Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, August 22, 1994 TAG: 9408220053
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: By MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
Maybe you are even considering the alternative of bankruptcy. But should you take this serious step and what would it involve?
Most of those who consult A. Carter Magee Jr., a bankruptcy specialist with the Roanoke law firm of Magee, Foster, Goldstein and Sayers, are middle-class people earning up to $30,000 or $40,000 a year. "You don't see many with higher wages," Magee said.
They come to him because of worries over medical bills and credit card debt - paying interest of 18 percent to 20 percent to small loan companies and 21 percent to 24 percent to major department stores. These are not people, he pointed out, who qualify for a bank credit card at or near prime.
Some people, he said, have struggled for years to pay off their debts, believing that bankruptcy is "a stigma, a near-death experience."
Magee, who serves as a U.S. Bankruptcy Court trustee in addition to representing both debtors and creditors, refers many of these prospective clients to Consumer Credit Counseling before he pursues their cases to court. "I'm a great believer in that system."
If the agency can't help, then Magee files the bankruptcy petition. The agency's verdict, he said, constitutes "a litmus test."
Virginia Garretson, president of Consumer Credit Counseling, said there are no ratios or percentages to decide which people can pay their debts and who must file bankruptcy. "Each case is different," she said, and some people are very determined to overcome their financial problems.
Bankruptcy, she said, "should be the last resort."
She advised people to come early to Consumer Credit Counseling, which offers its services free of charge. The agency is supported by local businesses.
Counselors at the agency contact creditors about a payment program, in some instances even gaining a stay of interest while debts are paid.
Some clients need only counseling, help in drawing up a budget and preparation of a repayment plan. Other people choose to pay the agency an agreed-upon amount, and Consumer Credit Counseling makes the monthly payments.
Garretson and Magee both stressed the need to seek help, either from Consumer Credit Counseling or a lawyer, as soon as you begin to miss payments when some action is easier to take.
Even if you decide to file bankruptcy, you still face some choices because bankruptcy comes in several different forms:
One option is Chapter 7 or liquidation.
In liquidation, Magee said, the court's trustee reduces the debtor's assets to cash and pays a pro rata share to each creditor. Some creditors are secured, such as a bank that has a lien on a car, and they get the proceeds from that specific asset.
Creditors usually meet about 30 days after the filing. In the case of an individual or couple, he said, this meeting might last an hour. If there are no complications, he said, it might take another 60 days to pay the creditors and discharge the case.
The procedure, he said, is "relatively painless." It may be less trouble than the job of preparing the petition and various supporting schedules, such as income and a list of debts.
Some debts cannot be discharged, however. Magee listed just a few of them as alimony, child support, taxes, government fines, student loans less than seven years old, credit obtained through a false financial statement and liability for damages caused while driving drunk.
A regulation designed to prevent bankruptcy scams also rules out discharge for any cash advance of more than $1,000 against a credit card or bills for any luxury goods or services purchased in the 40 days prior to filing.
The debtor gets to keep many such items as a $5,000 homestead exemption for each spouse and another $500 for each child, a variety of person property, a Bible, burial plot, clothing, wedding and engagement rings and family heirlooms.
A couple who own their home jointly get to keep it if only one spouse files for liquidation.
Virginia, Magee said, is liberal on items the debtor can keep.
Another alternative is to file under Chapter 13 or a wage-earner plan for repayment of debts.
Magee said only an individual who has regular income, unsecured debts of less than $100,000 and secured debts of less than $350,000 can file under this act. You can keep your assets while repaying creditors over a five-year period under a court-approved plan.
In Western Virginia, Magee said, about 85 percent of individuals file for liquidation while about 15 percent use the wage-earner plan.
The bankruptcy code offers two more options that seldom apply to individuals.
One is Chapter 11 for reorganization and payment of debts. Larger businesses and individuals who can't meet the requirements for Chapter 13 sometimes use this option, but Magee said it is generally too expensive for most people or even for a small business.
Chapter 12 covers family farms. Magee said it is seldom used in Western Virginia.
Magee said filing a simple bankruptcy liquidation might cost as little as $350 in legal fees although the average would be closer to $550. Costs could run as high as $750 in a more complex filing.
The court charges another $150.
A wage-earner plan, which is more complicated and stays before the court longer, might range from $550 to $1,250 with a typical fee of $750 to $825.
A Chapter 11 case for reorganization probably would cost $15,000, Magee said.
by CNB