Up at night worrying about your bills? Afraid you might lose your house, car or job because of your debts? It doesn’t have to be this way- at Barbara Braziel Law, you can find out all about bankruptcy! United States law benefits people like you with a powerful tool that provides the breathing space you need, time to sort out your finances and real help in managing them.
It’s called Bankruptcy.
You have heard about big companies filing for bankruptcy when they can’t agree with their creditors on a plan to pay back loans. Some companies manage to bounce back, such as American Airlines and Chrysler motors. Many companies and that didn’t survive, were victims of criminal activity by executives, such as Enron’s infamous collapse in 2001.
Personal bankruptcy is available for people who are in debt and have some similarities with corporate bankruptcy — which includes a goal of working out a plan for everyone to win.
If you hate answering your phone knowing it’s going to be a creditor or collection agency, it might be time to look into personal bankruptcy. Filing for bankruptcy is better than doing nothing, and it could be the tool you need to recover from a difficult financial situation.
Is Filing for Bankruptcy Bad?
No, filing for bankruptcy is not bad
It is unfortunate that bankruptcy has a social stigma. People are too quick to assign moral judgment to those who file for bankruptcy even though it may have nothing to do with a filer’s character. If anything, it’s more likely to be a difficult and courageous financial decision. When someone makes the tough choice to file for bankruptcy protection it’s typically what’s right for them and their loved ones.
How can bankruptcy be a good financial decision?
For those who have been drowning in deep debt for many years, erasing that debt is a good financial decision. Consider this: debt that takes years to pay off costs significantly more in interest charges, and those large monthly payments year after year could be better used to fund emergency savings and a retirement account. We are not saying that bankruptcy is the right solution for everyone with debt ― it isn’t. But if you cannot reasonably pay back your debts within three years, then it is time to explore bankruptcy protection.
Filing for bankruptcy doesn’t destroy my financial future
Quite the opposite, in fact. After the period of bankruptcy ends and your dischargeable debts are gone, you will no longer be making monthly payments on credit card debt or other bills. This frees up money to put toward building a healthy financial future.
Also, filing for bankruptcy does not destroy your credit forever. When you file, your credit score will decrease in the short term, but many debtors are surprised how quickly their score begins to recover after bankruptcy. Also, if you fell behind on debt payments prior to filing, carried high debt loads, or were sued for unpaid debts, your credit score was already getting hit month after month with no end in sight.
Filing for bankruptcy is not uncommon
Across the nation, there were 759,243 personal Chapter 7 and Chapter 13 bankruptcies filed in 2017. In that same year in the state of Georgia, 45,583 individuals and families filed for Chapter 7 or Chapter 13 bankruptcy protection. It’s more common than you might think!
What are Some Reasons to File for Bankruptcy?
Credit Card Debt
One reason people file for bankruptcy is because they have a lot of credit card debt and often make only the minimum payment or no payment at all. If you are only able to make your minimum payment on your credit cards, over the years you will pay back significantly more in interest than the amount you originally charged. Making only minimum payments will keep you in debt, particularly if you continue to make new charges while carrying debt forward.
If you are not able to make your credit card payment at all, it is time to consider if bankruptcy is the right choice for you. When you miss a credit card payment, your creditor will begin to call you demanding payment. In general, after about six months of missed payments, your creditor will charge off your account. This does not mean the debt goes away, it means that a collection agency will likely take over attempting to collect the debt you owe. Eventually, you may be sued for non-payment (breach of contract). If the creditor gets a court judgment against you, it can then garnish your wages (have the money removed from your paycheck before you receive it) or levy your bank account, meaning they can remove funds from an account you own up to the amount of the debt owed.
If you are deep in credit card debt, and can’t possibly pay it back within three years, it is time to explore how bankruptcy can help you. Setting a budget, sticking to it and paying off your debt in a reasonable amount of time is by far the better option. However, if you do not have adequate income to meet your living expenses and pay back your debt, or if setting and holding to a budget will still take you more than three years to pay off your debt it’s definitely time to sit down with a bankruptcy attorney to learn about how filing can help you.
To prevent foreclosure, repossession, wage garnishment, or a lawsuit
As soon as you file for bankruptcy protection all collection activity against you must stop according to bankruptcy law. This is the power of what’s called an Automatic Stay. Bankruptcy puts an end to wage garnishment, lawsuits for unpaid debts, bank levies, and collection phone calls. Further, bankruptcy has the power to stop foreclosures and repossessions – temporarily or permanently depending on your situation and the chapter of bankruptcy you file.
A bankruptcy filing may be necessary if you have hospital, doctor, and other medical bills that you cannot afford to pay back in a reasonable amount of time. It is not unheard of for people to have tens of thousands of dollars or more in medical debt as a result of treating a critical or long-term illness, or after a medical emergency.
Also, a medical bankruptcy may be necessary due to loss of income during an illness or injury. And even people with health insurance can be left with staggering medical debt due to exorbitant policy deductibles, co-pays, and high premiums.
Falling months behind on debt obligations
If you have not been able to make your credit card payments for months, your accounts have likely been charged-off or will be soon. The creditor determines that your debt was unlikely to be collected, wrote the account off as a loss, and closed the account to future charges. Federal regulations require revolving creditors (credit cards) to charge-off accounts after 180 days of delinquency (missed payments).
Even if an account has been designated as a charge-off, you still owe the debt and a collection agency will likely take over attempts to recover the money you owe. When this happens the original creditor and the collection agency usually report the past-due balance to credit reporting companies. This is a double hit to your credit score, month after month.
Returning to work after a period of unemployment
If you have been unemployed, waiting to file for bankruptcy after earning income again means that your average monthly income will show as being much higher than your average monthly income was when you were not employed. This matters because qualifying for Chapter 7 bankruptcy considers your average income over the past six months against your state’s median income, adjusted for household size. Waiting may disqualify you from benefits you might otherwise had if you filed while your income was low.
Do I Qualify for Bankruptcy?
It is a common bankruptcy myth that qualifying for bankruptcy is nearly impossible. Changes to the federal bankruptcy code in 2005 added new hurdles that require certain people to provide additional paperwork proving that they qualify for bankruptcy relief under Chapter 7, but if you genuinely need bankruptcy protection, it’s not impossible at all.
If your net income falls below your state median level, you automatically qualify for Chapter 7 bankruptcy.
As of November 1, 2017, the median household income in Georgia is:
Household of One: $45,142
Household of Two: $58,363
Household of Three: $65,900
Household of Four: $78,368
Households of more than four: add $8,400 for each individual in excess of four.
If your net income is above the state median as listed here, you can still qualify by taking what is called a “Means Test” to demonstrate that you qualify for Chapter 7.
The Means Test
A Means Test is a detailed review of your income minus expenses. It determines whether an above-median debtor qualifies for Chapter 7 bankruptcy based on factors other than a simple number of income dollars. The test outcome considers your average income over the past 6 months minus “allowable expenses” with the goal of determining your ability to fund a Chapter 13 bankruptcy repayment plan. The allowable expenses in the means test are calculated based on a mix of your actual expenses and standard pre-determined expenses.
The means test makes qualifying for Chapter 7 bankruptcy more difficult; however, an experienced bankruptcy attorney can help you navigate through the means test and qualify for the debt relief that you need.
Chapter 13 Bankruptcy vs. Chapter 7 Bankruptcy
Both Chapters 7 and 13 bankruptcy are designed for individuals and families. Both chapters offer many of the same benefits. However, there are significant differences between what these two chapters offer and how they operate. The “chapters” come from the United States Bankruptcy Code, and the numbers represent the code sections.
How Chapter 7 Differs from Chapter 13
Chapter 7 bankruptcy erases all or most of your debts:
Without a repayment plan.
In general, allows you to keep most or all of your personal belongings.
Is the quickest and simplest form of bankruptcy, typically taking four to six months to complete.
Chapter 13 bankruptcy is a reorganization of debts:
Creates a three to five year repayment plan.
Allows you to pay back all, none, or a portion of your debts.
In general, allows you to keep most or all of your personal belongings.
Is more complex than Chapter 7, but offers additional benefits.
There are benefits and drawbacks to both Chapter 7 and 13 bankruptcies. When we meet with a client for a free consultation we review the pros and cons of the various chapters and help you determine which chapter is best for you. Our goal is to ensure you understand the different chapters of bankruptcy and how filing will affect you and your family.
Both Chapters Offer Many of the Same Benefits
Chapter 7 and Chapter 13 offer powerful legal tools to help you regain control of your financial well being. Both chapters offer the following benefits:
Eliminates or reduces credit card debt, medical debt, and most unsecured debts.
Stops harassing phone calls from creditors.
Stops wage garnishments.
Stops lawsuits filed by creditors.
Benefits of Chapter 13 Not Offered In Chapter 7
Filing for Chapter 13 commits the debtor to a monthly plan payment for three to five years. This form of protection can help the filer:
Hang onto their house by creating an opportunity for you to pay back missed mortgage payments.
Prevent car repossession by creating an opportunity for you to catch up on missed car payments.
Allows you to catch up on other missed payments, like back taxes or unpaid spousal or child support payments.
In some cases, a homeowner can result in what’s called a “lien strip” which eliminates a second mortgage.
At the conclusion of the Chapter 13 bankruptcy, any remaining credit card debt, medical bills, or other unsecured debts and some tax debts are discharged. To qualify for Chapter 13 you must have a steady source of income, such as from a job, self-employment, a business, retirement income, or social security.
What About my Employer?
An Employer Cannot Fire An Employee Based Solely Upon a Bankruptcy Filing
The law prohibits against discriminatory treatment of debtors based on a bankruptcy filing. The law protects both government employees and employees of private companies as part of a number of legal protections in place for debtors. A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case.
Under this law, the government may not terminate an employee, discriminate with respect to hiring, or deny, revoke, suspend, or decline to review a license, franchise, or similar privileged based on a bankruptcy filing. Private employers may not discriminate with respect to employment if the discrimination is based solely upon the bankruptcy filing. 11 U.S.C. §525(b).
Security Clearance & Background Checks
Jobs that require security clearances may be affected by filing bankruptcy; however, it is unlikely that a bankruptcy filing puts your security clearance at risk. In fact, bankruptcy is often viewed as taking appropriate and responsible measures to deal with debt problems instead of trying to ignore them. This is viewed more favorably than carrying outstanding debt and missing payments. And again, no employer is allowed to fire you based on filing for bankruptcy.
In some cases, future job application may be affected by filing for bankruptcy. While the government is not allowed to consider a bankruptcy filing when deciding whether or not to hire a job applicant, this rule does not apply to private employers. This is of particular concern for people who plan to apply for jobs that require them to handle money or finances.
How to File for Bankruptcy
- Meet with a lawyer for a free consultation
- Don’t despair! There is hope. We offer free consultations to anyone in Savannah, GA and the surrounding area. Call us at (912) 351-9000, contact us here
- Prior to our meeting, please gather 60 days of pay stubs and bank statements, copies of your bills, and a copy of last year’s tax return. Together, we will take a look at your specific situation.
- When you leave our office, you will be empowered with the information you need to decide if bankruptcy is the right choice for you.
- Gather the necessary documents
Once you decide to file, it is important to gather all the necessary documents including mortgage statements and past due bills, so that we can prepare your bankruptcy petition. After filing, we can provide necessary documents to the Bankruptcy Trustee assigned to administer your case.
- Take the Credit Counseling course
Credit Counseling must be completed within 180-days prior to filing for bankruptcy. We will file your certificate of completion with the Bankruptcy Court on your behalf. The purpose of mandatory credit counseling is to help you explore whether or not you need to file for bankruptcy. The course is designed to help you determine if there is a feasible way you can pay back your debts without filing for bankruptcy, but you should understand that credit counseling is not meant to deter you from bankruptcy. You must complete the counseling even though you are under no obligation to carry out any recommendations made by the credit counseling agency.
- File for Bankruptcy
Once we complete your bankruptcy petition we will review it together for accuracy and completeness. You will then sign it and we will file it with the Bankruptcy Court.
- Attend the Meeting of Creditors
Every person who files for bankruptcy must attend a Meeting of Creditors. Your legal counsel will prepare you for the meeting and will be by your side during it. Creditors rarely attend these meetings. In the unlikely event that one does attend, he or she cannot badger you and may only ask you questions about the information in your bankruptcy petition and the nature and location of your assets.
- Take a Debtor Education course
Debtor Education must be completed after filing for bankruptcy but must be completed prior to receiving your bankruptcy discharge order. It is a mandatory two-hour course in personal financial management. We will file your certificate of completion with the Bankruptcy Court on your behalf.
Typically in Chapter 7 cases, there is little the debtor must do after the Meeting of Creditors concludes and Debtor Education is completed. Chapter 13 cases are more complicated and involve a three to five year repayment plan. Regardless of whether you file for Chapter 7 or Chapter 13 bankruptcy, it is our job to help you through the process so that you can get out from under the weight of debt and enjoy a fresh financial start.
After Filing, What’s Next?
There are a number of things that are important to understand about paying bills after filing for bankruptcy. Here are a few quick things you need to know:
Not all debts are discharged (erased) in bankruptcy. You must pay back nondischargeable debts after your bankruptcy case is over.
As soon as you file for bankruptcy, all collection action must stop. This means that your creditors will stop sending you bills and monthly statements, and stop making harassing phone calls.
If you want to keep your house or car, you need to continue making the monthly payments during and after bankruptcy.
If you file for Chapter 13, certain debts will be paid within a final repayment plan and certain other debts must be paid outside of the plan, directly to the creditor. For example, your mortgage, rent, and car payments are typically paid outside of the plan once it’s established as they become due each month. Usually, mortgage and car payments that you missed before filing for bankruptcy are added into the repayment plan and spread out over the agreed-upon time period. Liens can persist after bankruptcy unless there is a court order stating otherwise. Again, this means that if you want to keep your house or car, you must continue to make on-time monthly payments during and after bankruptcy to avoid foreclosure or repossession.
Pay Back Nondischargeable Debts
Not all debts are treated the same under bankruptcy law. Certain debts are “nondischargeable,” meaning they cannot be erased through bankruptcy. Even after a successful bankruptcy you remain legally obligated to pay back your nondischargeable debts. Common nondischargeable debts include back spousal or child support payments, student loans, and recent tax obligations.
Depending on the facts of your case, you may have other nondischargeable debts. Make sure you know which of your debts are dischargeable and which are nondischargeable.
Pay Monthly Bills Even If You Do Not Receive a Statement
Once you file for bankruptcy it is likely that you will not receive monthly statements, even from the secured creditors you plan to continue to pay. Your bankruptcy discharge order will erase your personal liability for dischargeable debts, but it will not erase any lien associated with the debt. The term “lien” simply means the right of another person or company to take possession of property until a debt owed on that property is paid. If you want to keep your home or car, you must make your monthly payments even if you are not receiving monthly statements.
After bankruptcy, you will not be personally liable to pay back your mortgage, but a lien will still be attached to the house, so if you do not pay your mortgage the lender retains the right to foreclose on and take possession of the property.
After bankruptcy, you will not be personally liable to pay back a car loan (unless you sign a Reaffirmation Agreement), but the car will still have a lien, so if you do not make your car payment the lender has the right to repossess the vehicle.
Also, it’s not unheard of for your bank to terminate automatic payment arrangements and possibly access to online banking.
It will be up to you to pay the correct amount each month, keep a record of having paid, as well as monitor your accounts to make sure the debt is getting paid and the lender is properly applying your payments to your account.
Know What Debts Are Being Paid By Your Chapter 13 Plan and Which Are Not
As we mentioned above, certain debts will be paid within your plan and other debts you are responsible for paying directly to the creditor each month. Read and understand your Chapter 13 bankruptcy plan to find out exactly what should happen next.
Generally speaking, mortgage arrears (missed monthly payments) or missed car payments from before your bankruptcy case was filed will be included in the payback plan. You will send a monthly payment to your plan’s trustee each month, and he or she will pay your creditors designated by the plan.
Monthly mortgage and car payments that become due each month are typically paid outside of the plan. Most Chapter 13 debtors pay their monthly mortgage and car payments directly to the lenders during bankruptcy. Even if you are not receiving monthly statements, do not assume that the debt is being taken care of or that you do not have to pay it. If you want to retain your house or car, you must make the monthly payments.
Every Bankruptcy Case is Different
Speak with your bankruptcy attorney to understand which of your debts are being paid by the plan and which are not. Thankfully, we have a legal system that gives debtors a chance to overcome their financial issues and succeed.