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 or another qualified bankruptcy attorney in Alabama.  The initial bankruptcy consultation is free.

Bankruptcy is Federal Law, so it should be the same in every state, right?  Not quite.  Unfortunately for individuals in Alabama the Bankruptcy Code allows individual states to opt out of the Federal Law in one key area; that is exemptions.  This in effect creates Alabama Bankruptcy Laws.

How does this affect Alabamians?  First, let us look at real estate.  The Federal Exemption for real estate is currently $21,625 for a single debtor or double, $43,250, for a married couple debtors.  This means a married couple could have a house worth $150,000 and only owe $100,000, that is $50,000 in equity, and still have no problem filing a Chapter 7 bankruptcy and keeping their house.

However, in Alabama the real estate homestead exemption is only $5,000 for an individual debtor and $10,000 for a married couple.  So, in the example above of the $50,000 equity, $40,0000 of it would be non-exempt in Alabama.  Therefore, a trustee in a Chapter 7 may seek to take the real estate to obtain the equity.  To save the house debtors may be force to file a Chapter 13 and pay this non-exempt equity to the trustee over a period of a maximum of 5 years.  Many debtors are not able to make these payments.

The Federal Exemptions are similarly higher and better regarding personal property as well, when compared to Alabama’s exemptions.

Every now and then, the Alabama Legislature does discuss raising our state’s behind the times exemptions.  Unfortunately, the banking and insurance lobby is much more powerful than the consumer lobby.  Hopefully, one day exemptions based on modern day real and personal property values will be passed in Alabama.

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 and/or contact me or another experienced bankruptcy lawyer immediately.

It is a common misconception that once a debt has been charged off by a creditor that the creditor can no longer collect on the debt and the debt just kind of goes away.  Unfortunately, that is not the case.

A charge off is actually merely an accounting procedure by the creditor, whether it is a bank, credit card lender, mortgage company, auto loan company, or any other type of creditor.  The creditor has at that point decided the account is no longer an asset to the company.

Although the debt being charged off by the creditor is not a defense to having to pay the debt, there may be another defense.  Whether the creditor or a collection company for the creditor can collect on the account depends on the statute of limitations.  In Alabama the statute of limitations for most debts is either 3 years or 6 years, depending on the type of debt, from the last payment made on the debt.  Be careful here, a payment of any type toward the debt could make a debt which has passed the statute of limitations or is about to pass the statute of limitations collectible again for another 3 or 6 years.  Many times you may not hear anything about the debt for years, but out of the blue you are sued or begin receiving collection phone calls or letters regarding the debt.  This often happens when a debt has been sold or transferred to different collection companies or debt buyers.

If you have been sued on a charged off debt or are being harassed by a creditor or a collection company, a bankruptcy may be your best way to stop it.  There may also be other ways to defend against the debt or settle the debt.  Please educate yourself and do not let yourself be bullied by these companies.  Order my book and/or contact an experienced bankruptcy lawyer immediately.

Unfortunately, debt settlement falls under the “if it sounds too good to be true, it is” category.  While I am sure there may be a few success stories from people using these companies, I have yet to personally hear of one.  Instead I have heard many complaints from clients who have wasted thousands of dollars on these “settlement” plans before having to turn to bankruptcy because of lawsuits and garnishments.  The Wall Street Journal has a good article on this subject – Debt-Relief Firms Attract Complaints.

The problem is most people cannot afford to pay enough monthly to settle each credit card debt before at least one of the credit card companies file suit, obtains a judgment, and attempts garnishment.  Also, if you can afford to save enough to do this, you could settle your credit card debt on your own without paying the high fees these debt settlement companies charge.

Speaking of the fees, remember that even though these companies may call themselves “non-profit” and a few may technically qualify under the tax laws (this is apparently being questioned by the IRS), it does not mean they are a charity.  These companies are clearly making lots of money.  Why else would they be multiplying like rabbits and how else could they be buying all of that advertising?

Many people think they are saving their credit by using these debt settlement companies.  If your credit score has not already been significantly lowered before you use one of these companies, it will be by time you finish (which I have yet to see) or drop out.  Settling for less than the amount owed is a negative on your credit report in itself.  Add to that charge offs and judgments from the card companies that are not settled early and your credit score will show tremendous damage.  A bankruptcy’s effect on your credit would be very similar and allow a quicker recovery.

A bankruptcy may or may not be the answer for you, but do not buy the hype of these debt settlement companies and fall for their anti-bankruptcy propaganda.  Do your research on these companies by checking with the Better Business Bureau and educate yourself about bankruptcy by getting your free (for Alabama residents) copy of my The Alabama Bankruptcy Book.

Richard L. Collins - Attorney at Law practicing extensively in Bankruptcy Law in Alabama - 422 Third Ave SE, Cullman Alabama

    I have had numerous clients recently whose financial lives have been thrown into chaos because of "dirty tricks" by credit card companies.  These bad acts by the card companies include lowering the credit limit of the card to right at or below the current balance of the card and/or significantly increasing the interest rate (sometimes more than doubling it) and thereby the minimum payment on the card.  What is shocking is that this is often done without prior notice to the cardholder and without the cardholder being in default.

    Often when one credit card company does lowers the credit limit or raises the interest rate, it causes a domino effect and the rest of the cardholders credit cards follow suit.  I have had cardholders who have never missed a payment be forced into bankruptcy because they can no longer afford their monthly payment due to the interest rate increase or dealing with being over the limit on their credit cards.  Smart Money has a recent article on this problem -- How to Blow Your Credit Limit -- Without Spending.

    Unfortunately this nasty practice by the credit card companies is not currently illegal.  If this has happened to you, please email me your story and I will forward it to our state Senators and Congressmen.  Remember, many of these credit card companies that are squeezing their customers are the same companies that begged for and received the "bailout" money from the government that we the people will be paying back through our tax dollars.  What a way to say thanks, huh?

    If you can no longer pay your credit card debt, order my book and/or contact an experienced bankruptcy lawyer immediately.

Richard L. Collins - Attorney at Law practicing extensively in Bankruptcy Law in Alabama - 422 Third Ave SE, Cullman Alabama

I have redone my book.  It is now The Alabama Bankruptcy Book.  It still has the Bankruptcy Myths from the prior book, but now has about 20 more pages with Answers to Common Bankruptcy Questions.  The best part is that is FREE to Alabama residents with no strings attached.  Now you can get the info you need to see if bankruptcy will work for you without having to see a lawyer first.  If you would like a copy of the book, click on the Contact Me link on the top left side of this page.  No one will call or bother you.

This book will dispel many myths and answer many questions regarding bankruptcy such as:

• The effects of the Bankruptcy Reform Act (HINT -- Bankruptcy still works)
• What happens to your stuff
• How to save your house or car from foreclosure or repossession?
•  How to stop lawsuits, garnishments, and collection calls and letters?
• How you can still file and keep your property under the “new” laws?
• How you can still get credit after you have filed bankruptcy?
• How to wipe out credit card debt, medical bills and other debt?

 Don't believe the myths.  Educate yourself and don't let debt keep you down.

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.

Richard L. Collins - Attorney at Law practicing extensively in Bankruptcy Law in Alabama - 422 Third Ave SE, Cullman Alabama

    Many people have been convinced that the bankruptcy reforms that went into effect in October of 2005 have made it impossible for most people to file Chapter 7 bankruptcies.  Nothing could be further from the truth.  Yes, there is now a “Means Test” which was intended to screen out people with “too much income.”  But, in my experience almost everyone whom I have counseled with regarding filing a Chapter 7 bankruptcy who could have filed for Chapter 7 bankruptcy before the 2005 reforms still qualify to file a Chapter 7 bankruptcy in Alabama after the reforms.  Nationwide studies have confirmed this -- Porter Study Finds Bankruptcy Law Reform Has Hurt the Poor Most and Bankruptcy Reform’s Impact: Where Are All the “Deadbeats”?

    How does the “Means Test” work?  First you see if you are over or under the median income for a family of your size in Alabama.  For a quick check click here.  If your household income is under the median income for the same size household in Alabama, then you have passed the “Means Test” and qualify to file a Chapter 7.

    If you are over the median income, it DOES NOT mean you are disqualified from filing a Chapter 7 bankruptcy.  Most people can still file.  There is just more paperwork to do.  With the additional paperwork you are allowed to deduct taxes, housing costs, transportation costs, secured debt payments, medical costs, and many other costs.  After deducting these costs, most people have very little income that could be used to pay unsecured creditors; and therefore, can file a Chapter 7 bankruptcy.

    The bottom line is, if you are having financial problems, do not let the “Means Test” scare you away from seeking good legal advice from a qualified bankruptcy attorney.   The qualifications to file a Chapter 7 bankruptcy in Alabama are still fairly low.  Despite anything you may have heard, there is a very high chance you can still file a Chapter 7 bankruptcy.  And, if you are one of the few who cannot file a Chapter 7, you can probably file a Chapter 13 bankruptcy and still be protected from creditors.

Richard L. Collins - Attorney at Law practicing extensively in Bankruptcy Law in Alabama - 422 Third Ave SE, Cullman Alabama