Bankruptcy and Foreclosure

Bankruptcy will stop a foreclosure sale. It will stop all state court actions unless and until the automatic stay is lifted by the Bankruptcy Judge. It may force the mortgage company to take a different stand, one more amenable to modification or negotiation.  In the foreclosure crisis that the nation is facing, it has probably become more common to file for bankruptcy relief only to stop a foreclosure sale. However, it is an abuse of the Bankruptcy Code to file a bankruptcy for the sole purpose of halting a foreclosure sale. When a bankruptcy is filed, one of the first things which occurs is that the clerk sets a meeting of creditors which will take place within a month or six weeks. If the debtor does not show up for the meeting, another meeting will be set, and if the debtor fails to show for the second meeting, the case can be dismissed. A debtor who files a bankruptcy for the sole purpose of stopping a foreclosure sale will not usually appear for the mandatory meeting, and will not usually file all the documents required. The case will eventually be dismissed, and the mortgage company will eventually get the automatic stay lifted so that the foreclosure can proceed. It is important that each debtor acts in “good faith” when filing for bankruptcy protection, and filing solely to stop a foreclosure is not acting in good faith. The mortgage companies have too many properties which have already been foreclosed upon, and are more likely to allow modification. There are millions of foreclosed and vacant homes across the country and with over one million foreclosures being filed each year, there will be more.  The current economic circumstances are dismal and for many there is no real choice but to file for protection. If and when you file, be sure not to fall into the category of “bad faith” filings, make sure to follow through with filing all the documents required and attending the meeting of creditors. A fresh start is available.

Bankruptcy and Foreclosure Statistics:

In 2010 there were a total of 1,139,601 Chapter 7 Bankruptcies and 438,913 Chapter 13 Bankruptcies filed in the U.S.  The total consumer Chapter 7 filings were 1,100,116., while the total consumer Chapter 13 filings were 434,739. In the Middle District of Florida there were a total of 47,730 Chapter 7, and 15, 967 Chapter 13 filings, by individuals. It appears that Florida’s middle district had the third highest non-business Chapter 7 filings in the nation, being topped by the Central District of California and the Northern District of Illinois, which had 105,094 and 49,017, respectively. Business Chapter 7 filings were 39,485 in 2010, along with 4,174 Chapter 13 filings nationwide. There were over 1 million home foreclosures in the nation during 2010, alarmingly close to the number of bankruptcies filed. This figure could have been much higher if it had not been for the home foreclosure robosigning scandal in the 4^th quarter. Foreclosures are expected to be over 1.2 million, and bankruptcies are expected to reach 1.6 million in 2011. 

Chapter 20 Bankruptcy?

Chapter 7 Bankruptcy is primarily for consumers. Chapter 13 Bankruptcy is primarily for people who can pay a percentage of the debts they owe. But what is a Chapter 20?  There is no Chapter 20 in the Bankruptcy Code. It is a theory, an intellectual pondering, on a scenario wherein someone files a Chapter 13 to reorganize their secured debt, and then converts the case to a Chapter 7 to get rid of their unsecured debt. Some use the scenario where a Chapter 7 is filed and when a discharge is received, a Chapter 13 is filed to reorganize the remaining debt. Most theorists would say that converting to Chapter 7 from a 13 should only be used, and is only possible, when a Chapter 13 debtor’s financial circumstances have worsened after filing. Otherwise, someone who filed a 13 with the intention of later converting to a 7, would be planning to fail, and could, in essence, be viewed as abusing the system. When one files a Chapter 13, the creditors have the comfort of knowing that they will be paid part of what is owed, according to the plan the debtor has filed. When someone files a Chapter 7, the creditors all back off and do nothing. At the very least, the creditor can report the money owed as a loss for that calendar year, a direct deduction from gross income. There do not appear to be yearly figures available for the number of Chapter 13 bankruptcies which have been converted to Chapter 7, nor do there appear to be any statistics available for those converting a 7 to a 13. The Bankruptcy Code allows the debtor to convert a chapter 7 case to a chapter 13 case as long as the debtor is eligible under the new chapter. However, a condition of the debtor's voluntary conversion is that the case has not previously been converted to Chapter 7 from another chapter.  In addition, a debtor cannot receive a Chapter 13 discharge if the debtor has received a Chapter 7 discharge within the last 4 years. Moreover, a Chapter 13 debtor who suffers a drastic loss in income, has a right to convert the case to Chapter 7. So, there are two forms of Chapter 20 Bankruptcy, which combine 7 and 13. One being a 7 followed by or converted to a 13, and the other being a 13 followed by or converted to a 7. In either scenario the debtor is required at all times to act in good faith. Here is a link to a case which discusses Chapter 20: http://www.rib.uscourts.gov/D/1998/Keachcnf.PDF

The Two Entity Theory in Bankruptcy

When you file for Chapter 7 Bankruptcy protection, you create a new, separate, and distinct legal entity from yourself. It is called your bankruptcy estate and is comprised of everything you own and everything you owe, on the date that you file a petition. It has a life of its own which lasts for a number of months. The second entity is viewed as you without all of your debt and is called your post-petition estate. In theory, these two entities are distinctly different. The trustee in bankruptcy can get at any non-exempt assets which you own on the date of your filing, but cannot get his or her hands on things that came into your possession on the day after you file bankruptcy. If you had an income tax refund or an inheritance coming to you on the date you filed, these items are part of your bankruptcy estate. But if you win the lottery on the day after you file bankruptcy, in theory, the trustee cannot get at those funds because they are part of your post-petition estate. In all likelihood someone who wins the lottery shortly after filing, would probably want to pay off their debts with the winnings, and would probably make a motion to have the bankruptcy dismissed.  Bankruptcy has long been viewed as a system of people helping other people out of debt. It rarely becomes adversarial. Most creditors back off when you file for bankruptcy, because the automatic stay prevents them from trying to collect the debt or even calling you on the telephone. The clean slate or fresh start are available, you can legally erase the debt. If your expenses exceed your income and you just cannot make ends meet, you may want to create a new, separate and distinct legal entity which will help you get out of debt.

Bankruptcy no longer carries the social stigma that it once did.

Many very famous people have filed for bankruptcy over the years. Presidents Jefferson, Lincoln, Grant, and McKinley all filed bankruptcy. Here are just a few more: Mark Twain, Donald Trump, Larry King, Willie Nelson, Mickey Rooney, Wayne Newton, Jerry Lee Lewis, Margot Kidder, Meat Loaf, Tammy Wynette, Ted Nugent, Cindi Lauper, Mike Tyson, Oscar Wilde, Thomas Paine, and Burt Reynolds. Bankruptcy became an option for all of these famous people. It could become an option for you. Find out if you can get a fresh start. Bankruptcy just can’t carry the social stigma that it has in the past, the shame associated with being unable to pay your bills, when all of these people have filed for relief.

Consumer Credit Counseling Agencies

It is now necessary to get a certificate from an approved credit counseling agency prior to filing a Chapter 7 Bankruptcy. One of these agencies, and there are many, may be able to help you reduce your debt without filing bankruptcy. They can contact creditors and possibly get them to reduce the interest on your account, and lower your payments. Many agencies have online courses, or you can call them over the phone. The point is that the law changed in 2005 to require that people who are about to file bankruptcy to obtain a certificate from an approved counseling service, which states that you have had a briefing with them and they have assisted you in making a budget analysis of your current financial circumstances. If you are married, you will need two certificates. The certificates must be dated within 180 days prior to filing. It is also necessary to take a course in personal financial management after you file a Chapter 7 Bankruptcy and get a certificate. Most agencies are approved for both requirements. 

Know what is included when you hire a bankruptcy attorney.

When you hire a bankruptcy attorney you can expect the following services:

a.  Analysis of the your financial situation, and rendering advice to you in determining whether to file a petition in bankruptcy;

b.  Preparation and filing of any petition, schedules, statements of affairs which may be required;

c.  Representation of you at the meeting of creditors and any adjourned meetings thereof.

You can also expect that your attorney will negotiate with the Trustee regarding any non-exempt assets and purchasing them back from your bankruptcy estate.

Most attorneys will not include adversarial proceedings in the services to be rendered. Adversarial proceedings are time consuming and expensive, but very rare. They are usually filed only when the creditor suspects fraud and wants the debt determined to be non-dischargeable. In addition, most attorneys will not include proceedings to have money judgments, which have already been entered against you, rendered null and void. There is a motion to get money judgments determined null and void. It requires more time on the attorney’s part to draft the motion and notice and make sure an order is entered. If you have any judgments against you, be sure to provide certified copies to your attorney.

Florida Exemptions in Bankruptcy

The Florida Constitution provides a homestead exemption which makes your home “sacred” property. This exemption is the most important one in Florida and covers up to ½ acre in a city and up to 160 acres outside of a city. In order to claim this exemption you must have owned the home for 40 months. If you owned the home for less than 40 months, then you can only claim $136,875.00 per person in equity.  The Constitution also provides an exemption of $1,000.00 in personal property for a single person and $2,000.00 in personal property for a married couple. If you do claim or receive the benefits of a homestead exemption, you can claim up to $4,000.00 in personal property.

The Florida Statutes also provide exemptions for $1,000.00 of equity in a single motor vehicle, pension or retirement funds, social security funds, pre-paid college funds, annuity contracts, disability benefits, prescribed health aids, medical savings accounts, hurricane savings accounts, wages and unemployment compensation, and the cash surrender value of life insurance policies.  In order to claim any of these exemptions, they must be included on Schedule C which is filed along with the other documents in your bankruptcy.

Chapter 7 Bankruptcy Creditors Meetings

You must attend, and you must bring your driver’s license and social security card. It is best to arrive early so that you can find a seat, get comfortable, and listen to the questions being asked to the people in front of you. There will usually be a schedule outside the room. The Trustee will put you under oath and ask you questions about your case. The usual questions include whether you listed all of your debts and all of your assets in the documents filed with the court, whether the documents are complete and accurate, whether there are any changes to the schedules, whether you have an income tax refund coming to you, whether you expect to receive an inheritance, and any other questions concerning your case. The usual meeting of creditors lasts about three minutes. Your creditors can be present and ask you questions. They are usually there to see if you want to reaffirm part or all of your debt and keep some credit with them.

The 5 Most Important Things to Know When Filing a Chapter 7 Bankrutcy

1. Hire a Bankruptcy Attorney.

Don’t think that you can do it yourself, or that a petition preparer knows as much about bankruptcy as an attorney. Most bankruptcy lawyers give free consultations nowadays. Ask questions and get advice on other alternatives. Besides getting competent legal advice from an attorney, make sure that the attorney you hire will attend the creditors meeting with you. These days many bankruptcy attorneys get others to cover meetings for them. Since this is an important, mandatory, and very personal matter, it will put you more at ease if the attorney you hire will attend the creditors meeting with you. All too often I have encountered bedraggled clients at creditors meetings, asking me if I am covering for another attorney. They don’t already know that the meeting will take only about three minutes, and they are upset, afraid and confused because they are supposed to meet someone who they do not know, and they don’t know what to expect. Hire an attorney who will give your case the personal attention you deserve.

2. Get your documents together.

Get the most recent statements from each creditor, copies of the deed to real estate and vehicle titles, pay stubs for at least 60 days, income tax returns for the last 3 years, bank statements, statements from 401k, pension, or other retirement funds. You also need a certificate from an approved consumer credit counseling agency. Organize everything in one place. Have a good idea of what your income has been for the last five years, and what your expenses have been, before you see an attorney.

3. Cut up the credit cards.

Creditors can come after you for purchases made on credit cards just prior to filing bankruptcy, under certain circumstances. So, it is important to stop using credit cards at least a few months before filing.

4. List everything you own and everything you owe.

You cannot pick and choose which debts you are going to go bankrupt on. On the other hand, you can choose to reaffirm a debt and most people want to reaffirm mortgages and car loans. You must list every creditor you owe money to, even the family member who loaned you money.  In addition, you have to list everything you own, with fair market values. Don’t put an outrageous price on something, just list what you would be willing to sell it for, garage sale values are probably best.

5. Know when it will be filed.

You want to stay in close contact with your attorney’s office after you have given them the questionnaire answers.  It is very important to make sure that you don’t have to pay some monthly bills twice.  For instance, if you have a number of checks that have not cleared your bank account, the money in the account at the time you file can be claimed by the trustee. You do not want to have to pay your utilities twice in that month, or your mortgage or car loan. So, you need to make sure that your bank account has a close to zero balance on the day your Chapter 7 is filed.