Even the hardest workers and the most diligent bill-payers can find themselves with more debts than they can pay as they become due. In such cases, filing bankruptcy may provide a solution to what seems like an insurmountable problem. If you or someone you know is facing serious financial challenges, it is very important to seek the counsel of an experienced bankruptcy attorney. Once considered a last resort, bankruptcy has evolved into an accepted method of resolving serious financial problems. The bankruptcy lawyer's goals are to help debtors make a fresh start and ensure that creditors get paid what you are able to pay them. A skillful attorney can guide you through the complicated legal maze of bankruptcy.
At Espy, Metcalf & Espy, P.C., each attorney will personally handle each and every bankruptcy client with dignity, expertise and confidence. We have over 46 years of combined legal experience and we welcome the opportunity to lift the burden of debt from you shoulders. Bankruptcy provides the most efficient, universal mechanism to address your financial woes. Bankruptcy law is primarily federal in origin and therefore varies little from state to state. The United States Constitution grants to Congress the power to establish uniform bankruptcy laws throughout the United States, which ensures consistency and predictability in how bankruptcy proceedings are conducted. The individual states do, however, retain jurisdiction over certain debtor-creditor issues that are not addressed by and do not conflict with federal bankruptcy law, such as which property remains "exempt" (i.e., protected) from creditors' claims.
When Congress created Bankruptcy law, it saw fit to divide it into "Chapters", like a book: Chapter 7, Chapter 9, Chapter 11, Chapter 12 and Chapter 13. Each Chapter is intended to address certain debt scenarios. The firm of Espy, Metcalf & Espy, P.C. is the only firm south of Montgomery, Alabama that has successfully completed thousands of personal and business bankruptcies, including:
- IndividualChapter 7 bankruptcies;
- Business Chapter 7 bankruptcies, small and large;
- Individual Chapter 13 bankruptcies to save homes or payoff a portion of debt in an structured fashion;
- Chapter 11 personal bankruptcies to save property and other assets for individuals with more debt than is allowed in a Chapter 13;
- Chapter 11 business bankruptcies to save and reorganize businesses;
- Chapter 12 farmer bankruptcies to save and reorganize farming operations.
Nevertheless, certain debts survive bankruptcy. For example, as a general rule taxes survive bankruptcy as to student loans. Uncle Sam tends to look after Uncle Sam. Moreover, you cannot get out of DUI debts, criminal fines and restitution, back child support, alimony, embezzlement, larceny, and any and all fines and/or restitution associated therewith or credit card fraud and abuse. Despite the foregoing inability to "discharge" these debts, certain Chapters of bankruptcy such as 11 and 13 can provide a structure means to address these debts in full.
With the filing of any chapter of bankruptcy, the debtor will have to attend a "Meeting of Creditors". This is an opportunity for the debtor's creditors to come and question the debtor. The attendance of creditors depends on the chapter of bankruptcy the debtor has filed, the complexity of the case, whether the debt is secured or unsecured. This meeting is just that, a meeting. It is not a trial. We accompany you to this hearing where you are examined by either a Trustee (Chapter 7, 13 or 12) or the Bankruptcy Administrators Office. (Chapter 11). The Trustee's duties are to review your paperwork with you and monitor this meeting.
Bankruptcy: The Effect on Credit
While most bankruptcy clients promise themselves that they will never again have or use a credit card, some consider keeping at least one of their old cards for convenience and/or emergencies after their bankruptcy is over. Moreover, going about with everyday business in today's society without a credit card can be quite burdensome with many retailers and hotels requiring such for varying purposes. In fact, there is usually no reason for you to retain any of your old credit cards through your bankruptcy. Most people receive unsolicited credit cards soon after they file bankruptcy. Bankruptcy debtors receive new credit cards because they are a better credit risk after wiping out their debts in bankruptcy than they were when they owed money to many creditors. Additionally, bankruptcy clients cannot receive a Chapter 7 discharge for eight (8) years and a Chapter 13 discharge for four (4) years against newly issued credit. Thus, for most people in financial straights, bankruptcy makes it easier, not harder, to get new credit cards.
Another reason to begin using your credit after bankruptcy is to rehabilitate your credit after filing bankruptcy. Under current law, a bankruptcy can remain on a person's credit report up to ten (10) years. As with a medical patient after surgery, unless that person rehabilitates his or her body, he/she will not get any better. Similarly, unless a person coming out of bankruptcy uses his/her credit, that person's credit will remain stagnant with the only report a bankruptcy with discharged debts. In order to raise a credit score after bankruptcy, there must be lines of credit reported in a positive manner.
At one time bankruptcy destroyed peoples' credit. Banks used to believe personal bankruptcy was a stigma on credit that a debtor could not overcome. Today, so many people file bankruptcy every year that banks cannot ignore this large market of potential customers. As a result, banks are much more lenient toward people forced into bankruptcy. While no one plans to file bankruptcy, the effect of filing today is not nearly as bad as your creditors would like you to believe.
Bankruptcy: Mistakes to Avoid
•1. Waiting Too Long: It is human nature to put off unpleasant events. Filing bankruptcy does not have to be "unpleasant." Wage garnishment, foreclosure, repossession, and harassing letters/phone calls can all be stopped by filing bankruptcy before creditors begin these collection actions.
•2. Getting a Second Mortgage Instead of Filing Bankruptcy: Many clients try to put off inevitable bankruptcy by obtaining a second mortgage to pay off their unsecured debts. If you cannot make your first and second mortgage payments, you can lose your home. It is not wise to risk your home for the benefit of creditors.
•3. Depleting IRA and 401K Plans to Pay Creditors: In Alabama, your IRA and 401K plans, as well as other tax qualified plans, are exempt assets. You can file bankruptcy and still keep all of your retirement savings to help reestablish your normal lifestyle after bankruptcy.
•4. Filing When You Have a Substantial Tax Refund Pending: The exemption for tax refunds is limited, and an ill-timed bankruptcy may jeopardize your refund. You should discuss any expected funds with your attorney before filing.
•5. Reaffirming Burdensome Debt: Reaffirming (keeping or re-obligating yourself to) loans through bankruptcy will make it difficult or impossible for you to recover financially. Do not keep credit cards with significant balances. Banks will send you new credit card solicitations after your bankruptcy is discharged.
•6. Failing to List ALL Creditors: A creditor you forgot to list on you bankruptcy petition may not be discharged; and, moreover, the law requires all debts to be listed. You should list all creditors, even if intend to repay the creditor.
•7. Large Credit Usage Shortly Before Filing Bankruptcy: You must tell your attorney if you have taken significant cash advances, made balance transfers, or made other large purchases within the previous three (3) months. Such actions are subject to objection by creditors, the basis of said objection being lack of "good faith."
•8. Paying Back Loans to Family Members Before Filing Bankruptcy: Repaying loans to family members (or insiders) within one (1) year of filing bankruptcy should be avoided. The Trustee can sue your family members to recover sums paid to them within the past year.
•9. Transferring Non-Exempt Assets to Others: Assets transferred in anticipation of filing bankruptcy may be recovered by the Trustee as a fraudulent conveyance. Giving away money or other assets to your children, parents or siblings will NOT protect the assets from the bankruptcy trustee, and such transfers may jeopardize your bankruptcy discharge.
•10. Ignoring Letters From the Court and Your Attorney: Any notice or letter you receive either from the Bankruptcy Court or your attorney is important. Failure to respond to a communication may have adverse consequences.
Chapter 7 is what is known as "Clean State"-a bankruptcy where you wipe your debts out and start over. The Court generally will let you out of most of your debts and allow you to get a "fresh start" but certain state specific limitations constrict how much property (i.e., assets) you can keep after a Chapter 7 bankruptcy. Even more, since the amendments to Title 11 of the United State Code (the "Bankruptcy Code") were implemented in October, 2005, it has become more difficult to become a candidate for Chapter 7. Therefore, the ability, and pragmatism for that matter, as to entering Chapter 7 is dependant on two (2) tests: (1) State Law Exemptions and (2) "Means Test".
(1) State Law Exemptions-Each state allows certain amounts of property that you can claim exempt and that you can keep. These amounts vary from state to state. As a general rule, you can claim the exemptions for the state of which you are a citizen. However, if you recently moved to a state, there may be an ability to use the exemption laws of the state of your previous residency. In Alabama an individual filing bankruptcy can keep $3000.00 of personal property (or equity therein) plus your clothes and personal jewelry, albeit possibly not a Rolex. Further, an Alabama citizen can protect $5000.00 equity in his/her homestead. Additionally, any amounts in a 401K, IRA or other qualifying spendthrift trust are exempt. If an Alabama citizen has property that is over these limits, he/she will turn these amounts over to the Court to be liquidated or sold and then the monies will be applied to the debt pro rata. After the case is over, the debts that are not paid would be discharged or wiped-out.
(2) Means-Test-Under the old bankruptcy law, almost any resident of the United States could file a Chapter 7 bankruptcy. The new bankruptcy law includes a formula test, called the "means test", to determine who may (and who may not) be eligible to file Chapter 7 bankruptcy. The means test applies to people whose debts are primarily consumer in nature (such as credit cards, car debts, medical bills, etc.). Many people are forced into bankruptcy because of a failed business venture or large business related judgment. Debtors with primarily business debts are exempt from the means test and my file Chapter 7 bankruptcy regardless of their income and expenses. The means test formula is designed to evaluate whether the debtor has the financial means to pay back a substantial part of his/her debts in a repayment plan through Chapter 13 bankruptcy. The means test formula considers measures of income (from all sources in the debtor's household) and allowable expenses. If, according to the results of the formula, you are over the state-specific median family income for your particular household size and have sufficient net monthly income to repay the lesser of $10,000 or 25% of your total unsecured debts you are not eligible for Chapter 7 bankruptcy, but you may be eligible for relief under Chapter 13 bankruptcy.
In Chapter 7, if you are buying property you generally have to pay for it if you want to keep it. If you are buying your home, car, furniture, jewelry, etc., you generally have to "reaffirm" the debt to keep the property. Reaffirmation is a process where you tell the creditor that you want to pay them as if you never filed bankruptcy on them and you will continue to make your regular payments. This process requires you to sign a reaffirmation agreement obligating you to pay under the terms of the original contract-no better terms, no worse. Creditors, as a rule, have the discretion on whether to agree to reaffirm the debt on someone who files Chapter 7. Most of the time, however, if you are current and have insurance, creditors will reaffirm with you. There are some instances where, instead of paying according to the contract, you may pay the value of the property in a lump sum payment, this is called "redemption". For example, if you owe $1000.00 on a computer you purchased, and the computer is only worth $300.00, you may wish to make an offer to the creditor and pay a lump sum payment of $300.00 to "redeem" that property and have the Court release any liens the creditor might have on the personal property.
Unlike a Chapter 13, a Chapter 7 is analogous to out-patient surgery in the medical field. Chapter 7 cases normally last about 90 days and then the case is over and done with. A Chapter 7 case usually starts with an initial free consultation wherein we review each clients' information to see if bankruptcy is an option for the client and, if so, what type of bankruptcy the client is eligible for (see above explanations of State Law exemptions and the Means Test). Further, we review with the client what documentation is needed to go forward in a case. Chapter 7 attorney fees are normally quoted in the initial consultation as well as the court costs, credit counseling and discharge counseling fees. The latter two costs, credit and discharge counseling, are products of the 2005 Amendments to the Bankruptcy Code and are required by law. Because of the effects of a Chapter 7 filing and a ruling by the United States Bankruptcy Court for the Middle District of Alabama, all fees and costs must be paid up front before a Chapter 7 case can be filed.
Chapter 13 is a debt consolidation bankruptcy wherein a debtor purposes to pay all, or part, of his/her debts over a three (3) to five (5) year period (i.e., 36 to 60 months). The typical Chapter 13 debtor is one who has secured debts, such as a mortgage or car loan, on which he has fallen behind on but still desires to retain the collateral. In such a scenario, even if the debtor could file Chapter 7 and wipe out all of his debts he would likely be unable to "reaffirm" (see Chapter 7) the secured debt on which he is in arrears. Another typical Chapter 13 debtor is one which fails one of the two Chapter 7 tests-State Law exemptions and Means Test. Such a debtor is required to pay either the value of un-exempt assets or all of his disposable income based on the complicated means test.
Chapter 13 can be used to catch up mortgage arrearage, squeeze together car payments and unsecured debt payments, lower interest rates and allow the debtors to work their way out of their financial situation while under the protection of the Court. In a Chapter 13 case, there is not a limit on how much property the debtor can keep. Unlike Chapter 7 where the law limits how much property a debtor can start over with, in Chapter 13 a debtor normally can keep all their property but what is kept affects how much of the total debt the debtor is required to pay back through the Chapter 13 plan.
Unlike a reaffirmation in a Chapter 7 where the debtor is required to accept the terms of the original contract of a secured debt, generally in Chapter 13 the debtor can restructure the debt and keep the assets without fear that the creditor will decline reaffirmation. Chapter 13 cases are usually easier to start. As a general rule, the Debtor can pay the court costs and credit counseling fee in full up-front and allow for the attorney's fee to be paid through the Chapter 13 plan. This can be helpful especially when the debtor is already in a cash crunch. A debtor must stay in a Chapter 13 plan at least 3 years (36 months) and cannot incur new, post-petition debts during the term of the plan.
The above is a very simple overview on what is a very complex area of law. Bankruptcy has many specialties and nuances and it is always best to seek a professional that has experience in bankruptcy law to see how these laws can be applied to your unique financial situation. Call Espy, Metcalf & Espy, P.C. for a FREE consultation to see how the bankruptcy laws can assist you in your financial predicament. Our office has helped thousands of debtors take control of their financial situation and get back on their feet over the last 18 years.
Return to Practice Areas page.
Back to Top
Espy, Metcalf & Espy P.C.
326 North Oates St.
Dothan, AL 36303
Phone: 334-793-6288
Toll free 1-800-310-4020
Fax: 334-712-1617
We are a debt relief agency. We help people file for relief under the Bankruptcy Code.
No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers.
The law firm of Espy, Metcalf & Espy P.C. provides bankruptcy, consumer protection, Social Security, and probate law legal services to the residents of the cities of Dothan, Enterprise, Troy, Eufaula, Opp, Andalusia, Montgomery, Ozark, Phoenix City, Auburn, Opelika, Brundidge, Fort Rucker, and Geneva, and the counties of Houston, Geneva, Henry, Dale, Coffee, Montgomery, Covington, Henry, Barbour, Pike, Crenshaw, and Butler, Alabama.