The processes, theories, and inner workings of a Chapter 13 Bankruptcy can sometimes be hard to explain. Recently, the United States Court of Appeals for the Eleventh Circuit, which covers Alabama, Georgia, and Florida, released an opinion in In Re: Paul L. Cumbess, Debtor; Microf LLC vs. Paul L. Cumbess, et al, Case No. 19-12088; which gave a really good explanation of the overall Chapter 13 Bankruptcy process.
As you will see from the opinion below, Chapter 13 Bankruptcy’s, even when explained as straight forward as possible, can be complicated. This is why you should see a qualified bankruptcy attorney. At Collins Law Offices, your Cullman Bankruptcy Attorney, we offer Free In-Depth No Obligation Consultations. We will answer any questions you may have and provide you with the best options possible, whether it is Chapter 13 or Chapter 7 Bankruptcy or debt settlement or debt defense. And, we will do so with No Strings Attached. We will not add any more pressure to your life.
Here is the pertinent part of the 11th Circuit’s opinion:
Before we dive into the details of this case, a bit of Chapter 13 background is in order. First, let’s talk mechanics. A Chapter 13 bankruptcy—sometimes called a “wage earners plan”—enables a debtor with a regular income to repay all or part of his debts, typically over a three- to five-year period. After the debtor initiates a Chapter 13 case by filing a petition, he must then—within 14 days—file a proposed plan of reorganization, which provides that he will make certain fixed payments over time. The bankruptcy court then determines whether the proposed plan conforms to the Bankruptcy Code. If it does, the court confirms the plan, which then becomes binding on the debtor, the creditors, and the Chapter 13 trustee, whose job it is to assist with the plan’s administration. In a Chapter 13 proceeding, the bankruptcy estate—the pool of property from which the debtor’s creditors are paid—comprises all of the debtor’s legal and equitable interests in property at the time of the filing of the case, as well as those that he acquires after the filing. See 11 U.S.C. §§ 541, 1306(a). Unlike in a Chapter 7 “liquidation” proceeding, however, a Chapter 13 debtor can maintain possession of some or all of his assets throughout the bankruptcy; the debtor’s plan payments (and thus the payments to his creditors) typically come from his future earnings.
Generally speaking, there are two types of claims in a Chapter 13 case: secured and unsecured. Importantly for our purposes, the Bankruptcy Code treats different kinds of unsecured claims, well, differently. A typical unsecured claim— also called a “general unsecured claim”—needn’t be paid in full. The Code requires only that creditors holding general unsecured claims receive what they would under a Chapter 7 liquidation. 11 U.S.C. § 1325(a)(4). The Code also provides, though, that some unsecured claims are entitled to “priority,” such that they have to be paid in full unless the creditor agrees otherwise. 11 U.S.C. § 1322(a)(2). Examples of claims entitled to priority include domestic-support obligations, certain taxes, and—as particularly relevant here—“administrative expenses” associated with the proceeding, including the “actual, necessary costs and expenses of preserving the estate.” 11 U.S.C. §§ 503(b)(1)(A), 507.
Now, the players. First, of course, there’s the debtor—he initiates the Chapter 13 proceeding, proposes the reorganization plan, and (if all goes well) makes payments in accordance with it. Within the Chapter 13 process, the debtor’s objective is to “obtain court approval . . . of a plan that provides for the payment of as little as possible to creditors and to emerge at the end of the process with as much property and as little debt as possible.” Hon. W. Homer Drake, Jr., et al., Chapter 13 Practice and Procedure § 1:1 (2019). Then, there are the creditors—the people or entities who have claims against the debtor. Predictably, the creditors’ incentives run counter to the debtor’s: Their aim is to “maximize their recoveries by having the debtor pay as much as possible.” Id. Finally, there’s the trustee, who is appointed by the bankruptcy court after the debtor files a Chapter 13 petition to assist with the case’s administration. The Chapter 13 trustee is a “representative of the bankruptcy estate,” id. at § 17:1, and her “primary purpose . . . is . . . to serve the interests of all the creditors,” Hope v. Acorn Fin., Inc., 731 F.3d 1189, 1193 (11th Cir. 2013). Although a Chapter 13 trustee has many statutory rights and responsibilities, see 11 U.S.C. § 1302(b), she plays a particularly important role in connection with the debtor’s plan: She must appear and be heard at any hearing regarding plan confirmation or modification, advise and assist the debtor in his performance under the plan, ensure that the debtor makes timely payments under the plan, and disburse those payments to creditors in accordance with the plan. See Drake, et al., supra, at § 17:3.
There’s one last piece of introductory ground we need to cover: executory contracts. At the time a debtor files a Chapter 13 petition, he may be subject to the ongoing benefits and burdens of an unexpired executory contract—such as, in this case, a lease. When this happens, the debtor has three choices going forward: he can “assume” the contract (i.e., commit to performing its obligations), “reject” the contract (i.e., commit to breaching its obligations), or “assign” the contract (i.e., provide that a third party will perform its obligations). 11 U.S.C. § 1322(b). Less clear, however—and the issue at the center of this appeal—is the effect that the debtor’s assumption-rejection-assignment election has on the bankruptcy estate and whether, for instance, the debtor’s decision to assume a lease obligates the bankruptcy estate independent of any action by the Chapter 13 trustee.
(for the full text of the opinion click HERE)
Chapter 13 Bankruptcies and Bankruptcy in general is a complex area of the law; however, with the right bankruptcy lawyer it can be an excellent tool to solve your financial problems. This is why it would benefit you to consult with a qualified bankruptcy attorney instead of continuing to worry about the situation. At Collins Law Offices we offer Free In-Depth No Obligation Consultations with a bankruptcy attorney that are designed for just this reason.
We can help you stop worrying, because you will have a plan and the support of an expert bankruptcy lawyer to get you back on your feet. We have years of experience working in bankruptcy and will be at your disposal should questions arise during your bankruptcy -- our goal is to provide peace of mind while also providing expert advice on what course of action may work best for your situation. If you are having problems with debt, there is no reason not to at least learn about possible solutions that are out there even if you are not ready to take that step at this time. There will not be any added pressure or obligation placed on you, only relief and understanding. For a Free In-Depth No Obligation Consultation click here.
Many people are surprised when they find out they can keep their car after filing for bankruptcy in Alabama. There is a myth about bankruptcy that you have to surrender or give up your vehicle(s) when you file. However, this is not the case!
There are two types of bankruptcy that are commonly filed by individual consumers (i.e. not businesses or farmers) -- one type of bankruptcy is a Chapter 7 or the other type is a Chapter 13. The good news is that in either a Chapter 7 or a Chapter 13 you can almost always keep your cars and/or trucks. It is normally not if you can keep your car, because you normally can, it is which methods and terms we can use under the bankruptcy laws to keep the vehicle.
If you want more information about how this works, then read on below!
What Happens to Your Car in Chapter 7 Bankruptcy?
Most people can keep their cars in a Chapter 7. Why? Because most people either owe a significant amount on their vehicle, thereby eating up all or most of the equity or when they have had their vehicle long enough to pay it off, it has depreciated enough to fall under the exemption amount. Therefore, it is no longer an asset to the bankruptcy court valuable enough to make it worthwhile for the bankruptcy trustee to pursue.
To keep your vehicle you need you need to meet the following criteria:
These are the first things we, as your bankruptcy attorney, will look for to be sure that you can keep your car in a Chapter 7. The good news is that all of these, other than number 2, maintaining car insurance, can be fixed through a Chapter 13 as described below.
So, if you do not owe on your car and it does not have to much equity to exempt, you can file a Chapter 7 and keep your car. You will not have to do anything extra after filing bankruptcy.
If you owe on your car, you can file a Chapter 7 as long as you are current on your payments, have insurance as required by your vehicle creditor, not have too much equity in the vehicle, and can show the Bankruptcy Court that you can afford your monthly payments per your budget.
If you meet these requirements, you will be able to sign a reaffirmation agreement with your car creditor; and thereby, reaffirm your prior loan agreement for your car. You will continue to make your payments direct to your car lender under the same terms for interest rate, payment, amount owed, etc. For this loan, once you reaffirm it, it will be like you never filed bankruptcy with regards to it.
So, based on the above, almost all people looking at filing a Chapter 7 bankruptcy in Alabama can file and keep their car or truck or other vehicle.
What Happens to Your Car in Chapter 13 Bankruptcy?
Like in a Chapter 7, you can also almost always file a Chapter 13 bankruptcy case and keep your car as well. In fact, unlike a Chapter 7, we, as your bankruptcy attorney, can use a Chapter 13 bankruptcy to actually save your vehicle from repossession if you are behind on your payments. There are a couple of instances where filing a Chapter 13 can help you keep your car where a Chapter 7 cannot.
When you file a Chapter 13 you take the amount owed on the vehicle and put it in a Chapter 13 plan and pay it and any other debt you want or need to pay through a payment plan and through the Chapter 13 bankruptcy trustee. A Chapter 13 plan can be between 36 and 60 months long. In addition, a Chapter 13 bankruptcy allows you to drop the interest rate on your vehicle loan to prime plus 2% (which is 5.25% as of today). This normally lowers your monthly outgo regarding the vehicle by reducing the interest rate and spreading the payments back out over a 60 month time period.
Another way a Chapter 13 bankruptcy can be very helpful is by taking care of any missed payments. In this way the question is not whether people can keep his/her vehicle in a Chapter 13, but how a Chapter 13 can actually make it easier for persons keep their vehicles.
When you put the amount owed in your Chapter 13 plan it is the total amount owed, including any back payments owed. This really comes in handy if you are behind on your payments and your car lender is threatening repossession. Once you file your Chapter 13 your vehicle loan will be treated as current, no matter how far behind you were prior to the bankruptcy being filed.
Chapter 13 Cramdown on Vehicle Loan
Another benefit to filing a Chapter 13 with a auto loan is the possibility of performing a cramdown. A Chapter 13 cramdown on a vehicle loan is when a consumer has the option to pay back the fair market value of their car, truck or other motorized vehicle instead of the total amount owed or principal balance of the loan.
In order to qualify for a cramdown of the vehicle loan the loan must have been made more than 910 days prior to the bankruptcy filing. In these cases, you can pay back less than what you owe on the vehicle, reduce the interest rate, and spread the amount owed out over 60 months. The remainder of the balance owed is paid the same as you are paying your unsecured creditors, which can be 0%.
Chapter 13 and a Car with Too Much Equity
A Chapter 13 can also help in another situation where a Chapter 7 cannot. This is the situation where you have too much equity in your vehicle. This is a rare situation, but sometimes happens when you have obtained or financed your vehicle in a less common way; such as, inheritance, paying cash for an expensive vehicle, using a 401K withdrawal to pay for a vehicle, etc.
Alabama does not have a motor vehicle exemption. Instead of a motor vehicle exemption, Alabama has a Wildcard exemption that applies to all types of personal property, including your vehicle. If the value the equity of your vehicle along with the value of the equity in your other personal property substantially exceeds your bankruptcy exemption there can be an issue. If you have too much equity in your vehicle, this can be a problem in a Chapter 7; however, in a Chapter 13 you can just pay that "extra equity" off through your Chapter 13 plan, over a 60 month period, normally with a very affordable payment amount.
As you can see from the information above, there are many ways that people might be able to keep their car after filing for bankruptcy. Both a Chapter 7 and a Chapter 13 will allow you to keep your vehicle as long as you meet a few criteria. Do not be afraid to file because of this "issue".
Call 256-739-1962 or click here to speak with or schedule an appointment for a free consultation with a Chapter 7 and Chapter 13 Bankruptcy lawyer at Collins Law Offices, PC. We know filing a Chapter 7 or a Chapter 13 is not an easy decision. We want you to have all the information you need to make that decision before you pay us anything.
Many of the clients I meet with believe that if they file bankruptcy, they will lose all their stuff, i.e. cars, house, etc. About the same number of clients believe that if they file bankruptcy they can keep the stuff they owe on without paying for it. Neither of these beliefs are true.
First, the great majority of people who file bankruptcy can keep the stuff they want to keep. If you file a Chapter 7 bankruptcy, you must continue to pay for the stuff as per your original agreement with the lender. If you file a Chapter 13, you can pay for the stuff through a plan and many times reduce your interest rate, payments, and sometimes even the balance to be paid back. A Chapter 13 will also take care of payments you have missed prior to filing.
Even though a bankruptcy can sometimes help with payments, you still must pay for most property for which you owe. The most common exception to this rule is for what the bankruptcy law call "non-purchase money security interest in household goods." These are debts where when you borrow money, normally from a finance company, the lender asks you about appliances, furniture, electronics, or tools you already own and lists these items as collateral for the loan. The bankruptcy law allows you to avoid these liens in many circumstances, and thereby keep this type of stuff without having to pay the debt on it.
Yes. All collection attempts by creditors are to stop as soon as your bankruptcy is filed. When your bankruptcy is filed the "automatic stay" goes into place. This prohibits debt collectors from making any effort to collect any debt against you. It stops phone calls, letters, lawsuits, garnishments, foreclosures, and repossessions.
The automatic stay remains in effect during the pendency of your bankruptcy. It can be lifted by secured creditors to whom you are collateral to or to secured creditors to whom you were supposed to make payments to during the bankruptcy, but have not.
Although the automatic stay goes into effect immediately when your bankruptcy is filed, in reality creditors will not receive notice from the bankruptcy court for 7 - 10 days. For this reason you or your attorney should inform creditors who are threatening to take actions such as foreclosure or garnishment that you have filed bankruptcy and provide the creditor with a case number.
Creditors who knowingly violate the automatic stay will be required to reverse any adverse action they took after the automatic stay went into effect (such as foreclosure or repossession) and may be subject to paying fines and debtor's attorney's fees.
If you are being harassed by collections efforts of creditors and debt collectors, contact me by clicking here or another qualified bankruptcy attorney in Alabama. The initial bankruptcy consultation is free.
I am upside down on my car loan and am struggling to make the payment, but I really need my vehicle. Can an Alabama bankruptcy help me?Read Now
Possibly. In a Chapter 13 bankruptcy you can, under certain circumstances, do what is called a cramdown. If you meet the criteria for a cramdown, you are allowed to only pay back the current fair market value of the vehicle, not the total amount owed.
For example, let’s assume you bought a car 2 ½ years ago, financed $25,000.00 and because your credit was not the best, you have a 12% interest rate. Your payments would be about $556.00 per month. You would still owe $14,352.00. Let’s say, per the NADA Used Car Guide you, the vehicle is now worth $8,000.00. By putting the vehicle in your Chapter 13 plan you could (1) extend the loan to 5 years, (2) reduce your interest rate tremendously (plan rates are currently at 5 to 5.25%, (3) in effect reduce your car payment to $152.00 (less than 1/3 the previous payment).
So, what’s the catch? First, you must have had your car loan for at least 910 days, basically 2 ½ years in order to qualify for a cramdown. If you have not had your car for 910 days, you can still lower the interest rate, but not secured principal. Second, by extending the loan through the length of the plan, you may not be able to obtain the title on the vehicle until the end of the 5 year plan. Third, to maintain the benefit of the cramdown, you normally must complete your Chapter 13 plan. If your case is dismissed or you convert to a Chapter 7, some issues may arise. Fourth, your car must be worth less than the amount owed. If your car is worth the amount owed or more, then there is nothing to cramdown; however, you may still be able to lower the interest rate on the remaining amount owed on the loan.
A Chapter 13 bankruptcy may be able to fix many of your cash flow problems. Please educate yourself and do not let yourself continue to struggle for no reason. Order my book by clicking here and/or contact me or another experienced bankruptcy lawyer immediately.
YES. I have been getting a lot of questions about garnishments lately. Both Chapter 7 and Chapter 13 bankruptcy filings in Alabama will stop garnishments. This is accomplished in a two step process. First, we must file your bankruptcy with the bankruptcy court and thereby obtain a case number for your bankruptcy.
Second, in the Court which issued the garnishment (normally your county’s Small Claims Court, District Court, or Circuit Court) we file a Motion to Quash Writ of Garnishment. In this motion we ask the Court that issued the garnishment to enter an order stopping the garnishment and to return to you any money the Court is holding or receives in the future from the garnishment. This means that if we can catch it in time, we may be able to get some of your money back.
Having said this, I would strongly recommend filing a bankruptcy prior to a garnishment going into effect. I say this only because I know a garnishment taking 25% of your wages is not going to leave much to live on, much less enough to save to pay for a bankruptcy.
Please note that a bankruptcy will not stop a garnishment or income withholding order related to child support.
Yes. You may be able to save your house from foreclosure by filing a Chapter 13 bankruptcy in Alabama. A Chapter 13 bankruptcy allows you to put your arrearage (the payments you have missed) in your Chapter 13 plan and pay them back over the term of your plan (usually 5 years). You will have to pay the entire amount of your arrearage back over this period of time. This in effect “catches up” your mortgage payments, keeping the mortgage company from foreclosing.
Other than allowing you to catch up your back payments the bankruptcy court cannot affect the terms of your mortgage. Therefore, beginning the month after you file for bankruptcy you will have to begin making your regular monthly mortgage payments.
This can be difficult since you were already missing payments and now you are to begin making your mortgage payments again plus a payment to the bankruptcy court. This will require some serious budgeting and discipline, but it will be very important for you to make both of these payments. While there may be some ways to prevent foreclosure if you miss payments post-petition (i.e. after your bankruptcy has been filed), it will be difficult. You will also have to maintain your homeowner’s insurance coverage.
To stop the foreclosure your bankruptcy will need to be filed prior to the foreclosure sale. The 2005 amendments to the bankruptcy laws have made the preparation of bankruptcy petitions much more time consuming. I would recommend you see an attorney immediately and not later than 1 week prior to the foreclosure sale.
The bottom line is while it may take some cutting back on other expenses, a Chapter 13 bankruptcy in Alabama can save your house from foreclosure.
Do you have questions or comments regarding this topic? Please email me.
Why can’t I just put my house, car or other property in someone else’s name before I file for bankruptcy?Read Now
Because it would be a huge mistake. The bankruptcy court trustee has the power to avoid such transfers he or she feels were made with the intent to hinder, delay, or defraud creditors. Under the amended bankruptcy laws the trustee can “look back” at least two years, but may “look back” even longer in some circumstances. The trustees for the Northern District of Alabama routinely ask about real property transfers in the past ten years. Do not worry if you have legitimately (that is transferred to a third party and receipt of fair market value) sold a house or vehicle; however, be prepared to present the paperwork for the transaction.
The consequences of getting caught attempting a “fraudulent transfer” can be severe. The trustee’s avoidance of the transfer itself may cause a debtor many new legal problems; including, but not limited to, issues with the person(s) or entity to which the property was transferred and/or possible criminal charges. In addition such a transfer may result in a debtor not receiving a discharge in his or her bankruptcy which means no protection from creditors.
So, what do you do if you have too much equity in your real or personal property? You probably will be able to file a Chapter 13 Bankruptcy. In a Chapter 13 Bankruptcy in Alabama you may pay some or all of this equity into the bankruptcy court in affordable monthly payments over a period of time. While you may have to pay some money into the court, you will still avoid lawsuits, garnishments, repossessions, foreclosures, and have the other protections provided by the bankruptcy laws.
If you have any questions regarding this or Alabama Chapter 13 Bankruptcy filings or other bankruptcy or debt related issues please email me.
I am continuously amazed at the depths some debt collectors will go to in order to scare unwary debtors into making payments they cannot afford at the time. The statement “We will garnish your next paycheck” is probably a lie.
In Alabama in order for a creditor to obtain a writ of garnishment against your employer to withhold money from your paycheck, that creditor must have a judgment against you. In order to have a judgment against you, that creditor must have filed a lawsuit against you and won either after a trial or by default, that is, because you did not file a response.
Normally when this threat is being made, a lawsuit has yet to be filed. How do you know if you have been sued? First, if suit has been filed against you, you should have been served with a Summons and Complaint by either the sheriff’s department of your county or by certified mail. However, if you cannot be found by the creditor, the creditor may have you served by publication, that is, by running a notice in the newspaper in the county of your last known address. If you are still unsure, you may call the clerk of court of your county.
What if I have been sued? See a lawyer immediately. Depending on which court, Small Claims/District or Circuit, you have either 14 or 30 days respectively from the day you were served to file an answer. Filing an answer generally denying the allegations in the lawsuit will prevent the creditor from obtaining a default judgment against you and will lead to your case being set for court after a few months. This will give you time to save money and/or get your bankruptcy filed.
What if I already have a judgment and/or garnishment against me? If you already have a judgment and/or garnishment against you, I would again suggest you see an attorney immediately. You may be able to have the judgment set aside or appealed, but only if you act very quickly. This may also be a good time to take a strong and hard look at bankruptcy. With a bankruptcy you should be able to discharge the judgment prior to garnishment and stop any garnishment that is already in place. Upon filing a bankruptcy, you may even be able to have a portion of any money garnished from your check returned to you.
The bottom line is do not let harassing calls from creditors or debt collectors scare you into giving them money you cannot afford to give them. Many will say anything they think will frighten you. If a debt collector says anything that worries you, make an appointment with an attorney and see what your rights are. It’s probably a good time to take a look at your financial situation anyway.
Please email me with any questions regarding the topic of garnisments or any other bankruptcy or debt related topic.
Filing for bankruptcy is a heart wrenching decision. On the one hand you want to do what you promised your creditors you would do, but on the other hand you have to house, feed, and clothe your family and yourself. There is no question that bankruptcy should be the last resort, but as to whether you should file or not, my classic lawyer answer is “It depends.”
First, we need to look at why you are considering filing bankruptcy. The most common reasons are the following:
If your answer to any of these questions is “Yes”, then it may be a good time to see an Alabama bankruptcy attorney. This does not necessarily mean you should file bankruptcy, but it does mean you may need some legal advice. The attorney may suggest some of the following alternatives to bankruptcy:
If any of these alternatives allow the possibility of a LONG TERM solution, then they should be greatly considered even though it may call for tough decisions and hard work. Why? Although bankruptcy can be a “quick fix”, it comes with some serious long term consequences to your financial future.
The bottom line is I and many other Alabama bankruptcy attorneys offer free initial consultations, so it will not cost you anything to see what your options are. If after talking to an attorney, you think you can dig yourself out of the hole you are in without bankruptcy then definitely try that. But, if it does not work out you will be prepared and should have a plan.
If you have further questions regarding this or other Alabama bankruptcy, debt, or budgeting questions please email me.
Here is a brief overview of a bankruptcy.
There may come a point in a person's life, whether its due to health problems, spending problems, employments problems, etc., where a person owes more money than even the tightest budget will allow him to pay. When this happens and monthly payments begin to be missed, the people and businesses who are owed the money (the creditors) start calling and sending letters. Eventually, if the creditors are not satisfied, there are foreclosures and repossessions of vehicles and/or lawsuits getting filed which will then lead to judgments, garnishments and liens.
A bankruptcy can stop most of these bad things from happening. A bankruptcy can immediately stop the phone calls, letters, lawsuits, garnishments, foreclosures, and repossessions. This is called the Automatic Stay and it "stays" all collection efforts. A Chapter 7 bankruptcy will wipe out almost all unsecured debt, like credit cards and medical bills. Most of the time under a Chapter 7 you will be able to keep your house and vehicles if you are current or almost current on those payments and continue to make your payments to those creditors as agreed to in your contract.
A Chapter 13 allows you to create a plan to pay some or all your debt back to the creditors. A Chapter 13 can stop your house from being foreclosed on or your car from being repossessed by allowing you to pay back your arrearage over time. It will also protect a house or vehicle in which you may have too much equity under the State of Alabama's exemption laws. Alabama's exemptions are very low, so this comes in handy frequently. The amount you pay back is based on your income and expenses and the amount of debt you need or want to pay back over the length of the plan. Most plans last for five (5) years which is the maximum length of the plan.
So, the bottom line is a bankruptcy can stop collections of debt by creditors, wipe out all or part of your debt, and/or create a plan to pay back some or all of your debt while normally letting you keep the real and personal property you want to keep.
It is not all rosy though. There are issues that can make filing bankruptcy very tough. Bankruptcy also has long term effects on your credit. I will deal with these issues in later posts.
If you are having financial difficulties, find out the truth about how bankruptcy may be able to help. Request my free book and/or call attorney Richard L. Collins or another experienced bankruptcy attorney.
I am an attorney located in Cullman, AL. I practice extensively in the area of consumer bankruptcy law, that is, I file Chapter 7 and Chapter 13 bankruptcies for individuals. I handle cases all over North Alabama and have helped hundreds of clients through the bankruptcy process., I receive many referrals from former clients and their families and other attorneys. Why? Unlike other firms, I have a local office. If you are from out of town, we have the technology available to keep your traveling to a minimum. Also, unlike many firms, you will meet personally with an attorney, not a paralegal. An attorney will handle your case from start to finish. ,