People who are having difficulty paying their debts sometimes consider bankruptcy to obtain relief from collection efforts, eliminate some or all of their debts, or restructure their debt payments to a more manageable level.
- What is Bankruptcy?
Bankruptcy is a uniform, federal court-supervised procedure to relieve individuals and businesses from debts, while protecting and preserving the rights of secured creditors and providing unsecured creditors with equal treatment of their claims.
There presently are three types of bankruptcy that individuals may select, depending upon their particular financial circumstances. Most individuals file under Chapter 7 of the Bankruptcy Code (the Code), sometimes known as "straight" or "liquidation" bankruptcy. Chapter 11 is available to individuals, but generally is used by corporations to reorganize their business affairs. Chapter 13, also referred to as a "wage-earner" or "debt-adjustment" plan, is available to individuals and unincorporated businesses that intend to use future income to pay some or all of one's debts according to a plan designed by the individual (within certain statutory limitations) to meet his or her needs.
- Who may declare Bankruptcy?
There are few limitations on who can file bankruptcy. However, you must meet certain income eligibility requirements to file a Chapter 7 bankruptcy. The decision of whether to file, and under what Chapter, is based upon each individual's need for relief from debts and their capacity and willingness to undertake a procedure that will have long-term consequences on their financial life. A competent debt-counselor or attorney can help you consider alternatives to bankruptcy.
- Questions and Answers about Bankruptcy
Q: Won't I lose property if I file bankruptcy?
A: People who file bankruptcy usually do not lose any property. You are entitled by law to "exemptions" which protect your property. Examples: equity in a personal residence or homestead can be protected up to $75,000.00 in value; "household goods", recreational equipment, furniture and personal furnishings, jewelry, clothing, etc. up to $12,000.00 per person; equity in cars up to $4,000.00 per person plus the unused part of the household goods exemption; 100% of retirement, social security and disability benefits; and $7,500.00 for business and/or farm interests and much more. In most cases a husband and wife can double these exemptions.
Q: Can I keep my house and car?
A: Yes. You can enter into a reaffirmation agreement with your "secured" creditor to keep the property you have pledged as collateral. You must agree, however, to continue to make your payments. You also have the option of surrendering secured property if you can't afford to keep it or don't want it.
Q: Will bankruptcy ruin my credit?
A: Most people who have financial problems already have "bad credit". Filing bankruptcy usually is no worse for your credit than the bad debt you presently have. Without bankruptcy the bad debt will remain for many, many years, if not forever. Bankruptcy gives you the opportunity to start over.
Q: Will I ever be able to get credit or a loan again?
A: Yes. Lenders will consider, at least, three factors in granting credit or making a loan. (1) How long it's been since you filed. (The longer it's been, the less effect it will have.) (2) If you have re-established credit (Paying rent, mortgage payments, utility bills, car payments, etc. re-establishes good credit.) (3) If you can afford the monthly payments (People are in a much better position to make monthly payments once their "bad debt" has been discharged in a bankruptcy.)
Q: Will filing bankruptcy stop legal action by creditors?
A: Yes. An "automatic stay" is imposed by the filing. Most creditor actions, including lawsuits (foreclosures, repossessions, judgments, garnishments, etc.), will stop. A "discharge" in bankruptcy operates as a permanent injunction against most creditors.
Q: What debts are not discharged in a Chapter 7 Bankruptcy?
A: When considering whether to file bankruptcy, it is important to understand that not all debts are subject to discharge under Chapter 7. Among the more common debts that are unaffected by bankruptcy are certain income and business taxes, alimony, child support, certain property divisions incident to divorce, governmentally imposed fines, forfeitures or restitution, most student loans, and liabilities resulting from drunken driving. In addition, certain abuses of cash advances and credit cards on the eve of bankruptcy are nondischargeable, as are debts arising from fraud, misrepresentation, theft, and willful and malicious injuries to a person or property.
The entire discharge may be denied or revoked if the debtor has engaged in fraud (such as making false statements, concealing assets, or fraudulently transferring assets) before, in, or in connection with the case. Proceedings to deny or revoke a discharge are subject to the right to a trial on the merits as are claims for nondischargeability of debts.
Q: What procedures are involved in filing Bankruptcy?
A: Bankruptcy involves a series of steps that usually include the following actions:
1. The debtor gathers financial information for use in preparing the petition for bankruptcy and the schedules of assets, debts, income and expenses, the statement of financial affairs, and statement of intentions concerning secured debts and undergoes a pre-filing financial counseling session;
2. The debtor or debtor's attorney files the petition, schedules, statement of financial affairs, and pays the filing fee to the bankruptcy court;
3. The court provides notice to scheduled creditors of the filing of the case, the meeting of creditors, the injunctive stay against creditor actions, the last date for creditors to file challenges to the debtor's discharge or the dischargeability of a particular debt, the initial "asset" or "no-asset" status of the case, and other pertinent information relative to the case;
4. The debtor appears under oath and on record before the trustee to be examined at the meeting of creditors and submits to creditors' questions:
5. The debtor completes the reaffirmation, redemption, or surrender of secured collateral according to the Statement of Intentions filed with the case; and
6. All parties receive the discharge notice approximately 120 days after filing a Chapter 7 case or at the conclusion of payments in a Chapter 13 case.
Q: Do I need a lawyer to file Bankruptcy?
A: As with most other legal matters, any person may represent himself or herself before the bankruptcy court. Bankruptcy, however, is a highly refined procedure that is full of detail and interpretations based upon prior case law and the bankruptcy code. Each case is different, as are the individual consequences to the debtor. Proper planning in anticipation of bankruptcy may save a debtor not only money or property, but countless hours of revising improperly completed documents. A lawyer skilled in bankruptcy law can assist and advise a debtor so that the process is as effective for the debtor as the specific circumstances allow.
Q: Can I afford to file Bankruptcy?
A: If you have serious financial problems and are considering filing bankruptcy, perhaps the better question is can you afford not to file? If you receive substantial debt relief and peace of mind, the investment in your financial future may be well worth it. Bankruptcy allows you the opportunity to start over and eliminate the stress caused by financial problems on you and your family. Our office will be happy to discuss attorney fees and costs with you. We believe you will find them to be reasonable and affordable.