Written By: Ali Audi | August 19, 2015 | No Comments
We often have clients come into our office who want to file bankruptcy, but after talking things over with our attorneys, decide not to file. You may wonder why we would talk someone out of a service that they had wanted, and likely cost ourselves billing in the process. The answer is that our consultations are not structured to get your information and your money and to start filing; but rather our consultations are designed to find out your ultimate goal and help you achieve that. Through our consultations, we often find that we can achieve your goals without going through the process of bankruptcy; or at least not right away.
First, we will briefly define the general bankruptcy process for consumers. Consumers can usually file a bankruptcy petition under Chapter 7 or Chapter 13 of the Bankruptcy Code. In some instances, they can even file under Chapter 11. Each chapter has its own specific rules and requirements, both prior to the filing and after. Chapter 7 is designed for debtors in financial difficulty who do not have the ability to pay their existing debts. Debtors whose debts are primarily consumer debts are subject to a means test designed to determine whether the case should be permitted to proceed under chapter 7.
This test will determine how your income relates to the median income of the area in which you live. Under chapter 7, you may claim certain of your property as exempt under governing law. A trustee may have the right to take possession of and sell the remaining property that is not exempt and use the sale proceeds to pay your creditors. Most of your debts will be discharged if you do not have sufficient assets to sell. Some debts, like some taxes and student loans, are not dischargeable, so a bankruptcy may not provide you the relief that you seek. Chapter 13 is designed for individuals with regular income who would like to pay all or part of their debts in installments over a period of time. You are only eligible for chapter 13 if your debts do not exceed certain dollar amounts set forth in the Bankruptcy Code. Under chapter 13, you must file with the court a plan to repay your creditors all or part of the money that you owe them, using your future earnings. The period allowed by the court to repay your debts may be three years or five years, depending upon your income and other factors. After completing the payments under your plan, your debts are generally discharged. Some debts, like in a Chapter 7, are not dischargeable.
The filing of a bankruptcy petition will also trigger what is known as the automatic stay. The automatic stay puts a pause on all litigation involving the debtor, including sheriff sales and other collection activities. Some factors that we consider when contemplating whether a client should file bankruptcy are 1) the kinds of debts; 2) the level of available income; 3) whether there is pending legal action. We also ask clients to consider the negative effects that a bankruptcy filing will have on their credit history. The kind of debt that the client has is important because, as discussed above, not all debts are dischargeable in bankruptcy. The most common instance of this is tax debts. Generally, in order to be discharged, a tax debt must be for income taxes, be at least 3 years old and be at least two years after the tax return was filed. In addition, a tax lien may stay on your property, even if the personal tax obligation is discharged. So if you do not meet these criteria, bankruptcy may not be your best option. However, the IRS has a process to settle tax claims for a reduced amount. The Offer in Compromise program can be a complex process as you must provide information regarding your income and assets and make an offer to pay off the reduced amount in either a lump sum or in monthly payments. Under this program, you will begin making the payments until the IRS has reviewed your offer and either accepts or rejects it. The Miller Law Group can help you through this process and reduce your tax burden. Your level of income will be a large factor in determining your options. If you have the income to handle your debts, but just need to figure out a way to make it work, we can work with you to do that. We have helped several clients by using the bankruptcy code to determine what a payment plan would look like in a bankruptcy filing and then instituting that plan without filing the petition. Creditors will often stop calling as long as you are making some kind of payments, as they would rather receive something than take the risk of having their debts discharged in a bankruptcy. We can also help by referring you to local professionals that can help you sell off property or other assets in order to help finance your payment plan. Finally, we can contact creditors on your behalf and negotiate a settlement to their claim based on your income and ability to pay.
The third factor above is often the most important. If there is a pending sheriff’s sale of your property, you may have fewer options and may need to file the bankruptcy to get the protection of the automatic stay. However, if legal action has not commenced, then you may be able to negotiate a settlement with your creditors and make payments that you can afford in order to pay off the debt. On the other hand, if a sheriff’s sale is pending, but you do not want to keep the property, then it may be best to delay the filing of the bankruptcy petition until after the sale has finished. These are issues that the Miller Law Group can discuss with you in order to find out what the best option is for you. While financial trouble can often lead a person to depression and a feeling that they will be unable to recover, scheduling a consultation with the Miller Law Group will allow you the opportunity to have another set of eyes look at your situation and see that it may not be as bleak as you may think. We can help you set up a plan to negotiate your debts, or to pay them off over time. Or, if your situation warrants it, we can help guide you through the often confusing bankruptcy process.