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How Bankruptcy Affects Your Credit Score

Most people are terrified that their credit will be destroyed if they file bankruptcy. This fortunately is not true. Most people who file bankruptcy have a credit score somewhere in the mid 500’s. The report has many accounts that are in collection and the only chance for these people to clean the slate is to file a Chapter 7 or Chapter 13 bankruptcy and wipe out the debts. Based on many years experience a client whose FICO score is in the mid 500’s will see a relatively quick boost in the score within a year of the filing. The credit report service that we use at Broumas Law Group LLC has a feature that estimates for our bankruptcy clients what the FICO score will be one  year after the Chapter 7 or Chapter 13 bankruptcy is filed. Surprisingly almost every client sees a 30 to 100 FICO score improvement based on that report.

There are a few clients who arrive at our door with a 700 plus FICO score. These clients tend to come from one of two different groups. The first group, consisting of clients who have suffered a catastrophic life event,  loss of a high paying job, illness, business failure or similar sudden tragedy. These clients are just in a bad place and will most likely see a real loss in their FICO credit score in the short term. The question for people in this group is what the prospect of a quick recovery is before all of their loans are delinquent and start reporting negatively.

As unfortunate as their situation is in many cases a poor credit score is just around the corner. Depending on the magnitude of their obligations it is most likely going to be impossible for these clients to maintain a great credit score. The prospect of filing even if there is a short term drop in the score is still better long term since they should recuperate faster after filing a Chapter 7 or Chapter 13 bankruptcy.

The second groups of clients with a 700 plus FICO score are the clients that are over extended and keep using the credit cards and credit lines to stay current. They often tell me they are “robbing Peter to pay Paul”. For these clients the credit score should be in the 500’s but they desperately try to maintain their credit by becoming more and more in debt. The solution for these clients is simple: they have to cut the credit card cycle, stop buying necessaries like food and gasoline on credit and file bankruptcy. They need to get on a cash basis. I tell them if you cannot afford to pay for it then it does not make much sense to pay 24% more when you add the interest to the price.

Although bankruptcy will stay on your record for 10 years, bad credit stays there for 7. If it takes you 5 years to pay off the bill and it stops reporting 7 years after that it will probably be there longer than the bankruptcy.

Clients report a dramatic improvement in their ability to buy cars within months of a filing with a reasonable interest rate. Buying a home, which is impossible if you have many delinquent accounts, is very realistic 3 years after the bankruptcy is over. If you have questions about the effect of bankruptcy on your credit an experience Maryland bankruptcy attorney can help you.

WILL BANKRUPTCY HELP ME IF I AM BEHIND WITH MY GAS AND ELECTRIC BILL

         Utilities like the gas or the electric company have special rules that need to be followed when you file bankruptcy in Maryland. Clients in distress often have fallen behind with all the bills even the gas and electric bills. The utility bills often have accumulated to a very significant number because the utilities rarely actually turn off service right away. This is especially true in the winter months when a turn off could be life threatening to the elderly or children. It’s not uncommon to have a client that lost a job come in with a turn off notice with a $3,000 to $5,000 balance after a hard winter.

          Utilities are given special protection under all chapters of the bankruptcy code. Once a bankruptcy is filed they are required to keep the power and the gas on even if they have sent out a termination notice and are about to shut the gas and electric service off. The way the system works once a Chapter 7, Chapter 12, Chapter 13 or Chapter 11 is filed and they have notice of the filing the power company or other utility needs to maintain service. The bill is then generated for the time period before the bankruptcy was filed and a new billing cycle with the post-bankruptcy filing period is opened and started.

          The bill for the pre-bankruptcy period is then included in the bankruptcy and either discharged in the Chapter 7 or dealt with in the plan under the other bankruptcy Chapters. While the very large utility bill is in the bankruptcy is in the bankruptcy the Client is not without some significant obligations. First the utility company is entitled to a reasonable security deposit to insure performance with regard to the post bankruptcy filing bill. This needs to be arranged for and paid by the client within 20 days of the bankruptcy filing or the utility company can terminate service. Most utilities will have a standard amount they require for a deposit. Depending on the utility company usually the deposit will be one and a half to two months of the average bill. Some will use a percentage of the yearly bill. Regardless, the amount of the deposit is going to be much less than the original turn off. This deposit is the client’s money, so at some point in the future if the client continues to perform the funds will be reimbursed.

          If the deposit request is unreasonably high an experienced Maryland Bankruptcy lawyer can help you ask the bankruptcy court for help in a hearing to set a proper deposit. Some of the reasons the utility company might give a very high deposit can be caused by creative and illegal ways a client might have coped with a turn off. In the past I have seen client that broke seals on the meters and turned power back on, connected to another power source and took electric power from neighbors. These acts will cause the utility to give a client a hard time about the security deposit requirements.

          Even if the turn off has already happened and the client is in the dark, the utility company is required to turn the power back on once they have notice of the bankruptcy filing. They of course are entitled to the security deposit. It will not happen overnight in many cases especially if the turn off is at the street and not remote. Under those circumstances the sooner the client files the bankruptcy case the sooner he or she will have gas and electric power.

Chapter 7 Bankruptcy for Persons with Above Average Income

In October of 2005, Bankruptcy laws were changed with a view towards making it harder for people with above median income to file a Chapter 7 case. The law before 2005 did not set any specific income guidelines but it in many ways still restricted people with substantial incomes from discharging their debts in Chapter 7 if after deducting reasonable expenses there were funds left over in the budget. If a client does not fit the income and expense requirements they are not allowed to get a Chapter 7 discharge and if they want relief need to file a Chapter 13 bankruptcy.

To understand the difference between the two most common bankruptcy chapters, a Chapter 7 bankruptcy does not have a payment component. You file the case and if everything is in order you ordinarily will finish the process in three and a half to four months and at the end discharge most debts. Chapter 13 is not a bad alternative; it’s a restructuring with a discharge at the end of the process. Chapter 13 is an income based repayment plan. This means in its simplest form the first test for what must be paid in the Chapter 13 is 100% of all disposable income after normal expenses for the 36 to 60 month plan period. In many cases there is very little money left over in the budget and the client ends up using the Chapter 13 to catch up back mortgage and car payments and taxes. Because there are no additional funds left over in the budget the credit card, medical bills etc. get nothing and are discharged at the end of the plan.

A person with high income who wants a Chapter 7 discharge needs to show that 1. His or her reasonable expenses do not leave enough money to fund a Chapter 13 plan. 2. The monthly average of all gross income earned in the six months preceding the filing of the bankruptcy is less than the median income for that State of residence. Once the client goes over the median monthly gross income average the client is restricted to using the arbitrary monthly living expenses permitted in the statute to determine if there is money left to fund a plan.

Most of the arbitrary expenses that are used in the means test are the same ones the Internal Revenue Service uses to determine a person’s ability to pay. Other expenses are set by the bankruptcy statute. Both the arbitrary timing and arbitrary expenses lead to some absurd results in many cases. A well paid school teacher who does not receive pay in the summer might not pass the means test at the end of the school year but may pass in August when school resumes. A real estate agent who makes most of her commissions in the spring might pass in January. This area is complex and full of issues that require the knowledge of an experienced Maryland Bankruptcy lawyer. Just because the client passes on paper does not mean a high income person will be able to weather the scrutiny that will inevitably be given in a close case.

          Not only is the timing of the calculation important and arbitrary. Some of the expenses that can help beat the means test are:

1.     Very large alimony or child support

2.     You owe an enormous tax liability that will not be discharged

3.     You have a very high mortgage expense

4.     Your children have learning disabilities and you have to pay for private school

5.     You have very large car payments

These won’t guaranty that you will pass but they may help get the means test to work.

The expense side also gives rise to some absurd results. The person, who is frugal, buys a small inexpensive car and does not have a loan on that car will get almost no means test deduction for owning that vehicle. The person who bought a $50,000.00 Lexus at 24% interest and still has 50, $850.00 per month payments gets to deduct the standard ownership allowance for the car plus the car payment. Similarly, someone with a $1,000,000.00 mortgage who pays a $4,500.00 a month payment gets to deduct that payment. The homeowner with a normal $250,000.00 house gets the IRS standard allowance. Despite passing on paper however this is an area where an experienced bankruptcy lawyer will make a difference. Even if you pass the requirements on paper there will be many questions that need to be addressed before you will make it through the process. These high income cases are not simple Chapter 7 cases. They require a great deal of experience and skill before and after they are filed.

VERY AFFORDABLE PRICE FOR CHAPTER 7 BANKRUPTCY FROM A VERY EXPERIENCED LAWYER IN MARYLAND.

Our Maryland Bankruptcy Lawyer believes that legal services should be affordable, efficient and the quality of the services should be excellent. At Broumas Law Group LLC, the pricing for our Chapter 7 bankruptcy cases reflects that policy. We Charge $799.00 for what we call a simple Chapter 7 case. This means that most of our clients will be paying $799.00 for the services by our bankruptcy lawyer and staff.

affordable bankruptcy lawyer maryland

Some cases are more involved than the everyday case. For example a case with multiple properties, a business case, a case where the income is very high and significant time and effort will be needed to analyze and deal with complications cause by the means test and other income related issues. Those cases will require substantially more time that a routine case. When you meet with our lawyer for the first time he will be able to tell you if your case is unusual and will require additional expense to be filed. The more complicated cases are usually cases that arise when the client has a more complicated business, larger income and so most often the client is also able to afford the extra service the client needs to get through the process.

I tell clients if you own a house, a couple of cars, a cat and a dog, don’t have a high income, have not defrauded anyone, you most likely will be paying $799.00 for a Chapter 7 case at Broumas Law Group LLC.

At Broumas Law Group LLC our practice is almost exclusively  limited to all aspects of bankruptcy.  At Broumas Law Group LLC you get excellent service from bankruptcy lawyer with over 35 years of bankruptcy experience for an extremely low price of $799.00 for Chapter 7 cases.

The Benefits of Filing Chapter 13 Bankruptcy

Chapter 13 bankruptcy is the way we help someone who is losing their home, car or other property that is about to be lost through foreclosure or repossession to keep those assets and restructure the debt. Chapter 13 bankruptcy differs from Chapter 7 bankruptcy by providing a payment component that allows you to force unfriendly or uncooperative mortgage companies or lenders to let you restart payments and spread the defaulted amounts over as long as 5 years or even to completely restructure the debt. Chapter 13 bankruptcy is also a tool to deal with all other debt leaving you completely current and debt free at the end of the chapter 13 plan. Usually the credit cards, medical bills and other unsecured debt is wiped out with a minimal percentage payment.

Chapter 13 bankruptcy is an alternative if you do not qualify to file Chapter 7 bankruptcy. For example if you have too much income, or received a Chapter 7 discharge within the last 8 years. There are times when life becomes tough and debt starts to mount in a hurry. No matter how bad the situation, there is always an alternative that will lead you back to better days. Filing for Chapter 13 bankruptcy in one such alternative which includes its share of benefits. Just as with Chapter 7 bankruptcy, when you file Chapter 13 bankruptcy you will immediately see an end to foreclosure actions, efforts to repossess cars or trucks, harassing phone calls, law suits, wage garnishment and every other type of collection activity. As is the case when you file a Chapter 7 bankruptcy, your credit score usually starts to improve and you begin rebuilding your credit.

One aspect of Chapter 13 bankruptcy that many consumers can take advantage of is the protection it gives friends, family members and co-workers who may have co-signed with you. Under Chapter 13 the lender cannot go after cosigners and the debt that is cosigned can be restructured and repaid over 5 years. This relief is not available in Chapter 7 bankruptcy since it does not have a payment component.

A Chapter 13 bankruptcy will also bring all your past due taxes current providing a 5 year repayment plan with no interest accruing on the past due amounts while the plan is in place. You also can discharge many old taxes, just as you can in a Chapter 7 bankruptcy case.

If you have a second mortgage on your home a Chapter 13 bankruptcy can in many cases be stripped off the house and you will no longer have to pay it. You also can “cram down” other secured loans by reducing the amount paid in the Chapter 13 bankruptcy plan to the value of the car or truck and reducing the interest paid on the loan to a reasonable amount.

These remedies and powers that you have in a Chapter 13 bankruptcy case require a solid understanding of bankruptcy law to implement and to determine if they will work in your particular case. The Maryland Lawyer at Broumas Law Group can help you determine if Chapter 13 will allow you to take advantage of these benefits in a Chapter 13 bankruptcy case. Proudly serving Baltimore and the surrounding areas, Broumas Law Group continues its commitment to excellence while upholding high standards in the practice of law.

Protect Your Assets with Bankruptcy Exemptions

A Chapter 7 bankruptcy, if done properly will allow you to discharge all your debts and retain the all the things that you own. Although Chapter 7 bankruptcy is also known as liquidation bankruptcy, bankruptcy law allows us to exempt or protect certain assets. Since all non-exempt assets are to be liquidated in a Chapter 7 it is critical to have proper legal advice to using Maryland exemptions so that you will not lose any property.

In the State of Maryland, a debtor has up to $12,000 in total personal property exemptions. There are several categories of property that are included within the $12,000 of property that we can exempt:
First, you have $5,000 in personal property exemptions that you can use to protect any personal property or effects.
Second, $1000 is allocated to household goods and furnishings. This means you can use this $1000 to protect furniture and other items in your home.
Third you have a $6,000 wild card exemption that allows you to protect either real or personal property.

The result is that if you are filing without your spouse you can protect any personal property as long as the value of that property is not more than $11,000. If a married couple is filing together in Maryland for Chapter 7 bankruptcy, they can protect up to $2,000 in household goods and $22,000 in any personal property.

If you do not have equity in your home, car or other financed asset, there is normally little if any risk that it will be liquidated or sold as part of a Chapter 7 bankruptcy. If you do have equity or value over the mortgages or secured loans, we use exemptions to protect the property.

In the State of Maryland married couples are given special protection for assets that were acquired during the marriage. Real estate and personal property that is owned “by the entireties” as a married couple can under proper circumstances be fully protected. So if the proper analysis is done a home with very substantial equity can pass through bankruptcy without being liquidated if it is properly titled and other very important requirements are met. The exceptions to this type of protection are complicated and require proper analyses. At Broumas Law Group our Maryland bankruptcy lawyer can help you determine if your home will be safe when it has substantial equity.

There is also an exemption for owner occupied real estate in Maryland. Under this exemption you can protect $22,975 of equity in your homestead. Married couples cannot double the homestead exemption which protects equity in their home. Debtors can protect up to $22,975 of equity as per the homestead exemption, which was passed in 2010.

There are other property specific exemptions in Maryland that may be available including some life insurance policies, pension plans, tools of the trade and various other less commonly used exemptions. Our Maryland bankruptcy attorney at Broumas Law Group can make sure you get every single exemption you are allowed when filing for any kind of bankruptcy.

Business Bankruptcy and Insolvency

When a business is in trouble the process of determining the best course of action is complicated and confusing. The business most often has suffered from a lack of administrative attention in addition to having cash flow problems. The accounting is often in disarray and the owners are operating on a day to day basis often without a plan. The first step is to determine if the business can be salvaged or is hopelessly insolvent. This is an exercise for the business owner. Without a business plan and some objective prospect for the situation to improve there is little chance things will get better. A business bankruptcy can help by restructuring secured and unsecured debt and can give the business a break from collection activity to try to reorganize.

It is common for the business owner to make serious mistakes while trying to keep his business from failing. Using sales tax collections that should be remitted to the state. Using payroll taxes that are withheld from employees. These are just some of the challenges that need to be avoided especially since taking these extreme measures can result in personal liability for those who are in charge of the business. In most cases with a small business the owners are also directly affected by the financial woes of the company. Facing the potential for liability of personal guarantees of the business debt makes the decisions regarding the business more complicated for them and their attorneys.

If a decision is made to seen bankruptcy relief and to try to revive or rehabilitate the business the management of the business will need to plan the filing well in advance. This to make sure they will not have problems with the use of the cash that is generated by the business, make sure that employees are paid and the checks clear and that vendors who are critical to the operation are dealt with appropriately. A business plan is critical to success since most often in the early stages of the case creditors are active and if unfriendly the bankruptcy court will want to know what the prospect of success will be for the business.

In many cases a decision is made to shut the small business down rather than try to reorganize it. The business plan plays a key role in that decision. The shutdown if done properly can be done in a way to minimize the potential problems for the management and owners while still insuring that the insolvent business meets its obligations to act properly and fairly towards the creditors. Proper planning is key here. At Broumas Law Group we have experience helping many different businesses with an orderly shutdown.

The business structure also needs to be understood. A corporation or limited liability company will protect the business owner from many liabilities if he did not personally sign guarantees or do things that harm creditors once the business became insolvent. A review of the agreements with vendors will often help determine the risks for the business owner with respect to trade creditors. Of course most commercial lenders will have a guaranty of their debt. The person signing those guarantees will not be able to easily avoid responsibility for those debts. Sole proprietorships and partnerships unfortunately do not protect the owners and therefore in those cases the business and the individual owners are more vulnerable.

There are many issues that need to be considered if you are running a distressed business. Our bankruptcy attorney at Broumas Law Group can explain each of those areas to you as well as advising which type of bankruptcy is right for your business. We can also help advise you if other options are better for your business.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is most often associated with business reorganization. Chapter 11 however is also available for individuals who are not in business. Chapter 11 is the most complex type of bankruptcy but also the most flexible and powerful. Unlike Chapter 13 Chapter 11 is not limited to a 5-year repayment plan. Rather one can restructure debts for much longer periods even as long as 30 years if the loan is secured in some cases. Chapter 11 bankruptcy though associated with restructuring an ongoing business can also be used to sell assets and liquidate a business or assets that belong to the debtor.

In a Chapter 11 bankruptcy the debtor retains its present management and is charged with the fiduciary responsibilities of a trustee for the benefit of creditors. Unlike a Chapter 13 there is no independent trustee appointed to administer the case, rather the company continues to run under the auspices of the bankruptcy court and is authorized to continue its regular operations in the ordinary course of business.

As is the case with other bankruptcy chapters a Chapter 11 Bankruptcy filing will have the effect of stopping foreclosure, creditor lawsuits, repossessions or other collection activity. The debtor has a limited time to try to make the business work if the plan is to reorganize, before a repayment plan is required to be proposed. The time periods will depend to some extent on the type of case and on the nature of the business. Small business cases and single asset real estate cases have shorter time periods to propose plans and obtain approval than in large multi-asset cases.

Unlike Chapter 13, the Chapter 11 plan is not a standard plan. The plan needs to be approved together with a disclosure statement that describes the plan and the treatment for each group or class of creditors and provides for how the plan will be effectuated. The Court must approve the disclosure statement before it is disseminated in all but small business cases. Once approved the disclosure statement is sent to creditors and shareholders for a vote. At least one group of impaired creditors must accept the plan by having 50 percent in number and 66.66 percent in amount for each class of creditors to accept the plan. Before it can be sent to creditors the Court must find that the plan and disclosure statement contain adequate information for the creditors to decide whether to vote for the plan.

Needless to say the Chapter 11 process is complicated and requires significant amount of experience to bring a client through the Chapter 11 successfully. At Broumas Law Group our bankruptcy lawyer has experience filing all types of Chapter 11 cases and preparing and obtaining approval of Chapter 11 plans and disclosure statements for small businesses, individuals and large corporations.

What Bills Should I Pay Once I Decide to File Bankruptcy

A common question asked by clients is should I continue to pay my bills now that I have decided
to file bankruptcy. The answer depends on several factors:

Most unsecured creditors should not continue to be paid after the decision is made to file. Those
creditors will not receive anything from the bankruptcy in most cases and there is normally not a
good reason to treat one creditor better than another. If the client is seeking bankruptcy relief the
clients needs the funds and once the decision is made to file bankruptcy there is no good reason
to throw money away.

Many clients want to know if they can keep some of the credit cards. Not include them in the
bankruptcy. This is definitely not allowed. Bankruptcy requires that you list all persons you owe
in the schedules and those documents are signed under penalty of perjury. The only way to not
list the creditor is to pay him off before the bankruptcy is filed. For non-family members or
insiders the payment cannot exceed $600 in the aggregate in the 90 days before the case is filed
or the creditor will have the potential of having the trustee ask for the money back as a
preferential transfer. For family members or insiders the money can be recovered for payments
that were made within a year.

Even if the entire credit card is paid off before the filing the credit card companies will in most
cases figure out that the client filed a bankruptcy and will cancel the line of credit. There is
therefore little benefit to paying off or making any payments on credit cards or unsecured debts
just before the case is filed.

Sometimes the answer will depend on the type of debt that is being repaid. For example if the
client plans to keep your car or home the client will most certainly want to remain current with
your monthly payments. These loans are protected by assets (Real estate or car) and therefore are
unlikely to be treated as preferential transfers. If you do not stay current the creditor will be
entitled to repossess or foreclose and sell them. If you plan on surrendering the car or house then
there is little benefit to making the payments.

Some unsecured debts have special treatment in a bankruptcy and can be paid. Income taxes that
were first due less than 3 years before the bankruptcy was filed will not be discharged by the
bankruptcy and are also entitled to special treatment ahead of other unsecured creditors. If they
are paid they will probably not be preferences and since they will survive the filing there is no
harm if they are paid. Child support, alimony, and other support obligations must be paid. The
Chapter 7 bankruptcy filing has no effect on these obligations.

One important area of pre-bankruptcy planning involves the analysis and treatment of creditors
before the case is filed. In many cases with proper planning the debtor is able to retain significant
cash or repay obligations that would survive bankruptcy. When you have come to the decision
that filing for bankruptcy is the right move for you, contact Maryland bankruptcy attorney at Broumas
Law Group for help with the planning that is needed before a case is filed.

Fraudulent Conveyances and Preferential Transfers in Bankruptcy

Bankruptcy law is an effort to balance the rights of creditors to protect their interests and debtors to free themselves from debt and get a fresh start. No one benefits from a system that puts borrowers in a situation where they are not able to support their families because they are swimming in debt. On the other hand bankruptcy law recognizes that creditors interests need to be protected from abuse. Clients occasionally ask whether they can transfer things to their friends or family members and than file bankruptcy.

Fortunately most people can keep the things they own, file bankruptcy and get rid of the debt. The law allows you to keep or exempt certain property and in most cases those exemptions are enough to protect the things you own. If however the assets cannot be exempted, those assets also cannot be transferred to others just before a bankruptcy case is filed to try to keep them from the reach of creditors or the bankruptcy trustee. This is where the balance tips in favor of the creditors. Transferring assets to others with intent to hinder, delay or defraud creditors will lead to a loss of a discharge and could even subject the parties to criminal prosecution. Bankruptcy law allows the trustee to sue the recipient of a fraudulent conveyance and to get the property or its value back if the transfer was made within 2 years of the bankruptcy filing. Maryland State law has similar provisions that allow the trustee to reach back as far as 3 years.

There is also a different type of fraudulent transfer. The kind that is not done to protect assets from the creditors but that still technically allowed someone to take something of value away from the bankruptcy estate. An example of this would be a large gift to a family member, done for legitimate purposes but still depleting the assets owned by the person who files bankruptcy. Another example would be the sale of a car or another asset for a lot less than what it is worth. This type of transfer will not get the debtor in trouble, causing the loss of a discharge or possible criminal charges but it would still be a transfer that could be avoided, allowing the trustee to sue the recipient for the return of the property or its value.

Preferential transfers are yet another way that bankruptcy will try to balance the rights of creditors. The principle is to make sure similar creditors are treated the same. Thus if a borrower pays a significant payment to his VISA card or other unsecured creditor within 90 days of the filing of the bankruptcy case the bankruptcy trustee can get the money back and share it equally with all the creditors. This is not because it is wrong to pay creditors but just to make sure no creditor is preferred over any other.

The situation of avoidance of preferences becomes more painful if the borrower has paid back mom, dad or another relative within one year of the filing. Despite the fact that the family member really did loan the money and it was expected that the debtor would repay it, the Chapter 7 trustee can get the money back. Obtaining good advise regarding this part of bankruptcy law is essential before filing a bankruptcy case. The Maryland bankruptcy attorney at Broumas Law Group can help you through these issues and insure your case goes smoothly.

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