Bankruptcy Myths Debunked: Fact vs. Fiction

When you think of bankruptcy, what words pop into your head? Failure? Broke? Bottom? The end? Humiliation?

Maybe once upon a time, but not so much anymore. While bankruptcy should never be a first choice, in some cases, it may be the only choice. Before you decide whether or not bankruptcy is right for you, we’re debunking the top five bankruptcy myths to bring you the facts.

1. Myth: All bankruptcy options are essentially the same

Fact: Not true. The three you may have heard of — Chapter 7, Chapter 11 and Chapter 13 – are very different. Many individuals file under Chapter 7, which usually allows them to erase most of their debt in a matter of months. Chapter 7 has a higher success rate and is cheaper to file than Chapter 13, which tends to take a lot longer because it requires individuals to use their disposable income to repay a percentage of their debt over a five year period. Whether you qualify for a Chapter 7 or Chapter 13 is dependent on your state’s median income. Then there’s the Chapter 11 bankruptcy, which involves the financial reorganization of a business and can take many years. To know which option is right for you, consult with a bankruptcy attorney. Most consultations are free and can give you a much clearer picture of which option is most realistic for your situation.

2. Myth: If you file, you’ll lose everything you own

Fact: This may be the most common myth, and, unfortunately, it keeps people from filing when it may be the best option for some. Bankruptcy laws vary from state to state, but all states protect certain assets, such as your house, car, retirement plan, household goods and clothing. Bankruptcy should never be the first option for dealing with overwhelming debt, but it may be the best option depending on the individual circumstances. Before deciding on bankruptcy, research and consider all of your options — from hardcore DIY budgeting,  consumer credit counseling, or negotiating a settlement — bankruptcy should be your last option, but it doesn’t mean that it can’t be the right option depending on your financial situation.

3. Myth: You’ll never be able to qualify for a loan again

Fact: Nope. It’s true that filing for bankruptcy will stay on your credit report card for 10 years, but it doesn’t mean you won’t ever be able to borrow or qualify for a loan again. The best way to recover from bankruptcy is jump back into the game and work at gradually rebuilding your credit — start with a secured card and manage it wisely.  You’ll get credit card offers in the mail long before that 10 year mark. They will be from lenders offering cards with very high interest rates. Resist the temptation. Another tip, if you have a credit card with no balance when you file for bankruptcy, you don’t have to list it as a creditor since you owe it no money, and you might be able to keep that card after you file. Because it will cost you a lot more to borrow money after you file, if you’re planning to buy a house or a car anyway, you might want to consider your options before you file. Having said that, don’t max out all your credit cards and then file for bankruptcy. Bankruptcy judges and the trustee assigned to your case will review your purchases before you file and they very well may conclude that your attempt to file for bankruptcy constitutes fraud.

4. If you file for Chapter 7 bankruptcy, all debts are wiped clean

Fact: Dream on! Certain types of debts cannot be erased, including child support, alimony, government-issued student loans, legal settlements you’ve been ordered to pay and debts incurred as the result of fraud. This is a major issue for consumers defaulting on student loan debt and definitely an important fact to consider before opting to file.

5. Myth: If you’re married, both of you must file

Fact: This is true a lot of the time but not always. If the debt is in one spouse’s name, there is no need for both to file. In fact, in that case, they shouldn’t both file. Before you decide, consult with a bankruptcy attorney for the best advice –initial consultations are usually free and worth the time. More often than not, debt is in both their names, so both must file.

Bonus Myth: Only “losers” file for bankruptcy

Fact: Most people who file didn’t do anything risky or reckless that led to their financial mess. They file because fate has dealt them a blow – divorce, loss of a job, identity theft or a serious illness – that wreaked havoc other finances. Most file after months — or even years — of struggling to pay their bills and falling more and more behind. Bankruptcy is not always the answer, but for some it may be the only answer.

Call Firebaugh & Andrews today for your free consultation  734-818-0948

Top 10 Facts About Bankruptcy Law

Bankruptcy law in the United States is designed to ensure that no individual faces an undue burden as a result of his debts. If your debts are truly too much to handle, you can declare bankruptcy and some or all of the debt will be forgiven so you can start over with a (mostly) clean slate. Before you declare bankruptcy, though, you should know the top 10 facts about bankruptcy law.

  1. Bankruptcy laws are federal laws and the cases are brought in federal court. This means the bankruptcy laws are the same every place in the entire United States and you must bring the case in federal bankruptcy courts. While these courts may be located in multiple different states, they are still federal courts, not state courts.
  2. You have to petition for bankruptcy with a judge. Filing bankruptcy is not as simple as just turning in some legal papers… you actually have to go to court to do so.
  3. Chapter 11 Bankruptcy is for businesses only. Individual people cannot declare chapter 11. When a business declares Chapter 11 bankruptcy, the business is simply restructured – the company does not close and it can continue to operate, although a trustee may manage the assets.
  4. Some individuals may be required to file Chapter 13 bankruptcy. Under new bankruptcy laws in the United States, if your income is over a certain level – the median income for your state – and your disposable income – the amount you have left over after you pay all your debts – is high enough, then you will not be eligible to file the simpler Chapter 7 bankruptcy.
  5. Not all debts are forgiven when you file Chapter 13 bankruptcy. Under Chapter 13 bankruptcy, you are put on a court mandated payment plan. This means you don’t get a clean slate. You have to pay back a portion of your debts to creditors, depending on how much money you have available to you and how much you owe.
  6. Chapter 7 bankruptcy wipes out almost all debts. If your income is low enough to file for a Chapter 7, this will mean that almost all of your debts are eliminated. Debt collectors will not legally be allowed to contact you about those debts or to attempt to collect the money for those debts.
  7. Student loans and tax debt usually can’t be eliminated in any bankruptcy. Unless you can prove “undue hardship” which essentially means that you will be completely unable to maintain a nominal standard of living if forced to pay back your student loans or taxes – you will have to pay. The undue hardship test is very hard to pass. Normally, only those who have become totally and permanently disabled or who have otherwise experienced a dramatic shift that makes them unable to pay, are eligible.
  8. Creditors can occasionally force you into involuntary bankruptcy. If your debts are extremely high, creditors can petition the court to ask the judge to declare you bankrupt. If the judge does so, he may put you on a court mandated payment plan.
  9. You may be able to keep your home, even when you declare bankruptcy. There are homestead exemptions in most states that allow you to keep your house, no matter what kind of bankruptcy you declare. Your house generally can’t be worth more than a certain amount in order for it to be eligible for the exemption, and you will have to be or become current on your mortgage payments to stop the bank from foreclosing.
  10. Bankruptcy stays on your credit report for 10 years after filing. This may make it difficult to qualify for credit or to rent an apartment or buy a home.

Call Firebaugh & Andrews today for your free consultation to see what is your best option 734-722-2999

How Much Time Does It Take to Complete a Chapter 7 Bankruptcy?

A Chapter 7 bankruptcy begins upon filing a bankruptcy petition. Once the petition is filed, the court will issue a case number and an automatic stay is invoked. The automatic stay prohibits creditors from collection activity. This affords the Debtor relief from phone calls, foreclosure, repossessions, garnishment or other collection activity. Approximately thirty days after filing the petition, a meeting is scheduled called the First Meeting of creditors. At this meeting, creditors may attend to ask questions about the case. The meeting is conducted by a Trustee who is appointed by the court. The purpose of the Trustee is to review the schedules and collect any nonexempt property or preferences on behalf of the creditors.

Approximately sixty days after the first meeting the court will issue a discharge. During the sixty day waiting period prior to discharge, the creditors can file objections to their claim being discharged. The most common reason for a creditor to file an objection is fraud. If no creditor files an objection which is called an adversary proceeding, all debts are discharged. The Trustee can also file an objection to discharge during the sixty day waiting period. The most common reason for a Trustee to file a complaint to deny discharge is hiding assets or failure to cooperate with the Trustee in providing documents and records. Even if a creditor files an objection to their debt being discharged, the court will still issue a discharge, which will apply to the remaining creditors. Once the discharge is issued creditors are permanently barred from any collection activity. Even after the discharge is entered the Trustee may hold the case open for collection of assets. This usually happens when the Debtor has some asset to collect such as an unexempt tax refund or personal injury action that has not been resolved. The Trustee keeping the case open should have little effect on the Debtor. In general most Chapter 7 bankruptcy cases are completed in approximately ninety days.

Call Firebaugh & Andrews for your Free Consultation 734-722-2999

Bankruptcy Rules For Alimony, Spousal and Child Support

Divorce often puts tremendous strain on both spouse’s finances. One spouse is suddenly paying alimony, spousal or child support, while the other may be scrambling to find a job after staying home with the kids for years. Both have increased living expenses with the move to two separate residences.

Either of the parties may consider bankruptcy as a way to get rid of some of their debt burden from the marriage and move on. Filing for bankruptcy can free an individual from many of the debts they currently owe and help them start over. But if you’re divorced — especially if you pay alimony or other support — consider carefully whether bankruptcy is the right step for you.

You should be aware that your court-ordered obligations to pay alimony or other forms of support won’t go away in a bankruptcy. Court-ordered support cannot be discharged or eliminated in a bankruptcy.

After the bankruptcy concludes, you will still owe the same alimony or support payments you did previously, just as if the bankruptcy never happened. Other, unsecured debts such as personal loans or credit-card bills can be eliminated in a bankruptcy, possibly putting you in a better position to pay your ongoing support responsibility.

On the other hand, if you are the spouse collecting support payments, know that this money will be considered income in determining whether you can repay any of your debts. This helps determine what type of bankruptcy you will file.

If you have some ability to repay your lenders, you will need to use the Chapter 13 bankruptcy structure. In Chapter 13, you work out a repayment plan to pay off your debts over time. You must stay current in your alimony or support payments to keep your Chapter 13 repayment plan in effect and conclude your case. Property settlements from a divorce may be dischargeable under Chapter 13, though.

If your income is inadequate to pay off even part of your debt over time, Chapter 7 liquidation will be more appropriate. You will be able to resolve many debts in Chapter 7, but your child support or alimony payments will not be affected.

If you’re considering filing for bankruptcy in Michigan, call Firebaugh & Andrews for your free consultation. 734-722-2999.

Can you file Emergency Bankruptcy Filing Without Full Fee ?

t is possible to file bankruptcy without paying the attorney fee in full. Generally, the attorney fee must be paid in full prior to filing the bankruptcy. This is because any fee owing at the time the bankruptcy is filed is discharged. Sometimes a client needs to file bankruptcy immediately due to an emergency such as a utility shut-off, garnishment or property seizure. In those cases it is possible for the attorney to file a case and bifurcate his services.

Firebaugh & Andrews in this case will provide certain services such as an emergency bankruptcy petition filing for a set fee. The client will then need to sign a second retainer for the attorney to provide additional services such as completion of the schedules and representation at the creditor’s examination. If you are facing an emergency situation which requires the immediate filing of a bankruptcy petition but do not have the full fee required to file the case, this option should be explored.

In filing Ch 13, it is not necessary to pay the attorney fee in full. Often times the attorney can file the case for the filing fee of $331.00 . The Firebaugh & Andrews can provide for the remainder of his fees to be paid through the Ch 13. In such a case the attorney is essentially accepting zero down towards his fee to file the case. This is often helpful for clients who are facing serious financial problems and need quick relief.

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

Do I Have to List All My Credit Cards in my Bankruptcy?

The Bankruptcy Code requires a debtor to treat all like creditors alike. This means  you cannot chose to list some creditors in a bankruptcy while keeping other creditors out of the bankruptcy. The Bankruptcy Code requires a debtor to list all creditors or people they owe money to in the bankruptcy.

However, if you have a zero balance on a credit card at the time you file the bankruptcy then that particular company is not a current creditor of yours because you do not owe them any money. Therefore, you are not required to list them as a creditor in your bankruptcy.

However, just because you do not list a particular credit card does not necessarily mean you can keep using that account. Credit card agreements almost always have provisions that allow the credit card company to close the account in the event of a bankruptcy or may close or suspend an account for any other reason permissible by law.  So even though you do not list a particular credit card on your bankruptcy if they discover you have filed a bankruptcy (and they do have ways of checking for bankruptcy filings) they may close your account.

Questions call Firebaugh & Andrews for your free consultation 734-722-2999

How long does chapter 13 repayment plans last?

Payment plans must be between 36 -60 months.  The number of months starts to run the day your case is confirmed, not the day your case is filed.  The length of your plan can depend on many factors. Your level of income may dictate whether you are required to be in the longer 60 month plan. However, even if you qualify for a 36 month plan you may wish to extend it out longer in order to help keep your plan payments down.

In most cases the Trustee can extend your plan 6 months beyond its expiration date in order to make sure you have a fulfilled all the requirements of the plan. However, be aware that in the Eastern District of Michigan, Judge Tucker has ruled that 60 months is the absolute maximum number of months and that plans cannot be extended beyond 60 months for any reason. If you have a case before Judge Tucker it is important to make sure you have all requirements of the plan completed in the 60 months as your case can be dismissed at the end of the 60 months if not all the requirements of the case have been met.  Make sure you meet with your bankruptcy attorney well in advance of your case closing for a full review to make sure you case is set to complete on time.  This is a good idea no matter which Judge is handling your case.  You do not want to get to the end of your case and be surprised by a requirement you have failed to fulfill.

If you have questions about filing for bankruptcy in Michigan, contact Firebaugh & Andrews. Call for your free consultation 734-722-2999

Can you keep your tax refund in Chapter 13 Bankruptcy?

Whether you can keep your tax refund in Chapter 13 bankruptcy depends on several factors. As a general rule you must turn over your federal tax refunds to your chapter 13 bankruptcy plan every year you are in the bankruptcy. You may always keep your state or city refund.

If your bankruptcy plan proposes to pay all your creditors in full, you may keep your federal refund. Even if your bankruptcy plan proposes to pay less than 100% back to your creditors it is still possible to retain all or a some of your federal tax refund. This can be accomplished by either pro-rating your refund and including it as part of your monthly income, or to file a motion with the Judge to excuse your refund.

If you have proof of some extraordinary expenses (large home repair, large car repair, medical expense, etc.) you may be able to keep your refund or part of it to help pay for those expenses. It is a good idea before filing bankruptcy to alter your withholdings for federal taxes to get as close as possible to tax neutral, meaning you do not owe any taxes at the end of the year but you get little or no refund

If you have any questions call Firebaugh & Andrews for your free consultation 734-722-2999

Excessive Automated Debt Collection Calls Violate Consumer Rights

Have you been getting too many automated debt collection calls? If so, you may be entitled to compensation under the Fair Debt Collection Practices Act (FDCPA). The question is, how many calls does it take to violate the FDCPA or the Telephone Consumer Protection Act?

Illegal Debt Collection Practices

If you owe someone money, they certainly have a right to try and collect it by calling you. However, it matters how many times they call you a day, week or month using automated debt collection calls, also known as robocalls, which are automated phone calls that use both a computerized autodialer and a computer-delivered pre-recorded message.

While there’s no rule to define how many calls it takes to constitute an illegal debt collection practice, a U.S. District Court judge in Tennessee recently ruled that 17 calls a month was too much and that consumers who received these calls are entitled to file suit against the debt collector. In his opinion, he reasoned:

Consumer Debt Protection Laws

Consumers are protected by several laws to make sure that debt collection practices are fair and reasonable. The Fair Debt Collection Practices Act (FDCPA) and the Telephone Consumer Protection Act (TCPA) are two of those laws which, if violated, can result in up to $1,500 in fines per violation. Here’s how they work:
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What is Michigan Bankruptcy Means Test?

Who Can Qualify for Bankruptcy Under Chapter 7?

The means test is required for anyone looking to file Chapter 7 bankruptcy. This is an income-based test designed to reserve the powerful benefits of Chapter 7 for those who truly cannot afford to pay back their debts.

If you’re left with little disposable income each month to pay your bills, you’ll likely be able to file Chapter 7 bankruptcy and discharge your unsecured debts. Learn more about the means test:

The Bankruptcy Means Test: Who Can File?

The bankruptcy law was designed to ensure that Chapter 7 bankruptcy protection is given to those who need it most. The means test is the qualifying step for those looking for file Chapter 7.

The Chapter 7 means test is actually a formula that is used in determining whether or not an individual would have enough money available to make minimal payments to creditors in a Chapter 13 bankruptcy plan. In many cases, those who want to file Chapter 7 are able to do so.

One of the court’s fundamental goals in bankruptcy is to reserve Chapter 7 for men and women who have no means to repay their debts. Before the law change, there were fewer restrictions on eligibility for those who wished to wipe out credit card debt, medical bills, and most personal loans through Chapter 7 bankruptcy (regardless of their ability to repay their debts).

Are you wondering if Chapter 7 is right for you? Talk to Firebaugh & Andrews about your eligibility to file bankruptcy under Chapter 7 or 13:

Step One: Median Income Comparison

The first step in the Chapter 7 bankruptcy means test is simple: it compares your income to the median income in your state for a family the same size as yours.

The median income for your family size may differ dramatically depending upon where you live, and an attorney can tell you whether you are above or below the applicable median income.

If your income is higher than the median income, it doesn’t necessarily mean that you can’t file for Chapter 7 bankruptcy; it just Intriggers the second step in the test.

Homestead (Michigan Income Guidelines)

  • $30,000 for your residence
  • $45,000 if debtor is 65-years-old or older or disabled

Wages

  • Up to 60 percent of wages, but not less than $15 per week, for householders with family
  • Up to 40 percent of wages, but not less than $10 per week, for anyone else

Automobiles

  • Up to $2,775 for one vehicle

Other Property

  • 100 percent of family pictures, clothing, fuel for six months, burial plots, health aids
  • Up to $450 per item, with a total value of no more than $3,000, for household goods, furniture, utensils, books and appliances
  • $500 in value of a church pew
  • $2,000 in value of crops, farm animals and feed
  • $500 in value of household pets
  • $500 in value of one computer and accessories
  • $2,000 in value of tools, implements, materials and other things to enable a person to carry on a profession.
  • 100 percent of worker’s compensation, unemployment and ex-servicemen’s benefits

Step Two: Calculating Disposable Income and Unsecured Debts

The second step is a bit more complicated, and actually breaks down into separate pieces.

Certain allowable expenses (determined by IRS guidelines) are subtracted from your income to find your “disposable income.”

If your projected disposable income over the next five years equals less than $6,000 ($100/month), you will likely “pass” and become eligible to file under Chapter 7.

If your disposable income is greater than $10,000 over the next five years, a presumption arises that you do not really need to file for Chapter 7 bankruptcy. If you can demonstrate special circumstances, you may still be allowed to do so.

In the grey area, between $6,000 and $10,000, another calculation is typically required.

This calculation compares your disposable income over the next five years to a percentage of your unsecured debt to determine whether any significant repayment to your creditors is possible.

If your disposable income over that five years is greater than 25 percent of your unsecured, non-priority debts, you’ll probably find yourself in the same circumstances as if you’d had more than $10,000 in disposable income.

If your disposable income over a five year period is less than 25 percent of your unsecured, non-priority debts, you will likely “pass” the means test.

You Don’t Need to Go Through the Chapter 7 Means Test Alone

Firebaugh & Andrews can crunch the numbers for you and tell you whether or not you qualify for Chapter 7 bankruptcy under the means test.

The calculation can be complicated, not only because of the numerous steps that may be involved, but because it requires an understanding of the rules concerning how your income is calculated for means test purposes and which debts are classified as unsecured and non-priority.

Many people who want to file for Chapter 7 bankruptcy find that they are still eligible to do so. Firebaugh & Andrews  can help you determine how the means test may affect your bankruptcy options.

Call us today for your fee evaluation 734-722-2999