“S” Is For Section 341 Meeting Of The Creditors.

A section 341 meeting of the creditors is held at which the debtor must appear and answer questions after the bankruptcy petition is filed. In my district, the Eastern District of Michigan, the hearing is typically held about four to five weeks after the case is filed.  At that hearing, the debtor is questioned under oath by a  trustee. The trustee is not a judge.

The trustee is usually an attorney appointed in all chapter 7 and chapter 13 cases. The trustee’s responsibilities include reviewing the debtor’s petition and schedules and to recover or seize non-exempt assets. In a chapter 7, the trustee liquidates property of the estate, and makes distributions to creditors. The chapter 13 trustee is typically more interested in maximizing the monthly payment made by the debtor.

Typically in our district, before the meeting the attorney will have sent pay stubs, tax returns, deeds, titles, retirement statements, and bank account histories to the trustee for review. The trustee reviews the petition and financial disclosures before the hearing. The more information the trustee has in advance, the smoother the hearing will go and the less likely the trustee will be forced to adjourn the meeting to a new date for the debtor to produce supplemental information.

As this is the only court hearing most clients have, they are stressed out but it’s not as bad as they may think. Debtors are not scolded for being irresponsible and creditors don’t usually show up. Hearings are scheduled in 30 minute blocks of time. The debtors go into a common room and wait to have their case called. Once called, the debtor and their attorney sit at a table with the trustee. Sometimes the trustee has an assistant to help keep the case files organized. The debtor must present a state issued ID and a social security card. No card – no hearing – no questions. Better make sure you have it.

The trustee will ask you questions like:

  • Did you read, understand, and sign the bankruptcy petition and related schedules?
  • Did you read and understand the bankruptcy information sheet?
  • Did you list all of your assets, debts, and creditors?
  • Do you have any reason to sue anyone?
  • Does anyone owe you any money?
  • Do you expect an inheritance from anyone who has died?
  • Have you paid back any of your creditors in the 90 days before you filed your case?
  • Did you get your tax refund back? What did you do with it?
  • Did you pay back and friends or family before your case was filed?

It all takes about five minutes and before you know it, the hearing is over. There really isn’t anything to worry about. If you have a decent lawyer, you will be able to answer all of the questions without any problem.  About  two months after the hearing the order of discharge will come in the mail. It’s not as bad as you think but you won’t believe me until it’s over.

“S’ also stands for:

Chris McAvoy is a Taylor, Michigan attorney and consumer bankruptcy lawyer who helps people file Chapter 7 and Chapter 13 Bankruptcy. To find out more about bankruptcy, click here for contact info. We help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, and the Downriver, Michigan area.

 

photo by: takomabibelot

“R” Is For Reaffirming Your Mortgage

I received a panicked call from a client who told me that she just spoke with the bankruptcy department of her mortgage company. She was told that her bankruptcy lawyer made a mistake, she no longer owned her house, and that she needed to do a reaffirmation agreement to keep her house. I had to slow her down and talk her off the ledge but before I could respond to what the bankruptcy department told her, she needed some background information.

When she bought her house, a deed was prepared and recorded naming her as the owner of the house. The bank gave her a loan to buy the house and had her sign a contract promising to repay the debt. The home buyer gave the bank a lien which basically said if she didn’t pay for the house, the back could recover the house by foreclosure. Now this is kind of an important point. The bank gave her the loan. She gave the bank a lien. That lien is called a mortgage. She did not transfer the house to the bank. She was the owner when she left the closing.

When she filed for bankruptcy, her debts were discharged and contracts were wiped out. This not only includes common contracts like credit card agreements but also that home loan contract. A reaffirmation agreement basically reinstates the contract and personally liable remains for the debt after bankruptcy. Would you sign an agreement stating that you will remain liable for your credit card debt? Probably not. Filing bankruptcy to get rid of that liability was your goal. So why sign a reaffirmation agreement to remain personally liable for the home loan. You do not sign the reaffirmation agreement to own the house. The deed says you own the house, not reaffirming the debt. The one has nothing to do with the other. It bears repeating: YOU DO NOT HAVE TO SIGN A REAFFIRMATION AGREEMENT TO KEEP YOUR HOUSE. Sorry about the caps but this is a really important point.

The bankruptcy discharges liability on the debt. She remains the owner of the house. She can (theoretically) sell it, refinance it, or remain in the home and keep making payments. She can even let the house go into foreclosure after the bankruptcy if  she doesn’t want to keep it anymore. So why sign the reaffirmation agreement stating that she will be personally liable?

But if you don’t sign the reaffirmation agreement, you don’t get a free house. While the debt is gone, the lien given to the bank remains. If you don’t make the monthly payment, the bank will foreclose and recover the house. You won’t have to move out right away, but you will be moving out at some point.

My client became upset when she was told that her bankruptcy lawyer made a mistake by not having her sign the reaffirmation agreement. But once she understood that she still owned the house, that signing the reaffirmation only reinstated the personally liability on the debt, that as long as she made her payments she could stay in the house, and that if she ever decided to let the house to, she could walk from it and there was nothing the bank could do to her other than foreclose the house. In my opinion, she held all the cards. So what do you think? Did I make a mistake?

“R” also stands for:

Chris McAvoy is a Taylor, Michigan attorney and consumer bankruptcy lawyer who helps people file Chapter 7 and Chapter 13 Bankruptcy. To find out more about bankruptcy, click here for contact info. We help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, and the Downriver, Michigan area.

photo by: Lauren Manning

“Q” Is For Questions About Bankruptcy

These are some of the most frequently asked questions about bankruptcy that I get from clients on a regular basis.

What is the difference between Chapter 7 and Chapter 13?

In a Chapter 7, you basically file for bankruptcy, show you are unable to repay your debt, and your debt is discharged. A Chapter 13 requires a payment plan of up to 60 months. Most everyone wants to file a Chapter 7. Get in, get out, and get it over with. But not everyone can do this. In order to file a 7, your income has to be under certain amounts. If you make too much money (if there is such a thing), then the Bankruptcy Court  expects you to make some efforts to pay back something to your creditors.

If I file a 13, do I have to pay back all my debt?

Nope. You make your best efforts for the length of the plan to pay back as much as you can. If you don’t pay it all back, the balance is forgiven.

Is this like a 1099c? Will I have to pay taxes on the forgiven debt?

The discharged debt is not taxable income and you will not pay income taxes on it.

What will my Chapter 13 payment be?

I have no idea until I review your income and expenses. The basic formula is this: Net income minus reasonable and necessary expenses = bankruptcy payment. Keep in mind, the Court will expect you tighten your proverbial belt and what you think is reasonable and necessary expenses may not be the same in the Judge’s eyes.  A lawyer experienced in 13s will be able to give you a pretty good idea of what your budget should look like in order to be approved.

If I file a Chapter 7, will I lose everything?

No. In Michigan we can use the federal exemptions which are pretty generous and, like most of my clients, you will most likely be able to keep all your stuff.

My spouse doesn’t want to file but I need to. Can I do it without my spouse?

Yes. Your spouse doesn’t have to file with you. However, the non-filing spouse’s income is still taken into consideration in determining eligibility for a Chapter 7 or a Chapter 13. Even if they don’t file. Even if all the debt is yours and you incurred it before you even met your spouse. My advice to someone getting married is if you are thinking about a bankruptcy and you don’t want to bring your debt baggage into the marriage, file before you say “I do.”

There are lot more but these are a good start. If you don’t see yours, let me know and I may add it.

Chris McAvoy is a Taylor,  Michigan attorney and consumer bankruptcy lawyer who helps people file Chapter 7 and Chapter 13 Bankruptcy. To find out more about bankruptcy, click here for contact info. We help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, and the Downriver, Michigan area.

“Q” also stands for:

 

 

 

photo by: the.sprouts

“P” Is For Pride and Bankruptcy

Hertford P2I ask clients that come in what I can do for them and they say something like they are glad to meet me and they are interested in filing for bankruptcy. Neither is true. No one wants to meet a bankruptcy lawyer, at least in a professional context. I am right up there with wanting to meet with a mortician. And they aren’t interested in filing for bankruptcy. No one wants to do that either.

There is a stigma attached with filing. There is a puritan work ethic instilled in all of us. Work hard, keep your promises, and salvation shall be yours. Not everyone feels this way but for some people who come in, they are deeply ashamed and their pride is on the line. Their pride is so stung that even though they are overwhelmed by insurmountable debt and have called a bankruptcy attorney, they act like they still need to be convinced to file and that there are no other options. They are almost looking for permission or validation. Well, they are in luck. We do not judge our clients. Ever. We see good people at their worst.

Sometimes you can’t worry about what your neighbors, friends, or creditors think. You have to make smart financial decisions for yourself and sometimes that includes a fresh start. I could be naive but I haven’t met one client that racked up debt with the intention of discharging it. Most bankruptcies occur because of situations beyond the client’s control like divorce, job loss, wage reduction, or medical calamity. Bankruptcy is often the choice of last resort after all other options are extinguished.

Some people consider it immoral to not repay their debt but consider this passage from the Old Testament: At the end of every seven years you shall grant a release of debts.  And this is the form of the release:  Every creditor who has lent anything to his neighbor shall release it;  he shall not require it of his neighbor or his brother, because it is called the Lord’s release.” (Deuteronomy 15:1-2) Believe it or not, I have done bankruptcies for pastors who very may well have preached that it wasn’t Christian to file. I’m not giving them a hard time but until someone walks in your shoes, it is hard for them to understand the safety valve bankruptcy provides.

Did you know that Abraham Lincoln filed for bankruptcy protection. That’s right. Honest Abe needed a fresh start. So did Sam Walton, Henry Ford, Thomas Jefferson, and Walt Disney. Consider bankruptcy a smart financial tool to help you get a fresh start, too. Things can still go your way and you can be a productive citizen unburdened by debt that you were never, ever going to pay off realistically. Your pride will heal and after you put it behind you. While you may not be happy about filing for bankruptcy, you will be glad you did.

“P” also stands for:

Chris McAvoy is a Taylor,  Michigan attorney and consumer bankruptcy lawyer who helps people file Chapter 7 and Chapter 13 Bankruptcy. To find out more about bankruptcy, click here for contact info. We help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, and the Downriver, Michigan area.

Creative Commons License photo credit: satguru

“O” Is For Objections By Creditor

o48A creditor has a very small window of opportunity to object to the discharge of a debt in bankruptcy. When the bankruptcy case is filed, a notice is sent out which has the deadline date for a creditor or trustee to object to the discharge. In a Chapter 7, a creditor may file an objection to that creditor’s debt being discharged. In order to object, the creditor must file a complaint to determine the dischargeability of a debt. This complaint is called an adversary proceeding.

The court may deny a chapter 7 discharge for any of the reasons described in section 727(a) of the Bankruptcy Code, for things such as the debtor’s failure to provide requested tax documents; failure to complete a course on personal financial management; transfer or concealment of property with intent to hinder, delay, or defraud creditors; destruction or concealment of books or records; perjury or fraud; failure to account for the loss of assets;  or filing a bankruptcy petition to soon after a previous filing.

A creditor may also ask for a debt to be excepted from discharge under section 523 of the Bankruptcy Code for things such as fraud; incurring debt with the intention of not paying it back and discharging it in bankruptcy, fraud while acting in a fiduciary capacity, embezzlement, or larceny; or for willful and malicious injury by the debtor to another entity or to the property of another entity.

There is a significant difference between an objection to discharge versus the dischargeability of a debt. An objection to a discharge, if sustained, kicks the debtor out of bankruptcy and the debtor will not get a discharge of his listed debts. Ever. The debtor remains personally liable for all debt. An objection to the discharchability of a debt, if sustained, only relates to a single creditor’s debt, not all of the debts.

It sounds like a lot can go wrong but in reality very few creditors file objections. What is even better, the creditor has a very limited time to file these objections. If they fail to do so, any objection is barred forever.

“O” also stands for:

Chris McAvoy is a Taylor,  Michigan attorney and consumer bankruptcy lawyer who helps people file Chapter 7 and Chapter 13 Bankruptcy. To find out more about bankruptcy, click here for contact info. We help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, and the Downriver, Michigan area.

Creative Commons License photo credit: TooFarNorth

 

“N” Is For Notice To Creditors

N (Washington, DC)Creditors are entitled to notice when a debtor files for bankruptcy. Typically, by using a credit report, collection letters, and the debtor’s memory, all creditors are listed. The bankruptcy court then sends notice of the bankruptcy filing and the automatic stay to the creditors.

What happens if you forget to list a creditor?

If you have filed a Chapter 7 and there are no assets available for distribution to the creditors, then it doesn’t matter if they got knew about it or not, the debt is discharged. Letting them know after the case is over is sufficient. Our courts in Michigan (a 6th circuit state)  won’t reopen a case just to add a creditor. It’s a waste of time. There is a mistaken belief that the failure to list the creditor keeps the debt alive. Not true. It’s gone. This happened recently for an Allen Park client of mine. No worries though, I just sent notice of the bankruptcy even though the case was closed and that resolved it.

But you better make sure you list all your creditors.

While most Chapter 7 cases don’t have assets available for distribution, a small number do. In these cases, creditors are given notice to file a claim in order to receive a share of the proceeds. If the creditor isn’t listed, the trustee can’t give them notice to file a claim. If they don’t file, they don’t get paid anything. If the creditor is prejudiced by the debtor’s failure to list them, then that debt may not be discharged. Chapter 13s are very similar. All Chapter 13s are asset cases because a payment of some amount is made to creditors. Again, that debt may not be discharged by the debtor’s failure to list the creditor and the debt.

And there is no violation of the Automatic Stay if they don’t know.

If a creditor violates the automatic stay by continuing to collect on a debt after the case is filed, you can bring an action against the creditor which may entitle you to money damages. But if you didn’t list the creditor, how are they to know that you filed for bankruptcy? The automatic stay only prohibits collections by creditors that have actual notice. No soup for you.

“N” also stands for:

Chris McAvoy is a Taylor,  Michigan attorney and consumer bankruptcy lawyer who helps people file Chapter 7 and Chapter 13 Bankruptcy. To find out more about bankruptcy, click here for contact info. We help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, and the Downriver, Michigan area.

Creative Commons License photo credit: takomabibelot