Must I Have An Attorney to File Bankruptcy?

by Michael Sosna

Technically, “no.” You can file a bankruptcy by yourself; it’s called filing pro se. It’s also a generally bad idea.

If the question is “should I have an attorney represent me in my bankruptcy case,” the answer is decidedly “yes.”

The reason you should have an attorney in your bankruptcy case is because the bankruptcy laws and procedures are very complicated. If you file pro se and make a mistake or an omission, your case could be dismissed, and you could lose the benefits and protections that bankruptcy law offers. Statistics prove that cases filed by pro se debtors have an exponentially higher failure rate than cases involving debtors who filed with an attorney.

Bankruptcy law is a specialty. It requires expertise; that is, a knowledge of the law and familiarity with the procedures for this particular area of legal practice. That means that not every lawyer handles bankruptcy cases. Once upon a time, lots of general practice attorneys – lawyers who handle a wide variety of different kinds of cases – “dabbled” in bankruptcy and sporadically filed cases for individual clients from time to time. That all changed in 2005 when changes to the law made handling a bankruptcy case so complicated that general practice attorneys stopped accepting bankruptcy cases. Today, most attorneys who represent clients in bankruptcy cases limit their practice to primarily bankruptcy.

While the law does allow you to file your case without an attorney, there are many pitfalls associated with doing so. The examples are endless, but there are several common scenarios. If you do not take the required credit counseling course from an approved agency, your case will be dismissed. If you do not thoroughly and correctly complete the “schedules” – many pages, detailing your assets, liabilities, income and expenses – your case will be dismissed. If you do not properly calculate the means test, your case will be dismissed. If you do not properly calculate your plan, if you are filing a Chapter 13, or properly complete the Statement of Intentions, if you are filing a Chapter 7, you case will be dismissed. If you do not properly exempt your property, the Trustee will be able to seize it for the benefit of creditors. If the failure to complete the paperwork correctly results in a false statement or omission, you may be subject to prosecution by the US Attorney for the Eastern District of North Carolina. Finally, litigation could arise within your case: among other things, a creditor could file an “objection to plan confirmation” or “objection to discharge.” You need an experienced attorney in your corner to represent you in these scenarios.

In other words, bankruptcy is too important for you to take a chance. Most firms focusing on bankruptcy – including Sosna Law Offices, PLLC – offer a free initial consultation in addition to flexible payment arrangements of attorney’s fees. In order to ensure that your bankruptcy is done right, talk to an experienced bankruptcy attorney today.

Sosna Law Offices, PLLC is exclusively dedicated to helping people file bankruptcy cases. Bankruptcy law is all we do. If you would like to know more about bankruptcy and how it can help you stop foreclosure or repossession, or allow you to discharge credit card debts, call our office at (252) 937-3027 to arrange a free consultation with one of our attorneys.

Filing Bankruptcy for Someone with a Mental Disability

by Michael Sosna

A person with a mental disability is entitled to file bankruptcy and receive the protection of bankruptcy code like any other citizen. However, if the individual is not competent to file by himself or herself – in other words, he/she does not understand their debts and/or property sufficiently to discuss it with their attorney – that individual must have someone file on their behalf.

It is not uncommon for someone suffering a mental impairment or dementia to fall behind in their bills and suddenly find themselves facing foreclosure, threats of vehicle repossession, or other legal action. Family members are often unaware of the dire situation until the emergency need for assistance arises.

If someone, usually a family member or close friend, has already been appointed guardian of the person through State court action, the remedy is fairly simple. This is also true if there is already a valid power of attorney. In these instances, the state-appointed guardian or attorney-in-fact already has authority to act on behalf of the disabled debtor and can sign the bankruptcy petition and schedules for him/her.

Unfortunately, more often than not, the person suffering the mental impairment does not already have someone who can act on their behalf. In that situation, a bankruptcy can still be filed, but additional steps and information are required. In this instance, at the same time the bankruptcy petition and schedules are filed by the family member or close friend, the person filing must submit a motion asking the court to appoint a “next friend” or “guardian ad litem” for the debtor. In order for the appointment to be approved, the person filing for the debtor must provide certain information, including why he/she should be appointed, a statement of the debtor’s incompetency from a treating physician, and a copy of a power of attorney, if one exists.

Sometimes this information is not readily available, but yet there is an urgent need for the debtor to file bankruptcy immediately to prevent a foreclosure sale or repossession. Fortunately, the Court has adopted a procedure to provide an additional 30 days to gather the required documentation.

As you can see, this procedure is complicated, and it usually requires the assistance of an experienced bankruptcy attorney if it is to be successful. The attorneys at Sosna Law Offices, PLLC, have experience in handling all kinds of bankruptcy cases, including filing for disabled and mentally impaired debtors. If you have a family member or friend who needs the protection that bankruptcy provides, contact us to arrange a free consultation with an attorney to discuss the circumstances and determine how to best protect the rights and property of the disabled debtor.

Don't Believe Everything You Hear About Filing Bankruptcy

by Michael Sosna

A lot of our clients tell us they were reluctant to file bankruptcy because of what they'd heard - and usually what they were told was wrong!

Sometimes folks, without any expertise, think they know enough about bankruptcy to give others advice, but unfortunately most of the time the information they offer is incorrect.

The very best way to learn about bankruptcy and have your questions answered is to speak with an experienced bankruptcy attorney, such as the two at Sosna Law Offices, PLLC, where the initial consultations are free.

Here are some of the questions that we hear:

WILL MY NAME BE IN THE NEWSPAPER?

No, bankruptcy cases are not reported in the newspaper. While some papers publish cases from state court - like DWIs and other traffic offenses - bankruptcy cases are filed in federal court and are not reported in the local papers.

WILL I HAVE TO GO BEFORE A JUDGE?

Usually, no. Initial proceedings in your bankruptcy case are before a Trustee in a meeting room at the bankruptcy courthouse, not in a courtroom before a Judge. As long as you provide accurate information to your attorney and to the Court and follow other instructions (for example, making your Chapter 13 payments on time), you generally will not appear before a judge in your case.

WILL I BE ABLE TO BUY ANYTHING OR REFINANCE A DEBT WHILE I'M IN BANKRUPTCY?

Yes, in most cases. Many of our clients purchase vehicles or obtain mortgage modifications during their bankruptcy case. The only thing you must do in a Chapter 13 is obtain permission from the Court for a purchase or refinance; the Court normally grants permission as long as the transaction is necessary and reasonable.

WON'T I LOSE MY CAR OR HOME IF I FILE BANKRUPTCY

No. Many people, burdened by credit card debts and/or medical bills, think they cannot file a bankruptcy to discharge - eliminate - those debts without losing their home or vehicles or other property. This is incorrect. Bankruptcy law allows you to protect - it's call exempting - a certain amount of value or equity in your home, your vehicles and other property, which protects the property from the claims of creditors. In most instances, people filing bankruptcy can exempt - and therefore keep - all of their real and personal property, as long as you continue to make any payment associated with the property, such as a mortgage payment, car payment, furniture payment, etc., either through your bankruptcy case or directly. Exemptions are covered more fully in the article entitled "Will I lose my property if I file bankruptcy?"

DO I MAKE TOO MUCH MONEY TO FILE BANKRUPTCY?

In most cases, the answer is no. But it may affect the type of bankruptcy you file. (Read our article entitled "What is the Difference between Chapter 7 and Chapter 13?" for more information about the two primary types of bankruptcy our clients file.)

In Chapter 7 cases, your household income must be below a certain level in order to qualify for a Chapter 7 bankruptcy. There is a calculation, called the "means test" that determines whether a filer is above or below the median - or midpoint - for a household of that size in North Carolina.

Even those debtors whose household income is above the median income level may still file a Chapter 13 bankruptcy. These debtors are able to discharge the unsecured debts (credit cards, medical bills, etc.) they sought to discharge in Chapter 7, often with very little payment to those creditors - by payments stretched over three to five years - and sometimes with no payment at all.

Some people want to file Chapter 13 to begin with - for example, if they are behind in their mortgage or vehicle payments. There is still an income test in Chapter 13 which determines whether any payment must be made to unsecured creditors, but if the household median is below the median generally no payment will be required.

WON'T FILING A BANKRUPTCY RUIN MY CREDIT?

Obviously, each individual case is different. But the answer is generally no. Our experience is that people who file bankruptcy can usually obtain credit, although sometimes the interest rate is higher. After their Discharge is entered, almost all of our clients receive solicitations from vehicle dealers ("let us help you rebuild your credit by financing the purchase of a vehicle with us") and from credit card companies offering a new credit card.

Still have questions? Contact our office today to schedule a free consultation with a bankruptcy attorney to learn whether filing a bankruptcy is best for you.

Will I Lose My Property If I File Bankruptcy?

by Michael Sosna

We hear this question often: “Will I lose my house, my car and my other personal property, if I file bankruptcy?”

The simple answer is usually no.

Because bankruptcy law allows debtors to exempt – or protect – a certain amount of value (or equity if subject to a loan) in their home, their car, their household goods and other property, most debtors can fully protect all of their property from creditors and the bankruptcy trustee. And, in the rare instance where the value/equity of an item of property exceeds the allowable exemption amount, the debtor can increase the amount of his/her Chapter 13 plan payment to protect, and keep, the property in question.

A more detailed answer depends on which kind of bankruptcy you file.

A Chapter 7 bankruptcy is the “quick” bankruptcy, usually taking three to four months from start to finish. (For a more detailed discussion of Chapter 7 and Chapter 13 bankruptcy, see our article “What is the difference between Chapter 7 and Chapter 13?”) A Chapter 7 case is generally used if you have a significant amount of “unsecured” debt—credit cards, medical bills, etc.—but are current on your “secured” debts—mortgages , car loans, etc. (or if you are not current on your secured debts but you intend to “surrender” the collateral—the car, house, furniture, etc.).

Chapter 7 is known as a liquidation bankruptcy, because the Chapter 7 Trustee can liquidate – or sell – any non-exempt property and use the money to pay unsecured creditors. However, if all of your property is exempt, and thus protected, yours will be a “no-asset” Chapter 7 in which you receive a discharge of your debts and keep all of your property.

A Chapter 13 bankruptcy takes three to five years to obtain a discharge and is generally used if the debtor is behind in his or her secured debts – a mortgage loan for their house, a car loan, a furniture loan. In that instance, the purpose of the case is to keep your property and catch up the payments. In a Chapter 13, the debtor makes monthly payments to the Chapter 13 Trustee who pays the claims that need to be paid over the life of the plan. With respect to mortgages, at the end of the case, the mortgage arrears are paid in full and the mortgage is current. With respect to other types of secured debts (car loans, etc.), either the arrears or, more likely, the entire car or furniture debt is paid in full. As long as the debtor makes the monthly Chapter 13 plan payment, the creditor – the mortgage company, the car loan company etc. – is prevented from foreclosing or repossessing.

A Chapter 13 will also discharge your unsecured debts. In most cases, unsecured creditors receive only a small amount or even no distribution from the Trustee. In other cases—such as for high income clients—unsecured creditors will receive some distribution from the Trustee. Either way, at the end of the case, whatever remaining balance owed to the unsecured creditor is discharged (unless the debt falls under an exception to discharge, such as the exception for student loans; you should ask your attorney about debts that are not discharged).

Another instance is where you own property with “nonexempt equity” (i.e. the value or equity exceeds the amount that you can exempt under the law) that would otherwise be subject to liquidation by a Chapter 7 Trustee. You can still protect and keep the property in a Chapter 13 bankruptcy, so long as your Plan payment provides that your unsecured creditors will receive the amount they would have otherwise received if the Chapter 7 Trustee had liquidated (sold) the asset.

For example, let’s assume you have a car with a value of $5,000, but you only can exempt $3,500 of that value. In a Chapter 7 case, the Trustee could sell the car, give you back $3,500 – the value exempted – and use the remaining $1,500 to pay unsecured creditors. However, if instead you file a Chapter 13 and increase your Chapter 13 Plan to pay an additional $1,500 over the life of the Plan, say 60 months, then for a little more than $25 a month extra you are allowed to keep your vehicle and get your Discharge. This is because the unsecured creditors got paid what they would have received if the car had been “liquidated” in a Chapter 7 case.

As you can see, properly claiming your exemptions and protecting your property can be complicated. That is why you need an experienced bankruptcy attorney – like the attorneys at Sosna Law Offices, PLLC – to advise and guide you through the process, so you not only receive a discharge of your debts but also keep all of your property.

What is the Difference Between Chapter 7 and Chapter 13?

by Michael Sosna

AN OVERVIEW

Chapter 7 bankruptcy is usually best if you only have “unsecured debts” such as credit card debts and medical bills. It normally takes three to four months from the time you file until you are granted your discharge. A “discharge” is an order entered by the bankruptcy court wiping out your obligation to pay certain debts.

Chapter 13 bankruptcy is usually best if you are behind in your home or car payments. This chapter allows you to catch up payments on those debts without losing your property. You also receive a “discharge” in a Chapter 13. However, a Chapter 13 plan must last at least three years and no longer than five years. You receive the discharge upon completion of the plan.

In both types of bankruptcy, you must appear before a Trustee.

In both bankruptcies, you receive a discharge of your debts.

In both bankruptcies, you usually are able to discharge all of your unsecured debts, i.e., credit card debts, medical debts, personal loans, and other debts that are not secured by a lien against your property.

In both bankruptcies, you are allowed to keep property, under certain conditions, and most people keep their home, vehicles and other personal property after their discharge (i.e. after their bankruptcy is concluded).

But which debts you discharge, which debts you must continue to pay, and what property you keep can depend on the type of bankruptcy you file.

CHAPTER 7

A Chapter 7 bankruptcy is a quick bankruptcy, usually taking only three to four months from the time you file until you receive your discharge. There are no payments to a Trustee in a Chapter 7 case.

A Chapter 7 bankruptcy is a liquidation bankruptcy, which means that the Trustee can sell non-exempt property and use the proceeds to pay unsecured creditors. However, most people who file a bankruptcy are able to exempt, or protect, all of the property they wish to keep, such as their home, vehicles and other personal property. This means that the Trustee is not allowed to claim it or sell it (see also “Will I lose my property if I file bankruptcy” to learn more about exemptions). If the value of an item of property (or equity if subject to a lien) exceeds the amount you are able to exempt, and you want to keep that property, you will need to file a Chapter 13 bankruptcy.

In order to file a Chapter 7 bankruptcy, your household income generally must be below the median income for a household of your size in North Carolina. There is a complicated formula—known as the “means test”—that determines whether the debtor’s household income is above the median. The means test compares the average monthly household income, minus certain allowed deductions, with the median income for a family of similar size. If your income is above that level, you typically are not allowed to file a Chapter 7 and must file a Chapter 13 bankruptcy.

If you have outstanding secured debts – a mortgage, a car payment, a furniture payment – and are current in your monthly payments, you can still get a Chapter 7 Discharge of your unsecured debts by agreeing to reaffirm those secured debts and to continue to make the normal monthly payment. If you are behind in those payments, you will likely want to file a Chapter 13 bankruptcy instead.

CHAPTER 13

A Chapter 13 bankruptcy is a longer bankruptcy case: it must last at least three years and can last as long as five years. In a Chapter 13 bankruptcy, the debtor makes monthly payments to a Trustee, who uses that money to pay certain creditors according to a Chapter 13 Plan.

People generally use a Chapter 13 when they are behind in their mortgage payments and/or vehicle payments and are facing possible foreclosure or repossession. Once a bankruptcy case is filed, the creditor – the mortgage company, the car loan company, the furniture company – is prevented from taking any action to collect the debt. Any pending foreclosure case is stayed (stopped) from proceeding further, and creditors are prevented from repossessing vehicles or taking any other collection action.

In order to obtain this protection, debtors file a Chapter 13 Plan which proposes to pay – over 36 to 60 months – the amount necessary to bring those secured debts current. For a mortgage it means paying the arrears by monthly payments over that time, in addition to the normal mortgage payment, to the Chapter 13 Trustee. At the end of the case, the mortgage arrears will have been paid in full and the mortgage will be current.

For car loans or other secured debts – furniture loans, appliance loans, etc. – the Chapter 13 Plan either proposes to pay the arrears through the Plan, while continuing to make normal payments directly to the creditor or, more often, paying the entire balance due through the plan over 36 to 60 months. At the end of the case, these debts will either be current or paid in full.

Typically, unsecured debts are discharged in a Chapter 13 just as in a Chapter 7 and usually with only small, if any, payments made by the Trustee to those creditors. However, there are circumstances where an unsecured creditor receives a larger distribution from the Trustee over the life of the Plan.

One of those instances is where the household income is above the limit allowed by the Chapter 7 means test. If the means test determines that the monthly household income is above the median, then we must go a step further and calculate your “disposable monthly income.” Your disposable monthly income is the amount of your plan payment each month that must be paid to unsecured creditors.

Another instance is where you own property with “nonexempt equity” (i.e. the value or equity exceeds the amount that you can exempt under the law) that would otherwise be subject to liquidation by a Chapter 7 Trustee. You can still protect and keep the property in a Chapter 13 bankruptcy, so long as your Plan payment provides that your unsecured creditors will receive the amount they would have otherwise received if the Chapter 7 Trustee had liquidated (sold) the asset.

For example, let’s assume you have a car with a value of $5,000, but you only can exempt $3,500 of that value. In a Chapter 7 case, the Trustee could sell the car, give you back $3,500 – the value exempted – and use the remaining $1,500 to pay unsecured creditors. However, if instead you file a Chapter 13 and increase your Chapter 13 Plan to pay an additional $1,500 over the life of the Plan, say 60 months, then for a little more than $25 a month extra you are allowed to keep your vehicle and get your Discharge. This is because the unsecured creditors got paid what they would have received if the car had been “liquidated” in a Chapter 7 case.

This article is meant only as a general overview of Chapter 7 and Chapter 13. Every case is different. In addition, there are other types of bankruptcy cases (Chapter 11 and Chapter 12). In order to determine which type of bankruptcy is best for your particular situation, it is important to obtain the advice of an experienced bankruptcy attorney, like the attorneys at Sosna Law Offices, PLLC. We offer a free consultation so that you can discuss the particulars of your situation and receive expert advice on which bankruptcy will be best for you.