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Bankruptcy Law

Apr 20
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How COVID-19 Is Affecting Bankruptcy Law in Alabama

By Bankruptcy Law, COVID-19, Understanding Bankruptcy No Comments

Seeking bankruptcy in Auburn or Opelika will look a bit different after the COVID-19 pandemic. Make sure your bankruptcy attorney knows about these changes and is prepared to help you understand them.

There seems to be no area of society that the COVID-19 virus has not affected. 

One of the most significant effects and hotly contested issues is the role that this pandemic has played in the economic downturn that our entire country has experienced.

One thing that is certain, though, is that COVID-19 has made many people in Alabama suffer financially.

As an avenue for financial relief during personal economic crises, Chapter 7 and Chapter 13 Bankruptcy have, unsurprisingly, had some rules changed

Residents of Auburn and Opelika who are seeking to file bankruptcy should be aware of these changes so that they can take advantage of their benefits to debtors seeking relief.

Under the CARES Act and the Consolidated Appropriations Act of 2021 here are some of those changes:

DISCLAIMER: The following blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.

Need Bankruptcy Help? Call David S. Clark

Chapter 13 Payment Extension

If debtors can prove to their local bankruptcy court that they have endured a financial hardship due to the COVID-19 pandemic, then they may qualify for an extension to the payment plan for seven years.

Waived Original Signature Requirement

Because the entire country has been in lockdown at some point during the pandemic, some bankruptcy courts have decided to waive the requirement that a bankruptcy attorney must get a “wet signature” from his or her client on the bankruptcy petition.

This is simply the original signature from the debtor on the petition to file bankruptcy.

Debtors and their bankruptcy attorneys can review the necessary documents virtually rather than meeting in person.

This allows for the bankruptcy process to move forward without the physical contact that was previously required.

Section 341 Meeting of Creditors

Regardless of whether or not a debtor files for Chapter 7 or Chapter 13 Bankruptcy, he or she will have to attend a “meeting of creditors.”

This is where the debtor faces all of his or her creditors alongside the court-assigned trustee and discusses every relevant detail of what is owed so that everyone can have a unified, realistic expectation of what needs to be paid back.

Stimulus Money Cannot Be Counted as Income

When filing for bankruptcy, debtors have to list their income to submit to the courts.

With the stimulus checks that were given to many Americans, some people’s income drastically increased. If a debtor had to claim this as income, this could misrepresent the true financial situation of him or her.

In order to prevent this misrepresentation, the debtor is able to leave any money received from a stimulus check related to the coronavirus pandemic out of consideration when adding up income.

This list is a good start in the search for information on how the coronavirus pandemic has affected bankruptcy, but it is by no means exhaustive.

If you are an Auburn or Opelika resident who is considering filing for bankruptcy, you should consult an Auburn/Opelika bankruptcy lawyer who can explain in depth how bankruptcy law has been affected by recent COVID-19 legislation.

David S. Clark is a bankruptcy attorney who has represented numerous residents of Auburn, Opelika, and Lee County. Contact David S. Clark today for a free evaluation on your bankruptcy case!

DISCLAIMER: The above blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.

Dec 28
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Why Choose a Local Bankruptcy Attorney

By Attorneys & Lawyers, Bankruptcy Law No Comments

One way to lower the risk of hiring an attorney who will work for him or herself rather than to help you overcome your financial hardship is to hire a local bankruptcy attorney like David S. Clark.

During financial crisis threats of repossession and collection calls from creditors often seem to come daily. Foreclosure of your home because of the inability to pay back your loan and falling prey to the payday loan cycle can feel like rock bottom for many.

The scary decision to file for bankruptcy or restructure your debt through debt consolidation may be the best way forward for those who find themselves in such economic turmoil.

Hiring an attorney to help you navigate these muddy waters can be a lifesaver, but hiring the wrong attorney can be more harmful than helpful.

One way to lower the risk of hiring an attorney who will work for him or herself rather than to help you overcome your financial hardship is to hire a local bankruptcy attorney like David S. Clark. Here are a few reasons why:

DISCLAIMER: The following blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.

Need Bankruptcy Help? Call David S. Clark

It’s Easier to Know Local Bankruptcy Attorneys

Lawyers that have central offices across the nation or throughout the state are often located in distant urban centers.

This can make it difficult for them to empathize fully with their clients.

A local attorney, however, is focused on a much more focused area. They live in the same area that you do. Their children go to school with yours. You go to church with them. You see them at the park or at a restaurant downtown.

They are accessible and approachable.

This adds a level of transparency to an attorney because the people that he or she would represent are able to know him or her on a far deeper level than just how many millions of dollars have been won in settlements or how many successful bankruptcy declarations he or she has had.

Local Bankruptcy Attorneys Are Invested in Their Communities

This investment is both financial and social.

When you pay your local lawyer for the services they provide, that money is going to be used to pay bills including groceries for their family, a house payment on a loan from the local bank, tuition for their kids at the local community college or university, and charitable giving to local non-profit organizations.

This is an investment in the improvement of your community.

If you were to hire a lawyer who is part of a law firm that is centrally located in a distant city, then the money that you pay for legal representation may go to several different places. The community that you live in, however, will not likely be where this money ends up.

Local Bankruptcy Attorneys Know the Local Courts and Financial Services

The journey to financial freedom through bankruptcy is one that involves several meetings with financial counselors, standing before judges, and negotiating with creditors. 

Much of this involvement with bankruptcy happens at the local level.

A local bankruptcy attorney will be able to help you navigate these institutions better than almost anyone because they interact regularly with the same individuals in these organizations.

This interaction builds a natural bond of trust between your local lawyer and these institutions. As one who is represented by a local lawyer, that trust may then extend to you and give you more favorable conditions from which to work for financial freedom.

If you are a resident of Auburn, Opelika, or East Alabama and are looking to file Chapter 7 or Chapter 13 Bankruptcy, contact David S. Clark, a local bankruptcy attorney, today!

DISCLAIMER: The above blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.

Nov 18
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What Is Chapter 7 Bankruptcy?

By Bankruptcy Law, Understanding Bankruptcy No Comments

If you feel lost when researching Chapter 7 Bankruptcy, this quick guide is for you.

Chapter 7 Bankruptcy is defined by bankruptcy that relieves a debtor from his or her debts through the liquidation (the exchange of valuable assets like a home, car, television, etc. for cash) of assets and subsequent distribution of these assets to creditors.

DISCLAIMER: The following blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.

Need Bankruptcy Help? Call David S. Clark

Who Can File Chapter 7 Bankruptcy?

Individuals, partnerships, corporations, or other business entities can qualify for Chapter 7 Bankruptcy. However, not every individual, partnership, and corporation can file for bankruptcy.

In this post, we will focus only on individuals and how Chapter 7 Bankruptcy can affect them. 

There are a few requirements and restrictions on what an individual must do in order to qualify for Chapter 7 Bankruptcy:

  • First, someone seeking relief through Chapter VII Bankruptcy must be subject to a means test.
  • Secondly, a debtor must appear before the court and comply with court orders at least 180 days before the debtor wishes to file. Failure to do so will result in the case being dismissed without relief to the debtor.
  • A person who wishes to seek relief under Chapter 7 Bankruptcy must also receive professional credit counseling from a credit counselor that is approved by the court. This must happen at least 180 days before the debtor files. Failure to do this will result in the debtor’s case being thrown out and he or she will receive no relief.

How To File Chapter 7 Bankruptcy

An individual begins the process of filing Chapter 7 Bankruptcy by submitting a petition to the local bankruptcy court (click here to view an official bankruptcy court map). In addition to this, the person seeking relief must fill out several forms disclosing the entirety of their financial situation and history. These form include:

  • Schedules of assets and liabilities.
  • Schedule of current income and expenditures.
  • Statement of financial affairs.
  • Schedule of executory contracts and unexpired leases.

The debtor will then have to pay several court and service fees for filing. This is mandatory for everyone seeking debt relief under Chapter 7 Bankruptcy unless the individual’s income is less than 150% below the poverty level as defined by Bankruptcy Code.

If the debtor is married, he or she will have to fill out this information for his or her spouse regardless of whether or not they are filing jointly.

21 – 40 days from the date of petition, the case trustee (an impartial individual who is assigned by the state or federal government to administer the case and liquidate the debtor’s nonexempt assets) will meet with the creditors of the debtor. Here the trustee will subject the debtor to an oath and then the creditors will be able to ask any questions regarding the individual’s financial matters and property.

Helpful Chapter 7 Tips

It is very important that the debtor cooperates fully throughout the bankruptcy process with the bankruptcy court and the trustee assigned to the debtor’s case. This is especially true when the trustee calls the meeting of creditors.

Though the questions that will be asked will be difficult, complicated, and can sometimes be embarrassing, the debtor must submit fully to his or her oath of honesty. This will be to the ultimate benefit of the debtor and will hopefully end in his or her financial relief.

Additionally, If the debtor then recognizes that a different chapter of bankruptcy is more applicable and beneficial to the situation, he or she may be able to convert the case to the appropriate chapter so long as it has not already been converted from another chapter.

Filing for Chapter 7 Bankruptcy can be a scary process added on top of an already tumultuous time. Hiring a bankruptcy lawyer who is competent and compassionate can help relieve your stress during the filing process and can help you get the financial relief that you need. Contact David S. Clark today and get started on the road toward financial freedom!

DISCLAIMER: The above blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.

Sep 29
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What Is Chapter 13 Bankruptcy?

By Attorneys & Lawyers, Bankruptcy Law, Understanding Bankruptcy No Comments

In our last blog post we learned that Chapter 13 bankruptcy is known as ““Adjustment of Debts of an Individual With Regular Income.” Let’s explore a bit more what exactly that means and how it can help you regain control of your financial situation.

A Brief History of Chapter 13 Bankruptcy

In a previous article entitled, “How Bankruptcy Law Has Changed” we gave a more in depth recounting of the bankruptcy story.

Some of the facets of Chapter XIII Bankruptcy go back in the American experiment to the drafting of the Constitution (One could make a strong argument that American bankruptcy originated in English Common Law in the 16th Century).

Chapter 13 Bankruptcy, however, became a specific category of debt relief with the passage of The Chandler Act of 1938.

Since then, it has been one of the most common avenues for Americans to obtain debt relief.

DISCLAIMER: The following blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.

Need Bankruptcy Help? Call David S. Clark

How Does Chapter 13 Bankruptcy Work?

After deciding to file Chapter XIII, a debtor must file a petition with the bankruptcy court of the area in which he or she has a domicile (legal address) or residence.

After filing the initial petition a debtor must also file schedules of: liabilities and assets, current income and expenditures, executory contracts and unexpired leases, and a statement of financial affairs.

Debtors then have to provide the court with proof that they have received financial counseling from a court certified counselor along with a few other miscellaneous documents listed here.

Then, the debtor must give the Chapter 13 case trustee with his or her tax returns or transcripts, this must also include returns filed during the case.

The debtor will then have to pay a charge of $235 for a case filing fee and a $75 miscellaneous administrative fee. This, fortunately, can be paid through installments.

Next, the debtor must compile:

  1. A list of all creditors and the amounts and nature of their claims;
  2. The source, amount, and frequency of the debtor’s income;
  3. A list of all of the debtor’s property; and
  4. A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc. (Source: Chapter 13 – Bankruptcy Basics)

Then, the trustee will call a meeting with the debtor and all creditors. The debtor will be placed under oath, then be subjected to a series of questions from the trustee and creditors. During this meeting the actual disbursement plan is completed.

Following the trustee and creditor meeting, the court will hold the bankruptcy hearing.

After a confirmation of the plan by the bankruptcy court judge, the Chapter 13 plan will be implemented and it is up to the debtor to see that it is carried out to full success.

*Note that married couples can file jointly or separately.

Who Can File for Chapter 13 Bankruptcy?

Chapter XIII is fairly inclusive as to who can apply for it.

Here are the basic qualifications:

  • Debtor must have proof of regular income.
  • Unsecured debts can be no greater than $394,725.
  • Secured debts can be no greater than $1,184,200.

Benefits of Chapter 13 Bankruptcy

  • Because of the development of a legally binding debt payment plan with Chapter 13 bankruptcy, debtors are allowed to keep certain assets out of reach from creditors.
  • It allows a debtor to pay past-due payments like taxes, child-support, and alimony while protecting co-signers and allowing you to reduce debts like student-loan debt.

If you are considering filing for Chapter 13 bankruptcy, contact David S. Clark today!

DISCLAIMER: The above blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.

Sep 09
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Questions To Ask Your Bankruptcy Lawyer

By Attorneys & Lawyers, Bankruptcy Law, Understanding Bankruptcy No Comments

Filing for bankruptcy is usually a journey into the unknown for many. So when beginning, you should have a few questions ready to ask your lawyer so that you can get started in the right direction.

What Type of Bankruptcy Should I File?

Not all bankruptcy is created equal. 

There are so many different forms of bankruptcy. Figuring out which specific type, or chapter, you should file for can be a daunting task.

You should ask your attorney which type of bankruptcy is right for your situation. The offices of David S. Clark deal with Chapter 7 and Chapter 13 bankruptcy cases.

DISCLAIMER: The following blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.

Need Bankruptcy Help? Call David S. Clark

What’s the Difference Between Chapter 7 and Chapter 13 Bankruptcy?

Chapter 7 Bankruptcy is also known as “Entitled Liquidation.” 

This means that a court supervised trustee takes over the assets of a debtor’s estate, turns them into cash (liquidates them), then distributes funds to creditors. In Chapter 7 the debtor has rights to make certain assets exempt.

Since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 those seeking Chapter 7 Bankruptcy must undergo a “means test” to determine whether or not they qualify. There are income thresholds that, if a debtor exceeds, will disqualify the debtor from being able to declare Chapter 7 Bankruptcy.

Chapter 13 Bankruptcy is also known as “Adjustment of Debts of an Individual With Regular Income”

This is usually a more desirable avenue for debt relief than Chapter 7 because it enables a customer to keep certain valuable assets out of a creditor’s reach. The debtor then proposes a plan to repay creditors over a reasonable period of time.

Does Your Attorney Have a History of Success for His or Her Clients?

There are countless bankruptcies lawyers offering their services, but that does not necessarily mean that they have proven experience actually helping to get clients back on their feet.

Ask your lawyer about their case history. They should be able to provide you with a list of past clients that can reference how your lawyer worked with them.

Should I Even File for Bankruptcy?

While bankruptcy can be a helpful tool to help you get out of crippling debt, it may not be the right thing to do in your situation. 

There are several other ways to climb out of the hole of debt and your attorney should be able to give you adequate information about those.

Some of these other options include:

  • Debt Consolidation
    • This involves “rolling” all of your existing debts into one lump sum and is  helpful if you are able to refinance it at a lower interest rate and keep the rate low.
  • Foreclosure
    • This is selling an asset in order to pay back a creditor.
  • Wage Garnishments
    • This is where a person’s earnings are withheld by an order of the court to go directly to repaying debts.

The answers to these questions are not always clear. 

They are sometimes difficult to navigate. 

So having an attorney that will know in which direction to point you is crucial during a time of financial difficulty. What’s more is the importance of having an attorney who will take the time to listen to you and your situation, then inform you on what the best path forward for you is.

DISCLAIMER: The above blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.

Jul 07
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How Bankruptcy Law Has Changed

By Bankruptcy Law, Understanding Bankruptcy No Comments

How Bankruptcy Law Has Changed

What you need to know about the history of bankruptcy in America 

Bankruptcy law in America has a long, storied history. It would take a whole section in the Library of Congress to give a full description of that history. So, we are going to summarize that information for your convenience.

DISCLAIMER: The following blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.

Need Bankruptcy Help? Call David S. Clark

When It All Started

1787.

This is the year that the United States Constitution was drafted and signed by all 13 states. Bankruptcy is enshrined in the U.S. Constitution (Article 1, Section 8). It gives congress the right to establish “uniform Laws on the subject of bankruptcies throughout the United States.”

Developments Over the Next 150 Years

As with all political matters, bankruptcy policy was subject to years of troubled debate. In 1800, Congress passed the Bankruptcy Act. This gave district judges the authority to create commissions to help oversee bankruptcy cases. However, too much power was given to creditors in this act. Because of corruption and high expenses, this act was repealed only 3 years later. For 30 years after, states took up the responsibility to regulate bankruptcy law.

In 1839 a development took place which was very favorable to those in large amounts of debt. A federal law outlawed imprisonment for debt. Can you imagine that? Without this law those looking to file bankruptcy would have the added stress of possible imprisonment for their debt!

In 1841 Congress passed a new Bankruptcy Act. This act was very similar to the Bankruptcy Act of 1800. This law, though, gave significantly more rights to those in debt than the original act gave. Some of these included:

  • Allowing those who owe money to file for bankruptcy, rather than just the creditors initiating a bankruptcy case
  • Allowing personal assets to cover as collateral for debts
  • Allowing debtors in any type of industry to file for bankruptcy

This act, though, was repealed only 2 years later.

Two more Bankruptcy Acts were signed into law over the next  50 years.

Each of these acts essentially stipulated more protections and rights for debtors in bankruptcy cases. Each of these acts were relatively more successful than their predecessors in that they survived as law for a combined 111 years.

This success was due in large part to the lessons learned in bankruptcy law in the early days of our Constitutional experiment. 

The Chandler Act of 1938 was another factor that helped the latter Bankruptcy Act to last for so long.

This act categorized previous reorganization amendments to the 1898 law into “Chapters”

  • Chapter X for corporate reorganizations
  • Chapter XI for arrangements
  • Chapter XII for real property arrangements
  • Chapter XIII for wage earner plans

The Bankruptcy Reform Act of 1978

When signed into law bankruptcy was further federalized. The president was given the responsibility of assigning bankruptcy judges to serve 14 year terms. It also consolidated Chapter X, XI, and XII Bankruptcy into Chapter XI bankruptcy.

This act stood only for about 15 years.

The Bankruptcy Reform Act of 1994

Simply put, this act gave the district bankruptcy courts more legal authority to investigate proceedings by creating appellate panels.

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

The 2005 law is still in effect today, so it is the most important for those seeking bankruptcy to understand.

This act substantially altered the 1978 and 1994 acts by:

  • Creating a means test for debtors
  • Mandating credit counseling for relief plans
  • Requiring financial management training for Chapter 7 and Chapter 13 debtors
  • Permitting immediate dismissal for failing to file required documents

There were also several other revisions to the law, but the aforementioned are the most pertinent to those seeking bankruptcy today.

Although bankruptcy has been a part of our nation even before the U.S. was a one, it has evolved throughout the centuries into an institution that is capable of helping anyone out of many seemingly lost financial situations. For the most part, the changes that have occurred have been with the debtor in mind. Bankruptcy today is for you.

DISCLAIMER: The above blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.

Feb 25
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What to Avoid When Filing for Bankruptcy?

By Bankruptcy Law, Understanding Bankruptcy No Comments
Common Mistakes When Filing Bankruptcy

What to Avoid When Filing for Bankruptcy?

Bankruptcy is a solution to changing your financial situation and alleviating current debts. To make bankruptcy a positive experience, understand what to avoid when you decide to go through the bankruptcy process.

DISCLAIMER: The following blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.

Need Bankruptcy Help? Call David S. Clark

Filing for Bankruptcy

Bankruptcy can be a complicated process that entails careful consideration of your finances and a clear understanding of rules that should be followed. Whether a mistake is made by accident or through innocence, a bankruptcy court may hold you responsible and it could hurt your case. Before filing bankruptcy, contact a local attorney to guide you through your case and help you understand some common mistakes to avoid.

Not Consulting a Local Attorney

A common mistake people make is not considering how long and complicated the bankruptcy process may be and underestimating the benefit of hiring a local attorney to help navigate the process. Bankruptcy laws are consistent among every state, but each state may have exemptions. If filing in Alabama, a resident can avoid errors with filing and understand how to benefit from their state’s exemptions by consulting an attorney who is familiar with local laws rather than filing on their own. 

Transferring Assets

There is no easy way out of debt when filing for bankruptcy. It is best to be completely honest about what assets you may own rather than transferring them to different accounts or family members. Placing a car title in a spouse’s or child’s name will not protect that asset from a bankruptcy court’s decision. Making transfers of assets is a red flag for courts since it can be viewed as dishonest or fraud. Bankruptcy does not mean total loss of assets and your attorney will be able to advise you on managing assets during a bankruptcy case. 

Giving Away Assets 

There is a misconception that giving rather than transferring an asset to a friend or family member during bankruptcy may be acceptable. This is a warning sign to bankruptcy courts that you are engaging in dishonest activity and will negatively impact your chances of being able to keep that asset. 

Use of Credit Cards 

When filing for bankruptcy, credit card use should be suspended. As a bankruptcy case proceeds, the court may view the use of credit as acquiring more debt. When this happens, the credit card company has to be listed as a creditor on your paperwork or you may be accused of fraudulent borrowing during your bankruptcy case. Consult with an attorney on how to pay normal living expenses with a debit card and minimizing or eliminating the use of credit cards. 

Using Retirement Funds 

During the bankruptcy process, retirement funds will be exempt and an attorney will guide you on how to protect those assets. Many assume the best way to use a retirement account is to start draining the money to pay off debts. Paying off certain debts is not permitted when you have filed for bankruptcy. It will cause more legal trouble for you and the loss of money that would have been protected otherwise. 

Failing to Understand the Bankruptcy Process 

Bankruptcy is a process that should be left to attorneys who specialize in these cases. Not all debts can be solved by filing for bankruptcy and even when they do, it may not be the right time to file for bankruptcy. In the state of Alabama, those planning to file for bankruptcy are responsible for meeting certain requirements, gathering paperwork, and considering your assets. Consulting with an attorney before you begin to file, ensures you understand bankruptcy and what you will need to do to go through the process. 

If you are considering filing for bankruptcy, contact a local bankruptcy attorney to understand what errors to avoid before filing and receive the best guidance for your case.

DISCLAIMER: The above blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.

Jan 28
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Foreclosure vs. Bankruptcy

By Bankruptcy Law, Understanding Bankruptcy No Comments

While foreclosure and bankruptcy are familiar terms to most, the difference between the two is often difficult to determine, because one can often lead to another within the process of working with the bank. Filing bankruptcy has the option of giving or surrendering the property back to the bank. When the bank takes the home from you, that is forclosure. 

The main difference between bankruptcy and foreclosure is whether or not the person will owe money to the bank after the process is complete. Within the process of filing bankruptcy, forclosure is likely to happen in order for the title to be cleared and for the bank to sell the house. In this case, the homeowner no longer owes the bank anything. If a foreclosure is forced on the homeowner, they can end up owing the difference in the mortgage and the price of the home in a foreclosure sale. 

Uderstanding the differences between bankruptcy and foreclosure and the process of each, what happens when you decide to go with one over the other and what it looks like when bankruptcy leads to foreclosure and temporary and lasting impacts on your financial life and credit score can be beneficial moving forward. 

What does everything mean?

Different states have different laws, but the concept of bankruptcy is similar across the board in the context of a mortgage. A mortgage is a loan from a bank to help in the financing of a home. When you sign a mortgage agreement, you agree to pay off the loan you took out plus interest. The home is called “collateral” within the agreement. You sign a statement saying the bank can take the home from you if you do not meet the terms of the agreement. This where the term collateral is enforced. 

The largest term in a mortgage agreement is making the required monthly payments to the bank. Monthly payments consist of a certain amount and include interest.  If payments are not met, the bank will foreclose on your home and become the new owners of the property. Falling behind on the monthly payments leads to potentially having to declare bankruptcy and makes the bank the new owner of your home

Filing for bankruptcy stops all collectors from collection lawsuits or forced foreclosure on your home. You do have the option to sell your house back to the bank in order to pay off debts.  Turning your home over to the bank voluntarily after filing for bankruptcy is considered “surrendering” your home.

What happens after?

When you file bankruptcy and choose to surrender your home to the bank, foreclosure still takes place. Your things will be sold in an auction in order to cover the loan you took out to cover the collateral. The difference in foreclosure and surrendering is that after you have surrendered the home to the bank, you are done and no longer owe the loan payment. In a foreclosure, the house is sold and if the price it is sold for is deemed acceptable, you do not owe anything else. If the payment is not deemed acceptable, you will be required to pay the difference in can be charged in the form of a lawsuit. 

Bankruptcy can stay on your credit report for 10 years, but bankruptcies don’t have a separate section on the reports. Filing and completing a bankruptcy claim can take your credit score down 130-240 points. Foreclosure can stay on your report for seven years. Lenders take foreclosure records and these reports very seriously. Foreclosure can drop your credit score down 85-160 points. Missed payments can also drop your credit score 75 points.

 

Choosing to fight foreclosure or file bankruptcy is up to you, the individual. Each situation is different and has many moving parts that are up to the person to decide what to do. Whatever you decide, make sure you have a reliable and trusted bankruptcy lawyer that can help you make the most informed decision possible in the circumstance and provide you the best outcome. For more information, check out the National Bankruptcy Forum website.

DISCLAIMER: The above blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.

Dec 10
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Facing Foreclosure? Consider Filing Bankruptcy

By Bankruptcy Law No Comments
Back to Basics

Can filing Bankruptcy delay or stop a Foreclosure?

When you’ve fallen behind on your mortgage payments, you could be at risk for foreclosure. Fortunately, there are ways you can possibly delay or avoid foreclosure on your home. One of these ways is filing for bankruptcy. Both chapter 7 and chapter 13 can possibly help you in delaying or avoiding bankruptcy. Consider the following information and consult a legal professional to help you select the best option for you.

DISCLAIMER: The following blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.

Need Bankruptcy Help? Call David S. Clark

Foreclosing Process

The process of foreclosure usually won’t begin until you have missed three or four payments on your mortgage. When it begins, the lender has to follow all of your state’s laws and procedures before he or she can sell your home at auction. The money from this sale is applied by the lender to the remainder of your mortgage balance. The collection of a deficiency balance will depend on the laws in your state. However, you have some time to try some solutions such as loan forbearance, a short sale, or a deed instead of foreclosure before the process begins. If none of these work for you, it may be time to consider filing for bankruptcy. 

Chapter 7 Delays

When you file for either chapter 7 or chapter 13 bankruptcy, the court automatically issues an order of relief. The order of relief activates “automatic stay”– which temporarily prohibits creditors from pursuing their collection immediately.

Once bankruptcy is filed, the court will issue an Order of Relief. The order includes and activates an “automatic stay” that prevents creditors temporarily from trying to collect from you. This is true for either chapter seven or chapter thirteen bankruptcy. If you file for chapter seven after a lender has scheduled a foreclosure sale for your home, the automatic stay will legally postpone the sale for a few months while the bankruptcy is pending. This is not guaranteed to last. If the lender appeals to the court with a motion to lift the automatic stay and it is approved, you will not get the typical three to four months of delay on your foreclosure. 

Chapter 13 Help

The only way to be able to keep your home is if you file chapter 13 bankruptcy. Filing chapter 13 means you will pay off your debt with a financial plan which you propose– usually over a period of five years. You will pay your regular mortgage and arrearage (the late unpaid payments), so you’ll need to make sure you have the income to cover both of those payments.

If you think filing for bankruptcy will help you, contact your local professional bankruptcy lawyer to get the expert assistance you need and the best plan and results for your case

DISCLAIMER: The above blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.

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