|
FAQs
We have compiled information addressing the most common issues involving bankruptcy and the services provided by Cossitt Law.
Thinking of filing for bankruptcy? See our
Consumer
Center for information about the initial consultation and
required documentation.
There is no right or wrong answer to the question of whether a bankruptcy is appropriate. The decision to file for bankruptcy should not be made lightly. Although filing bankruptcy is primarily an economic decision, most people also consider their social, cultural, religious, and moral values when deciding how to handle debt issues.
To assess the seriousness of your debt, calculate
your debt-to-income ratio.
Assess
My Debt to Income Ratio
You might consider bankruptcy*:
- Your wages have been garnished or your bank account has been attached
- Most of your debts are unsecured debts such as credit card bills, hospital or doctor’s bills, etc.
- Your total debt, not including a car or house loan, is more than you could pay, even over five or more years
- Collection agencies are calling you at home and/or at work
- Your payments are more than 30 days behind on more than one bill
- There are lawsuits pending against you
- You have high medical bills not covered by insurance
- You owe income taxes that you are unable to currently pay
- You have few assets
- You have little or no savings
- You have had property repossessed (such as a vehicle)
* From the American Bankruptcy Institute www.abiworld.org
For more
information, see:
"When You Can't
Pay Your Debts"
TYPES OF BANKRUPTCY
We handle four types of bankruptcy:
Chapter 7 or Chapter 13?
In deciding whether you should file a Chapter 7
or 13 case, the fundamental distinction is whether you want to use your income over the next 3-5 years to pay your creditors (Chapter 13) or if you want to keep your income for you and your family, liquidate your assets, and get on with your fresh start now (Chapter 7)?
In a
Chapter 13 case, your financial affairs will be under the scrutiny of the Chapter 13 trustee and bankruptcy court for the life of the plan (3-5 years). You cannot incur secured debt without court approval during the life of the plan. While it is fairly easy to get a chapter 13 plan confirmed it is estimated that between one-half and two-thirds of all Chapter 13 plans fail. Typically, more debts are eliminated under chapter 13 than under chapter 7.
Chapter 7
may be a more suitable choice if any of the following apply:
-
Your debts are all or mostly unsecured (credit card, medical, etc.)
-
There are no nonexempt assets or you do not care if you retain them
-
There are no secured debts to restructure
-
Your debts are all dischargeable in
a chapter 7
-
You are eligible for a discharge you can use reaffirmation agreements to retain selected items of secured property
- You do not desire court and trustee scrutiny and supervision for 3-5 years
- Your income situation is not sufficiently stable to complete a chapter 13
- You
can use reaffirmation agreements to retain selected items of
secured property
Chapter 13
may be a more suitable choice of any of the following apply:
-
You have nonexempt property you wish to retain after filing
-
You do not pass the means test, have significant disposable income
and/or a desire to repay your creditors
-
You are in default on secured debt (car or house) and
need the leverage to restructure the debt or cure the default
-
You have debts that are non-dischargeable in a chapter 7
case, but may be discharged in a chapter 13 case
-
You obtained a chapter 7 discharge in a case filed within
the past 8 years
Once you hire us, creditors can no longer contact you. As a service we can send a “letter of representation” to creditors on your behalf. Once a creditor receives such correspondence they are prohibited from contacting you to collect the debt.
When a petition is filed on your behalf under Chapter 7, "Bankruptcy", or Chapter 13, "Debt Adjustment", an order of protection automatically stays, or prohibits, all collection activities. Creditors and collection agents are no longer allowed to make any calls or other attempts to collect the debt. If you are being unduly harassed, you may have a valid claim against creditors who abuse the Fair Debt Collection Practices Act.
- Do continue making payments on vehicles you plan to keep.
- Do reduce the amount of future income tax refunds. Federal and state tax refunds are routinely taken in Chapter 7 cases, and may affect plan payments in Chapter 13. If you expect to get an income tax refund, reduce your withholding so that you do not get a refund. If much of the refund is due to Earned Income Tax Credit, apply to get that refund as a part of your regular pay.
- Don't reduce the withholding tax so much that you will have a big tax bill to pay.
- Don’t put property you own into someone else's name to avoid repossession by creditors or the trustee. This kind of transfer is considered fraud and will negatively affect a possible discharge.
- Don’t pay back money (over $600) lent by relatives or business associates. Payment of $600 or more to an "insider" within one year before you file bankruptcy is considered a preference and may be recovered and used to pay your creditors.
- Don’t borrow money on your home to pay bills.
- Don’t borrow from or withdraw from your 401k, IRA, and ERISA qualified savings and retirement plans to pay bills. These types of funds may be exempt from bankruptcy. If you don’t deplete these funds you may be able to draw on them after bankruptcy.
There are lenders out there who will extent unsecured and secured credit after bankruptcy. Some credit card companies will solicit you to keep your credit card and reaffirm your debt with them. This may or may not be a good idea—it often depends on the particulars of your situation. We can help you consider your options and discuss what types of credit best fit your post bankruptcy lifestyle.
Small businesses, the self-employed and farmers have more complicated and substantially different issues than routine consumer Chapter 7 or 13 debtors. Self-employed and small businesses (d/b/a, corporation or other entity) may be eligible for reorganization under Chapter 11, 12, or 13. We have handled many workouts and/or reorganization cases involving small businesses, farmers and the self-employed—this is our core area of expertise.
Chapter 11 is the reorganization by
businesses, but is also available to individuals. In general,
Chapter 11 and 12 cases are very time consuming, complicated and
fairly expensive. Chapter 13 reorganization is available to most
consumers and small businesses that owe less than $290,525 of
unsecured debt and less than $871,550 of secured debt.
The success of
non-bankruptcy options depends on the voluntary participation of your creditors: there is no coercive mechanism to bring them to the table if they desire not to participate. One or two holdouts can kill any viable non-bankruptcy option. Our experience over the years has been that your creditors will not bargain seriously with you unless you have counsel involved.
The biggest risk involved with non bankruptcy options is that you may wind up paying counsel to negotiate with creditors and still end up with one or two holdouts that kill the deal: at that point, you are out the money spent trying to cut a deal and your time.
WHAT IS A DEBT RELIEF AGENCY?
Any attorney practicing bankruptcy law is
considered a "Debt Relief Agency" under the Bankruptcy Code.
As such, we are required to provide specific services, adhere to
certain rules and meet specific guidelines.
READ MORE ABOUT DEBT RELIEF AGENCIES
|
