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I. Documentation Needed
Income Documentation. (also known as pay advises).
This includes pay stubs, pay slips or any form of written proof of income, including electronic printouts which reflect that information. To file bankruptcy in Maryland, you will need to present all of them for the last six months prior to the time of filing. In cases of self employment, unemployment or where cash payments were received, the court will accept sworn statements regarding your circumstances and you will have to provide whatever additional documentation is requested by the bankruptcy court.
You will need to submit copies of your tax returns for the last three years. If you have any unfiled returns, you will be required to file them and submit proof of such for your case to move forward. If you were not required to file for a valid reason, you will need to provide this information to the court.
List of Creditors. (See my download section for a creditor list and an inventory list)
We rely upon your list of creditors because information on the creditor lists may be incorrect and/or incomplete.
This is required for Chapter 13 cases. A pre-confirmation certificate states that you have been paying the trustee and your secured payments such as your mortgage. This document must be filed 7 days prior to your confirmation hearing. It is a pertinent piece of documentation in order for your Chapter 13 plan to be confirmed. Sign it and return it as soon as you receive it in the mail.
Mortgage Payoff Statement
This documentation shows the amount you would need to pay or settle your mortgage debt. It includes not just the owed amount up to the date. It also includes any interest or other applicable fees up to your payoff date. It is very different from the outstanding balance on your monthly mortgage statement. Contact your mortgage lender to request this figure.
This is the documentation which shows that you are the legal owner of real property (your home). Even if you are not the sole owner of the property or are just listed on the documentation, you will need to submit all Deeds with your name listed as an owner. At this point it would be good to confirm that your deed has actually been recorded with land records.
Deed of Trust
This is a document reflecting the terms of the agreement between the borrower (you) and the mortgage company (the bank) which allows the mortgage company/bank to use a trustee (third party) to hold your property as security until the mortgage has been satisfied. Your loan documents (the mortgage documents) are not filed with land records. Instead, a Deed of Trust is filed with land records. A Deed and a Deed of Trust are different. They are not the same thing.
Titles to Vehicles
Submit the titles for all motor vehicles which have your name on them. Many people will me that they don’t own a vehicle even though their name is on the title. In other words, they only hold bare legal title because the vehicle is really being purchased by someone else who is not on the title. Even if you are not the sole owner of the vehicle, but are listed in any way on the associated documentation, copies of those titles must be submitted as well.
Appraisals vs Market Analysis
Initially, you will need to provide a market analysis for your real property. See my download for a more complete description of market analysis. A market analysis is not the same thing as an appraisal. A market analysis is a shorter version of an appraisal. An appraisal may cost approximately $400. It is a detailed description of your real property and similar properties in the area.
A financing statement or UCC-1, stipulates the agreement between the borrower and lender and basically states that the lender has a vested interest in the borrower’s property due to an existing loan. This legal document contains a list of any property or items used to serve as collateral for the loan and must be filed with the relevant government agency. This document serves to also establish that the lender is the actual owner or has the right to claim the items used as collateral.
II. Getting started
It’s all starts with a free telephone consultation. You don’t need any documentation for the initial telephone call. In order to complete your Chapter 13 filing, we will be asking you questions about your income, expenses, and household size. In addition, we will want to know the approximate value of your assets. During the initial consultation, we will formulate a bankruptcy strategy and a timeline for your reorganization.
Here are a few questions which will need to be answered:
Real Estate (Your home)
Do you own a home?
Are you making payments on your home?
What is the payoff balance on your mortgage?
Are you behind on your mortgage payments? (Don’t worry. A Chapter 13 case allows you to catch up on your missed payments.)
Has a foreclosure sale been scheduled?
Do you want to keep your house or do you want to let it go?
What is the value of your home? (The value of your home may be a factor in your case.)
Do you own a vehicle?
Are you making payments on a vehicle?
What is the payoff balance on the loan?
What is the year, make, model, and mileage of your vehicle?
Has your vehicle been repossessed? Do we need to have the vehicle released from an impound lot?
We need to know an estimate of your yearly income.
We may also need the total household income which may include others in the household who will not be filing for bankruptcy relief.
We will help you establish a monthly, household budget. For the initial consultation, we simply need the basics.
III. Tips for success in bankruptcy
The thought of living under budgetary constraints for an extended period of time can be daunting. Since a Chapter 13 bankruptcy plan lasts for 3-5 years, it is important to be vigilant and organized. Much more than optimism is required.
Maintain accurate documentation
The detailed process of filing Chapter 13 documents should have helped to somewhat prepare you for keeping accurate records during the repayment period. In the event that any adjustments are needed to your plan, certain financial records would be required in order to assess the situation. These include income tax statements, paystubs, and bank statements. These documents must be safely filed away for easy retrieval upon request. In addition, keep a record of your payments.
Documents from the trustee
Your Chapter 13 trustee will send you account statements containing information regarding the status of your payments. Ensure that you read and understand these documents.
Make a detailed budget and stick to it
Your scheduled payments are based on the amount of debt you have incurred as well as your disposable income. This may require you looking closely at your expenses to ensure that you are able to honor the minimum payment requirements for your Chapter 13 plan. Remember that to remain covered under Chapter 13, you must keep current on payments. Some minor lifestyle changes may become necessary. Look ahead to the next 3-5 years when you will be debt free — that will certainly provide added motivation for you to remain committed to making scheduled payments.
Unexpected change of situation
In the event that you experience an adverse turn of circumstances during the course of your Chapter 13 repayment plan, there are several options that may be available to you. These options take into consideration occurrences such as illness, loss of employment, reduction of income, and unexpected expenses such as repairs. Speak with your attorney about the following:
Modifications that can be made to your payment plan
Allowances for you to take on additional debt
IV. The Chapter 13 Plan
A Chapter 13 allows the debtor to reorganize debts without selling off assets such as houses, cars, and personal property. Typically, the debtor repays his or her debts over a 60 month period. The debts being repaid may include mortgage arrears, vehicle payments, tax debt, HOA fees, and credit card debt.
In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must compile the following information:
A list of all creditors and the amounts and nature of their claims;
The debtor’s income;
A list of all of the debtor’s property
A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.
Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse is required so that the court, the trustee and creditors can evaluate the household’s financial position.
When an individual files a chapter 13 petition, a trustee is appointed to administer the case. The chapter 13 trustee evaluates the case and distributes funds to creditors.
Filing a petition under chapter 13 “automatically stays” (stops) most collection actions against the debtor or the debtor’s property. Filing the petition does not, however, stay certain types of actions. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even make telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor.
Individuals may use a chapter 13 proceeding to save their home from foreclosure. The automatic stay stops the foreclosure proceeding as soon as the individual files the chapter 13 petition. The individual may then bring the past-due payments current over a reasonable period of time. The debtor may also lose the home if he or she fails to make the regular mortgage payments that come due after the chapter 13 filing.
Approximately 30 days after the debtor files the chapter 13 petition, the chapter 13 trustee will hold a meeting of creditors. During this meeting, the trustee places the debtor under oath and confirms the information contained in the bankruptcy schedules. If a husband and wife file a joint petition, both must attend the creditors’ meeting. In order to preserve their independent judgment, bankruptcy judges are prohibited from attending the creditors’ meeting. Generally, the debtor can avoid problems by making sure that the petition and plan are complete and accurate, and by consulting with the trustee prior to the meeting.
In a chapter 13 case, to participate in distributions from the bankruptcy estate, unsecured creditors must file their claims by a deadline. Creditors failing to file a timely claim are not paid and their debt is wiped out upon discharge.
After the meeting of creditors, the debtor and the chapter 13 trustee must attend a hearing on confirmation of the Chapter 13 plan.
The Chapter 13 Plan and Confirmation Hearing
A plan must be submitted for court approval and must provide for payments of fixed amounts to the trustee on a regular basis. The trustee then distributes the funds to creditors according to the terms of the plan. An unsecured creditor (such as credit card company) may be paid a fraction of its claim.
If the debtor wants to keep collateral secured by a particular claim, the plan must provide that the holder of the secured claim receive at least the value of the collateral. If the obligation underlying the secured claim was used to buy the collateral (e.g., a car loan), and the debt was incurred within certain time frame before the bankruptcy filing, the plan must provide for full payment of the debt, not just the value of the collateral. Payments to certain secured creditors (i.e., the home mortgage lender), may be made over the original loan repayment schedule (which may be longer than the plan) so long as any arrearage is made up during the plan. The debtor should consult an attorney to determine the proper treatment of secured claims in the plan.
The plan need not pay unsecured claims in full as long it provides that the debtor will pay all projected “disposable income” over an “applicable commitment period,” and as long as unsecured creditors receive at least as much under the plan as they would receive if the debtor’s assets were liquidated under chapter 7. In chapter 13, “disposable income” is income less amounts reasonably necessary for the maintenance or support of the debtor or dependents. If the debtor operates a business, the definition of disposable income excludes those amounts which are necessary for ordinary operating expenses. The “applicable commitment period” depends on the debtor’s current monthly income. The applicable commitment period must be three years if current monthly income is less than the state median for a family of the same size. If monthly income is over the median income, the Chapter 13 plan is five years.
Within 30 days after filing the bankruptcy case, even if the plan has not yet been approved by the court, the debtor must start making plan payments to the trustee. If any secured loan payments or lease payments come due before the debtor’s plan is confirmed (typically home and automobile payments), the debtor must make adequate protection payments directly to the secured lender or lessor.
Approximately 45 days after the meeting of creditors, a confirmation hearing is held. The debtor’s Chapter 13 plan is finalized into a confirmed court order. While a variety of objections may be made, the most frequent ones are that payments offered under the plan are less than creditors would receive if the debtor’s assets were liquidated or that the debtor’s plan does not commit all of the debtor’s projected disposable income for the three or five year applicable commitment period.
If the court confirms the plan, the chapter 13 trustee will distribute funds received under the plan. If the court declines to confirm the plan, the debtor may file a modified plan. The debtor may also convert the case to a liquidation case under chapter 7.
A change in circumstances may cause the debtor to fall behind on plan payments. This is not the end of the world. The debtor may file for a Chapter 13 plan modification.
Making the Plan Work
The provisions of a confirmed plan bind the debtor and all creditors. Once the court confirms the plan, the debtor must make the plan succeed. The debtor must make regular payments to the trustee either directly or through payroll deduction, which will require adjustment to living on a fixed budget for a prolonged period. Furthermore, while confirmation of the plan entitles the debtor to retain property as long as payments are made, the debtor may not incur new debt without consulting the trustee.
A debtor may make plan payments through payroll deductions. This practice increases the likelihood that payments will be made on time and that the debtor will complete the plan. In any event, if the debtor fails to make the payments due under the confirmed plan, the court may dismiss the case or convert it to a liquidation case under chapter 7 of the Bankruptcy Code.
The court may also dismiss or convert the debtor’s case if the debtor fails to pay any post-filing domestic support obligations (i.e., child support, alimony) or fails to make required tax filings during the case.
The Chapter 13 Discharge
A chapter 13 debtor is entitled to a discharge upon completion of all payments under the chapter 13 plan.
The debtor must certify that all domestic support obligations have been paid. The debtor must also certify the he/she has not received a discharge in a prior case. In addition, the debtor must complete a financial management course.
As a general rule, the discharge releases the debtor from all debts provided for by the plan.
V. The Process
Chapter 13 or Chapter 7
Understanding The Bankruptcy Means Test
Chapter 7 bankruptcy is the most common type of bankruptcy filed for by individuals seeking relief from non-business related debts. The means test was designed to establish a basis for qualification for Chapter 7 bankruptcy, so that indviduals do not exploit the system in a bid to avoid debt repayment. It establishes genuine inability to pay based on income and expenses, according to a mathematical formula.
How the means test works works
The test actually has two components and in many cases only one step may be required.
The first step requires determining your median icome, which is an average your household income for the last six months. Each state has its own median income figure based on household size, and if your income falls below this figure, you qualify to file for Chapter 7. If your median income is above this figure, you are not automatically disqualified. This where the second step comes in, which determines your disposable income. In this step, your expenses are deducted from your income to determine how much of your unsecured debt you are able to repay over the next 5 years. If you do not pass this test, you are more than likely eligible to file for Chapter 13 bankruptcy.
Passing the means test however, is not an automatic guarantee that you will be allowed to pursue a Chapter 7 bankruptcy case.
On the other hand, failing the means test also does not constitute automatic ineligibility to file for Chapter 7 bankruptcy. If you are able to provide legitimate proof of having special circumstances, then the court may allow you to proceed with filing a Chapter 7 bankruptcy case.
An adversary proceeding is a case filed by either the debtor, creditor or trustee in response to the related bankruptcy case, to contest some aspect of it and thus receive relief through the court. While it is associated with the bankruptcy case, it is filed as a separate lawsuit in which the facts are presented as to the claims being made against the defendant and the kind of relief you are pursuing through the court.
This is a legal action that takes effect once a debtor files bankruptcy and provides protection for the debtor from foreclosure, eviction and further collection efforts of creditors. Since there are some situations for which the automatic stay will not provide protection, you will need to speak to your lawyer to find out if any of those will affect you.
These are payments made to creditors during the time period in which approval of the debtor’s proposed repayment plan is being considered by the court. This usually happens when the creditor holds a lien against collateral that will depreciate in value and protects the creditor’s interest.
Necessary for Reorganization
Meeting of Creditors (341 Meeting)
In both Chapter 7 and Chapter 13 cases, a meeting of creditors is held in an effort to determine assets. During the meeting the trustee usually questions the debtor first. The meeting is usually scheduled for within 21-40 days of filing for Chapter 7 bankruptcy or within 21-50 days of filing for Chapter 13 bankruptcy.
This is a contract between debtor and creditor, that after the bankruptcy case, the debtor agrees to pay the amount owed on debts against which there are liens on collateral used to secure the loan. Reaffirmation allows the debtor to keep collateral once they continue to honour the repayment terms of the agreement.
The Long Form
Liquidation Test (also known as the Equity Test)
Discharge within the last 8 years
What happens after I file?
Documents, Documents, Documents
Catching up on missed payments
Credit card debt (unsecured debt)
Interest stops running
Pay a fraction of the principle
Lowering my car payments
Extending the duration of an existing contract
Lowering the balance
Changing the interest rate
Lowering my mortgage payments
About the turbulent world of mortgage modifications
Duration of the Repayment Plan
VI. General Topics in Bankruptcy
Mortgage Arrears. Catching Up On Missed Mortgage Payments under a Chapter 13 Plan
Mortgage arrears can be repaid for three to five years under a Chapter 13 plan. In other words, take your mortgage arrears, divide that amount by 60 months, and repay that amount to bring the payments current. The repayment period cannot exceed 5 years. For example, say that you are behind on mortgage payments in the amount of $21,000. On a 5 year plan (60 months), you would be required to make monthly payments of $350 toward the mortgage (plus maintain your normal, monthly mortgage payment). At the end of the period, if all payments have been made, the account will then be up to date. Any other fees or obligations in connection with the case, such as attorney’s fees or trustee’s fees (10%), will be in addition to the mortgage arrears.
Another benefit of filing a Chapter 13 is that you will also be able to catch up on back credit card payments, taxes and even missed car payments as well. The beauty of this, especially with regard to credit card debt, is that interest on the debt stops accruing. The amount you may be required to repay is generally small and a partial repayment may even be enough to discharge the debt.
In relation to back taxes, unless the debt is old enough to warrant a discharge, these must be repaid in total over the course of the Chapter 13 plan.
If you have taken on a second or even a third mortgage on your home, you may be able to eliminate them under a Chapter 13 bankruptcy plan. How so? If for instance your first mortgage is greater than the value of the house, there will not be any funds left over to pay the second or third mortgages. Therefore, the second and third mortgages will be stripped off and treated like the unsecured debt in the case. This is known as lien stripping.
Under Chapter 13 bankruptcy, unsecured debts are assigned the lowest priority for repayment and in some cases may not have to be fully repaid. Even though the second and third mortgages get stripped off under these circumstances, they will not be fully eliminated until you have successfully completed your chapter 13 plan. At the end of the repayment period, you will be discharged. Chapter 13 bankruptcy looks out for the interests of both the borrower and the lender and the key to amicable resolution is to abide by the stipulations of the repayment plan.
Before you file for bankruptcy, your creditors may have the funds in your bank account frozen in order to satisfy your unpaid debt. This is known as garnishment. You may be able to reclaim your money through a preference recovery. This type of preference recovery applies to funds that have been garnished within 90 days of filing for bankruptcy. Discuss this with your lawyer so you can be duly advised as to how to proceed.
You will also need to be transparent with your lawyer about all your bank accounts including joint accounts. In bankruptcy, you can only keep assets which are listed on your schedules and exempted.
Before you file for bankruptcy, inform your lawyer about all motor vehicles you own, are responsible for, or use regularly. It is important to be truly transparent with your lawyer, before you file, so you can have the best outcome in your case. You must also disclose your loan payment status. Even if you are in arrears on your motor vehicle loan payments, you might still be able to retain the use of your vehicle. You may even be able to get your payments reduced during this time while still enjoying the use of your vehicle. If you are up to date with your motor vehicle loan payments however, you will be able to keep your vehicle. You must however keep up to date on your payments.
Your credit score is used to determine your eligibility for loans or credit cards. It also affects your interest rates. The three digit number (credit score) is calculated based on your credit history and filing for bankruptcy does affect it. It may result in you repaying higher interest rates to lending institutions. In practical terms, someone with a three to five year debt consolidation plan (outside of bankruptcy), would have to seek full financing for a motor vehicle loan at the end of the repayment period, while someone who has filed for bankruptcy, would need to borrow less money to purchase the same automobile. How does that work? Someone who has filed for bankruptcy will have more funds available to make a higher down payment on a motor vehicle loan in a shorter period of time. The benefit of this is that at the end of the day, a person in bankruptcy ends up paying less for the vehicle, even though they pay higher rates of interest.
Even though your credit score may have a notation of bankruptcy against it, you will be eligible for a mortgage loan after bankruptcy. Typically, the banks will loan money for a home two years after the bankruptcy case has concluded. In addition, the banks will most likely require a 20 percent down payment on the home.
Another practical example is this. If you want to take out a mortgage to buy a house, you have to come up with 20 percent of the money for a deposit, as well as moving, closing and set up costs for the house. So say the house costs $250,000, you would need a total of $50,000 to start the process. It would possibly take longer than two years to amass this amount in savings. However, since bankruptcy allows you to dissolve your credit card debts, you will more than likely be able to reach this goal. This would not otherwise have been possible if you were still carrying the debt. Even with higher interest rates from lending institutions, you would still be able to obtain a loan, once you are at least two years out of bankruptcy.
A debt consolidation plan allows you to take out a new loan in order to settle mutliple existing loans. Your lenders are not obligated to take part in a debt consolidation plan if you are not in bankruptcy. However, your lenders are required to participate in a Chapter 13 bankruptcy. This a benefit of filing for bankruptcy. In addition, interest stops running on credit card debt while in Chapter 13.
A discharge of debt legally frees the debtor from obligation to repay any owed funds. A discharge is usually granted at the end of a Chapter 7 bankruptcy case once there are no objections and a no assets report has been filed by the Chapter 7 trustee. Creditors must file any objections within 4 months of the debtor’s filing for Chapter 7 bankruptcy.
In a Chapter 13 bankruptcy case, the debt is discharged at the end of the determined repayment period. This also legally frees the debtor from the obligation to repay those debts and also prevents the lenders from pursuing collection.
It is imperative that you let your lawyer know if you are involved in divorce proceedings or if divorce may be imminent. If it has become necessary to file for bankruptcy before your divorce case ends, your case may still proceed, however the timing is critical so it is important that your lawyer is informed.
Non- disclosure of property can result in loss of property. In order to hold on to your possessions, it is necessary to give your lawyer a comprehensive list of eveything you own that is of value. Anything that is not declared and not listed in your bankruptcy schedule will be put up for sale and the proceeds will go to your creditors. Even if you are not the titled owner of your possessions, you still need to list these assets. If you are unsure in any way with regard to listing your possessions, discuss it with your lawyer to get the best professional advice. You will only maintain ownership of the things you have declared and exempted. Even if you own property not currently in your possession, like in another country or state, you must disclose such. You are also required to disclose purchases you are making regardless of the payment status. The key is to be as thorough as possible. It is best to provide too much information than to risk loss of property.
Exemptions are applied in both Chapter 7 and Chapter 13 bankruptcy and tells the court what property or assets you wish to keep. The exemptions you will receive are dependent on the kinds of assets you have. This is why it becomes important to provide your lawyer with a comprehensive list of your possessions including personal items, real estate, bank accounts or any type of financial assets like investments. Remember that you will only receive exemption for and keep the items you have listed.
Fair Debt Collection Practices Act
This law governs the actions of debt collectors and stipulates their boundaries of action. It helps to shield the debtor from unfair or illegal debt collection practices and imposes sanctions on third –party debt collectors.
After receiving credit counseling and have been awarded a certificate, you can now file for bankruptcy. This must however be done prior to the completion of the foreclosure sale. The entity conducting the sale must be informed that you have filed bankruptcy.
Remember, you must file for bankruptcy before the foreclosure sale is completed if you want to try to save your home.
You should speak to your lawyer about seeking to take on additional loans while you are going through bankruptcy proceedings. While you may have this option open to you, it is prudent to get sound legal advice on the matter.
This is a process effected through the legal system which allows your lender or creditor to place a hold on your funds through a bank or your employer (in the case of wages), in order to collect what is owed to them. This may feel like someone dipping into your pockets. Your lawyer will be able to assist you by having such actions terminated while you are filing for bankruptcy. If you have any other exisiting lawsuits before you file, this is the time to make your lawyer aware of them.
Decisions handed down by the court are known as judgements and can be discharged while you are in bankruptcy. There are special cases to which a discharge may not be applicable.
You can get rid of unsecured liens against your property. Also, if you have mutliple mortgages on your home and are facing foreclosure, your first mortgage repayment will take priority over any subsequent ones. If you owe more money on the first mortgage than the value of the property, the subsequent mortgages will be stripped away.
Getting a mortgage modification may not be as straightforward you think, so it is best to speak to your lawyer to be advised on how you may be able to obtain one during bankruptcy.
If you have defaulted on your mortgage loan payments, you still have an opportunity to close out your unsecured debts and retain your property. Your lawyer will tell you all you need to know about how you can bring yourself up to date on your repayment during bankruptcy. A Chapter 13 bankruptcy repayment plan allows for this, however be sure to disclose all your arrears to your lawyer before you file for bankruptcy.
While having a pet of great monetary value or potential monetary value may not present any undue challenges to your case, it is advised that you declare their value prior to filing bankruptcy. You will be allowed to keep your pet while going through your bankruptcy case.
Funds from your rental property go toward your total income and will affect your means test, which will determine whether you file for Chapter 13 or Chapter 7 bankruptcy. If you are behind on the mortgage for your rental property and are facing foreclosure, it would be best to give your tenant notice, before filing for bankruptcy.
You may sell your mortgaged property (encumbered property) for less than the value of your remaining debt amount. The proceeds will go to your mortgager who will give you written evidence of having forgiven the unpaid balance.
Social Security Benefits
Under Federal law, your social security benefits are protected and cannot be touched by creditors or lenders while you are in bankruptcy. Your social security benefits do not count as income and so will not affect your means test in applying for bankruptcy. Even though it is not not included when determining your eligibility for bankruptcy, you still need to disclose it on your bankruptcy schedules.
If the debtor is deemed unable to work for an unspecified period of time, they may be able to have their student loan discharged while in bankruptcy. This however is not the norm as these loans usually are not allowed to be discharged.
If you have defaulted on tax payments, you must tell your lawyer, and in like manner your lawyer also needs to know if you will be the recipient of tax refunds. While you may be able to get a discharge of some taxes while in bankruptcy, there are many variables which need to be considered and looked at thoroughly before such is granted.
As with bank accounts, you must also disclose to your lawyer all vehicle titles and deeds. You run the risk of losing your assets if the court is not made aware of them. Remember, you must declare any possessions or assets you wish to keep when filing for bankruptcy.
In a Chapter 13 bankruptcy case, you may be able to benefit from a cramdown or 506 motion which facilitates the reduction of the interest rate on your vehicle repayment.