What’s a Cramdown?

Cramdowns are actions you could take in a chapter 13 bankruptcy to reduce the amount of debt you would have to pay back for all of your secured debts. This is done by enabling you to pay for the fair market value of your property during bankruptcy rather than the total outstanding loan amount. For example, let’s say you bought a car that is currently worth $5,000 but you owe around $12,000 for your car loans. The cramdown stipulates that you will have to pay back the $5,000 through bankruptcy, but the remaining $7,000 will not have to be paid in full. Rather, that remainder will be considered unsecured debt, and will be paid for in proportion to all your other unsecured debt. Even if any of that $7,000 survives to the end of the bankruptcy it would ultimately be discharged. This tool is extremely beneficial when applicable in a chapter 13 bankruptcy because it reduces the total amount owed and reduces the amounts owed in monthly payments. In order to be eligible for a cramdown the property you are considering “cramming down” needs to have been acquired over 910 days before you filed for bankruptcy.

If you are considering whether filing for bankruptcy is the right action for you, it would be to your advantage to set up a consultation with a local bankruptcy attorney.

Can Bankruptcy Stop my Wages from Being Garnished?

Yes it can! One of the protections offered by bankruptcy, the automatic stay, prevents creditors who you owe money to from harassing you or garnishing your wages. Once creditors are notified you have filed for bankruptcy all garnishments must be terminated. In addition, you may be able to reclaim some of the money that creditors have garnished from you. In order to do so, you need to have had at least $600 garnished from your wages within the 90 days directly before your case. If you are considering filing for bankruptcy because your wages are being garnished but you have not yet had $600 garnished within the past 90 days it will be to your advantage to wait until you have had that $600 garnished so that you can reclaim those garnished wages.

If you have any additional concerns about your wages being garnished it would be to your advantage to set up a consultation with a local bankruptcy attorney in order to clarify any questions you may have.

What happens to my Retirement Plan if I file for Bankruptcy?

Certain retirement plans, pensions, employee benefit accounts, and spendthrift trusts can be exempted from the debtor's estate when filing for bankruptcy. Most plans and accounts that fall under the Employee Retirement Income Security Act (ERISA) are exempted from falling into a debtor’s estate when filing for bankruptcy. Certain other plans and accounts that are non-ERISA plans that also stay exempt from filing for bankruptcy include pensions from religious organizations and governmental entities. Additional plans that are excluded from ERISA as well as religious and governmental entities may also be exempted from the debtor’s estate, so long as they abide under § 541(b)(7) of the United States Bankruptcy Code or abide under specific state laws. Michigan’s bankruptcy laws exempt most pension and retirement accounts, but any amounts contributed to those pensions and accounts within the 120 days prior to filing for bankruptcy will not be exempt.

To better understand if filing for bankruptcy is the right action for you, it is recommended you set up an appointment with a local bankruptcy attorney.

Smart Money: Your Tax Return Could be a Ticket to Financial Freedom

This tax season, the average American taxpayer is receiving a $3,000 return. What

will you spend your tax return on this spring? Studies have shown that 43% of

Americans put their tax return into savings, 36% put the money towards paying off

their debt, 10% put money towards vacation, 6% purchase a luxury item, and 5%

make a necessary purchase, such as a house or car. While all are worthy ways to

spend money, paying off your debt could be the best investment you can make

with your tax return if you are in debt. Carrying around high-interest debt, with

interest compounding against you every month can be especially stressful. Surveys

tell us that debt is the most common cause of financial stress in the United States.

Your tax return could be a ticket to financial freedom.

If you have excessive amounts of debt that you are struggling to pay off, you could

spend your tax return most efficiently by putting the money towards filing for

bankruptcy. Bankruptcy offers the opportunity for you to get caught up on mortgages

or car loans without the threat of repossession or foreclosure and sometimes you can

be relieved from the legal obligation to pay some debts. To better understand if this

is something worthy of investing your tax return in, set up a consultation with your

local bankruptcy attorney to learn more.

After Bankruptcy: What is Next?

Bankruptcy gives you a fresh start in your financial life. But once you’ve received
your discharge from your bankruptcy, you may not know exactly what steps to do
moving forward.

1. Collect and file all your bankruptcy paperwork

Be sure to keep a copy of your bankruptcy petition, the 40-50 page document that
details your financial information. Also keep your notice of bankruptcy filing  as
well as a copy of your discharge order that you received from the court.

Why should you do this? Sometimes when lenders are considering you for new
credit, they want to see your bankruptcy papers. It is also important to keep these
documents in case anyone wants to collect on your old debt in the future.

2. Start a budget and review it frequently

Many bankruptcies begin as a result of unforeseen medical expenses, job losses,
or sudden family changes such as divorces or birth of children. Creating a budget
allows you to prepare and set goals for the future. There are many great budgeting
tools you can access through apps on your phone.

3. Start an emergency fund

As part of starting a budget, you will want to designate some funds for
unforeseeable emergency financial events. This fund could even turn into retirement
savings or college tuition savings in the future.

Why should you do this? This fund will prevent you from creating new debt when
emergencies arise. This fund will also make you feel less anxious about your
finances and prevent panic when emergencies happen.

4. Think about ways to improve your credit

Fresh out of your bankruptcy, you will have little to no debt. This is a great
opportunity to build your credit. However, be careful not to let yourself get carried
away. Begin with a small credit limit, monitor your charges, and pay more than just
the minimum amount every month. Another opportunity for building credit is by
investing in a secured-CD.

5. Explore financial management resources in the area

Because bankruptcy allows a fresh start on your financial life, it never hurts to learn more tips
and tricks to navigating personal finance in the future. You can check out free seminars offered
by local non-profits or community colleges.

Discharging Student Loans

If you are looking to discharge your student loans, it is a complex process, but
not impossible. After 1990, student loans are no longer considered “dischargeable.”
This means that in order to seek relief, an adversary proceeding is required--a
lawsuit must be filed separate from the bankruptcy case. You must prove that the
payment on your student loans causes an undue hardship. Most courts use the
Brunner test to measure the burden of the debt. It is a three-pronged evaluation that
requires the following: 1) the individual and their dependents cannot maintain a
minimal standard of living if they were required to pay the student loan, 2) there
must be additional factors that guarantee this poor standard of living will continue
throughout the whole payment period, and 3) the individual has made good faith
effort to pay the loans. If you can demonstrate that you meet these conditions,
your student loan could be cancelled as a whole.

There are advantages and disadvantages to discharging student loans. To better
understand if filing for an adversary proceeding is for you, it is recommended that
you set up a consultation with your local bankruptcy attorney.

Bankruptcy Filing Fees And Other Costs

Considering the financial circumstances that precede filing for bankruptcy, it is understandable that many people are concerned with the fees associated with this course of action.  Aside from attorney fees, filing fees and personal financial management education courses are other expenses involved in bankruptcy.  For a Chapter 7 bankruptcy, the normal filing fee is $335 and $310 for a Chapter 13 bankruptcy.  Education classes can range from $70 to $100, but will be covered by Russell Law Firm.  

For Chapter 7 bankruptcy cases, attorney fees must be paid in full prior to filing, as it would become illegal for a law firm to collect on a debt after filing.  In Chapter 13 cases, attorney fees are built into the debt payment plan and are collected over the life of the case.