A Bankruptcy Overview
There were nearly 1.7 million bankruptcies filed in 2003, up 7.4 percent from the 1,547,669 filings in 2002. In fact, bankruptcy filings have increased nearly 100 percent since 1994. To help sort your way through the complicated maze of overcrowded bankruptcy courts, you need the assistance of knowledgeable legal advocates, with years of experience and demonstrated trustworthiness.
Bankruptcy — just the sound of it evokes strong feelings in most people. It’s rarely anyone’s first choice when trying to cope with overwhelming debt, the decision to file bankruptcy can be the right one when made with full awareness of all its consequences.
Debtors considering bankruptcy must bear in mind that filing bankruptcy stays on their credit report for up to 10 years. Without proper post-bankruptcy guidance, it could be more difficult and more costly to obtain credit after filing bankruptcy. However, at Corash & Hollender, P.C., we can show you specific steps you can take to increase your credit scores after bankruptcy, and obtain credit cards, car loans and mortgages again. It is important to us that your experience in filing for bankruptcy protection is not perceived as a disgrace, nor at the “end of your life.” Rather, we want to help you put past problems behind you; to recognize and prevent the recurrence of the causes of your financial difficulties; and to be your partner in creating a NEW BEGINNING.
If you find yourself facing insurmountable debt and you need to consult with an experienced professional to evaluate your options, we hope you will contact us for a free consultation. We can see you for day or evening appointments. And you can be assured of confidentiality.
Causes Of Financial Difficulties
Even the hardest workers and the most diligent bill payers can find themselves overwhelmed with debt. Years of experience have shown us that most people want to pay their bills, and use their best efforts to do so. We have observed that there are several basic reasons people have financial difficulties.
First, they may not have been paying attention to their total debt, but rather fell prey to the credit card companies offering easily available “convenience checks” and increased credit limits, thinking only of whether they could afford the “minimum monthly payments.” What the credit card companies don’t tell you is that it takes 12 years to pay off a balance if you only make minimum payments! That’s a lot of interest at 22 percent or more! A little at a time, consumers increase their total debt to a point that they can’t even afford the minimum monthly payments. Then they start getting charged “over the limit” and “late” fees, to the point that very little of their actual payments get applied to reducing debt.
Second, financial difficulties are often caused by substantial economic changes that are outside the consumer’s control.
This can fall into the category of a decrease in household income due to death, illness, layoffs, divorce, or the need for a family to stop work to care for children or for sick or elderly relatives.
Likewise, outside factors can cause an increase in household expenses. Examples we have seen are funeral expenses, unexpected expenses incurred after buying a new home, emergency home repairs, college expenses or medical expenses.
Also, self-employed businessmen often incur substantial credit card debt while building their businesses. Sometimes the debt is directly for business expenses, sometimes people “live off their credit cards” to pay personal living expenses until the business is self-sustaining. If the business doesn’t grow as fast as expected, or if it fails, the level of debt incurred is higher than an individual’s salary can repay. If the business fails, the former business owner is left with his personal credit card debt plus the business-related credit card debt, plus liability for guarantees on business debt.
Third, less common, but not unusual are those individuals whose debts are attributed to an addiction to gambling or drugs, or stock market trading. This can take the form of actual debt to casinos or brokerage firms; cash advances on credit cards; loans from individuals; and even credit card usage for consumer items purchased solely with intent of reselling at large discounts for cash.
In the first and second instances, and sometimes in the third, filing bankruptcy may provide a solution to what seems like an insurmountable problem. If you or someone you know is facing serious financial challenges, it is very important to seek the counsel of an experienced bankruptcy attorney. Once considered a last resort, bankruptcy has evolved into an accepted method of resolving serious financial problems. We have represented people from highly varied economic and social groups. People seeking our counsel would be shocked to learn (although we don’t tell them) that their own neighbors have been our clients.
The Attorney’s Goal
Representing consumers, our goals are to help individuals make a fresh start and put past problems behind them. Listening to potential clients in our first meeting, it is amazing to learn how long they have suffered before seeking legal advice.
More than simply helping our clients discharge old debt, we have found that the best part of our job is enable our clients to face each new day with happiness and hope for a better future. Sometimes this can be accomplished through a Chapter 7 bankruptcy to discharge all unsecured debt. Sometimes we use Chapter 13 as in interest-free debt consolidation program supervised by the Bankruptcy Court. Sometimes Chapter 13 is used as a way to stop mortgage foreclosures by forcing banks to accept late mortgage payments in monthly installments over five years.
When bankruptcy is not the best solution, we try to negotiate settlements with creditors or help arrange mortgage financing. In all cases we work with our clients to help them restore their formerly good credit rating. We have learned that people don’t “want” to file for bankruptcy. They want to put old problems behind them, and restore their financial condition and self-respect.
Although many individuals and groups claim that filing bankruptcy is “easy,” it should not be attempted without qualified professional advice and guidance. The world of bankruptcy is a dangerous maze with traps for the unaware.
Contrary to popular belief there is no such thing as “credit card bankruptcy.” Bankruptcy requires the filing of detailed and accurate financial statements. Based upon this information, and other information he or she acquires, the Bankruptcy Trustee assigned to supervise your case will evaluate whether he or she can recover assets to pay your creditors! Sometimes the person targeted by the trustee will actually be you or your relatives! This can happen if you transferred assets to someone else, or if they are or were a co-owner of property or a bank account, or if someone put your name on a bank account.
Accordingly, not every case is appropriate for the filing of a bankruptcy petition. Filing bankruptcy when you shouldn’t could result in the unexpected loss of a home, of relatives’ funds jointly in your name, of a car, of a tax refund, of lawsuit or insurance proceeds, or of inheritances, matrimonial settlements, trust assets, annuities or other property. Before filing bankruptcy, an expert in the field should thoroughly examine your financial condition for the past six years and for one year in the future. An ill-advised bankruptcy will not be “easy” to forget.
Likewise, a poorly timed bankruptcy could result in lawsuits against friends and relatives whom you have recently paid. Or, it could result in some debts not being discharged.
Unfortunately, we have seen too many clients who were already in bankruptcy and in distress, advising us “I wish I saw you first.”
Bankruptcy is a wonderful solution for some financial problems, but it must be thoroughly investigated before undertaken, and carefully prepared before filed.
At Corash & Hollender, P.C., we work hard to make the bankruptcy process look easy and feel painless. But a hastily filed case that is not properly evaluated or is ill-prepared by an individual acting without an attorney, or by an inexperienced or unqualified attorney could have serious and unexpected consequences.
Bankruptcy: The Legal Background
Bankruptcy law is primarily federal in origin and therefore varies little from state to state. The United States Constitution grants to Congress the power to establish uniform bankruptcy laws throughout the United States, which ensures consistency and predictability in how bankruptcy proceedings are conducted. The individual states do, however, retain jurisdiction over certain debtor-creditor issues that are not addressed by and do not conflict with federal bankruptcy law, such as which property remains exempt from creditors’ claims.
For example, in New York, each person filing bankruptcy is entitled to a homestead exemption of $179.975 (i.e., he or she can keep $179.975 in equity over the mortgage balance). In Florida and Texas, in contrast, there is an unlimited homestead exemption. Thus, in New York, the amount of equity in your home would impact whether to file bankruptcy, and which type of bankruptcy would be most appropriate.
There are also differences in personal property that is exempt from state to state. What most people don’t realize is that if you don’t have a home, you can still keep $6,000 in cash and still file Chapter 7 bankruptcy!
Commercial And Consumer Bankruptcy
Both businesses and individuals may file for bankruptcy. Commercial bankruptcy is a remedy available to businesses that are unable to pay their debts. Options include liquidation, in which many of the business’s assets are sold and the proceeds are divided among the creditors, and reorganization or restructuring, in which the business continues to operate according to a plan that allows for at least partial payment to creditors over time. Consumer bankruptcy, by contrast, is a method by which individuals may be able to get out from under insurmountable debt and make a fresh start. As in commercial bankruptcy, there are two options: (a) liquidating assets to pay off creditors (although, in reality, in most Chapter 7 liquidation cases there are no assets to administer and the debtor simply receives a discharge of old debt); or (b) filing a wage earner reorganization plan under Chapter 13 that allows the debtor to retain assets while providing time to pay off unsecured debts, taxes, or arrears on mortgages and other secured debt. An experienced bankruptcy attorney can help you choose the right course of action for your particular situation.
Chapter 7 Liquidation
Bankruptcy law provides two basic forms of relief: (1) liquidation and (2) rehabilitation, also known as reorganization. Most bankruptcies filed in the United States involve liquidation, which is governed by Chapter 7 of the Bankruptcy Code. In a Chapter 7 liquidation case, a bankruptcy “trustee” collects the debtor’s “nonexempt” property (as opposed to the property that the debtor is allowed to keep and that is not subject to the creditors’ claims) and converts it into cash. These assets are composed of those disclosed by the debtor in his financial statements filed with the Court, and others that the Trustee is able to identify (including recovery of transfers made by the Debtor prior to bankruptcy). The trustee then distributes the resulting funds among the various creditors according to an order of priority described in the Bankruptcy Code. In the typical Chapter 7 case there are no assets to distribute to creditors, although sometimes an individual will intentionally file a Chapter 7 case with assets (e.g., potential proceeds from a lawsuit that may take years to conclude), simply to obtain peace of mind and cessation of calls from credit card collectors.
The granting of a discharge to the individual Debtor prevents most creditors from pursuing the debtor’s post-bankruptcy earnings or assets, limiting Creditor recovery to their share of the money, if any, that the Bankruptcy Trustee collects. If the debtor is a corporation, it ceases to exist after liquidation and distribution, and there is therefore no reason for further discharge because the creditors cannot seek payment from an entity that no longer exists.
Certain types of debts are “nondischargeable” and survive bankruptcy. These include certain taxes, debt incurred based upon fraud or false representations (e.g., credit card debt incurred right before bankruptcy, or without a realistic ability to repay), certain matrimonial debts, and certain debts derived from “wrongful” conduct.
Chapter 11 Or 13 Reorganization
In a rehabilitation or reorganization, creditors may be provided with a better opportunity to recoup what they are owed. In exchange, the debtor will be allowed to keep his assets, and may be able to discharge certain debts that would otherwise be nondischargeable in Chapter 7. This type of bankruptcy is governed by Chapter 11 or Chapter 13 of the Bankruptcy Code. Chapter 11 generally applies to individual debtors with excessive or complex debts, or to large commercial entities like corporations. Chapter 13, by contrast, generally applies to individual consumers with smaller debts. Farmers and municipalities may seek reorganization through the Code’s special chapters, Chapters 12 and 9, respectively. Reorganization provides debtors with a greater opportunity to retain their assets if they agree to pay off their debts according to a plan approved by the bankruptcy court. If the debtor fails to adhere to the plan, however, the court may still order liquidation.
‘Voluntary’ and ‘Involuntary’ Bankruptcies
Most bankruptcy cases are filed by the debtor and are thus considered “voluntary bankruptcies.” Once a bankruptcy petition is filed, the debtor is immediately entitled to relief from creditors through the bankruptcy procedure known as the “automatic stay.” The automatic stay freezes all debt collection activity, and forces creditors to allow the bankruptcy court to determine if and how payment will be made.
Not all bankruptcy proceedings are voluntary, however. Under Chapters 7 and 11, creditors, too, have the option of filing for relief against the debtor, in which case the proceeding is called an “involuntary bankruptcy.” Involuntary bankruptcies are allowed only when certain minimum thresholds are met: for instance, there must be a minimum number of creditors and a minimum amount of debt. The debtor has the right to file a response to an involuntary petition, after which the court will determine whether the creditors are actually entitled to relief. If the court dismisses an involuntary bankruptcy filing because it has no merit, the creditors may be ordered to pay the debtor’s attorneys’ fees, damages for any losses the debtor experienced because of the bankruptcy, and even punitive damages to punish the creditors for the frivolous or abusive filing of a petition. An experienced bankruptcy attorney can provide essential advice whether you are a debtor considering voluntary bankruptcy or facing an involuntary bankruptcy proceeding, or a creditor seeking relief through an involuntary bankruptcy.
Lawyers specializing in bankruptcy law can help potential debtors determine if the filing of a bankruptcy petition would be advantageous or fraught with risk. If the decision is made to file the petition, a specialist can guide the debtor to determine both the time for filing, and the appropriate chapter.
When appropriate, counsel can help develop non-bankruptcy solutions to financial problems, and in all cases assist clients in restoring their credit rating after bankruptcy.
On the other hand, when representing creditors, an experienced bankruptcy attorney can assist creditors identify and pursue assets and maximize their recovery from a bankruptcy trustee. Likewise experienced bankruptcy counsel can help creditors establish their right to pursue debtors after bankruptcy.
Bankruptcy is a complicated process, which should not be attempted without expert advice; but clients obtaining proper guidance can obtain great benefits, and get a “new lease on life” while avoiding potential risks.
Contact The Debt Relief Attorneys At Corash & Hollender, P.C.