The Law Offices of Robert J. Delaney- Bankruptcy
Bankruptcy is a federal law that allows folks who qualify to remove their legal liability to pay certain obligations.
Who qualifies? A rough rule of thumb would be anyone whose assets are $1,000 less than their debts and who has lived in their present county for 3 months and one day.
Who are the folks filing bankruptcy? Contrary to a popular view of bankruptcy filers as free spenders who vacation in the Caribbean and buy expensive jewelry on their credit cards, the vast majority turn to bankruptcy court after one of three events: loss of a job or a drastic drop in income, divorce, or huge medical expenses. Fourth, and a growing number, are folks who have difficulty with credit cards and donít plan on how theyíre going to pay their food, shelter, clothing and medical expenses plus pay back credit card companies for credit card purchases.
In the year 2000 (last statistics Iíve seen) the average person filing bankruptcy had gross annual income of $22,800, annual expenses of $20,592, and total debt of $42,810.
Are any obligations not canceled in bankruptcy? Yes. Not dischargeable are taxes, child support, education loans, and expenses of intentional torts (for example, you hit someone and break their jaw causing medical expenses; these expenses are not dischargeable. A tort is a legal term for ďwrong.Ē Battering someone is the most common example).
What types of bankruptcy are there? There are several, but the most common are Chapter 7 and Chapter 13 bankruptcies. (These are also business bankruptcies, business reorganizations, and farmerís bankruptcies.)
1. Chapter 7 is for individuals unable to pay their debts. The assets, if any, minus the home and a few possessions, are pulled together by the trustee and sold. Proceeds from the asset sale are divided among creditors. The most common assets taken by the trustee and distributed to creditors are the personís federal and state income tax refunds. Outstanding debts, such as credit card accounts and medical bills are discharged or canceled, meaning they do not have to be paid.
95% of the bankruptcies are filed under this Chapter 7 federal law.
Secured debts, meaning a debt that if it isnít paid allows the creditor to take its security, such as mortgage on a house or car, have to be reaffirmed (which means you sign a document that means after bankruptcy cancels your debt, you make a new debt with the secured creditor) if you want to keep the security (house or car). If you want to surrender the security, then that debt is canceled also. A person is only allowed $7500 ($15,000 for husband & wife) equity (difference between what itís worth and what you owe on it) in a home if youíre going to keep it. This can be stretched a little because if costs to the trustee to sell a residence donít clear anything to pay to creditors, the trustee wonít take the home. Equity in a car plus other personal assets that are exempted from being taken by trustee and distributed to creditors can total $4,000/person or $8,000 for a husband and wife.
Most hearings on Chapter 7 bankruptcies are held in the Richmond City Council Room for folks from eastern Indiana (Wayne, Henry, Fayette, and Union counties).
2. Chapter 13 is for individuals who have income and can afford to pay at least a portion of their debt. Under a court-approved plan debtors pay, for up to 5 years, a fixed monthly sum to the trustee, who distributes the money among the creditors. Many of these end in failure because they donít provide for the unexpected expense such as a big medical bill or a car breakdown or a drop in income (for example, overtime is cut). Thereís a movement on by federal trustees to try to push more creditors into Chapter 13. This happens periodically. Last time they tried this in the early 1990ís the overwhelming majority of folks pushed into Chapter 13 type bankruptcies ended in a failed Chapter 13 and they were converted to a Chapter 7.
Most of the hearings on Chapter 13 matters are held in Indianapolis.
What happens to my retirement funds at work? Retirement accounts and pensions by law cannot be touched by bankruptcy trustee and are kept by the individual.
Who are the bankruptcy abusers one reads about in the papers? In a quirk of the federal bankruptcy law, exemptions from a taking of an asset by trustee to sell and distribute to creditors are deferred to each state legislature and they are vastly different from state to state. The worst abusers are Florida, Texas, Iowa, Kansas, and South Dakota where one can keep their home even if itís worth millions and they owe very little or nothing on it. Five other statesóDelaware, Maryland, New Jersey, Pennsylvania, Rhode Island, and District of Columbiaóhave no homestead provision which means bankrupts there can lose their home if they have equity in it. The rest of the 40 states have homestead exemption ranging from $2500 in Arkansas to $7500 (per person) in Indiana to $200,000 in Minnesota. This situation is totally unfair. U.S. Congress needs to enact same exemptions that apply to all 50 states, covering all assets. Thatís fair and simple. Now a person can abuse the system by moving to Florida or Texas, put all their liquid assets in a home, wait 3 months and one day, file bankruptcy and have all their non-mortgage debts discharged even if they have millions of dollars of equity. Thatís abuse.
How do I get started? Get all your bills together, including your house and car payments plus your paycheck stub, and make an appointment to see me. My secretary likes to have the actual bills because we need account numbers and correct addresses. We will prepare and file the bankruptcy petition which includes a financial overview of your financial condition. It includes personal information, list of secured and unsecured debts, your income and all the deductions from your paycheck, and your monthly budget.
After filing the petition in the Indianapolis federal bankruptcy court, a first creditorís meeting, called a 431 Hearing, is set in Richmond. We attend the hearing and the trustee and creditors are permitted to ask us questions. Few creditors attend these hearings.
How long does the process take? One gets immediate relief from your debts upon filing bankruptcy. One only pays current living expenses and those creditors you intend to reaffirm (such as debt on a house or car). It takes about 2 months to get to the first creditors meeting (usually there is only one). After that, creditors have 60 days to file an objection to their debt being discharged. Usually you get your final discharge paper about 5 months after you file.
What if I canít find all my bills? There are the 3 following major consumer credit information collecting companies in these country:
Equifax credit Bureau
Experian (formerly TRW Credit Bureau)
Trans Union Corporation (Credit Bureau)
As of 3/1/05 you can request and receive a free credit report from each of them once a year. As this is a new law, we donít know how long this will take to get a response. Theyíre supposed to send it within 15 days.
Some folks pay $30 and order a credit report online from www.myvesta.org, which gets you quickly all 3 credit company reports combined.
Best not to call the 3 companies direct. They have a combined web site where you can apply to 1 or all 3. The web site is www.annualcreditreport.com.
Those who donít have computers or access to one can call toll-free 877-322-8228 or write to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, Georgia 30348-5281.
Getting started on Chapter 7? Get your information together, make an appointment, and I will be happy to assist you. Call 765-962-8405 for an appointment.
Getting started on Chapter 13? These hearings are held in Indianapolis, and a 1 Ĺ-hour drive from my office, 3 hours for a round trip. Often several trips are needed. I cannot economically compete with the Indianapolis attorneys who donít face all this traveling time. My charges would have to be far greater than their charges. Therefore, I refer Chapter 13 cases to an Indianapolis attorney. I will be happy to do that for you free of charge.
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