Sample Bankruptcy Cases
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Sample Bankruptcy Cases
In order to understand the bankruptcy process, we outline an example of the types of matters that we deal with on a daily basis. This is purely a hypothetical example and is not a reflection of any specific client that we have represented.
For example, a husband was working as an electrical engineer for a manufacturing company in northern Massachusetts and earning good wages. His wife worked as an administrative assistant for an insurance company. They had a nice home, were saving money for the college education of their children, had two nice cars, a boat to use on weekends and took annual vacations. They did not save very much and felt that they were getting by until the husband lost his job.
Credit cards seemed handy at first to get through the few weeks and then few months that husband was out of work and collecting the much lower rate of unemployment compensation. After 12 months, all of their savings were exhausted, their credit cards were maxed out, and they were falling behind in their mortgage and their car payments as well. The husband withdrew money from his 401(k) plan that caused the family to incur significant penalties and tax obligations. After two years of trying to cover their bills, they finally spoke to an attorney about their rights. It is too bad they did not do that sooner.
Since they were not too far behind in their mortgage payments, they were able to reaffirm their mortgage and save their house, even though they had almost $200,000 in equity in their home.
Their cars did not have much equity, but their credit was so bad by this point that it would have been hard for them to get car loans. They gave up one of the new cars to get their monthly obligations down and were able to reaffirm the car loan on the other vehicle.
The $65,000 in credit card debt that was accruing interest at rates in excess of 30% per month was totally discharged.
Unfortunately, since the money was already withdrawn from the 401(k) plan and spent, it could not be saved. If they had contacted us earlier, we would have let them know that under New Hampshire law, they would have been able to keep all of the money in their 401(k) plan as well as their IRA. In other words, they could have had $100,000 in their 401(k) plan for their future retirement and would not have had to use that money to pay for their credit card debt. Under this example, they did not have to sell their home or use the equity in the home to pay their credit card debt or any other unsecured debt such as medical bills.
This Chapter 7 liquidation bankruptcy allowed this family to get a fresh start in life at a modest cost of less than $2,000.
Chapter 13 Personal Reorganization is a Viable Option for High-Wage Earners
Under the federal bankruptcy guidelines, individuals and families who earn more than a median or set income established by federal guidelines are unable to file for full liquidation bankruptcy. They still have an opportunity to relieve themselves of much of their debt however, through the filing of a Chapter 13 reorganization bankruptcy. Under a Chapter 13 plan, arrangements are made to repay a portion of the family debt over a three or five year payment plan. You can also use a Chapter 13 plan to make payments on your student loans before other unsecured creditors receive payments through the plan. At the end of the Plan, any balances that remain on your unsecured debts (not including any balance that remains on your student loans) is fully discharged and no additional payments to those creditors is required.
A Chapter 13 Plan also allows you to keep assets that you may otherwise be forced to sell in a Chapter 7 full liquidation bankruptcy. For example, if you own an apartment building, a boat, a motorcycle or other valuable assets, you do not have to sell those assets under a Chapter 13 plan. Rather, your plan payments are adjusted to reflect those assets.
