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What Is Bankruptcy?
Bankruptcy is a legal proceeding in which a person who cannot pay all or some of his or her bills can get a fresh financial start by obtaining a Discharge of these debts. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law. Filing for bankruptcy also immediately stops most lawsuits, including foreclosure and collection proceedings from continuing.
Should I Feel Ashamed To File Bankruptcy?
There is a lot to think about before filing bankruptcy, however feeling ashamed should not be one of them. The history of bankruptcy in the United States dates back to the founding of our nation. The early English practice of debtor’s prison was so abhorred by our founding fathers, they expressly outlawed it and instituted forgiving bankruptcy laws early on in our nation’s history. Over the years some of our nation’s most revered companies and people have turned to the bankruptcy system for help. Perhaps this nations greatest president and founding father, Thomas Jefferson filed for bankruptcy not just once, but several times to eliminate the accumulation of his huge debt. The same holds true for Walt Disney. The filing of a bankruptcy is better put into perspective when you know that men of Mr. Jefferson’s and Mr. Disney’s foresight and intelligence could repeatedly get themselves into and out of financial trouble.
At our Law Firm, we view bankruptcy as a financial tool, which helps individuals on the road to recovery. Our #1 Goal is to help our Clients achieve their goals. Most of our clients tell us that their goals include Financial Freedom. We all know that to be financially free, a person cannot have debts. If our clients use the bankruptcy process to eliminate or restructure their debts, they are on the road to financial freedom, whether they know it or not. The trick is to learn from the past and continue to learn about ways to invest money for the future, rather than giving your future wealth away to credit card companies by paying them hundreds and thousands of dollars in interest.
There is no better and happier way to live our lives, the debt free way. When an individual files for bankruptcy, they are forced to focus on their debts and monthly budget. Once certain debts are either eliminated or re-organized, individuals can begin to focus on earning, saving and investing. Bankruptcy provides individuals with a strategy to pay off or discharge their debts and become debt free.
What Can Bankruptcy Do For Me?
Bankruptcy may make it possible for you to:
- Eliminate the legal obligation to pay most or all of your debts. This is called a “discharge” of debts. The discharge is a court order signed by a Federal Bankruptcy Judge, and it is designed to give you a “fresh financial start.”
- Stop foreclosure on your house or mobile home and allow individuals an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)
- Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
- Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
- Restore or prevent termination of utility service.
- Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.
What Can Bankruptcy Not Do?
Bankruptcy cannot, however, cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:
- Eliminate certain rights of “secured “ creditors. A “secured”creditor has taken a mortgage or other liens on property as collateral for the loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process.
- Bankruptcy can eliminate your obligation to pay any additional money if your property is taken. Nevertheless, you generally cannot keep the collateral unless you continue to pay the debt.
- Cannot discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, most student loans, court restitution orders, criminal fines, and some taxes.
- Does not protect cosigners on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.
- Does not discharge debts that arise after bankruptcy has been filed.
What Different Types Of Bankruptcy Cases Should I Consider?
There are four types of bankruptcy cases provided under the law:
- Chapter 7 is known as “straight” bankruptcy or “liquidation”. It requires a debtor to give up property which exceeds certain limits called “exemptions,” so the property can be sold to pay creditors.
- Chapter 11, known as “reorganization, ” is used by businesses and a few individual debtors whose debts are very large.
- Chapter 12 is reserved for family farmers.
- Chapter 13 is called “debt adjustment”. It requires a debtor to file a plan to pay debts (or parts of debts) from current income.
What Is A Chapter 7 (Straight Bankruptcy or Liquidation)?
In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for “exempt” property, which the law allows you to keep. In most cases, a substantial amount of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors. If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.
Who Can File Chapter 7 Bankruptcy?
You must reside or have a domicile, a place of business, or property in the United States or a municipality. You must not have been granted a Chapter 7 discharge within the last 8 years or completed a Chapter 13 plan. You must not have had a bankruptcy filing dismissed for cause within the last 180 days. It must not be a “substantial abuse” of bankruptcy to grant the debtor relief.
Generally speaking, if after you pay the monthly expenses for necessities there is not enough money to pay the remaining monthly debts, then granting a discharge would not be an abuse of Chapter 7. It would not be fundamentally unfair to grant the debtor relief under Chapter 7 or Chapter 13.
What Is A Chapter 13 (Reorganization)?
In a chapter 13 case you file a “plan” showing how you will pay off some of your past-due and current debts over three to five years. The most important thing about a chapter 13 case is that it will allow you to keep valuable property-especially your home and car-which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind. Your attorney will explain how payments to the Court are to be made and give you approximate payment during your initial consultation.
When Is A Chapter 13 A Better Alternative Than A Chapter 7?
There are many situation where a chapter 13 is preferable to a chapter 7. A chapter 13 bankruptcy is normally for people who have too much income to file a Chapter 7 bankruptcy or have the kind of debt that is non-dischargeable in a Chapter 7 (e.g. certain taxes). Additionally, people file Chapter 13 because they are behind on their mortgage or business payments and are trying to avoid foreclosure. A chapter 13 bankruptcy allows them to make up their overdue payments over time and to reinstate the original agreement. Also, where a debtor has valuable nonexempt property and wants to keep it, a chapter 13 is a better option.
You should consider filing a chapter 13 plan if you:
- Own your home and are in danger of losing it because of money problems.
- Are behind on debt payments, but can catch up if given some time.
- Have valuable property which is not exempt, but you can afford to pay creditors from your income over time.
Why Is It Legal To “Wipe Out” Our Debts?
The Origins of Bankruptcy is found right in the Bible where it states that debts should be forgiven every seven years. More so than in any other time in our country’s history, our economy is based on consumer debt. In fact, in this age of multi-billion dollar corporate bailouts, easy credit and relentless bombarding of seductive messages cajoling us to “charge, consume, buy” it is not surprising that so many people are drowning in debt. For many of us, this debt is insurmountable and is causing family problems and feelings of hopelessness and even suicide. With credit card interest rates of 18-29 %, many feel more like modern day indentured servants. Many times, the debt is occasioned by unforeseen events such as loss of a job or loved one or medical bills. Nevertheless, in instituting our bankruptcy laws, Congress recognized that responsible, well intentioned people could from time to time run into financial problems. By allowing you to recover form your debt burden, you will be able to start afresh and look to the future. From a purely economic standpoint, bankruptcy is good for you and for society as a whole.
What Does It Cost To File For Bankruptcy?
What Is Bankruptcy?
It now costs $299 to file for bankruptcy under chapter 7 and $274 to file for bankruptcy under chapter 13, whether for one person or a married couple. The court may allow you to pay this filing fee in installments if you cannot pay all at once. If you hire an attorney you will also have to pay the attorney’s fees you agree to. Attorneys fees depends on the complexity of the case.
Will Filing Bankruptcy Stop My Bill Collectors From Taking Action?
Yes, when you file bankruptcy, federal law imposes an “automatic stay” which precludes your creditors from taking any action to collect debts against you including court judgments and tax debts during the pendency of the bankruptcy. Once your bankruptcy is filed, it is like you are wrapped in a Federal blanket of protection, and the creditors now have to ask the Bankruptcy Judge for permission to try to collect their debts. For instance, if you have been served by one of your creditors to appear in court over a debt, the bankruptcy filing will probably stop the lawsuit. Any wage garnishments or repossession efforts are immediately stopped. However, once the bankruptcy is over, a creditor holding a claim that was not discharged may proceed to collect on the debt. Also, under some circumstances, a secured creditor may proceed to collect on the lien he has on the filer’s asset during the bankruptcy proceeding, but may only do so by filing a court motion and by getting the approval of the bankruptcy court first.
How Quickly Will My Creditors Get Notice Of My Bankruptcy?
Within a couple of weeks of the filing of your petition, the bankruptcy court clerk mails your creditors notice of the filing and the imposition of the automatic stay. Until the creditors get notice, it may be necessary for you to supply the creditor with the docket number and date that your bankruptcy was filed. Once the Creditors have been given notice, either written or oral, they must stop collection efforts against you or they may be liable for court sanctions and/or a separate lawsuit. Please keep track of which creditors have been notified, as we have had several creditors in the past who made the mistake of harassing our clients after the imposition of the automatic stay. Thankfully for the vast majority of people, once their bankruptcy petition is filed that is the last time they hear from their unsecured creditors. However, if you have a creditor who will not stop the harassment, please bring this to our attention immediately, and we will deal with those creditors accordingly.
Do I Have To Pay My Bills During The Bankruptcy Proceeding?
For the most part, the answer is no. For specific property (usually secured) such as your car loan or your houses mortgage that you plan on keeping you should probably continue to make payments. Also, for day to day expenses such as rent and utilities you should also continue to make payments. You should stop making payments on other old debts incurred prior to the bankruptcy such as credit card debts.
What Property Can I Keep?
In a chapter 7 case, you can keep all property which the law says is “exempt” from the claims of creditors. You can choose between your exemptions under your state law or under federal law. The amounts of the exemptions are doubled when a married couple files together. In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth now. Especially for furniture and cars, this may be a lot less than what you paid of what it would cost to buy a replacement. You also only need to look at your equity in property. This means that you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $50,000 house with a $40,000 mortgage, you count your exemptions against the $10,000, which is your equity if you sell it. While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. In a Chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didn’t file bankruptcy.
Will I Have To Give Up Any Of My Property To My Creditors?
The vast majority of filers get all or most of their debts discharged (wiped-out) without giving up any of their own property. This is because federal as well as state laws provide exemptions for your property. Exempted property is property such as household goods and personal belongings, which you may keep despite your bankruptcy. Because of the strict guidelines placed on Chapter 7 Debtors in Florida, sometimes it may be advisable to file a Chapter 13 instead of a Chapter 7. We can discuss this option at the Free Initial Consultation.
What Will Happen To My Home And Car If I File Bankruptcy?
In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in chapter 13. However, some of your creditors may have a “security interest” in your home, automobile or other personal property. This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not make these security interests go away. If you don’t make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case. There are several ways that you can keep collateral or mortgaged property after you file bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth. In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt. If you put up your household goods as collateral for a loan(other than a loan to purchase the goods), you can usually keep your property without making any more payments on that debt.
Can I Own Anything After Bankruptcy?
Yes! Many people believe they cannot own anything for a period of time after filing for bankruptcy. This is not true. You can keep your exempt property and anything you obtain after the bankruptcy is filed. However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors if the property or money is not exempt.
How Long Does A Bankruptcy Take?
For a typical chapter 7 case, the discharge of your debts usually takes approximately 3-4 months. A chapter 13 takes anywhere from 3-5 years.
Will Bankruptcy Wipe Out All My Debts?
Yes, with some exceptions. Bankruptcy will not normally wipe out.
- money owed for child support or alimony, fines, and some taxes.
- debts not listed on your bankruptcy petition.
- loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan.
- debts resulting from “willful and malicious” harm.
- student loans owed to a school or government body, except if the court decides that payment would be an undue hardship.
- mortgages and other liens which are not paid in the bankruptcy case(but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).
Will I Have To Go To Court?
In most bankruptcy cases, you only have to go to a proceeding called the “meeting of creditors” to meet with the bankruptcy trustee and any creditor who chooses to come. Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation. Occasionally, if complications arise, or if you choose to dispute a debt, you may have to appear before a judge at a hearing. If you need to go to court, you will receive notice of the court date and time form the court and/or from your attorney.
Does Bankruptcy Devastate My Credit? Will I ever get Credit after I file a Bankruptcy?
The fact that you have filed a Bankruptcy may technically stay on your credit report for up to ten(10) years. However, often by making payments on time subsequent to your bankruptcy you can regain an “A” credit rating within 12 to 18 months after your discharge. Ironically, in many cases filing bankruptcy may actually help your credit rating because discharging your debts greatly improves your debt to income ratio, which is a major criteria Creditors use in judging your “creditworthiness” . In fact, most people report a flood of pre-approved credit cards within weeks of a bankruptcy discharge. By all accounts, bankruptcy no longer has stigma attached to it that it once did. We will assist you in rebuilding and restoring your credit after your discharge.
Can I Keep Any Of My Existing Credit Card Accounts?
The credit card accounts that you have a zero balance on are not technically creditors and thus are not discharged in bankruptcy. Often these creditors will allow you to keep your credit with them. If you do have an outstanding balance with a creditor on an open account when you file, you may still be able to keep your account. To do this you usually must agree with the creditor to pay off the balance. Once you make an agreement with the creditor you must file the “reaffirmation agreement” and get the approval of the bankruptcy court. It is advisable to consult legal assistance before you reaffirm an otherwise dischargeable debt. Additionally, we advise our clients on a case by case basis with regard to reaffirmation agreements. In the overwhelming majority of cases, reaffirmation agreements are not in the client’s best interests. Some creditors will allow you to get a new account with them by reapplying with them even though you discharged their debt in the bankruptcy.
Can I Run Up My Credit Cards Right Before I File Bankruptcy?
No, running up your credit cards on the eve of bankruptcy in anticipation of filing will probably cause your debts with those creditors to be non-dischargeable on the grounds of fraud, and you can be fined. You should get legal advise concerning large amounts of credit card debt incurred for “luxury goods” right before your bankruptcy. Obviously, if you are experiencing financial problems, the last thing you want to do is incur additional debt.
What Is The Procedure After I File Bankruptcy Like?
In most cases, completing and filing your petition is the hardest part. If your bankruptcy petition does not raise any red flags for the trustee or your creditor(s), you are usually in good shape. Thirty to forty days after filing the petition, you are required to attend the “ First Meeting of Creditors” or “Section 341(a) Examination.” At this meeting, creditors are given the opportunity to ask you questions. There is no judge for this hearing, just the Trustee in charge of your case. However, in most “no asset” cases, rarely do creditors show up for this hearing. Normally there is a room full of other filers, and the questioning by the Trustee is very limited since they are usually pressed for time. At our Law Firm, we ask each of our clients to complete an initial questionnaire. Many of the questions that the Trustee will ask will be in the paperwork. In most cases, the key to the success of your case lies in your bankruptcy petition. Normally after about 3-4 months from the time of the filing of your petition, your will receive a “final discharge/forgiveness” of your debts.
Do I Have To List All Of My Assets On My Petition?
Yes. Knowingly and fraudulently concealing your assets from the bankruptcy court is a felony and the court has the power to fine you and deny you a discharge. Remember, statistically speaking, most bankruptcy cases are considered “no asset” cases since state or federal exemptions protect all of their property. Our Law Firm will assist you to keep a majority of your assets legally.
Can I Be Fired For Filing Bankruptcy?
No, it is against federal law to discriminate against someone for filing bankruptcy.
Will Everyone Find Out About My Filing?
Unless you tell somebody or they go out of their way to check the public records, Bankruptcy filings are not normally published in newspapers. Therefore, the only people who usually find out that you are in a bankruptcy are creditors whose debts you have listed on the petition or those that you apply for credit in the future.
Can I File Bankruptcy Without An Attorney?
Although it may be possible for some people to file a bankruptcy case without an attorney, it is not a step to be taken lightly. The process is difficult and you may lose property or other rights if you do not know and understand the law. It takes patience and careful preparation. Chapter 7(straight bankruptcy) cases are easier. Very few people have been able to successfully file chapter 13 (debt adjustment) cases on their own. Remember. The law often changes. Each case is different. This pamphlet is meant to give you general information and not to give you specific legal advise. Remember the old adage “He who represents himself has a fool for a Client."
How Do I Know If It’s Time For Me To File?
If your creditors are attacking your assets and income and you are in debt way over your head, and there is no way you can pay these debts off, you should look into filing a bankruptcy and getting a “fresh start, ” that the bankruptcy may be able to provide you with. The stigma attached to filing bankruptcy has greatly diminished over the last decade. However, the lure of easy credit and the traps associated with that continue to escalate as more companies in the money game continually look for new ways to get more and more of your money.
