Mark Buckley

Pros and Cons to Consider Before a Providence Bankruptcy Filing

Providence, Rhode Island — Providence River

When is a Providence bankruptcy filing the right choice for your debt problems? For each person, the answer is different.

Some debtors are so overwhelmed with credit card debt, it affects their health. Others experience strained family relationships, or difficulty concentrating at the workplace.

They feel as though they were treading water in the middle of a great ocean; sinking fast with no land in sight.

Although a Providence bankruptcy filing is not typically anyone’s first thought, the majority of clients make the bankruptcy decision after running out of options. They can’t improve their income, or cut their living expenses any further. There is no “extra money” to cover anything beyond the basics: shelter, food, transportation, medicine, etc.

Aggressive debt collection and lawsuits often force a debtor to calling a Providence bankruptcy lawyer. I have helped 100’s of clients with debt problems in the greater Providence area who were tired of the phone calls and legal threats.

Bankruptcy can really turn things around for someone who wants to improve their overall financial health. It worked for Walt Disney, H.J. Heinz, Milton Hershey and Henry Ford. Each allowed bankruptcy to solve their financial problems and each later achieved spectacular success.

As you determine the best path to deal with your debt situation, consider the following pros and cons to filing for bankruptcy relief.

Possible Disadvantages to filing bankruptcy

1 – You have to stop living on credit cards

Most people prefer to have a safety net when doing something dangerous. And life can be dangerous, or at least dangerously expensive. Ideally, 6-8 months of our fixed living expenses should sit in a bank account ready to act as our safety net. Without such savings, however, people often rely on costly credit cards as a substitute. As you would guess, all credit card accounts will be closed when you file bankruptcy; even accounts that have a zero balance.

2 – One bite at the apple . . . . At least for now

After a Providence bankruptcy filing, you would be unable to file another Chapter 7 bankruptcy case within 8 years of receiving a discharge. A second Chapter 13 bankruptcy case has special waiting periods as well. A qualified bankruptcy lawyer can explain important factors to help you determine if it is better to file bankruptcy now, or to wait.

3 – Who will find out about your bankruptcy

Your Chapter 7 bankruptcy filing will be on your credit report for as long as 10 years. It also becomes searchable in the federal court case register. Unless the searching party has special access to search these records, however, the general public won’t know you filed.

4 – Not all debts are dischargeable

The majority of consumer debts, if incurred in good faith, are dis-chargeable in a Providence Chapter 7 bankruptcy. These debt problems include medical bills, unsecured loans, credit cards, payday loans, car repossessions, and mortgage foreclosures. As a reminder, if you elect to keep your house and car, the creditor has a security interest in the property until the loans are paid in full. In other words, you will keep making these payments for as long as you wish to retain the house and car. Most student loans, child support, alimony, most taxes, and debts incurred in bad faith, car generally not dis-chargeable in bankruptcy.

Benefits of Filing for Bankruptcy

1 – You can protect your property from creditors

Rhode Island bankruptcy exemptions protect as much as $ 500,000 of equity in a house that is your primary residence. It also protects generous amounts of equity in cars, household goods and furnishings, retirement accounts, jewelry, etc. There is even a “wildcard” exemption that can be used to protect a certain amount of cash, money in the bank, income tax refunds and personal injury settlements. Because these exemption laws are so powerful, most people who file a Chapter 7 bankruptcy are able to keep 100% of their property.

2 – You may eliminate old income tax debts

Old income tax debts may be dis-chargeable in bankruptcy, if they were due more than 3 years ago, you filed your tax returns accurately and on time, and you meet a few additional requirements. Although a Providence bankruptcy filing may help with old income taxes, it does not discharge sales taxes, payroll taxes, or recent income taxes.

3 – Your Credit Score can recover fast

Your FICO credit score is based on several factors, including payment history, credit utilization rate, age of credit accounts and your debt to income ratio. Bankruptcy will help get you back on your feet fast because it will close out the damaged accounts and stop the downward spiral of late payments and defaults. After you receive your bankruptcy discharge, positive steps to rebuilding your credit can help you obtain a 720 FICO score in as little as 12-18 months. While I don’t encourage taking on new debt too fast, I have seen clients get approved for a new credit card within 3 months, a car loan in 6 months, and a mortgage in 2 ½ years.

4 – You receive an honest “fresh start”

When your financial picture looks like it was drawn on an Etch a Sketch, you would do anything to get a fresh start, or a do-over. A Providence bankruptcy can do just that. You can actually wake up from the financial nightmare and begin to chart a new course. You can start focusing again on the future and develop financial goals for your kid’s education, buying a home, or saving for retirement. But first, you should set up a savings plan to build an important safety net in order to avoid future debt problems.

5 – You can stop harassing debt collectors, lawsuits, and wage garnishments

Not all debt collectors are bad. Some follow the law, while others simply don’t. The ones who violate the Fair Debt Collection Practices Act, will harass you at work and home until you reach your breaking point. Here is some good news. The instant you file your Chapter 7 bankruptcy petition, all collection activity stops. Everything gets real quiet.

If you have been struggling with debt for years and it is not getting any better, now may be the time to consider a Providence bankruptcy filing. Read reviews from clients who trusted Attorney Mark Buckley, a CFP® professional, to solve their debt problems and call 467-6800 for a free bankruptcy consultation. Serving clients in Providence, Pawtucket, and Warwick.

RI Bankruptcy Law: Median Income Figures Change Again

RI bankruptcy lawyers have new income guidelines to determine who qualifies for Chapter 7 bankruptcy relief. On November 1, 2012, the US Census figures became effective for all new consumer bankruptcy filings. Other than for 3-person households, it became slightly more difficult to qualify for Chapter 7 bankruptcy relief for every other household size in Rhode Island.

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

1 person household $ 45,945 (down from $ 47,798)
2 person household $ 60,538 (down from $ 61,506)
3 person household $ 75,306 (up from $ 68,909)
4 person household $ 82,086 (down from $ 88,990)
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, we take your trailing 6 months of gross income from all sources (except Social Security and unemployment benefits), multiply it by two and then compare it to the chart above.

While its easier to qualify for a Chapter 7 bankruptcy with gross income lower than the median, in many cases, you may still qualify with income slightly higher than the median.

Bottom line: Its impossible to forecast whether it will become easier or more difficult to file your Chapter 7 case in the future. Even if you are not ready to file your case now, I can run an analysis on your family’s income to see if your income is presently low enough to qualify for debt relief.

Rhode Island Bankruptcy Debtors Catch a Break

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.

Top 7 Reasons To File Chapter 7 vs Chapter 13

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.

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.
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.
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.
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.
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.
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.)
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.

A Unique Opportunity: Second Mortgages in Chapter 13

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.

Pros and Cons to Consider Before a Providence Bankruptcy Filing

RI Bankruptcy Law: Median Income Figures Change Again

Rhode Island Bankruptcy Debtors Catch a Break

Top 7 Reasons To File Chapter 7 vs Chapter 13

A Unique Opportunity: Second Mortgages in Chapter 13

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