Bankruptcy

We represent consumers in two types of bankruptcy: Chapter 7, which permits consumers to discharge their unsecured debt, and Chapter 13, which allows consumers to restructure their debt into more affordable payments, potentially discharging a portion of that debt. 

In Chapter 7 bankruptcy, most consumers will be able to keep their homes and cars, while discharging their credit card and other unsecured debt. We review their financial data and advise them on the course of action that would result in the most favorable outcome for the consumer permitted by the law. 

Chapter 13 Bankruptcy provides for the consumer to present a budget to the court, which provides for the surplus income to be paid to the U. S. Trustee, who will then distribute those payments to the unsecured creditors for a period of three to five years. The trustee will also make payments to creditors to cover arrears on secured property, such as home and car, while the consumer continues to make the regularly scheduled payments on those secured items. In some cases, it is possible to “cram down” the debt on certain secured items when the consumer owes more than the item is worth. 

One of the concerns consumers have is the effect bankruptcy has on their credit. If you are considering bankruptcy, your credit rating is probably already poor. You are behind in payments, and incurring late charges, which increase your balance owed. Bankruptcy is intended to give debtors a fresh start, an opportunity to begin again, hopefully wiser for the experience. In fact, after you receive your discharge and are free from debt, you will likely find credit card solicitations in your mailbox daily. Creditors are secure in the fact that you are free from debt, probably have some disposable income, and cannot file a Chapter 7 bankruptcy again for 6 years. They may give you lower credit limits, and will usually charge you more interest for a while, but you can rebuild your credit. Frequently, you will be able to buy a new car in 6 months and a house in 2 years, if you have a good job and have not blemished your credit again. 

Another concern is that you may feel a moral obligation to pay off your obligations, to fulfill your “promise” to the lender. What you need to consider is that circumstances change, jobs are lost or hours reduced, and you or a family member may get sick or disabled. Sometimes lenders make credit too easy and you can get in over your head in debt. You also have a moral obligation to family members, which you may not be able to meet with your current debt load. Lenders do not take these changes and family obligations into consideration when they have collectors call you at work several times a day. 

Article 1 of the Constitution gives Congress the authority to establish a uniform bankruptcy law. The Bible, at Deuteronomy 15:1-4, provides that lenders should forgive debts every 7 years. The bankruptcy law simply provides the legal means for that to happen. 

Often, debtors will try credit counseling, frequently at the suggestion of a lender. While this process may work for some, many lenders will not accept partial payments, and the outstanding balance continues to grow. Phone calls do not stop, and the process becomes bogged down. Many times, the debtor will try counseling for a few months and end up worse off than before they started. 

Others will obtain a second mortgage on their house to pay down credit card debt. This may have the effect of converting dischargeable unsecured debt to non-dischargeable secured debt, and may result in an over secured house. 

Still others will borrow from their retirement savings or cash in IRAs to get out of debt. This is stealing from your future for the benefit of creditors. Under the bankruptcy law, most retirement savings are exempt from seizure by the trustee, and are protected from creditors. 

Congress and the Administration, under pressure from creditors, is attempting to change the current bankruptcy law to make it more difficult for debtors to discharge their debt. Two versions of a bill passed in Congress last session, but did not make it out of conference committee. The implementation of the new law in 2003 is very likely. 

If you are behind in your bills, are hounded by bill collectors, struggling to make ends meet, call us now at (317) 272-9900. We can stop the bill collectors’ calls and take the pressure off. We can get you that fresh start guaranteed by the law, while letting you keep your home and car.