CAN SOMEONE’S LIFE GET BETTER AFTER FILING BANKRUPTCY?
Of course it does. I know from my own personal experience. Back in 2005 after a nasty divorce, I was forced to file my own personal bankruptcy. I had to appear at a 341 hearing in front of my peers; the people I practice with. It was embarrassing and humiliating; the hardest thing I’d ever done up to that point in my life, but it had to be done. I hired a very good lawyer, I didn’t go cheap and everything went very smoothly; I got my discharge and I was able to rebuild my credit rather quickly.
The biggest misconception of bankruptcy is that everyone gets hung up on the filing remaining on your credit report for 10 years and you won’t be able to get credit and you will be “blackballed” for any type of financing for that entire period – but that’s just not true at all; if you approach your credit properly and do the right things, you’re able to get your credit score back in the 700’s quickly. In my own personal situation, I was able to get my credit score above 700 within a year to a year-and-a-half after filing my personal bankruptcy.
What’s really special about my firm is that we provide a credit rehabilitation service as part of our package; this is something that no one else does. We have an exclusive partnership with 720 Credit Score, which is a company started by Philip Tyrone out of Arizona; Phil is a top-shelf guy who is committed to helping people get back on their feet. His approach to the whole industry is very similar to mine; our goal is to not only get you out of your current mess, but to help you design a life for success. My goal is for you to succeed and do well; I want every client to do well.
Do You See a Typical Person File for Bankruptcy?
You have to understand that Northeast Michigan has gone through some really challenging economic changes over the past 20 years. Michigan has the largest mass of fresh water anywhere on the planet. General Motors took advantage of that asset and we had three foundries that in this area that poured iron for World War I, World War II, Korea and Vietnam, and then they closed 2 foundries down, cut the remaining foundry back to several hundred workers – GM moved out of town.
Here in Michigan, we’ve been through tremendous hardship and I see many people who are trying to get a grip on that because, historically, every generation thought they would do better than their parents financially, but with my generation, the tail-end of the baby boomers, we don’t see that. What’s happened with respect to the General Motor situation is that the UAW pay system now has three tiers; Tier 1 is the old school, who make $25-$30 an hour, which skilled trades probably getting double that, but the typical production worker at Tier 2 or 3 makes $12 an hour, which means they get about $30,000 per year, which doesn’t go very far with two people working and two or three kids.
It’s been a real challenge and there is no longer a typical client; there used to be; it used to be a single mom, post-divorce, struggling with a minimum wage or waitressing job, but now it ranges everywhere from the 22-year old who just became buried in debt through bad decisions to the75-year-old retiree who is living on a fixed income who has no choice but to file.
What Are Common Reasons That People File for Bankruptcy?
Historically, if you look at the public purpose behind the bankruptcy law, it has always been to provide a relief valve for the capitalist system so that they could get a “fresh start”; to encourage people to take a risk. That’s best exemplified by the stories of Henry Ford and Walt Disney, each of whom filed bankruptcy four times before they finally hit on a winning combination.
Unfortunately, bankruptcy has such a horrible connotation; everyone talks negatively about the “B” word out of what is a lack of understanding or education; people don’t understand how it works. Once they understand it, they’re much more comfortable with the process and once they get through the 341 hearing, they realize that they will make it and that it isn’t just fiction and the idea of a “fresh start” is a reality.
Many discover that Chapter 13 bankruptcy is the most powerful financial reorganization tool in the free world. In all Chapters, people discover the real power of the Automatic Stay. Once you file your petition, the stay goes into effect and wage garnishments stop, income tax refund intercepts stop; every collection effort against you stops, so everyone can take a breath and collect their thoughts, and get on the right path; the power and sanctity of the Automatic Stay injunction is held inviolate.
The biggest challenge for most families is budgeting. In this debit card swipe world, no one really sits down and writes out checks and balances or reconciles their checkbook and too many of us live based on our account balance, which is a very dangerous way to live.
For more information on Filing for Bankruptcy, a free initial consultation is your best next step. Get the information and legal answers you’re seeking by calling Attorney Mike Shovan at (989) 233-9389 today.
CAN BANKRUPTCY RUIN SOMEONE’S FINANCIAL FUTURE?
That notion is absolutely incorrect; in many cases, I can look at a credit report and tell you within 10 seconds how long someone has been struggling. We offer a two-year credit report and it shows a projected increase in credit score over the course of the next year-and-a-half. When people come in with a credit score of less than 500 and they’ve been working, I can tell they’ve been struggling a long time. The benefit of filing is that it stops the freefall and helps people think things through and make some strategic financial decisions that will affect them for the rest of their lives and those of their children as well.
I talk to people everyday who are in their mid to late 50s about strategic financial planning. The conversation that we have is not really so much about today, it’s about where they will be 15 or 20 years from now and whether it makes sense to surrender the house and look at other options. My intake sessions are much more involved than just a quick overview and telling them to fill out a stack of paper. We work through the tough issues.
I like to work from checklists to the point that I have a dedicated website “ezchecklist.com.” You can go to the website and find a list of all the information and documents that I need to evaluate your situation and prepare your bankruptcy filing. The “ezcheckIist” is so much easier that filling out a 50 page questionnaire. After we assemble all of your information, you decide whether you can repay the debt, whether you modify the debt or do you surrender the collateral and then re-characterize the debt as a general unsecured debt which can then be discharged?
Does Bankruptcy Permanently Hurt My Credit?
No. In most cases just the opposite is true. Not paying your bills will allow your credit score to continue to decline; by filing bankruptcy, you can establish a bottom or a basement – the threshold level from which you will not sink any further, and that’s very important because you can springboard from that. Chapter 7 can be a very powerful tool if it’s done properly and if you do your due diligence so that you know there aren’t any problems that will interfere with your case. Chapter 7 can snap things around in a hurry. I remember one guy who came in over the course of two or three months; we were on the phone constantly and finally I just told him to bring his file in and he brought in two boxes, which he literally threw on my lobby floor. I was caught up with a client, so I gave him a $5 Tim Horton card and told him to get a cup of coffee with his wife and come back in about half an hour”.
By the time he got back, I’d gone through the boxes, scanned what I needed and had everything ready to roll for him; he just sat there, amazed. I had been able to scan the documents I needed and get everything in order. I accept as part of my role that many people will transfer their anger towards their attorney; they’re upset with themselves but they transfer the anger to me and this happened with this gentleman. He came in a month after his discharge to tell me that he had gotten a 5 percent interest auto loan. People just don’t understand the power of this amazing law.
How Public Will My Bankruptcy Be In Michigan?
The only people who will know that you file bankruptcy are you, me and your creditors, as well as the people you tell. I remember when local credit bureaus and local newspapers used to publish a list of people who filed bankruptcy. Those days are over; the only way people can find out about your bankruptcy is if they have access to PACER, which is where all federal lawsuit and bankruptcy documents are posted according to federal law, so unless you have an account, you cannot access PACER.
The public policy consideration regarding Bankruptcy law is for full and complete transparency. So when you file your Bankruptcy. The objective is that the trustee, the judge and your creditors can look at your schedules and your statements and understand exactly where you are with respect to all of your assets, liabilities and debts, as well as all of your continuing obligations and significant historical facts like lawsuits, garnishments, any businesses that you’ve owned.
For more information on Bankruptcy and Financial Future, a free initial consultation is your best next step. Get the information and legal answers you’re seeking by calling Attorney Mike Shovan at (989) 233-9389 today.
WHAT DOCUMENTS ARE NEEDED FOR AN INITIAL CONSULTATION?
We go back to “Checklists & Forms” which has the complete list of all the documents and other information that we need including the vital documents including current wage and benefit statements for both parties because, even if you’re married and your spouse is not filing, we still need to show their income information for a household budget. We also need last year’s income tax return and any current lawsuits, garnishments, judgments and anything else that you have a question about; IRS tax notices, state tax notices, local tax notices, student loan notices, whatever is a blister on your heel; bring them in, so that we can address them. The successful clients follow up; we set appointments so that we can get your case filed.
How Do You Determine If Bankruptcy is the Preferred Solution for a Client?
Credit counseling is required before you file bankruptcy. For many clients, the credit counseling course forces you to organize their thoughts. The first thing I do with people is to put together a budget. The budgeting process itself is extremely insightful and instructive.
There are some situations when bankruptcy is not the answer. I’ll tell them to call the creditor and try to work something out. Even though I’m a bankruptcy lawyer and in essence, a hammer, not every problem is a nail. Once you file for bankruptcy, you have to disclose that for the rest of your life; it will be listed on every financial application for the rest of your life.
The situations in which you can avoid bankruptcy are those in which the client is receiving income exempt from garnishment including Social Security income, state retirement income, or unemployment benefits. Most people will say they’re tired of the hassles and ask me to get this taken care of, but for those who can afford it, I show them how to handle everything. Some people just aren’t emotionally prepared for bankruptcy; they see it as a form of defeat, which is totally contrary to what I present because I personally see bankruptcy as a path to success.
If you talk to any business person of significant means, I’d guess that more than half of them have filed bankruptcy at least once in their life because they understand that we live in a nation governed by the rule of law; it’s not a sin, it’s not illegal, it’s the law, and they use the law. If you’ve committed a crime and you know it, you don’t have to confess; you have to be proven guilty – there is a presumption of guilt; is that anymore immoral or unethical than filing bankruptcy, discharging those debts and not paying your creditors? In my mind, the ethical bridge is easy to gap.
The most important thing we do is establish rapport with people, everyone is different, but I love my clients and I treat them like family. When we sit down and talk, I am concerned about where they are, their goals and their expectations; where do they want to be 10 or 20 years. Some people come in dealing with a master disaster and they don’t want to give up. I respect that tenacity and passion to not quit. However, after reviewing their situation, I ask them why they want to waste ten years trying to recover from something that won’t work based on their budget numbers.
For more information on Documents Required for Initial Consultation, a free initial consultation is your best next step. Get the information and legal answers you’re seeking by calling Attorney Mike Shovan at (989) 233-9389 today.
IS THE PUBLIC PERCEPTION OF BANKRUPTCY IMPROVING?
There are a couple of forces at play, and a lot depends on which part of the country you’re in. Up here in the Midwest, specifically Northeast Michigan, we’ve just been through an economic tsunami, in which General Motors left town and went through bankruptcy. I tell people this is not like it used to be; their parents would never consider filing. But then again, I have people in their late 60s or late 70s who come in to file; it’s hard for them because these people are old school; they always believed in paying their bills – but there comes a time when you have to “throw in the towel” to win.
As a trustee told me years ago, when a creditor lends money, that creditor assumes the risk of loss, so don’t take it personally; they’ve already assumed the risk. So don’t worry about trying to save the world, save yourself.
How Does a Bankruptcy Attorney Get Paid?
In Chapter 13, you can pay you attorney fees through your plan. In certain situations, you can make payments on Chapter 7 attorneys fees. The Chief Judge in the Eastern District of Michigan issued an opinion several years ago that allows practitioners to accept half down and then take installment payments on the balance post-petition.
In addition to attorneys fees, you also have to pay filing fees. Today, the filing fee for a Chapter 7 is $335. For Chapter 13 the filing fee is $310. You make your filing fees in 4 monthly installments. You also have to pay for a credit report and for the pre filing Credit Counseling Course and the post filing Financial Management Course.
What Are Some Red Flags to Consider When Hiring An Attorney For Bankruptcy?
Having been around this stuff for 25 years, I tell people the hardest thing for any layperson and for a lot of attorneys is to pick the right lawyer. One big factor is how quickly the attorney’s office returns your calls; how will the office respond when you have questions. We focus on client service; we like to be on top of things; it’s really important to me that all calls are returned promptly and that client needs are addressed.
With the advent of the internet and LegalZoom, everything is much more transparent; people understand the process and more people come in relatively well-informed and I appreciate that. I like to be really open and honest with people and tell them exactly what’s going on. I don’t want to just give people a bunch of forms to fill out and then create everything in secret so that the client has no clue what’s going on. I hear a lot of complaints from people who have worked with other attorneys, who just signed forms and had no clue as to what was really happening.
For more information on Public Perception of Bankruptcy, a free initial consultation is your best next step. Get the information and legal answers you’re seeking by calling Attorney Mike Shovan at (989) 233-9389 today!
HOW DO YOU HELP CLIENTS DEAL WITH THE EMOTIONAL DISTRESS OF FILING FOR BANKRUPTCY?
I try to create a very relaxed environment; I’m not your typical button-down lawyer, my office is a very pleasant space and I give people the time they deserve; I tell people they won’t leave until they understand everything about their situation and know their options and I hold to that. Consultations can take a while; sometimes as much as two hours, depending on how complicated the situation is.
When somebody comes in for intake, when we run through the data input and then we work through their budget calculation together. They actively participate in the process. For the first time, they see how their money is being spent. In the real world, financial ratios are of very little value in evaluating your financial situation.
What Do You Advise Clients That Are Overwhelmed By Financial Problems?
I tell people bankruptcy does not create income, bankruptcy manages that; we’re focused on debt. There are two types of debts; there are secured debts, where you pledged a collateral interest in some type of property, and there is unsecured debt. Within the category of unsecured debt, there are priority claims, which are typically taxes and domestic support obligations, and then general unsecured claims, credit cards, medical bills, auto deficiencies, any other debts not tied to your house or your car or any other property.
How are Student Loans Treated?
Student loans are considered general unsecured debt – so theoretically, they are treated like any other unsecured claim; except that neither federal or private student loans are not dischargeable. However, we have worked hard to allow for the rehabilitation of student loan defaults in Chapter 13 proceedings.
I have worked very diligently with the U.S. Attorney to fashion language acceptable to the Department of Education to allow for the rehabilitation of defaulted federal student loans while people are in active Chapter 13 plans. Private student loans create a much more complicated situation. Private student loans are the most toxic form of debt you can take on because lenders treat private student loans just like any credit card debt; you are in default the day you don’t make your payment on time.
Once the default is triggered, private student loan companies have the right to sue you in state court, they can get a judgment against you, rack up fees and expenses and costs and add that to the balance and they can garnish you under state law at up to 25 percent of your net earnings, which is not dischargeable. On the other hand, with federal student loans, even if you’re in default, we can work through an administrative rehabilitation process with the relevant department while you’re under the protection of a Chapter 13 with an automatic stay and emerge with some type of income-driven repayment plan. It’s the private student loans that create the real challenge.
Are there any Programs available that allow for the Forgiveness of Federal Student Loans?
In fact, there are a number of different programs available for federal student loans, which the public service loan forgiveness program being the most notable; if you work for a 501(c)(3) non-profit corporations or governmental entities. After making 10 years of payments, you’re able to get the balance of your student loans discharged without any tax consequences, which means you won’t get a 1099(c) for forgiveness or indebtedness, and that’s huge. Many people don’t realize that, to qualify for that, you have to file for a certain plan every year with the Department of Education because no one ever told them.
When people talk about student loans, it’s not about the trillion dollar outstanding balance. The real issue is how you manage your student loans. Our analysis is about whether the loans are federal or private, are they in default or repayment status and then your income.
What Are the Big “No No’s” when it comes to Parents and Student Loans?
The big “no no’s” is to never cosign a federal or private student loan. And the second is to never take out a Parent Plus Loan. Cosigning a private student loan is again one of the most toxic types of liability you can take on; it’s horrible because it never goes away until the issue is resolved or it’s paid in full. A lot of parents just blindly cosign for their kids and they realize 5, 10 years down the road the kid’s not paying on the student loan, they’re stuck. The same is true with Parent Plus loans – they never go away. There are things you can do to recover from those types of obligations, but there’s nothing easy about it.
For more information on Dealing with Emotional Distress, a free initial consultation is your best next step. Get the information and legal answers you’re seeking by calling Attorney Mike Shovan at (989) 233-9389 today.