Bankruptcy Alphabet: H is for Hearings

The Letter H © by Ivy Dawned

If you file a bankruptcy case, you will have to go to a “341- Meeting of Creditors” about 30 days after you file.  As the name suggests, this is an opportunity for your creditors to ask questions.  However, in most cases no creditors bother to show up.  You have a right to file bankruptcy and they can’t stop you so they usually don’t want to waste their time by attending the hearing.  (The only creditors that I have had show up at the 341 were there to ask if my client wanted to reaffirm on something).  If a creditor does show up, it can only ask questions related to your income, assets, and expenses.

There is no judge at the 341.  There is only a trustee– the person in charge of your bankruptcy.  The trustee will probably ask several questions about your case.  The length of your time in front of the trustee will vary by district, but in Birmingham, AL, my client’s usually only answer a few questions and are done in less than 2 minutes.

If you file a Chapter 7 bankruptcy, the 341 Meeting is probably the only time you will have to go to a hearing.  If you file a Chapter 13 bankruptcy, then you will have another hearing scheduled as well.  This second hearing is called a Confirmation Hearing.  It is where the judge actually confirms (approves) or dismisses your plan.  (Or sometimes the judge will reschedule the confirmation hearing for a later date so that issues with your case can be resolved).  Your attorney will be able to tell you whether you need to attend the hearing or not.

Ideally, a Chapter 7 bankruptcy would have only the 341 Meeting, and a Chapter 13 would have only the 341 Meeting and a Confirmation Hearing.  However, things can happen in either type of bankruptcy that cause more hearings.  Any time an issue arises that needs to be heard by a judge, a Motion will be filed, and it will usually be set for a hearing.  Your attorney will be able to tell you which hearings you need to be present for and which you do not have to attend.

All hearings except the 341 Meeting of Creditors are held in front of a federal judge, so you should be respectful and dress appropriately for your court appearances.

If you are in the Birmingham, AL area and would like to discuss bankruptcy options, please contact me at elizabeth@elizabethjohnsonlaw.com or visit my website at www.elizabethjohnsonlaw.com.

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Bankruptcy Alphabet: G is for Garnishment

Aluminum Capital Letter G (Silver Spring, MD) © by takomabibelot

Filing a Chapter 7 or a Chapter 13 bankruptcy can stop a garnishment.  As soon as the bankruptcy case is filed, an “automatic stay” goes into effect.  The automatic stay basically tells all your creditors that they must stop trying to collect debt and leave you alone because you are under the protection of the federal bankruptcy laws.

The creditors have to stop immediately, but sometimes it takes a little while to get the garnishment stopped.  For example, if you file a bankruptcy on a Wednesday, and you get paid on Friday, the bankruptcy will legally stop the garnishment, but payroll has already been set so the garnishment will still come out of your check that pay period.  Whatever is garnished after you file bankruptcy should be returned to you.  If the garnishment doesn’t stop after a reasonable time, be sure to tell your attorney.

Garnishments don’t happen just overnight.  Before you can be garnished, the creditor has to sue you and get a judgment against you.  (There are exceptions to this.  Federal student loans, child support, and tax debts do not have to follow regular garnishment rules).  Once a creditor gets a judgment against you, it can start looking for ways to collect on the judgment.

In Alabama, garnishments can grab up to 25% of your disposable income.  (You have to make a certain minimum amount per week before they can garnish.  So if you work part-time at a minimum wage job, you may not make enough to be garnished).  Also, creditors can garnish a bank account.  This is sometimes called a levy.  They can seize any money that is in any account with your name on it, even if it is a joint account.

What about the money that has already been taken?  Is it gone forever?  In some situations you can get back the money that was garnished in the 90 days before you file bankruptcy.  If the money was garnished over 90 days before you file, then it is gone.

Of course it is best to never get garnished in the first place.  If you don’t have a garnishment yet, but you know that one is coming, it would be a good idea to talk to a bankruptcy attorney as soon as possible to see if a Chapter 7 or a Chapter 13 might be a good solution for you.

If you are in the Birmingham, AL area and would like to discuss bankruptcy options, please feel free to contact me at elizabeth@elizabethjohnsonlaw.com or visit my website at www.elizabethjohnsonlaw.com.

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Bankruptcy Alphabet: F is for Fees

Craquelure Capital Letter F On Glass (Silver Spring, MD) © by takomabibelot

You may have heard it said that there is no free lunch.  The same holds true for bankruptcy.  Every bankruptcy case will have a filing fee (which helps finance the court system).  If it is a Chapter 7 case, the filing fee is $306.  If it is a Chapter 13 case, the filing fee is $281.

Before the bankruptcy case is filed, a credit counseling course must be taken.  The places that offer these courses have to charge a fee for the course to keep their operations running.  (Sometimes a person can qualify for free credit counseling, but that is rare).  The credit counseling usually is not terribly expensive.  Most agencies charge less than $50 for the course.

After the bankruptcy is filed, but before a discharge is granted, a personal financial management course must be taken.  (It can usually be taken from the same agency that does the credit counseling).  The fee for the personal financial management course is also usually less than $50.

If you are filing with an attorney, then you will have attorney’s fees.  In a Chapter 7, the attorneys’ fees must all be paid before the case is filed.  The amount of attorneys’ fees will depend on which attorney you choose and on how complex your case is and on how many creditors you have.  More complex cases involving a business or taxes or garnishment (to name just a few) and/or cases that have many creditors will demand more time from the attorney and will probably have higher attorneys’ fees.

In a Chapter 13, attorneys do not have to get the entire fee up front.  Some of the fee could be paid for “through the plan.”  What this means is each time you make a Chapter 13 payment, the attorney will get a portion of that payment until he/she is paid in full.

In either type of bankruptcy, there can be additional fees if something happens that was not covered by the original contract.  For example, in a Chapter 7 if the contract does not cover Adversary Proceedings (APs), but a creditor files an AP, then you will likely have to pay more fees if you want the attorney to represent you in the AP.

If your case is over and has been closed, but you need to have it re-opened for some reason (like to file a late personal financial management certificate that you failed to take on time), then you will have to pay a re-opening fee (and probably a fee to your attorney for the extra work involved).

If you are checking on fees, be sure to ask what the fees include.  Some attorneys will give you a fee that INCLUDES the all the fees (credit counseling, filing fee, and financial management) but some attorneys do NOT include the credit counseling, filing fee, and financial management in their quotes.

Remember that even though it costs money to hire an attorney, you are probably saving yourself money in the long run.  An attorney can help you determine which of your assets are exempt and if and how you can protect unexempt assets without running into other huge problems like fraudulent transfers, preferences, etc.  A bankruptcy attorney will also know which of your debts can be discharged and which cannot.  And an experienced bankruptcy attorney will be able to protect you from creditors who do not follow the law.

If you are in the Birmingham, AL area and would like to discuss bankruptcy options, please contact me at elizabeth@elizabethjohnsonlaw.com or visit my website at www.elizabethjohnsonlaw.com.  I do not charge for an initial consultation– no fees for it– it is free!

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Bankruptcy Alphabet: E is for Exemptions

When you file bankruptcy, you are allowed to keep a certain amount of things and property.  What you are allowed to keep depends upon the exemptions that your state has recognized.  Alabama has “opted out” of the more generous federal exemptions and requires its residents to use the puny exemptions listed in the Alabama Code.

If you have more assets than can be exempted, then the bankruptcy trustee may want to sell the items, give you your exempted amount (if any), and use the rest to pay back some money to your creditors.  However, it has to be worth the trustee’s time and expense to do this.  For example, if you have just $200 worth of unexempt furniture, the trustee is probably not going to try to take that because it would cost him more to try to sell it than it would to cover his expenses and there would be nothing left for the creditors.

One of the Alabama exemptions is the homestead exemption (AL Code Section 6-10-2).  This exemption protects $5000 (per filer) of equity in a home.  So if you have a lot more equity in your home than that, you might not want to file a Chapter 7 bankruptcy.  For example, if you owe $100,000 on your home and it is worth $150,000, then you have $50,000 of equity.  You would not want to file Chapter 7 bankruptcy because the trustee would see the equity and would want to sell your home, give you your $5000 exemption, pay his own expenses for doing so, and distribute the rest to your creditors.

Another Alabama bankruptcy exemption is the “wildcard” (AL Code Section 6-10-6).  This exemption protects $3000 (per filer) of “stuff”.  It can be used to protect cash, money in bank accounts, furniture, equity in vehicles, etc.  While this exemption is very small, it is helpful because you can exempt the more valuable items (like vehicles) or easily obtainable items (like cash) and, if you run out of exemption room, you can leave the smaller, harder to sell items unexempt.  These smaller, harder to sell items are often not worth the trustee’s time and effort and would not produce enough money to give a meaningful distribution to your creditors.  So often you get to keep more than the exemptions would seem to indicate.

“Wearing apparel” is 100% exempt.  And, usually any amount that is in an IRA or a 401(K) will be safe from the court.

If you are in the Birmingham, AL area and would like to discuss bankruptcy options, please feel free to contact me at elizabeth@elizabethjohnsonlaw.com or visit my website at www.elizabethjohnsonlaw.com.

Photo credit:  Cast Iron Capital Letter E (North Scituate, RI) © by takomabibelot

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Bankruptcy Alphabet: D is for Discharge

D (North Scituate, RI)If you file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, usually the goal that you are seeking is a discharge of your debts.  The discharge is the court order that says that your debts are gone.  In the case of a Chapter 7 bankruptcy, your debts are wiped out.  If you have filed a Chapter 13 bankruptcy, you probably have made regular payments to the court over a three to five year period.  At the end of that period, whatever you still owe on the debt is wiped out.  No creditors that were discharged can come back after you for any payment.

Some debts cannot be discharged in bankruptcy.  Student loans and child support will survive bankruptcy without being discharged.  Support payments that arise because of divorce cannot be discharged.  Taxes can sometimes be discharged, but certain requirements have to be met for them to be dischargeable.

Some debts, like property settlements from a divorce, can be discharged in a Chapter 13 bankruptcy but not in a Chapter 7 bankruptcy.

Most debts are dischargeable in a Chapter 7 bankruptcy.  If a creditor in a Chapter 7 bankruptcy believes that its debt should not be dischargeable according to the bankruptcy laws, it can file an Adversary Proceeding (sometimes called an AP).  An AP is like a mini-lawsuit inside a bankruptcy case.  If the creditor proves that debt is not dischargeable according to the bankruptcy laws, then the debt will not be wiped out by the bankruptcy.  It will still be owed at the end of the case.  (The things that creditors most often file APs about are: 1- debtors running up charges on accounts within 90 days before filing bankruptcy; and 2- claims of fraud or other bad acts on the part of the debtor).

A discharge in bankruptcy is not to be confused with a dismissal.  A discharge means that your debts are gone.  A dismissal means that your case has ended, but the debts are still there.  Chapter 13 bankruptcies can be dismissed for a variety of reasons, but two of the most common are failure to make plan payments and failure to provide required documents.

If you are in the Birmingham, AL area and would like to discuss bankruptcy options, please feel free to contact me at elizabeth@elizabethjohnsonlaw.com or visit my website at www.elizabethjohnsonlaw.com.

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Bankruptcy Alphabet: C is for Credit Counseling

CWhen Congress changed the bankruptcy laws in 2005, it added a requirement that everyone who is going to file a bankruptcy case must first take a “credit counseling” course.  Some bankruptcy attorneys refer to this as the “ticket in” to a bankruptcy case.

At first there was concern that this requirement would be very burdensome to debtors, but it has turned out to be more useless than burdensome.  Most of the credit counseling providers do their sessions through the internet or by telephone and most of the sessions are not terribly long– a couple of hours at most.

The credit counseling agency may provide you with an “Action Plan” with suggestions on how to help you with your finances.  The credit counseling agency will give you a Certificate of Completion which shows that you have completed the course.  This certificate has to be filed in your case to prove that you have met the requirement.

The credit counseling must be taken from an agency that has been approved by the court.  Credit counseling also has to be done within the 180 days before you file.  If you wait until after you file to take the course, your case will be dismissed for not meeting the requirements.  If for some reason you have to file a second case, your credit counseling certificate will be good for that second case (you won’t have to take the class again) as long as the second case is filed within 180 days of your taking the course.  If it has been longer than 180 days, you will have to re-take the course.

There is a related type of “Debtor Education” that you must take before your case ends.  The class is called a Personal Financial Management Course and is sometimes referred to as a “ticket out”.  If you do not take the course before your case closes, your debts will not be wiped out.  Your creditors could start trying to collect on the debts again.  If you have waited too long to take the course and your case has closed, you could request that your case be reopened so that you can take the course and file the certificate, but this requires a reopening fee and probably additional attorneys fees.

The financial management course also has to be taken from an agency that is approved by the court.  Like the credit counseling course, it can also be done on a computer.  In my experience, the ticket out is more helpful than the ticket in.  It gives good advice and pointers on how to stay out of debt in the future and how to spot things that might not be in your financial best interests.

If you are in the Birmingham, AL area and would like to discuss bankruptcy options, please feel free to contact me at elizabeth@elizabethjohnsonlaw.com or visit my website at www.elizabethjohnsonlaw.com.

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Bankruptcy Alphabet: B is for Budget

b16When considering bankruptcy, it is essential to make out a budget.  A budget will show you how much money you are spending each month and where that money is going.  It is important to be accurate.  Don’t change the numbers just to make them look better.  You want reality.

If you are thinking about filing a Chapter 7 bankruptcy, you need to have a budget so that you can see what the “before” numbers look like as compared to the “after” numbers.  With a Chapter 7, you are looking for a fresh start.  If your budget shows that after the bankruptcy you will still have less money coming in than you have going out, then you won’t get the relief that you need.  If that is the case, then you either will have to make more or spend less.  It won’t do you any good to get out from under the burden of excessive debt if you just start getting more debt as soon as you get your discharge paper.  (And you can only file a Chapter 7 once every eight years.  So it will be eight more years before you have the Chapter 7 option to help you out of any financial hole).

In a Chapter 13 bankruptcy, a budget is also very important.  You want to be sure that you are able to make the Chapter 13 payment each month while also keeping up with your other expenses.  If you don’t budget correctly, you could run short on important expenses like your Chapter 13 payment or your mortgage payment or perhaps child support.  Running behind on any of these can cause massive problems with a Chapter 13 case.  Your case could be dismissed and/or the mortgage company could file a Motion for Relief in which they are trying to get the house out of the protection of the bankruptcy case so that they can start up foreclosure proceedings.

If you are going to be filing a bankruptcy case, you will have to take a “credit counseling” course first.  A budget is essential here, too, because any credit counseling course will have to see your budget.  This shows the agency that you are aware of your financial picture and also helps the agency determine if you have any other options besides bankruptcy.

If you are in the Birmingham area and would like to speak with someone about bankruptcy options, please feel free to contact me through the contact area on this blog or by going to www.elizabethjohnsonlaw.com.

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Bankruptcy Alphabet: A is for Automatic Stay

A (Campo Francesco Morosini, Venice)
When a bankruptcy case is filed, an automatic stay goes into effect (Section 362 of the Bankruptcy Code).  Essentially this means that all creditors must stop what they are doing and leave the debtor alone because he/she is under the protection of the federal bankruptcy laws.  The automatic stay will stop foreclosures, garnishments, repossessions, lawsuits, creditor phone calls, harassment, etc.


The automatic stay is not optional for creditors.  If they do not cease what they are doing, then they are violating the automatic stay and can be liable to you for damages.

If it is a the first time that bankruptcy is filed, then the automatic stay will be in effect as soon as the case is filed.  If the debtor is filing a second bankruptcy case within a year of the dismissal of a first bankruptcy case, then the automatic stay will go into effect for 30 days only.  In the second case, the debtor has to file a motion with the court as soon as the case is filed requesting that the automatic stay continue throughout the case.  Our bankruptcy judges in Birmingham are very good about granting these requests as long as there is a good reason given for why the second case will work when the first case did not.

Creditors can request for the stay to be lifted.  They do this by filing a Motion for Relief from Stay.  In a Chapter 7, a Motion for Relief may be filed so that a creditor can start the process of getting surrendered property (like a house or a car that the debtor has decided to let go) back into their hands.  In a Chapter 13, Motions for Relief are often filed by mortgage companies if they are not receiving mortgage payments on time.  If a Motion for Relief is granted, then the stay is no longer in effect for that piece of property and creditors may resume trying to get control over the property.

If you are in the Birmingham, AL area and would like to discuss bankruptcy options, please feel free to contact me at elizabeth@elizabethjohnsonlaw.com or visit my website at www.elizabethjohnsonlaw.com.

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Jefferson County, Alabama Files Chapter 9 Bankruptcy

Jefferson County, Alabama filed the largest Chapter 9 bankruptcy in U.S. history on November 9, 2011.  The estimated debt included in the filing is $4.23 billion.  (Before the filing, the previous biggest municipal bankruptcy was $1.7 billion by Orange County, CA in 1994).

The Chapter 9 bankruptcy filing provides bankruptcy protection for Jefferson County, but will not wipe out Jefferson County debts.  Instead, the Chapter 9 is a type of restructuring in which the County develops a repayment plan.  Creditors are allowed to form a committee and make suggestions, but they don’t ultimately have a say in the final plan– as long as the County’s plan meets certain requirements, it is binding on creditors even if they dissent.

The Chapter 9 bankruptcy filing should not interfere with the county’s delivery of essential services to its citizens or payment to its employees and vendors.  Jefferson County’s day-to-day activities are not subject to court approval, and it can borrow money without having to ask for court authority.  (This is different from a Chapter 13 individual bankruptcy in which the debtor cannot incur new debt without the approval of the court).

Jefferson County has filed a list of creditors it owes.  More than 5,000 creditors were listed in the petition, the largest of which, JP Morgan Chase & Co., owns about $1 billion of the county’s $3.14 billion debt for sewer construction.

U.S. Bankruptcy Judge Thomas Bennett will preside over the Chapter 9 case.  He will rule on the plan, deciding whether it is in the best interests of creditors and is feasible.

 

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Bankruptcy Watch List: United States Postal Service

The United States Postal Service (USPS) has been bleeding money for several years now.  It lost $9 billion last year and is facing default if it doesn’t make a huge ($5.5 billion) payment into its retiree medical plan soon.  The postal service seems to lose more every year and by some estimates annual losses could reach $16 billion by 2016 unless something is done.

The USPS hopes to get more revenue by promoting its advertising mail (like catalogs and credit card offers).  It also wants to reduce its work force, reduce the amount it it required to set aside for retiree health benefits, and be able to offer services besides just mailing letters (such as offering retail products and services).

The USPS also is closing many post offices and wants to cancel Saturday delivery and cancel one-day delivery of first class mail.  The price of a stamp is going up to 45 cents in January 2012.

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