What happens if I don’t make my Chapter 13 Plan payment?

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A Chapter 13 bankruptcy will only work if the debtor makes his or her plan payments.  A debtor does not receive a discharge of debts in a Chapter 13 bankruptcy until all payments under the plan are completed.  Sometimes chapter 13 filers can fall behind on their plan payments.  Circumstances such as a loss of job, layoff, medical issues, divorce and other issues may case a Chapter 13 plan payment to be missed.

Chapter 13 plans can be modified under certain circumstances.  Therefore, if you fall behind or are no longer able to make you plan payments, you should contact your attorney to discuss whether your Chapter 13 plan can be modified.  It is possible that under your current situation, your plan payment can be reduced.  Attorney Jeffrey D. Best has assisted many Chapter 13 clients in Northwest Indiana modify their Chapter 13 plan when necessary.

Ultimately, of you miss your plan payments and fall too far behind under your Chapter 13 plan, the Chapter 13 trustee assigned to your case will file a motion to dismiss your case.  If your Chapter 13 case is dismissed, then your creditors are free to pursue collection of the debts as though you never filed bankruptcy.  If you receive a motion to dismiss your case from the trustee, you should contact your attorney to discuss your options.  If a modification of the plan is not warranted, your attorney may be able to work out an agreement with the trustee to allow you to bring your plan payment current over time.  Jeffrey D. Best has assisted many Chapter 13 clients in Lake and Porter County Indiana resolve a Chapter 13 trustee’s motion to dismiss.

Also, you may be able to convert your Chapter 13 bankruptcy to a Chapter 7.  Some circumstance would make it advisable to convert your case.  You can also discuss that option with your attorney.  If the circumstances have warranted it, my office has assisted people in Northwest Indiana convert their Chapter 13 cases to Chapter 7 cases successfully.

Do I have to file bankruptcy with my spouse?

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The Bankruptcy Code allows individuals to file bankruptcy.  The Code also allows married couples to file together.  An issue may arise when only one spouse wants to file bankruptcy while the other does not.  The Bankruptcy Code allows only one spouse to file if requested.  Both spouses filing bankruptcy is not mandatory.

Spouses must understand that the filing of bankruptcy by one spouse will not discharge the debts of the non-filing spouse.  For example, if both husband and wife are owners under the cardholder agreement, then both are equally liable for the entire debt on that credit card.  If one spouse files bankruptcy and receives a discharge from that card, the credit card company can pursue the entire balance from the non-filing spouse.  Therefore, it is important that you consult an experience bankruptcy attorney, such as Jeffrey D. Best, when only one spouse wants to file bankruptcy.

Additionally, even though one spouse may file bankruptcy, if the spouses are in the same household (not separated) then the non-filing spouse’s income is still included in the household income for the means test requirement.  In that instance, even though the non-filing spouse is not included in the bankruptcy, his or her income is.  Please review my earlier posts for more discussion on the means test in bankruptcy.

There may be certain advantages to having only one spouse file bankruptcy.  I you live in Lake County Indiana or Porter County Indiana, you can contact Attorney Jeffrey D. Best to schedule a free initial consultation regarding your specific bankruptcy issues. You can also learn more @ www.jeffreybestlaw.com

What is the Means Test? How does it determine if you should consider filing for bankruptcy?

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In the most basic sense, the means test is an income test used to determine whether someone should file and Chapter 7 or Chapter 13 bankruptcy under the Bankruptcy Code.  You should always consult an experienced attorney like Jeffrey D. Best to assist you through a means test calculation.

Under the means test, the Bankruptcy Code requires a debtor to provide their last 6 months of gross income from all sources in the household to determine a monthly income average.  That monthly average is then multiplied by twelve months to determine a yearly gross income.  That income is then compared to the median income for the same size household in your state.  The median incomes for each state are adjusted approximately every six months. Each state is different.  As of November 1, 2014 the median income in Indiana are as follows:

One person- $42,716.00, Two person- $53,074.00, three person- $61,056.00, Four person- $73,020.00 (add $8,100.00 for each person after four).

If your income is below the median income for the same size household, then it is presumed you could file a Chapter 7 bankruptcy (assuming you meet the other requirements of filing).  If you income is above the median income, then you must further proceed through the means test where you deduct from your gross income certain deductions and expenses allowed under the Bankruptcy Code.  If, after those deductions, there is a negative amount, then you can still file an Chapter 7 bankruptcy, if advisable.  If there is excess income available after going through the means test, then it is presumed you should file a Chapter 13 bankruptcy and pay at least the excess amount per month to your unsecured creditors.

In addition to the means test, there are other factors that are important in determining which type of bankruptcy to file.  Still, the means test is an important step in determining which chapter of bankruptcy you can file.  You should always consult an experience bankruptcy attorney to assist you through this test and provide you with other information to assist you in determining which chapter bankruptcy is best for your situation.  As you might suspect, every case is fact specific.  Attorney Jeffrey D. Best has provided bankruptcy representation to many clients with different circumstances. You can also learn more @ www.jeffreybestlaw.com

What happens at the first meeting of Creditors?

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After the filing of bankruptcy, the first meeting of creditors on that case is held.  This hearing usually occurs about 30 days after filing bankruptcy.  This is a hearing in front of the bankruptcy trustee assigned to your case, not in front of a judge. The trustee assigned to that case will have reviewed the petition and schedules filed, along with other documents provided, such as tax returns and pay stubs.

At this hearing, the trustee and any creditors on that case will ask the Debtor questions.  In most all instances, creditors do not appear at this hearing.  Thus, the only questions will come from the trustee.  The trustee typically asks the following types of questions:

  1. Your name and address.
  2. How long you have lived at that address?
  3. Have you ever filed bankruptcy before?
  4. Did you review the petition and schedules filed in your case and are they accurate?
  5. Are any corrections or addition necessary to you petition and schedules?
  6. Are you subject to a domestic support obligation? (e.g. child support).
  7. Have you received and read the bankruptcy disclosure forms? (typically received from the attorney)

Additionally, the trustee may ask you questions about any information disclosed on your petition and schedules.  Typical question involve information about assets listed in your schedules, such as whether your own a home and its value.  One of the trustee’s duties is to determine if any assets you have can be liquidated for the payment of creditors.  An experienced bankruptcy attorney, like Jeffrey D. Best, will inform you if any such questions are likely to be asked and whether any other issues may arise.

You will have to produce a picture ID and proof of social security number at the hearing.  Those must be two separate forms.  Finally, appropriate dress is required.  Basically, no cut-offs or tank tops.

If you have any bankruptcy law questions or concerns, you can learn more @ www.jeffreybestlaw.com.

Can I buy a car while I am in my Chapter 13 Bankruptcy?

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Chapter 13 clients often wonder if they can purchase a car while their bankruptcy is pending.  Sometimes, a car may break down or an accident occurs which requires a replacement auto.  A debtor may not incur new debt while in bankruptcy without the Trustees approval.  It is possible to obtain an automobile during a chapter 13 bankruptcy.  I have had a number of clients purchase vehicles in a pending chapter 13 bankruptcy.

First, the Debtor must find a car to purchase.  If the Debtor will purchase the car with cash, that is not incurring debt and the transaction can be completed without trustee approval.  If a loan is necessary to purchase the car, typically the lender will fax over a request to the trustees office indicating the type of car, purchase price, down payment, loan amount, interest rate and monthly payment.  The trustee will review these figures and if it fits in with the Debtors circumstances, the trustee will provide approval for purchase of the vehicle.  Usually, the new car payment will be made by the Debtor outside of the plan.

Sometimes the Debtor needs a vehicle to replace a car that is broken or unsafe.  If the car is subject to a loan or if the car is totaled in an accident, the Debtor has the option of using the car value or the insurance proceeds to purchase a replacement auto.  This is done by a Motion to Substitute Collateral.  The motion is filed in the bankruptcy case and requests the Court=s authorization to use the car value or insurance proceeds to purchase a replacement vehicle.  The original creditor=s lien is then transferred onto the new vehicle.  In essence, the lenders collateral in the old vehicle is replaced by the new vehicle.

Of course, every situation is different and there are always exceptions.  You should hire an experience bankruptcy lawyer to assist you in these matters. You can learn more @ www.jeffreybestlaw.com

Does filing bankruptcy stop a garnishment?

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Garnishing wages is a remedy creditors can use to recover money they are owed from a Debtor. In order to garnish wages, a suit must be filed. Once a suit is filed, the creditor must obtain a judgment against the debtor via the proper court procedures. Once a judgment is obtained, the creditor can go through the procedure to request a garnishment order from the Court. Once the garnishment order is issued, the order is forwarded to the employer and the debtor’s wages are garnished. Each states rules and procedures for this process can be different.

Filing bankruptcy will stop this process. Once a person files bankruptcy, an automatic stay goes into effect. The automatic stay stops creditors from calling, contacting, suing or continuing to sue a debtor. If a creditor continues to call, contact or proceed with a lawsuit against a debtor who filed bankruptcy, the creditor is in violation of the bankruptcy court’s automatic stay. In that event, the creditor could be held liable for sanctions for violating the automatic stay order.

If a debtor files bankruptcy before a creditor obtains a garnishment order from a court, then due to the automatic stay, the debtor’s wages cannot begin to be garnished. If the debtor files bankruptcy after a garnishment order is issued and wages as garnished, the garnishment must stop as of the date of filing bankruptcy because of the automatic stay. Any wages garnished prior to filing bankruptcy may stay with the creditor, but any wages garnished after filing bankruptcy must be returned.

You should contact a knowledgeable bankruptcy attorney to discuss your options and to stop wages from being garnished. My office has stopped many garnishments through bankruptcy, and funds garnished after filing have been returned to the Debtors.

Can you discharge income taxes in bankruptcy?

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Some tax obligations can be discharged in bankruptcy, and some cannot. Section 507 and 523 of the Bankruptcy Code addresses discharging taxes in bankruptcy. Typically, personal income tax obligations can be discharged in bankruptcy provided certain conditions are satisfied.

To discharge income taxes in bankruptcy, first, the income tax obligation has to be at least three years old at the time of filing your bankruptcy. The three year calculation starts from the date the taxes were due (including extensions). For example, 2011 taxes were due April 17, 2012. 2011income taxes will be three years old on April 17, 2014 (if not filed under an extension). Second, the tax returns for which the tax was due must have been filed at least two years before filing bankruptcy. For example, if a bankruptcy was filed on April 16, 2012 the 2008 taxes would be three years old, but only if the 2008 returns were filed prior to April 15, 2010.

As always, there are certain exceptions to every rule. The time periods may be extended if you have filed bankruptcy before, or filed a false or fraudulent return. You should contact a knowledgeable bankruptcyattorney to determine whether you can discharge your income taxobligation in bankruptcy.

Stripping a second mortgage off your home in bankruptcy

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Due to the decline in home values over the last few years, many people now find themselves with mortgage balances on their homes that exceed the value of their home. Many homeowners are underwater on their homes because of a second mortgage. Bankruptcy can provide relief to those people by stripping second mortgages provided certain conditions are met, but you must choose the correct chapter of bankruptcy in which to file.

Stripping a second mortgage can only be done in a Chapter 13 bankruptcy. If a second mortgage is totally unsecured due to the decrease in a home’s value, that mortgage can be stripped off in a Chapter 13 bankruptcy. If you successfully complete your Chapter 13 bankruptcyplan, the second mortgage is then no longer a lien on your home. It is treated just like other unsecured debts (i.e. credit cards or medical bills) and is discharged at the conclusion of the Chapter 13 bankruptcy.

To strip a mortgage in a Chapter 13 bankruptcy, the mortgage must be totally unsecured. Basically, all the equity in the home is eaten up by the first mortgage. For example, if you own a home worth $100,000.00 and your first mortgage balance is $100,000.00 or more, your second mortgage balance is unsecured and can be stripped in a Chapter 13 bankruptcy. Also, for example, if your home is worth $100,000.00 and your first mortgage balance is $99,999.99 or less, then your second mortgage is secured and cannot be stripped in a Chapter 13 bankruptcy. In sum, if a dollar of the second mortgage is still secured by equity in the home, then the whole second mortgage is secured.

You should contact a knowledgeable bankruptcy attorney to determine whether you can strip off your second mortgage. In my practice in northwest Indiana, I have successfully assisted many clients in stripping second mortgages off their homes.

Do I have to file bankruptcy with my spouse?

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Typically, husbands and wives incur joint credit card bills, medical bills and other bills. A joint bill means that both the husband and wife are liable for the entire bill. The bill collector can pursue either spouse for the entire balance of the bill. A spouse who is only an “authorized user” on a credit card is liable for the amount of charges made by that person on that account. In that instance, the bill collector can pursue the “additional user” for his or her charges.

Bankruptcy law allows married couples the option to file a joint bankruptcy. Also, one spouse can file for bankruptcy while the other does not. If a husband and wife file a joint bankruptcy, then both spouses will receive a discharge from both their individual debts and joint debts. If only one spouse files bankruptcy, then only the filing spouse will receive a discharge of individual and joint debts.

When only one spouse files bankruptcy, the non filing spouse will remain liable for his or her individual debts. Additionally, the non filing spouse will remain responsible for any joint debts. What this means is that the bill collector will still be able to pursue the non filing spouse for the balance on the joint bill. Also, a non filing “additional user” on a credit card bill will still be responsible for the charges he or she made on that account. Your spouse filing bankruptcy will not discharge your debts or your obligation under any joint debts. You can only discharge your debt obligations by filing your own bankruptcy or a joint bankruptcy with your spouse.

Even if only one spouse files bankruptcy, the non filing spouse’s income and expense information is required to prepare the bankruptcy petition. (Unless the couple is separated.) Therefore, if only one spouse files bankruptcy, the filer will still need cooperation from the non filing spouse in regards to preparing the bankruptcy documents. As always, you should contact your local bankruptcy attorney for input on filing bankruptcy when you are married.

Will my employer find out if I file bankruptcy?

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Many people are concerned that their employer may find out that they have filed for bankruptcy. Bankruptcy filings are public records. As such, anyone who wants to search the bankruptcy court clerk’s records can find out if someone has filed bankruptcy. The typical employer does not do this. Reason would indicate that if someone were to go to such lengths to find out if someone has filed bankruptcy, they must have been notified of a filing in the first place.

An employer will not be notified of a filing of bankruptcy unless they are listed in the bankruptcy petition schedules (as a possible creditor or if you have a claim against them), or if you notify them yourself. Otherwise, they do not receive notice of a filing from the bankruptcy court clerk. In some chapter 13 bankruptcies, the Debtor’s chapter 13 plan payment is made by wage order. In that instance, the employer would be notified of a bankruptcy.

Also, the law prohibits government and private employers from discriminating against an employee for filing bankruptcy or not paying a dischargeable debt. If you have specific questions about how filing bankruptcy may affect your employment, consult you local bankruptcy attorney.