Problems In Bankruptcy

COMMON CHAPTER 13 AND BANKRUPTCY PROBLEMS

With over 30 years of practical experience in this field of Bankruptcy law, our law firm has learned that the following are some of the most common misunderstandings and problems that arise after a person has filed a Chapter 13 or Chapter 7 case. Please read and follow these instructions. Failure to do so could cost you additional money lost to creditors, aggravation, delayed administration of your case, court costs and attorney’s fees.

BANK AND CREDIT UNION ACCOUNTS

If you have a checking, or savings account in a bank or credit union that is listed as one of your creditors, by either having made you a loan, or having issued you a credit card, you should not deposit any more money into these accounts and should try to withdraw as much as you can. This includes accounts you hold with the right to withdraw funds for minors or elders. All loan agreements allow the bank or credit union to offset any money on deposit with them and apply this to your loan balance once they learn that you have filed a Chapter 13 or Bankruptcy Petition. It does not matter that you have outstanding checks that you have already written. These checks will be returned NSF, which not only will you have to pay, but you will also have to pay a returned check charge which typically is $20.00 per check, and most banks will return the check twice to your bank, which equals $40.00. This will happen before you are notified of the fact that your account has been frozen. The best policy is not to deposit any more money in those accounts and to open up a new checking account in a bank where you do not have any outstanding loans. Most credits unions have automatic deductions from their members’ weekly paychecks. After your petition is filed this deduction must stop. To stop the deduction for credit unions, first go to your payroll department and ask that it be stopped. If anyone in payroll tells you that you need the credit union’s permission to stop the deduction, this is wrong. You voluntarily assigned your wages, and you can demand the assignment stopped. If the payroll department won’t do this, you will have to go to your credit union yourself and sign a form to stop the voluntary deduction. Contact your lawyer if the credit union refused to stop the deduction.


MORTGAGES AND FORECLOSURES

If you have delinquent or past due house payments included in your Chapter 13,YOU MUST MAKE ALL FUTURE MONTHLY HOUSE PAYMENTS YOURSELF, beginning with the first monthly payment due after you file your Chapter 13 plan. For example if your due date is the 15th of the month, and your case is filed on the 10th, you will be required to make the payment due on the 15th of the month that you filed your case. If the case is filed after this due date then you will not need to make your first payment until the next month after you file. The Bankruptcy law does not allow for the payment of future mortgage payments as part of your plan. THIS IS YOUR RESPONSIBILITY. If you fail to make future payments on time, your mortgage company will ask for and be given permission to foreclose on your house, even though you have a confirmed plan. If you are having problems making the payment on time, it is better to send it a few days late than to send partial payments. Even if the mortgage company accepts the partial payment, and most will not, it may not be properly applied. If your mortgage does not escrow for the payment of the property taxes and homeowners insurance, these are also your responsibility to pay, and are not part of the Chapter 13 plan. Failure to pay these will also be grounds to allow your mortgage company to start foreclosure.


MOTOR VEHICLES AND INSURANCE

Almost all secured debts require that the collateral be fully insured. On motor vehicle loans this means full coverage, which includes, liability, collision and comprehensive. If you fail to keep the vehicle insured, or fail to keep the creditor informed as to the name of your insurance agent and company, your creditor will be given the right to repossess, or they may buy collateral or single interest insurance that insures only their interest for the value of the car, and bill you for this additional insurance. This collateral insurance is quite expensive and usually costs well over a $100.00 per month. You must make it a priority to keep your vehicle insured or you could lose it even with a confirmed plan.


LENGTH OF CHAPTER 13 PLANS

A debtor must be in Chapter 13 for a minimum time of 36 months unless you can pay off 100% of your debt in less time. The maximum length of a Chapter 13 plan is 60 months. In Illinois the debtor must pay at least 70% to his unsecured creditors if the plan is longer than 36 months. In Iowa the plan may pay less than 70%, and occasionally even 0% may be approved. Regardless of what percentage is paid the plan cannot exceed the 36 or 60 month term of the plan. Therefore, if you miss payments to the trustee, he will become concerned that you will not complete the plan within the time allowed by law. If you miss payments they must be made up by the end of the plan or you will not receive your discharge and all your creditors can resume collecting any unpaid balances on your debt. It is important you communicate and cooperate with your Trustee and answer his questions on how you will make up the missed payments. Failure to do so will result in the Trustee filing a Motion to Dismiss your case, which, if granted, results in you losing the court’s protection, and your creditors will again be free to attempt collection of your debts. To avoid this, your Chapter 13 can be converted to Chapter 7, or straight bankruptcy, but the reason you filed Chapter 13 instead of a Chapter 7 to begin with, may preclude you from this option.


CO-SIGNED DEBTS

Co-signers in Chapter 13 cases where the co-signed debt is to be paid 100% are protected from any collection efforts by the creditor. Unfortunately co-signers in Chapter 7 Bankruptcy have no protection whatsoever. Many smaller financial institutions fail to realize a Chapter 13 case is different from Chapter 7 and often attempt to collect from the co-signer. If this happens you should notify your lawyer and assure the co-signer that he or she is protected.


POST FILING COLLECTION EFFORTS

Most creditors now days use computer generated billing statements and it usually will take them at least two monthly billing cycles to get your name off the computer and stop billing you. If you receive a bill from a creditor who is listed in your case, you should simply throw it in the waste basket. Should a creditor call you after you have filed your case, simply tell them the truth that you have filed a Chapter 7 or Chapter 13 case, and that your lawyer has asked you not to talk to any of your creditors, give them the name and telephone number of your lawyer, and ask them to call us and we will answer any questions they have. If the creditor was not listed in your filing, obtain the name and address, and supply this information to your lawyer. You can amend creditors who were omitted from your schedules provided the debt was incurred prior to the date of the filing of your case. There are certain types of communications that you must bring to your lawyer. If you receive a letter from a lawyer for one on your creditors, or a letter about any taxes you may owe, or if you receive any court papers or a summons send these to your lawyer immediately. Do not ignore these last three items.


THE 341 HEARING OR MEETING OF CREDITORS

You are required to attend the 341 Hearing, or Meeting of Creditors. If you are married and both spouses are filing, both must attend. If only one spouse attends, the case can be continued until the next meeting date usually a month later which means you will have to miss another day from work. Missing two 341 hearing dates will result in your case being dismissed without the debts being discharged.


CREDIT REPORTS

Contrary to popular belief, credit reports are not credit ratings. Credit reports are actually credit histories. They usually show some, but not all of the accounts and companies that you have done business with, and your payment history. A Credit Report is done by social security number, and it is impossible for a person’s Bankruptcy or Chapter 13 filing to be on the credit report of the non-filing spouse. The filing of a Chapter 13 or Bankruptcy will not cause any information to be changed or have the debts removed from your credit history. What was there before your filing will remain there after the filing. A Chapter 7 Bankruptcy will be carried on your credit history for a period of 10 years. Some credit reporting companies will list the Chapter 13 for a period of only 7 years, while others will also carry it for 10 years. Non Bankruptcy matters are carried for 7 years and should be removed from your credit history after that time. If you are applying for credit after filing Chapter 7 or Chapter 13, and a loan officer says you do not qualify because you still owe some debts listed in your credit history, you should show them your petition and schedules, with the list of the creditors and your Discharge Order which is proof that these debts were either paid or canceled. Also please remember that you retained our law firm to be your Bankruptcy lawyer. We do not practice in nor did you hire us to represent you in the area of credit repair. There is nothing in the Bankruptcy law that provides for the correction of incorrect information contained in a credit report.


TAX REFUNDS

Normally you will not be required to turn over your tax refund to the Chapter 13 Trustee, provided that you are current in your payments to him. If the Chapter 7 Trustee asks about a tax refund, you may have to turn over all or part of it, if it is larger than the law allows you to keep. This rarely happens, but sometimes it does. There are limits as to how much of a refund you can keep. The filing of a Chapter 13 or Chapter 7, normally does not require any different procedures or forms for filing your annual income tax return, nor does it create additional income for you to declare.


UTILITY COMPANIES

You can list as a creditor, your gas and light, or your telephone company and they cannot disconnect your service. However if you do list one of these utilities, the company does have the right to ask for a deposit to guarantee future payment of your bill. This deposit is usually twice your average monthly bill, and you have only 20 days from the date of your filing to pay this deposit. If you don’t pay the deposit within that time the company then can disconnect your service. Normally you should not list a current monthly utility bill as one of your creditors. If you do, the above procedure will be followed and you will most likely find that your deposit is larger than what your monthly bill was, had you paid it.


STUDENT LOANS

Student Loans, or other education debts, that are owed directly to a College or University are non-dischargable, (will not be forgiven or canceled out) in either Chapter 7 and Chapter 13 cases. Even though a student loan is included in a Chapter 13 case, it is an unsecured debt, and not entitled to any interest under the plan. Thus, even though the principal balance on the loan may be paid in full, or in part, under the plan, the interest will continue to accrue and you will be responsible for the payment of the interest after you complete your Chapter 13 plan.


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