Should I file personal bankruptcy?
What is bankruptcy?
Bankruptcy is the process of organizing and dealing with your debts according to the requirements of the federal law. All debts and all assets must be listed and reported. Full disclosure is absolutely essential to the process.
How do I know when I need to file bankruptcy?
If you believe you have the need, our office can provide you with a worksheet to fill out, return, and discuss during the consultation. At that meeting, we can discuss whether and how you should file, as well as what chapter may be appropriate to you. If you don’t need to file, we will tell you.
Am I filing in the right district?
You must file in the location where you have lived for the greater part of the last 6 months. However, if you have recently moved here, the new law has complicated rules regarding your ability to file here. If you have moved in the last 3 years, be sure you tell the attorney and discuss.
What can my creditors do to me after I file?
Creditors are forbidden from suing, contacting you, or repossessing your property after you file (the automatic stay). If they want or need to take some action, they have to do it in the bankruptcy court.
What do I need to bring to the attorney the first time we meet?
You will need:
(1) a list of ALL of your creditors, including a specific mailing address for the creditor, the amount owed, and a listing of any collateral owed to the creditor;
(2) a listing of the monthly expenses you have to pay (food, utilities, etc.) before you pay other creditors;
(3) evidence of your income (pay stub, W-2, or letter from employer).
We have an interview sheet that you need to fill out and bring. You will also have to fill out a certification regarding your compliance with the new law and your ability to file.
What does the new law do to/for me?
For all cases:
- You must be current in your tax filings for the last 3 years, be able to produce those returns, and show that they have been filed. If you cannot, tell us. You will also be required to certify that the income you listed on your return is true.
- You must take a consumer credit counseling "briefing" and bring the certificate before you file. We refer clients to Family Services, which is on the corner of Franklin and Oakland streets (704-864-7704). You must call and schedule a session. They appear to be doing these on Thursdays. Do this on your own. If you cannot, we can arrange an Internet briefing.
- You must be current on your support obligations for a child or spouse. If you are not, tell us immediately.
- In certain cases wherein your income is over a certain amount, the law may dictate that you must file Chapter 13 instead of Chapter 7. In other cases, we may, after review, discover that you simply cannot file as a result of the application of the "means test."
- You must take a second, additional, and more in-depth counseling course, which is also offered by Family Service, before receiving your discharge in either chapter. In Chapter 13, this must be done some time before the end of the plan. In Chapter 7, you have 45 days from the date of the first meeting of creditors to complete it.
If you don't do it, you will not receive your discharge. The "fix" involves reopening the case, which will cost you a $330 filing fee to the court and additional attorney's fees to us, if we decide to do it for you.
Which chapter should I file?
The attorney will help you to decide whether to file and what chapter would be right for you. There are 2 chapters generally available to individuals: Chapter 7 and Chapter 13.
Chapter 7 is also called "liquidation" or "straight" bankruptcy. All of the debts are forgiven, except non-dischargeable debts: student loans, some tax obligations, alimony and child support, and debts where creditors are holding collateral that the debtor wants to keep.
In those cases, the debtors, if behind in their payments, may have to catch the payments up, keep them caught up in the future, or make an arrangement to refinance the debt. If you have very little income, very little property, and don't have a problem with an arrearage on secured property, Chapter 7 may be for you.
If you have money left over after your rent/mortgage payment and basic monthly expenses, you may be eligible to file Chapter 13. In this chapter, you will typically repay over time any arrearages on mortgages (deeds of trust), pay out secured debts on vehicles, and pay a percentage of your unsecured debts over a period of 3 to 5 years.
The advantage is that you can avoid foreclosure or the repossession of secured items through this procedure.
In some cases, the "means test" and income levels in the new law will determine whether you are eligible to file Chapter 7 or you must file Chapter 13. It may be that neither chapter helps your situation.
Other new rules make it important to determine whether debts secured by cars have been incurred within the 2 1/2 years before filing. We need to know these dates to advise how much of the amount owed will be repaid in Chapter 13.
What about household goods?
Congress has decided that you should not have to risk losing your household goods, even if you pledged them as collateral for a loan made after their purchase. These liens can be set aside, so they are treated as unsecured creditors. Make sure we know about these household goods liens.
What property can I keep?
You may keep property allowed to you under the exemption laws. At the end of this information, you will be asked questions about nonexempt assets you may have. These North Carolina exemption laws became more liberal in December 2009, and this may affect your filing.
If you own a property with a net market value above the exempt amounts, or if you fail to list any property, you risk losing it to the trustee and your creditors. Study carefully the discussion of exemptions and exempt property, which follows. It is essential that you list the real market values of your property so that we can anticipate any problems.
How should I value my residence?
As you will see, in North Carolina and under present exemption law, debtors are allowed only $35,000 equity in a residence ($70,000 for joint debtors). Other rules may apply if you are more than 65 years old, or if you have moved here in the last 2 1/2 years. This makes it essential that you list an accurate value for your residence.
Tax values are an indication of market values but are not conclusive. Recent accurate appraisals, comparable sales, and your knowledge of the condition of your home should all be considered in determining your property’s market value.
If you have actual nonexempt equity, you risk losing your house (in Chapter 7) or may have a higher monthly plan payment (in Chapter 13). This valuation is extremely important, both in determining whether and which chapter to file and in how the trustee approaches your case. You will be required to list the market value of your property and to justify those market values.
Determining this market value can be difficult, especially in the case of your residence and when you have not procured a recent appraisal. We cannot furnish these figures, and the figures listed on your petition are yours alone.
What about tax refunds?
Be sure you list any tax refunds you expect. You may be allowed to keep them if they are exempt and if you have disclosed your entitlement to them. Make sure this information is on the form you complete for us, it is on your finished petition, and we are updated in writing concerning your entitlement to them.
Do not cash or use a tax refund without asking us first. In either chapter, a nonexempt refund may go to the trustee. There may be a charge for amending the petition later to exempt a refund that you did not originally list on your petition.
The Chapter 13 trustee has recently indicated a concern with debtors who receive large yearly refunds after filing their petitions. If this is your situation, consider manipulating the number of exemptions you take on your W-9 form so you don't receive that big refund at the end of the year.
What are the fees?
In Chapter 7, the attorney's fee is generally $1,500, payable before the filing of the petition. In Chapter 13, the fees are $4,500. Our firm charges $750 before the filing of the petition, and the balance will be due through your payments into the plan.
The Chapter 13 filing fee, which goes to the court, is $335. The Chapter 7 filing fee is $335.
In either chapter, the attorney's fees cover "base" legal services connected with the filing and preparation of your petition, appearance at the first meeting, and other matters that go along with those things. They do not cover expenses in connection with later motions to be filed or later matters, which arise, including adversary proceedings or the reopening of the case. Additional fees and/or filing fees may be owed for these matters.
In a Chapter 13 case, you will be furnished a disclosure form to read and sign, and this form states what "base" fees are covered by the initial fee. The attorney may make an application to the court for the approval of additional fees to be paid as part of your plan payment. In a Chapter 7 case, you may be billed directly for additional fees.
NOTE WELL: Once you have paid your fees, our office will be put to a considerable amount of effort to set up your file, consult with you, determine whether you are eligible to file under the new law, prepare the petition, and procure information.
Should you later decide not to file, or should we be unable to file your petition because of deficient or wrong information supplied to us or for any other reason that makes filing impractical or not in your best interests, your filing fee will be returned. However, part or all of the attorney's fees will be retained in consideration of the work we have performed.
Do not retain us if you don't intend to or cannot file.
Your signature at the bottom of this document constitutes a fee agreement. It will note your understanding and your consent to these terms, should you decide to retain us.
Our total fee (determined by court): $4,500
You pay us up front: $750*
You pay us to be advanced to court as a filing fee: $335
Total you pay us: $1,060
Our total fee payable in advance: $1,500*
You pay us to be advanced to court as a filing fee: $335
Total you pay us: $1,835
Attorney's fees are to be paid up front and are subject to the terms described below.
ALL Bankrupcy MONIES MUST BE IN The Form of CASH, MONEY ORDER, OR CERTIFIED BANK CHECK.
The filing fee is payable on the day the petition is signed.
* Attorney's fees may be adjusted upwards in cases where urgent filing deadlines are necessary.
What about our credit?
After your filing, some creditors may want to extend credit in the future, some may not. You may be treated better if you have filed Chapter 13 than if you have filed a 7.
In any case, if you plan to rely on credit purchases in the near future, you should probably not file bankruptcy. If you plan to continue to rely on a particular type of credit, you must discuss it with us first. Bankruptcy filings can be listed on credit reports for up to 10 years after filing a Chapter 7 case and for 7 years after filing a Chapter 13.
What about our credit report?
Many individuals attempt to procure a full listing of their debts by getting a copy of their credit report. It is not meant to be a full listing, and should not be relied upon to furnish us a listing of all of your debts. Moreover, the filing of a bankruptcy petition may or will not "take debts off" your credit report.
You are entitled by the federal law to an accurate credit report. We do not do "credit repair," although you should be able to make the reporting agency fix inaccuracies on your own.
In Chapter 7 cases, wherein you elect to keep your secured property and are current on your payments, we generally advocate simply maintaining your payments instead of executing a reaffirmation agreement. This agreement would make you liable for a deficiency balance upon future default.
Make sure you understand this, including the effect on your credit, and agree with it. Trying to file a reaffirmation agreement after the case is closed will involve additional expenses.
Where is the bankruptcy court located?
The court is at 401 West Trade Street, Charlotte, NC (the federal courthouse). First meetings in the Charlotte division are at the office of the bankruptcy administrator, across the street at 402 West Trade, on the second floor.
For Lincoln and Cleveland County residents, first meetings are at the courthouse in Shelby. However, first meetings will soon be conducted by video located in our office.
What notice will I get?
Within a week or so after your filing, you will receive a notice of the first meeting of creditors to be held in your case within the next few weeks. When you do, please call our office to confirm that you have received it and to assure us that you can be there. If you do not show up, your petition can be dismissed.
What information do I give?
You must furnish all information about all debts and all assets. There are very serious penalties involved in not making a total disclosure on your bankruptcy petition.
You do not decide whether to list a debt or not. Debts garnished or withheld, including 401k loans, are still debts and must be listed. Debts to relatives are debts.
Be very sure that you tell the attorney about any unusual aspects of your financial situation, including any transfers of any sort made within the last 4 years. When you come back to review your petition before filing, draw any errors or omissions to the attention of the attorney, and make sure your information is accurate as of the date of the filing.
You will be responsible for the information contained in the typed petition as it is shown to you. Do not assume that it is correct.
Furnish all information to us in writing and make sure it gets into your petition accurately. We will not be responsible for the listing of debts you believe you just told us about. Debts not listed will not be discharged.
Your petition can be amended after filing, but this is sometimes difficult. It needs to be entirely accurate the first time.
Furnish us accurate information about any judgments entered against you, and make sure that information gets in the information sheet and onto the finished petition. If it takes time and effort to get this information, spend the time and make the effort. Failure to include this information may make it necessary to reopen the case years later, and you will be charged for the legal work and filing fees necessary to do this.
What payments would I have every month?
Your payments will consist of:
(a) your payments of the regular expenses you put in your budget, excluding your mortgage payment;
(b) your plan payment.
Your regular ("conduit") mortgage payments under the new law (plus a 10% commission) are payable as part of the Plan and are included in that payment to the trustee. Be sure to keep accurate records of these payments.
If you are behind on your mortgage payment on the date of filing, this arrearage amount can be included in your plan. If you file a Chapter 13 petition, the first monthly plan payment will be due 30 days after the filing of the petition, and the date will probably be before the time of the first meeting of creditors. The second payment is due 60 days after the filing date.
Payment must be by bank or cashier's check or money order. The payment goes to a mailing address in Tennessee.
The Trustee will not take cash. We discourage the use of money orders because they are so difficult to trace.
Make sure that your case number, which we will give you after filing, is on your payment. Keep your receipts; you may need to furnish evidence of your payment. If you do not have the first month’s money ready, your plan will be dismissed.
Note that the new Chapter 13 rules require that you will have to pay a lot of money up front within a short amount of time:
- Your up-front payment to us, usually $750
- The filing fee on the date you sign the petition, which is $335
- Your first month's plan payment within 30 days of filing, which includes 110% of your mortgage payment
- Your second month's plan payment within 60 days, and regular plan payments every month thereafter
Do I have to list all debts and assets?
Absolutely. If you have a concern about how to treat a specific debt, we can discuss it; but you must list all debts and assets. Assets, which you may not consider to be “assets”, include:
- Future entitlements to tax refunds
- Money owed to you
- A potential lawsuit or cause of action you have against somebody
- A divorce settlement agreement or judgment that gives you rights in the future
- Timeshare and other such interests
- The value of any tax-protected account
Tell us about them in the forms we will give you.
Who gets paid, and how much?
Your plan will be designed to pay all of your secured and priority creditors (those holding collateral that you intend to keep; current taxes due; some other debts) and at least some percentage to unsecured creditors (everyone else). Any attorney's fees remaining or later ordered by the court are also paid through the plan.
The trustee is paid a percentage of what you pay him. If you have equity in property over and above the exemptions discussed in the Chapter 7 section below, you may be required to pay a larger percentage to unsecured creditors.
What if I get behind?
If something happens and you cannot make a payment, call us. It may be that we can ask the court for more time to pay, a reduction in payment, or convert to a chapter 7 proceeding.
If you get behind and take no action, your wages can be garnished and/or your plan will be dismissed ("If you don't pay, you can't stay"). If you get behind in your plan payments (which now include your current mortgage payments), the creditor can ask the court to allow foreclosure and/or dismissal.
Could the payment end up being more than we propose to the trustee?
Yes. The debts may be more than we planned, or the trustee may want to treat some creditors differently.
Our proposed monthly payment is generally as small as we can make it. You should expect that the trustee will "up" the plan payment, perhaps considerably, from what we have proposed.
How could I reduce my plan payment?
The more secured debt exists, the more the monthly payment must be to pay it. If you allow the repossession of secured items, for example a car with a lien on it, the total to be paid through the plan can be reduced by that amount. There may be other issues with your assets or income that increase or decrease your payments.
Does the trustee have an interest in our finances during the duration of the plan?
Absolutely. You must report the following to the trustee, through your attorney:
- Any significant change (of more than 10%) in your income
- Any significant assets, inheritances, of gifts that come into your possession
- Anything that affects your ability to make your plan payment
All new credit to be incurred is subject to the approval of the trustee. If you want to refinance or sell houses, cars, or anything else, the trustee must approve prior to that taking place.
What about student loans and taxes?
Student loans and taxes due must specifically be taken care of through or during the Chapter 13 plan. Otherwise, you may find them due and owing after your discharge at the end of the plan. Make sure you discuss and understand the consequences of your choices about this.
What about important financial events during the course of the Plan?
Because your income and expenses remain the concern of the trustee during the course of the Chapter 13, any important financial change is subject to reporting requirements. These include:
- Job changes
- Money borrowed
- New credit incurred
- New purchases
- Insurance reimbursements
- 401K withdrawals
If you are planning such a change, it is essential that you notify us first, and in writing. Otherwise, you may have violated a rule of the Court or created a problem, which cannot be solved. If, for any reason, you cannot follow this rule of the court, you will not want to be in Chapter 13.
Can I keep property held as collateral?
You can usually either continue regular monthly payments on the secured property if the payments are caught up, or turn the collateral back to the creditor.
What happens to the rest of my property?
All property that is not exempted by law becomes the property of the estate. Allowable exemptions are as follows:
- $35,000 equity in real property used as a residence per debtor ($70,000 for joint debtors); this is different if you are more than 65 years old and single;
- To the extent that $5,000 of this exemption is not used, a "wild card" exemption in any property;
- $3,500 equity in 1 motor vehicle per debtor;
- $5,000 equity in household goods per debtor;
- $2,000 equity in any implements, professional books, or tools of the trade of the debtor or the trade of a dependent of the debtor.
Other exemptions are available for ERISA-qualified accounts, retirement accounts, personal injury proceeds, equity in insurance policies, tools of the trade, money earned in the last 60 days, 529 plans, and various other items.
The attorney can discuss the specifics of these exemptions. However, you need to know that property owned and not specifically exempted will become the property of the trustee.
The lawyer can tell you exactly what exemptions you will be entitled to. If you own anything not covered by these exemptions, you will lose it to the trustee in Chapter 7.
The trustee can also take property conveyed to someone else or payments made to repay certain debts to family members and others up to 4 years before filing. If you have made any such transfers, be sure to tell the attorney and listen carefully to his advice concerning the transfers.
Are all of the debts discharged in a Chapter 7 bankruptcy?
No. Certain debts, such as taxes, alimony, child support, penalties, and student loans, are or could be "nondischargeable."
Be sure to ask the lawyer about these and to list them. If you had a recent divorce settlement or are in a divorce, be sure and disclose all facts.
I want to file. What should I do next?
- Call for an appointment. This is necessary so you do not have to wait because we have an existing appointment or are closed for lunch or errands.
- Take the completed and executed information sheet as well as your fees with you when you go to the appointment. The consultation fee is $50.
Note: We do not take personal checks.
- After we have spoken and decided on a filing, Amy, our paralegal, will give you additional forms to fill out. She will make another appointment to have them returned and reviewed. If you do not fill them out completely, we cannot complete your petition. Multiple appointments to get it right may result in additional cost to you. If you haven't finished getting all of the information before your next appointment, call and reschedule. Be sure to consider the effect of the additional delay on any pending actions by creditors.
- You will be required to take a credit counseling class before we can file your petition. A list of approved credit counseling agency list can be found here http://www.ncwba.uscourts.gov/credit.html
- Get together your last 3 years' tax returns, and be ready to give them to us on the day that you file. These have to be given to us before you can file.
- Follow the directions on the forms and the further directions of the attorney. We will prepare the petition, and you will have another appointment to review thoroughly and sign. At or shortly after that time, we will electronically file your petition. Get your case number. Approximately a week later, you will receive notice of a First Meeting of Creditors, at which the bankruptcy trustee and interested creditors can ask questions about your filing. We will be at the first meeting and can offer direction in all of these steps in the process.