Student Loans and Bankruptcy: What Michigan Residents Need To Know

For residents of Michigan, especially those who have fallen on hard times and might be considering filing for bankruptcy, knowing whether or not student loans can be included in a petition is an important question. Students across America carry an average of $29,000 in student loan debt by graduation. According to The Institute for College Access & Success (TICAS), over 70 percent of college seniors graduate with some amount of education debt. Of that group, 37 percent borrow money from private lenders such as banks or credit unions rather than through government agencies like the Federal Direct Loan Program.

In addition to concerns of physical safety, the Covid-19 pandemic has also created economic uncertainty for many. Michigan’s rate of underemployment (including unemployment and those only employed part-time for economic reasons) was almost two percent higher than the national rate. For these individuals, as well as others who may live paycheck to paycheck, it can be difficult to pay the bills each month. After mortgages, student loans are the second-largest form of consumer debt. When funds are already stretched at the end of the month, this additional expense can put them over the edge. The only relief in sight may be filing for bankruptcy. Many people wonder if filing for bankruptcy on student loans is an option. The short answer is: sometimes.

Types of Student Loans

There are many types of student loans. Some are federal loans or federally backed loans, for which the debtor has borrowed money directly from the government. Other loans, however, come from private individuals or institutions. The type of loan you have may affect its inclusion in the bankruptcy process.

Types of Student Loans that Cannot Be Discharged in Bankruptcy

Student loans cannot be discharged if they meet any of the following three criteria:

  • They are backed by or issued by the government
  • The funds were received as an educational benefit, scholarship, or stipend
  • They are private loans where the student attended an eligible institution and the loan funded only educational expenses

Based on these criteria, more often than not, student loans are not automatically eligible to be discharged during bankruptcy. If a loan does not qualify for discharge under the above standard, you can still discharge student loans if you can prove that the loans constitute an undue hardship. This process, however, is incredibly difficult and requires the debtor to satisfy a three-part test (known as the Brunner Test).

The Brunner Test for Undue Hardship

The three-part Brunner Test is as follows:

First, you must provide proof of your income and expenses to demonstrate that you are unable to maintain even a minimum standard of living.

Second, you must prove that this financial situation is likely to continue for a significant amount of time in the future.

Third, you must prove that you have, up until that point, made a “good faith effort” to repay the student loan. What constitutes a good faith effort is not explicitly defined, and therefore it is left up to interpretation by the court. Though some courts are more flexible and lenient with this provision, others have cited that filing a claim of undue hardship in and of itself demonstrates a lack of a good faith effort to repay.

Although student loan debt can be discharged during bankruptcy proceedings, it is often very difficult to accomplish.

The FRESH START Through Bankruptcy Act of 2021

On August 3, 2021, a United States Senate Judiciary Committee held a hearing to address the issue of student loan debt and bankruptcy. At this hearing, Senator Dick Durbin (a Democrat from Illinois and chair of the Judiciary Committee) and Senator John Cornyn (a Republican from Texas), co-sponsored a bill to reform the current bankruptcy law with regard to student loan debt.

Their effort, known as the “FRESH START Through Bankruptcy Act of 2021,” proposes that federal student loan debt be permitted to be discharged during bankruptcy proceedings beginning ten years after the first student loan payment is due. It also holds Institutions of Higher Education accountable, requiring that colleges partially refund the government if a student’s loans are discharged later through bankruptcy. As the changes would apply only to federal student loans, the bill maintains the undue hardship clause for private loans.

At this time, no further action has been taken.

Frequently Asked Questions Regarding Student Loans and Bankruptcy

Can Michigan residents include student loans when filing for bankruptcy?

The ability to include student loans when filing for bankruptcy depends on the specific type of loan you have and your individual situation. To determine whether you should try to discharge your student loans through bankruptcy, the best course of action is to talk to an experienced bankruptcy attorney. They will be up to date on the latest legal developments and can advise if your case is likely to meet the many complicated criteria. Even if your student loan debt is not discharged through bankruptcy, the proceedings may help to lessen or delay your student loan payments.

 

Will student loan companies come after me if I file for bankruptcy?

The short answer is no, student loan companies cannot come after you if you file for bankruptcy. As long as you meet all of your debt-elimination requirements and provide enough proof that those debts are legitimate and were incurred while you were unable to pay them off, they will be eliminated from your life. However, you also have to prove that there are reasons other than a lack of income or resources why you shouldn’t have to pay back your student loans. Do you need these funds for expenses relating to school like books, food, and transportation? Then you can have them removed from your list. Have low income/high expenses/poor credit because of medical bills stemming from an injury sustained at work or by a loved one with cancer? Your medical bills can go away in bankruptcy too! Even if none of these circumstances apply specifically to you, taking advantage of Chapter 7 bankruptcy, which wipes out most unsecured debt, is still an option worth considering.

 

How does student loan repayment work during bankruptcy?

You may be thinking that, in Michigan, your student loans will be discharged as part of a bankruptcy. After all, unlike in other states, it’s not illegal here to include them in a petition. The good news is that you’re not completely wrong! You can discharge your student loans through bankruptcy but there are some caveats you should know about first. First off, federal student loans and private student loans aren’t dischargeable under Chapter 7 or Chapter 13 (with rare exceptions). So if you have these types of debts, don’t bother listing them on your petition; they won’t go away at all. However, you might still be able to get rid of your federal student loans and/or private ones under another type of filing: Chapter 11 bankruptcy. This rarely-used type of filing allows you to keep your assets intact while reorganizing how you repay certain debts–including student loans that were consolidated under one lender’s repayment plan before you filed Chapter 11. While it sounds great in theory, most Michigan residents who opt for Chapter 11 fail because their finances weren’t dire enough to warrant filing in the first place. If you’re considering using bankruptcy, seek legal help from an experienced Michigander instead of trying DIY methods like forums or guides. A lawyer can assess your situation and give advice based on your individual needs.

 

What is the Student Loan Bankruptcy Abuse Prevention Act (SLBAPA)?

This law, which was enacted in 2005 and went into effect in October 2007, provides that student loans are exempt from discharge during bankruptcy. This means that even if you’re severely struggling with debt and owe millions to creditors, you can still be forced to pay back your student loans or face additional penalties or even criminal charges. The law is colloquially known as the student loan protection act (SLPA). The SLPA amended § 523(a)(8) of Title 11 of the United States Code by adding an obligation to repay funds received as an educational benefit, scholarship, or stipend; In other words: it made repayment of certain educational debts nondischargeable in bankruptcy.

 

Contact An Experienced Michigan Bankruptcy Attorney To Review Your Options

A Michigan bankruptcy attorney can help answer your questions regarding student loan debt and others like it to make sure you know your options when it comes to dealing with your debt problems. Certain benefits of Chapter 7 bankruptcy, such as a fresh start under which a student loan debt can be discharged, are only available if one meets specific income and asset guidelines (in other words: you have to have very little money and assets). The best way for Michigan residents to figure out if bankruptcy is the right choice is to contact Firebaugh & Andrews for your free consultation 734-722-2999

 

How Much Does a Bankruptcy Cost in Michigan?

If you’re facing bankruptcy, you’re likely feeling the financial stress like a ton of bricks. Bills have piled up so high you can’t see, your wages may be getting garnished, and you feel more than stuck. In these situations, paying for a bankruptcy lawyer may seem like something you can’t afford. However, there are affordable options that offer better protection than “discount bankruptcy” companies do. In this article, we’ll break down the real costs of filing for bankruptcy, how to protect yourself throughout the process, and what you need to know about this important financial decision.

Understanding Chapter 7 vs. Chapter 13 Bankruptcies

Upon researching bankruptcy, two terms you’ve probably seen come up a lot are Chapter 7 and Chapter 13 Bankruptcy. We’ll explain both terms in this article, but we recommend scheduling a free consultation with Reinert & Reinert to understand which route may be right for your situation.

Chapter 7 Bankruptcy

Chapter 7 is frequently referred to as the “fresh start” route. It takes less time to complete than Chapter 13, and it can entirely get rid of debts like credit card bills, payday loans, medical expenses, and other unsecured debts. Not only will it rid you of this debt in just a few months, but it also ignites an automatic stay, which is a court order that blocks creditors and other debt collectors from all of the calls and collection attempts. As you can likely imagine, this provides many people a huge relief.

Chapter 13 Bankruptcy

On the contrary, Chapter 13 typically takes more time to complete, and you will still have to pay your obligations through a court-structured repayment plan. This alternative is typically used for more complex financial situations. Chapter 13 allows you to catch up over time while stopping the stress-inducing collection attempts (Chapter 13 employs an automatic stay prohibiting collection attempts, too). This bankruptcy route will come with a three to five-year repayment plan. Depending on your specific situation, you may be able to have your debt discharged or decreased. A large benefit of Chapter 13 is that it allows you to keep certain assets that Chapter 7 may not.

It’s essential to understand that some debts will not be eliminated under either bankruptcy option. These debts may include:

  • Tax and other government obligations
  • Child support
  • Alimony
  • Mortgages
  • Auto loans
  • Student loans

The Hidden Costs of Filing for Bankruptcy

Unfortunately, filing for bankruptcy does cost money. The amount you pay is often correlated with the protection and competency you receive amid the process and thereafter. This is why you should be wary of those advertising “$500 Bankruptcy Filing” offers and the likes. If it sounds too good to be true, it very likely is. A lawyer will analyze your specific situation and direct you on the best steps to take to ensure you are protected and have the means to recover after the bankruptcy has been filed. Making even one small mistake can cost you a lot more money than paying lawyer fees to ensure you get the proper outcome. Keep these things in mind as you proceed with your bankruptcy lawyer cost research:

  1. Hiring a lawyer means you have a coach on your side to ensure you make the right decisions, collect and submit the proper documentation, answer your questions along the way, and keep other important factors in check.
  2. In those low-cost bankruptcy options, often filing fees aren’t included. This means that the “$500 bankruptcy” offer isn’t the full picture. Chapter 7 petition filings cost $335 and Chapter 13 petition filing fees cost $310.
  3. In those “extremely low-cost bankruptcy filing” offers, you won’t have anyone by your side during mandatory meetings, such as the 341 meeting. Imagine showing up alone in front of all of your creditors with just a folder of documentation. Having a bankruptcy attorney with you will ensure you’re more prepared, which will lead to a much better outcome.
  4. Don’t forget about other costs you may be required to pay, including mandatory debt counseling. Not completing this course will derail your efforts, causing your bankruptcy to be dismissed, which means you’ll still owe all of your debts.
  5. You won’t miss any important steps with a lawyer. The process can be complicated, and there are quite a few steps that are crucial for your bankruptcy judgment that you do not want to miss.

If you think you can’t afford a bankruptcy attorney, remember that bankruptcy is meant to reset your financial situation. Your debts will be taken care of so that you can start fresh. If this isn’t done correctly, it could do the opposite for you and leave you potentially worse off in the long run.

How Much Can I Expect to Pay to File for Bankruptcy?

Your bankruptcy fees will, in large, depend on the size of your debt, whether you decide to file Chapter 7 or 13, the specific lawyer you choose, and other facts. The Chapter 7 bankruptcy filing cost range will be anywhere from $1,000 to $3,500, depending on the factors previously listed. Chapter 13 filings will cost anywhere from $1,800 to $6,000. Note that these are the average costs to file for bankruptcy, and you should speak with an attorney to understand his or her specific cost structure, fees, and recommendations.

Commonly, you will have to pay Chapter 7 fees upfront. At Reinert & Reinert, we offer convenient payment plans to help you navigate this cost. We also offer a $0-down payment with Chapter 13 filings.

Frequently Asked Questions about Bankruptcy Costs

In this section, we’ll cover some quick FAQs to help you navigate this stressful financial situation. If you have other questions, call us for your Free Consultation 734-722-2999

Is It Better to File a Chapter 7 or 13 Bankruptcy?

People often want a quick answer to this question, however, it really depends on your situation. Chapter 7 can erase a lot of debt for you in less time, but you may have to sacrifice some assets or property. Additionally, not everyone is eligible to file for Chapter 7. Chapter 13 allows you to retain certain assets and get on a court-structured repayment plan. However, some people don’t make enough money to justify Chapter 13. Note that both options come with an automatic stay.

Will Filing for Bankruptcy Stop the Collection Calls?

Yes, both Chapter 7 and 13 grant automatic stays, which is a court order prohibiting collectors from contacting you about your debts.

How Long Does Bankruptcy Take?

It takes an average of three to five months to go through the bankruptcy process. This may be shorter or longer depending on your circumstances, but here’s a general timeline:

  1. Initial consultation with your bankruptcy attorney
  2. File your case – You can choose when to file your bankruptcy case.
  3. Hearing – This typically happens in about 30 to 45 days following the filing of your petition.
  4. Discharge – In about two to three months following the hearing, creditors will release you from personal liability of certain, specified debts.

Consult an Experienced Michigan Bankruptcy Attorney

Call Firebaugh & Andrews  for your Free Consultation 734-722-2999

Free Consultations: Important for Bankruptcy Cases

If you are looking to hire a bankruptcy attorney then you have likely seen multiple ads that all claim to provide prospective clients with free legal consultations. However, the word consultation means different things to different attorneys and it is, therefore, important to understand what your free bankruptcy consultation will be before you agree to it.
Why is a Free Bankruptcy Consultation Important?

You should think of an initial consultation with a bankruptcy attorney as a job interview with you being the employer. You will, after all, be paying the attorney for a service and you, therefore, have the right to find out if you are comfortable with the attorney and if the attorney has the skills and expertise to get you the best possible outcome in your bankruptcy proceedings.
Many attorneys understand that they are providing you with a service and, accordingly, will not charge you for the initial meeting. This is not only to your benefit but to the attorney’s benefit as well. The attorney needs to conduct an initial case evaluation in order to determine if he or she is qualified to help you and to determine if it is a job that he or she wants.
What Questions Should I Ask If An Attorney Offers a Free Consultation?
While many attorneys realize the importance of providing an initial bankruptcy consultation free of charge, every attorney defines that initial consultation in a different way. There are some questions that you should consider asking any attorney, who is offering a free consultation, including:
  • How Long Is the Free Consultation? Attorney consultations can vary widely in duration. Some attorneys offer free 1 hour consultations and charge for any time over 1 hour. Other attorneys do not put a specific time limit on the consultation session.
  • Where is the Free Consultation? In an effort to keep consultations short and time efficient, some attorneys will only conduct free consultations over the phone or internet. Some clients and some attorneys prefer face to face meetings, however.
  • If I Don’t Retain You, What Happens? The lawyer should be aware that professional responsibility rules in most states limit what the lawyer can do with the knowledge obtained from a prospective client during a consultation meeting.
  • Should I Bring Anything to Our First Meeting? Similarly, would you like anything to review prior to our first meeting? These questions will allow you to come to the meeting prepared to answer the attorney’s questions.
A Free Consult Can Be a Good Start
When an attorney, or his or her office staff, answers your questions about a free bankruptcy consultation, it is important to take note of all of the answers. The way in which the attorney handles your questions and free consultations can be indicative of how the attorney will handle your entire case.
Most clients are looking for an attorney with whom they feel comfortable, and who they trust to do the best job possible in handling their bankruptcy. While this in no way means that an attorney is obligated to give prospective clients free consultations that go on for extraordinary lengths of time, it also means that prospective clients should not full rushed during a free consultation. Rather, each free consultation should be a productive meeting where the attorney and client have a chance to honestly get to know one another and to decide if the attorney is a good match for that particular client. Call Firebaugh and Andrews at 734-722-2999 today for your Free Consultation.

Can you keep your tax refund in Chapter 13 Bankruptcy?

Whether you can keep your tax refund in Chapter 13 bankruptcy depends on several factors. As a general rule you must turn over your federal tax refunds to your chapter 13 bankruptcy plan every year you are in the bankruptcy. You may always keep your state or city refund.

If your bankruptcy plan proposes to pay all your creditors in full, you may keep your federal refund. Even if your bankruptcy plan proposes to pay less than 100% back to your creditors it is still possible to retain all or a some of your federal tax refund. This can be accomplished by either pro-rating your refund and including it as part of your monthly income, or to file a motion with the Judge to excuse your refund.

If you have proof of some extraordinary expenses (large home repair, large car repair, medical expense, etc.) you may be able to keep your refund or part of it to help pay for those expenses. It is a good idea before filing bankruptcy to alter your withholdings for federal taxes to get as close as possible to tax neutral, meaning you do not owe any taxes at the end of the year but you get little or no refund

If you have any questions call Firebaugh & Andrews for your free consultation 734-722-2999

Will chapter 13 be better for my credit score then filing for chapter 11 bankruptcy?

Chapter 7 and Chapter 13 bankruptcy will stay on your credit report for the same amount of time; about ten years. Although they both have the same effect on your credit score, a particular creditor reviewing your report to decide whether to lend you money might view one chapter more favorably than the other. In particular, a creditor might be more willing to lend to you if you filed for Chapter 13 rather than Chapter 7.

Top 10 Facts About Bankruptcy Law

Bankruptcy law in the United States is designed to ensure that no individual faces an undue burden as a result of his debts. If your debts are truly too much to handle, you can declare bankruptcy and some or all of the debt will be forgiven so you can start over with a (mostly) clean slate. Before you declare bankruptcy, though, you should know the top 10 facts about bankruptcy law.

  1. Bankruptcy laws are federal laws and the cases are brought in federal court. This means the bankruptcy laws are the same every place in the entire United States and you must bring the case in federal bankruptcy courts. While these courts may be located in multiple different states, they are still federal courts, not state courts.
  2. You have to petition for bankruptcy with a judge. Filing bankruptcy is not as simple as just turning in some legal papers… you actually have to go to court to do so.
  3. Chapter 11 Bankruptcy is for businesses only. Individual people cannot declare chapter 11. When a business declares Chapter 11 bankruptcy, the business is simply restructured – the company does not close and it can continue to operate, although a trustee may manage the assets.
  4. Some individuals may be required to file Chapter 13 bankruptcy. Under new bankruptcy laws in the United States, if your income is over a certain level – the median income for your state – and your disposable income – the amount you have left over after you pay all your debts – is high enough, then you will not be eligible to file the simpler Chapter 7 bankruptcy.
  5. Not all debts are forgiven when you file Chapter 13 bankruptcy. Under Chapter 13 bankruptcy, you are put on a court mandated payment plan. This means you don’t get a clean slate. You have to pay back a portion of your debts to creditors, depending on how much money you have available to you and how much you owe.
  6. Chapter 7 bankruptcy wipes out almost all debts. If your income is low enough to file for a Chapter 7, this will mean that almost all of your debts are eliminated. Debt collectors will not legally be allowed to contact you about those debts or to attempt to collect the money for those debts.
  7. Student loans and tax debt usually can’t be eliminated in any bankruptcy. Unless you can prove “undue hardship” which essentially means that you will be completely unable to maintain a nominal standard of living if forced to pay back your student loans or taxes – you will have to pay. The undue hardship test is very hard to pass. Normally, only those who have become totally and permanently disabled or who have otherwise experienced a dramatic shift that makes them unable to pay, are eligible.
  8. Creditors can occasionally force you into involuntary bankruptcy. If your debts are extremely high, creditors can petition the court to ask the judge to declare you bankrupt. If the judge does so, he may put you on a court mandated payment plan.
  9. You may be able to keep your home, even when you declare bankruptcy. There are homestead exemptions in most states that allow you to keep your house, no matter what kind of bankruptcy you declare. Your house generally can’t be worth more than a certain amount in order for it to be eligible for the exemption, and you will have to be or become current on your mortgage payments to stop the bank from foreclosing.
  10. Bankruptcy stays on your credit report for 10 years after filing. This may make it difficult to qualify for credit or to rent an apartment or buy a home.

Call Firebaugh & Andrews today for your free consultation to see what is your best option 734-722-2999

If you file bankruptcy will you lose everything? 10 bankruptcy myth busters

Bankruptcy Myths #1: If I file for bankruptcy, I will lose everything.

This is a common misconception that keeps people who really should file for bankruptcy from doing it.  Federal and Michigan laws provide exemptions that can protect (up to a certain value) assets, such as your house, your car, money in qualified retirement plans, household goods and clothing.  For most people, they’ll lose nothing in the bankruptcy process!

Bankruptcy Myths #2: If I file for bankruptcy, I will never again be able to buy a house or a car.

Many of our clients are able to obtain new cars after completing the bankruptcy process.  However, each lender varies in their business practices so you may need to shop around.  Lenders take other factors into account as well, such as current employment, current income, and credit history.

To purchase a new home it usually takes a bit longer.  It typically takes about two years to get a house after you file for bankruptcy.

Bankruptcy Myths #3: If you’re married, both spouses have to file for bankruptcy. 

If one spouse has a significant amount of debt in their name only, it may make sense for only one spouse to file.  However, if there are joint debts then it may be prudent for both spouses to file.   If there are joint debts and only one spouse files then the creditor may still attempt to collect the debt from the non-filing spouse.

Bankruptcy Myths #4: I won’t ever be able to get credit after my bankruptcy.

Many of our clients are shocked by how quickly they’ll start getting credit card offers in the mail again.  By opening a new credit card and habitually making on-time payments your credit score will quickly improve beyond pre-filing levels.  Please see our credit repair kit to view other ways to increase your credit score. We help our clients increase their credit scores through bankruptcy. It’s also important to monitor your credit score.

Bankruptcy Myths #5: People who file bankruptcy are financially irresponsible.

There are a multitude of reasons that people need to file for bankruptcy, many of which are out of their control.  Often it is because people run into very serious personal problems such as a job loss, serious medical issues, or a divorce.  Unemployment, the cost of running two households following divorce, or the cost of medical care have all driven well-intentioned Americans into bankruptcy.  It’s financially irresponsible to avoid your creditors, ignore your bills and drive yourself further into debt.  Millions of well-intention-ed Americans have filed for bankruptcy and come out stronger and more successful!

Bankruptcy Myths #6: You can’t get rid of back taxes in Bankruptcy.

Certain federal, state and local taxes can be discharged under the bankruptcy laws.  There are several qualifications that must be met, but once these are met, the taxes may be discharged.

Bankruptcy Myths #7: It’s really hard to file for bankruptcy

Although there were new laws enacted in 2005, the new laws were drafted to prevent fraud and bankruptcy abuse.

Bankruptcy Myths #8: Everyone will know you have filed for bankruptcy.

It is unlikely anyone will know that you have filed for bankruptcy unless you tell them.  While bankruptcy is a matter of public record, someone would have to specifically track down the information using your personal information in order to find out if you filed for bankruptcy.

Bankruptcy Myths #9:  You can’t afford to hire an attorney.

At Firebaugh & Andrews , initial consultations are FREE!  Money is never a reason we turn clients away.  We pride ourselves on our flexible payment plan options which can be customized to your unique circumstances.  In our experience, the worst thing a client can do is obtain legal advice from the internet, co-workers, family or friends.

Bankruptcy Myths #10: There is a minimum amount of debt required to file for bankruptcy. 

There is no minimum amount of debt required to file for bankruptcy.  Every situation is unique.

Call Firebaugh & Andrews today for your free consultation 734-722-299

The Wildcard Exemption in Bankruptcy

Federal law and some states offer a “wildcard” exemption in bankruptcy that can protect any property you choose from creditors

A wildcard exemption comes in handy because it allows you to save property that you wouldn’t be able to protect otherwise. For instance, you might use it on sentimental (yet valuable) property, such as your grandmother’s player piano, or your childhood collection of baseball cards.

In this article, you’ll learn how the wildcard exemption works to save the property that’s important to you.

How Bankruptcy Exemptions Work

When you file for bankruptcy, you’re allowed to use bankruptcy exemptions to protect property you’ll need to work and maintain a home, such as a modest car, household belongings, clothing, and a small number of tools for your business or profession. Each state has a set of state exemptions. Some states provide a choice between the state and the federal exemptions (but you can’t mix and match between the sets).

Most exemptions protect particular property. For example, if your state has a motor vehicle exemption, you’ll be able to use the amount of that exemption towards your car or another motor vehicle, but not another asset type. For instance, you couldn’t use your leftover motor vehicle exemption to exempt money in your bank account.

Here are a few federal bankruptcy exemptions (check your state exemption laws):

  • $23,675 of equity in a residence
  • $3,775 in a car or motorcycle
  • $12,625 in household goods (furnishings, appliances, bedding, clothing, garden tools, and the like), and
  • $2,375 for tools that you need in your business or profession (amounts will change in 2019).

What will happen to property you can’t exempt? It will depend on the bankruptcy chapter you file.

  • Chapter 7 bankruptcy. You’d typically be required to relinquish the property to the Chapter 7 bankruptcy trustee—the person responsible for overseeing your case—to be sold for the benefit of your creditors.
  • Chapter 13 bankruptcy. You can keep all of your property, but you’ll have to pay at least the value of your nonexempt property over the course of your three- to five-year Chapter 13 repayment plan.

A Wildcard Exemption Lets You Choose the Property You Protect

A true wildcard exemption isn’t limited to a specific property type. You can use it to exempt any property of your choosing. For instance, you’ll decide whether to use it on your car, money in the bank, expensive artwork, or any other asset you own. You can also split it between multiple assets, or combine it with other exemptions.

Example. Your state has a $3,000 motor vehicle exemption and a $5,000 wildcard exemption. If you own two cars worth a total of $8,000, you can use the motor vehicle exemption to exempt $3,000 of one car, and the wildcard exemption to exempt the remaining $5,000 in equity. Without the wildcard, the Chapter 7 trustee would likely sell both vehicles, pay you the $3,000 exemption amount, and use the balance to pay creditors. In a Chapter 13 case, you would have to pay for the nonexempt portion in your repayment plan.

How Much Is the Wildcard Exemption?

Not all states have wildcard exemptions, but for those that do, the value will vary. You’ll find a wildcard in the federal bankruptcy exemption scheme, too.

  • Federal wildcard exemption. The federal wildcard exemption is currently $1,250 plus up to $11,850 of any unused portion of the federal homestead exemption. (If you’re married and filing a joint bankruptcy, you can double these amounts.) For a single filer without home equity, the federal wildcard exemption is $13,100. Residents of Alaska, Arkansas, Connecticut, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington, Wisconsin, and the District of Columbia can use the federal bankruptcy exemptions instead of your state exemptions. Residents of other states cannot.
  • State wildcard exemptions. You’ll need to check your state exemption statutes to determine whether your state has a wildcard exemption and if it does, how much you can protect. Some states have additional rules, too. For instance, you might be able to apply the unused portion of your homestead to any property (which essentially acts as a wildcard exemption).

Questions? Call us for your free evaluation 734-722-2999

Checklist: Documents To Show To Your Bankruptcy Attorney

Bankruptcy is not a simple matter with minor consequences. Rather, it may involve complex dealings with bankruptcy court and creditors. It could also have a major impact on your daily life. Filing for bankruptcy can affect your credit and property. Naturally, this is a stressful situation that you never envision yourself being in. The situation can be made easier by making the proper choices such as hiring a competent bankruptcy attorney and collecting and organizing your financial data.

When faced with credit problems and potential bankruptcy, hiring an attorney might be the answer to getting your financial life back on track. If you’re planning to contact an attorney, use the checklist below to gather the documents that the attorney will need to see to provide you with the best advice and representation. Oftentimes, people do not know where to start and what to do. This checklist will be a useful proactive tool so you can begin collecting and organizing the proper paperwork.

Financial Records

Your financial records are some of the first documents you should collect. These records will help determine which type of bankruptcy is best suited for you. For example, your financial documents can show you have regular income, meaning your best fit may be Chapter 13 bankruptcy. This may have huge implications because Chapter 13 will allow you to keep possession of your property and pay your debts over time.

  • Most recent bank statements
  • Most recent bills from every creditor
  • Most recent payment coupons for vehicles (lease or purchase), real estate, and student loans
  • Bills or invoices for purchases in the last year
  • Receipts

Legal Records

Any legal history or pending litigation involving you is information you’ll want to disclose to your attorney. Previous judgments against you show debts that will factor in to determining which bankruptcy is right according to your financial situation. In addition, any pending litigation or current court order will determine how much you can afford to pay your creditors at this time.

  • Files from previous litigation, including especially any judgments that have been entered against you
  • Files from previous attorneys
  • Any divorce decree or other court order that requires you to pay child support or maintenance

Additional Documents

The following list below is a combination of assets you own and verification of your income. A proper, thorough organization of your assets is extremely important to show you have a set income level. This income determination can be essential in proving you can repay your debts over a period of time or in proving a lack of income.

  • Canceled Checks for any expense you cannot otherwise document
  • ALL your correspondence with or regarding creditors, especially threat letter
  • ALL insurance policies
  • Tax returns for the last three years
  • Vehicle titles
  • Your lease or mortgage
  • Any promissory notes you have signed
  • Other documents relating to debts you owe other people
  • Any proof that anyone owes you money
  • Any lawsuits with which you have been served

Firebaugh & Andrews will make sure all your questions are answered, call today for a free consultation 734-722-2999

 

WHAT HAPPENS TO A LAND CONTRACT PURCHASE OF REAL ESTATE WHEN THE PURCHASER FILES FOR BANKRUPTCY?

When a property is purchased on contract, land contract or some other form of agreement where the purchaser is renting to own real estate and the purchaser files for bankruptcy it can leave the seller in a precarious position. This is where an experienced Bankruptcy Attorney  can help. One of three things is likely to happen depending on the circumstances:

First, the seller may file a Motion for Relief from Stay and seek to foreclose the land contract and evict the purchaser from the property. A Motion for Relief from Stay allows the seller to commence eviction proceedings after the Court issues an Order lifting the Automatic Stay as to that property and the land contract. The purchaser will likely not being making his/her/their payments on the land contract and after the Order is issued then the seller can file a civil lawsuit or a small claims eviction lawsuit seeking eviction. Purchaser’s obligation will generally be discharged in the bankruptcy and seller can only seek return of his/her/its possession of the property and not any back rent, damages or other money claims against purchaser.

Another option is that the purchaser and seller may agree to allow the land contract to remain in effect. Generally, a purchaser must be up to date in his/her payments to keep the land contract and possession of the property. In this case, the parties must execute a Reaffirmation Agreement which must be approved by the Court for the contract to remain in full force and effect. If this occurs, then the land contract is not discharged and the purchaser basically remains responsible for all terms of the land contract as though no bankruptcy has been filed.

Another outcome will be that the purchaser and seller can continue forward as though no bankruptcy has been filed. If the purchaser receives a discharge, it will discharge the land contract’s terms as to the seller and the seller will have no recourse for damages unless a new contract is signed after the bankruptcy was filed or a reaffirmation agreement has been approved by the Court. This is the preference of most parties because it avoids cost and obligations; however, it is not recommended that seller’s proceed with this type of arrangement because they lose the ability to claim damages from the purchaser if a default occurs in the future.

Whether you are a Seller or a Purchaser, a skilled  bankruptcy lawyers at Firebaugh & Andrews  can help you negotiate a Reaffirmation Agreement and get it approved by the Bankruptcy Court so that land contract remains in force. Give us a call today to see our solutions for land contracts in bankruptcy. 734-722-2999