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Bankruptcy
Bankruptcy is a last resort. Usually sitting in a bankruptcy lawyer’s office is the last place you want to be, but it pays to find out early what your rights are. Bankruptcy is a last resort, but in many situations it is the best option.
Sometimes people take steps to try to solve their own debt problems, only to make matters worse or lose assets they could have kept. John Banker can advise you on the do’s and don’t’s of dealing with creditors before, during, and after bankruptcy.
After looking over your assets and debts, John Banker can advise you whether your best option is Chapter 7, Chapter11, Chapter 13, or None of the Above. Ultimately the choice is yours on how to proceed, but you need good advice because there are no do-overs in Bankruptcy Court. Here is a brief run-down of the various chapters:
CHAPTER 7
(Straight Bankruptcy)
Once you file a Chapter 7, all collection activity stops, and the court appoints a Trustee to see what money or property can be used to pay creditors. Property that is exempt under state law can’t be used. Because most of the property owned by typical families (homestead, bank deposits and vehicles up to a certain value, furniture, etc.) is exempt, there may be little or no actual liquidation of your property. If the Trustee recovers any assets or money, creditors will be paid based on what he recovers. If a corporation or LLC files Chapter 7, there are no exemptions; all assets are liquidated and the company ceases to exist.
One non-exempt asset many debtors have is an income tax refund, which the Trustee can take if the money is owed to you when your case is filed. We can discuss how to deal with this issue, More importantly, remember that your big tzx refund is an interest-free loan you make to the Federal government every payday, at a time your own creditors are gouging you for 22% interest or higher. You should consider adjusting your payroll deductions to keep more of your money anyway.
Secured debts (car loans, mortgages, etc.) can stay in place if you want to keep your house and car, as long as your payments are current. Or, if you choose, you may surrender the collateral and owe nothing.
It takes about 3 to 5 months to get a discharge from the Court. The discharge releases you from personal liability for most debts. If your income exceeds the Arizona median income, you may not be eligible for chapter 7.
CHAPTER 13 (Adjustment of Debts)
Designed for an individual or married couple with regular income, Chapter 13 can be used if your income is too high for Chapter 7, to stop repossession of a vehicle or save a house from foreclosure, or to deal with large debts such as taxes that can’t be discharged in Chapter 7.
A Chapter 13 trustee does not liquidate assets as in a Chapter 7. Instead, you propose a plan to pay the Trustee every month based on your income and expenses –usually over three to five years. After receiving comments from creditors and the trustee, if the plan meets the Bankruptcy Code’s requirements, the court will confirm (approve) the plan and you only need to make the payments after that to get a discharge.
Like in Chapter 7, most creditors get whatever money the Trustee collects and no more. Secured creditors must be paid if you want to keep the collateral, and certain “priority” claims such as taxes and child support must be paid in full. In some cases, you can reduce the debt on a vehicle down to its actual current value.
Chapter 11 (Reorganization)
This is generally used by businesses that want to continue operating and need to reorganize their debts through a court-approved plan. It can also be used by individuals who have too much income for Chapter 7 and too much debt for Chapter 13 (usually over $1 million.)
Filing a Chapter 11 and getting a plan confirmed is a lot of work, both for the attorney and the client. Creditors who won’t get paid in full get to vote on the plan. The debtor can terminate burdensome contracts and leases, recover assets in the hands of others, and rescale operations in order to return to profitability. Regular operating reports have to be filed with the court. The debtor acts as his or her own Trustee, and runs the business for the benefit of the creditors.
CHAPTER 12
Available only to individuals and companies whose primary source of income is farming.
WHAT ABOUT TAXES?
The general rule is that income tax debts more than 3 years old can be discharged. If you owe for payroll tax on employee’s wages or for sales tax on items you sold, these are not dischargeable no matter how old they are. But, of course, these rules have exceptions, and there are exceptions to the exceptions.
WHAT ABOUT STUDENT LOANS?
Most student loans can’t be discharged in bankruptcy, but you won’t be required to pay on them while your bankruptcy case is pending. The non-bankruptcy student loan relief programs are really your best option, which you can pursue whether or not you file bankruptcy for other reasons.
Bankruptcy should always be a last resort, but it’s important to understand your rights and options. While meeting with a bankruptcy attorney may seem daunting, their expertise can help you navigate complex creditor issues and avoid costly mistakes. John Banker, an experienced bankruptcy lawyer, can review your situation and advise whether filing for Chapter 7, Chapter 11, Chapter 13, or pursuing an alternative solution is your best path forward.