By Amy K. Tanner Attorney at Law Bond, Botes, Sykstus, Tanner & Ezzell, P.C. 225 Pratt Avenue NE

1. Bankruptcy Law Update2016 Alabama UpdateLast Chance SeminarHuntsville-Madison County Bar Association, Inc.Thursday, December 8, 2016Elbert H. Parsons Law Library By Amy K. Tanner Attorney at Law Bond, Botes, Sykstus, Tanner & Ezzell, P.C. 225 Pratt Avenue NE Huntsville, Alabama 35801 Office (256) 713-0223 – Fax (256) 713-0235 Email: atanner@bondnbotes.com www.bondnbotes.com The information provided here is based on the author’s research and experience in dealing with these issues. This brief outline is not exhaustive and should not be used to replace your own research/judgment or that of your own attorney.

2. Bankruptcy Abuse Prevention And Consumer Protection Act – BAPCPA • Enacted on April 20, 2005 • Effective as of October 17, 2005 • Applies to all cases filed after effective date

3. What Is Bankruptcy? • Bankruptcy is a process designed to help individuals and businesses get protection from their creditors • Right to file for bankruptcy is provided by federal law • All bankruptcy cases are handled in federal bankruptcy court

4. What Can Bankruptcy Do? • Bankruptcy may make it possible to: • Stop home foreclosure and allow homeowner opportunity to catch up on missed payments • But bankruptcy does not automatically eliminate mortgages and liens without payment • Prevent repossession of car and other property (and even force creditor to return repossessed property)

5. What Can Bankruptcy Do? • Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt • Restore or prevent termination of utility service • Lower the monthly payments on some debts • Allow consumer to challenge claims of creditors who have committed fraud or are trying to collect more than is really owed

6. What Bankruptcy Can Not Do? • Bankruptcy does not cure every financial problem nor is it the right step for every individual in financial trouble • In bankruptcy, it is usually not possible to: • Eliminate certain rights of “secured” creditors • Discharge some types of debts, such as child support, most student loans, criminal fines, and most taxes • Protect cosigners on debts (except in Chapter 13 cases) • Discharged debts that arise after bankruptcy is filed

7. What Are The Different Types Of Bankruptcy Cases? • There are four types of bankruptcy cases individuals can file: • Chapter 7, known as “straight” bankruptcy or “liquidation” • Requires individuals to give up property which is not “exempt”, so property can be sold to pay creditors • But most consumers who file chapter 7 keep all of their property except: • property which is very valuable, or • property subject to a lien which they cannot avoid or afford to pay

8. What Are The Different Types Of Bankruptcy Cases? • Chapter 13 is a type of “reorganization” used by individuals • Consumer submits plan to pay all or portion of debts over a period of years using current income • Homeowner with mortgage default given time to get caught up, generally over longer period (often up to 4 years) than under workout agreement • Unsecured debts (such as credit cards) may be paid either in full or a percentage of amount owed, over a 3 to 5 year period • Late charges and interest after Chapter 13 filed do not usually have to be paid on unsecured debts

9. What Are The Different Types Of Bankruptcy Cases? • Chapter 11, known as “reorganization”, is used by businesses and a few individuals whose debts are very large • Chapter 12 is for family farmers and fishermen • Most consumers file under either Chapter 7 or Chapter 13 • Either type of case may be filed individually or by a married couple filing jointly

10. Credit Counseling & Debtor Education Courses • Credit Counseling cost of approximately $10.00 - $35.00 • Within 180 days of filing • As late as immediately before filing • Limited exceptions temporary waiver • Certificate of credit counseling and debtor education

11. Credit Counseling & Debtor Education Courses • Case dismissed without certificate of counseling • Must complete debtor education course within 45 days of Chapter 7 court meeting at approximately $10.00 - $30.00 • Must complete debtor education course prior to final Chapter 13 play payment • No discharge of debts without completion of educational course and filing of certificate

12. Can Credit Counseling Requirement Be Waived? • Counseling may be waived if debtor is: • disabled, • incapacitated, or • on active military duty in combat zone • Counseling may be deferred for 30 days after case filed if: • “exigent circumstances” exist, and • debtor requested counseling from approved agency, but was unable to obtain services during five-day period after request made

13. Can Counseling Fee Be Waived? • Most approved agencies charge between $10.00 - $35.00 for the pre-filing counseling • Approved agencies must provide bankruptcy counseling and necessary certificate without considering ability to pay • If consumer cannot afford the fee, should ask agency to provide counseling free of charge or at a reduced fee

14. What Does It Cost To File Bankruptcy? • Chapter 7 filing fee now $335 and $310 for Chapter 13 • Approximately $20 for credit counseling briefing and $20 for education course

15. Can Bankruptcy Filing Fee Be Waived? • Chapter 7 filing fees may be waived • Debtor’s income must be below 150% of poverty line • Figures for 2015 are $1,991.25 monthly for a family of 2 and $3,031.25 monthly for a family of 4 • Debtor must be unable to pay for filing fee in installments

16. Who Is Eligible To File Chapter 7? • “Means Test”: • Bankruptcy judge can dismiss Chapter 7 case if filing is an abuse of bankruptcy system • “Means test” was added in 2005 to make it more difficult for wealthy consumers to file a Chapter 7 bankruptcy • Most Alabama consumers who file bankruptcy are not affected by this change • Consumers with household income below state median family income are protected by a “safe harbor” and not subject to the means test (Alabama median family income for a family of 4 as of November 1, 2016 is $70,056)

17. Who Is Eligible To File Chapter 7? • “Means Test”(cont.): • Consumer with income above median must fill out form that compares monthly income with actual and assumed expenses in a variety of categories • Some expenses are based on IRS collection guidelines • If form shows that consumer should have certain amount left over to pay unsecured creditors, bankruptcy court may decide consumer cannot file Chapter 7 case, unless there are “special circumstances”

18. Can Consumer File Again After Prior Bankruptcy? Last CaseThis CaseTimeFromCode 7 7 8 years Filing 727(a)(8) 7 13 4 years Filing 1328(f)(1) 11 7 8 years Filing 727(a)(8) 11 13 4 years Filing 1328(f)(1) 12 7 6 years* Filing 727(a)(9) 12 13 4 years Filing 1328(f)(1) 13 7 6 years* Filing 727(a)(9) 13 13 2 years Filing 1328(f)(2) * A Debtor can get a discharge in a case filed within the 6 years from filing of the previous case if the plan in the previous case paid either 100 percent of all allowed unsecured claims or paid 70 percent of such claims, was proposed in good faith and represented the debtor’s best efforts.

19. What Are The First Steps In Filing A Bankruptcy? • The first step is to complete and file a “petition” • A number of other forms requiring disclosure of the consumer’s financial affairs must also be filed with the petition or shortly afterwards (usually within 15 days) • It is important that all forms be filled out completely and accurately • Bankruptcy is a legal proceeding with complicated rules and paperwork - it is difficult to complete without an attorney

20. Chapter 7 Basics • Once every 8 years • Objective to discharge or eliminate debts • Taxes, student loans, child support, alimony, separation agreement, criminal fines, court costs generally not dischargeable • Debts based on fraud not dischargeable • Other exceptions to discharge also exist

21. Means Test • Primarily consumer debts • 6 months average income from all sources • More than state median family income • IRS guidelines for expenses • Deduct all allowed secured debt 60 months • More than $166.67 monthly left over, no Chapter 7 • More than $100.00 monthly left over and can pay 25% or more of unsecured debts in 60 months, no Chapter 7

22. Median Household Income For Alabama Effective November 1, 2016 • 1 Person Household $3578.83 / $42,934 • 2 Person Household $4359.17 / $52,310 • 3 Person Household $4967.92 / $59,615 • 4 Person Household $5838.00 / $70,056 *Add $700 monthly / $8400 annually for each Household member over 4

23. Prior Bankruptcy Cases & Discharge In Bankruptcy • Chapter 7 – Once every 8 years • Chapter 13 – No Chapter 7 last 4 years • Chapter 13 – No Chapter 13 last 2 years • May still file Chapter 13 within 4 years of Chapter 7 or within 2 years of Chapter 13 but NO discharge

24. What Are Some Key Bankruptcy Concepts? • Automatic Stay: • Filing bankruptcy instantly creates an “automatic stay” • Temporarily stops most all creditor actions to collect debts • However, if consumer had other bankruptcy cases dismissed within previous year, may not be automatic stay or may last only for 30 days • But even then, court can impose or extend the automatic stay if consumer’s current case has been filed in good faith

25. What Are Some Key Bankruptcy Concepts? • Fresh Start: • Goal of bankruptcy to provide help with existing debts and give consumer a second chance financially • Two key elements to bankruptcy fresh start: • Discharge: Elimination of the legal obligation to pay a debt • Exemptions: Property which the law allows a bankruptcy “debtor” to keep

26. Future Creditor Contact • Discharge injunction precludes creditor contact or court action • All discharged creditors can only report a “0” balance on your credit report • No civil suits on discharged debts • Right to sue any creditor who violates this law • May also violate state and federal unfair debt collection laws

27. Chapter 7 Liens • Lien on car or home survives bankruptcy • Must be current on 1st and 2nd home mortgages to retain home (called Keep & Pay) • No bills or statements unless you reaffirm debt • Lack of bills no defense to non-payment • Must continue pay even though no statements • Must reaffirm debt, payoff debt, or abandon any vehicle or personal property subject to a lien or creditor can recover vehicle • Liens are NOT canceled by Chapter 7

28. Chapter 7 Surrender • Right to abandon secured property • Abandonment cancels the debt • Abandonment equals no further obligation on the debt • Reaffirmation equals new contract with creditor with new legal obligation to pay • Redemption is paying off the debt with new loan • Reaffirmation obligations survive Chapter 7 discharge

29. Chapter 7 Common Cases • Most Chapter 7 no asset cases • Purpose is to cancel all debt • Abandon all property subject to liens • Retain most if not all other property owned free of all liens • If own home and less than $15,000 equity per debtor, then if current on mortgages can keep and pay

30. Equity in Bankruptcy • Secured debt vs. value of property • Assume buy a $20,000 vehicle • Make $6,000 in payments • Owe $14,000 to lender • Equity in vehicle is $6,000 • After pay off loan in full, equity equal $20,000 or market value of vehicle

31. Exempt Property • Property protected from creditors • Right to keep property in Chapter 7 is based on: • Type of property you own • Equity in property • Value of property • Amount of value can exempt

32. Alabama Exemptions • Must be resident for last 730 days • Cannot claim federal exemptions • Certain federal programs are exempt • Certain state benefits are exempt

33. Menu of Alabama Exemptions • Unlimited exemption: • Books, pictures and portraits • Wearing apparel • Teacher’s retirement, pension, annuity, or other benefits • Worker’s compensation • $15,000 for individual filing or $30,000 for joint filing in homestead exemption

34. Growing/ungathered crops Burial plots Wages, salaries and compensation Insurance – life insurance proceeds Specific partnership property Household goods and furnishings Vehicles Tools essential to debtor’s business Retirement and disability benefits Crime victim’s compensation “Qualified trusts” under Internal Revenue code Unemployment compensation Insurance – disability insurance proceeds Annuity contracts Insurance – interest of resident members and policyholders of mutual aid associations Menu of Alabama Exemptions $7,500 for individual filing or $15,000 for joint filing to include the following:

35. Land Mobile or modular home Trucks and cars & other motor vehicles Boats, motors, trailers, ATV’s, motorcycles, etc. Furniture and household goods Appliances and electronic appliances (TV, computers, etc.) DVD’s, tapes, etc. Rings, watches, and jewelry Tool and weapons Tax refunds Checking and saving accounts Legal claims Right to sue Recent transfers or gifts of property Your property in possession of another person Stocks and bonds Property in Bankruptcy

36. Chapter 13 – General Terms • Plan of reorganization • Make monthly payments to Trustee • Stop foreclosures and catch up arrears • Income greater than state median, may have to propose 60 month plan or pay 100% • Pay value of vehicle, unless purchased within 910 days of bankruptcy filing

37. Debts Not Canceled In Chapter 13 • 401K loans not included in Chapter 13 • Student loans usually survive Chapter 13 • Alimony and Child Support obligations • Certain other Debts as Provided by Bankruptcy Code

38. The Chapter 13 Plan • Consolidate most debts into one payment • Future mortgage payments excluded • You pay future mortgage payments direct • Mortgage arrears in the plan • All secured personal property debts in plan • All credit card debts in plan • All medical bills in plan

39. The Chapter 13 Plan • All judgments in plan • All charge-offs in plan • All accounts in collection • All deficiency claims from foreclosures or repossessions • All unsecured debts in plan • Usually no interest on unsecured debts • Unsecured creditors generally receive a small % of their total debt – balance canceled when complete the plan

40. Chapter 13 Dismissal • Voluntary right to dismiss any time • May convert to Chapter 7 • Must do means test if convert to Chapter 7 • Conversion effective as of date of Chapter 13 filing • Chapter 13 Trustee may move to convert or dismiss for non-payment of plan payments

41. Meeting Of Creditors • Mandatory appearance • Normally 4 to 6 weeks after filing • Must have official photo ID

42. Meeting Of Creditors • Must have social security number • Must have filed most recent tax returns • Must provide 60 days of pay stubs • Often must prove all post-filing domestic support obligations have been made

43. Rules Regarding Chapter 13 Meeting • First plan payment due within 30 days of filing • Creditors must file claims within 90 days of the meeting to be paid • You must resume direct mortgage payments the first month after filing

44. Chapter 7 Discharge • Normally discharged and closed within 3 months of meeting of creditors

45. Chapter 7 Property • Future earnings your property • Future property belongs to you • Inheritance within 180 days of filing belongs to the Trustee • Tax refunds owed as of filing belong to Trustee

46. Discharge And Co-Debtors • Chapter 7 discharge does not extend to co-debtors and guarantors • Authorized user could be held liable to extent of benefit of credit • Chapter 7 filing does not stop legal action against co-debtors and guarantors • Only married couple file joint case

47. Marriage And Bankruptcy • Only married couple file joint case • Married Couple not required to file a joint case • Marriage does not automatically make one spouse liable for debts of the other • Married Couple can have joint or separate debts • Separated spouses can file joint case but may create conflict for attorney • Attorney must withdraw joint case if the debtors disagree or conflict of interest arises

48. Checking Accounts And Bankruptcy • Change Banks if you: • Owe money to the bank • NSF checks • Post-dated checks • Checks by phone • Sure Pay • Automatic bank drafts • Have a check protection/overdraft plan • Have a credit card with the bank

49. Does Bankruptcy Affect The Consumer’s Credit? • Bankruptcy can stay on consumer’s credit report for ten years, rather than normal seven years for other credit information • Bankruptcy usually does not make credit records any worse, if there have already been numerous reports of defaults • Some creditors lend to recent bankruptcy filers because all or most of consumer’s past debts have been discharged and consumers cannot get a discharge in another Chapter 7 case for a period of eight years

50. Does Bankruptcy Affect The Consumer’s Credit? • Bankruptcy may be problem in getting approved for conventional home mortgage • But most lenders will still provide mortgage if consumer has reestablished good credit for a period of two to four years after discharge • And should not affect eligibility for reverse mortgage