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Trezza & Associates LLC Videos
WHAT'S THE DIFFERENCE BETWEEN CHAPTER 7 AND
CHAPTER 13 BANKRUPTCY?
Chapter 7 offers immediate relief and an immediate fresh start. The day we file your Chapter 7 bankruptcy Petition all of your creditors have to stop pursuing you. So if someone is garnishing your wages, it stops immediately. If there is a Trustee's sale, meaning that there's a foreclosure that's going to happen on your house, it stops it immediately. None of your creditors can pursue you as far as calling you at work, sending you letters, calling you on your cell phone trying to collect the debt as soon as we file that Chapter 7. Also in Chapter 7, the case should be over and done with in less than a year. So, in less than a year, you're going to receive a discharge and the discharge works against your unsecured creditors. So, if you have credit card debts, repossession debts from a car, medical debts, broken leases, the discharge relieves your obligation to pay that so you get a permanent fresh start, and it comes quickly.
Chapter 13 takes a little bit longer. Usually there's a payment to the Trustee. You'll pay the unsecured creditors pennies on the dollar. The plan, the Chapter 13 plan, lasts anywhere from 36 months to 60 months and that's depending upon your income, and the discharge doesn't come until you successfully complete the plan. But many times, even for folks that have to file Chapter 13, there are huge advantages inside of it because a typical Chapter 13 plan has a payment to unsecured creditors to, let's say, 3%, 5%. So, if you've got $100,000 of unsecured debt, you pay 3% of it through the plan, and then the remainder of that is discharged at the end of the plan.
So usually 95% of the time, if a client is eligible for Chapter 7, we put them in Chapter 7 because it's quicker, it's easier. You can also recover more quickly from a Chapter 7 in terms of your credit. I tell my clients the day after you file Chapter 7 bankruptcy, the best way to start recovering your credit is to go get a credit card. Go to creditcards.com and apply for a credit card and then start using that card responsibly. If you have $1,000 limit on the card, charge $500 per month and pay $500 a month, and in three years you should have a 690 credit score. Recovering from a Chapter 13 takes longer. Usually the recovery process doesn't start until after the Chapter 13 plan is completed and, again, that's 36 to 60 months away.
So those are some differences between Chapter 7 and Chapter 13. There are some other issues connected to stripping a lien off of your second home and I am going to do a video on that, so look through the rest of these to hear about that. If you own a business, you may have to file Chapter 13 for that reason. We will do a short segment on that as well.
But the other thing to keep in mind is we have a free consultation. If you come in and talk to me, I'm going to explain all of your options to you, take as much time as you need to understand all of your options, I'll answer all of your questions, and when you leave that consultation, you will be in a position to make a really good decision on whether or not bankruptcy is right for you; and, if so, should you proceed with Chapter 7 or Chapter 13.
Yes, bankruptcy stops garnishment dead in its tracks. The minute that we file a bankruptcy Petition for you, we will fax a notice of that bankruptcy filing to your payroll department to let them know that they have to stop the garnishment. We will also send that notice to the attorney that's garnishing your wages, and he has an obligation to prepare a document called a "Release of Garnishment" and file it with the court. Garnishments stop immediately.
So the sister question that I always get to that is: Well, how long is it going to take to get the bankruptcy filed to stop the garnishment? I will go as fast as you go. We need your cooperation in terms of completing a credit counseling course. I need some paperwork from you which means I have to have a workbook completed by you. I will help you fill the workbook out. There's some copies of documents that I need, like six months of bank statements, six months of your pay stubs, two years of your tax returns, and we need our fee paid. But we have cases that are filed in 24 hours in order to stop garnishments. So if you have a garnishment and you need that stopped right away, we can help you.
WILL BANKRUPTCY HELP ME WITH MY PAST DUE TAXES?
It depends. The general rule of thumb is tax debt is nondischargeable. You will have to pay it unless three things are true for you: number one, that the tax debt became due more than three years ago; number two, you filed that tax return more than two years ago; and, number three, any assessment made by the IRS was more than 240 days ago. If those three things exist, your tax debt is eligible for discharge. We can discuss that in much more detail at a free consultation.
If you have tax debt that is due, I would like to see the tax returns. I'd like to know when those returns were filed. And, if you are receiving notices from the IRS, bring those to me because more likely than not if they've made an assessment, that assessment date is on the notice and I will be able to give you a good prediction as to whether or not that tax debt is dischargeable.
If it turns out that your tax debt is nondischargeable, there still may be a really big advantage for you in filing bankruptcy if we file a Chapter 13 bankruptcy. Let's say you owe the IRS $50,000 in past due tax debt. That tax debt is comprised of three things: the tax itself; the interest that's accrued on that tax debt; and a penalty. If we file a Chapter 13 bankruptcy for you, the penalty comes right off the top; it just gets eliminated in Chapter 13 bankruptcy. The other thing that happens in Chapter 13 is you will be able to repay that tax debt interest-free. Outside of bankruptcy, if you enter into an installment contract with the IRS and you pay them X amount of dollars per month, you're paying interest. In Chapter 13, every dollar that goes to the IRS is a dollar that reduces your overall tax debt and you are paying that tax debt off interest-free. Lots of people will use Chapter 13 just for that reason.
WHAT IF I OWN A BUSINESS?
If you own a business and you're considering filing bankruptcy, there are many different variables that we have to consider. The first variable is - are we going to file bankruptcy for the business itself; which, by the way, we don't often do, it's usually not the right course. We're usually filing bankruptcy for you, the individual, not for the business, and inside the bankruptcy we're dealing with the issue of your business.
If you have a business that's failing and that can't be saved, many times we will file a personal Chapter 7 bankruptcy for you and walk away from the business. That personal Chapter 7 bankruptcy will protect you from all of the debts that were incurred by the business.
If you have a business that is successful that you're making a living off and that you want to keep, generally, if bankruptcy is right for you, we will file a personal Chapter 13 bankruptcy and the value of your business is dealt with inside the Chapter 13 plan. It gets somewhat complicated when we file a Chapter 13 and the value of the business is included in the plan.
I offer a free consultation and the best thing to do if you own a business, and the business is successful and you want to keep it, is to come and take advantage of that consultation. Bring me the financials connected to the business. We really need to know what the value of the business is, and I can show you with a diagram how it fits into a Chapter 13 plan. Yes, you will be able to keep the business if you want to and it is successful, but it will have to be a Chapter 13 bankruptcy. There are lots of moving pieces that need to be taken into consideration when we have a business that's working, and so my suggestion is to come and see me. I'll spend as much time with you as necessary to explain everything to you and show you how business and bankruptcy can work together.
HOW WILL BANKRUPTCY AFFECT MY CREDIT?
If your credit is bad, filing bankruptcy is the first step in recovering. Remember, you can recover quickly, relatively quickly, from a Chapter 7, takes about three years. From a Chapter 13, it will take longer to recover. That recovery process won't start until after the Chapter 13 is complete, and that's from three to five years. So, if your credit is bad, bankruptcy is the first step to recovery.
If your credit is good, occasionally I have people come into my office and they've never missed a payment, you know, they've got $70,000 of credit card debt, they've got a house payment, they've got a car payment and they've managed to make all of those payments, and they have a 700 credit score, and they say, well, if I file bankruptcy, what's going to happen? Well, your credit will be destroyed. It'll drop down a few hundred points and then you'll have to start to rebuild.
But the other thing to keep in mind is on my website, the site that you're on now, there are several videos made by a credit repair expert, his name is Patrick Richey, and he answers lots and lots of questions about credit, how it relates to bankruptcy, how to repair your credit. He speaks all over the country, teaches at universities, counsels banks on how to deal with credit. He's also written a book called The Credit Roadmap. If you call my office or come to my office, I will give you that book free of charge. All of your questions about credit, credit repair, how it relates in terms of bankruptcy will be answered in that book. And I invite you to view the videos on this website and you'll get a lot of information on that topic.