bankruptcy law

7 Most Common Bankruptcy Questions Answered

master — Sat, 17 Jan 2015 15:04:34 +0000

7 Most Common Bankruptcy Questions Answered master Sat, 01/17/2015 - 10:04

Many people don't really understand what bankruptcy means and shy away from it because of negative preconceptions even when it may be the best option for them. Today we'll answer basic questions that we are often asked when people call into our offices prior to scheduling a consultation. We hope these answers will ease your mind and encourage you to explore the debt relief you need whether it's bankruptcy or some other option.

What is bankruptcy?
Bankruptcy is a legal process where the courts give you debt relief. There are two main types of consumer bankruptcy and one that's most commonly used for businesses. These are Chapter 7 and Chapter 13 for consumers and Chapter 11 for business. Occasionally, other chapters are used, but these are the most common one.

What is Chapter 7?
Chapter 7 is a liquidation and can be used by consumers and also by businesses that are shutting down because of their debts. The intent of Chapter 7 is to wipe out your unsecured debts through a process called discharge. This means you won't have to pay them anymore. Secured debts may also be relieved via a Chapter 7 (like a mortgage or car loan) but only if you give up the asset that was financed.

What is Chapter 13?
Chapter 13 is a debt reorganization that can give you time to catch up on back debts. It requires a repayment plan that lasts between three and five years and, at the end, as long as your secured debts are caught up, remaining balances on most unsecured debts will be discharged. Chapter 13 can be very helpful if you're behind on your mortgage payments and want to try and catch up to keep your house.

What is Chapter 11?
Chapter 11 is usually used by businesses and allows them to catch up on back debts. However, it is very expensive and time consuming. It allows businesses to get on a repayment plan for their debts and to sell some of its assets to downsize or pay off some creditors. Occasionally, consumers use Chapter 11 if they have more debts than are allowed under a Chapter 13 plan.

Is bankruptcy the same as debt consolidation?
Debt consolidation companies charge a hefty fee to consumers and then you pay them instead of paying your creditors directly. They promise to negotiate with your creditors on your behalf to get your interest rates cut and your payments reduced. However, what usually happens is that they collect the fees and you don't get the promised results. Bankruptcy offers guaranteed debt relief.

Do you have to file bankruptcy with your spouse?
If you're married, you likely have debts in both your names. If this is the case, it may be wise for you and your spouse to file bankruptcy together. Otherwise, you will be clear of the debts, but your spouse can be pursued. On the other hand, if all your delinquent debts are in your name only, it may be wise to file solo so that your spouse's credit rating will be protected.

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bankruptcy law

What Happens If Your Bank Account Is Frozen and How Bankruptcy Can Help

master — Fri, 16 Jan 2015 15:04:34 +0000

What Happens If Your Bank Account Is Frozen and How Bankruptcy Can Help master Fri, 01/16/2015 - 10:04

In North Carolina, most creditors are blocked from being able to garnish your wages, but this doesn't mean they can't get to your money using other means. If a creditor has sued you over an unpaid debt and obtained a judgment in court, they can use this to try and attack your assets and this can include your bank accounts. What happens if your bank account has been frozen or money has been seized by a creditor? And can bankruptcy help you get your account unfrozen or any money that was taken back? It's likely it can help. Here's what you need to know.

Fight the judgment before it goes through
When you receive a notice to appear for a lawsuit, you should never ignore it. Even if you don't have the money to pay the creditor that's suing you, you should go and throw yourself on the mercy of the court or try to make last-ditch payment arrangements with the creditor. Not going to court doesn't help you. You may also be sent a Notice of Right to Have Exemptions Designated. This is a form that lets you protect a certain dollar amount of assets including bank accounts. If you don't respond to these court notices, your assets – including your bank account – become fair game.

What to do if a bank levy has already been issued
If you didn't show up into court and haven't opened legal notices you get in the mail, you may be taken by surprise by a bank levy. A bank levy occurs when a creditor is given access to take funds from your bank account. To protect yourself from a bank levy, there are a couple of things you can do. Although North Carolina doesn't allow creditors to garnish wages, allowing them to access your bank account is almost as good since that's where your wages likely end up. You can avoid a bank levy by closing your bank account before it hits but a better strategy is to consider a permanent solution like bankruptcy.

How bank levies affect joint bank accounts
Bank levies don't distinguish between your money and your spouse's money when they drain your bank account. One sure way to protect your spouse is to remove yourself from the bank account. Better yet, close the joint account and have your spouse open an individual account without you. If you get the chance, you can list this account to be exempted, but if you don't file the designation exemption form or don't file it in time, closing the account should offer more protection.

How bankruptcy helps with levies
Bankruptcy can be a much more permanent and safe way to deal with a levy. Chapter 7 bankruptcy can discharge the underlying debt which should end the levy. Bankruptcy may not be the best choice if this judgment is your only debt. But usually when it gets to this stage, most clients that come to see us about judgments and levies also have a significant pile of other debts built up as well. If you're drowning in credit card debt, have medical bills you can't pay and are living paycheck to paycheck, bankruptcy may be a good solution for you.

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bankruptcy law

How to Protect Your Tax Refund if You're Considering Bankruptcy

master — Mon, 12 Jan 2015 14:49:05 +0000

How to Protect Your Tax Refund if You're Considering Bankruptcy master Mon, 01/12/2015 - 09:49

Roughly 80% of Americans get a tax refund. If you're one of these people that usually gets money back from the government for overpayment of taxes, are deep in debt and considering bankruptcy, you may not want to hand this money over if you can avoid it. There are ways to hang on to the excess tax money you are owed back, but you need to plan ahead to do so.

First, North Carolina bankruptcy laws set certain exemptions that you can use to protect your assets, including your income tax refund. If you haven't yet used your wildcard exemption, that's $5,000 you can use to protect a sizeable check from the IRS. It's important to think ahead about your bankruptcy exemptions and plan with your attorney to allocate these wisely to best protect your assets.
Second, if you know you need to use all of your exemptions to protect other assets and can't use them to protect your IRS refund – or if your refund check will be so large the wildcard won't cover it, you can wait to file bankruptcy after you get the funds. In this case, the money will need to go to pay living expenses or buy non-luxury items. You can also use them to pay for your bankruptcy fees.
Third, if you're planning on filing Chapter 13 instead of a Chapter 7, you should be able to hang onto the refund, with your Trustee's permission, so long as the money is calculated into your Chapter 13 repayment plan. This is something to discuss with your NC bankruptcy attorney. When you come in for your initial bankruptcy consultation, let your attorney know you're anticipating a refund.
Fourth, if part of your refund is Earned Income Credit (EIC), that portion should be 100% exempt if your bankruptcy attorney follows specific procedures to request that it be fully exempted. This is why it's important that you choose your bankruptcy attorney wisely. You want an attorney that is a bankruptcy expert rather than a general firm that takes on all types of cases.
Your bankruptcy attorney can best help you if you are 100% forthcoming about your assets, your income and any money you're expecting that's out of the ordinary – like your tax refund. Without complete disclosure, you'll handicap your attorney's ability to give you the best advice. It is your attorney's job to help you protect your assets and get the most complete debt relief possible within the limits of the law.
It's also important to remember that getting a tax refund isn't a gift from the government – it's a return of your money that you overpaid into the IRS coffers all eyar long. Think about it this way – would you overpay your utility bills to get a lump sum back a year later? Would you overpay your mortgage and house note for a whole year?
Rather than paying excess taxes, that's money that could be in your savings account earning you interest or used to pay down high interest credit card debt. The bottom line is that it's your money and should be in your pocket. Adjusting your payroll tax withholdings can help you pay just enough in taxes to where you only have to write the government a small check or get back a small refund.

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bankruptcy law

Supreme Court May End Lien Stripping. How Filing Bankruptcy Now Can Help

master — Mon, 15 Dec 2014 18:21:56 +0000

Supreme Court May End Lien Stripping. How Filing Bankruptcy Now Can Help master Mon, 12/15/2014 - 13:21

We've written here before about lien stripping, but here's a quick rundown on what it is and how it helps consumers. Lien stripping is usually only possible in Chapter 13 and only for second mortgages, not first mortgages. Currently, in most court jurisdictions, it's acceptable to ask the bankruptcy court to wipe out a second mortgage to the extent it is not supported by equity in your home.

What is lien stripping?
For instance, if your home is worth $150,000 and your first mortgage balance is $155,000 and you have a $20,000 second, you can typically have the $20k debt discharged along with your other unsecured debts, so long as you meet other requirements. You can't get out of the debt simply because you don't want to pay it, but if you are overextended on debt, this is a route open to you – at least for now – through a qualifying Chapter 13 debt repayment plan in North Carolina.

What is the Supreme Court considering?
In most districts, lien stripping has only been allowed in Chapter 13 cases, but in the 11th Circuit, which includes Georgia, Florida and Alabama, lien stripping is also possible. It's the Chapter 7 lien stripping that's currently under consideration by the highest court, but the judgment could also impact Chapter 13 lien stripping or encourage other lenders to fight against Chapter 13 lien stripping as well.
The Supreme Court recently accepted two cases on appeal that involved Bank of America and Chapter 7 lien stripping in Florida, part of the 11th Circuit. The idea behind BOA's appeal is that someday, if the home appreciates enough, there will be enough equity to support the loan. The bank's attorneys wrote in their appeal that lien stripping “may be the single most important unresolved issue in consumer bankruptcy.” Other banks and lenders are expected to support Bank of America's position in the case.

How this could harm consumers
In 1992, the Supreme Court decided that a first mortgage lien could not be canceled in bankruptcy and the consumer keep the property. In simpler terms, if you owed $150,000 on a $100,000 home, there's no way to ditch the mortgage and keep the property in bankruptcy. But you can surrender the property and be released from the mortgage.
But because second mortgages weren't as common when the bankruptcy code was updated, they were not specifically addressed. The ability to strip a second mortgage lien could allow many homeowners deep in debt to keep their homes. Otherwise, more homes will go into foreclosure which could hold back the housing market from recovery.

How filing now could help
If you have a second mortgage and are struggling to pay bills, you can't shed the second mortgage in North Carolina in a Chapter 7, but can in Chapter 13 – at least for now. If you're considering filing bankruptcy, but haven't pulled the trigger, it may be wise to do it now before the Supreme Court rules on this issue. Although SCOTUS takes their time before issuing rulings, caution is wise in case the court expands the limitations on lien stripping to Chapter 13.

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bankruptcy law