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Rhode Island Bankruptcy Debtors Catch a Break

by Mark Buckley

Twice a year, the US Census Bureau and the IRS provide data used by bankruptcy lawyers to determine who qualifies for debt relief.  On May, 1, 2012, the new income numbers became effective for all new bankruptcy case filings.  The good news is that median income figures rose for all household sizes in Rhode Island.

Below are the new median income figures that I will use for my Rhode Island clients who need to file for bankruptcy:

  • 1 person household $ 47,798 (up from $ 46,335)
  • 2 person household $ 61,506 (up from $ 59,624)
  • 3 person household $ 68,909 (up from $ 66,800)
  • 4 person household $ 88,990 (up from $ 86,267)
  • Add $ 7,500 for each additional household member above a 4 person household

As a reminder, these are gross income figures.  To determine whether you qualify for Chapter 7 bankruptcy relief, I will examine your trailing 6 months of gross income from all sources, except Social Security and unemployment.  I will then double the gross figure and compare it to the chart above.

Bottom line: Many more who need to file for bankruptcy protection in Rhode Island now qualify.  This window of opportunity may only be available for a short period, so if you are considering bankruptcy, call a qualified RI bankruptcy attorney today.

Filed Under: Blog, Means Test, Rhode Island Bankruptcy Articles Tagged With: Bankruptcy, bankruptcy attorneys, bankruptcy filing, bankruptcy lawyer, bankruptcy lawyers, Chapter 7 bankruptcy, filing bankruptcy in Rhode Island, Mark Buckley, Rhode Island bankruptcy, Rhode Island Bankruptcy lawyer, RI bankruptcy lawyer, RI means test

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

RI Bankruptcy Advice: Tell the Truth

by Mark Buckley

Your Duties to Disclose During Bankruptcy

A successful Chapter 7 bankruptcy requires honesty in order to work. When filing for bankruptcy in Rhode Island (or any state for that matter), honesty is not just necessary: it is mandatory. Anyone filing for bankruptcy should know that they are expected—required, rather—to act in good faith and be completely transparent with their RI bankruptcy attorney and Chapter 7 bankruptcy trustee.

There are three areas in particular where this “duty to disclose” comes into play for those filing for bankruptcy.

(1) Duty to Disclose Pre-Bankruptcy Asset Transfers

Imagine you own a number of expensive assets (real estate, valuable jewelry, multiple cars, perhaps a boat) but have created considerable debt in acquiring them. Scared that you may lose something, you secretly transfer these items to a close relative before filing for bankruptcy, with the intent of taking them back after your debt has been eliminated. This would be considered fraud under bankruptcy law and could be grounds for the denial of your debt discharge. For this reason, you are required to alert your attorney of any and all transfers of interest in the period before you filed for bankruptcy.

(2) Duty to Disclose Payments Made Before Your Bankruptcy

You may or may not have been advised to avoid repaying loans to family and friends prior to filing for bankruptcy. This is partially because of your “duty to disclose” pre-bankruptcy payments, since repaying loans from family and friends in this context can also be considered as fraudulent. In repaying old debts, you have chosen a lesser priority “creditor” over another higher-priority creditor, an action that can have serious repercussions in bankruptcy court. For this reason, any pre-bankruptcy payments beyond what bankruptcy court considers “essential” must be disclosed to one’s bankruptcy attorney.

(3) Duty to Disclose Any Lawsuits

Your “duty to disclose” extends to payments you expect to receive as well. If you are currently involved in a lawsuit from which you expect to receive some form of financial settlement or compensation, you have an obligation to alert your bankruptcy attorney of your situation.

Bankruptcy is a complicated business, so consulting a qualified bankruptcy attorney is an intelligent move for any person struggling with excessive debt. A good bankruptcy attorney can help you make sense of bankruptcy law’s complex procedures and make the most of a difficult financial situation. The Law Offices of Mark Buckley offer free debt consultation and are a good place to start when looking for financial direction.

Filed Under: Blog, Rhode Island, Rhode Island Bankruptcy Articles, Rhode Island Chapter 7 Tagged With: Bankruptcy, bankruptcy court, bankruptcy lawyer, bankruptcy lawyers, Chapter 7 bankruptcy, filing bankruptcy in Rhode Island, Mark Buckley, Rhode Island bankruptcy, Rhode Island Chapter 7, RI bankruptcy lawyer

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