Personal Bankruptcy Laws For Dummies

383 Pages·2006·2.03 MB·English

by  James P. Caher, John M. Caher

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Personal
Bankruptcy Laws
FOR
‰
DUMmIES
2ND EDITION
by James P. Caher and John M. Caher
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®
Personal Bankruptcy Laws For Dummies, 2nd Edition
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About the Authors
James P. Caher, a practicing attorney with 30 years of experience, is a nation-
ally recognized expert on consumer bankruptcies and authority on the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
Jim coauthored, with his brother John, Debt Free! Your Guide to Personal
Bankruptcy Without Shame (Henry Holt, 1996) and two highly regarded books
for lawyers: Discharging Marital Obligations in Bankruptcy (LRP, 1997) and
Discharging Credit Card Debts in Bankruptcy (LRP, 1998).
In addition, Jim has published scores of articles for bankruptcy professionals
and is frequently called upon to analyze and interpret the complicated provi-
sions of the 2005 bankruptcy law. He was labeled the “online guru” by a
national legal weekly because of his regular appearances on the Internet as
an expert analyst on bankruptcy law. Jim also serves on the editorial board of
the American Bankruptcy Institute.
Jim graduated from Niagara University and then earned his law degree from
Memphis State University Law School, where he was a member of the Law
Review and recipient of the American Jurisprudence Award for Excellence in
the field of debtor-creditor relations. He filed his first consumer bankruptcy
case shortly after graduating in 1975. Jim lives and practices in Eugene,
Oregon.
John M. Caher is a legal journalist who has written about law and the courts
for most of his 25-year career.
Currently the Albany bureau chief for the New York Law Journal, John previ-
ously was state editor and legal affairs reporter for the Times Union of Albany,
New York. His legal reportage has won more than two dozen awards, including
prestigious honors from the American Bar Association, the New York State Bar
Association, the Erie County Bar Association, and the Associated Press.
John coauthored, with his brother Jim, Debt Free! Your Guide to Personal
Bankruptcy Without Shame (Henry Holt, 1996). He is the author of King
of the Mountain: The Rise, Fall and Redemption of Chief Judge Sol Wachtler
(Prometheus Books, 1998). In addition, John was the principal writer assist-
ing former U.S. Treasury Secretary William E. Simon in preparation of his
memoirs. Mr. Simon’s autobiography, A Time for Reflection, was published in
2003 by Regnery.
John is a 1980 graduate of Utica College of Syracuse University, where he
received his bachelor’s degree in journalism, and a 1993 graduate of
Rensselaer Polytechnic Institute, where he earned a master’s degree in tech-
nical communications/graphics. John lives in Clifton Park, New York.
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Dedication
This book is dedicated to the memory of our parents, James C. and Dolores
Caher (a.k.a. “Big Jim and Fitz”), who died way before their time but left us
with their own life examples of personal responsibility, fairness, justice, affin-
ity for the underdog, basic decency, and common sense. It is also dedicated
to the five grandchildren they should have known and would have adored
and enjoyed beyond measure: Sean and Brendan Caputi of East Aurora,
New York, and Erin, Kerry, and Norah Caher of Clifton Park, New York.
Authors’ Acknowledgments
For the second edition of this book, just like the first, our respective spouses
Kate Donnelly and Kathleen Caher were there every step of the way with
their love, support, and encouragement.
Also for the second edition of our book, just like the first, Michael J. O’Connor
took time from his busy law practice to offer expert analysis of our effort.
Mike, an outstanding bankruptcy attorney in his own right and prominent
partner in O’Connor O’Connor Mayberger & First PC in Albany, New York, has
always been there when we needed him, and we would like to publicly
acknowledge our humble appreciation for his efforts.
We also acknowledge the continuing dedication of our long-time agent, Sheree
Bykofsky of Sheree Bykofsky Associates in Manhattan, and the insights of the
talented folks at Wiley Publishing who made this come together, especially our
project editor, Kelly Ewing, and acquisitions editor, Stacy Kennedy.
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Publisher’s Acknowledgments
We’re proud of this book; please send us your comments through our Dummies online registration
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Joyce Pepple, Acquisitions Director, Consumer Dummies
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Debbie Stailey, Director of Composition Services
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Contents at a Glance
Introduction .................................................................1
Part I: Bankruptcy: The Big Picture ...............................7
Chapter 1: Considering Bankruptcy.................................................................................9
Chapter 2: Stopping the Bleeding...................................................................................27
Chapter 3: Meeting the Players ......................................................................................47
Chapter 4: Deciding Which Type of Bankruptcy Is Best for You................................57
Chapter 5: Confronting the Means Test.........................................................................69
Chapter 6: Getting from Here to There: The Bankruptcy Process .............................91
Part II: Avoiding Bankruptcy.....................................115
Chapter 7: Considering Alternatives to Bankruptcy..................................................117
Chapter 8: Handling Bill Collectors..............................................................................135
Chapter 9: Negotiating with the IRS .............................................................................145
Part III: Keeping Your Stuff.......................................153
Chapter 10: Understanding Which Assets Are Off Limits to Creditors ...................155
Chapter 11: Dealing with Secured Debts .....................................................................173
Chapter 12: Saving Your Home .....................................................................................183
Part IV: Getting Rid of (Most of) Your Debt...............199
Chapter 13: Lingering Obligations................................................................................201
Chapter 14: A House of Cards: Wiping Out Credit-Card Debts .................................215
Chapter 15: Give unto Caesar: Using Bankruptcy to Deal with Tax Debts..............223
Chapter 16: The Devil Made Me Do It: Fines, Fraud, and Other Foibles..................237
Chapter 17: Till Debt Due Us Part: Bankruptcy and Divorce ....................................247
Chapter 18: Student Loans and Other Mind Games...................................................257
Part V: Strategies for a Successful Bankruptcy ...........271
Chapter 19: Avoiding Troubles with Your Trustee.....................................................273
Chapter 20: Living on the Edge in Chapter 13 Bankruptcy .......................................283
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Part VI: Enjoying Your Fresh Start .............................305
Chapter 21: Repairing Your Credit ...............................................................................307
Chapter 22: Staying Out of Financial Trouble .............................................................319
Part VII: The Part of Tens ..........................................327
Chapter 23: Ten Common Bankruptcy Mistakes ........................................................329
Chapter 24: Ten Things You Can Do Right Now to Ease Your Financial Woes........333
Chapter 25: Ten Common Questions about Bankruptcy...........................................337
Appendix: Homestead Exemption Laws .......................343
Index .......................................................................347
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Table of Contents
Introduction .................................................................1
About This Book...............................................................................................1
Conventions Used in This Book .....................................................................2
What You’re Not to Read.................................................................................2
Foolish Assumptions .......................................................................................2
How This Book Is Organized...........................................................................3
Part I: Bankruptcy: The Big Picture......................................................3
Part II: Avoiding Bankruptcy .................................................................3
Part III: Keeping Your Stuff ....................................................................3
Part IV: Getting Rid of (Most of) Your Debt.........................................4
Part V: Strategies for a Successful Bankruptcy ..................................4
Part VI: Enjoying Your Fresh Start........................................................4
Part VII: The Part of Tens ......................................................................4
Icons Used in This Book..................................................................................4
Where to Go from Here....................................................................................5
Part I: Bankruptcy: The Big Picture ................................7
Chapter 1: Considering Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Viewing Bankruptcy in a Historical Context...............................................10
Debunking Bankruptcy Myths ......................................................................12
People who go bankrupt are sleazy deadbeats ................................12
Bankruptcy is the easy way out for folks who
can pay their bills .............................................................................14
Bankruptcy threatens the ethical foundations of our society........15
Honest folks pay a “tax” to support those who are bankrupt ........16
Understanding What You Can Gain Through Bankruptcy ........................16
Stopping creditors in their tracks ......................................................18
Wiping out most of your debts ...........................................................18
Catching up on back mortgage and car payments ..........................18
Filing bankruptcy to pay some debts over time...............................19
Using bankruptcy to pay all your debts ............................................19
Knowing What You Can Lose in Bankruptcy ..............................................20
Considering Alternatives to Bankruptcy.....................................................21
Introducing the Different Types of Personal Bankruptcy .........................22
Liquidations (Chapter 7) .....................................................................23
Consumer reorganizations (Chapter 13) ...........................................23
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x Personal Bankruptcy Laws For Dummies, 2nd Edition
Weighing the Consequences of Not Filing Bankruptcy .............................24
Claims secured by your car ................................................................24
Claims secured by your home ............................................................25
Student loans ........................................................................................25
Support obligations..............................................................................25
Fines and restitution ............................................................................25
Taxes ......................................................................................................25
Lawsuits.................................................................................................26
Using the Statute of Limitations...................................................................26
Chapter 2: Stopping the Bleeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Realizing You’re Not Alone............................................................................27
Preventing Further Damage Now .................................................................28
Comparing Your Income with Your Spending.............................................30
Focusing on how much income you have .........................................31
Coming to grips with where your money goes.................................32
Assessing Your Spending Habits ..................................................................37
The devil’s in the details: Scrutinizing your expenses ....................38
Are you a spendaholic?........................................................................39
Getting a Handle on What You Own.............................................................40
Figuring Out How Much You Owe ................................................................43
Chapter 3: Meeting the Players . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Finding Professional Help .............................................................................47
Answering why a lawyer is a must .....................................................48
Finding a good lawyer..........................................................................48
Understanding what to expect from your lawyer ............................49
Paying the piper ...................................................................................49
Getting to Know the Players .........................................................................51
Bankruptcy judge .................................................................................51
Case trustee ..........................................................................................52
U.S. Trustee ...........................................................................................54
Creditors................................................................................................56
Chapter 4: Deciding Which Type of Bankruptcy Is Best for You . . . . .57
Deciding Whether to Fly Solo or As a Married Couple..............................57
Looking at Your Probable Bankruptcy Choices .........................................58
Chapter 7: Straight bankruptcy ..........................................................59
Chapter 13: Debt repayment plans ....................................................60
Deciding Between Chapter 7 and Chapter 13.............................................62
Recognizing when Chapter 7 is best ..................................................63
Considering Chapter 13 as your number-one option ......................63
Considering Other Types of Bankruptcy ....................................................67
Chapter 11: Large reorganizations .....................................................67
Chapter 12: Reorganizations for family farmers and fishermen.....67
Chapter 20: Adding Chapters 7 and 13 ..............................................68
Changing Your Mind ......................................................................................68
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Chapter 5: Confronting the Means Test . . . . . . . . . . . . . . . . . . . . . . . . . .69
Putting the Means Test in Perspective........................................................69
Taking the Median Test .................................................................................70
Computing your income......................................................................71
Comparing your income to the median.............................................75
Deducting Your Expenses and Taking the Means Test..............................76
IRS National and Local Standards ......................................................77
Other necessary expenses ..................................................................78
Specific BARF deductions ...................................................................82
Deductions for certain debt payments..............................................84
Figuring Out How Much of Your Debts You Can Pay .................................87
Passing the Means Test by Showing “Special Circumstances” ................88
Considering Ways around the Means Test..................................................89
Getting Kicked Out of Chapter 7 for Abuse ................................................90
Chapter 6: Getting from Here to There: The Bankruptcy Process . . . .91
Navigating the BARF Maze ............................................................................91
Getting Organized Before Talking to a Lawyer ...........................................93
Doing your financial homework .........................................................93
Tracking down your creditors ............................................................96
Meeting Your Lawyer for the First Time......................................................98
Arranging for Credit Counseling ..................................................................98
Completing the Paperwork ...........................................................................99
Filing Your Bankruptcy Case.........................................................................99
Using the Automatic Stay..............................................................................99
Exceptions to the automatic stay.....................................................101
Situations where the automatic stay does not apply
due to a prior bankruptcy .............................................................101
Receiving Notice of the Creditors’ Meeting ..............................................103
Supplying Copies of Tax Returns ...............................................................103
Attending the 341 Meeting ..........................................................................104
Signing Up for Your Financial Management Course.................................104
Working Your Way through Chapter 7 .......................................................105
The 341 meeting in a Chapter 7 case ...............................................105
Dealing with secured creditors.........................................................107
Amending paperwork ........................................................................107
Adding creditors.................................................................................107
Sweating out key deadlines...............................................................108
Attending a discharge hearing..........................................................108
Closing no-asset cases .......................................................................108
Administering asset cases.................................................................109
Anticipating complications ...............................................................110
Working Your Way through Chapter 13 .....................................................110
Filing your plan and beginning your payments ..............................110
The 341 meeting in a Chapter 13 case .............................................110
Confirming your repayment plan .....................................................111