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The information in this article is meant to be a general discussion of bankruptcy law, in order to get you familiar with how a bankruptcy case works. It is not meant to be legal advice. Everyone’s situation is different, and you cannot rely on what any attorney says until you sit down and talk about your particular issues. Also, nothing in this document creates an attorney-client relationship between you and the Law Office.

AMERICA’S DEBT CRISIS
A record number of Americans are fighting a losing battle against debt. Financial hard times have driven families to rely on credit cards to pay monthly bills. The health care crisis in this country has saddled millions of uninsured or underinsured workers with massive medical bills. What once may have been a reasonable double-income lifestyle becomes a trap after a spouse loses his or her job.

The mortgage delinquency and foreclosure statistics continue to be grim. 5.3% of mortgages are over 90 days delinquent – almost eight million homes. Banks seized an estimated 1.2 million homes in 2010. Families are simply not able to pay their consumer debt and have enough left to make their house payments.

Why are we telling you this? Not to depress you, but to let you know that you are not alone when it comes to financial problems. There is a way out.

YOU HAVE OPTIONS
If you are completely overwhelmed and do not know where to turn, take a breath. You have plenty of options. First, gather all your bills together – everyone you owe. Second, get income statements for the past few months, whether they are paycheck stubs, income statements if you are self employed, or government benefit statements. Third, get a handle on what is most urgent – for instance, is there a garnishment on your paycheck? Is there a court case pending? Is there a contempt citation for unpaid child support? Has a creditor threatened to repossess a vehicle? Have you been served with a foreclosure action? If any of these things is happening to you, you need to consult with an attorney immediately.

Fourth, take a hard-headed look at your finances and calculate how much money you pay to your debtors every month. Decide whether you have any prospect of paying off all the debt within five years, with or without the help of a consumer credit counseling agency. Remember that on high-interest consumer debt you could pay as much as $20 per month on every $1,000 you owe, compounding every billing cycle, and that you could face as much as $70 in penalties if you pay late or are over your limit.

Finally, talk to someone. Call us if you want, but also make sure you talk to a trusted, neutral third party. Bankruptcy is a temporary solution to a temporary problem – it will get you back on your financial feet, but it will not fix whatever got you into the mess in the first place. Bankruptcy works best when it is one component of an overall plan for financial comeback.

When you call us, we will ask you a number of questions about your finances. We will then set up an appointment for you to come to our office to discuss your case. We will help you get a plan of action together.

BANKRUPTCY BASICS
For the average person or family, there are two major types, or chapters, of bankruptcy available - Chapter 7 (Liquidation) and Chapter 13 (Reorganization, or Wage-Earner’s). There are two other Chapters - 11 and 12, but Chapter 11 deals with corporations or people with too many assets or debts, and Chapter 12 deals with people trying to keep the family farm. The vast majority of people file under Chapter 7 or Chapter 13.

Automatic Stay - Instant relief from creditors
For most people, the pressure of constant harassment from creditors is what drives them to our office. As the economy tightens, creditors compete with each other for your debt servicing money. This leads to collections calls from creditors at work, to letters, to threats, and finally to legal action.

However, once you file your bankruptcy petition, an automatic stay goes into effect. Most debt collection activity is stopped dead (the big exceptions are for back child support, loans against retirement accounts, and use of your tax refund to pay back taxes). Creditors are not allowed to contact you by phone or letter, garnish your paycheck, take money out of your bank account, or engage in any other collection action. Once you retain us, all debt collection communication is referred to us as your attorneys. We deal with your creditors for you.

CHAPTER 7: DISCHARGE OF GENERAL UNSECURED DEBT
Chapter 7 is the type of bankruptcy with which most people are familiar. You file the paperwork, called a petition, with the court. The petition is a long document that comprehensively describes what you owe, what you own, what you make in monthly income, and your financial activities in general over the past three months to two years. In essence, the court gets a "snapshot" of your financial condition as of the day you file. The creditors you list in your bankruptcy will get notice from the court that you have filed and what your intentions are regarding the debts you owe. The court and an attorney called the Chapter 7 Trustee will review your paperwork and, if all goes well, approve your request for relief. When the case is concluded, you get your discharge.

What Happens to Debt in a Chapter 7 Bankruptcy
Dischargeable debts go away; these are your typical unsecured debts such as credit cards, deficiencies on repossession, medical bills, back rent from an old lease, civil judgments, personal unsecured loans, and other general unsecured debts. If you have debts secured by a piece of property, such as a vehicle or a home, you don’t have to pay the loan if you surrender the property (give it to the creditor). If you want to keep the property, you either have reaffirm the loan (meaning you are personally liable on the note again), or pay the fair market value all at once (called redemption).

Nondischargeable debts are debts that the Chapter 7 does not affect. They stick around and you sink or swim on your own. Typical debts not discharged in a Chapter 7 include recent back taxes, student loans, criminal fines and penalties, and back child support. Bounced checks, technically, are discharged in a Chapter 7 but you will probably need to pay any the face value and a collection fee for any bad checks you wrote in the last two years to prevent criminal prosecution. Credit card charges within the last 90 days, and cash advances within the last year, can also be an issue.

What Happens to Property in a Chapter 7 Bankruptcy
You will be able to keep most of your property. In Kansas, you may keep the equity in your residence, your clothing and household effects, furs and jewelry up to $1,000 per person, your qualified retirement accounts, $7,500 in tools of the trade if you are self-employed, your vehicle, and other common items. The Trustee will look for other property that he or she can take and sell to pay creditors. At-risk property includes cash in savings and checking accounts, any tax refund money you have not yet received, extra vehicles, real property that is not your residence and in which you have equity, and money that other people owe you. It is possible to keep some or all of this property, depending on whether it is worth anything at auction or whether the Trustee is willing to come to an arrangement where you "buy back" the items by paying the value in cash.

Chapter 7 works better than Chapter 13 for you if you are unemployed or underemployed to the point where you cannot meet basic expenses such as rent or mortgage, utilities, and food. It also works where you want to give up secured property such as a car with a note, or expensive "toys" like Jet-skis and fishing boats. However, Chapter 7 does not address nondischargable debts, which may be the debts that are keeping you down.

CHAPTER 13 - REORGANIZATION AND REPAYMENT OF DEBTS THROUGH A BUDGET PLAN.
Where a Chapter 7 is not a good fit or is impossible, Chapter 13 steps in. It is a more elaborate process - rather than taking a snapshot and doing everything at once, Chapter 13 is a repayment Plan. The debts that go away in a Chapter 7 mostly go away in a Chapter 13 as well (more on that later). The debts that a Chapter 7 does not touch, such as tax debts, back child support, and secured debts on property you need to keep, are put into a "basket"- consolidated into a payment plan. Your attorney fees and filing fees go into the basket as well - you do not need to pay anything up front to file a Chapter 13 except for credit counseling fees. You make monthly payments to the Chapter 13 Trustee with the aim of paying off your remaining debts completely within 5 years. Your creditors, the Trustee, and the court get a chance to review the plan and object if they have a problem. If not, the court approves the plan and you make your payments. Once you have made all your payments, you receive your discharge.

How much do you need to pay? You promise to pay your disposable income for up to five years. This will need to be enough to pay all your secured debts, priority debts, and special unsecured debts. You might pay all, some or none of your general unsecured debts based on how much you make and how large your special debts are.

Chapter 13 is very powerful.
First, Chapter 13 allows you to deal with debts that a Chapter 7 cannot touch, such as criminal fines, back child support and spousal maintenance, and income taxes.

Second, if you are behind on your mortgage and want to keep your house, Chapter 13 will let you catch up on the arrears through the repayment plan. In a Chapter 7, you either have to surrender the house, catch up within a few weeks, or sign a reaffirmation agreement if the mortgage holder will agree.

Third, Chapter 13 will allow you to keep secured property you still owe money on, such as your vehicle. If you have purchased the vehicle within 2 1/2 years, you will pay the amount you owe. If you purchased the vehicle longer than 2 1/2 years, you will pay the fair market value of the vehicle, rather than the payoff amount of the note.

Finally, you will not need to pay your attorney and filing fees up front if you cannot afford to - we get paid, and the court gets paid, through the repayment plan. This deferment of the legal fees permits you to file quickly in an emergency, such as an impending repossession, garnishment, or foreclosure.

Bankruptcy Reform
In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) brought major changes to the way your debts are handled in the case. There are hundreds of technical changes to the law, but bankruptcy still works and people can still get the same sort of relief as before.

WHAT NOW?
Call us at (888) 702-0220. We will set up an appointment for you to come in and meet with us. We will go over your debts in detail and set up a plan for you to get back on your financial feet.

The information in this article is meant to be a general discussion of bankruptcy law, in order to get you familiar with how a bankruptcy case works. It is not meant to be legal advice. Everyone’s situation is different, and you cannot rely on what any attorney says until you sit down and talk about your particular issues. Also, nothing in this document creates an attorney-client relationship between you and the Law Office.