Frequently Asked Questions

Frequently Asked Questions about Bankruptcy

Q: Are there alternatives to filing bankruptcy?

A: If the debtor's financial problems are only temporary, he or she can simply ask creditors to accept lower payments or grant an extended payment schedule. Creditors may be receptive to these ideas if the debtor has been a prompt payer in the past or if they wish to avoid the inconvenience of a bankruptcy proceeding. Consumer credit counselors can also help creditors work out a repayment plan. Some of these advisors work for non-profit agencies, so they charge no fees, but others charge a fee or may even be unscrupulous and should therefore be avoided. Bankruptcy is not for everyone. Maybe you can afford to make your payments but are a little behind, or maybe you would benefit by negotiating a lump-sum payment.

Credit Counseling

Credit counseling is a non-legal alternative to bankruptcy for those who have the means to repay their debts, but have fallen behind on their payments. Credit counseling is available throughout the United States. Such agencies usually contact your creditors and set up a repayment plans on your behalf. You pay the counseling agency, which in turn pays your creditors. Generally, counseling agencies earn money by collecting a fee from you and a percentage from what they pay your creditors. Although your creditors may freeze your interest, there is no requirement that they do so and they expect you to repay 100 percent of your debt. In a lot of ways credit counseling is similar to a Chapter 13 bankruptcy; however, unlike a Chapter 13, your creditors are not required to participate in a consolidation plan and they can continue to contact you. Moreover, like bankruptcy, your participation in a debt consolidation plan will be reported as derogatory credit on your credit report and will remain there for up to 10 years.

Debt Workout

A debt workout is an agreement negotiated with your creditors. In a workout, arrangements are made with a creditor to either bring your account current or make a lump-sum payment to settle the account. Such a deal is helpful for those who are not far behind on their bills or those who have access to money to repay their debts with a lump-sum amount. For more information, feel free to contact us and we will be glad to negotiate a workout for you.

Q: Does a Chapter 13 bankruptcy eliminate all debts?

A: Chapter 13 bankruptcy discharges only those debts scheduled in the bankruptcy, according to the terms of the plan. A debt which is not scheduled cannot be discharged. In addition, a Chapter 13 discharge does not affect court-ordered domestic support obligations; most educational loans; debts for personal injuries caused by drunk driving; civil restitution or damages for willful or malicious acts causing personal injury and debt; criminal fines; restitution obligations; certain other long-term obligations that extend beyond the term of the plan, such as home mortgages; withholding taxes; un-filed or late-filed tax returns; and fraudulent or willful evasion of taxes.

Q: Does a Chapter 7 bankruptcy discharge eliminate all debts?

A: A Chapter 7 discharge does not eliminate debts not listed on the schedules filed at the outset of the case; most student loans, unless repayment would cause undue hardship; recent federal, state, and local taxes; child support and spousal maintenance (alimony); government-imposed restitution, fines, or penalties; court fees; debts resulting from driving while intoxicated; and debts not dischargeable in a previous bankruptcy because of the debtor's fraud. Additional debts not listed may remain in force if the creditor objects to them during the case and proves that they fit certain specified categories.

Q: Are student loans discharged in a bankruptcy proceeding?

A: Educational loans are generally not discharged by bankruptcy, but may be if the court finds that paying off the loan will impose an undue hardship on the debtor and his or her dependents. Courts may determine that a hardship exists if: (1) the debtor will not be able to maintain a minimum standard of living if the loan is paid; (2) those dire financial circumstances will continue for a significant portion of the repayment period; and (3) the debtor made a good-faith effort to repay the loan prior to the bankruptcy.

Q: Are alimony and child support obligations discharged in a bankruptcy proceeding?

Under certain circumstances, and depending on the type of bankruptcy petition filed, a debtor may obtain some relief from the collection of past support obligations. Neither a Chapter 7 nor a Chapter 13 discharge affects future child or spousal support obligations, however, and thus, even at the conclusion of the bankruptcy proceeding, these on-going obligations remain.

Q: Can a debtor lose his or her home by filing bankruptcy?

A: Chapter 7 debtor could lose his or her home if he or she is behind on the mortgage payments, depending on how much equity the debtor has in the property and the amount of the state homestead exemption. In such cases, the lender may ask the bankruptcy court to lift the automatic stay so that it can institute foreclosure proceedings. In a Chapter 13 proceeding, however, even if the debtor is behind on mortgage payments, if the plan includes paying back any missed mortgage payments and current payments are paid when due, the debtor should not lose his or her home.

Q: What property is exempt from creditors' claims?

A: Certain types of property are exempt, which means that the debtor can keep it even after filing bankruptcy. Exempt property can include motor vehicles, up to a certain value; reasonably necessary clothing; reasonably necessary household goods and furnishings; household appliances; jewelry, up to a certain value; pensions; a portion of the equity in the debtor's home; tools of the debtor's trade or profession, up to a certain value; a portion of unpaid but earned wages; public benefits, including public assistance (welfare), Social Security, and unemployment compensation, accumulated in a bank account; and damages awarded for personal injury.

Q: What property does the debtor have to give up in a bankruptcy proceeding?

A: Items that the debtor usually has to give up include expensive musical instruments, unless the debtor is a professional musician; collections of stamps, coins, and other valuable items; family heirlooms; cash, bank accounts, stocks, bonds, and other investments; a second car or truck; and a second or vacation home.

Q: How long is bankruptcy information included on the debtor's credit report?

A: A consumer credit report may include Chapter 7 and Chapter 13 bankruptcy information for ten years from the time the case is filed. One major consumer credit reporting agency is reputed to eliminate Chapter 13 information after only seven years, but it is not legally required to do so.

Q: Do I need to hire an attorney in a voluntary or involuntary bankruptcy case?

A: It is very advisable to hire an attorney. Attorneys specializing in bankruptcy law can help both debtors and creditors overcome obstacles to the repayment of debt. Further, the new bankruptcy law passed by Congress in 2005 is extremely complicated. An experienced and knowledgeable bankruptcy attorney will have the knowledge and expertise to help their clients get out from under formidable debt and emerge as productive citizens, and can also assist their creditor clients in collecting what is rightfully theirs

Why do I need a will? Why do I need a will if I have a small estate?

It is important for individuals and married couples to have a will whether they possess a large or small estate. A valid will ensures that your property is distributed according to your personal wishes after your death. A will is an important vehicle for preventing the application of I intestacy laws, which determine who will receive a person’s property after their death. A will also appoints an executor, someone who is close to you whom you trust, to handle the administration of your estate. A will is especially important for married individuals, to avoid the application of intestacy statutes to prevent the claims of children against household items and other personal property, and to appoint a legal guardian in the event that either or both parents pass away.

What is intestate succession (also called intestacy or intestacy statutes)?

Intestacy Statutes are state laws that establish recipients for property that is not distributed by a valid will. Without a valid will or will substitute, such as a trust or life insurance policy, the State imposes its own structured plan for the distribution of your estate. The laws reflect what society views as a proper distribution method. This distribution scheme does not take individual considerations and desires into account, and rarely carries out an individual’s true intentions for the distribution of their property.

How often should I have my estate plan reviewed by an attorney?

It is important to have your estate plan periodically reviewed by a lawyer. It is especially important to pay particular attention to life events, such as births, adoption, and deaths in your family, marriage and divorce, sudden accumulations of wealth, a change in your domicile, and estate and gift tax law changes.

What is probate?

Probate is the process of a court-supervised administration and settlement of a decedent’s estate. Here, the will must be probated (proved valid) and the court typically appoints an executor to carry out administrative functions for the estate. In order to settle and distribute property from an estate according to a valid will, a probate action must be filed with the probate court.

What is voluntary probate?

Voluntary probate is a simplified probate process for small estate that takes course over a period of 30 days. This is available for estates that possess no real property and have a total value of less than $15,000.

I was named an executor in a will, what do I do now?

If you are in possession of the original will or an executor, you are obligated to initiate a probate proceeding with the appropriate Probate Court. It is important that a named executor contact an attorney for assistance on instituting a probate action and navigating this complex process.

What does an executor do?

Once executor status is granted, the executor has many different tasks, including collection and preservation of assets, to pay (out of the decedent’s estate) debts to the deceased’s creditors; pay taxes and administrative expenses, handle funeral arrangements, and distribute property according to the decedent’s wishes. All payments are made out of the decedent’s estate and an executor is typically compensated for his or her efforts spent on administering the estate.

How long does a normal probate proceeding take?

In Michigan, a typical probate proceeding will last for a minimum of one year. This time frame is mandated by the probate court and provides creditors and beneficiaries enough time to raise various issues with the court.

What is a disclaimer?

A disclaimer is a method of “opting out” of any bequest that you receive from an estate. Many beneficiaries select this option to avoid augmenting their own estates, or taking advantage of the ability to allow property to pass to their heirs without any transfer of tax liability. A qualified disclaimer must be filed within nine months of the date of a person’s death.

What is a power of attorney?

During your lifetime, it may be necessary for another person (an agent) to manage your financial affairs should you become unable to do so. If you become incapacitated, a ”durable power of attorney” will ensure the continuity of your financial affairs according to your personal instructions without the intervention of a court-appointed guardian. By executing such a document, you authorize an agent of your choosing to act on your behalf, for whatever purposes you designate.

What is a healthcare proxy?

A healthcare proxy appoints someone else to make healthcare decisions on your behalf in the event of your incapacity. This document permits your agent to make critical medical decisions on your behalf, and this person may also access your medical information and have full authority to participate in decisions your physicians make regarding the treatment you receive. By appointing an agent, you can ensure that your concerns regarding medical treatment are overseen by someone who you can count on.

What is a trust?

A trust passes legal title of property to a trustee who will hold, invest, and distribute that property for the benefit of specified individuals. The trustee manages the trust property according to your directions and can help “protect” a beneficiary’s interest from their own actions, their creditors, and limit distribution of that property for health, education, maintenance, and support purposes. A will may have “pour over” provisions, which reserve specific estate property for a trust, appoint a trustee, and establish guidelines for trust administration. Trusts are an important vehicle in controlling how property is distributed to children, grandchildren, and others, as well as the purposes for which that property is used.

What are the purposes of a trust?

      A trust is an arrangement whereby one person agrees to hold property for the benefit of another. Someone must create the trust. We call this person the "grantor." Other people call this person the creator of a trust, the "donor," the "settlor," or the "trustor." All these terms are used interchangeably. Every trust is established for a specific purpose, and that purpose will dictate the form and the basic provisions of the trust.

Reduce gross estate
Trusts can reduce an individual’s gross estate, thereby leading to less transfer tax liability after death. Some of these trusts include:
*Irrevocable Life Insurance Trusts
*Charitable Remainder Trusts (both annuity and income)                                          *Grantor Retained Annuity/Income Trust
Minor children
In the case of minors, who lack legal capacity and maturity to manage property, a trust is an ideal vehicle for making a gift for their benefit without giving the minor full control over the property. A trustee can limit distributions, invest the trust property, and protect it from creditors. A trust provides more flexibility that an outright transfer of property to a guardian or custodian under the Uniform Transfers to Minors Act.
Individuals who lack financial management ability
A trust can help improve the chance that the beneficiary’s interests are served over a longer period of time and protect the trust property from personal indiscretion or individual creditors. A trust is a valuable tool for providing for and protecting those with mental or physical infirmities or those who lack experience in maintaining property or making prudent investment decisions.
Spendthrifts
Some individuals may be competent to mange their own property, but may be exposed to liability to creditors or use trust property in an excessive or unwise manner. A spendthrift trust can protect and extend the life of trust property.

Is a trust subject to probate?

No, property placed into a trust is not part of the probate estate upon the settlor’s death. In other words, your will does not affect the trust property since it is no longer part of your estate. The property that remains in the trust at the decedent’s death is only subject to the terms of administration and distribution for the trust.

LEGAL DISCLAIMER
The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established