LEGAL GUIDANCE FOR CHAPTER 7 & 13 BANKRUPTCY
There are 2 forms of bankruptcy relief that are available to individuals:
- Chapter 13 - often commonly referred to as a ‘reorganization’, or a ‘repayment plan’.
- Chapter 7 - commonly known as ‘straight bankruptcy’, or a ‘liquidation’.
I will provide guidance on both of these remedies below, try to debunk some of the myths surrounding each Chapter, and provide you with guidance and information sufficient for you to consider whether either of these powerful weapons can be utilized to get you/your family back on a healthy financial track.
CHAPTER 7 BANKRUPTCY
I caution you not to automatically believe as Gospel what you read/see on the internet about Chapter 7 bankruptcy - most of it is garbage. Like most things in life, there are many MYTHS, but also many FACTS about Chapter 7 bankrupt relief. Allow the brief summary below to set those straight:
- More people file Chapter 7 Bankruptcy than any other form of bankruptcy. Most of the negative stigmas people have about filing this type of bankruptcy are either simply not true, or are grossly overblown.
- Chapter 7 will wipe out most, but not all forms of debt.
- Chapter 7 will only get rid of debts in existence when the case is filed.
- Once a Chapter 7 case is filed, you cannot voluntarily dismiss it.
- I will lose my house, my car, and my retirement - not true, but with a few exceptions.
- My credit will be ruined forever. I will never again be able to buy a house.
- I can get rid of my income tax debts in Chapter 7.
- All bankruptcy lawyers are the same, so it is best to go with the cheapest.
- If I file Chapter 7, my co-signer on a joint loan will be in the clear.
- My spouse must file with me, and his/her credit will be ruined.
THE CHAPTER 7 PROCESS
WHO CAN FILE CHAPTER 7?
Almost all folks will qualify for some kind of bankruptcy relief. To qualify for Chapter 7, your family must have an average income below a certain level established by the law. If you are over this median income standard, it still may be possible to qualify for Chapter 7 if you can demonstrate “special circumstances.” These are usually medical in nature, or involve a very unique situation. Also, you must have resided in the Southern District of Ohio (essentially, from Mt. Gilead to the north, down to the Ohio River) for a majority of the 6 months prior to filing.
CHOOSING THE LEGAL COUNSEL TO WHOM YOU ENTRUST YOUR FINANCIAL FUTURE?
A common myth is that ‘all bankruptcy attorneys are all the same’. Nothing could be farther from the truth. The ‘dabblers’ (lawyers filing a couple of cases per year just to produce income) are a disaster. The bankruptcy laws are constantly in flux, change frequently, are extremely complicated on their own, and are closely tied to Ohio law, which changes even more frequently.
Another situation to avoid - ‘bankruptcy mills’. These are law firms that file a high-volume of cases. It’s ‘wham-bam-thank you-ma’am’. Their policy is ‘churn-em-and burn-em’. The very important papers that are going to be filed in federal court are usually prepared by a non-lawyer. You probably will not even meet your lawyer until you are in the lobby at the federal court on the day of your first hearing. In my opinion, not advisable for such an important event in your life that will affect you for the next 10 years.
The Spiroff Law Office does not operate in such a fashion. You will meet with the firm’s principal on your initial consult, and every time thereafter. In our opinion, it is the only way to treat our clients, and to devote the time, attention, and expertise they deserve. See the “SPIROFF LAW OFFICE CHALLENGE” above.
WHEN TO FILE A CHAPTER 7 PETITION?
In over 30 years of bankruptcy practice, I can say that most people should have considered a Chapter 7 filing long before their situation has become a crisis. Many of these pre-conceived beliefs and misconceptions come from family, friends, co-workers, and the internet.
Look, life is short. Don’t wait to consider your financial well-being until you become overwhelmed by your financial circumstance. Do not borrow from your family’s retirement security, exhaust your savings, or continue to make poor financial decisions. You have a problem. Wrap your head around it, and deal with it like you should all other problems that will present in your life - head on, with purpose, and with an eye to the near future.
The Spiroff Law Office has the knowledge, and experience to guide you through this maze with relative discomfort, and dignity.
SO - SHOULD I FILE FOR CHAPTER 7?
One of the most overlooked decisions in the debt adjustment process is the most obvious, and basic one - which Chapter is better for me based upon my situation, and future goals - should I choose Chapter 7, or Chapter 13 ?
We at the Spiroff Law Office have developed an adage over the past 30+ years when it comes to choosing either Chapter 7, or Chapter 13: “Your life should not revolve around bankruptcy, your bankruptcy should revolve around your life”.
We see way too many attorneys who simply do not actually listen to their clients’ particular life circumstances, and future goals and desires. They ignore the client, and simply advise him/her to file under whichever Chapter is most convenient, and profitable to that lawyer/law firm.
Trust me, I know the only way to become rich, or even make a decent living as a bankruptcy lawyer, is to be a ‘mill’. Fortunately, the Spiroff Law Office (and a handful of other bankruptcy specialists in the Southern District of Ohio) have chosen this area of the law because we are experts in the law, and value the personal satisfaction of assisting other people with our unique expertise more than just financial compensation.
Bankruptcy is not an indication of personal failure. For example, Walt Disney and Henry Ford are among accomplished Americans who have filed bankruptcy, and have thereafter became monumental successes. If you are suffering financial stress, you should carefully evaluate all options, including Chapter 7, and then take action that is in your best interest(s).
WHAT DEBTS ARE DISCHARGED IN CHAPTER 7?
These are some of the common debts that maybe discharged under Chapter 7 Bankruptcy in Ohio:
- Medical Bills
- Check Cashing debt
- Credit Card Debt
- Miscellaneous Unsecured Debt/Loans
- Utility Bills
- Dishonored Checks
- Money Owed Under Lease Agreements (Past Due Rent)
- Social Security Overpayments
- Veteran Assistance Loans
These are some of the common debts that can not be discharged under Chapter 7 Bankruptcy in Ohio:
- Student Loans
- Child Support
- Court Fines and Penalties
- Homeowners Association Fees
- Personal Injury Involving DUI
THE CHAPTER 7 FILING PROCESS - CHAPTER 7 TIMELINE
STEP 1: SCHEDULING YOUR FREE CONSULTATION
STEP 2: MEET TO ASSESS WHAT ACTION IS BEST FOR YOU
STEP 3: PREPARE DRAFT OF PETITION/FINALIZE & FILE PETITION
STEP 4: MEETING OF CREDITORS
STEP 5: COMPLY WITH ANY INFO REQUEST FROM YOUR TRUSTEE
STEP 6: COMPLETE ADMINISTRATIVE TASKS/ACHIEVE DISCHARGE
STEP 7: EDUCATE YOU ON HOW TO RE-ESTABLISH YOUR CREDIT
CHAPTER 13 BANKRUPTCY
THE CHAPTER 13 PROCESS
How Does Chapter 13 Work?
Chapter 13 is the most powerful, and most misunderstood debt relief option. To understand how chapter 13 works, you must know that it’s a payment plan that might pay back NOTHING to most or all of your creditors.
Chapter 13 is more powerful than Chapter 7 in many ways. But, Chapter 13 is overlooked by many attorneys and so, is underutilized by too many consumers.
Chapter 13 lets you do things that are not possible in Chapter 7. You can lower your car interest rates, and even pay less than you owe for cars you keep. You can catch up on missed payments for your car and your home.
If you owe secured and unsecured debts (think car and credit card) to a credit union, Chapter 13 “breaks cross collateralization” so you can keep your car and not pay the credit card debt.
What Does Chapter 13 Do?
Chapter 13 allows you to restructure your debt into a 3 to 5 year payment plan. Some plans must be 5 years long, others can be from 3 to 5 years. You can keep your current vehicle, and possibly pay less for it than you would pay if you reaffirmed it in a chapter 7. At the end of the plan your car debt is gone, and all your other debt is wiped out, with few exceptions.
In chapter 13, the amount you pay to your creditors depends on a number of factors, but my chapter 13 plans typically pay only 1% to the unsecured creditors. That’s almost like a chapter 7 which pays 0%.
Sometimes the plan pays more, however. To understand how chapter 13 works for your payment, you start with your income. If you are fortunate enough to have enough income to pay more than 1%, according to a federal law formula, then you might pay 5%, or 10%. Occasionally plans pay a lot more, but that is seldom seen. Most plans pay a few pennies on the dollar, that’s all.
The main reason people file chapter 13 is to catch up on missed car and house payments. Chapter 7 can’t help you with missed payments. Creditors can refuse to allow you to reaffirm in chapter 7 if you are behind. But creditors can’t stop your chapter 13 payment plan. The have to accept your late payments and they have to allow you to keep your car and your home.
How Chapter 13 Plans Work
Chapter 13 payment plans are administered by a trustee, but the trustee does not monitor your bank account, or “look over your shoulder.” Columbus has two Chapter 13 trustees who do an excellent job helping us keep our client’s cases on track. Once your case is filed in the Columbus Bankruptcy Court, the trustee will review it to make sure it will properly complete.
Because the chapter 13 is a long term plan, it’s not uncommon for issues to arise that might impact your plan. That’s why you want to use a law office with an experienced staff. We have collectively, almost 30 years of experience to make sure your plan is successful.
From the Ohio River to Morrow County, our clients report satisfaction with the successful reorganization they achieve with chapter 13. They keep their cars, and all their other property as well.
Life During Chapter 13
Because the chapter 13 is a long term plan, it’s not uncommon for issues to arise that might impact your plan. That’s why you want to use a law office with a large and experienced staff. (Our office has 6 full time paralegals and 4 full time attorneys who help make sure we always provide the support our clients need).
Most of the time, your chapter 13 has absolutely no impact on your normal life’s activities. You can go on vacation, change jobs, move to another state, get credit cards, and even buy a house while you are in an active chapter 13 case. There are very few restrictions.
Your creditors cannot call you, sue, or even send you a bill! They are under the control of the bankruptcy court. Life returns to normal for most, and the stress and pressure from financial problems quickly disappears.
Because every case has a family budget built into the calculation, many people have more money to cover their monthly living expenses than they had before they filed. Money that used to go to pay unsecured debt is now free to pay for the family’s needs.
Is Chapter 13 Worth It?
This is a question a lot of people ask. They have heard stories about how hard it is to be successful with a chapter 13. And, the truth is that some do find it to be challenging. I’ve been filing chapter 13 cases for thirty years and have one if the highest success rates in the entire country. I believe that many people who struggle with chapter 13 do so for two main reasons.
First, people in chapter 13 often need support from their attorney. The attorney’s guidance and advice can keep a case on track and provide valuable direction to clients, keeping their case on track.
Second, we all can agree that sometimes life throws us unexpected challenges. This is true for people in chapter 13 too. And, in a chapter 13, you don’t have the option to go out and borrow large sums of money. Sometimes this is a problem. But it would also be a problem for anyone NOT in a chapter 13.
Is chapter 13 worth it? The overwhelming majority of my successful chapter 13 clients would answer with an enthusiastic YES! They keep their homes, sometimes saving them from loss through foreclosure.
From Huber Heights and cities north, to Springboro and Miamisburg in the southern part of the Dayton District, our clients report satisfaction with the successful reorganization they achieve with chapter 13. They keep their cars, and all their other property as well.
They pay back what they can, although often it’s only 1%. It’s still something, and it’s their best effort. It’s all they can afford and this is all the law requires.