What to Do? Reaffirm? Surrender? Redeem?

One of the decisions that a Chapter 7 debtor must make when filing a bankruptcy case is what to do with property securing a debt.  Debtors living in the area covered by the Eleventh Circuit Court of Appeals have one of three options.  A Debtor’s options are

• reaffirm the debt owed to the creditor;
• surrender the collateral securing the debt owed to the secured creditor; or
• redeem the secured collateral for its value on the day of the filing of the bankruptcy case.

Reaffirming a Secured Debt

A reaffirmation agreement is a written document setting out the terms under which a debtor will repay a secured debt after the filing of the bankruptcy case.  The reaffirmation agreement must be signed by the creditor and the debtor.  The Bankruptcy Code also requires that the agreement be signed by the Debtor’s attorney with a certification that continuing to pay the debt will not create an undue hardship on the debtor or the debtor’s dependents.  The reaffirmation agreement must be filed prior to the entry of the debtor’s discharge.

Surrendering Collateral to a Secured Creditor

Liens, unless avoided, pass through bankruptcy as if a case had never been filed.  When a debtor decides to surrender secured property, the creditor has the right to recover the property.  However, the debtor has no further obligation to make payments.  When the discharge is entered, the debtor’s liability becomes non-recourse.  Non-recourse means that the creditor can only recover  the collateral and sell it to pay the debt.  If the property is worth less than the debt, the creditor cannot pursue the debtor for any shortfall.  If the property is sold for more than the debtor owes, the debtor or the Trustee is entitled to any money over that required to pay the debt.

Redeeming Secured Property

The final option available to a debtor is to redeem the property.  To redeem secured property, the debtor must file a motion and pay cash equal to the value of the property on the day of the filing of the bankruptcy case.

What happens if I just keep paying and don’t reaffirm?

Notwithstanding the 11th circuit’s ruling, many mortgage companies, but not all, take the position that as long as you remain current on your payments they will not seek to foreclose after your chapter 7 bankruptcy case. The problem with this approach is that the mortgage company no longer reports to the credit bureau regarding your timely payments. When your timely payment history is not reported, it makes it difficult for you to rebuild your credit score. If you do reaffirm a debt in your chapter 7 bankruptcy case, you need to make sure that your lender will continue to report your payment history. The reporting of your timely payments will allow your credit score to rise post filing.

You Must File Chapter 13 BEFORE Your Car is Repossessed

In the 11th Circuit Court of Appeals case of Lewis v. Charles R. Hall Motors, Inc. (In re Lewis), 137 F.3d 1280, 1282 (11th Cir.1998), the Appeals Court determined that Alabama Debtors cannot compel the return of a car that was repossessed prior to the filing of their bankruptcy case.  Occasionally, a creditor will agree to give the car back but you should not count on this happening.  If you are behind on your car payments, you need to speak to an experienced bankruptcy before your car is repossessed.

Lowering Your Interest Rate With a Chapter 13 Bankruptcy Case

Many people find themselves in a situation where the only car loan they can get is one with a very high interest rate.  In a Chapter 13 case you can lower the interest rate you are paying on your car.  For example, if your interest rate is 29% (yes, I said 29% and yes I see loans like this everyday), you can reduce to interest rate to as little as 4.25% in the Western Division of the Northern District of Alabama.

On a $20,000 loan the payment at 4.25% would be $394.36 per month.  At the 29% interest rate, the payment was $655.43 per month.  That is a savings of $261.07 per month!

Save Even More By Reducing The Amount You Have To Repay

The bankruptcy code allows a debtor to split (“bifurcate”) a secured claim into two parts when the value of the property is less than the amount owed.  One part of the claim is treated as a secured claim while the remaining balance is treated as an unsecured claim.  There are two conditions that must be met for you to bifurcate a car claim in Chapter 13:

• first you must have owned the car for more than 910 days or the loan on the car must be one that was not used to purchase the vehicle; and
• second, the value of the car must be less than the amount you owe.

The Real Life Savings

Lets stay with our same example that we used above to show you how this works in real life.  The $20,000 loan is secured by a car that is 8 years old and is only worth $8,000.  The Debtor purchased the vehicle 3 years ago.  In the Chapter 13 plan, the debtor can propose to repay the car debt as follows:

• Secured portion of $8,000;
• Interest rate of 4.25%;
• Unsecured portion of $12,000 paid at the same percentage as other unsecured claims (the percentage rate could be from zero to 100%);
• repayment period of 56 months;
• The resulting payment would be $158.00 per month;
• TOTAL SAVINGS: $497.43!

Saving Your Car and Saving Big Bucks

I am often asked how can I afford an experienced bankruptcy lawyer when I can’t even afford to pay my bills.  Well ladies and gentlemen, I just showed you how!

Experienced Birmingham and Tuscaloosa Alabama bankruptcy attorneys can restructure your finances so that you can not only afford their ,you can afford to live a better life!  When we are in debt we tend to think there is no hope.  That is the wrong way to think.  Pick up the phone and talk to an experienced Birmingham or Tuscaloosa bankruptcy lawyer.  You might just find the answers you need to get out of debt once and for all!

Are you behind on your mortgage? Is your lien holder threatening to foreclose on your home?

If you are facing Foreclosure, an Experienced Birmingham or Tuscaloosa Bankruptcy Lawyer Can Help!

Many people get behind on their mortgage because of lost earnings, illness, or other circumstances that are sometimes beyond their control. When their financial situation improves, they find themselves fighting to save their home while the mortgage company demands thousands of dollars, in a lump sum, to let them keep their house.

If you can afford to make your current monthly payment but you don’t have the thousands of dollars needed to cure the past due amount, an experienced Birmingham or Tuscaloosa bankruptcy attorney can help!

Chapter 13 bankruptcy offers bankruptcy debtors the ability to continue paying their regular mortgage payment while spreading the past due amount over as much as 60 months. You do not have to pay interest on the past due amount if your mortgage was incurred after 1994.

That’s right, you can save your home!

If you are facing foreclosure, pick up the phone and call an experienced Birmingham or Tuscaloosa bankruptcy lawyer to see how you can immediately stop the foreclosure and save your home. Don’t be a victim. Fight to save your home!

 Anna Katherine Haynes “Anna Kate”

I am so proud to announce the arrival of Anna Katherine Haynes.  Anna Kate was born on Thursday, October 20, 2011, at 12:38 p.m.  She weighed 9 pounds 3 ounces and measured 20 1/2 inches in length.  Anna Kate is the 5th child of my assistant, Ginny Haynes.  All of you who know Ginny, or who have spoken to her on the phone, know that she is a wonderful person.  I am so happy for Ginny and her husband, Mike.  Anna Kate joins 3 sisters, Emily, Shelby, and Laura Beth, and one brother, Jackson.  I’m sure we will have lots more “my people” stories now that Ginny has added a 5th child to her crew.  Congratulations Mike and Ginny.  Oh, and Ginny, hurry back and bring Anna Kate with you!

What is Lien Stripping?

Lien stripping is the process used to split (bifurcate) a secured claim into two parts. The first part of the claim is secured to the extent of the value of the property. The second part of the claim is treated as unsecured since there is no value to which the claim can attach.

The statutory authority for splitting a claim into a secured and an unsecured portion is found in 11 U.S.C. Section 506.

How is Lien Stripping Used?

Lien stripping is used in Chapter 13 bankruptcy cases to wipe out debt owed to second mortgage holders or junior lien holders when the value of the property is insufficient to cover the debt owed on the first lien.

In today’s economy where many homes are worth less than the amount owed on the first mortgage, lien stripping offers a bankruptcy debtor an opportunity to eliminate debt owed to creditors junior to the first mortgage. This limited relief is an exception to the general rule that specifically prohibits modification of a debt owed on a debtor’s principal residence.

Prohibition Against Modification of Mortgage on Principal Residence

The prohibition against modifying a loan secured by the debtor’s principal residence prevents debtors from writing down the first mortgage debt even if the value of the house is less than the total of the debt owed.

Lien Stripping Not Available in Chapter 7 Bankruptcy Cases

In Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992), the United States Supreme Court determined that lien stripping is not available in a chapter 7 bankruptcy case.

If you would like to find out more about lien stripping and whether you qualify to file a Chapter 13 case, schedule a consultation with an experienced Birmingham or Tuscaloosa bankruptcy lawyer.  Call today and see how much money you can save.

The place where you live usually determines where your bankruptcy case will be filed.

Your bankruptcy case will be filed in the federal district in which you have resided the longer of the last 180 days prior to the filing of your bankruptcy case.  It would also be proper to file a case in the place where your principal assets are located.  The place where your principal place of business is located is also a proper venue for the filing of your bankruptcy case.

Understanding the Federal Court System Will Enable You to Determine Where Your Case Will Be Filed

To understand exactly where you case will be filed and where you will go to Court, you need to understand how the Federal Court system is divided.  The United States Supreme Court is the highest Court in the land.  The Federal Court System is then broken into Circuits and further broken down into districts and then divisions. There are eleven judicial circuits. Alabama is located in the Eleventh Circuit. The Federal Courts in Alabama are divided into three federal districts. Those districts are the Northern, Middle, and Southern Districts of Alabama.  All bankruptcy courts are units of the district court for the district in which they sit.  When a bankruptcy case is filed, it is automatically redirected from the district court to the bankruptcy court.  This is called the Rule of Reference.

The Structure of the Northern District of Alabama Federal District Court

The Northern District of Alabama is divided into four divisions. Each division is made up of counties located within the Northern half of the state.

The Southern Division of the Northern District of Alabama

The Southern Division includes Blount, Jefferson and Shelby counties. The Southern Division Bankruptcy Judges hear cases in Birmingham, Alabama.  There are three Bankruptcy Judges in the Southern Division.  Those judges are the Honorable Thomas B. Bennett, the Honorable Benjamin G. Cohen, and the Honorable Tamara O. Mitchell.  If you live in Blount, Jefferson, or Shelby County, your case will randomly be assigned to one of the three Birmingham Bankruptcy Judges.  Each of the Bankruptcy Judges have their own staff, expectations, and procedures.  Hiring an experienced bankruptcy lawyer is extremely important in any division but the different expectations of the three judges in the Southern Division make experience an even more critical factor.

The Eastern Division of the Northern District of Alabama

The Eastern Division includes the following counties: Marshall, De Kalb, Cherokee, Etowah, St. Clair, Calhoun, Cleburne, Talladega, and Clay. Judge James Robinson is the Bankruptcy Judge in the Eastern Division. Judge Robinson hears cases in Anniston and Gadsden, Alabama.

The Western Division of the Northern District of Alabama

The Western Division includes Marion County, Winston County, Walker County, Lamar County, Fayette County, Tuscaloosa County, Pickens County, Sumter County, Green County, and Bibb County. The Honorable C. Michael Stilson is the Bankruptcy Judge for the Western Division. Judge Stilson hears cases in Jasper and Tuscaloosa.

The Northern Division of the Northern District of Alabama

The Northern Division includes the following counties: Lauderdale, Limestone, Madison, Jackson, Colbert, Franklin, Lawrence, Morgan, Winston, and Cullman. The Honorable Jack Caddell is the Bankruptcy Judge for the Northern Division.

Chapter 13 Bankruptcy cases are sometimes called “Wage Earner’s Plans” or “Debtor’s Court.” In Chapter 13 you are given a chance to repay some, or all, of the debt you owe.

If you pay less than 100% of your unsecured debt, your case is known as a “composition case.” Such cases are also sometimes called “percentage cases.” Chapter 13 bankruptcy cases offer debtors unique opportunities to restructure their finances. Below are 20 benefits of filing a Chapter 13 Bankruptcy case:

 1. You can file Chapter 13 even if you don’t have a penny to pay toward your bankruptcy lawyer’s fees. The majority, if not all, of the attorney fee you pay in a Chapter 13 bankruptcy case is taken out of the monthly payment you make to the Chapter 13 Trustee.

 2. If you lose your job or become sick during your case you can request a temporary suspension of your Chapter 13 Plan payments.

3. You receive a discharge (debt is wiped out) of most debts listed in your case for which you propose a repayment plan.

4. If a general unsecured creditor, who is properly listed, fails to file a claim, you will not have to repay that debt.

5. Unlike debt management plans, creditors do not have a choice as to whether they participate in a Chapter 13 bankruptcy case. Creditors file a claim and get paid, or the debt owed to them is discharged at the end of your case.

6. Debt management plans often involve the payment of large sums of money to the Debt Management Company. It is much cheaper to file a Chapter 13 Bankruptcy Case.

7. Filing a Chapter 13 Bankruptcy Case hurts your credit less than participating in a Debt Management Plan.

8. While you are in Chapter 13, your creditors cannot bring suit against you. Creditors in debt management plans often sue debtors despite the debtor’s efforts to work out an affordable repayment plan.

9. Many lenders will consider your timely payment of your Chapter 13 plan payment as a positive credit reference when you later apply for a loan.

10. Payday loans and title loans can be handled in Chapter 13.

11. You can strip off (wipe out) a junior mortgage on your home when the junior lien is totally unsecured.

12. You can repay taxes at no interest through a Chapter 13 bankruptcy case and stop all future penalties.

13. You can use Chapter 13 to immediately stop garnishments. You may even be able to recover some of the money taken from your check.

14. You can use Chapter 13 to cure arrearages (past due payments) on homes, cars, and leases.

15. Chapter 13 allows you to keep all of your property.

16. You can reduce the interest rate you pay on car loans and personal property loans.

17. In some cases you can even strip off part of the debt owed on cars and personal property.

18. The filing of your Chapter 13 bankruptcy case protects anyone who co-signed on a consumer debt with you.

19. You can file Chapter 13 more often that you can file a Chapter 7 bankruptcy case.

20. Filing a Chapter 13 bankruptcy case can allow you to get your driver’s license back if it has been suspended for failure to have mandatory car insurance.

 Are You Ready to Get Out of Debt?

If you want to know how Chapter 13 can help you get out of debt, call to schedule a free, no obligation, consultation with an experienced bankruptcy lawyer.

The craze in the world of Bankruptcy these days seems to be attorneys offering to file a case for you for little or nothing. When I drive to Birmingham I always see signs for bankruptcies beginning at $599 or Internet adds for $629 or $999 total. As an experienced bankruptcy lawyer, I know that there is always a “catch” with these ads. Either the ads are only disclosing the attorney fee and not the almost $400 in expenses that must be paid or there are conditions on the low cost offers.  Even worse, some of the “low cost” guys have little or no experience filing in the bankruptcy court.

Feeling the Pressure to “Compete” With the Low Costs Guys

It is natural to worry about whether these low cost offers are going to undercut the ability of the experienced bankruptcy lawyers, who charge a fair fee, to earn a living. I sometimes find myself tempted to match their prices. After all, I have overhead to pay and people who depend on me for their salaries. I understand a client’s desire to “get the most” for their money. But I also understand that there is a lot of truth in the statement that “you get what you pay for.”

Experience Wins Out over Price Every Time

When facing the possibility of filing bankruptcy, the last thing you need is to be in the hands of an inexperienced bankruptcy attorney. Bankruptcy is a specialized area of the law that is filled with traps for the inexperienced attorney. If your attorney fails to recognize potential problems with your assets, exemptions, or liens, you may find yourself losing assets you thought you would be able to keep. If your bankruptcy lawyer doesn’t understand the rules about which debts are dischargeable, you may find that you have filed a bankruptcy case only to end up owing the very debt you were trying to discharge. Bankruptcy practice requires you to know the judges, the trustees, the bankruptcy code and how they all work together to get your client the best result. Yes, you usually pay a little more for an attorney’s experience but if you needed brain surgery, would you us a doctor with no experience? Of course not! So, when you need a bankruptcy lawyer, why would price be your only concern? Experience matters just as much, or more, than price.

Final Thoughts about the Low Price Guys

Recently, I had a new client go to my website and use the Live Chat feature. It was a Friday night at 9:00 p.m. and she had learned late that day that her mortgage company was moving forward with foreclosure on her home Monday morning. She had been trying to get a mortgage modification worked out, but at the last minute (when the likely hoped she could not find any help), they announced that they were unwilling to reach a workout. I received an email a few minutes after her Chat and called her at 9:05 p.m. The next morning, a Saturday, I met her at my office and got a Chapter 13 case filed for her so that she could save her house. My client has my personal cell phone number. She talked to me after 9:00 on a Friday night. I helped her save her home because that is what I do every day for my clients. I give my clients my personal cell number and I answer their calls until 9:00 p.m. 7 days a week. Clients text me and communicate with me by email on a regular basis. I am available to help them when they get a call from a creditor that is threatening to repossess their car or send the sheriff to their home. I don’t charge extra for these conveniences; they are just part of what goes into representing my clients.

I’m not the Cheapest Bankruptcy Lawyer, But I Challenge Anyone to Match the Service I Provide

If you hire me as your bankruptcy lawyer, I will charge you a fair price. I will work with you to work out a payment plan you can afford. I will stand by you throughout your bankruptcy case. I won’t abandon you when things get tough in your case. I will answer your calls in the evenings and on the weekends. When the repo guys shows up to pull your car, you will be able to get me on the phone to verify that you have filed a bankruptcy case. No, I’m not the cheapest bankruptcy lawyer out there. What I bring to the table is experience, understanding, compassion, and a dedication to the welfare of my clients. Cut rate fees will never buy you that!

If you are looking for an experienced, dedicated bankruptcy lawyer, call me to set up a free consultation.  I will help you start on the road to a better life without the burden of your existing debts.

If you are serious about getting out of debt you have to step up to the plate and take charge. Getting out of debt takes work. Your bankruptcy lawyer cannot do all the work for you. You must be invested in your case if you want to get a fresh start.

Providing Documents

The first thing you need to do as a Debtor is to provide all the documents your lawyer requests. Trust me: your bankruptcy lawyer is not going to ask you for documents that aren’t needed to fully review and prepare your case. The minimum documents you need to provide include:

1. A copy of your driver’s license and social security card;

2. A copy of your last 2 years of tax returns;

3. A copy of all of your bills (if you don’t have a bill, you need to provide a complete mailing address, the account number, the amount you owe, and when the debt was incurred);

4. A copy of the tax assessor’s statement for any real property that you own an interest in;

5. A copy of each and every paystub you and your spouse have received for the last 7 months; and

6. A copy of your last bank statement.

Filing out the Forms

I know that it is a pain to fill out the forms that I give you to complete. I tell people to think of the forms as their “get out of debt card.” Fill out the forms and I can get your case filed. Don’t fill out the forms, and there is little that I can do to help you. You know your finances. I’m ready to help but I can’t file your case without you.

Complete Your Credit Counseling

Before your bankruptcy lawyer can file your bankruptcy case, you must complete an approved credit counseling course.  This course must be completed at least one day before your case can be filed.  Your bankruptcy attorney cannot do the counseling for you.  It only takes about 15 minutes to complete the counseling online.

Showing Up for Hearings

Every debtor must appear for their meeting of creditors (341 meeting). There may be additional hearings that you will be required to attend. If you fail to appear you bankruptcy lawyer cannot effectively represent you.

Staying in Touch

One of the most important things you can do while you case is on-going is to stay in touch with your bankruptcy attorney. If you move, change jobs, change phone numbers, or email addresses, you must communicate that information to your bankruptcy lawyer.

Making Your Payments

If you file a Chapter 13 bankruptcy case you must make your first payment within 30 days of filing your case. You must also make all payments to your secured creditors who are not included in your plan. For example, if you are behind on your mortgage the arrearage will be put in the plan. Your regular monthly payment must still be made direct to your lender. The same is true for your car payment unless the entire balance owed is put into your plan. If your mortgage payment is $900 a month, you shouldn’t think your $200 Chapter 13 payment is going to cover all your debts and your regular mortgage payment. And yes, I do have clients who call and tell me that is what they thought was going to happen. Really?

Completing Your Financial Management Requirement

After your case is filed, you must complete the financial management requirement. This is different from the credit counseling that you did before you filed your case. It generally involves the attendance at a live class or the watching of a movie over the internet.  There will be a test so pay attention.  If you fail to complete the financial management requirement, you will not receive a discharge. Your case can be closed without the entry of a discharge for failure to complete this requirement and, if that happens, you will have to pay to have your case reopened to get your discharge entered.

If you are ready to get out of debt, all you need to do is set up an appointment with a bankruptcy lawyer.  The initial consultation is free.  You will have to participate to complete the process but by doing so you can begin living a life free of overwhelming debt.

Yesterday I wrote a post on how your Chapter 13 payment is determined. This morning I reread the post and thought to myself….hmmm would I understand that if I was looking at filing a Chapter 13 bankruptcy case? Don’t get me wrong, the post is full of great information that you need to know. At the same time, you get to the end of the post and still have no idea how much you are going to have to pay. So, I thought I would write a second post and provide you with some examples of how all the legal mumbo jumbo works in the real world. For this example I am going to use a chapter 13 bankruptcy case that is going to be filed in Tuscaloosa, Alabama. I will name the Debtor Susan since I want to talk to you about other options for Susan in other posts. Susan is single, brings home $2400 a month after taxes and insurance, owns a home and is 4 months behind on her payments, and owns a car that she bought, new, in 2005. The home is worth $100,000 and she has a first and second mortgage on the home. The first mortgage is $110,000 and the second is $20,000. Both mortgages are behind 4 months. The car loan is current but the car is only worth $3000 and she still owes $7000 on it. The Debtor wants to keep her home and car but is struggling with medical bills and credit card debt that total about $50,000. So, how can I help her?

Disposable Income

After the Debtor pays her basic living expenses (utilities, food, gas for her car (but not the car payment), clothing, and her regular 1st mortgage payment) she has $400.00 left to pay everything she owes. Obviously the amount of money won’t come close to covering the rest of her bills. She is losing sleep and is desperate to find some solution. Like most of us she is embarrassed about her situation and wants to pay her bills. The reality is that she can’t pay them on what she makes and she has been unable to take on a second job because she has to help care for her elderly mother who lives with her.

Saving the Home from Foreclosure

The Debtor can make her regular house payment of $800 a month on the first mortgage but she can’t come up with a lump sum to cure the the months she is behind. With legal fees, foreclosure costs, and late fees, she would need almost $5,000 to cure the arrearage and get the mortgage back in good standing.

Curing the Arrearage and Stripping Off the Second Mortgage

In a Chapter 13 bankruptcy case, I can help the Debtor save her home. First, I will strip off the second mortgage and treat that as an unsecured claim. That means the Debtor will not have to make the regular payment on the second mortgage and it will be paid the same percentage that her credit cards and medical providers receive. Second, I will propose a plan that allows the Debtor to cure her first mortgage arrearage of $5,000 over 56 months. That means that she will only have to pay a total of $89.29 per month to bring her mortgage current. The Debtor doesn’t have to pay interest on the arrearage in her Chapter 13 case if she undertook the mortgage after October, 1994. At the end of her 60 month case the Debtor will still have her home, her mortgage will be current, and the second mortgage will be gone.

Dealing with the Car

The Debtor owes $4000 more on her car than it is worth. How many of you know that feeling? The Debtor has owned the car since 2005 and it is still in very good shape with low mileage. In her Chapter 13 case, I will propose to pay $3,000 to the creditor at 4.25% interest over 56 months. The Debtor’s car payment will now be $59.15 per month instead of the $350 she was paying on the loan. The $4,000 left owed on the loan will be treated as an unsecured claim and will receive the same percentage as her credit cards and medical bills.  And, it will be discharged (wiped out) at the end of her case.

So how much is the Debtor’s Monthly Chapter 13 payment?

The Debtor will pay $400 per month to cover the arrearage owed on her home, payoff her car, and discharge the unsecured debt she owes including the second mortgage, the $4000 owed on the car that was stripped down to an unsecured debt, her medical and credit card bills. In addition, the $400 a month will pay the bankruptcy court filing fee, the compensation due to the Chapter 13 trustee, and the balance owed on her attorney fees.

Suddenly a seemingly hopeless situation has turned into a dream come true. The Debtor has saved her home, reduced the amount she owed on the home and car, and found a way to get rid of her credit card debt and medical bills.

Could you benefit from this type of help? If your answer is yes, just pick up the phone or use the contact form on the website to schedule a free consultation. Help is available. All you need to do to get that help is schedule a free consultation. So, why not start on the road to a better, debt free life?