Bankruptcy for the Motor City

On July 18, 2013 Detroit, Michigan became the largest American city ever to file for bankruptcy. Its long-term debts are estimated at $18.2 billion, or $27,000 for each resident. The City filed what is known as a Chapter 9, or municipal bankruptcy. The filing is being seen as the best option for the city to help them rebuild, restructure, and regain control of its finances. Many speculate that Detroit will sell assets like treasured pieces of art to pay down debts. How can the bankruptcy Detroit filed relate to you and your decision to file bankruptcy? Simple: the ultimate goal is the same, to eliminate the debt that is holding you (and Detroit) captive from a strong financial future.

Although individuals are not eligible to file the same type of bankruptcy that Detroit filed, there are 2 distinct types available to them: Chapter 7 and Chapter 13 bankruptcy. The municipal bankruptcy that Detroit is going through is most similar to a personal Chapter 13 bankruptcy because it involves a reorganization and restructuring of debts in order to efficiently pay them back. For individuals or families who choose to file a Chapter 13 bankruptcy they will be given a 3-5 year repayment plan in which the court will order them to payback a certain percentage of their overall unsecured debt. The percentage that the court orders individuals to pay back in a Chapter 13 bankruptcy varies due to the debtor’s monthly income and expenses, but it can range from 10-100%. At the end of the 3-5 year plan the debtor will be debt free and up to date on all secured monthly payments such as a car note or a mortgage.

Chapter 13 bankruptcies are typically beneficially to individuals or couples that have large amounts of secured debt or debt that is tied to a specific object such as a car, home, or loan. Excess money or a substantial “disposable income” is also a requirement for a Chapter 13 case because the debtor(s) must have money to make their monthly bankruptcy payment for 3-5 years.

The other type of personal bankruptcy is one that Detroit probably wishes it had the opportunity to file because it is known for completely eliminating debt and giving the debtor a “fresh start.” This type of bankruptcy is called Chapter 7 and it is the most commonly filed Chapter in America. If the debtor meets the eligibility requirements the court will grant them a discharge of debts which will wipe away unsecured debts such as credit card debt, medical bills, utility bills, and even types of personal loans.

As you can see, the common theme of all bankruptcies, whether they are on a large scale like Detroit’s or a small scale like yours or someone you know, is to eliminate debt. Contact a local attorney in your area if you think that a Chapter 7 or 13 bankruptcy could be a help to you and your finances.

Legislation Proposed to Again Allow Tithing and Charitable Giving While in Bankruptcy

to continue tithing and giving to charities.

Tithing is a scripture-based practice followed by many Christian groups. It means giving a portion of your income, usually 10-15%, to support one’s local church. Tithes are usually donated before any personal bills or expenses are paid by the giving person.

In a recent New York case, a bankruptcy judge ruled that debtors can’t tithe or donate money to charity if they want the federal protection of a Chapter 13 bankruptcy. The New York bankruptcy judge ruled that because of the recent changes to the bankruptcy code, the $100 a week a New York couple wanted to give to their local church had to be used to pay creditors.

Before the new bankruptcy law went into effect in October, 2005, bankruptcy court judges generally permitted chapter 7&13 filers to tithe a portion of their income each month. In 1998, the passing of the Religious Liberty and Charitable Donation Protection Act allowed debtors filing for bankruptcy to exempt up to 15 percent of their annual income from creditors for tithing or charitable donations.  However, this law was unfortunately wiped out by the October, 2005 law changes.Â

Now, Senators Obama and Hatch would like to see similar law reinstated.  I for one agree with them. With all the poverty in our country and people still living in squalor from the devastation of Hurricane Katrina, the last thing Congress needs to do is stifle charitable giving by the American public.  This includes people in bankruptcy.

The bill has already passed in the Senate and has now been referred to the House.  Hopefully Congress and the President do the right thing and pass the bill.

Chapter 7 Bankruptcy Timeline

Chapter 7 bankruptcy is the quickest and most common type of bankruptcy filed in America today, but have you ever wondered exactly how long it takes to file Chapter 7 bankruptcy? Below is a generic timeline for what to expect. As you will see, the time it takes to file a bankruptcy is quite dependant upon the debtor taking proactive steps to further the process.

  1. Hire an attorney – The time you take to find and hire an attorney is completely up to you. This process will include initial consultations, discussion of your debt situation, conversations about fees and court costs, and ultimately the signing of a contract for services.
  2. Providing documents – Once you have met with your new bankruptcy lawyer you will most likely be provided with a list of financial paperwork that you must provide in order for the case to proceed. This documentation can include pay stubs, bank statements, tax returns, mortgage documents, car loan information, etc. If you are struggling to obtain any of this information you should let your attorney know immediately. Failure to provide these documents will stall the completion of your case.
  3. Drafting the petition – The official court document that is required to file a bankruptcy is called the petition and it will be drafted by your attorney once they have received the necessary documents from you. The time it takes your attorney to draft the petition will depend on his/her workload, the complexity of your case, and other variables. However, you should request an estimate of when your petition will be completed so you can be prepared for the next step.
  4. Review of petition – In order to make sure all of the information listed is correct, your attorney may want to schedule an in person meeting with you to go over the petition they just drafted. This will only take about an hour.
  5. Filing of Petition & Hearing – After you review the petition with your attorney they will file it with the bankruptcy court. This will involve a filing fee of $306. Thirty to Forty-Five days after the filing of the petition you will be required to attend a court hearing with your attorney where a bankruptcy trustee will review your case. This takes 10-15 minutes.
  6. Discharge of Debts – 60-90 days after your official bankruptcy hearing you will receive discharge papers in the mail stating that your Chapter 7 bankruptcy has been successfully completed. This means that your unsecured debt has been eliminated.

The truth is that a Chapter 7 bankruptcy can take as long as you want it to take. During my time as a bankruptcy paralegal I saw Chapter 7 cases filed in 14 days, or cases that were still waiting to be filed 2 years after the debtor hire our firm. Be a proactive debtor and gather your documents quickly, communicate constantly with your attorney, and ask plenty of questions.

Bankruptcy for the Motor City

One of the most confusing things about filing bankruptcy comes when your attorney’s office calls to remind you to take your classes. What classes? That’s the most common response I got from clients when I had to make that phone call. Then came the dreaded “what if I don’t pass?” Allow me to put your mind at ease and tell you a little bit about the classes required of anyone filing personal bankruptcy.

In 2005 Congress passed new legislation known as the Bankruptcy Abuse Prevention & Consumer Protection Act, otherwise known as BAPCPA. It was the largest overhaul to the bankruptcy code in several decades and it created the requirement for certain classes. Section 109(h) states that a debtor will not be eligible to file Chapter 7 or Chapter 13 bankruptcy unless within 6 months prior to filing the debtor received an “individual or group briefing” from an approved credit counseling agency. The law also required that all debtors complete an “instructional course concerning personal financial management” soon after their case has been filed.

Both courses are available to be completed online, over the phone, or in person and take somewhere between 1-2 hours. Neither course is pass or fail, but rather just for completion. These courses typically cost between $30-$50 apiece and that amount may or may not be included in the fees you pay your attorney. Here’s a bit more information about both:

  • Credit Counseling Course – The credit counseling course should be taken before your bankruptcy paperwork is filed with the court. In fact, if your case is filed without your certificate of completion it could be thrown out altogether. It is imperative that you take the course as soon as you can after you attorney tells you it is available so that your filing is not slowed down.
  • Debtor Education Course – This course is taken after your case has been filed with the court, but before it has been finalized and completed. That means you will have a smaller window of time to complete this course. In most cases bankruptcy attorneys recommend that you take this course before your bankruptcy hearing which is typically scheduled for 30 days after your case is filed.

These courses were made mandatory by the BAPCPA in order to prevent bankruptcy abuse from taking place, or in other words to make it a bit more difficult to file. The law was not created to keep those who really need bankruptcy from filing – it was created to prevent those individuals who habitually file from taking advantage of the system. Be sure and discuss these 2 courses with your bankruptcy attorney so that you are prepared when it is time to take them.

Are You One Injury Away From Bankruptcy?

If you have a serious injury or illness you are likely to rack a up a large amount of debt and possibly face a reduction or loss of income. This is a financial combination that usually ends in filing bankruptcy.

In fact, medical bills and illness is the leading cause contributing to bankruptcy filings according to a study published in Health Affairs . The study, conducted by researchers at Harvard Law School and Harvard Medical School, found that medical problems contributed to about half of all bankruptcies. The author of the study, Dr. David Himmelstein commented: “Unless you’re Bill Gates you’re just one serious illness away from bankruptcy. Most of the medically bankrupt were average Americans who happened to get sick.”

If you are unfortunate enough to incur major medical bills, you can quickly find yourself in huge amounts of debt in a very short period of time, especially if you are one of the 44.8 million Americans who doesn’t have health insurance.

Things aren’t necessarily much better even if you do have health insurance! The study reported that most people who filed bankruptcy because of medical problems actually had health insurance. Uncovered medical debt averaged $13,460 for individuals with private insurance at the start of thier illness. The combination of high deductibles, co-pays, and exclusions can quickly reduce the amount coverage your insurer will provide. Without the ability to perform the same jobs, many also see a dramatic reduction in income.

This study highlights the fact that bankruptcy is designed for unfortunate individuals who have no realistic way of ever paying off their debt and truly need a fresh start.

Transfers of Real Estate and Bankruptcy

Last night I had a consultation with a prospective client who in the previous year had lost his good-paying job and had been forced to take part-time work at much lesser pay to make ends meet. Because of his decrease in income, he’d resorted to overspending on his credit cards and now has $60k of unsecured debt that he can not repay.

Unfortunately, I wasn’t able to help this individual because of actions he had recently taken before coming into my office.

In January, 2007, my prospective client quitclaimed the fee simple interest he possessed in his homestead to his longtime live-in girlfriend via a quitclaim deed. At the time of the transfer, the house was worth $300k and the balance on the only mortgage was $140k. He was quite frank with me that the reason he transferred the property out of his name was because he was planning on filing a Chapter 7 bankruptcy in the near future, and did not want to lose his house to the bankruptcy court and his creditors.

It then became my unenviable job of telling him that what he’d done would not prevent the court from seizing the house as an asset in a Chapter 7 liquidation bankruptcy. The issues here are one of equity and one of transfer. In Illinois where I practice, an individual can protect up to $15k of equity in their homestead. (PLEASE NOTE: The homestead exemption varies state-to-state .) Even after a cost of sale analysis to account for broker fees, etc., my prospective client had over $130k of equity in his house. After deducting the $15k homestead exemption, this would leave roughly $115k of exposed equity in the house were he to file a Chapter 7 bankruptcy. In this case, a bankruptcy trustee would seize and liquidate the house and use the monies to repay this person’s creditors. Any surplus of sale would be returned to the client after all qualifying debts had been paid.

The fact that he’d transferred the house before the filing of bankruptcy will not stop the court from pursuing the equity in this situation. All transfers of assets within a two-year window prior to filing must be disclosed on a Chapter 7 or Chapter 13 bankruptcy petition in the Statement of Financial Affairs. A bankruptcy trustee by statute possesses the power to offset any transfers within a four-year window prior to filing if he deems the transfer to be fraudulent and if there’s a sufficient asset to make a meaningful distribution to the filer’s creditor’s.

In this case, had I filed a Chapter 7 Bankruptcy for this person, his assigned bankruptcy trustee would have “set aside” the fraudulent transfer and sold the property out from under the client so he could repay the $60k of credit card debt the client had incurred with the proceeds of sale from the house.

To make matters worse for this person, I also unfortunately could not put him into a Chapter 13 repayment plan because he no longer possessed the requisite household income to repay his debts and maintain his necessities, i.e. mortgage payment, food, clothing, transportation, utilities, etc.

Thus, I had to break the bad news that the only options he has now are either to sell his house and use the money he receives from the sale to repay his debt; somehow legitimately increase his income so he can support a Chapter 13 repayment plan; or wait the four year period until February, 2011 to file a Chapter 7 Bankruptcy so a trustee can not set aside the transfer at issue.

The lesson to be learned here is simple. If you are contemplating materially changing any aspect of your financial situation before filing bankruptcy, make sure to consult with an experienced attorney who can advise you if your intended actions would be potentially damaging to your future case.

Oklahoma State Bankruptcy Laws

What Are The Oklahoma Bankruptcy Exemptions?

North DakotaOklahoma law protects all or a portion of your property from being seized by creditors or the bankruptcy trustee in a Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, you are generally allowed to keep all of your assets and property. Certain exceptions may apply, so it’s wise to consult with an Oklahoma bankruptcy attorney to find which of your assets will be protected in a bankruptcy filed in Oklahoma. In general, the major Oklahoma bankruptcy exemptions include:

GENERAL OKLAHOMA EXEMPTIONS
Real Estate (the Homestead Exemption)
The debtor’s principal residence (including a manufactured home) is protected. A provision in the new bankruptcy law caps the homestead exemption at $125,000 if you have not lived in the state for at least 40 months prior to the time you file a bankruptcy petition. In some situations, the cap may be permanent. You should consult with an Oklahoma bankruptcy attorney for specific information.
Automobiles
One motor vehicle valuing up to $7,500 can be protected.
Other Property
All household and kitchen furniture; all cemetery lots; all tools, implements, apparatus and books used in any trade, profession, or in farming; all books, portraits and pictures; $4,000 in clothing; all professionally prescribed health aids; various farm animals; guns not to exceed $2,000 in the aggregate.
View the complete list of Oklahoma bankruptcy exemptions

Please remember that this page provides general information only, and is not intended to provide legal advice. The information is not a substitute for the advice of a qualified bankruptcy attorney. If you need legal assistance, consult an attorney.

Which state’s exemption laws apply in your bankruptcy?

North DakotaGenerally, the laws of the state in which you lived for the 730 days (2 years) prior to filing a bankruptcy petition will apply in your bankruptcy.

If you have not lived in the same state for the 2 years immediately prior to filing your bankruptcy petition, the laws of the state in which you lived for the majority of the 180-day period preceding the 2-year period will likely apply.

If application of the preceding general rules renders you ineligible for exemptions under any state’s laws, you may be allowed to choose the federal exemptions applicable in your bankruptcy.

Is Oklahoma a Community Property State?

No, Oklahoma is not a community property state. Because it is not a community property state, you will be responsible for your spouse’s debts only if you voluntarily assumed those debts by, for example, co-signing on a loan given to your spouse. In a non-community property state, one spouse can file for bankruptcy and be eligible to eliminate all of their unsecured debts without the involvement of the other spouse.

How did your senator vote on the new bankruptcy laws?

Following years of intense lobbying by creditors, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). How did your Senators vote on these largely pro-creditor provisions?

Coburn (R-OK) — YEA
Inhofe (R-OK) — YEA

Oklahoma Bankruptcy Court Locations:

111 West 4th Street
Okmulgee, OK 74447
(918) 758-0126

224 South Boulder Avenue
Tulsa, Oklahoma 74103
(918) 699-4000

15 Dean A. McGee Avenue
Oklahoma City OK 73102
(405) 609-5700

Note: You may not have to actually go to one of the above bankruptcy courts. Trustees often conduct your meeting at a local venue.

Although bankruptcy is federal law, the bankruptcy courts in each jurisdiction have local rules that must be followed. A local bankruptcy attorney will be familiar with the specific rules in your area.

Oklahoma Bankruptcy Attorney Locations:

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Chapter 7 Bankruptcy Attorney

Understanding how to file Chapter 7 bankruptcy is much easier when after enlisting the help of a Chapter 7 attorney with experience in this type of filing, and can significantly impact the overall success of a bankruptcy case.

Bankruptcy - TN - About Chapter 7

There are a number of responsibilities carried out by an attorney during the filing process, from answering clients’ questions to ensuring that all paperwork is filled out properly, and professional representation can aid debtors in understanding paperwork and avoiding mishaps. A Chapter 7 bankruptcy attorney can serve as more than legal counsel; their training allows them to serve as a client advocate who works towards more agreeable outcomes for those hoping to improve their financial situations.

Getting Started with a Chapter 7 Attorney

A consultation is almost always the first step in a lawyer-client relationship, and some professionals may offer such initial consultations free of charge. During this meeting, the debtor’s personal situation and outstanding debts are discussed, along with their short- and long-term financial goals. Following the consultation, a debtor should have a clear idea of whether Chapter 7 bankruptcy is a viable and recommendable route to take; in some cases, a different bankruptcy chapter or even out-of-court debt consolidation may be preferable.

Once a Chapter 7 bankruptcy attorney has been hired, filing begins and creditors are barred from making any attempts to collect money from debtors unless they obtain permission from the judge presiding over the bankruptcy case. The attorney must then complete a list of credits and debts together with their client, a document that is central to the bankruptcy filing and which should be as accurate as possible to ensure that unforeseen problems aren’t encountered later on in the filing process. Having an attorney on hand to help with the creation of this list can impact the outcome of the case itself, and debtors who choose professional representation may find this step easier to complete.

After You Hire an Attorney

A Chapter 7 attorney can also be of assistance during the “341 Meeting of the Creditors,” during which the trustee, or creditor representative, examines the eligibility of the debtor for a Chapter 7 filing. During this process, the trustee also reviews the debtor’s list of assets and looks for any opportunities to liquidate non-exempt assets held by the debtor. While creditors themselves aren’t always present at the meeting, their specific interests or claims may be presented and discussed. An attorney can help prepare a debtor for the questions they’ll be asked by the trustee during this meeting, potentially easing the stress some debtors may feel and encouraging responses that accurately represent the debtor’s circumstances.

Working With Your Chapter 7 Attorney

Throughout the filing process, a Chapter 7 attorney is charged with examining documents for clarity and correctness, answering any relevant motions, and taking care to provide the debtor with information about their rights. Understanding the procedures and requirements of a Chapter 7 bankruptcy filing alone can feel daunting, and while it’s not impossible to file without an attorney, getting help from a professional as soon as bankruptcy is considered can help make the process smoother and less confusing.

Good Debt vs. Bad Debt: The Pizza vs. Your Mortgage

Admit it, you’ve all been there.  It’s midnight, you spent all your cash on the $2 special at the pub, and you and your crew are starving.  “No problem,” you declare, “I got it on my card.”  Problem solved, you’re a hero, end of story, right?  Right, if you understand the responsibilities which accompany carrying debt.  There’s good debt and there’s bad debt.  Good debt gets paid on every month and is very clean.  Credit card debt, when handled responsibly, provides you, the owner of that debt, a convenient line of credit which was managed proactively, affords you some additional freedom.

It’s important to understand the different types of debt one can carry.  There are large debts, like mortgages and car loans, which are often budgeted for.  They are substantial payments which a logical person wanting to keep a roof over their head and wheels under their feet would plan for.  They are fixed costs.  For most people, only by going into debt can one afford to acquire them.  They are risky if you over extend your financial viability on your purchase or make a bad decision in regards to negotiating your loan, but inherently they are good debt.  Prior to the current sub-prime debacle going on in the US mortgage industry, one needed relatively minimal established credit history to get a loan to buy a house.  Those who responsibly planned for such loans were afforded good debt.  Paying your mortgage every month is a great way to carry good debt and establish a firm credit history.  Regardless of the type of good debt you carry, if you continue to be in good standing with that debt, it’s generally considered a positive move.

Bad debt though is constantly lurking around the corner!  Don’t think it’s so easy to be in debt and be OK.  Credit cards are really great, and really bad.  For example, my story above about the late night pizza and the ability to follow through on something like that is a real life example.  Do that a few times a month.  Next thing you know you don’t have any cash at the pub, and you end up buying rounds of drinks for your mates.  You use your credit cards as cash, and figure one of two things.  You say to yourself, “I’ll pay it all off next month.”  Or, “This is great; I get all this stuff for $50 a month!”  If you’re the first person, you pay off all your credit card balances every month, with all the cash you would have spent in lieu of using that credit card.  The card is a tool in making your life convenient.  You only qualify as that person though if the balance on your cards is $0.00 most every month.  If you’re the second person, who is as naïve as to think that anything in this world is free, you’re cruising for some bad debt bruisn’.  Balances carried more than 30 days on average carry an interest rate.  The average consumer credit card interest rate is somewhere around 14.5%.  Add in a late payment, and that rate goes through the roof, oftentimes more than doubling.  The late payment fee is a killer too.  Minimum payments don’t work.  At some point, the interest compounded each month is more than the minimum payment you’ve been making and next thing you know; you’re looking into filing bankruptcy to help deal with the debt.  That’s bad debt.

The moral of the story is this.  Work hard to establish good debt and stay current on it!  Be very wary of the lures of credit card utopia and bliss unless you are sure you can pay it off in full all of the time.  Debt doesn’t have to be a bad four letter word!

Chapter 13 Case Studies

These real-life Chapter 7 bankruptcy cases tell the story about how bankruptcy can help eliminate your debt.

Hypothetical #3: Adam Filer

Adam Filer is a single parent with a 13-year-old dependent daughter. For 7 years, Adam worked for Acme, Corp. until it closed last year due to a downturn of the economy. Adam was making almost $60,000 annually at Acme Corp. Adam wasn’t able to find a new job for almost 9 months after getting laid off and fell 3 months behind on his mortgage payments. He was forced to take a job making much less and is now on a $50,000 annual salary. The value of Adam’s house has not significantly increased since he purchased it several years ago. Adam has been able to keep current on his car payments and other credit card debts ($10,000), but doesn’t see a way to catch up on his mortgage payments.

Analysis

Adam can consolidate his debts and file a Chapter 13 bankruptcy to stop the foreclosure proceedings. The filing of a Chapter 13 bankruptcy stays any collection activity which is currently pending against Adam. It will also force Adam’s mortgage company to accept the owed mortgage arrears over a 36-60 month period in his Chapter 13 Repayment Plan.

Joe and Mary would be able to keep their house and 2 cars if they continue to make their mortgage, home equity, and auto payments. They could eliminate their credit card debts, medical bills, and any other unsecured loans.To be able to file for Chapter 13, Adam must be able to prove to the Bankruptcy Court that he makes enough income each month to not only repay a portion of his debts (including the mortgage arrears), but also to maintain his household necessities for himself and his dependent daughter. Even though Adam is making less money, he still may be able to afford a repayment plan, because he will only have to pay a small percentage of his credit card debt back.

Hypothetical #4: Dennis and Pam Filer

Dennis and Pam Filer are a married couple with three dependent sons in their household. Pam makes $25,000 a year from a part-time job. Dennis’ income fluctuates, but he typically makes around $90,000 a year. Dennis and Pam own a house in a middle-class suburb and they have 2 cars. They are currently up-to-date on their house and car payments. Earlier this year, one of their sons became ill and they’ve been fighting with the insurance company over who’s responsible for the medical bills. They have also slowly over-extended themselves on their credit card debt over the last 5 years. The credit card companies have consistently increased their credit limits and their balances have increased proportionately each year. Dennis and Pam are living on a razor-thin budget and would like to lower the interest rates on their credit cards and start paying back the principal of the debts they incurred. They have owned their house for over 10 years and have a large amount of equity built up, but they aren’t eligible for a refinance because their debt-to-income ratio is too high.

Analysis

A Chapter 13 bankruptcy would allow Dennis and Pam to consolidate all of their debts into one monthly payment. Assuming Dennis and Pam are over the median income for a family of five in the state in which they live; their Chapter 13 Repayment Plan would run for a length or five-years. By filing a Chapter 13, Dennis and Pam will prevent any additional interest fees or penalties been added to their debt. Dennis and Pam will most likely pay a reduced percentage of the total debt they owe over the five-year period and the rest of their debt will be forgiven in the Chapter 13 discharge. Dennis and Pam will not risk losing any of their assets, and will be able to keep their house, cars, and household belongings.

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