Info
Center
We have compiled information addressing the most common issues involving bankruptcy and the services provided by Cossitt Law.
DEBT RELIEF AGENCIES
Your bankruptcy attorney is considered a "Debt Relief Agency" under the Bankruptcy Code. As such, we are required to provide specific services and meet specific guidelines. We are also required to provide you with these important disclosures, which you must sign and return within three days of our first consultation.
Click here for the documents
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. For
more information, see: WHEN
YOU CAN'T PAY YOUR DEBTS
Debt to Income Ratio
To assess the seriousness of your debt, calculate your debt to income ratio:
Aggregate unsecured debt (credit card, medical, student loans, tax, all creditors who do not have liens) divided by annual gross income.
Unsecured debt/annual gross income=debt percentage
0-10% A modest debt burden.
10-20% Red flags, but still resolvable.
20-35% Alarm bells. You need unbiased professional help.
Over 35% Little hope of avoiding bankruptcy.
If any of the following apply in your situation, 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
We offer a comprehensive initial consultation for a flat “consultation rate” that includes a meeting of up to one full hour. Generally, clients are seen in Kalispell on Monday, Wednesday and Fridays. The purposes of the initial consultation are:
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Review your asset (property) and liability (debts) structure, your income and expenses
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Discuss your problems, concerns and goals for the resolution of those problems (jot them down on a sheet of notebook paper)
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Explain the possible solutions to your problems, and discuss the costs and the pros and cons of your options
During an initial consultation, the focus is on you and your situation. If you take the time to properly prepare for a comprehensive, in depth and detailed discussion of your situation and options, you will obtain the most benefit from the consultation.
Anything you tell me during the initial consultation is confidential under the attorney/client privilege. It is important that you are honest and frank when sharing the details of your financial situation.
Please remember that I do not represent you until you hire me and we sign a written fee agreement.
SEE CHAPTER 7
TIMELINE..
A board certified business and consumer bankruptcy specialist is the legal equivalent of a board certified physician. In order to properly diagnose the problem and identify an appropriate course of action, the specialist needs accurate information.
Please prepare and bring the following items with you to the initial consultation:
- All lawsuits or other court papers served on or filed against you.
- All documents relating to any prior bankruptcy case in which you have been involved.
- Titles to all vehicles, mobile homes, motorcycles, boats and trailers.
- U.S. tax returns for the past 2 years.
- Most importantly, please prepare a balance sheet—a list of your assets (property) and your liabilities (debts).
- Assets: Describe each item or category of items and estimate the market value—what would the item sell for if it were sold in the next 30-60 days? (Garage sale prices for household goods).
- Liabilities: List the name and amount owed to each creditor. If the creditor has a lien or security interest in your property (for instance, a lien on a car or mortgage on the house) please note that.
Without accurate information, it will be difficult or impossible to properly answer your questions and properly advise you.
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.
Do Nothing
The advantage of doing nothing is that it does not cost anything; the disadvantage is that it does not provide relief. As a practical matter, this option is only useful for people who are judgment proof (they have no nonexempt assets or income) and can endure the burden of constant phone calls, lawsuits and ongoing legal proceedings.
Extension of time
Contact your creditors and seek an extension of time to pay their claims. It is time consuming to contact each creditor. The success of an extension depends on voluntary cooperation and most creditors probably will not agree to quit charging interest. In addition, you must have an income stream sufficient to allow you to meet your ongoing business expenses and retire the debts over time.
Compromise
A debt compromise, or composition, is an agreement in which the creditors agree to take a one time partial payment in full satisfaction of the debt claim. This will work only if you have a source of money to fund the proposal. Even if you have the funds, each creditor must voluntarily agree to the settlement and one or two "holdouts" may kill the deal. The portion of debt that is forgiven in a compromise may be taxable to you as discharge of indebtedness income, which may preclude any realistic consideration of this alternative.
Workout Agreement
A workout agreement is a hybrid of the extension and composition options. In a workout arrangement, creditors agree in writing to take a partial payment on the debt over time. A workout may involve other terms as well and is limited by the imagination of the parties, basic contract law, and the need for consensual agreement.
We handle four types of bankruptcy:
Chapter 7
Chapter 7 is the liquidation chapter of the Bankruptcy Code and is available to all persons and entities. Chapter 7 bankruptcy can discharge most unsecured debts such as credit cards and medical bills. Chapter 7 also blocks garnishments, liens, levies, and lawsuits. Under chapter 7, a trustee is appointed to collect and sell, if economically feasible, all property owned by the debtor that is not exempt from the bankruptcy case or is not subject to perfected liens.
A bankruptcy discharge is a court order releasing a debtor from personal liability for all of his or her dischargeable debts and ordering creditors not to attempt to collect those debts from the debtor. A chapter 7 discharge applies to individuals only; an artificial entity does not receive a discharge or any debt relief in a chapter 7 case.
In general, this is how the Chapter 7 process works:
- Client signs FEE
AGREEMENT, pays retainer and is given BANKRUPTCY
WORKSHEETS to complete.
- Client drops off completed forms.
- Client needs to compile the following information:
- List of creditors and the amount and nature of their claims
- Source amount and frequency of debtor’s income
- List of all the debtor’s property
- Detailed list of debtor’s monthly living expenses (food, clothing, shelter, utilities, medical, etc.)
- We try to mail a rough draft of the bankruptcy papers back to the client within 14 days of receiving completed forms.
- Over the next 3-7 weeks we meet with the client, make corrections and revisions to the papers, and strive to get the papers as accurate as possible prior to filing the case.
- Most chapter 7 cases are filed within 6-12 weeks of the date the fee agreement is signed (item # 1 above).
- The automatic stay takes effect once the case is actually filed with the bankruptcy clerk.
- The bankruptcy clerk will mail a notice of your case to all creditors advising them of the case filing, the date of filing, the case number and the time, date and location of the hearing. This notice is mailed about 7-10 days after filing (with out-of-state creditors, it can take up to 2-4 weeks for them to cease contacting you).
- Meeting of creditors (hearing) is held approximately 20 - 40 days after filing.
- Discharge is granted approximately 90 days after filing, releasing the debtor from personal liability and prohibiting creditors from taking any action to collect the debt.
Chapter 13
Consumer & Small Business Reorganization
Chapter 13 is referred to as Adjustment of Debts of an Individual with Regular Annual Income, and generally permits individuals (and some small businesses) to keep their property by repaying creditors out of their future income.
Under chapter 13 debts can be repaid in an affordable manner. Chapter 13 stops foreclosure, keeps the house, and allows mortgages to be paid current. Chapter 13 protects debtors from garnishments, tax levies, lawsuits and other creditor action during the life of the plan. Back taxes can be paid through chapter 13 without further interest or penalty and, in many cases, less that the full amount of the taxes has to be repaid .
Chapter 13 is only available to individuals with regular income. Chapter 13 debtors propose a payment plan, which must be approved by the bankruptcy court. Payments are made to creditors through a trustee.
A chapter 13 plan can only be proposed by the debtor. The plan may modify debts secured by real property (except debts secured by the debtor's principal residence). Generally a plan must provide that all of the debtor's disposable income for a three-year period be utilized to make payments under the plan. The debtor must pay the chapter 13 trustee the amounts set forth in the plan. Individuals who successfully complete their chapter 13 repayment plan will have their debts discharged. A Chapter 13 case can be voluntarily dismissed or converted at any time.
Unlike Chapters 7 or 11, Chapter 13 may only be commenced by the filing of a voluntary petition (payment plan) by the debtor. The stay also extends to collection actions against certain co-debtors of the debtor. Creditors are prohibited from pursuing collection of a consumer debt from an individual co-debtor. It is important to note that a discharge in Chapter 13, unlike a discharge in a Chapter 7, 11 or 12, discharges a debtor from all debts except child support and alimony debts, student loans, and debts arising from drunk driving.
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 and 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
Chapter 11
Chapter 11 is the reorganization chapter commonly used by businesses, but it is also available to individuals. In Chapter 11, creditors vote on whether to accept or reject a plan, which also must be approved by the court. While the debtor normally remains in control of his assets, the court can order the appointment of a trustee to take possession and control of the business.
Corporations, partnerships, and sole proprietors wishing to remain in business and reorganize their financial affairs may choose to file a Chapter 11 bankruptcy. Under a chapter 11, debtors seek to restructure their debts, either by reducing the debt or by extending the time to repay. A liquidation of all or a portion of the debtor's assets may occur when filing this chapter of bankruptcy. Under chapter 11, the debtor normally goes through consolidation and reorganization to reduce the debt load.
Chapter 11 is available to all persons who are eligible to file under Chapter 7, including railroads; however, stock or commodity brokers are not eligible to file under Chapter 11.
Chapter 12
Chapter 12 is primarily designed to provide debt relief to family farmers. Chapter 12 is available to individuals, corporations, and partnerships with regular annual income (50% or more of which is derived from farming) that, on the date the case is filed, owe debt less than $1,500,000 (80% of which arises out of the farming operation). Family farmers must propose a plan to repay their creditors over a three-to-five year period. The court must approve the plan.
Plan payments are made through a chapter 12 trustee, who also monitors the debtors' farming operations during the life of the plan. Chapter 12 allows the farmer to continue to operate the farm while the plan is executed.
For more in depth information about bankruptcy, see the RESOURCES PAGE. |
