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PLEASE TAKE THE TIME TO READ THIS LETTER IN ITS ENTIRETY BEFORE YOUR CONSULTATION

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DEBTOR RESPONSIBILITY

With bankruptcy, it is the responsibility of the debtor, which is you, to acquire documentation, attend educational counseling sessions, and show proof of it to the trustee and/or the court.

CHAPTER 7 VERSUS CHAPTER 13 BANKRUPTCY

One of the very first questions asked of me during the initial consultation is the difference between a Chapter 7 and a Chapter 13 bankruptcy. You may not qualify for a Chapter 7, which will be determined after consultation with me, but a Chapter 7 bankruptcy discharges your dischargeable debt without having to repay the debt. It typically does not discharge taxes, with some exceptions, it does not discharge child-support obligations, student loans (with an exception), maintenance obligations to an ex-spouse, nor will it discharge debt that you are ordered to pay pursuant to a domestic relations order (out of a divorce or other similar proceeding) in which you are to hold your ex-spouse harmless. Debts for credit cards, medical expenses, utilities, secure debts for homes, automobiles etc., with exceptions, can be discharged but you may not keep the secured item.

 

A Chapter 13 bankruptcy is different, and can be used instead of a Chapter 7 to cure deficiencies/arrearages on loans. Assume, for example, that you are three months behind on your house payment. Your house payment is $1000 per month. Therefore you are $3000 behind on your mortgage. Typically there will be some late fees, accrued interest and other associated fees with your delinquency. If you are interested in keeping your home, a Chapter 13 can be filed and the mortgage company will be required to accept payments from you to cure that deficiency. The payments to cure that deficiency can be spread over a 36 to 60 month period. So let's assume that the delinquent payments, interest, and associated fees are behind in the sum of $3600. On a 36 month plan, you would pay back to the bank 100 a month along with your $1000 a month mortgage. On a 60 month plan, you would pay $60 a month to pay back the $3600 along with your 1000 a month mortgage payment. If you have additional money left over in your budget, the trustee will require you to pay that additional money towards unsecured creditors such as credit card debt, medical debt etc.

 

Chapter 7 and Chapter 13 Bankruptcies are more complex than described above, but I believe this serves as an initial explanation.

CHAPTER 11 and CHAPTER 12 BANKRUPTCY

A Chapter 11 bankruptcy is "reorganization" typically used by businesses to reorganize their business and maintain its viability. A Chapter 12 bankruptcy is designed for the "family farmer or fisherman". I do not handle Chapter 11 or 12 Bankruptcies.

PENDING LAWSUITS

If you have any pending lawsuits in State or Federal Court regarding your debts, pay close attention to the court dates. If you fail to attend a court date, the judge can make rulings against you without your involvement, resulting in a judgment against you, which could result in unfairness to you. Except for nondischargeable debts, judgments can be discharged, but they inherently pose a problem in that they become a lien upon any real estate that you have in the county where the judgment was rendered. This means, that If you have too much equity in your home, this judgment may act as a lien on your property somewhat like a second mortgage. So, in the event that the debt is dischargeable you could be in a situation where the debt is discharged but the judgment against your house remains intact and when you later go to sell your house, the judgment will be paid before you get your net proceeds. Thus, it is important that you file your petition for bankruptcy prior to a judgment being rendered against you. In the event that you are not eligible for bankruptcy, or for some reason it is a nondischargeable debt, or you end up filing a Chapter 13, you may have to pay a percentage of that debt. Thus, it is important that you attend hearings and defend yourself until the bankruptcy petition is actually filed. Once the bankruptcy petition is filed, most lawsuits are stayed. This means that the creditor cannot continue to proceed against you in State or Federal Court, at least temporarily. Please note that hearings that follow the initial trial (where the judgment is ordered) are called proceeding supplemental. In these hearings, your failure to attend can result in your incarceration (being jailed) for contempt of court. These hearings are intended to collect money from you in the form of garnishments, and or, the taking (attachment) of your personal and or real property. If you have a hearing set for proceeding supplemental, take it seriously and either attend it or get your bankruptcy petition filed before the hearing. If you have a sheriff's sale scheduled regarding your real estate, and if you intend on keeping your real estate (home or land), you must file your bankruptcy petition before a sheriff's sale has occurred.  Once the sheriff's sale has been completed, the person or entity buying your home at that sale will own your home free and clear of any rights or interests you may have had therein. Again, if you file your bankruptcy petition, the sheriff's sale cannot be held.

OBTAINING CREDIT

At this time, I would like to caution you regarding the use of your credit cards to obtain credit, the purchase of any vehicles, cell phones or pursuing any person or entity to obtain credit. Given your potential insolvency, if you obtain credit, it may be considered fraudulent and will subject you to nondischargeability of that debt or worse, dismissal of your entire bankruptcy.

A BRIEF LESSON ON PROPERTY THAT YOU CAN KEEP IF YOU FILE BANKRUPTCY

Property is something one can own. A person can own property, or an entity can own property. A common type of entity is a corporation, or a partnership. People, corporations, and/or partnerships can own property. As a summary, I will simply state that there are two primary types of property, real property and personal property. It sounds simple doesn't it? Real property is land. Everything else is personal property.

Real property:

Real property, as I said above, is land. We all know what land is. It is the stuff we stand on. Real property is even underwater, and it stretches to the heavens. So if you own an acre of land, you own that land all the way through the ground, and all the way to heaven. Most of you should be thinking now; what is a house? It is not land, is it? So when we buy a home, are we buying land? Not necessarily. There are situations in which you can buy a home, which sits on a piece of land, but you do not buy the land. In that instance, you are buying personal property. This is a rare occasion, and is found in very rare situations. Most of the time when you "buy a house" you are really buying land that has a house attached to it. Anything that is attached to land permanently such as a house with a foundation is called a fixture. It is fixed to the land thus it is part of the land. So if a home is fixed to the land then you are actually buying the land that the home is fixed to. This is a difficult concept because people generally base how much they are going to pay for land based upon the home that sits upon it. If you take two pieces of land, both identically located, one acre each, but one has a home which cost $300,000 to build, and the other has a mobile home on it; clearly one will spend much more for the same piece of land with the $300,000 home built on it than they would for the same land with a mobile home on it. The fixture often times determines the primary value of the land. My purpose is to distinguish between land which is real estate, and the fixtures that are part of the real estate, both comprising the total real property. So let us take a look at a couple of examples. There is a piece of land that has a home which is fixed to the land. It has a fence around the home. The fence is permanently attached to the ground. It is a fixture and part of the land. The fence is not personal property. There is a garage located on the land and the garage is attached to a foundation, which is in turn attached to the land. The garage is a fixture and thus, part of the real estate. There is also a mini barn located on the land. Like most mini barns, it is simply sitting on some blocks, or simply just sitting on the dirt. It is not fixed to the land. Thus, it is not a fixture, and is not part of the real estate. Inside the home there is a refrigerator plugged into the wall. There is a stove enclosed in cabinetry that has a gas line permanently affixed to it. There are ceiling fans in every room. And there are lamps sitting on tables, along with regular furniture such as couches, cables, beds, that can be easily removed from the home. The refrigerator can be unplugged with little to no effort. The refrigerator is personal property. The stove is a fixture. It is enclosed in a cabinet and permanently affixed to the gas line. The ceiling fans, are clearly attached to the ceiling and would require substantial amounts of effort to remove, thus they are fixtures. The lamps and all of the furniture are all personal property and can be removed and are not part of the real estate.

Personal property:

Now that we know what real property is, everything else is personal property. Actually, this is the more difficult area. Your clothing is personal property; your computer is personal property. Your checkbook its personal property, your 401-K, your pension, are all personal property. Your pens, your paper, your lamps, your books, are all personal property. The values that your bonds represent are personal property, the value that your 401-K represents is personal property, and your pension is personal property. But there is a distinction to be made

here. There is a division in personal property. Personal property is broken up into two categories: tangible and intangible personal property.

Tangible personal property:

The stuff you can touch; your clothing, your furniture, your car, your pencils, your pens, your bed, your pillows, your books, etc. It is easier to explain what is tangible than to explain what is intangible.

Intangible personal property:

The best way to describe intangible personal property is to describe a promise. I want you to think about what the following types of property have in common. Your checking account, the money in your pocket, the $5,000 you loaned your child. The money that is owed to you by your 401-K administrator, your tax return that you have not yet received, a promissory note (a written document which states that somebody owes you a certain amount of money pursuant to certain terms) are all personal property, but they differ from tangible personal property in that they are promises to pay you in the future. For example, your checking account has no money in that account, the bank has taken the money you gave them and loaned it to someone else and is making money on it. You have no money; you only have a promise that when you ask for it back they will give it to you. There is no money sitting in your 401-K. There is only a promise that when you are eligible, you will receive the money that is represented on your statement. The money that you loaned family members is only money that is promised to be paid back to you. To make it even more complicated, the dollar bills in your pocket are not tangible personal property. The money placed in your bank which they promise to pay back when you make a withdrawal is in fact intangible property. The money that they actually give you back is also intangible personal property. This is why; a dollar bill does not belong to you. It belongs to the federal government, and it is a representation from the federal government that you possess the value of that dollar bill. It used to be that you could, in theory, change your dollar bill for the same value in gold. The government used to work on what we called the "gold standard". There was a time when your dollar was backed up by gold at Fort Knox, Kentucky. This is no longer the case. I am lost as to what promises that our federal government makes when it issues a dollar bill now, but trust me in this, you do not own a dollar bill in your pocket, it is a promise. It does not change the nature of the dollar bill that it is intangible. If you would like to convert your money into something tangible, you can simply buy something with it that is tangible. If you purchase a vehicle it will be tangible personal property. Now you have converted intangible personal property to personal property. Try this, you have a checking account that has "$5,000 in it ", clearly intangible personal property. It is nothing more than a promise to pay you $5,000 upon your request. We could transfer your interest in that account to some one else for something that you value at $5,000: a truck, a car, or any other tangible personal property.

Tangible versus intangible: why does it matter?

In our daily lives, people function with personal property, either tangible or intangible seamlessly. It is not until something goes wrong in our lives that it makes any difference. For instance one person is sued in court and has a judgment for $10,000. Under Indiana law, no judgment can be executed unless you have more than $19,300 equity in your property. For example you own a piece of property that is worth $60,000, and you owe $45,000 on it; you have $15,000 net equity. Equity simply means the value that you have in the home over and above the money you owe on it. In this instance the difference, or equity, is $15,000. So if a person who is suing seeks a $10,000 judgment against the person being sued, the $15,000 in equity in the home is exempt from attachment. In other words, the person who sued them cannot get the equity in their home; their home is safe. As a note, the person who is suing is called a judgment creditor.

 

The same individual has a $10,000 judgment against them. Their home is safe, and cannot be executed against. It is exempt from execution. A creditor can now look to the person's personal property and execute against any property which is not exempt. This is where it becomes difficult. I will tell you up front that a person in Indiana has $10,250 in exemptions in tangible personal property. They only have $10,250 worth exemptions towards intangible personal property. Most people involved in a bankruptcy do not have $10,250 worth of tangible personal property. Yes, they may have a car that is worth $30,000 with a $28,000 loan on it. That is $2000 in equity. Now as to intangible personal property consider: Do you have a savings account? Do you have a checking account? Do you have a tax refund coming? Do you have cash in your pocket? Does your Aunt Sally owe you money? If the answer is yes to any of these at a given time, you could be over your exemption, and your creditor can attach to any sums over that amount. This very issue occurs in bankruptcy cases every day of my practice. At this point I should make a special note that even though 401-Ks, pension plans, and other retirement related plans are in fact intangible personal property, these special intangible personal properties have an unlimited exemption. In other words, you can have $1 million in retirement accounts, and be sued for any amount, and lose nothing, they are absolutely exempt.