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How does Chapter 13 differ from Chapter 7 for a debtor?

Michigan Chapter 13

NOTE: This information is offered to provide general information only. It is not intended as legal advice. To find out about your particular situation, please contact us for a FREE office consultation. Call 734-722-2999 today.

What is Chapter 13 and how does it work?

Chapter 13 is that part (or chapter) of the Bankruptcy Code under which a person may repay all or a portion of his/her debts under the supervision and protection of the bankruptcy court. The Bankruptcy Code is that portion of the federal law that deals with bankruptcy. A person who files under Chapter 13 is called a debtor. In a Chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. The plan must be approved by the court. If the court approves the debtor’s plan, most creditors will be prohibited from collecting their claims from the debtor during the course of the case. The debtor must make regular payments to a person called the Chapter 13 trustee, who collects the money paid by the debtor and disburses it to creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his/her dischargeable debts.

How does Chapter 13 differ from Chapter 7 for a debtor?

The basic difference between Chapter 7 and Chapter 13 is that under Chapter 7 the debtor’s nonexempt property (if any exists) is liquidated (sold and turned into cash) to pay as much as possible of the debtor’s debts. While under Chapter 13, a portion of the debtor’s future income is used to pay as much of the debtor’s debts as is feasible considering the debtor’s circumstances. As a practical matter, under Chapter 7 the debtor loses all or most of his or her nonexempt property and receives a Chapter 7 discharge, which releases the debtor from liability for most debts. Under Chapter 13, the debtor usually retains his or her nonexempt property and must pay off as much of his or her debts as the court deems feasible. A Chapter 13 case normally lasts much longer than a Chapter 7 case and requires payments by the debtor.

Call Firebaugh & Andrews today for your free consultation 734-722-2999

10 Things You Should Know About Bankruptcy Court

1. Deadlines are critical in bankruptcy court. The regulations for this process are very complex, can be technical, and all case deadlines must be met. Failing to file the appropriate forms or documentation on time could result in your case being dismissed or delayed. If your case is dismissed you could lose your filing fees and have to start over again from the beginning.

2. New federal regulations passed in 2005 make it harder to qualify for complete debt elimination. The Bankruptcy Code was changed in 2005 to make it more difficult for consumers to wipe out debt completely if there are resources available to pay these obligations. Many consumers who would have qualified for a Chapter 7 discharge before these changes must now use Chapter 13 instead, which involves repayment of some of your debts. This is determined using the Means Test.

3. A Chapter 13 bankruptcy includes a repayment plan that must be filed with the bankruptcy court. The court will determine exactly what income and expenses you have, and then calculate the reasonable expenses and monthly repayment amount for your case. This plan must be submitted to the court and confirmed.

4. Representing yourself in bankruptcy court can be a big mistake. The laws regarding bankruptcy can be very confusing, and many common errors could cost you a chance at a new financial start. An experienced attorney can help you determine the right exemptions, represent you at hearings and meetings with creditors, and get the best results possible for you.

5. Bankruptcy court is a court which exclusively deals with bankruptcy cases. These courts are located around the United States, and they only handle bankruptcy cases and matters related to this legal area.

6. The bankruptcy court will appoint a trustee in your case. This trustee will be responsible for overseeing your specific case and ensuring that all of the documentation is filed. The trustee is not in favor of either the consumer or creditors, but is an officer of the court instead.

7. Choosing the right attorney to represent you in bankruptcy court is important and can affect the outcome of your case. You want a lawyer who will aggressively defend you and work hard to overcome any objections that may be presented by your creditors or the trustee. Experience is also important, so you want an attorney who is very knowledgeable in bankruptcy law.

8. The penalties for lying or hiding assets in a case can be severe. The bankruptcy court judge has the authority to dismiss your case, order fines and penalties deemed appropriate, or even have perjury or other criminal charges filed against you. It is essential that you are completely honest in all your dealings with the court to avoid any sanctions or penalties.

9. The exemptions you claim in bankruptcy court will affect whether or not your property can be seized and sold to pay creditors. The laws of each state are different. An experienced attorney can help you determine whether to use the federal or state exemptions, or whether a combination of these two are better in your specific case.

10. A discharge is the order issued by the bankruptcy court when your case is completely finished and closed out. Usually any debts that have not been repaid are eliminated in the process unless you have reaffirmed your obligation.

Call Firebaugh & Andrews for your free evaluation, with over 50 years combined experience they can make sure you make the right decision.

Are you Afraid of Filing for Bankruptcy in Michigan?

For most people the decision to file bankruptcy in Michigan is extremely difficult. First, there is the fear of the unknown. Some people fear that their credit will be destroyed forever. Others fear that they will lose their property. Yet others fear the humiliation that their friends or neighbors will find out. Some fear that they will be harassed by their creditors at court.

Although filing for bankruptcy is a very difficult and important decision, most of people’s fears are unfounded. Ironically, most people’s credit improves after they file for bankruptcy. The majority of people filing for bankruptcy in Michigan already have fairly low credit scores. This occurs because their creditors keep reporting delinquent balances or obtaining judgments. Once a person files bankruptcy, all of their debts are generally discharged. As a consequence, there are no longer delinquent payments being reported dragging down their credit score. It’s not unusual to see a person’s credit score rise a 100 points approximately a year after filing for bankruptcy.

Most People Keep Their Property

Another fear people have is that they will lose their property. This fear too is unfounded for most people. The Bankruptcy Code allows people to retain most if not all of their assets. For example, a person could have $10,000.00 in the bank and file for bankruptcy or even up to a $1,000,000.00 in a retirement plan. The code provides for protection for a substantial portion of a person’s property in order to help them obtain a fresh start. In addition, a person can keep their car or their house as long as they agree to continue to make payments on that property.

It’s Okay!

Filing for bankruptcy is difficult for most people because of the fear of humiliation or because they believe they have failed in some way. Nobody generally makes it a strategy to file for bankruptcy. First, if your neighbors and friends will not find out that you filed for bankruptcy unless they make it a habit of checking the court files. Filing for bankruptcy should be approached more from a financial point of view and less as a moral problem. Problems happen to people that often have a negative impact on their financial situation such as a divorce, illness, job termination, or substantial depreciation in the value of their house. These problems may wreak havoc on a person’s finances if not addressed.

Bankruptcy Stops The Harassment

Some people worry about being harassed at court by their creditors. What many of these people don’t realize is that bankruptcy stops creditors from harassing them.

If a person is unable to pay their bills, a creditor can obtain a garnishment of their wages or seize their property such as a car or household items. Bankruptcy stops creditors from collecting. Although creditors may appear at court to question a Debtor, it is rare that they do.

burst_free_consultationWe understand that filing for Bankruptcy is an important and difficult decision. It is a decision that a person should make only after consulting a professional with expertise in the field. My Firebaugh & Andrews specializes in helping people file for bankruptcy. We have helped thousands of people discharge their debts under Chapter 7 or reorganize their finances under Chapter 13.Firebaugh & Andrews has been practicing bankruptcy law for over 50 years combined.

We offer free consultations to help people understand how bankruptcy would affect them and to take the unknown and fear out of filing for bankruptcy.

Married couples can file for bankruptcy jointly or individually. Learn which option is best for you.

If you are a married couple, you can choose to file for bankruptcy jointly or individually. Whether it is in your best interest to file a joint or individual bankruptcy depends on:

  • the amount of property you own
  • whether you have joint debts, and
  • the exemption laws of your state.

Individual Bankruptcy Filing

Just because you are married doesn’t mean that you must file for bankruptcy together. Below, we discuss the benefits and drawbacks of one spouse filing an individual bankruptcy.

Benefits

If only one spouse has debt, that spouse can file for bankruptcy individually to discharge his or her own obligations. An individual bankruptcy allows one spouse to wipe out his or her debts without negatively affecting the other spouse’s credit. Also, if your state doesn’t allow you to double your exemptions in a joint petition, you may be able to protect more of your property by filing two individual bankruptcies.

However, keep in mind that if you live in a community property state, all community (marital) assets are considered property of the bankruptcy estate regardless of who is on title even if only one spouse files.

Drawbacks

If both spouses need to file for bankruptcy relief, filing two individual cases will result in higher court costs and attorney fees. Further, in most cases, a bankruptcy filing by one spouse doesn’t offer any protection to the non filing spouse from his or her creditors. But there are exceptions.

If you have joint debts, the non filing spouse will be protected by the co-debtor stay in Chapter 13 bankruptcy. Also, in community property states, if a joint debt is discharged by one spouse, that creditor can’t go after any community property to satisfy the non filing spouse’s obligation.

Joint Bankruptcy Filing

Bankruptcy law allows married couples to file a single joint bankruptcy petition together. There are both benefits and drawbacks to a joint filing.

Benefits

Court filing fees for individual and joint bankruptcies are the same. In addition, if you wish to hire a bankruptcy lawyer, attorney fees will typically be much lower for a joint filing than two individual bankruptcies. This means that filing a joint petition can save you a lot of money over filing two individual cases.

Further, a joint bankruptcy is more convenient and efficient because it allows married couples to complete only one petition, attend mandatory hearings together, and discharge all of their debts through a single bankruptcy.

Drawbacks

Some states don’t allow married couples to double their exemptions in a joint bankruptcy. This means that depending on where you live, you may not be able to protect as much property if you file a joint bankruptcy. In addition, if one spouse owns a lot of nonexempt separate

How does filing under Chapter 13 affect collection proceedings and foreclosures previously filed against the debtor?

The filing of a Chapter 13 case automatically stays (stops) all lawsuits, attachments, garnishments, foreclosures, harassment on the telephone and other actions by creditors against the debtor or the debtor’s property. A few days after the case is filed, the court will mail a notice to all creditors advising them of the automatic stay. Certain creditors may be notified sooner, if necessary. Most creditors are prohibited from proceeding against the debtor during the entire course of the Chapter 13 case. If the debtor is later granted a Chapter 13 discharge, the creditors will then be prohibited from collecting the discharged debts from the debtor after the case is closed.

A debtor who has previously filed a Chapter 13 case has an automatic stay for only 30 days after commencement of the case unless the court extends the automatic stay upon request  of the debtor for good cause. A debtor who has had two prior bankruptcy cases pending within a year will not have the automatic stay unless the debtor successfully obtains a grant of automatic stay from the bankruptcy court for good cause.

Call Firebaugh & Andrews today for your free consultation 734-722-2999

How are secured creditors treated under Chapter 13?

There are four methods of dealing with secured creditors under Chapter 13:

  1. The creditor may accept the debtor’s proposed plan
  2. The creditor may retain its lien and be paid the full amount of its secured claim under the plan
  3. The debtor may surrender the collateral to the creditor
  4. The creditor may be paid or dealt with outside the plan

A debtor may not have to pay the full amount owed on: auto, household, furniture or jewelry loans that are subject to a lien. It is important to understand that a creditor has a secured claim only to the extent of the value of its security, which cannot exceed the value of the property securing the claim. However, there are two exceptions to this rule:

  1. The creditor of a motor vehicle, purchased by the debtor for the debtor’s personal use, sold within the 910-day (2.5-year) period preceding the date of filing Chapter 13
  2. The creditor(s) of any collateral purchased by the debtor within a one-year period prior to filing Chapter 13

Thus, a creditor with a lien on a $1,500 automobile cannot have a secured claim for more than $1,500, regardless of how much is owed to the creditor, if the debt is more than 910 days old at the time of filing. If the debtor is in default to a secured creditor, the default must be cured (made current) within a reasonable time. Also, interest must be paid on secured claims. But, the plan may provide for the debtor to pay less than the amount of interest the debtor previously agreed to on the original loan documents.

 

Call Firebaugh & Andrew today for your free consultation 734-722-2999

What types of debts are dischargeable under Chapter 13?

A full Chapter 13 discharge granted upon the completion of all payments required in the plan discharges a debtor from all debts except:

  1. Debts that were paid outside of the plan and not covered in the plan
  2. Installment debts whose last payment is due after the completion of the plan
  3. Debts incurred while the plan was in effect that were not paid under the plan
  4. Secured debts (i.e. debts secured by mortgages or liens)
  5. Debts that were paid outside of the plan and not covered in the plan
  6. Installment debts whose last payment is due after the completion of the plan
  7. Debts for alimony, maintenance or support
  8. Debts for death or personal injury caused by the debtor’s operation of a motor vehicle while unlawfully intoxicated
  9. Debts for restitution included in a criminal sentence imposed on the debtor
  10. Debts for educational benefits and student loans, unless a court finds that not discharging the debt would impose an undue hardship on the debtor and his/her dependents
  11. Debts incurred using false pretenses, a false representation or actual fraud
  12. Debts that are not dischargeable under Chapter 7

The Difference Between Secured Debt and Unsecured Debt

There are two different types of consumer debt. There is secured debt which is a loan that is guaranteed by specific collateral and there is unsecured debt which is not secured by specific collateral. It is important that consumers understand the differences between the two types of debt, especially if they are having trouble making their loan payments, because the different types of creditors have different rights when it comes to collecting money from you and they have different priority when it comes to bankruptcy proceedings.
What is a Secured Debt?
As mentioned above, secured debt is a loan that is attached to a specific piece of property. The most common example is a mortgage which is, most often, secured with the property or home that the loan is used to purchase. So, if a borrower is having trouble making his mortgage payments and defaults on the loan, the lender can take back the property or the home in order to satisfy the debt. If the loan was not secured by the collateral (in this case the home or property) then the lender would have the same rights as other unsecured lenders and need to try to recover the money from the borrower’s total assets. It would not have any specific right, or priority in, the property or the home.
Typically, secured loans are offered at a better interest rate and better terms than unsecured loans because of the added protection that the collateral provides the lender.
What is Unsecured Debt?
In contrast to secured debt, unsecured debt is provided to a borrower without any specific collateral. For example, credit cards are unsecured debts. If a borrower stops making payments on his or her credit card, the credit card lender is able to sue the borrower for repayment but does not have a right to any specific piece of property. So, while a judge could order that property be sold to satisfy debts, the unsecured lender has no ability to require the sale absent a judicial ruling.
Bankruptcy Rights of Different Kinds of Creditors
While this might sound like an academic discussion since the borrower retains the obligation to repay all of his or her lenders, whether they be secured lender or unsecured lenders, the discussion is far from merely academic. While in theory the borrower has the responsibility to repay all of his or her debts, that is not always possible. If the borrower is defaulting on loan payments then the borrower may lack the funds to repay all of his or her obligations. Often, the borrower is left with no choice but to file for bankruptcy.
In a bankruptcy proceeding, secured creditors are entitled to the collateral which guarantees their loans in the order that the loans were made. For example, if a homeowner has an original mortgage that was properly executed and filed and then a second mortgage that was taken out at a later time and properly executed and filed and both loans were secured by the same property, then the original mortgage loan takes precedence over the second mortgage. It is only after both loans have been fully satisfied that unsecured lenders are entitled to any proceeds from the sale of the property or home.
Loan obligations, including student loans, car loans, mortgages and credit cards, can quickly become overwhelming. Therefore, it is important to understand your creditors’ right to recover payment from you and the priority in which they are entitled to do that.

Being Sued by a debtor? Three things to be aware of

1) Never give creditors access to your bank account.

Now here is one we get calls all the time from a potential client to say well they said they would only take X amount out, then you check your bank account and instead of $200 gone they took $1200, now its your word versus their word, good luck ever getting that money back.

2) What can creditors take and not take?

Here is a law that you must be aware of and why its SO important to hire a professional like Firebaugh & Andrews to make sure you are not taken advantage of. This law is to protect those that are either on disability or SSI. Your benefits are EXEMPT from from seizure protected by federal laws. Now this is not automatic you MUST make the creditors your bank aware that your deposits in your account (the income) is from your disability or SSI payment. We have seen cases of unscrupulous debt collectors grabbing your cash, if they do take it again good luck getting your money back.

3) Never ignore lawsuits.

The majority of lawsuits that are filed end up in default judgment because the consumer never shows up. The biggest thing we hear from consumers is, ‘I can’t afford a lawyer and, gosh, I did have a Visa or a MasterCard at some point, so I don’t have any defense.’ Yes, you do. You have a defense based on who’s suing you. If it’s the original creditor, like a Citibank, it’s one story; but, if it’s a junk debt buyer, a bottom feeder, it’s a different story altogether.

You can see how important it is to hire a professional to make sure your protected, Call Firebaugh & Andrews for your free consultation 734-722-2999

What Bankruptcy Records And Documents Are Needed?

The documents listed on this page provides an overview of the type of information we will need to get the bankruptcy completed.  Each case is different variations are common.

There are some differences between the documents required for a Chapter 7 bankruptcy petition and those required for a Chapter 13 bankruptcy petition.

Typical documents and information taken into account during a Chapter 7 bankruptcy case include:

  • A list of your current personal property and its value. This includes assets such as:
    • Cash
    • Checking or savings accounts, certificates of deposit or annuities
    • Qualified educational or tuition accounts
    • Pension or profit sharing accounts
    • Household goods, furniture, electronics and computer equipment
    • Deposits with utility companies, landlords, phone companies, etc.
    • Collectibles such as books, art, antiques, etc.
    • Automobiles, trucks, trailers and other vehicles
    • Boats, motors and accessories
    • Aircraft and accessories
    • Clothing
    • Furs and jewelry
    • Firearms, sporting equipment, photographic or other hobby equipment
    • Interest in insurance policies
    • Stocks and business interests
    • Government or corporate bonds
    • Moneys due you by others, including tax refunds
    • Alimony, maintenance, support, or property settlements to which you are entitled
    • Interests in the estate of a decedent, life insurance or trust
    • Patents, trademarks and copyrights
    • Licenses and franchises
    • Office equipment, furniture and supplies
    • Machinery, fixtures and equipment used in business

A bankruptcy lawyer can help you determine which of this property can be included on the schedule of claimed exemptions and protected from liquidation.

  • A list of real property (real estate), including your interest in the property, the current value and the amount of any secured claim.
  • A list of your creditors, the amount that you owe them and any security on those accounts

A bankruptcy attorney can help you determine which debts belong on the secured schedule and which of your unsecured debts belong on the priority schedule and which on the non-priority schedule.

  • A list of any current contracts or unexpired leases, whether the debtor is the lessor or the lessee of the property
  • A list of the names and addresses of any co-debtors on any accounts, along with the names and addresses of the creditors on those accounts

Co-debtors can be affected by your filing. The impact on a co-debtor is different depending upon whether you file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. A bankruptcy lawyer can explain how each one affects any joint account holders or co-signers on your accounts.

  • The name and address of your employer, along with your occupation and the length of your employment
  • Documentation of your income from employment, including payroll deductions
  • Income from other sources, including alimony or maintenance
  • In some cases, a list of current monthly expenses
  • A list of any payments made to creditors during the past 90 days
  • A list of all payments made during the past year to creditors who are ‘insiders’. (Creditors with whom the debtor has another relationship, like family members)

A bankruptcy lawyer can provide you with the exact legal definition of ‘insider’ and help you determine whether or not you have made any payments that fall within this classification.

  • A list of any lawsuits or administrative proceedings the debtor was a party to within the year preceding filing
  • A description of any and all property that has been seized, garnished, attached, repossessed, foreclosed or returned during the preceding year
  • A list of any property that has been assigned for the benefit of creditors within the 120 days preceding
  • Any property that has been in the hands of a receiver, custodian or court-appointed official during the preceding year
  • Any gifts or charitable contributions you made within the preceding year
  • Losses from fire, theft, casualty or gambling during the preceding year
  • Payments related to debt counseling or bankruptcy within the preceding year
  • Any property transferred during the two years immediately proceeding filing
  • A list of any financial accounts closed, sold, or transferred within the preceding year
  • A list of safe deposit boxes (along with locations and contents) held presently or within the past year
  • A list of any set-offs by any creditor in the past 90 days
  • Any property held or controlled by the debtor for another person
  • All addresses at which the debtor has lived during the preceding three years
  • Nature, name and location of any businesses owned during the preceding six years

Having these items ready will help speed up the process.  Call us today for your free consultation 734-722-2999