collection powers in the event of default. The emergency just delays the exercise
of those rights.

So how can filing bankruptcy stop an eviction or foreclosure? With regard to rent, if you
default on your rent, the landlord’s remedy is to declare the lease to be terminated, and to recover
possession of the property by filing a “Dispossessory” in state court. This is an accelerated
procedure that the renter will usually lose– unless he or she brings the rent current, or unless
some consensual agreement is reached with the landlord. A Dispossessory normally only requires
seven days to accomplish. If it is granted, the landlord can put your furniture and possessions out
on the street under the protection of the police over your objections.

If a state court has granted a Dispossessory before a bankruptcy is filed, neither Chapter 7
nor Chapter 13 will not stop an eviction, even though Chapter 7 will wipe out any debt that is
still owed as the result of the pre-bankruptcy default. A Chapter 13 is different. It is a debt
consolidation plan, and can actually stop an eviction– but the “plan” must provide for monthly
payments to the landlord that are enough to “cure” the default during the remaining part of the
lease. Thus, if you have six months left on your lease, and if you are $600 behind, your plan
would need to pay at least $100 per month to the landlord catch up that default within the
remaining lease period as you continue to make regular rent payments. Curing a rent arrearage is
usually a short term fix in Chapter 13, because the bankruptcy court will not force the landlord to
rent to you beyond the term of the original lease, even though the plan may last much longer. Of
course, the landlord could agree to another lease period voluntarily. It is very helpful to make
landlords happy, because they have real power in this situation.

As for foreclosures, a Chapter 7 will delay, but not prevent them. However, if you have
enough equity in your property, you may be able to protect tens of thousands of dollars that
would otherwise be lost in foreclosure. Chapter 13 is the tool used to stop foreclosures
permanently, and allow you to cure mortgage arrearages over a period of years while you
continue to make regular monthly mortgage payments. Chapter 13 can reduce what you pay on
car notes or unsecured debt, and make it affordable for you to cure mortgage defaults over time.
Chapters 7 and 13 are different tools that require planning and discussions with a bankruptcy
lawyer to get a clear idea of what can be done for you in your unique situation.

Call us for a free consultation at 770-683-3303, and stay safe.

COVID: YOU ARE NOT ALONE. WE’RE THE MOST EXPERIENCED CONSUMER BANKRUPTCY FIRM AROUND. FULL STOP.

Everyone is affected by this disease and by this economy, but it affects some
people more than others. All people are not “equal” in the way life treats them, and
luck isn’t equally distributed. If you have the prospect of drowning in debt, you
may need help in choosing the best path forward. We’ve been practicing
bankruptcy law locally since 1990. Consultations with an experienced attorney are
free. We can work through your situation with you, whether it seems simple or
overwhelmingly complex.

We’re in a changing world, and it is not changing for the better for everyone.
Debt strategies need to look to the future. Your future. Have you lost income
because of furlough, job loss, divorce, or medical expense? Are you being sued,
threatened, or harassed? Do you expect things to turn around on their own soon?
Call us so we can listen to you describe your situation in your words.

Chapter 7 and Chapter 13’s are different tools that are suitable to meet
different needs in different situations. You may want to wipe the slate clean, or you
might want to stop a garnishment, repossession, or foreclosure and resume paying
your debt under the protection of the court. We know these tools, and how to
maximize the benefits to you under the law. The key is to fit your needs to what
those tools can do. We know the lay of the land.

If you want the best service for the best price with flexible payment arrangements,
call us now with no obligation at 770-683-3303. You are not alone, and we are here
to help.

THE EFFECT OF RECENT PURCHASES BEFORE FILING CHAPTER 7

It can be a “red flag” to creditors where a Debtor has actively used credit cards for purchases or cash advances shortly before filing bankruptcy. However, it is not true that all (or even most) such recent charges are “non-dischargeable” (that is, that the debts are not wiped out by the bankruptcy). Sometimes this pattern is a problem, and sometimes it is not. While Congress often changes the amounts or timing in this section, as of 2019 the Code provides that:

1) purchases of “luxury goods or services” of at least $500.00 made within 90 days of filing, or 2) cash advances of at least $750.00 made within 70 days of filing are 3) “presumed” to be non-dischargeable. This code section has several parts.

First, the “presumption” favoring creditors does not arise automatically just because a purchase or cash advance is made within a certain number of days before bankruptcy. The “presumption” is only triggered if the purchases or cash advances are used for “luxuries”… that is, if they are not “reasonable necessary for the support and maintenance of the Debtor or his dependents”. Some cases have defined “luxuries” as items that are “extravagant, indulgent, or nonessential”, while others have held that purchases are not luxuries if they “serve an important family function and evidence some financial responsibility”. The facts of each particular case are key. “Luxuries” should not include charges for most medical expenses, automotive repairs, discount purchases at stores like Walmart, or everyday food expenditures at a grocery store or low-end restaurant. On the other hand, gifts are normally considered to be “luxuries”.

Second, for the “presumption” to arise, the creditor must be specific in pleading the facts that are being complained about. If he is too vague, then the creditor, not the Debtor, must carry the burden of proof with regard to proving fraud (a high hurdle). This is much more difficult and expensive for the creditor, and it is not undertaken lightly. Moreover, even if the “presumption” does arise, the Debtor can still win, but he must carry the burden of proof himself to do that.

Third, in any action based on fraud, the “intent” to mislead or deceive is an important element. However, “intent” is hard to prove or disprove by direct evidence, and is usually decided based on the surrounding facts. For example, changes in credit card usage and a high number of charges right before filing, or even charges made right after consulting a lawyer may suggest an intent not to repay the debt. Unusual patterns of credit card usage can motivate questions about the charges that need to be answered… whether the creditor ultimately decides to file suit or not.

For the court to find that a debt is non-dischargeable, the creditor must first file a separate suit within the bankruptcy called an “adversary proceeding”. The attorney fees in an adversary proceeding can be prohibitively expensive. Unfortunately, the creditor (usually a bank) generally has more money than the Debtor, which creates unfair pressure on the Debtor to “settle” a suit even if it is winnable. In a settlement, the Debtor agrees to repay the debt in whole or in part after the bankruptcy (usually in installments) to avoid the high costs of litigation.

Fortunately, Congress has recognized that there is a great potential for creditor abuse in this area because of the parties’ unequal bargaining power. Thus, the Code provides that if the creditor files an adversary proceeding, and if the debt ultimately is discharged, that the creditor “shall” pay the Debtor’s attorney fees unless the creditor can prove that the filing of the suit was “substantially justified”. This usually requires proof that a meaningful investigation was undertaken before filing the suit, or that the creditor undertook “discovery” in the suit to sort out the facts in a meaningful way. These steps cost money, and discourage creditors from filing frivolous suits. Please call us at 770-683-3303 to talk to our lawyers about your particular situation.

Redemption in Chapter 7: Keep Your Car While Lowering the Payments

In Chapter 7, there are three possibilities for dealing with a debt that is secured by collateral, one of which is a “redemption”. Redemptions are usually only done with regard to vehicles, though it would be theoretically possible to do it with other types of personal property too. This article deals with redeeming cars. This is possible in Chapter 7, but not Chapter 13.

First, with the agreement of the creditor, you may keep the car, and continue your obligation to pay for it. This is called a “reaffirmation”. The effect is to leave the car out of the bankruptcy and continue to pay for it, usually under the terms of the original contract. A reaffirmation usually requires that you be current in your payments on your car note.

The second possibility is to “surrender” the collateral. In that case, you lose the car to the creditor, and the debt is discharged. The creditor can’t collect any money later. This makes sense when you can’t afford the debt, or if something is wrong with the collateral so that you prefer to pursue other options. You can certainly surrender the collateral even if you are behind on the debt and a “reaffirmation” is not possible.

The third possibility is a “redemption”. Redemption is a remedy that exists only under the bankruptcy code, and so you have to file a Chapter 7 to take advantage of it. It is perfectly legal, and is easily achieved in the right circumstances. You don’t need to be current in your payments to redeem. This remedy will surprise you, and is not obvious at all.

The Code provides that if a debtor pays the “fair market value” of personal property in a lump sum, that the creditor must accept the money in exchange for its lien rights. The challenge is that debtors do not have enough money to make large lump sum payments. The solution is that a few banks make money by financing a bankruptcy redemption if the circumstances qualify under their guidelines. The practical effect of a redemption is that the debt is refinanced: the old debt is satisfied, and a new, lower debt/loan is created in its place with a new lender. That lender becomes the lienholder in the place of the original creditor.

The right “circumstances” are as follows: 1) the car must be relatively new (10 years or less and less than 150,000 miles), and 2) the debt must not be co-signed, 3) the debt should significantly exceed the value of the collateral securing it, and 4) your provable income should be high enough to make the payments.

The debt might exceed the value of the collateral for several reasons. One is where the debtor rolled a pre-existing debt into the price of his car when he bought it (in other words, the trade-in was not paid off). Another circumstance is where the lender (usually a credit union) has “cross- collateralized” the car note with some other debt, such as a loan or credit card. In that case, the car may be collateral for both the car note and for the other “unsecured” debt based on the language in the loan agreement. Third, high finance charges, late-fees, or other charges may have driven up the pay-off to a figure that is much more than the value of the car.

If your car is relatively new and is worth significantly less than what is owed on it, we can explore redemption options for you. A successful redemption is accomplished by allowing us to contact the potential lender on your behalf by telephone right on the spot. If the lender agrees, we file a “Motion to Redeem” with the Court, which would be granted so long as the we can reach an agreement with the creditor as to the amount of the “fair market value”which may be negotiated.

The beauty of a redemption is that everyone is happy… the payments to you are invariably lower than before, the payoff is lower than before, and the original creditor is happy to receive a lump sum. Our attorney fees are included in the new loan, so you don’t have any out of pocket expense. Whether you meet the necessary guidelines is not hard for us to determine, and many loans qualify.

Call one of our lawyers for an appointment at 770-683-3303 and we can explore this possibility for you.

Tax Refunds, Lawsuit Recoveries, and Inheritances

If the state or federal government owes you money for a tax refund that you have not yet received, this is considered to be an “asset” owned by you similar to money in your bank account. Assets should be disclosed in bankruptcies. You are then allowed to “exempt” or protect those assets within certain dollar limits depending on what the asset is, and depending on how many people own it.

In some Chapter 13’s, but not all of them, you might be required under your plan to pay in part of future tax refunds to pay creditors if they would not be paid in full otherwise. You should ask the lawyer about this if you are filing Chapter 13.

In either Chapter 7 or Chapter 13, disclosing assets is the proper way and best way to protect them. Hiding or failing to disclose assets can result in the loss of protection that you would otherwise have, and creditors and Trustees can make problems for you if they allege that you failed to disclose something that should have been disclosed.

Similarly, if you have a “claim” against someone else, regardless of whether you have filed suit, and regardless of whether you have retained a lawyer, this “claim” is also an asset that should be disclosed and exempted in a bankruptcy. It doesn’t matter if the exact value of the claim is known or not. “Value” can be listed as “unknown”. Personal injury, products liability, worker’s compensation, and employment discrimination are common examples of this type of “claim”. Claims should be disclosed whenever they arise, even after a bankruptcy has been filed.

If you are due to inherit money or property from someone who has died, your share is an “asset”, even if the inheritance has not been distributed. If someone dies within 180 days (six months) after you file, that inheritance is also an “asset”, and your share should be added to the schedules and exempted for your protection.

The disclosure of assets does NOT necessarily mean that you will lose them. Assets can be protected within limits in a Chapter 7 by exemption, and you are not subject to losing assets in Chapter 13 at all (even though it might or might not impact the minimum amount of your monthly payments). A Chapter 13 is a voluntary proceeding. If the burdens of continuing the case outweigh the benefits, you can just terminate the proceeding. Thus, people very seldom lose anything that they don’t want to lose when they bankruptcy, assuming they consult an attorney about the rules in advance to make informed decisions.

Each case is different. In the vast majority of cases, debtors safely own assets, disclose assets, and protect them. If it turns out that you are subject to losing something that you don’t want to lose, the best approach is to discuss it specifically with the lawyer ahead of time. The best answer often involves balancing benefits and burdens in that particular case. This will eliminate unnecessary worry about losing assets.

Please call us at 770-683-3303 today to discuss your specific situation.

Pick Your Lawyer Carefully, Then Trust That Person

We frequently receive calls from people who filed their bankruptcy case with another lawyer, and now want to change lawyers. Sometimes it’s because the first lawyer won’t return calls. Sometimes the client just doesn’t understand requirements and procedures. Sometimes they have received objections, and believe their case has been thrown out, or will be thrown out, no matter what they do. Sometimes clients suspect that they are not receiving the best deal possible.

To be successful, bankruptcies require that the paperwork be done accurately. Each case is different, and one size definitely does not fit all. The lawyer needs documentation (paystubs, tax returns, bills, letters, etc.) to fill out the forms at the beginning and on an ongoing basis so that the Trustee or creditors do not object. Debtors often believe that approximations are good enough, and that they are free to pick and choose which debts to file. Approximations work occasionally, but not always. You are always supposed to list all of your debts, even if you are keeping the property or paying for it “outside” the bankruptcy. The general rule is that everything is “disclosed”, even though there may be considerable freedom in deciding how debts or assets are treated in the plan or statement of intentions.

Our experience is that taking time to be accurate on the front end greatly reduces anxiety, and reduces complications in both simple and hard cases. Naturally, hard cases, like business cases or repeat filings, take longer to get right than simple cases. Sometimes clients believe that their case is hard, when really it’s easy, and sometimes they think it’s easy, when it’s complex for reasons they did not anticipate. Either way, it works best when everyone understands the challenges and benefits as early as possible. The best way to make that happen is to be prepared with paperwork. Keep appointments. Listen carefully to questions, and trust that the lawyer really is on your side even if he warns you about constraints. Trust that the lawyer wants you to succeed, and get what you want as badly as you do.

If you are wondering about filing a bankruptcy, call first and ask general questions. Listen for whether you are being treated with respect, and expect to get some meaningful answers to your questions. However, you shouldn’t expect highly specific answers if you haven’t met the lawyer in person and provided all the information needed to write detailed plans and schedules.

After you file, trust the lawyer that you have chosen. The procedures and requirements are too numerous to understand everything at once, especially things that may or may not happen in the future. Sometimes you have to be patient and let your questions come into focus.

After you have chosen to file with a particular lawyer, it’s not proper for a different lawyer to give second opinions and second guess decisions that your lawyer has made. When people who are already represented ask me questions, I may feel like offering my own opinion and solutions, but I almost always refrain. A person who offers a “second opinion” often hasn’t understood everything. It’s disrespectful to both the lawyer and the client to make superficial suggestions without an adequate grasp of the facts.

Please call us at 770-683-3303 to discuss your particular situation. With our help, starting the process will be less stressful, smoother, and more successful than what you might think.

Saving a Title Pawn in Chapter 13

Under the Georgia Code, title pawns are not the same as auto loans. Auto loans are “purchase- money” loans used to finance the purchase of a vehicle, whereas title pawns are similar to the sale of a vehicle to a pawnbroker at the time the “loan” is made… subject to a specific “right of redemption”. As the result, the treatment of a title pawn in bankruptcy is different from the treatment of an auto loan, and poses problems. Read more “Saving a Title Pawn in Chapter 13”

Hardship Discharge of Student Loans

The amount of student loan debt now exceeds outstanding credit card debt in the United States. This is not surprising because acquiring a higher education is perceived to be necessary to landing a job in a competitive environment. Further, it is easier to borrow for a student loan than it is to borrow for other purposes, since unlike other types of loans, neither a job nor a co-signer may be needed. Moreover, the government often guarantees repayment of student loans, and it is not easy to obtain a hardship discharge of student loans in bankruptcy. Read more “Hardship Discharge of Student Loans”