Bankruptcy

What is this new law?

The new bankruptcy laws that went into effect in October 2005 still offer good protection for financially challenged families in North Carolina. The bankruptcy laws have been through many similar reforms over the years, but remain a strong critical option when payments on debts are just too high in proportion to income. Attorney Rod A. Vujovic and his staff have attended many bankruptcy seminars and continuing legal education classes in order to stay updated on the latest developments in consumer bankruptcy law, so we can continue giving our clients a fresh new start through bankruptcy.

Just when Congress revised the bankruptcy laws to prevent abuse by those able to pay their debts, our North Carolina legislature raised the amounts you will be allowed to claim as exempt property in your bankruptcy. That means that you will be able to retain more equity in your house, vehicle, and other property than before the new law. For example, under the old law you would not be able to file a Chapter 7 bankruptcy without losing your house if the equity exceeded $10,000 per spouse. Under the new exemptions, a full $35,000 per spouse of home equity would be protected. In many cases, a widowed spouse can protect up to $60,000 in home equity. For your car, each spouse can protect $3,500 of equity, up from only $1,500 per person before. In addition to these and other exemptions, there is a special “wild card” exemption that may allow each spouse to protect $5,000 in any property, including any extra value in your car. There is even an additional $5,000 exemption per spouse, and an additional $1,000 per dependant, that can be used to protect “household goods”. If the equity in any of your property exceeds these North Carolina exemption amounts, you might be able to file Chapter 13 bankruptcy and still keep your property. We will review your individual situation and advise you as to your best option.

What is a Chapter 7 Bankruptcy?

Chapter 7 is the most common form of bankruptcy. It is also the simplest to file. In a Chapter 7 bankruptcy, you will not repay many of your debts, and your creditors will be forbidden to attempt collection from you.

Unsecured debts such as credit cards, medical bills, personal signature loans and all other loans and debts that are not secured by collateral are generally discharged (meaning gone forever!) in a Chapter 7 bankruptcy.

Certain debts are not dischargeable, including any debt that is not listed in your schedule of creditors, certain taxes, alimony, child support, criminal debts, student loans, and a few others. We can help you to determine whether or not a debt will be eligible for discharge.

What is a Chapter 13 Bankruptcy?

Chapter 13 is also known as a reorganization or consolidation bankruptcy, because your debts are reorganized into a payment plan over 3 to 5 years. At the completion of the Chapter 13 plan, your debts will be discharged, much like in the Chapter 7.
People with problems with secured debt are frequently better off filing a Chapter 13 case than a Chapter 7 case because the Chapter 13 will allow the debtor to pay off the past-due secured debt over time. Chapter 13 allows you to stop the foreclosure of your home or repossession of your car and get caught up on the past-due payments over a period of years, rather than all at once. Once your Chapter 13 case has been filed  your future mortgage payments will be made through your Chapter 13 case plan along with the past due payments. The past due amounts will be paid at 0% interest.
In Chapter 13, the automatic stay also protects people other than the debtor who are “co-debtors.” Co-debtors are people who also have an obligation to pay the same debt as the debtor. That includes people who have guaranteed or co-signed the debt for the debtor.

Certain debts that would not be dischargeable in a Chapter 7 might be handled in a Chapter 13. We will advise you on whether Chapter 13 would be appropriate for you, depending on your income, assets, and type of debts.

Do I Get To Keep My Property?

You are entitled to keep a generous amount of your belongings when filing bankruptcy. North Carolina law now provides higher personal exemptions–items that are protected from seizure by your creditors.

You will be allowed to keep a certain amount, usually all, of your household goods with a current market value of $5,000 per spouse, plus $1,000 per child. Other essential items (see below) may also be protected if they fall within the exemption guidelines.

Can I Keep My House?

North Carolina law allows each spouse or individual to keep $35,000 equity in a homestead. A homestead is defined as your personal residence (mobile home or house plus land) that you are living in at the time of the bankruptcy filing. Equity is determined by subtracting the amount that you owe on your mortgage(s) from the fair market value of your home.

If your home equity does not exceed $35,000 ($70,000 for married couple and many widowed spouses) you should not have a problem keeping your home in a Chapter 7, as long as you are current on your house payments both at the time of filing and also in subsequent months. If your equity exceeds the allowed exemption or if you are behind in your payments, a Chapter 13 might allow you to save your home.

The automatic stay protects you from foreclosure of your house during the time your bankruptcy case is open. However, if your payments fall behind after filing, the bank may ask for court permission to lift the automatic stay and begin foreclosure proceedings

To help determine the value of your home, review any recent appraisals of your home, or check with your county tax department for the current tax value assessment of your real property.

Can I Keep My Vehicle(s)?

North Carolina state law allows each individual to keep $3,500 equity in a motor vehicle. To determine the amount of equity you have, we will need an accurate current RETAIL market value of all of your vehicles as well as the payoff amount. You may obtain the retail value of your vehicle online for free at www.nadaguides.com — If your equity exceeds the $3,500 mark, other exemptions might allow you to protect up to $8,500 in your vehicle equity.

If you have a loan on your vehicle, you MUST keep the payments current during and after the bankruptcy to avoid repossession.

If your car is “upside down,” meaning you owe more than it’s worth, we recommend that you look into the possibility of surrendering the vehicle, which allows you to get out from under that crushing monthly debt and purchase or finance a less expensive car after bankruptcy. Another possibility is to “redeem” the vehicle by paying the current retail value of the vehicle, and the remaining loan balance would be discharged. We may be able to assist you in finding a lender that will give you a new loan to pay this redemption amount to your existing lender, which could save you thousands of dollars compared to your current vehicle loan.

Will I Lose My Retirement Savings?

Most retirement savings plans are protected by the Employee Retirement Income Security Act (ERISA), and are fully protected in bankruptcy. We can help you determine whether your specific retirement account will be protected in bankruptcy so you can keep the savings intact for your retirement. Also, Individual Retirement Accounts (IRAs) are generally fully protected in bankruptcy.

When Will The Harassing Phone Calls From Creditors Stop?

The automatic stay goes into effect the moment your bankruptcy petition is filed. Once our office has prepared your bankruptcy petition and you have thoroughly reviewed and signed it, your bankruptcy petition will be filed electronically with the bankruptcy court, meaning that we can get a case number instantly. At this point, creditors must stop contact with you, including telephone calls, letters and all legal actions. You and your creditors will receive an official notice from the United States Bankruptcy Court.

Will My Bankruptcy Filing Be Published In My Local Newspaper?

A list of bankruptcy filings is not published in the newspaper here in our local area. However, bankruptcy information is part of the public record, just like state court proceedings. Bankruptcy matters are handled in federal court, with documents filed with the Clerk of the United States Bankruptcy Court in either Charlotte or Asheville. Depending upon which county you live in, your court appearance will be held at the federal courthouse in Wilkesboro, Asheville, or Shelby.

Will I Ever Get Credit Again?

rather than the tens of thousands of dollars that you may currently owe, and may reflect better than repossessions, foreclosures or even late payments. Bankruptcy will typically improve your debt-to-income-ratio, which is an important factor that many creditors consider when extending new credit. Although a bankruptcy can remain on your credit report for up to 10 years, most people resume normal credit activities immediately after receiving their discharge. The interest rates may not be prime, and some waiting periods may apply, but you can begin re-establishing your credit immediately, as long as you stay current on your payments. However, we will counsel you to change your spending habits to get away from dependence on credit and avoid the credit trap in the future.

For articles, resources, and support to help you responsibly establish credit after bankruptcy, visit www.lifeafterbankruptcy.com – a web site by Stephen Snyder, Founder of the After Bankruptcy Foundation and author of Credit After Bankruptcy.

Some Bankruptcy Law Requirements

Means Income Testing

The 2005 revisions to the Bankruptcy Code have created an income-based test for measuring a debtor’s ability to repay debts. Under the means test, those with insufficient income in proportion to their debts can still file a Chapter 7 bankruptcy, which erases your unsecured debts entirely under most circumstances. The means test compares the debtor’s excess monthly income to the amount of unsecured debt to determine how much a debtor could repay to creditors if he were in a Chapter 13. Because this calculation is hypothetical and does not necessarily reflect the debtor’s true financial condition, a debtor who appears to be able to repay the minimum portion of his debts but who, in reality, cannot, may be permitted to stay in a Chapter 7 case. Unfortunately, the means test is more complicated than we can explain well here.

Credit Counseling

The new law requires credit counseling before and after the case is filed. Our firm has investigated the least expensive and most convenient methods to fulfill this requirement, which includes online and telephone options available in the comfort of your own home and on your schedule. We will help you through this process as part of our program.

Disclosures

When you come to our office, we will give you some documents to read explaining the types of bankruptcies available and some of the relevant legal provisions required by the United States Bankruptcy Code. You will be asked to sign a statement that you have read and understand the disclosures. We will also sign an agreement with you regarding our representation duties and fees. Some documents will be required before we can file your case with the bankruptcy court, such as paycheck stubs, tax returns, real estate deeds, car titles, etc. (we will give you a checklist of required documents).

Rod A. Vujovic, Attorney at Law, PA is a federally designated Debt Relief agency, assisting consumers seeking relief under the United States Bankruptcy Code. Attorney Rod A. Vujovic is a member of the North Carolina Bar Association Bankruptcy Section and the National Association of Consumer Bankruptcy Attorneys (NACBA), which enables him to stay updated on the latest developments in consumer bankruptcy law in North Carolina and throughout the United States.

Top 16 Myths

Myth 1: There’s no more bankruptcy (or it’s too late to file).

NOT TRUE. In fact…nothing could be further from the truth. Sure you heard it in the press, but it’s just not true. The news media overcooked the whole story. The truth is that you can do almost everything under the NEW law that you could do under the OLD law. In some ways, the new law actually increased the benefits of filing bankruptcy. Call us now to find out more.

Myth 2: Everyone will know you have filed for bankruptcy.

Unless you’re a prominent person or a major corporation and the filing is picked up by the media, the chances are very good that the only people who will know about a filing are your creditors and the people who you tell. While it’s true that your bankruptcy is a matter of public record, the number of filings is so massive, that unless someone is specifically trying to track down information on you, there is almost no likelihood that anyone will even know you filed. However…telling someone that someone else filed bankruptcy is good gossip…just like telling someone you heard so-and-so is getting a divorce. So…if you don’t want everyone you know to know you filed bankruptcy….you need to keep the information to yourself. As for newspapers…our experience is that papers in this local area don’t include information about local people who filed bankruptcy…. and even if they did…think about it….who would be interested enough to read that stuff.

Myth 3: You will lose everything you have.

Nothing could be further from the truth. The fact is….most people who file bankruptcy don’t lose anything.

First….while laws vary from state to state, every state has exemptions that protect certain kinds of property. Using North Carolina as an example…..there are exemptions to protect such things as your house, your car, your truck, household goods and furnishings, IRAs, retirement plans, the cash value in life insurance, wages, and personal injury claims. There is even a “wildcard” exemption of $5,000 per person that can be applied wherever you want it. In those rarer situations where you have more property than can be protected by available exemptions…there is Chapter 13. In Chapter 13…you can even keep this property by paying a higher Chapter 13 plan payment.

Second….filing bankruptcy does not generally wipe out liens. Therefore…if you want to keep a car, truck, home or business equipment that serves as collateral for a loan….you need to keep paying on the debt. If you make these payments and have exemptions to cover any value above what is owed….you can rest assured you will be able to keep these items.

Myth 4: You will never be able to own anything again.

A surprising number of people believe this…but this is completely false. In the future…you can buy, own and possess whatever you can afford.

Myth 5: You will never get credit again.

Quite the contrary. Filing bankruptcy gets rid of debt….and getting rid of debt puts you in a position to handle more credit….and this makes you look more attractive to would-be lenders. In our experience…..unfortunately….it won’t be long before you’re getting credit card offers again. We say “unfortunately” because we don’t want you to get right back in debt again. At first…the would-be lenders will want more money down and will want to charge you higher interest rates. However….over time….if you are careful, and keep your job, and start saving money, and pay your bills, and do things that will put good marks on your credit report….the quality of your credit will get better and better. Generally…in our experience…if a client has not re-established good credit in 2 to 4 years…sufficient to buy a car or even a house….it’s not because they filed bankruptcy. It generally means that something else has happened after the bankruptcy to hurt their credit.

Myth 6: Filing bankruptcy will hurt your credit for 10 years.

Not true. You are getting 2 completely different concepts confused with each other. You are getting the fact that bankruptcy is reported on your credit report for up to 10 years mixed up with the effect that reporting will have on your credit. Just because something is reported on your credit report does NOT necessarily mean it will have a negative effect on your credit standing. First…let’s get one thing out in the open. By the time you need to make an appointment to see a bankruptcy attorney…..your credit is already messed up or maxed out…or both. This being the case….you have no credit for bankruptcy to hurt. Furthermore…as mentioned above…in our experience…if you have not re-established good credit in 2 to 4 years after you file bankruptcy…..most likely….it has nothing to do with the fact that you….once upon a time….filed bankruptcy…and it certainly has absolutely nothing to do with the fact that your credit history still shows an old bankruptcy.

Myth 7: If you’re married…both you and your spouse have to file for bankruptcy.

Not true. In many cases…where both husband and wife have a lot of debt….it makes sense and saves money for them to both file….but it is never a requirement under the law. We have many cases where only one spouse has filed. The good news is that generally….if it makes sense for both spouses to file together….they can both file for the price of one filing.

Myth 8: It’s really hard to file for bankruptcy.

No….it’s not….at least not in the hands of an experienced bankruptcy attorney. In the hands of an experienced bankruptcy attorney…filing bankruptcy is easy. The decision to file may be hard…but once the decision is made…the filing part is easy.

Myth 9: Only deadbeats file for bankruptcy.

Not true. Most of the people who file bankruptcy are good, honest, hard-working people…just like you….who file as a last resort….after months or years struggling to pay the bills that are left over from some life-changing experience, such as a divorce, the loss of a job, a failed business venture, a serious illness, or some family emergency…or because they honestly and mistakenly fell into debt at a young age before they knew better…before they knew anything about budgeting or how to manage money.

Myth 10: Filing bankruptcy means you’re a bad person.

Not true. There’s a reason over 1,000,000 Americans file bankruptcy each year…and it’s not because they’re bad people. Lots of good, honest, hard-working people fall on hard times. Let’s face it….life can be brutal….and sometimes…the money’s just not there. The bankruptcy laws were created with this in mind…to make sure you have a way….if need be….to get free from the burden of debt…so that you…and your family….can have a second chance at a “fresh start”.

Myth 11: Filing for bankruptcy will hurt your credit.

That’s not true. Think about it. As mentioned in Myth #6 above, by the time you come to a bankruptcy attorney….your credit is already either messed up or maxed out. And if it’s already messed up or maxed out….how can bankruptcy hurt it?

The big surprise for our clients is when we tell them that filing bankruptcy can actually help them re-build their credit. Bankruptcy gets rid of debt….and getting rid of debt puts you in a better position to handle new credit….if only someone will give it to you. Therefore….bankruptcy is the first step in the process of re-building your credit.

Myth 12: Even if you file for bankruptcy, creditors will still harass you and your family.

This is NOT true. In fact, nothing could be further from the truth. The minute you file bankruptcy, the Bankruptcy Court issues an order telling all of your creditors to leave you alone. No more phone calls. No more collection letters. No more lawsuits. No repossessions. No foreclosures. Nothing. This order has a name. It is called the “automatic stay”; and it is issued pursuant to 11 United States Code, Section 362. The automatic stay protects you from any and all collection actions. After you file bankruptcy, the creditor is not even allowed to talk to you. In addition, the creditor must stop any collection attempts already started. The automatic stay is very powerful, and puts the full weight of the United States Courts to work for you, to make sure your creditors leave you alone. If a creditor violates the automatic stay, you have the right to bring the creditor before the Court for Contempt of Court, and to be compensated accordingly. Bankruptcy Court Judges do not take kindly to creditors who ignore the automatic stay, and these Judges have been known to punish creditors severely. Very simply, once you file for bankruptcy, creditors must leave you alone or suffer the consequences.

Myth 13: If you file for bankruptcy, it may cause more family troubles and may even lead to divorce.

This is NOT true. Usually, it works just the opposite. Filing bankruptcy is not the problem. The problem is not being able to pay your bills. All good, honest, hard-working people feel a strong need to pay their bills, and not being able to do so causes them to feel tremendous stress. Unless you do something to relieve this stress, the stress can quickly build to the breaking point….the marriage breaking point. Bankruptcy is designed to get you out from under the burden of debt, to protect your property and to lower your stress level. If your experience is like that of other couples, you will find that filing bankruptcy… and lowering the stress level…. can be a crucial first step in bringing the love and caring back into your relationship….which…..in turn…..gives your marriage a fighting chance.

Myth 14: You can’t get rid of back taxes through bankruptcy.

We get rid of old “income” taxes for our clients all the time. By “old”…I mean income taxes more than 3 years old. Under the law…there are 3 or 4 qualifications that have to be met….but once these are met….these taxes are gone. Please note: Filing bankruptcy does NOT get rid of withholding or sales taxes…no matter how old they are. Also, tax liens are not discharged in a Chapter 7 bankruptcy.

Myth 15: You can only file once for bankruptcy protection.

Not true. In many cases…where both husband and wife have a lot of debt….it makes sense and saves money for them to both file….but it is never a requirement under the law. We have many cases where only one spouse has filed. The good news is that generally….if it makes sense for both spouses to file together….they can both file for the price of one filing.

Myth 8: It’s really hard to file for bankruptcy.

The truth is….you can only file for a Chapter 7 bankruptcy once every 8 years….but after 8 years…if need be…you can file again. As for filing a case under Chapter 13 of the Bankruptcy Code….there is no 8 year restriction. Hopefully…however…you will never need to file more than one bankruptcy.

Myth 16: You can pick and choose which debts and property to list in your bankruptcy.

I’m sorry…but you can’t. Doing so would be against the law. Under the law…when you file bankruptcy…you have to list ALL your property and ALL your debts. Most people want to leave out a debt because it is their intent to keep paying on it. The good news….is that you can achieve the same goal, even though you have to list the debt. If you want to keep paying on a debt…after bankruptcy….you can. After bankruptcy….you can go back and pay anybody you want. In fact…after you file bankruptcy….there are some debts you have to keep paying on. For instance….if you have a car, truck or house loan….even though you list the debt in your bankruptcy….if you want to keep the car, truck or house….you have to keep paying on the debt. More importantly….you need to know this: As long as you stay current on the loan…and keep the property properly insured….you are protected under the law …. and you get to keep the property….because…under the law…the creditor is stuck with you and can’t do anything about it.

Other Useful Links

www.hummingbirdcreditcounseling.orgInternet-based credit counseling and Financial Management
www.annualcreditreport.comFree credit reports from Equifax, Experian, and TransUnion
www.nadaguides.comFree valuations for cars, trucks, motorcycles, ATVs, boats, and campers
www.lifeafterbankruptcy.comResources to help you responsibly establish credit after bankruptcy
www.myfico.comLearn how your credit scores are calculated; subscription-based monitoring of scores
www.ftc.gov/bcp/conline/pubs/credit/repair.shtmHow to dispute inaccurate credit report information
www.clarkhoward.comFinancial and consumer advice from a nationally-respected radio talk show host
www.suzeorman.comAuthor of several popular books on personal finance and consumer topics
www.nacba.orgNational Association of Consumer Bankruptcy Attorneys