How Bankruptcies Work

Here’s a short explanation of how bankruptcies work.

Most people have heard stories about how bankruptcies work, but have no firsthand information.

What you read on the internet about how bankruptcies work can be confusing, misleading or just plain false!

If you are a consumer in the Cincinnati, Dayton or Columbus areas, this article will tell you exactly how bankruptcies work in our court system.

This is important for you to know, since, even though bankruptcy is federal law, bankruptcies work differently in different areas of the country, and even in Ohio, there are differences between the different courts.

Why Bankruptcy should not be a “Last Resort”

A common theme you will see is the phrase “bankruptcy is the last resort option, when you’ve tried, and failed, and every other possible way to get out of debt, you can resort to bankruptcy.

This is really bad advice.   (I’ll explain why below.)

Would you be more likely to consider bankruptcy if you knew that:

The so-called “liquidation chapter 7 bankruptcy” almost NEVER results in liquidation?

The so-called “debt repayment chapter 13” may pay back NOTHING on most of your debts?

Many people who file bankruptcy have credit scores over 700 in only one year?

This is REALLY how bankruptcies work.

If they are handled properly.

By a veteran, board certified consumer bankruptcy attorney who knows how bankruptcies work, and who is also a certified credit counselor.

(Hint, there is only one such attorney in Ohio)

Chapter 7 Bankruptcy in Cincinnati, Dayton and Columbus Ohio

Chapter 7 Bankruptcy is the most common chapter, 3 out of 4 bankruptcy cases filed in Cincinnati, Columbus and Dayton Ohio are chapter 7.

You don’t have to go to court.

Most of the activity involved in a chapter 7 case is done before it is even filed.  There is a lot of information required, and a number of documents which need to be assembled.

I use a printed questionnaire, which I provide to you in a three ring binder.  It is well organized, tabbed into sections and there is “a place for everything” so you can put “everything in it’s place.”

You’ll answer the questions in the workbook, and gather the documents, like tax returns, car titles, retirement statements, paycheck information and other documents, and everything fits neatly into the binder.

We then assemble the information, review the documents, and advise you on important things you need to know, and steps to take, before the petition can be filed.   We have an online portal for you to see your completed petition so you can review it for accuracy before we file it in the court.

When we’re ready to file your case, you’ll meet with one of the attorneys.  We will review the entire petition and file it.

Next, we’ll meet with trustee.

There is usually only one, brief meeting between you, your attorney and the bankruptcy trustee.  This meeting is called a “meeting of creditors” but rarely are any creditors present. The meeting is in an office building in Cincinnati, and in the court building in Dayton and Columbus.

What usually happens is that I will send the trustee all the information ahead of the meeting.  He will review it, and you will only be asked to confirm that the information is true and complete.  There is a standard list of questions that I provide to my clients before the meeting, so there are no surprises.

After this, there is usually little for you to do.  There will be some follow-up for the attorney in some cases.  You’ll get your discharge in about 12 weeks and the case will close.

The chapter 7 is over.  Your debts are discharged, and you are now ready to begin to rebuild your credit.

Credit rebuilding is critical to your financial recovery, but it is not part of bankruptcy and I am the only bankruptcy attorney that I am aware of who has a formal, one year program to help you rebuild your credit.

As a certified credit counselor, I have created my program specifically to help my clients who have discharged debt in bankruptcy, and want to recovery their credit quickly.  The program is so effective that my clients typically end up with credit scores of 650 to 700 within one year of their bankruptcy discharge.

Chapter 13 Bankruptcy in Cincinnati, Dayton and Columbus Ohio

Chapter 13 is often referred to as a reorganization, where debts are repaid through a trustee.

While technically true, this is hardly a good explanation of what you can achieve with chapter 13.

Chapter 13 can allow you to keep your car and pay only what it’s worth, not what you owe.

You can wipe out second mortgages on your home in some cases.

The interest rate on your car, or other debts, can be lowered to 6.5%.

You can stretch out car payments over the next 5 years, freeing up money in your budget.

Although called a “repayment plan” chapter 13 might actually pay NOTHING to some debts.

Foreclosure can be halted, and you get 5 years to catch up.  Better than some loan modifications.

How Chapter 13 Bankruptcies work

Chapter 13 gets a “bad rap” and most of what you see on the web is not true.

On the internet you will read lots of negative comments about chapter 13.

How they fail more than they succeed, and how there is not enough money to live on, the budget is too tight, etc.

Most of this is not true, in Cincinnati, Dayton and Columbus Ohio Chapter 13 Bankruptcy

Let me tell you how it really works, here where you live, if the case is handled properly.

The information you will provide to my office to file your case is essentially the same as I have stated above for chapter 7.  It’s what I do with the information that makes the case a 7 or a 13.

In chapter 13, unlike chapter 7, there is a “Plan.”

The Plan controls which creditors get paid, how much they get paid, how long you make payments through the trustee, and what your monthly payment will cover.

You will normally pay your housing costs, your rent or mortgage, and normal living expenses yourself, or “outside” of the plan.

All of your debts, your car payments, credit cards, personal loans, medical bills, past due taxes, and other debts are paid “in the plan” and not to the creditors directly.

Your payments to the trustee can be made by a wage deduction but there are other options as well, and many of my clients prefer to pay by a bank account withdrawal, called TFS, so that their employer is not involved.

Once the plan is filed, you will meet with the trustee, just like in chapter 7, for a brief meeting, and you will verify all the information in the petition is true and accurate.

For most all cases, this is the ONLY meeting you will need to attend.  After this meeting, the case is “confirmed” or officially approved by the court. And, from this point forward you will make your payments, and life goes on as normal.

Differences in your life will be less stress, more money (not less) in your living expense budget, no more harassing phone calls from bill collectors, marital harmony will return (if not marital bliss, it will no doubt be much better once the debts are under control!), and you will be able to sleep at night.

Because the plan will run for 3 to 5 years, there are some things you will need to be aware of and keep in mind as you progress through your plan.

You’ll need to provide a copy of your tax return to the trustee every year.  You are allowed to keep the greater of $3,000 or combined earned income credit and additional child tax credit each year.  So, you’ll want to adjust your tax withholding so that you don’t have to pay anything to the trustee out of your tax refund.

I go over all of this with you when we file, so you’ll already have your tax withholding adjusted if you need to change it.  Too much of a refund means you are shorting yourself every payday.  So we want to maximize the amount you have available for your living expenses.

And, it’s just common sense, but if you need to borrow money (more than $1,000) while in your plan you’ll need to get the trustee to review and approve the loan.  You might have a car accident, for example, and need to buy a car. This happens sometimes, and we walk you through the process.

But, it’s not true that you cannot have any credit while in chapter 13.  In fact, I encourage my clients to get credit cards and rebuild credit while they are wiping out their other debts.

I want you to have rebuild credit before you are even done with your case, so I have a program that guides you, step-by-step, through the credit rebuilding process.

In Cincinnati, Dayton and Columbus, Ohio, chapter 13 bankruptcy is a very successful and effective tool used to keep your home, your cars, wipe out debt, and, yes, you can actually rebuild your credit in your chapter 13 plan.

Summary

Bankruptcies do work differently in different parts of the country.

Here in the Cincinnati, Dayton and Columbus Ohio area, this is how my clients experience their chapter 7 and chapter 13 bankruptcy cases.  I’ve been helping my clients wipe out debt, keep their property and rebuild credit since 1986.

Bankruptcy is, I know, one of the most effective tools for your financial recovery that exists.

It should be considered, not as a last resort, but rather an equal possible option, along with credit counseling, debt management plans, debt arbitration and other financial recovery programs.