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There are certain documents that a bankruptcy trustee must review before they can file their report that your case is eligible to be discharged. We remind our St. Louis Chapter 7 bankruptcy clients of the documents they must bring to their 341 meeting of creditors on several different occasions prior to the actual meeting. This may seem like overkill, but most of our St. Louis bankruptcy clients are very nervous about appearing in front of the bankruptcy trustee. If you do not provide the necessary documentation to the trustee your case may be dismissed without discharge. Therefore, it is very important to know exactly what is expected of you before you show up to the meeting location.

The trustee must review the debtor’s petition, schedules, statement of affairs and means test prior to the hearing. This is commonly referred to as your bankruptcy paperwork. These documents are typically provided to the Trustee electronically or via mail by the debtor’s attorney.

The trustee will require, from the debtor, government issued picture identification and proof of social security number. The social security card is the preferred method for such proof. Additionally, debtors must provide a copy of a bank statement, from any account open on the date of the bankruptcy filing, which shows the balance in the account on the date of filing. The trustee will also review the debtor’s most recently filed tax return. If you have not previously provided these documents to your St. Louis bankruptcy attorney, then you should bring them with you to your meeting. The court will also send you a notice telling you when and where to appear for the meeting of creditors, which will include a list of documents to be brought to the meeting.

When you file for St. Louis Chapter 7 bankruptcy or St. Louis Chapter 13 bankruptcy, the end result is called a ‘discharge of debts.’ This means that your unsecured creditors, including credit cards, medical bills, payday loans, deficiency on a repossession, etc, are knocked out. The slate is wiped clean, and you are on your way towards a fresh start in life.

In a Chapter 7 bankruptcy, this discharge usually comes three or four months after the date of filing. In a Chapter 13 bankruptcy, the discharge you receive will come at the end of your repayment plan (which typically lasts between three to five years). Either way, your opportunities to rebuild a foundation of credit (like a credit score) are immediate after filing for bankruptcy.

Receiving a fresh start in life is something that all of us deserve. That is the primary function of a bankruptcy: allowing you to restart your life, and move forward. But there really is more to the process than simply getting out from underneath your debts. Many of our clients have expressed great emotional relief even after visiting our office for their initial consultation. Being told that they will no longer have to answer phone calls from harassing collection agencies, or no longer worrying about having enough money to cover monthly payments, or no longer wondering if they are going to be sued, can relieve a lot of stress!

Many of my St. Louis bankruptcy clients are facing foreclosure at the time they come in for their free consultation. These clients want to know if filing Chapter 7 or Chapter 13 bankruptcy will stop their foreclosure sale.

Chapter 7 Bankruptcy
Filing for relief under Chapter 7 of the bankruptcy code can stop a foreclosure. However, it is only a temporary fix, and at most, will keep you in your home for a few more months. The automatic stay protection in a Chapter 7 bankruptcy is short lived, and once it expires, the mortgage company will simply restart the foreclosure process.

Chapter 13 Bankruptcy
If you are serious about keeping your home, you should look into filing a Chapter 13 bankruptcy. Chapter 13 is a repayment plan, and during a three to five year period of time you will be expected to repay the mortgage arrears. In the Eastern District of Missouri, St. Louis bankruptcy debtors are given up to 48 months to cure their pre-petition mortgage delinquency. During this time period, Debtors are protected from foreclosure, as long as they are current in their Chapter 13 bankruptcy plan payment and their ongoing post-petition mortgage payments.
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This is a question asked by many of my St. Louis bankruptcy clients at this time of year. The answer is: sometimes yes, sometimes no.

Let me give a fuller answer by explaining how tax refunds work in a Chapter 7 and a Chapter 13 separately. We’re currently right in the middle of tax season. Everyone is filing the proper forms, and expecting a refund. This is also a time of the year where a lot of people think about filing for bankruptcy because they are getting a refund back from the government. and want to use it to pay their filing fees.

So let’s say you are expecting a large refund. Somewhere in the neighborhood of $5,000.00 or more. If we’re talking about a Chapter 7, what I always suggest to my clients is to do the taxes first, get the refund, spend it, then we’ll file the bankruptcy. Why? We could file the bankruptcy petition before you do your taxes, but the Trustee (the person is appointed by the government to look at your case with a magnifying glass) will take the vast majority of it. He or she will take a small percentage of the refund for his/herself, and then distribute the remainder to your creditors. But we’re trying to discharge the creditors, not give them any more of your money.

Now I’m not suggesting that you get your refund and blow it all at Best Buy. Just the opposite. I’m suggesting that you spend it on things that you need. Some examples would include: new set of tires, repairs to your car, paying your car insurance, catching up on the mortgage, etc. Because if you get a tax refund and spend it before filing for bankruptcy, the Trustee is going to want to know what you spent it on. If you say that you spent it on a new stereo, big screen tv, and a bunch of dvds, the Trustee is going to make the argument that you misspent the refund, and as a result defrauded your creditors. However, if you’re able to honestly tell the Trustee that the refund was spent on necessary items, you should be okay.

In a Chapter 7, I always suggest doing your taxes first so that you have a chance to spend the refund. Of course, people file Chapter 7 bankruptcies throughout the course of the year, not just tax season. What if you need to file in early November? Again, I normally suggest that if you are anticipating a large refund, to wait until the beginning of the new year so that you can do the taxes and get the refund. But if you can’t wait that long (because the creditors are starting to garnish your wages, or repossess your car), and it’s necessary to file the Chapter 7 immediately, then yes, there is a strong possibility that the Trustee is going to want the refund. But that would only be the one time; it’s not as if the Trustee can take refunds annually, unless you file a Chapter 13 bankruptcy.
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Most of my St. Louis bankruptcy clients have exhausted all of their options for resolving their financial problems before coming to speak with me. These options usually include debt settlement or debt consolidation programs. Most people believe that doing a debt settlement or consolidation program is better than filing for bankruptcy, but, in my experience, that is actually rarely the case.

My clients complain that bankruptcy will ruin their credit. However, settling or consolidating your debt also hurts your credit for many years. Creditors typically report your accounts as being delinquent until they are actually paid. Additionally, even after you have settled your debts, creditors can report to credit bureaus that the accounts were not paid in full, which will adversely affect your credit rating. On the other hand, if you file for bankruptcy, any debt included should be reported to the credit bureau as being discharged, and show a zero balance. Additionally, bankruptcy protects debtors by preventing creditors from reporting new negative information to the credit bureaus once the case is filed.

When you consolidate and/or settle your accounts, the end result is that you end up paying a large portion (if not all) of the debt. In most bankruptcy cases you pay nothing to the unsecured creditors, such as credit cards, medical bills, and pay day loans. Additionally, if you settle a debt then the “forgiven” amount may have tax consequences, which will cost you additional money. A bankruptcy discharge does not result in tax consequences for the debtor. The debt simply goes away and you move on to building a new financial future.

While you are in the process of settling or consolidating your debts, you can be sued by the creditor. Negotiating with creditors is a long process and can take years to complete. If a creditor obtains a judgment against you, then you may face garnishment and levy. Bankruptcy will protect you from being sued, while giving you the opportunity to either repay creditors, or in most instances, wipe out the debt completely. For example, if you file a Chapter 7 bankruptcy, you may be debt free in as little as four months.

Finally, a lot of debt settlement companies end up being scams. These disreputable companies take your money and run or are not upfront about the amount of their own fees, which are usually quite substantial. In the end, many individuals end up paying even more than they owed to begin with. A large number of my Missouri and Illinois bankruptcy clients go through debt consolidation before seeing me, and none of them say good things about their experience.
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This is exactly what one of my St. Louis bankruptcy clients asked me just yesterday. He called in a panic, telling me about how some collection agency had threatened to put him in jail if he did not come current on his bill. The fear in my client’s voice was evident, as he told me word-for-word what the gentleman on the other end of the line had said.

Now it may sound awful of me, but it’s hard to suppress a smile from forming on my face whenever I have this kind of conversation. Not because of my client’s fear of being put in jail; I get that someone would be frightened if they were told ‘pay up, or go to jail!’ What makes me smile to myself is when I think about how much fun it’s going to be once I call the creditor, as my client’s attorney, and ask a few questions about their business. Because that’s where the fun begins (at least for me)!

So before I get off the phone with my client, I assure him that he need not worry about going to jail; nor should he place any amount of concern on threats posed by collection agencies, and their ridiculous threats. And most importantly, I ask the client to give me the name, number and company of the collection agency in question.

And then I sit back in my chair, and dial the number. At this point, I move into ‘lawyer mode’. My voice thickens, and I become more authoritative sounding (I’m usually a lot more laid back). Once I got the representative on the line, I told him who I was and the name of my client. The following is a rough approximation of how the conversation went:
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More than one million homes were foreclosed upon last year, and, according to industry analysts, the rate of foreclosure is expected to rise in 2011.

The increase in foreclosures is due to high unemployment rates, decreasing property values, and greater difficulty in getting refinanced. Some lenders halted foreclosures in 2010, due to questionable practices, and those lenders are predicted to resume foreclosures in the first part of this year.

Overall, Missouri has experienced less foreclosure than the rest of the country. In 2010, 1 in 78 homes in Missouri were affected by foreclosure. This rate of foreclosure is substantially lower than other states. States with the highest level of foreclosure activity include Florida, Arizona, and California. Nevada appears to be the highest foreclosure state with 1 out of every 11 homes being affected.

Experts expect to see foreclosure activity peak in 2011 and then slowly decrease as the number of problem loans decline.

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With the substantial decline in housing values, there has been a drastic increase in lien stripping. The Bankruptcy Code allows a Chapter 13 debtor to “strip” a second mortgage (or home equity loan) by turning it into an unsecured debt. Stripping a second mortgage eliminates the monthly payment and can reduce your total debt by thousands of dollars.

A Chapter 13 debtor can file paperwork asking the bankruptcy judge to strip his or her second mortgage when the value of the real estate is completely encumbered by the first mortgage. This means that if you were to sell your home, there would be no money remaining to pay the second mortgage after the first mortgage was paid. This means the second mortgage is completely unsecured. In order to strip a second mortgage, there cannot be a penny of equity securing the loan.

Here is an example: Your home is worth $200,000.00. The first mortgage is $225,000.00 and the second mortgage is $25,000.00. In this scenario, there is no equity in the real estate securing the second mortgage. Therefore, in a Chapter 13 bankruptcy, the second mortgage lien can be stripped.

It is important to note that lien stripping is only available to Chapter 13 debtors. It is not available to Chapter 7 debtors. Additionally, lien stripping only becomes permanent once the Chapter 13 case is discharged. If your Chapter 13 bankruptcy case is dismissed for failure to make plan payments or if you convert the case to a Chapter 7 bankruptcy, your second mortgage will not be stripped, and you will still owe it post-bankruptcy.

In St. Louis bankruptcy cases, lien stripping requires an adversary proceeding, which is a trial within a bankruptcy case. A debtor has to obtain an appraisal of the real estate in order to establish the value of the home at the time of filing. The mortgage creditor will be given an opportunity to respond and even obtain their own appraisal. However, in most instances the creditor does not respond to the complaint and the case is won by default.
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Tax refund season is upon us, and most of my bankruptcy clients are anxious to receive their refunds. In fact, some are so anxious that they take out refund anticipation loans. These loans are offered by some tax preparation services as a way to get your refund money to you faster. Unfortunately, quicker is not always better, and most consumer advocacy groups agree that these loans are not a good deal for the consumer.

A refund anticipation loan is essentially a cash advance loan with a high interest rate and high fees. These costs are in addition to whatever you must pay the tax service to prepare and file the returns on your behalf. These loans are actually very similar to payday loans, which have excessive fees and high interest rates, and are notoriously bad deals for the consumer.

When you take out a refund anticipation loan, you are effectively borrowing against your tax refund. You get your money now, and the tax preparer gets your refund when it arrives. But what happens if you do not get as much back as you had anticipated? There is always the possibility that a mistake was made on your tax return, but that will not eliminate your liability on the refund anticipation loan. If that happens, you are now in debt to the tax preparer, which will result in additional interest and fees being paid to the lender.

Even with these risks, most taxpayers are still willing to consider refund anticipation loans because, in our bad economy, everyone has bills that need to be paid now. Fortunately, the federal government has introduced a new program aimed at offering an alternative to refund anticipation loans for individuals without access to bank accounts. The United States Treasury will be sending information to 600,000 low income individuals as a means to test out the program. The card features include free point-of-sale transactions, free online bill pay, free ATM cash withdrawals at thousands of ATMs nationwide.

Since this is a pilot program, the Treasury will be randomly offering different variations of the card in order to evaluate product features. The results of the pilot will help the Treasure determine the benefits and feasibility of this program for tax refund distribution. This concept is not new. Several government programs have already implemented a debit card program, such as the Social Security Administration. In addition, many employers are offering debit cards as a payroll option or those who are not able to do direct deposit. Ultimately, the goal of this program is to offer a lower cost alternative to individuals who might be interested in refund anticipation loans.

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Most individuals who file for bankruptcy do it with one main goal in mind, and that is to obtain a discharge of their debts. Bankruptcy is a powerful too and can be the key to a fresh financial future. Sometimes, however, a debtor is denied the discharge they so desperately seek, leaving the debtor confused and asking, “Why me?”

There are a few reasons why a judge would deny a discharge of your bankruptcy case. One such reason is that you are not actually eligible to receive a discharge in your current case. The bankruptcy laws have restrictions on how often a debtor can receive a discharge. For example, a debtor can only receive a Chapter 7 discharge every eight years. This means that if you file another Chapter 7 bankruptcy case prior to the eight year waiting period your current case will not be eligible for a discharge. The judge has absolutely no discretion in this situation and your case will be dismissed without your debts being wiped out.

Another reason the court might deny a discharge of your bankruptcy case is for abuse. The Office of the United States Trustee (UST) is appointed to review every Chapter 7 bankruptcy case to determine whether the debtor can actually afford to be in a Chapter 13 bankruptcy. If the UST determines that a debtor has enough disposable income to fund a Chapter 13 bankruptcy, the office will file a motion under section 727 of the bankruptcy code alleging that the Chapter 7 filing is abusive. This motion will ask the court to dismiss the Chapter 7 case without discharge, or in the alternative, convert the case to one under Chapter 13. If the Court finds in the UST’s favor, there will be no Chapter 7 discharge.

Your case could also be dismissed without discharge because you failed to file the proper bankruptcy paperwork, because you failed to disclose assets to the Trustee, or because you failed to attend the Meeting of Creditors. These dismissals can come with restrictions on when you can file another bankruptcy case, and are very serious.

The thought of filing for bankruptcy and then losing your discharge is very scary, and it should be, because it is a very serious matter with devastating consequences.
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