Bankruptcy Q & A by Stuart R. Whitehair, PC - Working with Clients Throughout Southwest Montana
How much does it cost?
The one question which should always be asked.
Well, it depends.
My practice is to charge a flat fee, and your fee will vary depending on your circumstances: For individuals/couples filing a Chapter 7 whose income is below the state median (roughly $47,000.00 for individuals; $58,000.00 for couples – with additional allowances for dependents), our fee is $1,400.00.
The good news?
We can work with you on a plan for payments. We will need to have the bankruptcy paid for over the next few months, but we do not need to be paid in full before we can file your bankruptcy. We can get you filed, stop the garnishments and creditor harassment, giving you time to come up with the funds to pay for your bankruptcy.
However, if you can pay the attorney's fees in full prior to our filing of the bankruptcy, we will give you a $200.00 discount, with the fee being $1,200.00 instead of $1,400.00.
For individuals/couples filing a Chapter 7 whose income in above the state median, or for individuals/couples who are self-employed, our fee is $1,800.00. (The additional fees are due to the additional paperwork which will be associated with your case. In this instance, you can receive a $300.00 discount by paying attorney's fees of $1,500.00 prior to filing).
For individuals/couples filing a Chapter 13 repayment plan, our fee is $3,500.00. (With Chapter 13's, we put half of the attorney's fees into your Chapter 13 Plan, which allows you to file after paying only half of the attorney's fees).
In addition to the attorney's fees, the Bankruptcy Court filing fees are $335.00 for a Chapter 7; $310.00 for a Chapter 13.
The only outside expense … You will also be required to complete two meetings (online or in person) with Consumer Credit Counseling service. One session will be required before we can file your case; the second needs to be completed as soon after your filing as possible. The costs for these sessions are $50.00/individual if done in person, although less expensive services (for less than $10.00) can be found online.
What do I have to do?
In the beginning, there are a series of forms, or “Schedules”, which must be completed and filed with the Court.
In these forms, you must list all of your assets and debts. You may be required to obtain an estimated value for some assets. For other assets, you may be required to provide evidence of a security agreement (e.g., a recorded Deed of Trust).
Example: I may ask you to go to a car dealer to determining “as is” value on your vehicle(s).
Once the forms are completed and filed, you are 80% of the way home. All that remains for you to do is go to Butte for a brief Court appearance (discussed below), and possibly work with me on preparing reaffirmation agreements with some of your creditors (also discussed below). The entire process has been simplified over time to make the path to a “fresh start” promised by the Bankruptcy Code as painless as possible.
Will someone be Coming to Look through my House? or (Will they take the shirt off my back?)
The answer to both questions is “no”. You do have to fill out Schedules listing your assets, but the Bankruptcy Court is, for the most part, not interested in the number of books, dishes and chairs in your home. What the attorney who will be appointed by the Bankruptcy Court, or “Trustee”, will be looking for, are assets which stand alone as being of significant value (examples: gun collections, income tax refunds, expensive jewelry).
Most of your assets, if they are “usual”, or “normal”, will fit under State law protections called “Exemptions”. In the majority of cases, all of the Debtor's assets fit under an exemption, and thus are completely protected from creditors.
Can I keep my car? My house?
In almost all instances, the answer is “yes”.
There are two main types of creditors: “Secured” and “Unsecured”. A secured creditor is one who is able to reclaim an asset put up for collateral if the debt is not paid. Examples: GMAC's lien on your car to secure your car payment; First Bank's mortgage on your home.
An unsecured creditor, generally, is one who does not possess the right to reclaim an asset. Your obligation is a personal one. Example: Medical bills, credit card debt, and personal loans are generally unsecured.
If you have a loan on your car, and you wish to keep it, you will likely be able to do so. Three numbers will be used to determine your status: #1 – The value of your car (blue book), or “as is” value; #2 – The amount owed against your car (debt); and #3 – $2,500 – the amount of equity the State will allow you to protect from creditors.
Example: You own a 2006 Mazda. The blue book value is $5,000. You owe First Security Bank $3,000 on a car loan. Your equity is $2,000 ($5,000 value less $3,000 loan). Since state law allows you to exempt, or protect, $2,500 in equity, your car is protected from all other creditors other than Security Bank. We can then file a “Reaffirmation Agreement” (discussed below) with First Security Bank, and you keep the car.
Example: You own a 2000 Ford pickup. The blue book value is $3,500. There is no debt against the truck. The state statute protects the first $2,500 in value above the amount of the debt. As there is no debt in this scenario, you may protect $2,500 in value, leaving us with a $1,000 issue. All is not lost, however. The Trustee will still let you keep the truck. However, you must make up the $1,000 difference if you are to do so. The Trustee will give you up to six months to pay for the extra equity. In the meantime, you keep your truck. The only other alternative: the Trustee sells the truck, gives you $2,500 to purchase another vehicle, and uses the remaining $1,000 to partially pay creditors.
The same calculations occur with your home, if you have an ownership interest. The only difference now is that the Homestead Exemption protects up to $250,000 in equity.
Example: You own a home valued at $295,000.00. You are paying on a mortgage to First Bank with a pay-off of $160,000.00. As you have $135,000.00 in equity and the Homestead Exemption allows up to $250,000, all is protected, and you are only required to sign a Reaffirmation Agreement with First Bank (discussed below).
Example: You own a mobile home worth $16,000. There are no liens on your home. Your equity is completely protected, provided you have filed a Homestead Exemption.
CAUTION: “A Homestead Exemption” must be recorded with the Clerk and Recorder's office before the Bankruptcy Petition is filed in order to be effective. All other exemptions (for vehicles, household goods, wearing apparel, etc.) are automatic when claimed, but a Homestead Exemption cannot be claimed if it is not filed.
“Reaffirmation Agreements” are agreements between debtors and their secured creditors which allow both of you what you want: you retain the asset; the creditor keeps receiving payments. Most secured creditors are more than willing to sign an agreement with you, because despite any threats they may have made, they really do not want to reclaim that asset. They make their money on the interest they charge you. Reaching an agreement becomes more difficult, though, if you are several payments behind.
Rule of thumb – If you are contemplating Bankruptcy: pay secured debts, even if this comes at the expense of unsecured debts.
What debts can't I get rid of?
As discussed above, secured creditors' debts are ones you can get rid of, or “Discharge”, only if you are willing to return the asset to the creditor. There are several types of debts, however, that, even though they are unsecured, are nonetheless non-dischargeable. The most common:
Alimony, child support, or maintenance payments
Personal income tax obligations (if less than 3 years old)
Employee wages owed
Fines or restitution owed to courts
What if I want to pay my dentist?
Many times, there will be debts which will be completely dischargeable, yet will be debts which you wish to pay anyway. Common examples are debts to family members or a longtime doctor or dentist. Even though you are not legally obligated to pay these debts, you may do so if you wish after you have been discharged from Bankruptcy.
CAUTION: If you pay too many of these debts, you are not availing yourself of the benefits of Bankruptcy. You won't be able to file again for eight years, so you should pay these types of debts only if you can afford to.
CAUTION: Occasionally, debtors will resume making small payments to a few creditors feeling they can afford to do so. Once you start paying on a dischargeable debt, however, the entire debt is reinstated. So later, when you can't make your payments, you are obligated to pay a debt you can't discharge.
Rule of Thumb: If you wish to pay a dischargeable debt: rather than pay Dr. Jones $25/month on a $250 bill, put $25/month into a savings account. In ten months, if you can at that time pay the entire debt without placing yourself into a difficult situation, you can go in and surprise Dr. Jones.
How long does it take? Do I have to go to Court?
In a normal “Chapter 7” case, which 75% of all Bankruptcies are, the entire process takes about 90 days. Most of the effort, as discussed above, comes up front with the compiling and filing of your Schedules. After that, it becomes a matter of waiting for your Court hearing. As all Bankruptcies must be filed in Federal District Court, and our nearest Court is in Butte, your hearing will be in Butte. Chapter 7 “Creditors' Meetings” are usually held the third week of every month, with notices of the hearing set out three weeks in advance. Thus, if you were to file the first half of January you will have a hearing set in February. If you file in late January, your hearing will be in March.
You and your spouse (if applicable) are required to attend one Court hearing. In most cases, though, debtors never see the Bankruptcy Judge. Your hearing will be conducted by your Trustee, who will have read through your Schedules. He will not be on the Judge's bench, but will merely sit across from you at the attorney's table.
Your Trustee will ask you a few generic questions, such as:
You valued your truck at $4,500. How did you arrive at that valuation?
May I see copies of your last two years' tax returns?
You show a bill to Billings Deaconess for $1,500. What was that for?
After asking his questions, the Trustee will inquire: “Are there any creditors here wishing to examine?” Almost 99% of the time, there is silence, so the Trustee thanks you for coming, and you are done. The entire process usually takes 5-10 minutes.
To give you some perspective. On the day the hearings are scheduled, the Clerk sets up the Trustees to go through 7-9 hearings per hour. Your hearing will not be expected to take long, and they usually go quickly and quietly.
Your “Discharge” will come 60 days after your hearing. At that time, your Bankruptcy will officially be over. In this period between your hearing and your discharge, though, you will have nothing to do (unless you have reaffirmation agreements to sign with secured creditors). You do not have to go to Court to receive your final discharge; it comes in the mail.
Please note – if you do not complete the second Consumer Credit counseling class required by the Court, you will not receive your discharge, and all the work you have done will be for nothing.
Ready to take that next step? Give me a call – 587-4200 – and we'll pick a time to get together for your free initial consultation.