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THE “FRESH START” MISSION AND GOAL OF THE BANKRUPTCY SYSTEM
November 7th 2011
Consistent with the original mandate of the U.S. Constitution that bankruptcy be a fundamental constitutional right, the most fundamental goal and mission for which federal bankruptcy laws were enacted by Congress is to give debtors a financial “fresh start” from the burden of crushing debts. The U.S. Supreme Court made this point about bankruptcy’s purpose in its 1934 decision:
[I]t gives to the honest but unfortunate debtor who surrenders for distribution the [non-exempt] property which he owns at the time of bankruptcy a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt. [Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)].
For the debtor, this fundamental goal and mission is accomplished through the Bankruptcy Discharge granted by the bankruptcy court. The Discharge releases the debtor from personal liability from specific debts and prohibits creditors from taking any further action against the debtor to collect those debts.
HOW DO YOU FILE FOR BANKRUPTCY? CAN YOU AFFORD IT?
Before addressing the types of bankruptcy that may be available to you under bankruptcy law, a few basic questions must be asked about this vital issue: How do you file for bankruptcy affordably? And, secondly, as a debtor contemplating filing, can you afford bankruptcy
Under bankruptcy laws, you’re essentially given three options: (1) take a do-it-yourself approach to prepare and file the bankruptcy papers yourself; (2) hire a reliable, competent Debt Relief Agency or Agent (also called a Bankruptcy Petition Preparer or BPP) to prepare those same bankruptcy papers for you; or (3) hire a knowledgeable bankruptcy attorney (not every attorney necessarily knows the procedures of bankruptcy) to file your bankruptcy for you. Each option will generally be progressively more expensive.
A debtor may very well file bankruptcy without bankruptcy attorney and save some money, but this decision may not be the best. A bankruptcy lawyer will require a fee, but for that reasonable fee the attorney will assist and guide you through the process, making it much easier and clear. It may well be worth the money to ensure your case is not dismissed.
A debtor will need to file a petition with the appropriate bankruptcy court that details the debtor’s creditors and how much the debtor, or if applicable, the debtor’s business owes to them. Then, a “trustee” is appointed by the bankruptcy court to oversee your case. The trustee is responsible for administering the entire process until a debtor receives their Bankruptcy Discharge. In a Chapter 7 Bankruptcy this discharges most unsecured debts. In a Chapter 13 Bankruptcy, most remaining unsecured debts are discharged after payments have been made over the life of the plan.
THE BASIC TYPES OF BANKRUPTCY CASES
There are six types of bankruptcy cases provided for under the U.S. Bankruptcy Code – Chapters 7, 11, 13, 12, 9, 15. These designations derive from the names of the chapters of the Code that describe them. The following are brief descriptions of those most common for Consumer Debtors, Chapter 7 and Chapter 13.
CHAPTER 7. This is often referred to as “liquidation” bankruptcy. Chapter 7 bankruptcy contemplates an orderly, court-supervised procedure by which the court-appointed trustee takes over the non-exempt assets of the debtor’s estate (to the extent that he or she has any), “liquidates” or reduces them to cash, and makes distributions of such recovered funds to the appropriate creditors. The debtor is allowed to retain certain “exempt property” that will allow debtors the necessities to live during and after bankruptcy. In practice, there is usually little or no non-exempt property in most chapter 7 cases, and hence, there is generally no actual liquidation of the debtor’s assets in the average case. These cases are called “no-asset cases.”
For most chapter 7 cases an individual debtor, or married debtors, receives a court discharge that releases them from personal liability for certain dischargeable debts. Discharge usually occurs in just a few months after the debtor files the petition.
In 2005 amendments were made to the Bankruptcy Code, collectively called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Among other changes, the debtor is now required to first pass a financial “means test” which is now the basic determinant of whether the individual consumer debtor qualifies to file for relief under chapter 7. If a debtor’s income exceeds the state median income level, and after applying available income deductions and expenses, the debtor may not be eligible to file for bankruptcy relief under chapter 7.
CHAPTER 13. This is often called an “adjustment of Debts” bankruptcy. Chapter 13 bankruptcy is designed for an individual debtor who has a regular source of income. Chapter 13 is usually preferred to chapter 7 by debtors who have valuable non-exempt or securitized assets that they want to keep, such as a house. Chapter 13 is also available to consumer debtors who do not qualify for chapter 7 relief because they do not meet the means test requirements.
A Chapter 13 bankruptcy enables the debtor to propose a “Chapter 13 Plan” to repay creditors over time – usually three to five years. A confirmation hearing is held by the bankruptcy judge on the proposed plan; the court then either approves or disapproves the debtor’s repayment plan, depending on whether it meets the Bankruptcy Code’s requirements for confirmation. During a Chapter 13 repayment plan, a debtor repays their debts in whole, or with some debts, in part. Certain remaining debts will be discharged at the plan’s end.
Chapter 7 and Chapter 13 Consumer Bankruptcy Filings on the Rise in Texas
October 31st 2011
It is not just happening in Texas – Men and women around this country are facing difficult financial decisions in light of our current economy. The questions being raised around the dinner table can range from how to scale back the summer vacation plans and who is going to be responsible for clipping coupons this week to which bills can go unpaid until next month and how to let your youngest child know the plans to attend her dream college needs to be put on hold. What are the options available to an individual or a family that needs to see improvement in their financial standing or else face dire consequences? In an effort to avoid a home foreclosure, many people try to sell their homes and look for a new place to live with a lower rent or mortgage payment. But, with today’s housing market, properties can have “For Sale” signs planted in their front yards for months before an interested buyer is found. More and more debtors are turning to debt consolidation services advertised on daytime and late-night television to lower your monthly payments into one manageable fee. However, what if your situation is so desperate that these options will not be enough to ease your burden? As Texan debtors and others throughout the United States are deciding, filing for bankruptcy protection may be the best option in these troubling economic times.
The recent numbers concerning bankruptcy in our state show what is increasingly becoming a harsh reality for our fellow Texans, particularly in Austin, Houston, and San Antonio. In 2010, court records indicate approximately 54,130 consumer bankruptcy cases were filed in Texas alone. This number shows an increase from the 50,868 consumer cases filed in 2009. Of all the bankruptcy cases filed in 2010, 14,820 were filed in the Southern District of Texas, which includes Houston and Galveston. The Southern District has seen 6,904 cases file during the first two quarters of 2011. The jump in filings in some of our other major cities is also startling. Bankruptcy filings for the first half of 2011 in the Western District, which includes San Antonio and our state capitol Austin, total 5,709, compared to 6,304 cases filed in same period for 2010, with 12,735 total cases filed in 2010. In the Northern District, which covers the Dallas and Pan Handle area, 8,758 cases were filed in the first half of 2011, and 13,212 filed in 2010. In the Eastern District, which includes the Beaumont and Lufkin areas, 3,289 cases were filed in the first two quarters of 2011, and 13,212 filed in 2010. This data obviously shows people all over the state are seeking relief from their overwhelming financial burdens. But even as Texans are struggling to maintain their personal financial standing, our state is still faring better that most others in the country. In 2008, Texas ranked forty-sixth in the nation in bankruptcies, even better than our 2007 ranking which placed us at number thirty-nine. In 2009 and 2010 Texas ranked 48 out of 50. Of course, this relatively good news does nothing to lessen the pain of each individual who is facing bankruptcy.
For those who are considering the option of declaring bankruptcy, you should be aware of the state and federal laws that affect such filings in Texas. Generally, there are two options available to individuals—Chapter 7 or Chapter 13 bankruptcy.
Houston Bankruptcy Basics
October 7th 2011
There’s no magic formula for deciding when bankruptcy is the right choice. It’s an option you might consider if you are paying only minimum amounts on your bills; you can’t budget yourself out of debt within five years; or you are getting notices that your mortgages and loans are being foreclosed upon. Bankruptcy is an alternative when you’ve had severe financial setbacks, such as losing your job, losing a major client, filing for divorce, or suffering from a costly illness.
Bankruptcy is federal law, which means you’ll find the same basic rules in all states, with a few exceptions.
If you’re an individual or a sole proprietor, you may file a Chapter 13 bankruptcy to pay off all or part of your debts over three to five years. Rather than wiping out debts immediately, this option allows you to reorganize them so you have room to breathe and time to pay.
Many people who file Chapter 13 bankruptcies have mortgages or other loans they would like to bring current, so they don’t lose their homes or other property. Others have taxes, child support, or student loans that are not wiped out by Chapter 7 bankruptcy. Others seeking protection under Chapter 13 bankruptcy may have moral convictions that all debts should be paid no matter how long it takes.
To qualify for Chapter 13 bankruptcy you will need a stable income with disposable income (income left over after you pay the bare necessities of life such as shelter, food and utilities). You must have no more than $1,010,650.00 in secured debt (debt involving property that your creditor might take if you don’t make your payments) and $336,900.00 in unsecured debt. The court filing fee is $274.00.
With some exceptions, any person or business can file a Chapter 11 bankruptcy. Typically, it’s filed by business owners who want to keep the business running and catch up on their debts. Individuals with very complex financial situations may also choose to file Chapter 11 bankruptcy. The filing fee is $1,039, plus a quarterly fee based on the amount of debt.
Chapter 7 bankruptcies are filed most often by individuals looking for a fresh start and small, mom-and-pop business owners. Chapter 7 bankruptcies are appropriate for those who have too much debt to qualify for Chapter 13, or want to wipe their financial slate clean. If you are an individual, certain property may be exempted from creditors, such the equity in your home, personal property, vehicles, and retirement benefits. Although exemptions vary by state, Texas has some of the most generous exemptions in the country. Business entities are not entitled to these exemptions, therefore in exchange for canceling most debts, a business may have to give up property to be sold by the Bankruptcy Trustee for the benefit of your creditors. A Chapter 7 bankruptcy generally takes 3 to 6 months from filing to case closed. The filing fee is $299.00.
Family farmers may file a Chapter 12 bankruptcy, called a “reorganization for family farmers,” if your debts aren’t higher than $3,792,650 (if a farming operation) or $1,757,475 (if a commercial fishing operation) and at least 50%, and if family fisherman at least 80%, of the total debts that are fixed in amount (exclusive of debt for the debtor’s home) must be related to the farming or commercial fishing operation. More than 50% of the gross income of the individual or the husband and wife for the preceding tax year (or, for family farmers only, for each of the 2nd and 3rd prior tax years) must have come from the farming or commercial fishing operation. If the operation is a corporation or partnership, then more than one-half the outstanding stock or equity in the corporation or partnership must be owned by one family or by one family and its relatives. The family or the family and its relatives must conduct the farming or commercial fishing operation. More than 80% of the value of the corporate or partnership assets must be related to the farming or fishing operation. The total indebtedness of the corporation or partnership must not exceed $3,792,650 (if a farming operation) or $1,757,475 (if a commercial fishing operation). At least 50% for a farming operation or 80% for a fishing operation of the corporation’s or partnership’s total debts which are fixed in amount (exclusive of debt for one home occupied by a shareholder) must be related to the farming or fishing operation. Finally, if the corporation issues stock, the stock cannot be publicly traded. The filing fee is $239.00.
Alternatives to bankruptcy include trying to negotiate with creditors to reduce monthly payments or to skip some payments. Other options include attempting to get help from a nonprofit credit counseling group.
Bankruptcy is reported on your credit for up to 10 years, and you may have difficulty getting credit right after a bankruptcy. It usually takes two to three years to reestablish a positive credit rating.
Bankruptcy doesn’t get rid of all debts. Among those excluded are alimony, child support, recent back taxes, student loans, recent large purchases, fines or penalties of government agencies, and debts incurred from fraudulent activities.
Finding a Houston Bankruptcy Attorney
September 20th 2011
Have you ever heard the statement, “A man who represents himself has a fool for a client”? The truth is, most people do not want to handle their own legal issues, but in searching for a dependable Houston bankruptcy attorney they really aren’t sure where to look or what to look for.
You may find yourself in need of a competent bankruptcy attorney for a number of reasons. These include business and real estate issues, divorce and other family related situations, as well as legal representation to stop foreclosure, garnishment, or to prevent repossession. Whenever you look for legal assistance from a Houston bankruptcy attorney, you need to make sure it is someone that understands your case and will give it the attention it needs.
The Houston Bankruptcy Attorney Appointment
September 12th 2011
After putting together a short list of bankruptcy attorneys, you need to give each one a call. You might have already made a few contacts through a referral service or a directory website. Often these preliminary contacts will give you a little insight into whether or not you want to make an in-person appointment with a specific attorney.
You can usually get an initial consultation free of charge to go over your case with the attorney. Use this time to find out if the bankruptcy attorney is going to be the right one to handle your case. There should be a level of comfort and trust with any bankruptcy attorney you are planning to hire. During this consultation you can talk with the attorney to gauge his experience in dealing with cases comparable to your own.
Make certain you request information about the cost and if there are payment terms available. You can avoid a lot of problems if a bankruptcy attorney explains his fees to you beforehand. Getting attorney fees in writing can help you maintain a good relationship, so before you agree to have any attorney represent you, make certain you get this in writing.