How Long Have You Been Representing Clients Who Are Going Through The Bankruptcy Process?
I’ve been representing clients in bankruptcy matters for 33 years. I started out working with a small bankruptcy and collection firm headed by my father, where I worked on cases with creditors’ rights issues and filed Chapter 7, Chapter 13, and Chapter 11 bankruptcies. Early on in my career, I also served as a Chapter 7 trustee.
Is There A So-Called ‘Typical’ Bankruptcy Client?
There really is no typical bankruptcy client. The uniform characteristic of individuals or businesses that seek insolvency advice or need to hire bankruptcy counsel is that they are struggling with personal or business debt and cannot find a solution given their unique financial circumstances. I have filed bankruptcies for a wide variety of individuals, including doctors, lawyers, businessmen and women, and even one priest. The business cases arise from all industries.
What Do You Find Are Some Common Misconceptions People Have When It Comes To Bankruptcy? Do Negative Assumptions Or Stigmas Tend To Surround The Topic Of Bankruptcy?
One of the main misconceptions that individuals have about bankruptcy is that their credit and their life will be ruined forever if they choose to file a bankruptcy case. In reality, the opposite is very often true. Achieving a discharge and debt relief in bankruptcy will help them solve difficult life problems and extricate themselves from the vicious cycle of enormous debt and credit card interest. A person’s credit score will decrease substantially in the short-term, but will later increase upon post-bankruptcy improved payment of revolving debts to the point that they will eventually be able to qualify for auto loans and a mortgage.
Another misconception people have is that their employer will become aware of their bankruptcy case and fire them. However, there is a federal statute which protects individuals from being discriminated against simply for their action of filing bankruptcy.
A third misconception is that a person will have to surrender all of their personal property to a trustee in bankruptcy, which is not true. The exemptions, which are defined amounts of assets people can keep in bankruptcy, are generally fairly reasonable. For example, the most significant exemption is $25,000 of equity in real estate for one person and $50,000 for a joint filing between a husband and wife.
In Terms Of A Credit Score, Is Filing For Bankruptcy Worse Than Just Not Making Payments?
A bankruptcy is an adverse credit event that remains on a person’s credit report for 10 years, after which it is considered obsolete information and must be removed. There’s no question that in the short-term, a person’s credit will be significantly impaired by a bankruptcy filing. However, delinquencies, late payments, and foreclosure notices that are served upon parties who fail to make payments on their debts will adversely affect a credit score almost as much the actual act of filing bankruptcy.
For people who are young or middle-aged, a bankruptcy will not follow them forever. The extinguishment of debts or a structured wage earner payment plan in Chapter 13 actually may be the right solution. Some people are hyper-focused on their credit rating. While important is not the be-all and end-all. For example, someone who has already obtained a mortgage and is not planning to move for many years is not going to need to seek a new mortgage in the near future; as long as they are able to pay their mortgage, they will in many instances depending on the amount of equity in the property be able to keep their home.
What Are Some Major Signs That Debt Is Serious Enough To Consider Filing For Bankruptcy?
The main indicator that an individual or a business might want to consider a formal bankruptcy filing to resolve their insolvency problems usually is related to some type of creditor action initiated against the individual or business. Some examples may be the receipt of demand letters from creditors, lawsuits related to a failure to resolve a debt, judgments executed by creditors against the debtor’s property, and actions against the renter or foreclosure against the debtor’s home.
Is Bankruptcy Right For Everyone?
Bankruptcy is not the right solution for everyone. I sometimes consult with younger people who only have $10,000 to $20,000 in debt that they incurred as a result of poor use of credit or living beyond their means. If gainfully employed and capable of self-discipline, these individuals can probably manage to extricate themselves from their problems without filing for bankruptcy. A Chapter 7 can only be filed once every 8 years and this remedy should be undertaken as a last resort.
If a person’s primary source of debt is student loans, it often does not make sense for them to pursue bankruptcy because student loan debt is 99 percent of the time non-dischargeable in bankruptcy. Similarly, if an individual has primarily recent tax debts, bankruptcy might not make sense. In addition to student loans and tax debts, restitution awards, alimony, and child support are not dischargeable through bankruptcy. This means that if someone’s debt is comprised primarily of non-dischargeable debts, then bankruptcy might not be the right action to take.
What Type Of Debt Most Commonly Leads People To Consider Bankruptcy?
The main type of debt that leads people to consider bankruptcy is contract debt, which results from having a revolving credit card account with a bank. This type of debt usually comes with high-interest rates, making it unmanageable for people to pay off.
For individuals who are in business, one of the most common sources of debt that often leads to bankruptcy is debt that is secured by collateral provided by banks or private lenders for which they’ve signed a personal guarantee. Personal Bankruptcy might become necessary if the business fails and there are not enough assets in the business to fully satisfy the secured lender’s claim.
How Do I Know Which Type Of Bankruptcy Is Best For My Situation?
A full analysis of an individual’s unique financial circumstances begins with an initial 15 or 20-minute phone call to bankruptcy counsel. In this interview, basic information will be discussed. Next, a consultation with an attorney should be scheduled so that the attorney can fully review the situation and provide concrete recommendations. A lot of information will need to be examined, including the individual’s income over the past six months, credit card and other debt obligations, tax returns, the family budget, and valuation of real estate and other financial assets.
What Happens After Someone Actually Files For Bankruptcy?
The initial stages of the bankruptcy process involve assembling and correlating documentation and a Bankruptcy worksheet, which will then be analyzed by the attorney and staff to enter the data into a bankruptcy program to generate a draft Bankruptcy petition. This stage can be a time-consuming task because it requires production of documentation for virtually every type of asset and debts, whether it be checking, savings, retirement, valuation of stock, or anticipated values of real estate.
The next step—regardless of whether it is a Chapter 11, Chapter 13, or Chapter 7 bankruptcy—is to attend a Creditor’s Meeting conducted by an appointed Trustee. The meeting name itself is a bit of a misnomer because creditors rarely appear at this meeting, although they are provided the Notice of the Case filing with a designated time that the meeting will occur.
When filing for Chapter 13 bankruptcy, the debtor and attorney must collaborate to formulate a proposed chapter 13 plan that provides proper treatment of their creditor claims, secured creditors claims, tax claims, and general distribution to unsecured creditors. In a Chapter 7 bankruptcy, the debtor seeks an outright discharge of all debts that are not defined to be exempt from discharge, so they won’t need to prepare a repayment plan for creditors.
The circumstances will depend upon the asset base for the individual or business, but the second piece is the administration, which is mostly undertaken by the Chapter 7 trustee. The trustee may have significant demands for follow-up information and will review the values of real estate as well as the petition to determine if the assets of the debtors fall within the allowable exemptions or whether there’s any dispute.
What Are Some Important Things I Need To Do Prior To Filing For Bankruptcy To Ensure A Smooth Process?
Prior to filing for bankruptcy, it is to organize one’s financial affairs. Many people are less than careful record-keepers and will need to become more disciplined in order to locate the correct information for their lawyer. It is not advisable for a potential client to simply pull together a batch of papers and say, “Well, here’s my situation, attorney! Sort it out.” Preparing the correct information for the attorney beforehand will ensure that the process runs smoothly and help to avoid miscommunication about income, assets, property values, the amount of outstanding mortgage against the home, and whether there is an equity in real estate.
Most attorneys, including myself, take detailed notes during the initial consultation. It is not uncommon for the information contained in those notes to vary from the information contained in the actual documents and the completed worksheet. When this happens, I don’t attribute any bad motive to the client, because it is usually just a misunderstanding. For instance, the notes from an initial consult might state that a client withdrew $10,000 from an IRA account, but that will not be in the documentation. Rushing through the worksheet and being disorganized or incomplete with question responses will lead to a more cumbersome and time-consuming process for both sides, as well as create the opportunity for errors. I recommend to clients that they to spend an hour to an hour and a half each day gathering the information and finishing the worksheet rather than trying to get it all done in one preparation session.
What Are Some Things You Should Definitely Not Do When Or Before Filing For Bankruptcy?
A client should never withhold information from their attorney, but should instead be absolutely candid and truthful. The attorney’s job is to analyze the financial situation of the debtors and prepare the petition properly. However, the attorney is not signing the petition under oath that the information is true and accurate. For that reason, the consequence of not listing and disclosing an asset can be serious in that the asset and the important discharge of debt might be lost.
Attorneys are used to seeing a lot of unusual fact situations that are delicate, some of which have a solution and some of which can only be mitigated. Many individuals think they can transfer or gift assets to friends and family members, but these transactions are usually uncovered by a savvy trustee and need to be disclosed. Cooperation with the trustee during the course of bankruptcy is important, and if a person makes an impression as being less than truthful with their trustee, the case won’t progress smoothly.
What Are Some Positive Short And Long-term Outcomes That You See Clients Obtain Through Bankruptcy?
There are many benefits of successfully completing a bankruptcy. The most common type of case is a Chapter 7 bankruptcy, where individuals do qualify for relief under the means test and are able to discharge debts that have created incredible stress and unfortunate health effects. I always say that the balance sheet of someone pre-bankruptcy versus the balance sheet of someone post-discharge looks incredibly different. Occasionally, people are concerned about the fees that are charged, but realistically, someone who pays about $2,500 on a Chapter 7 bankruptcy and is able to relieve themselves of $100,000 debt obligation will have achieved a substantial financial benefit.
Debt has a lot of insidious consequences, including stress that can interfere with the ability to function at work. Often, clients will show reluctance or concern over proceeding with a case, even toward the end when things are wrapping up. However, in many instances, the fog will lift and clients will become more financially disciplined and focused as they turn a new leaf in life. The purpose of bankruptcy is to help the honest debtor fix their financial problems and obtain the necessary relief from their debt.
How Can I Rebuild My Credit After Bankruptcy?
Credit is significantly affected by a bankruptcy filing. Nonetheless, there are instances where credit card companies will issue a new card to someone who’s been through bankruptcy. The credit limit might be low at first, and some people might not want to take out a card with a limit of only $1,000 or $1,500. After six months or a year of making payments, the credit card company may increase the credit line, and undertaking new credit will allow for the establishment of a post-discharge credit history. Credit is important, especially since it is necessary for making reservations for certain services. For individuals whose income improves post-bankruptcy, credit seems to be more readily available, although there’s no specific timeline when credit will improve.
What Does Life Look Like After A Successful Bankruptcy?
Bankruptcy attorneys see people at a crisis point when everything has gone wrong in their lives. Some clients will be very distrustful and angry with their creditors and attorney or with the world in general. However, in almost all circumstances, life improves after a successful bankruptcy. Bankruptcy causes people to chart a new course of action, and is often not only a low point but also a new beginning in terms of how they can plan for the future. While there is no guarantee, the situation for most clients substantially improves post-bankruptcy.
What Are Some Things I Should Be Looking For When Deciding Who Should Represent Me In My Bankruptcy Case?
A bankruptcy attorney should be practical, have integrity, ask the hard questions, and provide thoughtful and practical advice to address the difficult problems to explain and analyze the case and determine whether bankruptcy is the right course of action. The attorney should have a good reputation of dealing honestly and truthfully with trustees and judges. Bankruptcy is a process in which there are no short cuts. No one should look for the cheapest bankruptcy attorney around because they might not receive the best recommendations and personal attention they need.
I care about each and every case I handle, and while I can’t guarantee results, I am often able to achieve resolutions and obtain good settlements for my clients. Over the course of my 33-year career, I’ve developed a strong reputation with trustees and judges; they know that I am honest, practical and that I work hard for my clients.
For more information on Bankruptcy, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (908) 373-8500 today.