But I want to pay everyone; I just can’t pay everyone at the same time!

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Not everyone wants to discharge all their debts. Sometimes, people want to pay all their debts, but there just isn’t enough money to pay everyone all at once.

For those people, bankruptcy can still be an answer. A chapter 13 bankruptcy forces your creditors into being paid off over three to five years. In other words, you do not need to come up with thousands immediately to pay everyone now. Instead, the payments are spread in manageable monthly amounts over years instead of days. Bankruptcy can turn a huge problem into an affordable payment plan.

Often, even the cost of filing your case and of your attorney can be paid in affordable payments after the bankruptcy is filed. I just filed a chapter 13 bankruptcy for no money down for one of my clients.

Sounds interesting? Want to know more? Subscribe to this blog or call me for an appointment today!

Luke McCarthy
Hartwell Failey & McCarthy PLC
233 Fulton St. E, Ste 104
Grand Rapids, MI 49546
(616) 965-1088

I don’t even know who I owe! Where can I find out who my creditors are?

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Certainly, it is best to give your bankruptcy lawyer copies of the latest statements and communications you have received from your creditors. A bankruptcy lawyer needs this information out to fill out your bankruptcy filings and to make sure the correct address for each creditor is listed for notice. However, it is almost always best to get a credit report and add any additional addresses for any creditors listed in your bankruptcy. I routinely pull credit reports for my clients.

If you want to obtain your credit report yourself, the best way to do so is to go to annualcreditreport.com . By going to that website, you can get one free credit report from each of the three major credit bureaus each year. Remember, everyone is entitled to one free report from each of the bureaus each year without having to pay a dime. If you are trying to obtain your free credit report, and you are being asked to pay for identity protection, monitoring, or anything else, stop and go to annualcreditreport.com .

If you have no idea who you owe or how much you owe, your credit report will give you a good idea. Just remember, your credit report is not a perfect summary of everyone you owe. Some of your creditors may not be on there, which is why it is a good practice to keep the latest statements you receive from your creditors to help make sure all of your creditors are accounted for.

Luke McCarthy
Hartwell Failey & McCarthy PLC
233 Fulton St. E, Ste. 104
Grand Rapids, MI 49546
(616) 965-1088

A walk on the wild side: choosing not to sign the reafirmation agreement and keep the stuff anyway

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Readers from my last post will remember I had promised to discuss not signing the reaffirmation agreement for the secured asset (car, house, ect.) but keeping the asset anyway. If you have not read my last post, you might want to take a look at it. So, you might be wondering, how could I keep my stuff if I do not reaffirm the loan that secures it?

The answer is that most creditors don’t want your stuff; they want your money. If you do not sign a reaffirmation agreement for your car loan or mortgage, yes your liability for the debt will be discharged in a chapter 7 bankruptcy. However, if you keep paying the creditor the monthly payment, the creditor will usually not bother to repossess or foreclose.

Why would you do this? Well, maybe you don’t know if your financial situation will be stable. Maybe your job is laying off people left and right, and you are worried you may be one of them. If you didn’t reaffirm the debt, then you aren’t liable for the debt if you can no longer make the payments. This way, if you can’t make the home or car payments, you can just let them go back to the bank without being liable for any remaining balance after the car or home is sold.

Notice I said that banks usually won’t repossess or foreclose. There is a risk that the bank will come after the car anyway. Reaffirmation agreements make banks happier. Whether you should or should not sign the reaffirmation agreement depends on your individual situation. Talk to a lawyer today for an analysis!

Luke McCarthy
233 Fulton St. E, Ste. 104
Grand Rapids, MI 49503
(616) 965-1088.

How do I keep my car and/or my house when I have loans?

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Many people choose to file bankruptcy and get to keep their car or house with loans on them. When you file bankruptcy, all of your debts and assets are listed, including your home and mortgage. However, there is a place in the bankruptcy filings where you can state your intent regarding these secured assets. In the case of a house, for instance, you would indicate that you intend to keep your house by reaffirming the mortgage so that the bankruptcy does not discharge the mortgage.

Once your bank sees that you intend to reaffirm the mortgage or car loan, they will send your lawyer a reaffirmation agreement. You will need to sign the reaffirmation agreement, which generally says, among other things, that the mortgage will not be discharged as part of the bankruptcy. Then, the agreement is sent back to the bank, which signs the agreement and files it with the court.

So where can this process go wrong? Well, to enter a reaffirmation agreement, you need three approvals. First, you need the bank’s approval to the agreement. If you are months behind on your mortgage or car loan, your bank may not want to sign the reaffirmation agreement because it is intending to foreclose or repossess your property. It is important that if you are filing a chapter 7 bankruptcy that you are on time on your payments for any loan you intend to reaffirm.

The second approval you need is your own. Is it really in your best interest to reaffirm the debt? I have found that many of my clients do everything they can to hold on to a house with mortgage payments that are far too large a proportion of their budget. What will happen after the bankruptcy is over and there is an emergency? If you are living paycheck to paycheck because most of your money goes to pay the mortgage payments, you are not leaving yourself any room for contingencies or for retirement. Bankruptcy is a good time to take a good hard look at your entire financial situation.

The third approval you need is that of the court. The court will disapprove your reaffirmation agreement if there is not enough money in your budget to make the payments required under the reaffirmation agreement. The court will also disapprove reaffirmation agreements for items that are not necessary for obtaining a fresh start, like recreational vehicles. Unsecured loans like credit cards will generally not be approved.

If you get the three approvals–(1) the bank’s, (2) your own, and (3) the court’s–entering the reaffirmation agreement is relatively painless. Of course, sometimes even when you could enter a reaffirmation agreement, you might choose not to do so and still end up keeping the car or home. I will examine this issue of how to keep your car/home while not reaffirming the underlying debt in my next post.

In the Grand Rapids or Jonesville, Michigan area and thinking about filing for bankruptcy? Call me today for a free consultation!

Luke McCarthy
233 Fulton St. E, Ste. 104
Grand Rapids, MI 49503
(616) 965-1088

 

So what is the difference between a chapter 7 and a chapter 13 bankruptcy?

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There are many chapters of the bankruptcy code that debtors may file bankruptcy under. By far, however, most consumer debtors file a chapter 7 or a chapter 13 bankruptcy. A chapter 7 bankruptcy is the simpler and quicker one. The idea of a chapter 7 is to help the honest debtor get rid of all of a person’s bad debts while generally keeping all of their assets and reaffirming any good loans secured by assets the person wants to keep, such as a car or house.

In comparison, a chapter 13 bankruptcy is a federal repayment plan of all or part of a person’s debt over three to five years. The monthly payment is calculated based on what the debtor can afford. That monthly payment is divided up among the creditors according to an approved plan. Some creditors may ultimately receive 100% of what they are owed and/or may receive priority over other creditors. Other creditors, such as commonly credit cards, will receive whatever is left over. This may mean that these creditors receive only pennies on the dollar for what they are owed. At the end of the three to five year plan, whatever is still owed is generally discharged, even if the creditor has not been paid in full.

So when would you chose a chapter 7 vs a chapter 13? Well, a chapter 7 bankruptcy is primarily for individuals who earn less than the median income for a household of their size and have an average amount of assets for such a debtor. On the other hand, if the individual’s income is higher than the median income or the debtor has more assets than most debtors, then a chapter 13 may be appropriate. Determining which chapter to go under is one of the first issues that an individual must address with his or her attorney and depends on each person’s individual situation.

If you have any more questions regarding bankruptcy and you live in the Grand Rapids, Michigan or the Jonesville, Michigan area, feel free to contact me at (616) 965-1088 for a free consultation.

–Luke McCarthy

If I file bankruptcy, will I lose everything I own?

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My clients are often concerned about whether they will lose any of their property as part of the bankruptcy. Chapter 7 has the frightening name of “liquidation,” suggesting to people that all their stuff will be sold. Actually, the vast majority of chapter 7 bankruptcies are called “no asset” cases because none of the assets of the debtor are actually liquidated as part of the bankruptcy. Everyone going through bankruptcy has a number of “exemptions” under the statutes they can use to exempt their property from liquidation. While there is a limit to how much can be exempted, the exemption amounts are usually sufficient to protect the average debtor’s assets. The exact amounts of the exemptions are beyond the scope of this post, but I will say that I have seldom had trouble filing a chapter 7 bankruptcy due to concerns about assets being sold. Debtors are generally able to keep what they want to keep.

Of course, it is always best to get a personalized assessment of your individual situation. If you are in the western Michigan area, feel free to call our office at (616) 965-1088 to set up an appointment. We are currently seeing clients at our Grand Rapids, Michigan office and in Jonesville, Michigan. Our Grand Rapids office is located at 233 Fulton St. E., Suite 104, Grand Rapids, MI 49503. We are also seeing clients at the office of Lisznyai & Associates, 247 East Chicago St., Jonesville, MI 49250.

–Luke McCarthy

Will filing bankruptcy lower my credit score?

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I am often asked whether filing bankruptcy will lower someone’s credit score. The simple answer is that for many of my clients, their credit scores have improved within a year after filing bankruptcy.

To explain why, lets use as an example a person we will call “Mary.” Mary has $20,000 in credit card debt and due to having her hours at work recently cut back, she can no longer meet her payments. If Mary files a chapter 7 bankruptcy, certainly the bankruptcy has a negative effect on her credit history. On the other hand, through that bankruptcy, $20,000 in debt will be discharged. Once the bankruptcy is over, a new creditor considering lending Mary money for a car loan or approving her for a credit card will like that the $20,000 has been discharged. Now the new creditor will not have to compete with Mary’s old creditors for monthly payments. Mary is a better credit risk because she no longer has more debt than she can afford.

As a result of filing a chapter 7 bankruptcy, therefore, Mary in the long run will have a better credit score because she no longer has $20,000 of bad debt that she cannot afford on her record. Her credit score will also improve because her old creditors will no longer be reporting each month that she has missed a payment.

A bankruptcy can eliminate bad debts, stop additional negative history from building on your credit report, and give you a clean slate to build a good credit history. And when you build a good credit history, you improve your credit score.

–Luke McCarthy

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