Bankruptcy Law

The Law Office of Mitchell J. Howie is compassionate and sensitive to financial troubles, especially in these times of global economic turmoil. Attorney Mitchell J. Howie will do everything he can to provide his clients with a fresh start by providing efficient, effective and affordable expert legal representation for all types of bankruptcies.

The Law Office of Mitchell J. Howie provides free bankruptcy consultations in Huntsville, Alabama. Please call (256) 533-8074 for your free bankruptcy consultation.

Below you will find general information regarding bankruptcies for your review.

The information contained on this page is general and should not substitute for the advice and counsel of a licensed attorney. It is recommended that you consult with a bankruptcy attorney in your state. The Law Firm of Mitchell J. Howie provides free bankruptcy consultations with an Alabama attorney in Huntsville, Alabama. Call (256) 533-8074 for your free bankruptcy consultation.

Major Changes in the Bankruptcy Law in 2005

Congress passed major reformation to the Bankruptcy Laws in 2005. The act that passed is called Bankruptcy Abuse Prevention & Consumer Protection Act 2005. It is important to understand how the major changes to the process of filing for Chapter 7 and Chapter 13 Bankruptcy will effect you. Despite media reports to the contrary, you may still receive relief under Chapter 7. The requirements for being granted relief has become a little more involved. The topics in the following summary are organized in the order they are likely to come up in your bankruptcy case.

Mandatory Pre-petition Credit Counseling
Before an individual can file a petition for bankruptcy, he or she must undergo credit counseling from an approved nonprofit budget and credit counseling agency. Congress included this provision in an effort to make sure that debtors are viewing bankruptcy as their last option. The Bankruptcy Court has a list of approved agencies on its website at http://www.alnb.uscourts.gov/. The counseling does not have to be done in person, the Court has approved telephone and internet counseling. The Law firm of Mitchell J. Howie has the capability of setting up internet counseling through Hummingbird Credit Counseling and Education (which charges a fee of $35.00) during your initial free consultation with the attorney. Credit counseling must be completed no earlier than 180 days before filing a bankruptcy petition.

The Means Test for Chapter 7 Eligibility
By far the most publicized change to the Bankruptcy Law has been the addition of a means test. After determining that you will benefit from filing for bankruptcy, your attorney must then decide whether you would benefit under Chapter 7 or Chapter 13. The means test is a formula used to determine if a debtor has the ability to pay the unsecured debtors after allowing for monthly living expenses. If the debtor's monthly income is over the allowed expenses, then the Court assumes you are abusing the Bankruptcy Laws. This does not mean you cannot file under Chapter 7, however. The Law firm of Mitchell J. Howie can perform the Means Test as part of the Free Initial Consultation for bankruptcy cases.

The means test applies only to Chapter 7 filings and is calculated as follows:

1. Determine the debtor's current monthly income. This is done by averaging monthly income that the debtor has received from all sources for the six months preceding filing which includes nontaxable income but excludes Social Security benefits and payments to war crime victims. Therefore, if you are on Social Security Disability or SSI, and have no other income, you have no monthly income for purposes of the means test.

2. Subtract allowable expenses from the debtor's income. This includes the following:

a. Monthly expenses allowed by the IRS under their National Standards and Local Standards. Please consult an attorney to determine the amount allowable for your County and State. You may allow up to 5% more for food and clothing expenses.

b. Expenses classified as "other necessary expenses" for the debtor, his/her dependents, and the debtor's spouse if a joint case. This includes most types of health and disability insurance maintained for the debtor or his/her dependents.

c. If the debtor has been a victim of family violence as defined by the Family Violence Prevention and Services Act, the debtor may deduct expenses incurred to maintain the safety of the debtor and the debtor's family.

d. If you care for an elderly, chronically ill, or disabled household member of the family (which includes parents, grandparents, siblings, children, and grandchildren of the debtor) you may also deduct the cost of taking care of this person.

e. Up to $1,500.00 per year of the cost to send a dependent child to a private or public elementary or secondary school if the child is under 18.

f. Average monthly payments on secured debts, such as your house or car. This is determined by adding up all payments that would be made in the next 60 months, adding in any other payments that the creditor would have received if you filed a Chapter 13 repayment plan and dividing the total by 60.

If after completing the above calculation, you have a surplus income of $166.67 or more per month, filing for Chapter 7 relief is considered "presumptively abusive." You may still be able to file under Chapter 7 in this case if you can show special circumstances to the Court as to why you cannot pay the $166.67 or more to the creditors in a Chapter 13 bankruptcy. If you were called to active military duty, or had an unexpected increase in your monthly expenses, or a reduced income, the Court may allow for a filing under Chapter 7 despite being over the allowed net monthly income. You must however, provide documentation to the Court to establish and explain your situation.

Please consult with a licensed attorney to determine your net monthly income and to determine if you have special circumstances which would allow you to receive a discharge under Chapter 7 if your income is above the allowed amount. The Law firm of Mitchell J. Howie can perform the Means Test as part of the Free Initial Consultation.

Median Income Requirement

In addition to the Means Test mentioned above, the Bankruptcy Abuse Prevention & Consumer Protection Act 2005 has created a "median family income" based on the State in which the debtor resides for a family of equal or lesser size than the debtor. This median income is different for each state and only applies to those seeking relief under Chapter 7 of the Bankruptcy Code. If the debtor's actual annual income exceeds the median income, the presumption of abuse arises, and any party, the Trustee, a creditor, or a person with interest in the estate may file a motion to dismiss the Bankruptcy. The debtor must then show the Court why they should be granted a discharge under Chapter 7, and not be required to pay back their creditors under a Chapter 13 repayment plan. Please consult with an attorney prior to filing for a Chapter 7 Bankruptcy to determine your eligibility. The Law firm of Mitchell J. Howie will advise you as to the proper Chapter under which to file for Bankruptcy during your initial free consultation.

The median income is based on the number of potential wage earners in the home of the debtor, which may include teenagers who are able to work. Even if not filing jointly, the spouse will usually be counted as a potential wage earner under this section. The Alabama median income effective February 1 2008, which is currently being applied by the Court, is as follows:

One family member $36,192.00 (single debtor)

Two family members $44,918.00

Three family members $51,103.00

Four family members $62,015.00

For each additional family member over four, the calculation increases by $6,900.00.

Please consult with an attorney to understand the median income requirement for your individual situation. The Law Office of Mitchell J. Howie will advise you as to your allowable median income during your initial free consultation.

Tax Returns

The Bankruptcy Court now requires that debtors provide a copy of their income tax return for the most recent tax year. This must be provided to the trustee at least five days prior to your meeting of creditors. In addition, you may be required to provide the income tax return for the preceding two years before filing for bankruptcy. The IRS can assist you in obtaining your income tax returns if you are unable to locate them.

What is bankruptcy?
Bankruptcy allows one to either obtain a fresh start free from debt or re-organize and pay off certain debts and discharge other debts. There are several types of personal bankruptcy, with two main types: Chapter 7 liquidation and Chapter 13 reorganization.

Chapter 7 bankruptcy

Allows a person to claim certain property as exempt property and discharge debts that exceed their ability to pay. In Alabama your exemptions are limited and you should consult a Bankruptcy attorney. The Chapter 7 bankruptcy liquidation is designed primarily for the individual whose assets and property are exempt from execution.

Chapter 7 bankruptcy is used often to eliminate credit card debt, medical bills and other unsecured debt. In those cases the debtor will not be required to repay any of their unsecured debts. This process takes all physical property that is not exempt and converts it to cash and then pays the proceeds to the creditors. Once all notice to creditors and the bankruptcy law is complied with the debtor may be discharged from his debts.

Chapter 11 bankruptcy
A Chapter 11 bankruptcy may be used when a business goes into bankruptcy proceedings.

Chapter 13 bankruptcy

Known as a “wage earners plan” and allows a worker to make payments for up to 60 months through the Bankruptcy Trustee. The Trustee, and Bankruptcy law determine the fair distribution of property to creditors. A Chapter 13 reorganization attempts to repay the creditors through a Chapter 13 plan over 60 months or less.

Costs and Benefits of Bankruptcy
A Chapter 7 bankruptcy filing will remain on your credit report for 10 years and therefore it may effect your ability to get credit in the future. However, judgments, foreclosures and repossessions may also remain on your credit record until they are paid in full. In other words, if you cannot or do not pay a judgment it will be of record for at least 10 years. Credit card accounts past due over 90 days may show up on your credit report for up to 7 years.

The first benefit of a bankruptcy is that as soon as one is properly filed an automatic stay is issued by the federal bankruptcy court. This stay prohibits anyone from trying to collect from you without going through the bankruptcy court and your attorney. You will not get any more harassing telephone calls or letters.

The second benefit is that your unsecured debts will be discharged. That is, you will not be required to pay credit cards and medical bills you had prior to filing the Chapter 7 bankruptcy.

Bankruptcy Filing Fees

The Bankruptcy Court charges a filing fee and an attorney also charges a fee for his work in representing you. Alabama courts charge ($299) two hundred and ninety-nine dollars for a Chapter 7 bankruptcy in North Alabama which encompasses Madison, Limestone, Jackson, Dekalb and Tuscumbia and Morgan County or the Middle District of Alabama which includes Marshall and Cullman County. The Chapter 13 bankruptcy filing fee is $274.00, but ultimately it is more expensive because payments must be made to and through the Trustee.

There may be other court costs if the case requires additional pleadings or the addition of creditors after the original filing. Attorney fees for a Chapter 7 are usually between $600 and $1500 depending on the amount of debt, number of Creditors and complexity of the case. The money you pay your attorney for preparing your bankruptcy and representing you in Bankruptcy Court will assure that things are taken care of legally. The Law Firm of Mitchell J. Howie charges a flat one time fee of $1500.00 for a Chapter 7 personal bankruptcy with less than $100,000 in unsecured debt. Chapter 7 bankruptcy is the most common form in Alabama. A more complicated case or bankruptcy with over $200,000 in total debt or $100,000 in unsecured debt such as credit card debt may be more expensive.

For contested bankruptcies or special and extra hearings most attorneys charge by the hour for their time and may add common office and administrative expenses.

The information contained in this message is general and should not substitute for the advice and counsel of a licensed attorney. It is recommended that you consult with a bankruptcy attorney in your state. The Law Firm of Mitchell J. Howie provides free bankruptcy consultations with a licensed Alabama bankruptcy attorney in Huntsville, Alabama. Call (256) 533-8074 for your free bankruptcy consultation.

How to File Bankruptcy
Bankruptcy was designed to help a person in debt get a fresh start. If it were not for bankruptcy most people would spend their lives working to pay off the banks and other creditors without any hope of realizing the American dream of home ownership and retirement. The bankruptcy process is governed by federal and state law and decisions are made in federal bankruptcy court. There are five types of bankruptcy, but for most people filing for personal bankruptcy, there is Chapter 7 and Chapter 13. With a Chapter 7 bankruptcy or liquidation, your non-exempt assets are taken and sold with the proceeds given to your creditors. If you fit within the Alabama homestead law and personal property exemptions you may not be required to give up any assets. The bankruptcy exemptions in Alabama are provided for in the Alabama Constitution and in Alabama Code Section 6 Chapter 10. You should consult with an Alabama bankruptcy attorney to determine what your exemptions are.

If you file for Chapter 13 bankruptcy, a trustee is named to oversee your case. You present a payment plan and if it is acceptable to your creditors and the trustee it is confirmed by the bankruptcy court and all debt collections against you stop. The major difference is that in a Chapter 13 bankruptcy you get to keep assets that may not be exempt, but you are required to pay your creditors at least the same as you would if you filed under Chapter 7. If your debts are too large to fit into a reasonable budget, you may need to file a Chapter 7 bankruptcy. But if you think you could repay part or all that you owe, you may be advised to file a Chapter 13 bankruptcy. A Chapter 13 bankruptcy may look better on your credit report because it shows you attempted to pay off what you owed. Once the determination is made as to what type of bankruptcy you need you and your attorney will file a petition with the U.S. Bankruptcy court with a list of your creditors. An Alabama attorney can help you decide if bankruptcy is right for you.

How to Retain a Bankruptcy Attorney
Finding a lawyer to handle a bankruptcy is not difficult, if you are filing a simple Chapter 7 liquidation bankruptcy. Most attorneys listed in your local directory will be able to handle this sort of case with little problem. If you do not know what type of bankruptcy you wish to file, then you need to seek the advice of an attorney who has handled the different types of bankruptcy cases. But beware of an attorney who recommends a more expensive Chapter 13 without fully explaining your options and what a Chapter 13 bankruptcy entails. To find a bankruptcy attorney, you may consult with friends and family. Ask them if they can make a recommendation. You can also go to the Alabama Lawyer Referral and ask for a recommendation. You should find an attorney with whom you feel comfortable and who meets with you personally. An attorney who has you meet with an assistant or paralegal may be difficult to get in touch with if you need him. If you are paying an attorney you should be entitled to meet with him first. Good communication is important in an attorney-client relationship and aids in the successful completion of a bankruptcy filing. The attorney should be able to answer your questions and give you enough information to help you understand the bankruptcy laws and how they will effect you. If you feel that it is difficult to get in touch with your attorney, then seek another attorney. Remember that you are the client and an attorney is responsible for looking after your best interest.

Bankruptcy and Marital Property

Should both spouses file for bankruptcy if one is in financial trouble? It depends upon who incurred the debt and the amount of the debt. If only one spouse has incurred the debt and the other is not liable for the debt, it may be possible to file only for the husband or the wife. In determining the family income to see if you qualify for Chapter 7 or 13 you are required to use both the husband and wife's paycheck for the last 6 months. Usually both spouses file and get a fresh start because the costs and fees are the same for a married couple as for a single person and the debts are often in both their names. However, just because you are married to someone does not make you responsible for their debts. You would have had to sign an agreement, saying you would pay your spouse’s debt. Any non-exempt property bought jointly, will be available to creditors no matter which spouse files. Bankruptcy of a married individual can have unforeseen consequences and should be carefully considered and reviewed by a lawyer.

Liquidation vs. Debt Reorganization
There are two basic types of bankruptcy, the liquidation and the reorganization.

The liquidation is called Chapter 7. Chapter 7 liquidation is used by individuals whose home and property are exempt from execution or whose debts are so high that a repayment plan is not feasible. If there is real estate involved and the payments are current the real estate may be reaffirmed and may be kept. The same would go for other assets that are being paid for such as a car or truck.

Chapter 11 bankruptcy is used by businesses for reorganization of their debts. They make a plan or budget showing how much they will pay on their debt and to whom.

Chapter 12 bankruptcy is a reorganization designed to help the family farmer keep the farm. The farmer must file a plan or budget with a trustee showing how he will repay his creditors and make the payments.

Chapter 13 bankruptcy is a reorganization designed for the individual or wage earner. The person is required to have a job or other regular income. The bankruptcy court stays all attempts to foreclose and collect on debts while the debtor makes payment according to a plan approved by the court for up to 60 months. This is used when people who have over $10,000 equity in their homes are trying to avoid losing their homes.

The information contained in this message is general and should not substitute for the advice and counsel of a licensed attorney. It is recommended that you consult with a bankruptcy attorney in your state. The Law Firm of Mitchell J. Howie provides free bankruptcy consultations with an Alabama attorney in Huntsville, Alabama. Call (256) 533-8074 for your free bankruptcy consultation.

Chapter 7 and 13 Trustees
The bankruptcy trustee is who will be handling the "Bankruptcy Estate" in bankruptcy. This court appointed representative makes sure that all assets and property have been declared and that their exemptions of property are proper and legal. Your attorney, if you hire one, will make sure that all the information necessary to the completion of a bankruptcy is properly prepared and in order. The trustee will also look after the interests of the creditors. In Chapter 7 Bankruptcy, the trustee may oversee the sale of non-exempt assets and the distribution of the proceeds to the creditors. In Chapter 13 Bankruptcy, the trustee looks over your repayment plan and makes sure that the plan is workable and fair to you and your creditors. The trustee will look at the plan ensure the budget allows for you to support yourself and your family as well as make the required payments to your creditors. Each trustee may ask different questions and have different requirements.

Chapter 7 Bankruptcy
Chapter 7 bankruptcy is known as Liquidation. In a Chapter 7 bankruptcy all non-exempt property is liquidated. Chapter 7 bankruptcy allows unsecured debt to be discharged, however, you can choose to repay or reaffirm a debt. This type of bankruptcy is used mostly by people who have no way of repaying their debt and have little property. The process can be simple if you hire a bankruptcy attorney. You file for bankruptcy protection. The court issues a stay which stops all attempts at collection, including seizure of property. A trustee is appointed, you submit a complete list of your creditors and they are notified of your intent. At this point the trustee will liquidate all of your non-exempt assets and distribute the money to your creditor. After the distribution, you will not be required to attend a court hearing again, but your debts will be discharged by a federal bankruptcy court. You are no longer under any obligation to your creditors. However, if you manage somehow to buy something on credit within seven years of filing for bankruptcy, you will be required to pay that creditor. You cannot file for bankruptcy again for some time.

Should you file Chapter 7?
Should you file for Chapter 7 bankruptcy? Chapter 7 bankruptcy is liquidation of all of your assets in an attempt to repay your creditors. For people who have substantial property and an income, this type of liquidation may not be in their best interests. If you are considering bankruptcy for a business, you will not be allowed to file for Chapter 7 as it can only be used by the individual. If you have no real estate or other tangible assets which you would wish to keep, Chapter 7 Bankruptcy may be the way to go. In some states, you may be able to keep your home if you file Chapter 7. Chapter 7 bankruptcy may not be right for you if you have complex holdings.

Chapter 7 Procedures
The first step in a Chapter 7 bankruptcy is meeting with a credit counselor. This can be done in person or via the internet through an agency approved by the Bankruptcy Court. For a list of approved agencies, please contact the Bankruptcy Court, or look at their website for a listing.

After completing the credit counseling, the next step is filing the petition. When you file with the United States bankruptcy court, in North Alabama you are petitioning the court for protection under the bankruptcy law. The court will issue a stay which will prevent any continued or future seizures or lawsuits. Your assets are now under the court's protection. A trustee will be appointed to inventory and liquidate your assets. You then submit a list of all of your creditors, even those who you have managed to keep paying. The court then notifies your creditors that you have filed a petition with the court. Your non-exempt assets will be liquidated, and the proceeds will be distributed according to a formula determined by the trustee. Your attorney can tell you which assets are exempt. After the assets have been distributed, the court will hold a hearing where your bankruptcy will be discharged. From that point on, those creditors will not be able to contact you further. Remember, that a discharge will not protect you from having to pay most taxes, child support, alimony and debts incurred based on fraud.

Non-Dischargable Debts
In limited circumstances the Chapter 7 bankruptcy may not be a total discharge of your obligations. You must pay any debt which the government has deemed to be outside of the protection afforded under Chapter 7 Bankruptcy. This includes child support, alimony and certain taxes. If you file bankruptcy within three months of going on a spending spree, then any luxury items purchased on credit may have to be paid for in full. This can include furs, boats, motor vehicles and art. You will have to repay most student loan debt that is guaranteed by the Federal student loan program. Any debts incurred by fraudulent means, must be repaid as well. If you are sued and found to have been willfully negligent or driving while intoxicated, you will have to pay the damages. If you have been ordered by another court to pay punitive damages, you may have to continue paying. In short, the Chapter 7 bankruptcy may not discharge everything you may owe. You should consult with a bankruptcy attorney to advise you on these matters.

Chapter 11 Bankruptcy
Chapter 11 bankruptcy is often called a business reorganization and is used by corporations and small business owners in order to reorganize their debt. For those people who have assets which exceed the limits of Chapter 7, a Chapter 11 bankruptcy is usually the best path. The business reorganization is often used by cash strapped businesses which feel that by keeping the creditors at bay, they can recover and become a viable business once again. The court appointed trustee must approve your business plan. Once it is approved you may return to normal operations. This may prove difficult as vendors may be reluctant to sell you the goods you need to operate on anything other than a cash basis. If you do successfully fulfill your reorganization plan, your debts will be discharged. If you fail to follow your plan, the business will be liquidated.

Should you file Chapter 11?
The advantages and disadvantages of Chapter 11 Bankruptcy are much like those you would experience filing as an individual. The big advantage to filing chapter 11 is being able to hold off your creditors from further attempts to collect debts. This means that all lawsuits against you are put on hold. You can then create a plan to reorganize the business and attempt to stay afloat. After your business plan has been approved by the bankruptcy trustee and the creditors, then you may continue business. The disadvantages are those you would expect anytime you declare bankruptcy. Your credit is ruined. Vendors who had let you run up debt, will most likely ask for payment in cash. Some vendors may not deal with you at all. It is very difficult to restore a business if your cash flow was such that you had to file and can no longer pay your vendors. It is important to evaluate thoroughly the consequences of filing for bankruptcy.

Chapter 11 Procedures
The first step in filing Chapter 11 is petitioning the court for protection from your creditors. The court then issues a stay to prevent further collection attempts. The court will then appoint a trustee to administer and referee the bankruptcy process. The business will be required to provide a complete accounting of all the businesses' assets and liabilities. This will include any cash flow. A reorganization plan must be created that indicates how the company will be run in the future. The plan must indicate how much is to be repaid to each of the creditors and the schedule of payments. If the trustee finds the plan to be fair, the creditors will meet to discuss the plan. If there are no objections, the plan is implemented. The company continues to operate and strives to meet its obligations under the plan. If the plan is fulfilled, the debts are discharged, usually after three to five years. If the plan fails, the business may be liquidated.

Chapter 12 Bankruptcy
Chapter 12 bankruptcy was designed to help out the American family farmer. Because of the unique needs of the farmer, a Chapter 11 or Chapter 13 bankruptcy, just didn't fit the special circumstances. Chapter 12 allows the farmer to attempt to regain control of the farm and, hopefully continue their farming tradition. Most farm debt is related to real estate debt. In order to keep this real estate, which would ordinarily be under lien, the farmer must pledge a part of the profits from future crops towards the payment of debt. The farmer must also pay creditors an amount equivalent to the fair market rent. The farmer must be acting in good faith in order to be allowed this form of bankruptcy. Like other reorganizations, the farmer must submit a complete list of assets and liabilities and a statement of financial affairs. If the farmer successfully repays their debt, they may keep the farm.

Should you file Chapter 12?
The advantages and disadvantages are all clear when it comes to the Chapter 12 bankruptcy. The farmer must retain the land. In other forms of bankruptcy, any land which is mortgaged in order to buy seed or fertilizer, is subject to seizure. The chapter 12 bankruptcy protects the farmer from this type of seizure. The land remains in the farmer's hands and is farmed as usual as long as part of the profits go towards paying debts. For farmers caught in a bad year, this type of reorganization often works just fine. The disadvantages are actually few for the farmer. The only disadvantage would be the requirement that part of the profit goes towards paying the debts. Because the farmer must often borrow to pay for the next crop, the cycle may be downward. Be sure to examine your financial situation carefully before going into bankruptcy.

Chapter 12 Procedures
The first step in filing a chapter 12 bankruptcy is the filing of a petition with the United States Bankruptcy Court asking for protection. The court will then issue a stay that prevents creditors from continuing collection procedures, including lawsuits. The court will appoint the farmer as trustee to oversee the process and to insure that everyone, creditors included, get a fair deal. The court will require a complete list of creditors, an accounting of assets and liabilities and a Statement of Financial Affairs. The farmer must then develop a plan within ninety days to repay debts. Once a suitable plan has been developed, the farmer may continue to operate the farm. If the crops are successful and payments are made to alleviate the debt, the farmer gets to keep the land and continue farming. If unable to complete the plan, the farm will then go into liquidation.

Chapter 13 Bankruptcy
The wage earner repayment plan or the adjustment of debts of an individual with regular income, as it is now known, is also called a Chapter 13. This type of bankruptcy is useful for those people who either do not want the stigma of a Chapter 7 liquidation or who have property to protect and a steady income from which they can make payments. This individual reorganization requires the petitioner to create a repayment plan that attempts to repay the creditors some percentage of what they are owed. If the trustee approves the plan, it is submitted to the creditors who may object or approve. Eventually a plan will be worked out and payments will commence. Upon the successful completion of the plan, the bankruptcy is discharged. The debtor need not worry about ever being contacted by the creditors again.

Chapter 13 Procedures
The first step in a Chapter 13 bankruptcy is filing the petition. When you file with the United States bankruptcy court, you are petitioning the court for protection under bankruptcy laws. The court will issue a stay which will prevent any continued or future seizures or lawsuits. Your assets are now under the court’s protection. A trustee will be appointed to inventory your assets. You then submit a list of all of your creditors even those who you have managed to keep paying. The court then notifies your creditors that you have filed a petition with the court. You will now create a payment schedule which the trustee and the creditors must approve. Once approved, you will be given three to five years to pay. After successfully completing the plan, the court will hold a hearing where your bankruptcy will be discharged. From that point on, those creditors will not be able to contact you further. Remember, that a discharge will not protect you from having to pay most taxes, child support, alimony and debts incurred based on fraud.

Protecting Your Home From Creditors
Can you keep your home, is one of the most frequently asked questions when faced with a bankruptcy. While the home loan is technically a secured loan with the house itself serving as collateral, many states have passed laws that protect the house in a bankruptcy. This protection ranges from absolute, which is pretty much the case in Florida, to very little to no protection in other less progressive states. There is also a federal personal property exemption of $7,500. Some states require that you you use their exemption, others give you a choice between theirs and the federal government's. Before you file for bankruptcy, you need to understand your state's laws. Your decision as to which type of bankruptcy, or even whether you wish to file at all, may change after reviewing the rules and laws of your state. The information contained in this message is general and should not substitute for the advice and counsel of a licensed attorney.

Protecting Your Vehicles from Creditors
There are certain assets which state and federal law have determined to be exempt from the reach of creditors, and this may include your car or truck. If you own your vehicle outright, then, according to federal law, if it is valued at less than twelve hundred dollars, it is exempt. Your state may have different laws governing the exemption for cars and trucks. Some states exempt any vehicle that is necessary for transportation to and from work or which is used as part of that person's livelihood. Other states have higher exempt values than the federal government, others less. If your vehicle is still being paid for, the lien holder can repossess the vehicle. You can retain possession of the vehicle if you make good on the past due payments and reaffirm the debt. This means you promise to continue paying for the vehicle. The lien holder, does not have to accept this solution. The information contained in this message is general and should not substitute for the advice and counsel of a licensed attorney.

Secured vs. Unsecured Debts
When you file for bankruptcy you may have two types of debt, secured and unsecured. Secured debt is debt which you obtained by pledging some tangible property of value as collateral. This could be a cash loan with your home serving as collateral. You could be purchasing a home from a bank, which then holds the lien on your home until you repay your loan. A car, on which you are making payments, is another example of a secured loan. If you file for bankruptcy, the lien holders will be able to repossess the collateral. How much, if any, of your home's equity is subject to foreclosure depends upon the laws of your state. Unsecured debt is any debt that has no collateral backing the loan. Credit card debt is a prime example. Signature loans are another. Unsecured creditors can usually expect to get little if anything in a bankruptcy. The information contained in this message is general and should not substitute for the advice and counsel of a licensed attorney.

Exempt Property in Bankruptcy
Exempt property is any property which the law, either state or federal, determines to be out of the reach of creditors. The federal law has a list of exempt property which includes. $7,500 for a homestead, a motor vehicle valued at less than $1,200, a $200 limit on each personal item up to a total of $4,000 dollars for the entire family and a $750 limit on tools and professional books. Alabama's laws have less favorable exemptions and you are not able to choose between the state's and the Federal Government's exemptions. Some states will require that you use their list of exemptions. Alabama requires you use its list of exemptions. Personal property is limited to $3,000 and homestead exemptions are limited to $5,000 per spouse. Certain government benefits are also exempt, including future benefits like social security, unemployment benefits and veteran's benefits. Child support payments and alimony are also exempt from the reach of the creditor. The information contained in this message is general and should not substitute for the advice and counsel of a licensed attorney.

Can Student Loans be Discharged?

In most cases, the student loan is not a dischargeable debt. You will have to pay these loans back no matter what. If you do not pay them back, the creditor may be able to garnish your wages. This means that a portion of your wages will be deducted before you see your check and will then be applied towards your outstanding student loans. Most student loan organizations will wait until after your bankruptcy is discharged before resuming collection attempts. There are two exceptions to this general rule. If failure to discharge a loan would cause hardship for the debtor or their family, then the loan may be dischargeable. The information contained in this message is general and should not substitute for the advice and counsel of a licensed attorney.

What Happens to Guarantors/Co-Signers?

Cosigners are people who have lent their good name and credit to someone else so that they may get credit. This is a risk. For the small business owner who owns majority stock in a small company, the bank may ask that the owner cosign any loans made for the benefit of the corporation. There are two kinds of cosigning. Cosigning as a surety and cosigning as a guarantor. The surety is a promise directly to the creditor that they will pay, if the primary debtor fails to pay. A guarantor, on the other hand, agrees to pay only after all avenues to get money from the principal debtor have failed. The cosigner of a note has no protection if the debtor files Chapter 7 bankruptcy. If the debtor files a Chapter 13, the cosigner need not worry. If you are unsure as to your liability as a cosigner before or after the fact, get legal advice. The information contained in this message is general and should not substitute for the advice and counsel of a licensed attorney.

Bankruptcy and Your Credit Rating
Bankruptcy is an effort of last resort which, if filed, will affect your credit rating for as long as ten years. Each time you fail to make a payment on a credit card, an electronic mark against your good credit is stamped in your record. These records are called credit reports and are kept by several large companies who do nothing except rate the credit worthiness of consumers. If you file for bankruptcy, another mark will find its way onto your credit rating. This will indicate that you filed for bankruptcy. The immediate result will mean being cut off from regular sources of consumer credit. This may include credit cards, home loans and car loans. You may be denied employment if good credit is considered necessary for the position. And, you may find it difficult to rent a home or get standard utility service. A ruined credit rating can mean a difficult life for a number of years. The information contained in this message is general and should not substitute for the advice and counsel of a licensed attorney.

Bankruptcy and Pending Lawsuits
If you are currently involved in a lawsuit in which you stand to gain you may have to use part or even all of the cash award from your lawsuit to satisfy your creditors. How a lawsuit is affected depends entirely upon the respective reasons for the lawsuit and bankruptcy. A lawsuit undertaken to help pay for current and future medical expenses in a case of negligence, will be affected by bankruptcy only in that any monies gained in the lawsuit will go towards paying the medical costs. The bankruptcy will not allow you to skip out on your obligation to pay for your medical procedures. But you may be allowed to discharge other debts not related to your medical needs and your settlement may be exempt from many of the creditors. This is a complex area of the law which requires the attention of an expert. The information contained in this message is general and should not substitute for the advice and counsel of a licensed attorney.

Bankruptcy Tax Issues
If you are a debtor, you may actually stand to gain from a bankruptcy, at least under regular IRS rules. When you have a debt of fifty thousand dollars dismissed, then you have effectively gained fifty thousand dollars. You may still be insolvent, but the rules would seem to indicate that you are wealthier than when you started. In recognition of this paradox, the IRS developed a policy stating that anyone who discharges debt and remains insolvent after the debt is not recognized as having received income. If you become solvent in any amount due to filing, then that amount is considered taxable. In the case of business reorganization, a net operating loss is created. This has tax value and will affect the taxes of the filing company. Because the tax ramifications are complex, it is advisable to seek professional advice before filing. The information contained in this message is general and should not substitute for the advice and counsel of a licensed attorney.

Credit Counseling Online
The Federal Bankruptcy Rules state that a person filing for bankruptcy must take a course in Credit Counseling and Financial Mangement. If you would like to take the required credit counseling course before your appointment, please go to the Hummingbird Credit Counseling website or call the Consumer Credit Counseling Service of Tennessee River Valley at 256-881-1000.

You should consult with an Alabama Bankruptcy attorney or your family lawyer to determine if bankruptcy is a viable option for your particular situation. The information contained on this page is general in nature and should not substitute for the advice and counsel of a licensed bankruptcy attorney. The Law Firm of Mitchell J. Howie provides free bankruptcy consultations in Huntsville, Alabama. Call (256) 533-8074 for your free bankruptcy consultation.