Chapter choice may be the most important decision you can make to maximize your debt relief, and take advantage of everything bankruptcy protection has to offer – especially if you are filing in the Orlando Division.

I recently took over a small bankruptcy practice in Orlando from another attorney who practices out of state. It primarily helps Spanish speaking clients.

Almost all of the bankruptcies filed by that office, before I took over, were for chapter 7.

Get rid of the debt quick, get a discharge, and get on with your life.

But here is the problem… Almost all of those clients were behind on their mortgage and wanted and still want to keep their home. This office continually gets calls from previous clients, who already have their chapter 7 discharge, who have a sale date pending on their home and want to file chapter 13 now to save their home.

Not all of them would have been able to keep their home even if they filed the right chapter from the start.

But a vast majority of them may have been placed in the wrong chapter of bankruptcy. If those homeowners wanted to at attempt to keep their home, they should have been in chapter 13.

Chapter 13 has some very powerful tools for homeowners who want to keep their home.

1. Chapter 13 allows you the ability to catch up missed payments and get current during the length of the chapter 13 plan.
2. If homeowners have a second mortgage, it likely can be stripped and wiped away upon a chapter 13 discharge.
3. Most important, the Orlando bankruptcy court has a fantastic mortgage mediation program which may help you obtain that elusive mortgage modification.

Why choose chapter 7 first if you are trying to stay in your home? There really isn’t a good reason.

If you qualify for chapter 7 now, take advantage of the chapter 13 tool chest.  If chapter 13 doesn’t work out, then you should still be able to convert your chapter.

Chapter conversion! You don’t have to stay in chapter 13 if you don’t want to stay. If you decide chapter 13 is not working for you, and you qualify for chapter 7, then you can convert.

I have done it for countless clients, so it can be done for you too.

Don’t make the mistake of locking yourself into a quick chapter 7, only to discover you wished you had given a bit more effort in trying to keep your home.

Call 888-399-0611 now for a free initial consultation.

For other variations on the letter C…

C is for Cars

C is for Chapter 7

C is for Chapter of Relief

C is for Compassion and Competence

C is for Conversion

C is for Cosigner

C is for Counseling

C is for Cramdown (Perspective 1)

C is for Cramdown (Perspective 2)

C is for Cramdown (Perspective 3)

C is for Credit Card Tips

C is for Credit Counseling (Perspective 1)

C is for Credit Counseling (Perspective 2)

C is for Credit Counseling (Perspective 3)

C is for Creditor (Perspective 1)

C is for Creditor (Perspective 2)

C is for Creditors Meeting

 photo credit: TooFarNorth

Its not what you think it is, but a bar date is a good thing for a debtor in bankruptcy.

Everyone wants some amount of certainty in their life. The bar date gives debtors the certainty they need during the bankruptcy process.

If you file a chapter 13, or a chapter 7 with assets, the court will set a bar date for claims from creditors. This means a creditor must file its proof of claim by a set date, or the claim is barred from the case, and it won’t be paid.

Why does it matter?

Sometimes people are paying 100% of their debt in bankruptcy – especially in chapter 13.

One would think this is bad. But it may not be.

Some people need to shed investment properties, others need to walk away from a home that the lender will not modify. A pure financial decision to stop the bleeding of underwater mortgages or investments.

Many of these clients have no problem paying their credit card debt. In fact, many don’t carry balances.

So if they file a bankruptcy, the fewer creditors that file claims, the less the debtor has to pay back in chapter 13 plan payments or a chapter 7 buyback (a chapter 7 case which has assets that are unexempt).

In chapter 13, the less you have to pay back may equate less time spent in bankruptcy before you get your discharge.

The deadline to file a claim in a chapter 13 case is about 120 days for all creditors.  It is 180 days for governmental units (like the IRS).

Once your chapter 13 case gets to confirmation, any surrendered secured creditors (surrendered homes) have only 91 days to change their claim to unsecured.

Keeping a potential unsecured claim for a mortgage deficiency out of a chapter 13 plan can be a huge savings in how much you have to pay during the plan.

For other variations on the letter B…

B is for Bank Account

B is for Bank Account Levy

B is for BPPs

B is for Best Interest of the Creditors

B is for Business

B is for Business

B is for Businesses and Business Debt

B is for Buy Low/Sell High

B is for Business Bankruptcy

B is for Bankruptcy

B is for Business Bankruptcy

B is for Borrow

B is for Bankruptcy Estate

B is for Beware

B is for Bankruptcy Petition Preparer

 photo credit: takomabibelot

Avoidance can be a good thing or a bad thing in the bankruptcy alphabet.

Lien avoidance is a good thing when we are talking about your second mortgage. In chapter 13, if your first mortgage amount is more than the value of the home, then you may be able to strip your junior mortgage.

Everyone refers to it as a lien strip, or stripping a mortgage, but it is really called lien avoidance under the bankruptcy code.

You may also want to avoid other liens as well. Does a creditor have a judgment against you that attaches to all property you own in the county? If so, you can avoid the lien because it impairs your homestead exemption. Or maybe it impairs your car. Under section 522(f) of the bankruptcy code, you can avoid such a lien in either chapter 7 or chapter 13.

Lien avoidance is a bad thing when the trustee seeks to avoid transfer or preferences you made prior to filing bankruptcy.

Some people make the mistake of paying back Mom & Dad the $5,000 they loaned to the them prior to filing bankruptcy. They get their tax refund in April, give the money back to their parents and then file bankruptcy in May.

Bad idea. You cannot choose to pay one creditor back unequally compared to your other creditors. Yes, it is Mom and Dad, but in the bankruptcy, they are considered the same as any of your credit cards.

Or take the filer who wants to protect his Harley. He sells it to his mother for $10,000 and actually transfers the title. That sounds ok right? He actually received money for it and transferred ownership.

But what if the Harley is really worth $20,000? Then he didn’t receive fair market value and the trustee will avoid this transaction.

(I heard this happen at a creditors meeting once. The debtor sold the motorcycle to his mother for far under market value. His mother was living in a nursing home. The trustee asked if his mother rode very often…. which resulted in chuckles from everyone else in the room. The debtor realized his mistake.)

In both cases, with proper bankruptcy planning, the debtors might have been able to protect the tax refund or the motorcycle. People panic and think they have to get rid of all of their assets. In reality, the vast majority of assets can be protected in bankruptcy.

Please check back in for more posts in the bankruptcy alphabet. I am not looking forward to the challenge of “X” and a few other letters!

For other variations on the letter “A”, visit:

A is for Abandonment

A is for Assumption

A is for Assumption

A is for Assumptions

A is for Arrest

A is for Adversary Proceeding

A is for Alimony

A is for Assets

A is for Ask

A is for Assets

A is for Abuse

A is for Application

Image Credit: Leo Reynolds

In better times, divorce was about splitting the assets.  I will give my colleague Bill Balena credit for the following regarding bankruptcy and divorce:

Divorce is not about splitting assets anymore, it is about splitting debt.

I don’t see clients arguing over who gets to keep the house, or the car, because there isn’t any equity in either anymore (unlike during the real estate boom) or when incomes were higher and everyone owned their cars outright.

So the argument turns over who is going to be responsible for the note and mortgage on the home and the joint credit cards.

Could an ex-spouse ruin your credit? Absolutely. If the husband and wife are on good terms,  I would suggest that filing bankruptcy together, then filing divorce is the best route. It will save money by eliminating debt (only one bankruptcy fee) and save money by narrowing the issues for the divorce as well.

Many spouses are confused as to who is personally responsible on the credit cards. Did you both sign the cardholder agreement, or is one of you only an authorized user. There is a huge difference.

Did you both sign the promissory note on the home mortgage? If one spouse continues to pay for the home after divorce, what happens if he or she falls behind later? The lender could chase the spouse who hasn’t lived there in months or years.

If you are jointly responsible for both cars, if your spouse stops paying, or can’t pay for the car, you are on the hook.

That is why a bankruptcy filing may clear up all of the nasty debt issues.

Discharge the debt on the house. So if your former wife still lives there, you aren’t responsible if she defaults later.

Did your husband run up a credit card to get a business started? Then discharge the credit card in bankruptcy and you are no longer responsible for the credit card he wants to keep.

Same thing goes for each other’s car.  Surrender your interest in each other’s car loan.

Too many times I hear people tell me that the credit card company is chasing them but that “my spouse was ordered to pay the card in the divorce”. Well that may lead to contempt of the divorce court order, but that does not prevent the credit card company from chasing everyone who is personally responsible for the credit card.

The most important issue is qualifying for the bankruptcy before the divorce. Many times one spouse is the breadwinner. For the “family” to file together as a household of four (husband, wife, and two kids), they may easily qualify for chapter 7.

But what happens if you are now two separate households? Breadwinner spouse lives alone (household of 1) and he or she does not qualify for chapter 7 because of too much income, and may have to file chapter 13. At the same time, the other spouse (with the two kids) is a household of 3 and easily qualifies.

You should have filed bankruptcy together before the divorce! And you would have saved one of the two attorneys fees for filing bankruptcy.

We won’t even approach how much in divorce attorneys each spouse will save because they are not spending countless billable hours fighting over who is responsible for each debt.

When you want to move on with your life, what could be worse than being reminded of a painful chapter when a debt issue from the past comes back to life?

When a divorce is inevitable, you should seek bankruptcy advice first.

Families in Orlando, Daytona Beach, Ormond Beach, and Palm Coast will find it more difficult to qualify for Chapter 7 bankruptcy on November 1, 2011.

The State Median Family Income by Family Size for bankruptcy gets updated from time to time. In the past, for the most part, the numbers would go up.

But lately, the numbers have been decreasing.

In Florida, they income numbers are as follows:

• Household of 1 = $40,766
• Household of 2 = $49,729
• Household of 3 = $52,840
• Household of 4 = $62,742
• Add $7500 for each person over 4

For example:  If you in are a household of 3 (say both you and your spouse work), and your total income is more than $52,840, you are above median (average) and you must pass the means test.

That isn’t the end of the world. When the bankruptcy means test is completed (allowing for payroll deductions, car payments, mortgage payments, daycare, etc.), many people qualify for chapter 7.

But what the new figures highlight is that the median income has dropped in Florida. But your debt has probably risen (due to high interest, job layoff, unexpected expenses put on the credit card).

So are you finding it harder to pay down or even just maintain the balances on your unsecured debt?

Will you wait too long, making almost useless minimum credit card payments before seeking help?

Don’t wait for another drop in the median income tables before you decide bankruptcy may be your best option.

The answer for the right time to file bankruptcy is more often now, rather than later.

Usually the more common question is should I file bankruptcy with “only” $xx,xxx in credit card debt. That is almost impossible to answer. $5,000 in debt could be a drop in the bucket for some people, but a crushing amount for others.

The more important issue may be to time your bankruptcy properly.

I have clients who come in for a consultation, decide to think about it, and then I don’t see them again for well over a year. Something has forced them to come running back to get filed “right away”… The client is going to be garnished. The modification the mortgage lender promised was a lie.

Whatever the reason, the client would have saved a lot of trouble and stress if they had moved towards filing bankruptcy right away.

The main reason filing right away is usually a good idea is because of the nasty means test. The means test looks at your income over the last 6 months. If your household makes too much money, compared to an average family of your size, then you do not qualify for chapter 7.

I can give you countless examples of people who qualified for chapter 7 when they first came to see me, but now don’t qualify for chapter 7 anymore. Maybe they earn more money now. Maybe a large bonus. Maybe they got married and added income to the household.

Another problem is the wage garnishment. Someone is being sued on a credit card, but decides not to file bankruptcy right away. The credit card company gets a judgment and starts garnishing the person’s wages. Since they are being garnished, they don’t have enough money to get the attorney paid to file the bankruptcy. A vicious cycle indeed.

Trusting your mortgage company to come through with a permanent modification can be dangerous too. We have all heard countless stories of the mortgage company promising a modification while at the same time pushing the foreclosure through the court.

If people would take advantage of chapter 13, and all its benefits, they should be in a better position to keep their home. Instead of getting even further behind on the mortgage, get into chapter 13 sooner to correct mortgage arrears. Strip your second mortgage before the value of your home prevents you from using the tool.

Filing bankruptcy sooner, rather than later is generally the better option for most people. Only an attorney should counsel you on proper exemption planning.

A consultation with an attorney goes a long way to determine the best time to file your bankruptcy.

You have mounting credit card and other unsecured debts, but you are on a fixed income of social security or pensions.

Surprise! You might not need to file bankruptcy at all!

It will take some discipline, some planning, and your willingness to not use traditional sources of credit for future purchases – but it can be done.

I consult with potential clients who often have only exempt assets (creditors cannot touch these possessions) and their income is social security and/or pension. Their income cannot be touched either – social security and pensions are exempt from your creditors attachment.

But here is the catch… You can’t just sit back and do nothing because you are exempt.

If you get sued by a creditor, you have to file an affidavit of exemption with the court where any lawsuit is filed.

You cannot combine other money with your social security or pension money that may be in bank accounts. Better still, you should name your bank accounts by the nature of the money in the account. Like “Lewis Roberts Social Security Account”. Or, “Lewis Roberts Pension Account”. Sort of hard for a creditor to claim they didn’t know the nature of the funds in the account, right?

Also, you need to do something to prevent the countless calls you will receive from creditors once you decide to stop paying your unsecured debts. Under Florida Consumer Laws and the Fair Debt Collection Practices Act, if you tell a creditor or bill collector to stop calling you, they must stop.If you tell them you have hired an attorney, they are not allowed to contact you again. Or, are you prepared to change your phone number?

The last, and maybe the most important consideration, is your need for credit in the future. Once you burn down the bridge towards non-payment of your debts, your credit score will show the effects of that non-payment. Are you prepared to not apply for a mortgage? Pay cash for a car? Be able to survive a credit check if you will be renting a home or apartment?

You may be surprised by how much we use credit scores as a crutch for possessions we want, and feel we need. You may be even more surprised in how little you need “good credit” to obtain the possessions and necessities of life you need to live comfortably.

This strategy is not one size fits all. It is a small percentage of potential clients that I ever recommend not filing bankruptcy and not paying debts – all because there is nothing creditors will ever be able to take.

You have to be confident that you will never own assets that aren’t exempt, you will never inherit assets, or you won’t receive income that creditors might be able to garnish.

Are you disciplined enough to follow this path? Or would the comfort of cleaning up your debt issues in bankruptcy be a better option?

If you just found out your landlord is in foreclosure, you probably must continue to pay your rent, or you risk a possible eviction.

On the flip side of the coin, if your tenants are not paying rent because you are in foreclosure, then you should demand rent be paid, or evict them if they don’t leave the home.

Foreclosures are moving slowly in Orlando, Daytona Beach, Ormond Beach, and Palm Coast. They are almost always taking longer than one year. A Palm Beach Post article:

Federal mortgage giant Fannie Mae more than doubled the amount of time Florida attorneys have to complete a foreclosure, acknowledging the reality of the state’s overwhelmed court system and problems with foreclosure paperwork.

Law firms now have 450 days (about 15 months), up from 185 (six months), to move a foreclosure from the first referral to an attorney to a foreclosure auction before fines can be levied.

Most residential leases, whether you are the landlord or the tenant, are for one year or less. So chances are the lease term will finish before the bank can finish the foreclosure in Florida and take the property back.

This is the important fact to remember: just because a person is in foreclosure does not mean they no longer own the home. The bank must finish the foreclosure process and complete a sale of the property to cut off ownership.

Until ownership is cutoff, or unless the lender exercises legal action to collect rents, the tenant must pay the landlord or risk eviction.

I answer this question at least once a day on Avvo.com. I also have clients who own investment properties, but are surrendering, or restructuring them in bankruptcy.

The clients call me to ask me what to do when the tenant stops paying rent. Or I find out they didn’t realize they could collect rent. Meanwhile the tenant has been living in the home for free for 12, 18, 24 months, or more. That isn’t fair either, is it? Why should a tenant receive a free ride?

Now there are other issues if you are going to collect rents or have a tenant in the home. For example, I hope you keep the home insured. Are the homeowners association dues being paid?

There are other issues as well. Issues to be discussed with an attorney during a consultation.

What is a deed in lieu? Or deed in lieu of foreclosure? It is the process of signing the deed over to your mortgage lender to avoid the completion of a foreclosure on the property.

It is a favorite subject right now, but one with lots of misinformation under the umbrella of “what is a strategic default?”

It is popular in this mortgage meltdown to search for ways to get out from an underwater mortgage. A popular suggestion from other Florida attorneys is to not file bankruptcy, but work a strategic default ending in a short sale or deed in lieu of foreclosure.

But are they looking at the whole picture?  It is easy to say let’s just worry about the mortgage right now, but what if you have mounting credit card debt that is not going away? Or if you are living in the home for free, how do you protect the money you will be saving when not paying the mortgage?

And most important… if you complete a deed in lieu of foreclosure, you have to move. Immediately.

Some foreclosure and debt defense firms are just churning fees. They will sell you on defending the foreclosure first. Then sell you on defending any lawsuits on credit cards as they come up. And it doesn’t do any good to defend just one credit card lawsuit if they are all going to eventually file – causing you to pay more attorney fees defending the additional suits.

Bankruptcy may allow you to wipe away all your obligations on the credit cards and any potential deficiency on the home – while still living in the home.

You get to live in the home even after the bankruptcy is filed. The lender still has to start and finish the foreclosure process (which we know takes quite a long time).

Back to the deed in lieu. The problem is that it is hardly ever properly handled, even by attorneys. What good is a deed in lieu if the bank can still sue you on the promissory note that you signed? Not good at all. But many people are negotiating a deed in lieu that does not eliminate the underlying debt.

From a recent article in the Fort Myers News Press:

Now, experts say, he and thousands of others in Florida who took the same deal from Fannie are at risk of being stalked by a so-called “zombie note:” debt that appears dead and gone but still can come back to life.

I am starting to see lenders get more aggressive. They aren’t filing foreclosures – probably because they don’t want the undervalued property back – and suing on the promissory note only.

Also, debt buyers will likely purchase these promissory notes for pennies on the dollar and be quite aggressive in trying to collect.

It is important that you consult with a consumer attorney who can address your debt issues from all angles… foreclosure defense, debt defense, and/or bankruptcy. And most importantly, in the proper order that benefits you the most.

Can you discharge a private student loan in bankruptcy? What can be done about my federal student loans in bankruptcy?

As you can imagine, I get asked this question a lot. It is being asked more often since student loan debt now is now higher than total credit card debt, according to the Wall Street Journal.

In general, private student loans and federal student loans cannot be discharged in bankruptcy. But I have blogged in the past that there may be exceptions to the rule.

But since the issue comes up quite often, I figured it would be helpful to show a history of student loan debt and its treatment in bankruptcy.

From a Congressional report in 2007:

• Both types of student loan debt were dischargeable prior to 1976
• In 1976, federal student loans were addressed: they become non-dischargeable until at least 5 years had lapsed from the beginning of a repayment period.
• In 1990, this period was extended to 7 years.
• In 1998, the 7 year rule was removed and federal student loans became completely non-dischargeable.
• In 2005, private student loans became non-dischargeable as well.

The next question people ask is if the student loans can be discharged based upon a disability. The answer is almost always no. It is extremely hard to prove that one is disabled to the point that no payment needs be made on student loans.

One can look to government websites to determine if there is any basis for an administrative discharge of student loans. Also, there are certain guidelines for the possibility of a repayment plan that may be more affordable.

One other option would be for you to consider using a chapter 13 bankruptcy to get your payment on your student loans under control. A monthly payment plan of your loans that might be more manageable than your current situation.

Please contact me with any questions about your private student loans or federal student loans and how best to deal with them.