The chapter that allows for repayment of a portion of the debt would be Chapter 13.  Chapter 13 is bill reorganization through a Chapter 13 trustee.  Chapter 13 is typically used to save a home that’s in foreclosure or to pay a vehicle over time or to reorganize other debts such as non-dischargeable debts: student loans, recent taxes, parking tickets, child support, alimony, debts incurred by some sort of fraud.  

Chapter 13 involves the filing of a Chapter 13 bankruptcy petition, which is filed with the Clerk of the United States Bankruptcy Court. There is a meeting of creditors approximately three to four weeks after the case is filed whereby a Chapter 13 trustee will attempt to make sure that you’re putting all of your disposable income towards a Chapter 13 plan each month.  The Chapter 13 trustee will then either recommend or not recommend your case for confirmation and the case will proceed accordingly.  

Provided you make your current mortgage payment outside of the bankruptcy as well as your Chapter 13 bankruptcy payment, your case will have success.  At the end of three to five years, you will receive a discharge and, technically, your arrears will be reinstated, your vehicle will be paid off and the rest of your debt will be eliminated and they will receive a portion of the debt over those three to five years. 

If you are thinking of filing either a Chapter 7 or a Chapter 13 bankruptcy, I recommend that you strongly meet with a bankruptcy attorney in your local area that practices bankruptcy on a daily basis.  Many attorneys came back into the bankruptcy field thinking that that’s where the gold was.  Make sure that you hire a bankruptcy attorney that’s been practicing bankruptcy for a number of years and who has the requisite experience to handle your case. 

Whatever you do, do not think that you can file bankruptcy yourself.  If you file bankruptcy yourself, you are likely going to have a problem because the law is complex and you need the guidance and assistance of counsel who does this on a daily basis.    

In the state of Illinois, you, as an individual debtor, can protect up to $15,000.00 worth of equity in real estate.  If you are filing a joint bankruptcy case, you and your spouse can protect up to $30,000.00 worth of equity in real estate.  As far as vehicles go, you can protect up to $2,400.00 worth of equity in one motor vehicle as an individual.  If you are filing jointly, you and your spouse can protect up to $4,800.00 of equity in one motor vehicle. 

In addition to the real estate and the auto exemption, you also have in the state of Illinois a $4,000.00 wild card exemption which can be sprinkled over any type of personal property.  In a joint case, this amount doubles to $8,000.00 worth of wild card exemption that could be sprinkled over any personal property. 

Thus, people typically keep their house and car and all of their personal property when they’re filing a bankruptcy Chapter 7 to get out of debt.  They simply have to continue to make the mortgage payment and the car payment.  Otherwise, those items would either be foreclosed or repossessed just as if there wasn’t a bankruptcy case in the first place. What bankruptcy will do is eliminate the unsecured debt from your life in full forever, such as medical bills, credit card bills and personal loans and other services. 

Bankruptcy is probably the only thing that I would recommend for someone who is struggling financially and who needs a fresh start.  There are alternatives to bankruptcy, such as working out a payment plan with a creditor or going into some sort of debt consolidation plan.  However, in my experience as a bankruptcy attorney, I have seen too many clients who have come to my office after a failure with a debt consolidation company.  

Debt consolidation companies attempt to pay your creditors less than what’s fully owed in exchange for a release of the debt.  However, debt consolidation is not mandated under any federal law and creditors do not have to accept the payment plan.  If you get into a situation where some of your creditors are accepting the payment plan while others are not accepting the payment plan, the ones that are not accepting the payment plan have the right to sue you. 

Many people have seen their balances not go down even though they’ve been in debt consolidation for several years.  A lot of their fees got eaten up by the debt consolidation company and it didn’t go to the creditor.  In other cases, one creditor opted out and started a lawsuit or a garnishment to the point where the client couldn’t make the payments anymore to the debt consolidation company. 

In recent years, the debt consolidation companies have been sued by different states’ attorneys because they were taking their fees prior to paying out anything to the creditors. 

What bankruptcy does is it eliminates the debt in full under Chapter 7.  There is no option to pay back a portion of the debt under Chapter 7.  It is just simply eliminated in Chapter 7 in full. 

Bankruptcy laws are provided under the United States Constitution and they are a federal right that is afforded to people who are honest, who just simply need a fresh start.  If you are someone who lost your job or if you are someone who had a medical condition and your insurance did not cover the uncovered portion, then Chapter 7 might be a great way for you to get back on your feet and end all of the harassment. 

You can file a Chapter 7 bankruptcy case once every eight years.  You can even file a bankruptcy case after you file a Chapter 7, but that would be of the Chapter 13 variety where you’re repaying your debt over time. 

Many of my clients have been struggling with credit card debt for over 10 years.  When they come to see me at my office, they’ll tell me that they have perfect credit, they have a great credit score, they’re able to manage their debt without a problem and that they really don’t think that they should file.  However, what they fail to recognize is that they’re carrying a ton of debt on their shoulders.  I basically tell these clients and prospects that I really don’t care what your credit score is or whether you think you have perfect credit.  I care whether or not you are able to function by carrying that debt year after year, month after month, day after day.

I like to see clients get a fresh start because I know that there is going to be a good life after bankruptcy.  Most people who come into my office, they’re struggling financially.  They’re stressed out.  They’re worried about things and they’re mostly worried about, if they file for bankruptcy, will they ever get credit again. 

One of the questions that I’m often asked as a Chapter 7 bankruptcy attorney is do you think that I should file for bankruptcy relief?  Filing for bankruptcy is a personal question that really can only be answered by you.  I, as your attorney, can provide advice on whether I think it’s a good idea to file or not but, ultimately, the decision is yours.  

The best advice I can give is this.  If you feel that you can repay your debt over the next six months, then I would recommend that you do not file for bankruptcy and that you do try to repay your debts over time.  If, on the other hand, if you feel that, after a six month period of trying to repay your debts that you simply will be struggling and you will still have a huge debt to pay off, then I would recommend filing a Chapter 7 bankruptcy. 

Chapter 7 bankruptcy is the relief that is provided to people who have very little in the way of assets and a lot in terms of unsecured debt.  Unsecured debt includes medical bills, credit card bills, personal loans, auto repossession deficiencies and other debts for different types of services.  If you are struggling with these types of debts and you don’t have a lot of equity in either a house or a vehicle, then Chapter 7 might provide the relief that you’re looking for to get a fresh start.  

If you are someone who is being sued, if you are someone who is being called day and night by bill collectors, if you are having your wages currently garnished, then life can be really tough at that point.  If you can eliminate that type of stress from your life and eliminate the garnishments, the lawsuits and the collection efforts, then it might just be your best bet to do a Chapter 7 and get that fresh start.

Once your case is confirmed and you’re making your payment plan, everything proceeds according to schedule until, of course, you do something that is not proper under the Bankruptcy Code.  

First, you might decide that you are not going to make your Chapter 13 trustee payment anymore.  If that were to be the case, then the trustee will bring a motion to dismiss and your case can be dismissed for failure to make payments.  

In addition to the trustee bringing a motion, the mortgage company or other creditor can bring a motion for a modification of the automatic stay or dismissal of your bankruptcy case for failure to make payments pursuant to the plan or failure to make post-petition mortgage payments.  

In the event that one of these motions is brought, you will get a notice, your attorney will get a notice and the case will come before the court for a hearing.  If you can resolve the problem prior to the hearing date, the motion will be withdrawn. If you can come up with a partial payment to cure the default, the mortgage company or the trustee will likely put the case over for two to four weeks in an effort to see if you can cure the default.  If you are not able to cure the default at all on the first court date, then the trustee or the mortgage company will get the relief that they’re looking for because you’re simply not making your payments. 

If you are successful at the end of the three to five year period, you will receive a discharge in Chapter 13 bankruptcy.  At that time, your mortgage arrears will be reinstated, your auto vehicle will be paid in full, and your other creditors will be paid either all or a portion of the debt that was owed.  If you complete your Chapter 13 and pay less than 100 percent back to your unsecured creditors, those creditors are prohibited from seeking any additional dollar amount from you.  You have essentially completed your Chapter 13 case and the creditors got what they were going to get under the Chapter 13 plan and nothing else.  

Your bankruptcy attorney can help you determine approximately how much you’re going to pay back in terms of a percentage to your creditors.  However, don’t be alarmed if the amount you actually pay back to your creditors is more than what you attorney suggested.  In many cases, many creditors do not submit to the court and are not part of the payout.  Thus, the ones that actually do submit to the court and file a proof of claim in the bankruptcy case will get paid a higher percentage.  However, if you look at it in total between the ones that filed a claim and the ones that didn’t file a claim, that’s where you need to look and see what your actual payment was in terms of a percentage.  The key, though, is to get a discharge to save your house and to repay your debts over time.  That is what a successful Chapter 13 bankruptcy allows you to do.

If your case is dismissed, you will have an option, in most cases, to re-file the bankruptcy.  By re-filing a bankruptcy, you are going to have to submit to the credit counseling session, the providing of tax returns and the providing of pay advices as well as pay another filing fee with the Clerk of the United States Bankruptcy Court.  You will also have another 341 meeting of creditors and you will have to start paying the trustee once again. 

If you have had a case dismissed within the last year and you re-file under Chapter 13, then the automatic stay will only extend for 30 days.  What you have to do or what your attorney has to do is bring a motion to extend the automatic stay as to all creditors and that motion must be brought and heard within 30 days after filing the case.  In most cases, this motion to extend the automatic stay is being granted by the court.  

According to the court, you must show a change in circumstances as to why this case is going to work where the last case did not.  Some of the reasons for change in circumstances have to do with increased income or lack of an issue before that caused it to dismiss.  And basically the courts are pretty lenient on allowing the motion to extend stay as they are pretty much going unopposed.

After your consultation and you decide that bankruptcy is the right thing for you to do and that your attorney has decided that you do qualify for a Chapter 7 or a Chapter 13, what’s involved is pretty much the gathering of all the information needed.  The first thing we need to do is verify your income.  Not only will we need to verify your income but the trustee is also going to need that information to verify your income.  We would need two months of pay advices.  Pay advices are just your paycheck stubs.   

If for some reason you are not employed, if you are receiving any kind of income at all, whether it’s through disability, Social Security, unemployment, we will provide you with an affidavit stating your income through – your income that you receive through unemployment, IRS – I’m sorry, unemployment, Social Security, disability, contribution from a family member.  Those are the things that we would write in the affidavit stating why you have no pay advices.  If you do have pay advices, you will need to provide at least two months of the pay advices prior to the date of filing.  This is very important, so if you decide to come on board and file bankruptcy, you could essentially retain us today, in October; however, you might not be done filing or you might not be done paying the fee off in January or February of next year.   

So in that respect, we would need to have your pay advices to verify your income for the first – previous two months in October, just to verify, and then if we file in February, we will also need your pay advices for the previous two months.  So we would need January and December’s pay advices, at least those two months prior.  Once we have that information and everything is verified and then everything still works, we would then need to have your taxes, your filed federal income taxes.  For a Chapter 7, we only need your previous year (2010) if you are filing in 2011.  For Chapter 13, we would need your four prior years to filing, so if it’s 2011, you will need your income taxes for 2007, ’08, ’09, and ’10. 

Trying to negotiate with your creditor.  It’s not a bad thing to do if you don’t have a lot of creditors, if you only have a few credit cards, and you don’t mind dealing with the hassle of going to court, being served, going through litigation, doing discovery.  If a pro se defendant – pro sedebtor (excuse me) wants to do this, they certainly can.  However, keep in mind this that the creditor has all the power in the world against you in this situation.  Creditors do not have to negotiate.  More often than not, they will negotiate.  They understand people are on hard times now.  But creditors see the bottom line, and the bottom line is this, is that they can negotiate up to a certain amount, and at that point, they can no longer negotiate.  

For an example, say you have a $5,000.00 Visa credit card.  That $5,000.00, you wish to negotiate with the creditor and bring it down to half of it ($2,500.00).  You call the creditor; you say that you want to pay $2,500.00 to get rid of your debt.  The creditor, more often than not, will say – try to bump it up and say, “Well, can you do, you know, 75 percent?  We can put you on a payment plan, and we won’t pursue you in court.”  However, most of the time, the payment plan is not reasonable for the debtor.  Most of the time, creditors want that money lump sum, lump sum meaning, “I want [me, the credit wants] that $2,500.00 in full in one check, no payment plan,” the reasoning being that they are thinking that they’re going to give you 50 percent off on your $5,000.00 debt and that in doing so, cutting you a break, they want that money right away.   

They don’t want to get half of the debt in three to four years.  No, that’s not what they want.  That’s why I’m saying that negotiating with creditors is an issue because they have all the power in the world.  They do not have to negotiate with you.  All they have to do is bring you to court, sue you for the total amount, and then start garnishing your wages, start freezing your bank accounts, start putting liens on the debtor’s home and businesses, and things of that nature.  So negotiating with a creditor is okay if you have – if you think you can do it.  However, I would be timid because they do have a lot of power. 

Well, the first thing to do in order to file a bankruptcy is to consult a bankruptcy attorney, preferably somebody who has experience with bankruptcies.  Initially, you have to go into the consultation with a good idea of your income, your expenses, your assets, and your liabilities.  If you have a good sense of those things, then you should be able to go into the consultation pretty confident, and that will also help out the process of bankruptcy for your attorneys.   

In order to file a bankruptcy, one has to specifically know how much income and expenses are going out.  Not just any expenses but expenses regarding the reasonable living expenses, which the bankruptcy court sees fit and proper.  Also, those expenses are also found in the IRS’s guidelines for the expenses per median household of a family of one or two or three.  So a person should definitely know their expenses coming in, and once they do the consultation with their attorney and they decide they want to go through with it, with the bankruptcy, then they have to (1) they have to give the paychecks – two months of paycheck stubs to their attorney for both the – both spouses, even if one is not filing bankruptcy.  Bankruptcy still includes the income and expenses for both a filing spouse and a non-filing spouse.   

We also need income tax returns.  Those income tax returns are only for the federal level.  We do not need your state income tax returns, but for a Chapter 7 – also, this is all regarding a Chapter 7.  In a Chapter 7, you would need your income – I’m sorry – your taxes, federal taxes, for the previous year before filing the bankruptcy.  For example, if it is a 2011 case, one you file in 2011, you’ll need your federal income taxes for 2010.  For a Chapter 13, you will need your federal income taxes for the past four years.  So, for example, if you file a Chapter 13 in 2011, you’ll need your taxes from 2007, ’08, ’09, and ’10 in order to file bankruptcy.   

Also, everybody who files bankruptcy will have to complete a credit counseling class.  You have to take two classes regarding credit counseling.  The first credit counseling class is called the pre-petition class, and there are several providers that can give you that class online, over the phone, and generally this class is about an hour and a half.  Nobody can fail the class.  It is a tool that the bankruptcy court uses in order to educate the bankruptcy petitioners.  After you complete the first class, then they file the case.  You can only file the case after you complete that first class.  The second class is also another class that you have to take after you file.  It’s called the post-petition class, specifically the personal financial management instruction course.  This course can be done – can be completed with the trustees.  

Once your case goes through something called confirmation and the judge confirms your case, your plan payment will not change.  But this is often a long process in which one proposed payment is made to the court and often has to be adjusted for many reasons.  Those reasons could be incomplete information provided by the debtor or the creditors who have the ability to file claims, the claims come in much higher than we expected.  This is often the case with tax debts where people are just not aware of how much they owed to the IRS or have not filed taxes in years and the amount is much greater than they thought. 

Also, the trustee could determine that you have more income each month that was listed in your schedules.  For instance, if you own a rental property and the rental income wasn’t listed, your plan payment would be have to be increased. 

In Chapter 13, you are required to use all of your disposable income in order to pay back your creditors.  Basically, you have to pay back as much as you can to your creditors.  Therefore, if information is not listed in your original documents, your plan payment may increase or decrease before your case is confirmed and your plan payment is set.

Will I lose my house or my car is one of the most important questions people want to know when they come in to see a bankruptcy attorney.  And really I think it should be broken down into a two-pronged analysis. 

The first is whether there is any equity in your house or your car.  What equity means is whether you owe less on your house or car then the house or car is worth.  Let’s say you have a $100,000 mortgage and your house is worth $200,000.  You then have $100,000 in equity.  

Like discussed before, when you are filing Chapter 7 bankruptcy, you are saying to the court I really have no money to pay my creditors back anything.  But if you have significant equity in your house or your car, the bankruptcy court will likely take that property, sell it and pay back your creditors.  But if you do not have any equity in your house or your car, then the bankruptcy court will not be interested in taking that property, selling it and paying back to your creditors. 

The second analysis is whether or not you can afford to make the payment going forward.  Though the bankruptcy will not make you lose your house or your car, you still need to make the payment going forward which means that if you have a $500 a month car payment, you need to be able to make that going forward in order to keep the car.  You will not lose your car in Chapter 7 bankruptcy in most instances.

The main problem and the main reason the Chapter 13 bankruptcy fails is because you are not able to make your payments.  The trustee will not file a Trustee’s Motion to Dismiss your case because you missed one payment or because the payment is one day late.  All you need to do is say substantially current with your Chapter 13 payments. 

But if you fall more than 2 to 3 payments behind, your trustee will motion the court to dismiss your case for failure to pay your plan payments.  If you are unable to make your plan payments because of a change in circumstances, you should notify your attorney right away so they can deal with the trustee directly and inform them in order to head off a Motion to Dismiss.  If your case is dismissed and you are able to come up with the money, your attorney can reinstate your case.  In some cases, the best option is to re-file and start anew.  Your attorney will be able to advise you of all of your options.