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Chapter 13 Bankruptcy Can Halt Foreclosure

One of the leading causes of filing for bankruptcy is the inability to repay a mortgage, or falling behind on a mortgage and not being able to catch it back up. Filing a Chapter 13 bankruptcy imposes the Automatic Stay (the “Stay”) against all creditors, including a mortgage company who is instituting a foreclosure proceeding. In the context of a foreclosure, the Stay is effective until the bankruptcy court permits the lender to continue the foreclosure or until the bankruptcy case is either closed (completed) or dismissed.

If your property is in foreclosure, it is in your best interest to seek the advice of a bankruptcy attorney immediately. Even if a foreclosure sale has been completed on the property you want to keep, filing a Chapter 13 bankruptcy within 10 days of the completion of the sale (called the 10-day redemption period, or Upset Bid Period) may, under certain circumstances, stop, postpone, or even reverse the sale. Chapter 13 bankruptcy is a vehicle that can allow you to pay the past due amount to your mortgage (the arrears)  over a period of up to five years. Once you’re caught up, there is no further reason for foreclosure, assuming no other defaults exist. However, if you have decided to walk away from the mortgaged property – perhaps the mortgage is more than the property is worth – a bankruptcy can prevent the lender from continuing to pursue collection on the remaining balance (called a deficiency). Chapter 13 bankruptcy can also return the property to the lender via an orderly release.

If you are in mortgage distress, it is strongly recommended that you see the advice of a knowledgeable bankruptcy attorney now.

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What Do Each Of The Bankruptcy Chapter Numbers Mean?

bankruptcy numbers meaningBankruptcy is governed only by federal law. The federal laws of the United States are “codified” within books of various groups, almost like volumes, with each volume receiving a numerical title. For example, Veterans Benefits are addressed in Title 38 of the U.S. Code whereas Title 17 addresses Copyrights. Bankruptcy is found in Title 11 of the U.S. Code. Each title is further divided into Chapters. Under Title 11, the different Chapters refers to the different types of bankruptcy. Here are the types of bankruptcy addressed by each of the chapters within Title 11.

Chapters 1, 3 and 5 of the Bankruptcy Code deals with generic issues within all of Bankruptcy law, like definitions, how Trustee’s are selected, as well as who files claims in the cases and when, to name a few. Chapters 1, 3, and 5 are not Bankruptcy Chapters that someone can elect to file a petition under.

Chapter 7 Bankruptcy deals with basic liquidation of assets for both individuals and businesses. It is the simplest and/or quickest form of bankruptcy. It involves the liquidation of non-exempt assets by a Chapter 7 Trustee, with the goal of obtaining a discharge which acts as a legally binding document absolving the individual from having to pay back any debts that were not repaid from the liquidation of assets. However, there are certain exceptions to these general rules.

Chapter 9 Bankruptcy deals with the resolution of the debts of municipalities. For example, Detroit, MI filed Chapter 9 bankruptcy on July 18, 2013.

Chapter 11 Bankruptcy deals with the financial reorganization of businesses (corporations). It is sometimes used by individuals with substantial debts. Chapter 11 allows a company to continue doing business while adhering to a debt repayment plan (or “Plan of Reorganization”) agreed upon by the bankruptcy court. Most often this debt repayment plan involves a repayment of some, but not all, of the indebtedness owed by the company over a period of a few years, based upon the company’s ability to pay. Each Chapter 11 Plan of Reorganization is unique and molded to the needs of the debtor in that case.

Chapter 12 Bankruptcy deals with the rehabilitation of debts for family farmers and fishermen. In such cases, filing a petition stops collection actions by creditors. A trustee is appointed to evaluate and oversee the case, collect payments from the debtor, and disburse payments to creditors.

Chapter 13 Bankruptcy deals with the rehabilitation of debts for individuals with a source of regular income. Chapter 13 allows for the development of a repayment plan to repay all or part of the debts owed over a three to five year time period. This repayment plan is overseen by a Chapter 13 Trustee. The ultimate goal of a Chapter 13 is to receive a discharge, which acts as a legally binding document absolving the individual from having to pay back any debts that were not repaid (in whole or in part) in the plan. Chapter 13 has certain advantages over a Chapter 7, in that it can discharge certain debts that are excepted from discharge in a Chapter 7.

Chapter 15 Bankruptcy provides a mechanism for dealing with “cross-border” insolvency or debtors of foreign countries to resolve debts owed to creditors in the U. S.

Chapters 8, 10, and 14 are not published within the U.S. Code, and were reserved for Congress to toy with in the future. For more information on bankruptcy law, visit one of the links provided or contact our team today!

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Differences Between Personal Chapter 7 Bankruptcy and Chapter 13 Bankruptcy

Chapter 7 and chapter 13 bankruptcies each have their own advantages and disadvantages. However the main difference between chapter 7 bankruptcy and chapter 13 bankruptcy for an individual or a couple is usually about the retention of property. The most common question asked is, “Will I get to keep my house” although some wish to know whether they keep their vehicle or other assets. The answer to this depends on a number of factors, including the exemptions a person can claim, the equity that exists in the asset, and whether the bankruptcy petition is filed under chapter 7 or 13.

In Chapter 13 bankruptcy, the debtor files a repayment plan to pay all or a portion of the person’s debts owed over a given period of time. The repayment amount depends upon a number of factors, including the debtor’s income or earnings, how much property is owned, and the amount and type of debts owed. It is understood that, under Chapter 13 bankruptcy law, real property is often retained because the debtor is making the debts current, or paying off the debts, on properties they wish to keep.

Chapter 7 bankruptcy is different in that, although the court discharges most of the debts, the trustee can take any property the debtor had an ownership interest in that is not exempt under State or Federal law, sell it, then distribute the proceeds to creditors. The keyword is exemption and it is important to note that Federal bankruptcy exemptions are not available in North Carolina. The bankruptcy court will abide by the exemptions provided under North Carolina statute. Some of the exemptions that are most relevant to individuals are, as of this writing (5/7/2014):

  • The Homestead exemption which allows the debtor up to $35,000 in equity in real property. This amount can be claimed by each spouse, otherwise known as doubling, up to $70,000 in equity. If the debtor is 65 years or older, the allowable exemption is $60,000 as long as the property is deeded to tenants by entirety or jointly with rights of survivorship and the spouse is deceased.
  • Personal property exemption, such as furnishings, appliances and clothing, not to exceed $5000 for the debtor and $1000 for each dependent up to $4000 so long as the property was not purchased within 90 days of filing bankruptcy. *
  • One automobile in which the debtor’s interest does not exceed $3500.*
  • Cash value of insurance plans as described in Article X, Section 5 of the Constitution of North Carolina, of which a spouse or a dependent is the beneficiary.
  • Retirement benefits, annuities, and trusts as described in section 408 of the Internal Revenue Code.
  • Up to $2000 worth of Implements, tools, professional books, or tools of the trade used for work so long as these were purchased more than 90 days prior to filing bankruptcy.*
  • A “wild card” of any unused portion of the Homestead exemption, with a maximum of $5,000, to be applied to anything the debtor desires. Most individuals use this “wild card” exemption to protect cash, bank accounts, nonexempt equity in automobiles (or a second automobile) or any other item owned by the debtor, so long as it is worth less than the “wild card” amount, in the aggregate.


*It is important to note that any property on which you still owe is subject to repossession if payments are not kept current in a Chapter 7 context. Any amounts described above are subject to change.

The list of exemptions for North Carolinians can be found at N.C. Gen. Stat. § 1C-1601 (a). Due to the complexity of Federal bankruptcy and State collection laws and its propensity for constant change, it is highly recommended that you seek the legal advice of a bankruptcy attorney at IMGT. Contact us today to schedule your consultation with one of our attorneys.

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The History of Bankruptcy

In ancient times, relief from debt was unknown. The exception was within the Old Testament nation of Israel in which, every seventh year, debts were absolved regardless of the amount (Deut. 15). Until the last century, in most every culture, an indebted individual faced enslavement, often for life, or imprisonment until the debt was paid. The Continent of Australia and the British Colony of Georgia (later to become the U.S. State of Georgia) were even organized to operate as debtor prisons.

History of BankruptcyIn the U.S., a number of bankruptcy laws were enacted during times of economic upheaval, such as the Civil War, then subsequently repealed throughout the 19th century but the Great Depression in the 20th century wrought significant changes to bankruptcy law. Prior to the 1930’s, bankruptcy laws tended to favor the creditor and punish the debtor. The Bankruptcy Act of 1898 however, was the first to provide distressed companies optional protection from creditors, known as equity receivership, through which the company could be reorganized (rehabilitated). During the Great Depression, bankruptcy laws were elaborated upon with the Bankruptcy Act of 1933 and the Bankruptcy Act of 1934, the latter providing the debtor “a new opportunity in life…. unhampered by the pressure and discouragement of preexisting debt.” Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S. Ct. 695, 675 (1934).

The Bankruptcy Reform Act of 1978 provided for strong provisions for business reorganization with Chapter 11 and revising Chapter 13 with more powerful provisions. The results made filing bankruptcy and reorganizing easier for both businesses and individuals, and created the Bankruptcy Code. The Supreme Court ruled the Act of 1978 gave bankruptcy judges too much power which could be used to overreach into other government jurisdictions. This brought about the Bankruptcy Amendment Act of 1984. Shortly after, Chapter 12 came into existence to provide for the needs of farmers facing bankruptcy, allowing them the opportunity to reorganize their debts and maintain possession of the family farm.

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCA) was signed into law in 2005 making significant changes to the bankruptcy code in general. This bill required debtors with the ability – those found to fail the Means Test, typically formulated as individuals who exceed their state’s median income, while reducing the income for certain attributed and estimated continuing house hold expenditures – to repay some portion of their debts. The law also created an eight-year waiting period between bankruptcy filings to prevent repeat abusers from benefitting from bankruptcy protections. Further, it mandates that individual filers must undergo credit counseling prior to filing for relief under the Bankruptcy Code and receive financial management education after filing for relief under the Bankruptcy Code.

Are you in need of a North Carolina bankruptcy attorney? Call us today or learn more below:

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