Your Advocates In The Bankruptcy Process
Filing for bankruptcy is not a cure-all, but it does provide immediate and long-term relief to “reset” your finances. As a legal proceeding, there are rules to follow and some strategy and timing involved.
That’s where the experienced lawyers of Mason Zoccola Law Firm, PLLC come in. We guide you through the bankruptcy process to get the maximum benefit and make sure it goes as smoothly as possible.
Taking Stock Of Your Situation
Many people are under the impression that those who file for bankruptcy do so because of poor financial choices, but that isn’t true. Job loss, medical bills, divorce, natural disasters and other events are all common and completely understandable reasons to file for bankruptcy. At Mason Zoccola Law Firm, we will never shame you. Our goal is to make you feel confident about your future so you can move forward.
Before you file for bankruptcy, we sit down with you to get a handle on your full financial picture. This includes all sources of income, all assets you own, your living expenses, and the total and nature of your debts. In bankruptcy, unsecured debts such as medical bills and credit card balances can be discharged (eliminated) or reduced. Many debts are not dischargeable, including mortgage arrears, child support or alimony, student loans and recent taxes. We will be able to gauge with reasonable certainty which debts qualify for relief.
Filing for Chapter 7 bankruptcy involves a means test. If your household income is below the state average, you can file Chapter 7. If you earn too much, you still may qualify if you do not have enough disposable income to pay off your debts. Those who are not eligible for Chapter 7 discharge can still seek Chapter 13 relief.
So many businesses have been affected by COVID-19 and are having to face difficult financial choices. Some may be able to organize their debt through Chapter 11 to regain a solid foothold and some may have to cut their losses, close the business and file Chapter 7 to avoid being liable for the business debts.
The Automatic Stay
Filing your petition with the U.S. Bankruptcy Court invokes an automatic stay to STOP all creditor actions. From the day that you file your bankruptcy petition, you are protected from harassment by creditors and third-party collection agencies. They cannot call you, send you letters or pursue collection efforts, under penalty of law.
The automatic stay also applies to wage garnishment, tax liens, auto repossession and foreclosure proceedings. These actions are halted, at least temporarily, while the court considers your petition.
In a Chapter 7 bankruptcy, you may have to surrender assets to be liquidated (sold off) to pay your creditors. However, the bankruptcy laws allow you to exempt most assets from this requirement. In Tennessee, the exemptions include:
- Home equity: $5,000 for individuals, $7,500 for married couples, $25,000 if you have dependent children
- Personal property: clothing, health aids, burial plots, health savings accounts, up to $3,000
- Tools of the trade: up to $1,900 worth of tools, equipment, computers, etc. needed for your job
- Personal injury recoveries up to $7,500; wrongful death recoveries up to $10,000 (limit of $15,000 total for personal injury recoveries, wrongful death recoveries and crime victims compensation)
- Retirement savings: pensions, IRAs, 401(k)s
- Public benefits: Social Security, workers’ comp, unemployment, disability
- Qualified college savings plans
- Insurance benefits
- Wildcard: up to $10,000 of other personal property, including vehicle equity, jewelry, guns, golf clubs, etc.
Many of our clients are able to protect everything or give up minimal assets. If you have substantial home equity or other nonexempt assets, it may be necessary to file Chapter 13 instead.
Chapter 13 Repayment Plans
In a Chapter 13 bankruptcy, you retain all assets and the bankruptcy court takes control of your debts. Based on your disposable income after other expenses, you make one monthly payment to the bankruptcy trustee who distributes the money to your creditors. If you keep up with the payments for 60 months, you receive a discharge and the remainder of your unsecured debts are forgiven.
Our role is to make sure that the monthly payment is realistic, and to take full advantage of the protections and provisions of Chapter 13 such as:
- Halting foreclosure – If you wish to keep your house and are able to stay current with the house payments, any mortgage arrears are rolled into your payment plan.
- Car repossession – You can stop the repossession of your car. If you owe more than the current market value of your car or truck, bankruptcy can adjust your car loan to more favorable terms.
- Second mortgages – If you have a home equity loan or line of credit, it may be possible to discharge that balance in Chapter 13.
Chapter 11 And The New Provisions For Small Businesses
In a typical Chapter 11 case, the debtor is a business or individual and drafts a plan to repay its debts and submits the plan to creditors for review. Some creditors may approve the plan and vote in favor of it. Some may think the repayment is inadequate and vote to reject it. Creditors whose debt is not being paid in full are categorized as an “impaired class.” The bankruptcy court will then schedule a hearing (currently this is likely to be a virtual hearing) to find out why some creditors object to the plan. The bankruptcy judge then decides whether to allow the plan to go forward. This process is called confirming the plan.
Perhaps unwittingly predicting a world economic meltdown, Congress recently enacted the Small Business Reorganization Act (SBRA) – effective February 19, 2020 – before the pandemic hit. The SBRA is commonly known as Subchapter V, as it is an addition to Chapter 11 of the Bankruptcy Code, which lays out rules for reorganizing debts for businesses (or individuals with significant assets). Subchapter V is geared to small businesses; to be eligible for relief, the business cannot have a total secured and unsecured debt that exceeds $7,500,000 (the CARES Act increased the limits from $2,725,625 to $7,500,000 valid through March 26, 2021). Subchapter V requires that at least 50% of the business’ debts be from commercial or business activities.
The new rules for small business bankruptcies alleviate some very costly requirements of Chapter 11. For example, there is no disclosure statement or unsecured creditors committee, and it allows for the payment of administrative claims (debts incurred after the bankruptcy case is filed) over time rather than immediately after confirmation of the bankruptcy plan. The new Subchapter V eliminates the absolute priority rule. This means that a debtor is now allowed to continue to own assets in the business even if it hasn’t paid its unsecured creditors in full. There are other advantages to Sub-chapter V for small businesses.
How Long Does The Bankruptcy Process Take?
Before you file Chapter 7, you must complete a credit counseling course by providing information over the phone to a credit counseling agency. Currently, due to the pandemic, the debtor will answer a series of written questions called Interrogatories rather than attend a meeting of creditors in person with the case trustee. After you file for Chapter 7, the court will schedule a 341 meeting of creditors within 20 to 40 days. This is an opportunity for creditors to object to the discharge. You are also required to show the court proof that you have taken an approved financial management/debt education course before your debts can be discharged. If all goes smoothly, the discharge will be granted within 90 days of the 341 hearing. The entire process for a typical Chapter 7, from your first meeting with a lawyer to the official discharge, takes four to six months.
In Chapter 13, your first payment is usually due 30 days after filing, even though your repayment plan has not been officially accepted. There is a 341 meeting of creditors 21 to 60 days after filing and then a confirmation hearing within 45 days at which the judge will accept or reject your payment plan. Due to the pandemic, the meeting of creditors is not being held; instead debtors answer a series of written questions to give to the trustee. At the end of your plan (five years), after all payments have been made and you have completed the financial management course, the court will discharge your remaining debts.
A Brighter Future Awaits
You may feel anxious during the bankruptcy process, but afterward, most clients feel that a great weight has been lifted. There is nothing to gain by staying shackled to debts you can’t hope to repay. Arrange a consultation with our knowledgeable and friendly lawyers to explore bankruptcy and whether it is the right solution to your debt problems.