People typically seek the ultimate solution to their financial problems when they are under duress from creditors, and they can't stop it any other way. Before seeking bankruptcy court protection, filers are often being harassed by frequent phone calls, have been hit with legal action or face a home foreclosure or car repossession.
"There's normally some impetus that's pushing them over the edge," Salt Lake City bankruptcy attorney Thomas Neeleman says. "The only requirement of the bankruptcy code is that you're not able to pay your payments when they come due."
Salt Lake City bankruptcy attorney Kevin Whatcott asks clients how hard they've worked to get out of debt and often hears, "I have been working and doing my darnedest and can't do it anymore."
Usually, filers have more debt than assets, but not always, Neeleman says. Some Utahns who have assets choose Chapter 13 bankruptcy to avoid losing their homes after they have become delinquent in their mortgage payments.
Under Chapter 13, debtors are required to pay back a portion or all of their debts through a payment plan set by the court. Debtors document their monthly budgets and pay all excess income to a trustee who disperses the money to creditors. Debtors can retain assets and make mortgage payments, including delinquent ones, as part of the debt payment plan. Once the plan is finished, debtors are responsible for completing their mortgage payments.
Debtors who do not have excess monthly income file for Chapter 7 bankruptcy and do not have to repay any unsecured debt when the case is discharged. After filing, all nonexempt assets are liquidated by a trustee who uses the funds to pay creditors in the case. The exemption for a house is $40,000 for a couple or $20,000 for an individual. A couple can keep their home if they don't have more than $40,000 in equity and they continue to make their mortgage payments. The home is not protected by the bankruptcy filing and could be foreclosed on if the couple has delinquent payments.
Filers can choose to represent themselves in a bankruptcy case, but the task can be daunting, says William Stillgebauer, clerk of the U.S. Bankruptcy Court for Utah. "There are so many nuances to bankruptcy law."
Those who do choose to hire an attorney can expect a free initial consultation during which the law will be explained in easy-to-understand terms, Whatcott says.
Clients filing for Chapter 7 bankruptcy must pay a $209 filing fee with the court. A typical case also costs $400 to $700 in attorney fees. The average fee for the Salt Lake City firm of Whatcott, Barrett and Hagen is $590, Whatcott says.
To file a Chapter 13, the required filing fee is $194. An attorney is paid through the bankruptcy process, Whatcott says. The cost for such a filing is $1,600 to $2,000.
Debtors must fill out a "Summary of Schedules" listing real and personal property and its value, including items such as a checking account and its balance, household furnishings, clothes, furs and jewelry. Unsecured nonproprietary claims such as medical bills, credit cards and revolving credit must be listed as well as unsecured priority claims, such as taxes owed the state and federal government. Secured claims such as mortgages or vehicle loans, must be listed.
Personal information such as marital status, number of children and earnings must be listed on the "Summary of Schedules". A "Statement of Financial Affairs" must be filled out that lists employment for the past three years, repossessions, civil suits, and gifts.
Once a Chapter 7 case is filed, the case may be open for 90 to 120 days. A meeting is set up at which creditors are notified about a debtor's bankruptcy filing and creditors may attend.
"It moves fairly rapidly," Stillgebauer says.
A Chapter 13 takes longer from filing to completion, usually three to five years.
rwinters@sltrib.com, deherrera@sltrib.com
Can you get credit after bankruptcy?
In a Chapter 13 bankruptcy, individuals cannot take on more debt without permission from the court, Salt Lake City bankruptcy attorney Kevin Whatcott says. Individuals must demonstrate need - not just want - and typically only receive approval for home, car or student loans.
In a Chapter 7 filing, an individual can get a credit card - even the day after a bankruptcy is completed. Because that slate is wiped clean, so to speak, Chapter 7 bankruptcy can improve credit. "It makes them a better risk," Whatcott says. "It's not the credit problem that it used to be."
A sampling of what lenders say:
* Individuals cannot expect to get a mortgage with a reasonable interest rate until they have been out of bankruptcy for three years, says Jim Rogers of the Mortgage Center of Utah.
* Maverik Country Stores, based in Afton, Wyo., does not "give credit to high-risk people," spokesman Darin Harker says. He suggests anyone looking to re-establish credit do so by applying for a major credit card instead of proprietary cards.
* If an existing customer has a bankruptcy case pending, credit is not extended, says Clint Ensign of Salt Lake City's Sinclair Oil Corp. "Once a case is discharged, we may extend credit based on a variety of factors, such as how long the customer has been with us, their payment history, and how much was outstanding when they went into bankruptcy," he says.
l Salt Lake City-based home-furnishing retailer R.C. Willey does not rule out extending credit to individuals who have filed for bankruptcy. Each applicant is analyzed for income and employment purposes to see if the person is "credit-worthy and in good standing," spokesman Michael Boswell says.
- Julie DeHerrera
