Texas Bankruptcy Blog : Texas Bankruptcy Lawyer & Attorney : Fears Nachawati law Firm : Chapter 7, Chapter 13, Consumer Bankrutpcy : Dallas, Fort Worth, Austin, Houston, San Antonio

Over 70% of all consumer bankruptcy cases are filed under Chapter 7 of the Bankruptcy Code. While “going along with the crowd” is not a good reason to file Chapter 7, there are good reasons to choose Chapter 7 over Chapter 13. Below are five common reasons why bankruptcy debtors choose Chapter 7:

Reason 1: File Chapter 7 when there is no good reason to file Chapter 13
Chapter 13 contains very useful and powerful tools that can save property (like a house or a car), can strip off an unsecured second mortgage, or can even keep the IRS off your back. When there are no assets at risk, and the debtor does not need on-going court protection, there may not be a good reason to file Chapter 13.

Reason 2: Chapter 7 is quicker
Most Chapter 7 bankruptcy cases will close between three to five months. Chapter 13 cases run three to five years.

Reason 3: There is no repayment plan in Chapter 7
The Chapter 13 debtor proposes a plan to repay his creditors. The debtor pays what he can to his creditors over three to five years. In a typical Chapter 7 case, unsecured creditors receive nothing and are discharged at the end of the case. Secured property is either surrendered back to the creditor, or the debtor reaffirms the debt and continues to pay just as before the bankruptcy.

Reason 4: There is not extra income to pay creditors
Chapter 7 is generally not available where the debtor’s income exceeds his state median income and demonstrates an ability to repay his creditors. When there is no extra money to pay creditors, it may make more sense to “start fresh” with a quick bankruptcy discharge.

Reason 5: It costs less to file Chapter 13
The typical Chapter 7 no-asset case is simple and straight-forward. Chapter 7 is completed within about three to four months. The typical Chapter 13 case involves assets the repayment of a debt or debts over three to five years. Consequently, attorneys charge more for Chapter 13 cases.

If you have financial problems that won’t go away, speak with an experienced attorney and consider your options under the federal Bankruptcy Code. An experienced bankruptcy attorney can explain the benefits of Chapter 7 and Chapter 13, and help you develop a plan to solve your financial dilemma.

4925 Greenville Ave Suite 715, Office 1, Dallas, TX 75206 (214) 890-0711  Google Reviews ‎  |  Firm Website  |  Texas Bankruptcy Blog  |  Directions

When a debtor files a bankruptcy case, notices of the meeting of creditors is sent to all the creditors of the debtor.  The meeting of creditors is also called the trustee’s meeting and the 341 meeting (after section 341 of the bankruptcy code which compels the meeting).  This notice informs the creditor, among other things, that the debtor has filed a bankruptcy; of contact information for the debtor’s attorney and the trustee assigned to the case; and of the date, time and place of the meeting of creditors.

While notices are sent to all of your creditors the odds are that no creditor will appear at your meeting of creditors.  If a creditor does show up, it is almost always a local creditor, like a local bank seeking information regarding a secured loan, or individual creditor.  It is rare to see a representative of a national creditor at a meeting of creditors. 

The main reason that creditors do not appear at the meeting is that creditors are not allowed much time to ask questions of the debtor.  What the creditor can gain from the meeting does not justify the expense of sending a representative.  The bankruptcy trustee conducts a busy docket of bankruptcy debtors and is required to question each debtor.  Consequently, the trustee will only allow a few minutes for any creditor questions, and will not permit any “fishing expeditions” from a creditor.  A creditor who needs more time for questioning the debtor can schedule a private examination called a “section 2004 exam.”  Section 2004 exams are extremely rare.

Most individual creditors who appear at a meeting of creditors do so because they do not understand the process.  Individual creditors usually believe that their attendance is important to maintain their claim against the debtor.  The questions are generally inane, like: “Are you going to pay me?” or “You promised to pay me, right?”  The trustee cannot give legal advice to creditors, so without an attorney the individual creditor is usually left floundering.

When a creditor is represented by an attorney, the questions generally concern the debtor’s schedules of assets, liabilities, income, and expenses.  These questions may seek to uncover inconsistencies in the schedules.  Questions that go beyond the schedules may be objected to by your attorney.  The trustee will not permit the creditor to engage in a deposition of the debtor with the trustee acting as judge.

If you expect a creditor to attend your meeting of creditors, discuss the matter with your attorney.  While the ordinary bankruptcy case will not have creditors in attendance at the meeting, every case is unique.  Discussing your case with your attorney is the first step in being prepared for creditors at the meeting.

The Federal Trade Commission has recently announced new rules that will prevent debt collection firms from charging customers up-front fees.  The FTC's new rules take effect October 27, 2010, and apply to telemarketing by for-profit debt settlement services, credit counseling services and debt negotiation companies.  These for-profit companies may not charge customer fees until a debt is successfully renegotiated, settled, or reduced.  The FTC rules do not apply to in-person or internet-only sales.  Nonprofit credit counseling services are also not covered by the new rules. 

Other new FTC rules set to take effect earlier, on September 27, 2010, forbid debt settlements from misrepresenting their services; require specific disclosures about costs and services; and mandate disclosures and fee protections available to customers who call in response to advertising.  These new rules are the FTC's response to thousands of consumer complaints to the Better Business Bureau and federal and state agencies. 

While under certain circumstances debt settlement can be a viable alternative to bankruptcy, debt settlement only benefits a small percentage of borrowers.  For most consumers, the remedy of debt settlement is worse than the illness of debt.  Debt settlement generally boils down to outlasting the creditor to the point that the creditor believes that bankruptcy is inevitable.  The creditor finally decides that some money is better than no money, but by that time the consumer has suffered serious harm. 

The debt settlement process contains many dangers including significant damage to your credit report, increased balances from fees and interest, creditor harassment, and possible litigation.  Many consumers are unaware that a settled debt is a taxable event.  Any forgiven balance that exceeds $600 is taxable income.  Debt settlement customers are often surprised by a bill from Uncle Sam after their debt is settled. 

Bankruptcy is generally a better choice for families struggling with overwhelming debt.  A bankruptcy can discharge your legal obligation to pay certain debts, or provide time to pay what you can afford through a court-supervised repayment plan.  There is no creditor harassment, increased fees, or litigation.  Any debt discharged in bankruptcy does not create a tax debt. 

Just as the title implies, filing for Chapter 7 is like hitting the reset button on your favorite electronic device. Everything disappears. After your Chapter 7 is discharged, you end up erasing the debt that was once there. In order to qualify for a Chapter 7 bankruptcy in the Fort Worth/Dallas region, you must:

1.      File a Chapter 7 petition.

2.      Pay your filing fee to the court clerk. There are waivers available for some applicants.

3.      Take a credit-counseling course approved by the bankruptcy court within 6 months of filing for Chapter 7.

While the initial process seems simple enough, the petition contains many forms that require a strong understanding of bankruptcy law. The court clerk cannot help you fill

out the forms. Once the forms are filled out appropriately and submitted to the bankruptcy court, an automatic stay is put in place that will immediately halt all collections efforts from creditors. This mean they will no longer be able to make harassing phone calls or place liens on your assets. In some cases, liens already in place can also be reversed.

Once your Chapter 7 bankruptcy is discharged, you are basically starting over with a clean slate. The debts are erased and you will no longer be held liable to pay them.

For more detailed information how Chapter 7 can help you start over debt free, contact bankruptcy law firm, Fears | Nachawati, toll free at 1.866.705.7584 or via e-mail at info@fnlawfirm.com.