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Top 7 Reasons To File Chapter 7 vs Chapter 13

by Mark Buckley

The US Bankruptcy Code provides a number of choices to people struggling with debt. The most popular choice is to file a Chapter 7 Bankruptcy petition. Here are seven reasons why.

  1. Time—A normal Chapter 7 bankruptcy case takes about 100 days from beginning to end. After a brief creditor’s meeting one month into the process, the case ends two months later.
  2. Property—Because federal and/or State exemption laws allow a debtor to protect their assets, most Chapter 7 filers do not lose any property. The bankruptcy trustee handles most cases as “no asset” cases, meaning that the debtor is not required to forfeit any property.
  3. Cost—Filing under Chapter 7 is considerable cheaper than filing under Chapter 13.  Even though lawyer fees may differ from state to state, most bankruptcy attorneys will quote a fee that is fair and affordable. Bankruptcy lawyers who practice exclusively in bankruptcy (not general practitioners) understand you don’t have extra money to overpay for their services.
  4. Repayment—You are not required to repay unsecured non-priority creditors like credit cards, utility bills, personal loans, or medical bills. If you created your debt in good faith and no creditor objects to your bankruptcy, most unsecured credit obligations will be destroyed in your bankruptcy.
  5. Privacy—Record of your bankruptcy is only accessible in the court system. In most cases, the only people who will know you filed for bankruptcy protection are you, the court, and your creditors.
  6. Credit—Most people who file under Chapter 7 can reestablish credit shortly after their bankruptcy concludes. (Your debt to income ratio improves once your debt has been eliminated: the first step towards rebuilding your credit.)
  7. Stress—Most chapter 7 filers never set foot in a courtroom.   Instead, they merely attend a brief, informal hearing with the trustee assigned to their case.

Filed Under: Blog, Exemption Laws, Rhode Island, Rhode Island Bankruptcy Articles, Rhode Island Chapter 7 Tagged With: Bankruptcy, bankruptcy filing, bankruptcy laws, bankruptcy lawyers, Chapter 13, Chapter 7 bankruptcy, credit card, filing bankruptcy in Rhode Island, filing for bankruptcy in RI, Mark Buckley, Rhode Island bankruptcy, Rhode Island Bankruptcy lawyer, RI Bankruptcy Court, RI bankruptcy lawyer, ri-bankruptcy.com

A Unique Opportunity: Second Mortgages in Chapter 13

by Mark Buckley

Guest post by South Carolina Bankruptcy Lawyer Lex Rogerson.

If you’re trying to decide which approach to bankruptcy is best for you, the prospect of writing off a second mortgage can be a powerful reason to consider filing Chapter 13.

Chapter 13 carries certain disadvantages for consumer debtors as compared with Chapter 7.  The fees are higher, the bankruptcy case continues for years instead of months, and the debtor usually has to pay some creditors who might get nothing if he filed Chapter 7.  So there has to be a good reason to choose Chapter 13.

Traditionally the most common reason is that Chapter 13 lets debtors catch up with delinquent mortgage payments in an orderly way.  But with real estate values down an average of 30% over the last few years, an increasingly common reason to file Chapter 13 is to strip off an “underwater” second (or third) mortgage.

Let’s start by looking at how secured debts are treated in bankruptcy.  In Chapter 7, for the most part, secured debts pass through unaffected.  If you have two mortgages when you file Chapter 7, you will almost always have two mortgages when you finish your case.  You cannot strip off a mortgage in Chapter 7.

By comparison, in Chapter 13, secured debts generally are paid in full.  But unsecured creditors are often paid a nominal amount, possibly as low as one to two percent of their claims.  If a debt can be classified as unsecured, the debtor can likely eliminate it with a minimal payment.

Now, we typically think of a mortgage as a classic secured debt, because the creditor has a lien on the home or other real estate to secure payment.  But the Bankruptcy Code has a special definition of secured debts.  Under Section 506, a debt is secured only to the extent of the value of the collateral.  So if I own a TV worth $200 but owe $300 on the TV, the creditor has a secured claim of $200 and an unsecured claim for the remaining $100.  We refer to this as bifurcating the claim or “cramdown.”

With home mortgages, it works a little differently.  In order to encourage mortgage lending, Congress has decreed that first mortgages on residential real estate cannot be crammed down.  So while Chapter 13 can help you catch up with a first mortgage if you are behind, it cannot reduce the total amount required to pay off the mortgage debt.

The situation can be different for second mortgages.  If the value of the property is less than the payoff on the first mortgage, the second mortgage has no remaining value to “attach to.”  In effect, the first mortgage eats up all the value of the property, leaving none for the second.  In this situation, the second mortgage can be classified as fully unsecured.  This means the debt to the second mortgage holder, like any other unsecured debt, can be discharged, usually with only a nominal payment.  We refer to this as stripping off the second mortgage.

To illustrate how this works, let’s say you have a first mortgage with a balance of $100,000 and a second of $40,000.  If your home is worth less than $100,000, your Chapter 13 plan can classify the second mortgage as an unsecured debt and usually pay it off at pennies on the dollar, because the first mortgage eats up all the value in the home.  But if your home is worth $100,001, the entire second mortgage survives and must be paid in full.

Because determining real estate values is not a precise matter, it is not always possible to tell for sure whether a stripoff will succeed.  But the potential upside is tremendous: the debtor can emerge from Chapter 13 after three to five years with only one mortgage instead of two, and without paying a substantial amount on the second.  It’s an opportunity you will want to discuss with your RI bankruptcy attorney if your second (or third) mortgage may be underwater.

One last wrinkle.  If the value of the property is more than the first mortgage payoff  – even if only a few dollars – this leaves some value in the property that the second mortgage can attach to.  The second mortgage then gets the same protection as the first.  It must be paid in full.  It’s an all-or-nothing proposition.  Any value beyond the first mortgage means the second mortgage survives.

Filed Under: Blog, Chapter 13, Personal Finance, Rhode Island Bankruptcy Articles Tagged With: bankruptcy attorneys, bankruptcy lawyers, Chapter 13, filing bankruptcy in Rhode Island, Mark Buckley, Rhode Island, Rhode Island bankruptcy, Rhode Island Bankruptcy lawyer, RI bankruptcy lawyer, RI bankruptcy lawyer Mark Buckley, RI Chapter 13, SC bankruptcy lawyer Lex Rogerson, second mortgage, stripping off mortgage

How To File a Chapter 7 Bankruptcy Petition

by Mark Buckley

For the last 30 years, I’ve been drawing pictures and timelines to explain to my Chapter 7 bankruptcy clients how the process works. I finally decided to make a video and hope you find it helpful.

Filed Under: Blog, Rhode Island Bankruptcy Videos, Rhode Island Chapter 7 Tagged With: Bankruptcy, bankruptcy attorneys, bankruptcy court, bankruptcy courts, bankruptcy drawing, bankruptcy filing, bankruptcy lawyer, bankruptcy lawyers, bankruptcy timeline, Chapter 13, Chapter 7 bankruptcy, credit cards, debt, filing bankruptcy in Rhode Island, Mark Buckley, pri-sidebar, Rhode Island bankruptcy, Rhode Island bankruptcy law, Rhode Island Bankruptcy lawyer, Rhode Island Chapter 7

Which Debts To Pay First

by Mark Buckley

Re-prioritizing Your Bills

You may have been advised by experts to pay off high-interest debt before other expenses. In most cases, this advice is quite sound; however, did you know that there are certain times in which it is best to pay off debts with lower interest rates first?  Don’t exhaust your limited resources without first prioritizing your debt obligations.

NerdWallet financial expert Tim Chen says, “When you have several different types of debts and your income isn’t quite keeping up with your total expenses, it can be tough to figure which debts to pay first. Ignoring high priority debts and focusing on less important ones may ultimately leave you in a worse situation than you were before. It’s often helpful for many people to have a table that lists their debts in order of highest priority to lowest.”

Here are some tips to help you re-prioritize your personal expenses?

First, start with secured debts—debts associated with assets that can be repossessed or otherwise seized. Your car and your house keep you moving, protected, and able to look for work, and as such they should be your first priority as far as protection is concerned. In the event that paying for even these most basic of priorities becomes untenable, Chapter 13 bankruptcy offers makes it possible to re-sort your finances, restructure your payments, and satisfy your creditors.

Deal with debts that can result in serious penalties second. Failing to pay off certain kinds of debt can result in serious penalties (including prison time.) Clearly, it is best to resolve these financial shortcomings as soon as possible.

The next debts to clear are those for services that require continued use. There are certain services that we simply cannot do without—electricity, running water, medical aid in the event of injury. Failing to recompense your doctor for his services will probably require you to find another, and late payment on utilities bring financial penalties with them. Although increasing numbers of doctors and utilities are willing to work with you on payment plans during these difficult economic times, you need to try to pay off debts associated with these services in a timely manner.

Finally, leave your unsecured debts (debts with no assets backing them) for last. Although the creditors of these debts may harass you while you make more pressing payments, they are unlikely—and in many cases unable—to repossess your property and more willing to work something out with you. If you still can’t cover your credit card debt after eliminating the first three varieties of debt, you should probably consider filing for Chapter 7 bankruptcy, which removes unsecured debt in order to allow you time to save for higher priority expenses.

If you are one of the millions of Americans in financial trouble, consult a qualified bankruptcy attorney.

Filed Under: Blog, Personal Finance, Rhode Island Bankruptcy Articles, Rhode Island Chapter 7 Tagged With: Bankruptcy, bankruptcy filing, bankruptcy lawyer, Chapter 13, Chapter 7 bankruptcy, credit card, debt, filing bankruptcy in Rhode Island, Mark Buckley, Rhode Island bankruptcy law, RI bankruptcy lawyer

“How Much Do You Charge To File Bankruptcy”

by Mark Buckley

A percentage of callers always begin with that magic question:  What do you charge for bankruptcy?

Price is always a fair question when it comes to hiring any professional.  If I were paying a plumber to fix a toilet, or a dentist to pull a tooth, I want to know two things:

  1. is he experienced to do the job
  2. is his fee reasonable for my particular job

Sometimes you strike a good deal and sometimes you don’t.  Hiring a bankruptcy lawyer is no different.  Sit in on some Rhode Island bankruptcy court hearings in Providence for a day and you will quickly discover that good bankruptcy lawyers know what they are doing, but many “general practice” lawyers do not.

You will also determine which lawyers are running bankruptcy mills.  I have seen some lawyers file 30 cases at once, miss filing deadlines and receive court sanctions for their poor representation.  Don’t be fooled by the big billboards, the radio advertisements or their claims of filing more cases than any other firm.  You should hire a lawyer who is respected by the court and the bankruptcy trustees; not someone who has a reputation of cutting corners and being unprepared.

So, back to the question of “price”.  What do I charge for a Chapter 7 bankruptcy?  It truly depends on what your case looks like.  Its not like buying a gallon of gas where you just buy it from whoever is the cheapest.  Bankruptcy is anything but a one-size-fits-all situation.  Tell me your story first, we will explore all options, and if we are a good fit, I will quote you a price you can afford.  (And yes, I do realize that if you had a lot of money, you wouldn’t be needing to call me.  I get it.)

Filing for bankruptcy is a very complex process with specialized procedures tailored to your individual situation.  Remember, your legal costs correspond to the complexity of your bankruptcy case.  Fortunately, bankruptcy attorney fees are relatively inexpensive in comparison with the relief of having your debt cleared once and for all.

Another factor that will influence the amount of your bankruptcy attorney fee is the length of time your case will take to run its course. Generally speaking, a more complicated case will take longer for a bankruptcy lawyer to see through, resulting in higher prices than would be charged for a short, simple case.  Easy cases should be done quickly and inexpensively.  That is why I charge the lowest fee to a senior citizen, living on Social Security, with no real estate and only a few credit cards.

The costliness of your legal fees also depends on the size and volume of your assets and debts. In most cases, your legal bills will be lower the fewer assets, properties, cars, investments, and debts you have accrued. The Law Offices of Mark Buckley can provide an initial consultation to determine the value of your assets, and, consequently, determine the cost of your bankruptcy case.

Lastly, the amount of money you pay to file for bankruptcy is directly related to the type of bankruptcy you file under. When a client files bankruptcy under Chapter 13 of the US Bankruptcy Code, for example, his attorney can put the majority of his attorney fee in the Chapter 13 plan, a payment scheme that demands less money up front from the person filing.

As a RI bankruptcy lawyer practicing for 21 years, I have counseled thousands of good people struggling with bad debt problems.  If you are getting collection calls, being sued for wage attachment, or just simply getting close to your breaking point, its time to call a professional.

Filed Under: Blog, Rhode Island Bankruptcy Articles, Rhode Island Chapter 7 Tagged With: Bankruptcy, bankruptcy court, bankruptcy filing, bankruptcy lawyer, bankruptcy lawyers, bankruptcy low fees, Chapter 13, Chapter 7 bankruptcy, cheapest bankruptcy, credit card, debt, filing bankruptcy in Rhode Island, how much to file Chapter 7, Mark Buckley, Rhode Island, Rhode Island Bankruptcy lawyer, Rhode Island Chapter 7, RI Bankruptcy Court, RI Chapter 7, what does bankruptcy cost

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