What is Bankruptcy?
Bankruptcy is a legal process that allows you a method to deal with a situation where you owe more money than you can currently repay.
Under Chapter 7, you may be required to surrender certain assets to a trustee. Bankruptcy is also available to businesses, corporations, and partnerships. Even municipal governments can file bankruptcy (under Chapter 9).
After you have filed your bankruptcy case (also known as a “petition”), your creditors must stop all calls and collection efforts against you for a period of time, unless they get permission from the bankruptcy court to continue.
The Bankruptcy Code and Federal Rules of Bankruptcy Procedure determine which chapter you are eligible to file, which debts can be eliminated, how long repayment must continue, which possessions can be kept, etc.
What to Expect After Filing Chapter 7 Bankruptcy
1. Bankruptcy Notice
Two to three weeks after your Bankruptcy Petition is filed with the Bankruptcy Court, you should receive a Notice of Bankruptcy Case, Meeting of Creditors and Deadlines. If you haven’t received this notice by the end of the third week, please call our office. The notice will include the date, time, and location of your hearing. If you fail to appear at the scheduled time, the United States Trustee’s Office will notice your case for dismissal.
2. Creditor Harassment
Your creditors will receive the notice about the same time you do. At that point, federal law requires they discontinue any personal contact with you. Sometimes, it can take four weeks or more for the creditor to process the information in their system until they stop contacting you. Thereafter, if you continue to get harassing phone calls from creditors, provide the creditor your bankruptcy case number and the date the bankruptcy was filed. Inform them that your Chapter 7 case was filed in the Middle District of Florida, Tampa Division. Do not engage the caller in any further discussion. If the caller persists, inform him or her that you have retained counsel, provide them our name and telephone number and hang up. If the creditor continues to attempt contact with you, after you have provided this information, contact this office and we will call or write the creditor demanding they discontinue contact with you.
3. Secured Creditors
Once your bankruptcy has been filed, for those secured items you wish to keep (home, vehicle, large appliance, etc.), you should contact your secured creditors for their mailing address or account information. After the case is filed, your secured creditors may stop sending you monthly statements or coupon books. If you have automatic withdrawal for any regular payment, it may likewise discontinue. If you intend to keep the secured property, it is your responsibility to make sure the monthly payment is made. Keep evidence of payment, either by sending payment by certified mail, return receipt requested, by overnight mail, or through a third party bill payment service (such as PayTrust, www.paytrust.com, or your bank’s internet bill payment service. If you pay in person at a branch office, request a payment receipt. Always write your account number on your check or money order.
4. Reaffirmation Agreements
As to each secured item (home, vehicle, or large appliance), you have three options:
- Redeem the merchandise by making a reasonable offer of one lump sum payment equal to the current value of the collateral, to be paid within thirty (30) days. If you wish to redeem collateral and the difference between the amount of the debt and the value of the item is more than $3,000, you should retain our services to negotiate and litigate a redemption on your behalf. We charge additional fees for redemption advocacy services and we require a prepaid fee retainer. Please call us as soon as you decide to redeem your secured item. If the difference is less than $3,000, you should contact the creditor directly and make a reasonable offer of a lump sum payment. Very often, the creditor will negotiate the loan amount to one-half, one-third, or even less. If you are unable to agree on terms of redemption, we can assist you (again, for the additional fees and a prepaid retainer.)
- Reaffirming your debt with Secured Creditors: You may choose to reaffirm a debt and continue making regular monthly payments pursuant to the terms of your original agreement. If we receive a reaffirmation offer for secured debt, we will forward it to you for signature. Unless you sign the agreement and return it to us, we will presume that you have decided not to reaffirm the debt. If you do not reaffirm the debt, most often you will not receive monthly reminders or payment books from the creditor who may decide to repossess the collateral. You are not required to reaffirm any debt. IF YOU DO NOT MAKE YOUR MONTHLY PAYMENTS ON SECURED DEBT (HOME, CAR, FURNITURE) THEY WILL REPOSSESS IT OR FORECLOSE ON YOUR HOUSE. If you reaffirm a debt, you may cancel the Reaffirmation agreement within sixty days after it is filed with the Court or before the Court enters your Discharge, whichever happens later. By signing a Reaffirmation Agreement, you agree to be responsible for the full amount of the debt. If you default on any payment installment after reaffirming a debt, the creditor can proceed with collection as though the bankruptcy never occurred.
- Surrender the collateral. If you choose to surrender the collateral securing debt, you should contact the creditor directly to make arrangements for pick up or delivery.
- Offers for Reaffirmation for Unsecured Debt. You are strongly advised not to reaffirm any unsecured debt. Therefore, unless you have instructed us otherwise, we willreject any unsecured reaffirmation offers that we receive on your behalf.
5. Personal Contact Information
Please keep this office apprised of any changes in your personal contact information during the course of our representation. Specifically, you must inform us immediately if your address or telephone numbers change or if you have a significant change in your finances. We want to represent your interest zealously but we cannot unless you keep us informed as to how we can contact you. If your finances change such that you can no longer pay both the Trustee and a secured item (such as your mortgage or car payment), contact our office so we can advise you on how to proceed.
6. Credit Counseling Course
You must take your 2nd course prior to your case being discharged. If you fail to complete the course before your bankruptcy case is discharge, your case will be dismissed and all your debt will remain. Please take your credit counseling course immediately.
What If I Have More than One Mortgage?
If there is more than one mortgage against your primary residence, and the property is worth no more than what is owed on the first mortgage, a Chapter 13 bankruptcy will allow you to strip out the junior mortgage holders. If the junior mortgage holders are wiped out, the monthly mortgage payment is more manageable and you are paying close to your property's fair market value. However, ask yourself, "what is the value as compared to the first mortgage...is it worthwhile to make those payments?
Recent law changes have allowed a Chapter 7 Debtor to strip a 2nd mortgage in bankruptcy if the lien if wholly unsecured. Potential clients have property, including primary residence that are upside down, but no income and want to save their properties. If you are actively seeking employment, foreclosure defense is a very powerful weapon in order to buy more time to properly position yourself in a Chapter 13 bankruptcy. Bankruptcy is all about timing. Once you become employed, you can re-evaluate your financial position and options at the appropriate time.
What about Rental Properties?
Chapter 13 can also be used to value other property other than your primary residence, and modify the terms of a mortgage and note. Therefore, clients who have non-residential properties that are rented, and the rental income would cover the costs of the property if the secured creditors debts were reduced to fair market value at a fixed rate of interest, can utilize chapter 13 (or Chapter 11) to retain the properties.
Things to keep in mind:
- Real Estate Taxes run with the land and cannot be stripped in a bankruptcy
- Homeowner's associations may be able to be stripped but condo association dues cannot.
- Stripping liens on personal property through chapter 13:
- The 910 Day Rule
Is it really a purchase money loan?