Bankruptcy

A difficult choice to help solve difficult problems.

Nobody enjoys the thought of bankruptcy, but if you are reading this page you might be facing what feels like an unending string of bills, phone calls from creditors or collection agencies, sleepless nights, and the general sense of despair that can accompany financial problems. Worse yet, our society tends to make it difficult to talk about these problems which can lead to feeling all alone in the struggle to get back on your feet.

A bad situation doesn't make the person bad.

Given the emphasis society places on money, it is not unusual for a person to feel "bad" because of their financial situation. This is a shame since most personal bankruptcies are due to financial situations beyond the person's control whether it is a job loss, unexpected large medical bills, or the loss of a working loved one without life insurance. Whether your situation is caused by one of these or by other reasons, rest assured that we will treat you like a valued individual that just happens to have financial problems. Our goal is to help get you through this with respect, a view towards the "fresh start" that bankruptcy might be able to give you, and, yes, even humor when possible.

You aren't alone.

People tend not to talk about financial difficulties as much as they talk about other events. A friend having a personal injury claim from an auto accident? You'll probably hear about it. A lawyer who made a great estate plan for your cousin? You'll probably hear about it. A neighbor filing for bankruptcy? That's usually a different story. Because of this hesitancy, it is easy to not realize just how many people have filed for bankruptcy protection. In Massachusetts, approximately 1 out of every 280 people filed for bankruptcy just in 2011, and since 2008 approximately 1 out of every 78 people have filed. With an average of 2.5 people per household, that means that from 2008 to 2013, roughly one in every 31 homes has a person or family who has filed for bankruptcy. Think of the number of homes within a mile of you: Chances are you know people who have filed but haven't said anything and that there are others considering filing. You're not alone, and just like their bankruptcies didn't make the newspaper or evening news, your's most likely won't either.

What is bankruptcy and how might it help? (select each topic below to learn more)

Bankruptcy is not a public flogging, doesn't make you stand in the town square with a sign hanging from your neck, isn't a debtor's prison and isn't a newspaper attention-grabbing event unless you happen to be a major corporation. Quite to the contrary, the bankruptcy laws exist because society, the people around you, in other words, wants to let you have the second chance of putting much (and sometimes all) of your debt behind you to let you begin fresh. Bankruptcy exists to help you.

What exactly is it?

In short, bankruptcy allows people heavily in debt to ask the Court to order the debt "discharged" which means that you no longer have to pay back some or all of the creditors or to order the creditors to accept a workable repayment plan, where you might pay back just a small portion of the debt. The process of bankruptcy, which will be described more in the process page, is essentially where you show your entire financial situation to the Court and ask its help. (Most of the time, this "showing" is by electronic paperwork and does not require you to ever step into the courtroom.)
The bankruptcy law treats different kinds of debt in different ways, so it is impossible to fully answer this question here. Please call us and we'd be happy to discuss your situation and outline the probable results. In general, though, credit card debt is the easiest to eliminate, student loans are difficult to eliminate, and it is very difficult to eliminate recent debt owed to the government such as income taxes due from the previous few years. (This difficulty is not much of a surprise since the government writes the bankruptcy rules and they like to be paid.) Loans secured by property, such as a mortgage on a home or a car loan, are hard to characterize since it has so much to do with the specifics of the situation. For example, whether a loan is a first mortgage or second mortgage and the value of the house compared to the loan details all factor into how a particular mortgage loan might be handled. Debt that can be eliminated is called "dischargeable debt" and that which can't be eliminated is called "non-dischargeable debt." One area that the bankruptcy process looks closely at is whether the debtor has done something that would be considered fraudulent. For example, charging the tickets for a round-the-world cruise a month before filing bankruptcy would look to the Court as if the debtor was "running up the debt" by buying expensive non-essentials in anticipation of the debt being eliminated. If the Court determines that credit was improperly obtained or used it can rule that those particular charges, such as the ticket cost in the cruise example, are non-dischargeable are not eliminated. Talk to us if you have a concern about whether some of your recent charges might look inappropriate to the Court.
Many people have heard of Chapter 11 bankruptcies since that is what companies use and normally only corporate bankruptcies make the news. With the exception of very unusual circumstances, however, most individuals or married couples file either a Chapter 7 or a Chapter 13 bankruptcy.

Types of personal bankruptcies. (select each topic below to learn more)

The short answer is that a Chapter 7 eliminates dischargeable debt while Chapter 13 is a repayment plan where you pay part of the dischargeable debt over a 3 to 5 year period with the rest of the dischargeable debt eliminated at the end of the repayment period. Given these choices, why would anyone choose to file a Chapter 13? Besides the possibility of eliminating ("stripping") some second mortgage debt (described below), the main reason is that the law sometimes forces them to. Part of the major bankruptcy law change that was implemented in 2005 was the creation of a "means test" that the debtor has to pass in order to be allowed to file under Chapter 7. There are three parts to this means test, and the debtor only has to pass one of those three to qualify for a Chapter 7 filing. The first test is straightforward and has to do with the family's income level: If the family has an income below the Massachusetts median income for a family of that size a Chapter 7 filing is allowed. The levels are periodically changed, but as of March 25, 2014, the level is $55,794 for a one-person family, $69,569 for two, $82,591 for three, and $84,269 for a four-person family with the numbers continuing to climb for larger families. (This "annual" income is calculated by taking your last six months' income and doubling it, so if you have recently lost your job you might have a lower income for bankruptcy purposes than you might get by thinking of your last 12 months. Call us and we can help you with this.) If your family income is higher than these numbers, you might still be able to file for Chapter 7 by passing one of the other two parts of the means test that we can analyze for you.
The Chapter 7 bankruptcy goes by the very harsh and overly-stated name of "Liquidation" where the debtor's assets are sold and the money is given to the creditors. No, you don't lose everything and many people lose nothing to the liquidation process. The reason for this seemingly odd outcome is that the law, both the Federal bankruptcy law and the Massachusetts bankruptcy law, defines categories of items that you can protect from the bankruptcy process up to certain dollar amounts. It is not unusual for these dollar amounts, called "exemptions," to cover all the assets owned by the debtor thus allowing the debtor to keep everything in this "liquidation" form of bankruptcy. Determining the best exemption strategy to maximize what you can keep is an important part of preparing for a bankruptcy filing. As we'll discuss in the process page, a Chapter 7 bankruptcy is usually completed just a few months after having been filed.
A Chapter 13 is a repayment plan based not on what the creditors are demanding, but on what the debtor can pay. The Court will look at the proposed repayment plan and will routinely approve it as long as all of the debtor's disposable income (income minus the approved expenses) is being paid into the Plan and if the creditors will receive in total at least as much as they would have received under a Chapter 7 bankruptcy. The Plan generally goes on for 3 to 5 years and if all the monthly payments are made to the Court (which distributes it to the creditors) the unpaid portions of the dischargeable debt is eliminated at the end of the Plan. You might be wondering what happens if your income or required expenses change during the Plan. The Court understands that your situation can change and allows for modified repayment plans to be submitted.
A Chapter 13 bankruptcy sometimes offers a nice benefit in this age of diminished housing prices and underwater mortgages: Lien Stripping. If you have a second mortgage (including home equity lines of credit) and your home is worth less than the amount owed on the first mortgage, a Chapter 13 bankruptcy often allows the second mortgage to be treated as dischargeable debt even if you keep the home. For example, imagine owning a home now worth $190,000 upon which is owed a first mortgage of $200,000 and a second mortgage (or HELOC) of $25,000. A Chapter 13 bankruptcy can allow the $25,000 to be changed from a secured debt that has to be repaid to an unsecured debt that can be discharged at the end of the Chapter 13 process. Reality is usually more complicated than this simple example, though, so call us and we'll be happy to discuss your particular situation to see if lien stripping is a possibility for you.

Bankruptcy The Process (select each topic below to learn more)

When most people think "Courts" and "the Law," they picture lawyers arguing before the judge and jury. This is correct for some areas of law (and is a perception heightened by TV shows), but doesn't normally apply to bankruptcy. The bankruptcy process is designed to avoid having the debtor or attorney (which is hopefully us) appear before the Bankruptcy Judge unless absolutely necessary. Consider this: In 2013 there were over 19,500 individual bankruptcies (Chapter 7 or 13) filed in Massachusetts yet there are only 5 Bankruptcy Judges for the entire state! Each one couldn't handle almost 5,000 cases per year if the process brought you into the courtroom many times. In fact, most debtors never see the inside of the courtroom.
Before explaining how the bankruptcy process is designed to keep people out of the courtroom, consider why people go to the Court in the first place: They are there for the Judge or Jury to decide which party is right and what the outcome should then be. Many times, the parties settle out of court and instead of having to argue their case before the Judge, they merely take the settlement agreement to the Judge to be approved.

The bankruptcy process takes this notion of "settle out of court" to the next level: The process presumes that the bankruptcy filing will be routinely approved unless somebody finds a reason to object to it. Without diving into the details of this, it means that unless someone has an objection that can't be resolved directly between your attorney and the objecting party, nobody has to appear in Court to have the bankruptcy approved. Add to this that motions to the Court and its responses back are done electronically and it is little wonder, then, that routine bankruptcies aren't the subject for exciting TV shows. This is nice since who wants their case to be the equivalent of living in an exciting TV show? Sometimes "boring" is good.

What normally happens? (select each topic below to learn more)

We'll discuss this in more detail with you when we meet, but the bankruptcy process involves four main steps for the debtor; preparing for the filing (which includes taking a roughly one hour seminar), updating the information on the day selected for the filing, attending a "341" meeting, and then taking an additional roughly two hour seminar.

This is generally the hardest of the four steps. Filing bankruptcy requires revealing your entire financial situation to the Court, so we will need to gather information concerning your income, average monthly expenses, debts, the value of the items you own. the recent history of what you've purchased, sold, or given away, along with anything else that pertains to your situation. The time it takes to gather all this information varies widely from person to person and depends upon how complex your situation is. For example, being able to validate someone's income level who works for a company and receives regular paychecks is much easier than being able to prove to the Court the income level of a self-employed person who doesn't keep good books.

During this preparation period, the bankruptcy law requires that you take a short credit counseling seminar that lets the counselor take a quick look at your situation to see if options other than bankruptcy might be appropriate for you. If we saw such options we would have recommended them, but the law requires you to take this seminar before filing for bankruptcy. We'll provide you with a list of agencies that provide this counseling. Some do it in person, some by telephone, and others mostly by internet.
Congratulations! Once the bankruptcy is filed the constant nagging phone calls and letters have to stop since the bankruptcy law forbids creditors from getting in touch with you. Filing day does require some work, however. Since the bankruptcy forms have to be accurate, all the creditors and banks have to be called to get that day's balances. This usually doesn't take too long. After that, we'll go over all the forms with you to make sure they are correct and that you understand each of them and then your bankruptcy will be filed. This is usually a very happy day for most debtors as now they can see the light at the end of their debt tunnel.
About a month after the filing day, a "341" meeting (or more formally called the "Meeting of Creditors") is held. Do creditors actually show up to this meeting? Only rarely. Instead, you'll be meeting with a Trustee, usually another bankruptcy attorney, who was appointed by the Court to represent all of your creditors. The Trustee will have already looked at your filing and will ask questions to confirm the information or to clarify any questions that he/she has. Unless unusual objections are raised by the Trustee or a creditor, this meeting rarely goes on for more than 10 minutes.

Depending upon where the client lives, this meeting is held either in Boston or in Worcester. (Sorry, but you don't get to pick which location you'll go to.) If you live in Essex county the meeting will be held morelikely in Worcester. If you live in Middlesex county, the meeting will be morelikely held in Boston. Our office will offer to drive you to the meeting to relieve some stress and ensure us to be on time. Beforehand and during the car ride, we'll discuss the kinds of questions the Trustees generally ask and, to help calm the inevitable nerves. For those who choose to drive on their own, we will meet the client early at the 341 location so that you can listen to several meetings before yours. Nobody likes being questioned, but most clients come out of the 341 meeting saying "that's it?"
The final step for normal uncontested bankruptcies is for the debtor to take a Debtor Education seminar (also called the Financial Management seminar). This is a bit longer than the Credit Counseling seminar you would have taken prior to the filing day, but is also available in-person, by telephone, or online. The intent of this seminar is to help keep you from getting into future debt problems.
This depends upon the complexity of your situation, but in general if there are no objections, Chapter 7 bankruptcies are completed within three or four months of the filing date and the Chapter 13 repayment plan is approved within the same amount of time. The Chapter 13 bankruptcy, however, is not completed until the number of years specified in the repayment plan has elapsed with each monthly payment having been made, at which time a motion is made to discharge the rest of the dischargeable debt.
As you can tell from the previous pages, we want to help you not by grinding you through a mysterious process, but rather by explaining the process and helping you understand that you are a valuable person who just happens to be in a bad financial situation that might be helped by the bankruptcy laws.

To set up a no cost initial appointment, please call us at 978-557-9700 or fill-out our Free Consultation Form. We look forward to helping you through this emotionally difficult time.

What should I bring to the initial consultation? It is helpful, but not required, if you can bring recent paystubs and credit card statements to the initial meeting.