Bankruptcy and Collection Defense in Providence, Rhode Island

 

Costs and Benefits

These difficult economic times are forcing more and more people into considering filing for personal bankruptcy relief in an effort to obtain an “economic fresh start.” But before doing so, individuals should be aware of what the benefits of a bankruptcy filing are as well as the costs and consequences of such an action.

There is a filing fee for any bankruptcy action as well as the costs for taking the required credit counseling and financial management courses. An individual is most likely to incur legal expenses as well. Although self representation or pro se representation is allowed under bankruptcy law, it is highly recommended that the attorney, who specializes in this type of work, be hired. The process is very detailed and somewhat complicated and mistakes can lead to an unnecessary loss of property or the outright dismissal of the bankruptcy proceeding.

Under current law, a person files for relief under Chapter 7 of the Bankruptcy Code personal bankruptcy may not do so again for a period of eight (8) years. A Chapter 13 Petition (Reorganization), however, can be filed after two (2) years after filing a Petition under Chapter 7. In addition, the bankruptcy filing may remain on an individual's credit history for up to ten (10) years, which can have a lasting negative impact on a person's ability to obtain needed credit.

One of the benefits of bankruptcy filing is that such a filing immediately stops all collection activity until the case is resolved or “discharged.” This will mean an end to the collection calls, letters, garnishments, attachments, lawsuits, and other collection activities by the involved creditors. Bankruptcy, in many cases, also means that debtors may keep possession of several types of valuable personal property including a home, automobile, furniture, and clothing.

Due to the gravity of such an action, as well as the complex nature of the bankruptcy procedure, one must think long and hard about the costs and benefits of filing such an action. And consulting the attorney is always advisable.

 

What Can I Lose?

Filing for bankruptcy protection is a very difficult decision for any individual. Many questions arise and one's life can change dramatically both positively and negatively. Some of the first questions my clients ask when contemplating filing are as follows:
1.Will I lose my house?
2.Will I lose my car?
3.How about my personal belongings?

Although bankruptcy is a federal statute, each state has certain limits on what creditors may take from a debtor during a bankruptcy proceeding. Many assets are protected up to certain limits while others are exempt from creditors in their entirety. In this piece we will discuss those assets and limits as they pertain to the State of Rhode Island.

Rhode Island has what is known as a Homestead Exemption in regards to bankruptcy filings in the amount of $300,000.00. This means that the first $300,000.00 of a debtor's equity in their principal homestead is protected under a Chapter 7 or 13 filing. For example, if a filer owns a home with a market value of $450,000.00 and has a mortgage on the property of $250,000.00, the home would be protected from creditors since the owner's equity is under the $300,000.00 limit. However, if the debtor has only a $100,000.00 mortgage on the property, the debtor could be liable for the equity in excess of the $300,000.00 exemption, or $50,000.00.

A similar exemption of $12,000.00 exists for the total value of all motor vehicles in excess of loans against them, there is a $9,600.00 exemption on household furnishings and a $2,000.00 exemption for jewelry.

Certain classes of assets are completely exempt, such as the following:
  • Annuities, IRAs, Pensions, and Retirement plans
  • Public Assistance and Unemployment Compensation
  • Temporary Disability or Workers' Compensation Benefits

Due to the magnitude of a bankruptcy filing and the potential for losing assets or having a filing dismissed, it is always advisable to work with the attorney during a bankruptcy filing process.

 

What Cannot Be Discharged?

These difficult financial times which include lay-offs, company closures and cutbacks have placed many individuals into a state of financial distress which may be unrecoverable. Despite fairly recent changes in the law which make it harder and more costly to do, many people are still finding that bankruptcy protection is the only solution to their circumstances. However, while a bankruptcy filing is intended to grant an individual an “economic fresh start,” they need to be aware that not all obligations can be discharged through this process.

First among the items which cannot be discharged through bankruptcy are taxes for the current and previous three (3) year period. This includes federal, state and local taxes, as well as any resulting interest, penalties and fines. In addition, non-tax related penalties and fines owed to nearly any government entity are also not covered by a bankruptcy discharge. This would include such items as traffic tickets, criminal fines, probation costs, and similar assessments.

Also not eligible for discharge are any debts that the consumer fails to list on their bankruptcy petition unless the creditor was provided with notification by the bankruptcy court or other interested parties. This is one of the many reasons that the services of a qualified attorney specializing in bankruptcy law are critical in this process.

Debts such as child support, alimony and other Family Court ordered debts are usually not covered by a bankruptcy discharge. Student loans are also rarely allowed to be discharged in these proceedings unless the debtor can prove “undue hardship,” which is a very difficult standard to meet in the eyes of the bankruptcy court.

Money owed to creditors for “luxury purchases” of more than $500.00 that occurred within ninety (90) days of filing are also not covered in bankruptcy proceedings. Also, any debt which was fraudulently obtained by the debtor cannot be discharged in a bankruptcy.

Due to the complicated nature, gravity and long term effects of a bankruptcy filing, it is advisable to obtain the services of the attorney, who specializes in this area of practice.

 

Chapter 7 or 13?

As we have discussed above, bankruptcy can be a way for a debtor to get an “economic fresh start” by eliminating or reducing certain types of consumer debt. Individual bankruptcy filings general fall into two categories, Chapter 7 and Chapter 13 bankruptcy protection.

Chapter 7 Bankruptcy is also known as a “straight bankruptcy” or “liquidation.” In this type of proceeding, a debtor is asking the court to release him or her from liability for specific debts, thereby preventing a creditor from pursuing those debts once the case is closed. Certain types of assets may be protected from creditors while others may become part of the assets that the court uses to satisfy all or part of the outstanding balances. Under current federal law, a debtor must undergo a “means test” before being allowed to file under Chapter 7. This means test evaluates a person's current financial condition including available assets and income level in relation to the outstanding balances owed to creditors. If it appears unlikely that the individual will be able to satisfy these obligations in what the court considers a “reasonable period of time,” Chapter 7 is likely available.

Chapter 13 Bankruptcy is also known as “debt adjustment” or “wage earner plan” bankruptcy, and is somewhat of a reorganization similar to what companies often do. In these cases, debtors usually are able to keep most, if not all, of their assets and are placed on a repayment plan based upon both their obligations and their income. Under Chapter 13, many debts are eligible to be adjusted. It is also a face that this type of bankruptcy filing has a less derogatory impact on a consumer's credit history and score.

Due to the profound implications of any bankruptcy filing and the complicated nature of the process, it is advisable to obtain the services of the attorney, who specializes in bankruptcy law.

 

The Means Test

Although the changes instituted in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) are now over five (5) years old, many consumers are still unaware of the details contained in this act. In fact, the mere name of the act has served to frighten individuals contemplating bankruptcy despite the fact that the changes are not that significant and that many people who qualified under the previous criteria will still be eligible today.

One of the changes under BAPCPA is that a consumer must pass what is known as a Means Test before being eligible to apply for Chapter 7 bankruptcy protection. The means test is designed to evaluate a person's “disposable income.” This is determined by averaging the debtor's average monthly income for the prior six (6) months, minus what are referred to as “allowable living expenses.” If after calculating the average monthly income for a debtor and it is determined to be less than the average median income for that state, the means test is not warranted. Each state has its own listed median income.

Allowable living expenses are spelled out in the means test process and the unsecured debts such as loans, credit card and medical expenses to be included in the bankruptcy filing are omitted from these allowable living expenses. If an applicant is determined to have less than $100.00 of monthly “disposable income” after the means test, they are considered to be eligible for Chapter 7 bankruptcy protection.

If a debtor is determined to have over $166.67 of disposal income per month, then Chapter 7 will be denied and Chapter 13 protection will be the only option available. To make matters more confusing, if a person has more than $100.00 but less than $166.67 in monthly disposable income, a formula is used to consider the ratio of that income to the amount of total debt to be considered.

Sound complicated? It is. This is why it is highly recommended that before undertaking a bankruptcy filing, a consumer should consult with the attorney, who specializes in bankruptcy law. Mistakes can easily lead to the dismissal of a bankruptcy case.

 

Should You File?

Today's near devastating economy has led more and more people to the brink of financial ruin. Company closures, layoffs and reductions in work schedules are adversely affecting people's economic status and their prospects for the future. But the idea of filing for personal bankruptcy is a frightening and unpleasant prospect for anyone.

Personal bankruptcy is established under federal law to afford individuals the ability to eliminate or “discharge” certain types of consumer debt and provide them a “financial fresh start.” While not all types of debt can be discharged through bankruptcy, most types of consumer debt are eligible, including credit cards, personal loans and various other forms of indebtedness.

There is no minimum of indebtedness required to file for personal bankruptcy. However, there does need to be enough debt that a consumer is unlikely to be able to repay that amount is a reasonable amount of time considering their current income and other economic factors. Also, if a consumer is facing the prospect of the loss of significant income or property as a result of their indebtedness, bankruptcy protection is a viable option. For example, if a creditor is likely to garnish wages or seize property to satisfy an outstanding balance on a covered or “dischargeable” item, a consumer may qualify for this type of protection.

A consumer is allowed the ability to file for voluntary bankruptcy protection on their own, or pro se, but it is highly unadvisable. An improper filing, incomplete documentation or choosing the wrong type of filing can have significant consequences, including the loss of property or an outright rejection of the case. Therefore, it is recommended that a consumer consult with the lawyer, who specializes in bankruptcy law and who is licensed to practice in the state of the filing.

 

Required Documents

When filing a request for bankruptcy protection, a debtor is required to submit a number of documents which are intended to provide a detailed view of his or her financial situation and why the “economic fresh start” of bankruptcy protection is needed and warranted. Failure to file even one of these documents can lead to a dismissal of the bankruptcy filing or even a charge of bankruptcy fraud. It is for this and many other reasons that the services of the attorney, who is skilled in this area of practice, are highly recommended.

Among these required documents are the following:
  1. Documents providing evidence of any previous bankruptcy filing within the last eight (8) years.
  2. A certificate proving that the debtor has completed the required credit counseling from an approved provider. This is a fairly new requirement and the counseling must have been completed during the six (6) month period prior to filing.(6) month period prior to the filing.
  3. Documents relating to income for the prior six (6) months such as pay stubs, evidence of unemployment income, pension income, child support or other income. If these documents are unavailable, an explanation must be provided.
  4. Federal Income Tax returns for the previous two (2) years as well as the most current return are also required at the time of a bankruptcy filing.
  5. A debtor must also provide the Court with bank statements and notices for all accounts in which he or she has an interest. These statements must cover the period for the previous six (6) months.
  6. The person filing must also provide all pertinent correspondence from the creditors involved in the filing including statements, collection letters, etc. All correspondence from the last three (3) months is required.

Bankruptcy is a complicated and daunting process with both benefits and consequences. An individual must deliberate thoughtfully before applying for bankruptcy protection and it is recommended that the attorney, who concentrates in bankruptcy, be consulted.

 

Bankruptcy Fraud

 
Whether it be from a layoff company closure, medical issues or other adverse financial circumstances, many people find themselves in a hole from which they can see no recovery. The purpose of seeking bankruptcy protection is for a debtor to be afforded an “economic fresh start.” For a very few others, bankruptcy has been used to defraud creditors and to avoid repayments of legitimate debts.

There are occasional instances of creditor fraud in bankruptcy cases, but the FBI reports that over 70% of bankruptcy fraud cases involve illegal actions by the debtor. Most of the cases involve the debtor perpetrating these types of actions:

  • Failure to Schedule Assets
  • Undervaluation of Assets
  • Pre-Petition Transfer of Assets
  • Post-Petition Transfer of Assets
 
Bankruptcy — Law Office of Henry V. Boezi III, P.C. in Providence, RI
 
A debtor can be considered to be committing bankruptcy fraud if they fail to list all assets of value or sources of income. Typical asset items are real estate, investment accounts stocks, bonds, jewelry, and art work. However, income from such sources as trusts, inheritances and lawsuits are often also required to be listed if they are anticipated within certain time parameters. Failure to list any of these assets can result in, at the very least, a dismissal of the bankruptcy case or even a charge of bankruptcy fraud. An undervaluation of assets so as to make them unlikely to be pursued by creditors can also be considered fraud.

Another example of bankruptcy fraud can involve the transfer of any valuable asset either before the filing takes place or prior to the actual discharge of the case. For example, a debtor transfers an asset to a friend or relative prior to filing for bankruptcy with the understanding that the item of value will be returned to the debtor after the case is discharged. A debtor transferring assets after a petition has been filed, but without court approval can also have consequences. This usually occurs when the debtor enters into an arrangement to sell an asset at well under its value to a straw buyer with the stipulation that it would be returned later or that the debtor was paid the difference in value without the court's knowledge or “under the table.”

Bankruptcy is a daunting and complicated process with both benefits and consequences. Even unintentional omissions or errors during the process can have lasting impacts. It is therefore recommended that the services of the attorney, who specializes in bankruptcy law, be retained.

 

Collections

 
Collections: We represent many clients who are being pursued by creditors prior to and upon the commencement of suit. We often negotiate very affordable payment plans without any court proceedings. We also defend clients against attempts to attach their wages or property.

 
DISCLAIMER: This article is intended for informational purposes only.
It should not be construed as legal advice and readers are encouraged to consult with the attorney regarding these matters.