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Overview on Bankruptcy Laws in Ohio

No one ever dreams of growing up and declaring bankruptcy, but it can happen. For many Americans it is a way to get a fresh financial start. Declaring bankruptcy might make it possible for you to eliminate the legal obligation of most or all of your debts, avoid repossessions of property, stop wage garnishments and protect yourself as a consumer. However, it does not cure every financial problem. Nor is it the right choice for every person. It is important to understand the federal and state bankruptcy process, and surrounding issues that affect you as an Ohio resident, before taking the next step towards financial stability.

Types of Bankruptcy in Ohio

Consumer Bankruptcy

Firstly, you have to understand the type of debt you want to reduce through bankruptcy. If you have amassed debt on primarily personal, family, or household purposes, then under bankruptcy law you have consumer debt. Filing for consumer bankruptcy is meant to reduce this type of personal debt.

If you find yourself in this situation, you can file under either Chapter 7 or Chapter 13 bankruptcy. In Chapter 7, you will typically be relieved from all of your debts, unless you have substantial assets to liquidate. There are certain income requirement levels that you have to meet in order to file for Chapter 7 bankruptcy. If you exceed the limit then you have to file under Chapter 13 bankruptcy; which will require you to make a month-to-month repayment plan with a typical duration span of 3-5 years.

Income and State Means Test

By now, you may have your heart set on Chapter 7 bankruptcy. Whether or not you are eligible for this option is decided by your state’s means test. In a nutshell, the means test determines if your income is low enough for you to be able to discharge your debts through Chapter 7 bankruptcy. It’s a formula designed to prevent high income earners from abusing the system and evading their debts altogether. However, this does not mean that you have to be penniless to be able to file Chapter 7 bankruptcy. If you have a significant monthly income, you may still qualify if you also have a lot of monthly expenses such as reasonably high mortgage payments, taxes, car loans and other expenses.

Now there are a couple of things you have to understand about the means test. For starters, only bankruptcy filers with mainly consumer debts have to take the means test. The courts have interpreted “mainly consumer debt” to mean half or more of all debts. So if the half or more of the dollar amount of all of your accumulated debt is consumer debt, you will face the means test.

It’s not always easy to determine if a debt is personal, or business related, for the purpose of the means test. However, a good rule of thumb is to consider what the money was used for rather than where you got it. So if the money was used to pay for personal or household purposes, then it is a consumer debt. Anything else is likely business debt. Another determination is the time the debt was incurred. For instance, if you bought a personal computer and later used it for business, it is still considered consumer debt since it was originally a consumer purchase.

The next step is simple. You have to determine if your income is greater or lesser than the median income in your state. If you earn less than the median income for a household of your size in Ohio, you pass. You’re done with the means test, and can file for Chapter 7 bankruptcy. However, if you earn more than the median income the means test becomes more complicated. You have to figure out if after subtracting your expenses you still have enough disposable income to repay some of your debts. If your disposable income meets a certain amount, you fail the means test and will have to file for Chapter 13 bankruptcy.

Chapter 7

In a Chapter 7 bankruptcy you discharge your debts and get a fresh financial start. This process involves a liquidation of assets. In other words, a trustee collects all of your assets and sells any that are not exempt. The trustee sells the assets and pays you any amount exempted. After that the net proceeds of the liquidation are distributed between your creditors.

If you wish to keep some of your secured debt -such as your car, house, furniture, etc- you may do so by signing a Reaffirmation Agreement. This means that you will still have the same legal obligation to pay that debt, that you had before filing bankruptcy, and you will not be able to bankrupt that debt again for another 8 years. In order to reaffirm debts they must also be brought current. So, if you are four months behind in mortgage payments, but wish to keep your house and reaffirm that debt, you must pay back the payments which are due. You can also selectively reaffirm your debts. For instance, you can state that you want to keep the house but you want the car and furniture to go back to their respective creditors. Reaffirmation agreements can be voided in the first 60 days after the agreement is filed with the Court, or by the Court’s issuance of an Order of Discharge.

Important Considerations regarding chapter 7

Certain debts cannot be discharged in a Chapter 7 bankruptcy. This includes alimony, student loans, child support, fraudulent debts, certain taxes, and other items charged. In most Chapter 7 cases, the debtor has large credit card debt, other unsecured bills, and very few assets. In the majority of these cases, bankruptcy is able to eliminate all of these debts.

Chapter 13

Chapter 7 is a liquidation, whereas Chapter 13 is a reorganization. Under a Chapter 13 bankruptcy, the debtor offers the creditors a 3-5 year repayment plan to pay off all, or part of their debts, based off of the debtor’s future income. If the debtor successfully sticks to the repayment plan, at the end of the agreement the rest of the dischargeable debts will be released. The amount to be paid back to the creditors is determined by a couple of factors, including the disposable income determined by the means test. In addition, the amount to be repaid under a Chapter 13 plan has to be at least the amount the creditors would have received if the debtor would have filed a chapter 7 bankruptcy.

Understanding your options

Chapter 13 is generally used by debtors who want to keep their secured debts, such as a home, when they have more equity in those secured debts than they can protect in their bankruptcy exemptions. A Chapter 13 plan would allow them to repay their overdue debt and reinstate their original agreement over time. If you have valuable nonexempt property and want to keep it, a Chapter 13 bankruptcy may be a better option for you. However, if you are like the vast majority of people who want to eliminate the burden of their debt without having to pay it back, Chapter 7 bankruptcy is the more attractive option.

The pros and cons of Bankruptcy

Depending on your situation, filing for bankruptcy has many advantages and disadvantages. Since filing for bankruptcy may affect your finances for years, it is important to be informed and weigh all your options before taking the next step.

Some of the disadvantages of filing for bankruptcy, include but are not limited to: it being noted on your credit report for the next 7-10 years; denial of federal, state, or local tax refunds; many credit card companies will automatically cancel your credit cards—hindering your ability to get approved for a mortgage or loan for years

Despite the disadvantages, for many people, filing for bankruptcy is the right course of action. You may be able to discharge up to all of your debt without losing all of your assets. Many debtors are able to go through the bankruptcy process without losing any of their property, by using state bankruptcy exemptions. Apart from relieving you of debt, bankruptcy also has some immediate advantages. For starters, filing will trigger the automatic stay; an immediate injunction which temporarily stops collection activity and lawsuits against a debtor. This restrains creditors from sending collection letters, calling to collect debts, garnishing wages, repossessing property, suing the debt, foreclosing on home mortgages, and any other activity to collect the debt until the bankruptcy case concludes.

Whether or not bankruptcy is the right choice for you, depends on your situation, the nature of your debt, and how many assets you need to protect. A bankruptcy attorney can help you decide whether or not filing is the best choice for you. If you do decide to declare bankruptcy, an attorney can help safeguard your assets, make sure all of your dischargeable debts are cleared, and that your creditors do not violate your rights as a consumer. Hiring an attorney will ensure that once you complete your bankruptcy, you will be on the right track towards financial recovery.

Foreclosure Mediation & Defense

Depending on your situation, if you’re served with a foreclosure lawsuit, an experienced lawyer may suggest, foreclosure mediation and loan modification as a viable alternative. Many difficulties with mortgages, while a foreclosure case is pending, can be solved through reasonable conversations. The help of a mediator can lead to a creative situation that may have been overlooked. Since mortgage lenders do not want to keep the house, they are generally willing to go through mediation in order to bring the debt payments to current. At times, mediation has a better opportunity to reach a reasonable compromise than a tense one-to-one negotiation.

All foreclosures in the greater Cleveland area include information about loan modification. The parties at a foreclosure mediation can discuss many options for a resolution. This includes but is not limited to: loan modification, a forbearance plan, modifications to the interest rate, a short sale, waiver of fees or expenses, and extending the term of the mortgage. Depending on your situation, there is also the possibility of special payment arrangements, assistance from a government agency, or any other practical way to solve the problem.

There are numerous alternatives to foreclosure, all with varying degrees of surrounding issues. Even with thorough research, you still may lack valuable information regarding your options. The best way to become fully aware on the wisest course of action to take, in order to save your home, is to hire an attorney

Bankruptcy Attorney Irving S. Bergrin practices in Cleveland Ohio

Dealing with overwhelming debt can make you feel like you’re in the middle of a financial crisis. It can become extremely complicated and stressful. Weighing out your options can become overwhelming and a challenge. That is why you shouldn’t do it alone. Having the help of a competent attorney will ensure you that everything you have worked so hard to achieve will be protected in court. Irving Bergrin, attorney at law, will provide you will the tools and information you need to confidently overcome your debt, bankruptcy, and or foreclosure, all while knowing your legal rights as a consumer are protected. With decades of experience practicing law, attorney Bergrin will help you understand your individual financial situation and advice you on the best course of action. Do not hesitate to call today. As always, the first consultation is free.

 

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