Bankruptcy FAQs

[Tuscani]

This information is not legal advice and I am not a lawyer. Always seek a reputable bankruptcy lawyer to answer your questions prior to filing.

- Tuscani

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Should I file Bankruptcy?

A person should file a bankruptcy if, and only if, he or she can’t pay bills as they come due or is about to lose property or have property attached by the Court. Very few people lose any property when they file bankruptcy.

Filing a bankruptcy is generally better than having a foreclosure on your credit record. A person will often be able to rebuild credit and buy a house within 2 years after a bankruptcy. A repossession can do more damage to your credit, and it may take much, much longer to recover. Government regulations may forever keep you from financing a home with the VA or FHA if you have a repossession for a home, but allows financing 2 years after bankruptcy. Only 7 magical items may not be bankrupted: Child Support and Alimony; taxes less than 3 years old; federally guaranteed student loans; debts due to fraud; debts due to drunk driving; debts due to intentional injuries; and criminal restitution. There are many exceptions to even these. A driver’s license can be reinstated by filing, if you lost your license because of unpaid damages for an auto accident. When in doubt, always list the debt when filing: It may be bankruptable due to an exception.

What does it cost to file bankruptcy?

After October 2005, Court costs are about$300 for a Chapter 7 and $275 for a Chapter 13. After October 2005 Chapter 7 attorney fees run about $1000 plus any filing fees. Chapter 13 Attorney fees are set by the Court.

What happens when I file?

When you file a bankruptcy, a Court order goes into effect immediately stopping all collection activity. This includes stopping foreclosures, attachments, garnishments, and Creditors calling you. The sooner you come in to the law office, the sooner you can get relief—and the more you can save from Creditors. You will have a 341 hearing within about 4 to 6 weeks after the bankruptcy is filed. When the bankruptcy is finally over, a discharge is issued. This is a final and permanent order to stop all collection activity and declaring the debts to be non collectable. Bankruptcy does not normally get rid of a security interest that you gave to a Creditor such as a mortgage or a standard car lien, but it does make you not liable for the debt.

Can I plan my bankruptcy?

Of course! Good planning is why you read this thread and allows you to save more money and property. Just like taking proper tax exemptions. There is nothing illegal or improper with properly taking the exemptions.

Which bankruptcy is right for me: Chapter 13 or Chapter 7?

A Chapter 13 is like a bill consolidation loan, and you normally file it to keep property and stop foreclosures. A Chapter 7 is used to completely wipe out unsecured debts and to get rid of secured debts for property you don't want to keep. Both will stop garnishments and Creditor harassment. If you earn more than the average wage for your state and size of family you will normally be required to file a Chapter 13.

Chapter 13 cases are becoming more popular. Over 95% of all Chapter 13 cases used to fail because they became unaffordable. But now 10 and 20% repayment plans are being approved in Chapter 13 cases and they are now more successful. After 10-2005 plans below 10% will be common. Often an attorney may want to file a Chapter 13 because he or she will earn more than he would in a Chapter 7, but you will usually profit far more from filing a Chapter 7. Usually, the only times you will want to file a Chapter 13 are 1) when you have already filed a Chapter 7 and can't file another one or 2) if you have so much property and equity that a Chapter 13 is necessary to keep that property.

You may have to file a Chapter 13 if you have so much income (after you pay your normal monthly living expenses) that you can repay something to your debts. A Chapter 13 can no longer be used for special purposes, such as to debts due to fraud. But can repay child support, repay student loans, or protect a co-signer. The fortunate thing about virtually all Chapter 7 cases is that the Debtor’s assets are normally exempt, so there are rarely any assets to liquidate.  Each state has different rules for what property can be kept.

Why file a Chapter 7?

If you have substantial unsecured debts you may want to file a Chapter 7. You may also want to file a Chapter 7 if you want to surrender property and not owe for it. You can usually keep all your property in a Chapter 7, because you won't have enough equity in any property to exceed the exemptions allowed.

Why file a Chapter 13?

You may want to file a Chapter 13 if you have secured debts and are threatened with foreclosure or repossession, if you filed a Chapter 7 less than 6 years ago, if you wish to protect your cosigner, or if you have debts that are not dischargeable in a Chapter 7 but are payable in a Chapter 13. Child support can be paid first in a Chapter 13 before secured creditors giving you the advantage of not losing a car or property but having all of your payments go to child support at the start of the case.

Can I convert from a Chapter 13 to a 7 or from a 7 to a 13?

Yes they can be converted. Few people convert from a 7 to a 13. However if you earn over 60-70,000 you have a strong chance that the US attorney’s office will file a 707 b motion that may force you into a 13. If you file a Chapter 13 you have a good chance that you will have to convert from a 13 to a 7. Over 3-5 years, you are very likely to miss payments and have the Chapter 13 dismissed (or have to refile). Some Chapter 13 cases are never finished and are converted into Chapter 7 cases. If you are close to completing the plan, you may be granted a hardship discharge. Plans can also be later modified if incomes change.

What is a Chapter 20? What is a Chapter 26?

Some people file a Chapter 7 to wipe out unsecured debts and then file a Chapter 13 to keep their property. This is jokingly referred to as a “Chapter 20”. Filing a “Chapter 20” can be the intelligent and affordable way to file a Chapter 13 later. Filing a Chapter 7 and then a Chapter 13 to obtain the benefits of both is very effective in stopping a foreclosure. A “Chapter 26” refers to filing back-to-back Chapter 13 cases. You would do this to pay debts that can’t be paid in 5 years by just one Chapter 13. In a sense, you are “extending” your repayment time by filing two Chapter 13s. These forms of filing are no longer available after 10-2005.

How long will bankruptcy take?

It will take about 3 to 4 months for a Chapter 7 to be final. (You will get a letter within 10 days of filing, telling you the time and date of the 341 hearing. This hearing will be held about 4 to 6 weeks after you file.) A Chapter 13 will take as long as the repayment plan takes. If you file after 10-2005 before getting a discharge you will attend a hearing.

What are the most common mistakes I can make when filing?

Not showing up for your hearing and not listing all of your debts. Fail to show up at the hearing, and your case is dismissed. Fail to list a debt, and you continue to owe it. Also people often have too much in a checking account when they file or a tax refund coming. The best policy is to list all your debts and assets. Always list every debt, even if you think it is nondischargeable, it may be discharged anyway. Even include last month’s utilities.

How do I qualify for bankruptcy? Can I not be approved?

You qualify for bankruptcy if either your outgo exceeds your income or your liabilities exceed your assets. You basically have to be a US citizen, reside in the state you file in, and not have filed within certain time periods (you can’t file two Chapter 7s within 8 years of each other).

What if the Court does not approve my Chapter 13 or Chapter 7?

 If there is anything wrong with your Chapter 13 or Chapter 7 bankruptcy it will usually be changed and amended. Of course, it is less costly and time-consuming to do it right the first time. If you earn so much money that you can afford a Chapter 13, you will be forced to change it from a Chapter 7 to a Chapter 13. Repayment plans often are amended.

How often can I file?

You can file a Chapter 7 8 years after you filed your last Chapter 7 the time used to be 6 before 10-2005. The time is measured from the time of filing your first case to the time of filing of your second case. You can file Chapter 13s 2 years after a Chapter 13 discharge. You can file a Chapter 7 4 years after a Chapter 13. You can only have one bankruptcy going on at a time.

If I file does it mean my old bad debts are erased from my credit report?

NO!

What is reported is that you had a debt and that a bankruptcy was filed. Bankruptcy does not give you a good credit record or “repair” your credit record automatically. You repair your credit by paying your debts on time after the bankruptcy.

 

Can I file without an Attorney?

Yes. You can file a bankruptcy yourself, and this is called “filing pro se”. You can also do dentistry on yourself, but I wouldn’t recommend it. Doing your own case is a very bad idea. This thread alone won’t give you the knowledge you need to file on your own. Use this thread to educate yourself, so you can find a good Attorney and discuss the issues.

As an example, if you file a reaffirmation and represent yourself, it must be approved in a hearing by the Judge, and that will mean extra hearings and time for you. Considering the time and risk involved, I recommend you use an Attorney. You may lose far more in Court than what the Attorney would have cost—plus there is the extra time and effort on your part doing the work.

What about a Bankruptcy Mill?

Filing a bankruptcy through a Bankruptcy Mill or paralegal may be even worse than doing it yourself and they often charge as much as the attorney. Many people have lost thousands of dollars with these businesses—through intentional scams or just plain bad work. Non-Attorney bankruptcy petition preparers are barred by law from providing you with any legal advice. In enacting legislation governing bankruptcy petition preparers, Congress stated: “These preparers lack the necessary legal training and ethics regulation to provide [legal advice and legal services] in an adequate and appropriate manner. These services may take unfair advantage of persons who are ignorant of their rights both inside and outside the bankruptcy system.”

The bankruptcy petition preparer's role is limited by law solely to typing. Unlike an Attorney, a bankruptcy petition preparer can not help you understand the law, advise you how to answer questions, assist you in planning, or be in Court. Federal law requires that bankruptcy petition preparers sign any documents they prepare; print on the document their name, address, and social security number; and furnish you with a copy of the document.

A bankruptcy petition preparer may not sign any document on your behalf, may not use the word “legal” or any similar term in any advertisement, and may not receive any payment from you for Court fees. The bankruptcy petition preparer is also required to disclose to the Court the amount of any fee you pay. Beware of any bankruptcy petition preparer who does not comply with these requirements an emergency, even the filing fee can be paid in payments to the Court.

What paperwork do I need to bring to my Attorney?

Bring the names, amounts, account numbers and proper addresses of all of your Creditors. You may estimate the amounts. After 10-2005 you must have the account numbers. Credit bureau reports normally don't have the addresses on them. If you have gotten a Credit bureau report before filing, you still have to get the addresses.

 

Can I file jointly with my spouse? Does my spouse have to file or sign if I want to file individually?

Yes, you can file jointly. No, your spouse doesn't have to file but, if most of your debts are joint debts, he or she may want to. There is no need for a spouse to file if the debts are not in his or her name. If you are filing a Chapter 7, and the bills are also in your spouse’s name, he or she generally should file to be protected. (Cosigners are protected in a 13 with 100% plans, but are not in a Chapter 7.) There should be no additional charge for a spouse filing, but some firms charge extra. The only extra work to do in a joint filing is adding an additional name and social security number to the petition.

Will it affect my spouse’s credit? Is he/she responsible for my credit cards if he/she is an authorized user?

No, filing will not affect your spouse's individual credit, but if he or she is a co-signer on any debt that is not paid that will affect him or her. The fact that you filed bankruptcy does not appear on a spouse's credit report unless he or she also files bankruptcy. Unless your spouse has signed to be legally responsible, they are not responsible. However, many credit card companies will argue that she is responsible. They may even put a “no pay” on her credit report if the amount is unpaid; however, she may ask any credit reporting service to correct that.

If she does so, the credit card company will have to show that she signed for it. If they can’t, it will be removed from her credit report file. In other words, the credit card collectors may try to collect from her by claiming she is liable, but she really is not. If they damage her credit record, it may be grounds for a lawsuit. Credit is normally granted based on a score from your past payment history, the amount of debt that you owe, the length of time you have been repaying present credit, if you have opened credit recently, and the types of credit accounts you have.

Will my co-signers be protected?

Co-signers are protected only in a Chapter 13 to the extent that the plan pays the full amount of the co-signed debt. If the plan pays the debt completely, the co-signer is protected, but it will be listed in his or her credit record as being paid late. The Creditor may ask the cosigner for any remaining portion of the debt if it not paid completely. In a Chapter 7, the co-signer will have some small protection regarding the collateral during the proceeding, but only because the Creditor can’t go against the property of the estate. After a Chapter 7 is over, the Creditor will proceed against the co-signer personally.

Can I file a personal bankruptcy and not have it affect my business?

If you own your own business, the business is a part of your assets. If it is worth very much, it may be property of the Court. If your business files bankruptcy, it won’t affect you because the business does not own you.

Can Bankruptcy stop foreclosures, wage assignments, help me get my license back from an uninsured accident, stop evictions, a judgment, or remove a lien?

Yes.

What will happen to my bills?

When you file a bankruptcy, a Court order goes into effect that keeps Creditors from legally collecting from you. When you are discharged (i.e., the bankruptcy is final), the Creditor "charges off" the debt and gets a tax deduction for the loss. The bill is not paid, and the debt shows up as a bankruptcy charge-off on your credit report. Some Creditors will attempt to get around the law and will continue attempts to collect after the bankruptcy is filed. They can be sued for this, but you need to prove they did it. One of the best methods is to record their call and then surprise them in Court with it when they deny ever making the call. Most Creditors that ignore the law will never send you letters or anything on paper after you file, but they may make phone calls hoping that you will pay anyway.

What if I keep getting bills?

You will continue to get some bills from bankrupted debts after you file. What happens is that the Bankruptcy Court sends out notices to the addresses that you give to them (that is why correct addresses are so important), but some Creditors never get these notices and continue to bill you. You should make copies of your hearing notice. If you get a bill from a Creditor, send them a copy of the bill and the notice. Some Creditors will continue to send bills even if they receive notice. It may be that their computer can’t stop sending out the bills, or they may simply be ignoring the stay hoping that you will pay anyway. You can file a motion for contempt with the judge, and you may also be able to sue for a violation of the Fair Debt Collections Practices Act.

Do I have to pay my bills during the Chapter 7 or 13?

No. Don’t pay any bill until after you file a Chapter 7 until you have negotiated with the creditor to keep the property. Don’t pay any payment in a Chapter 13 unless it is the regular monthly mortgage payment or car payment, and the 13 was filed to catch up the arrearage. A stay is a federal Court order to stop. If the item is secured, your overdue payments will continue to add up while you don’t pay on the item. However, the Creditor can't take the collateral until the stay is terminated. If no reaffirmation is filed within 45 days after the bankruptcy is filed the stay terminates and the bank can take the car.

The Creditor may also file a motion to terminate the stay after the bankruptcy is filed. Bankruptcy stops your obligation to pay, but the Creditor still has a lien and rights in the property. You often quit paying for items when you file so that you have time to decide if you want to workout a repayment, redeem, or surrender. I have rarely ever had a bank refuse to agree to repayment, but you don’t want to make payments if they aren't going to let you keep the property. Singing a reaffirmation will make you liable for any deficiency if you have it repossessed later. In some rare cases, with people who are never going to repay, the bank may refuse to reaffirm. Some credit unions may refuse to keep a car or mortgage unless you also repay their credit cards. In cases like this, you may want to redeem property instead. That is why you don’t want to make payments just before or after you file. You can take the time to negotiate your options. You don’t have to be caught up on your payments to reaffirm, but some banks may request it—and all of them want it.

Who notifies the Creditors and bill collectors?

After the bankruptcy petition is filed, the Court mails a notice to all the Creditors listed in the schedules. This usually takes 1-2 weeks.

Do I have to go to Court?

Not exactly, but you will have to attend a hearing presided over by the bankruptcy Trustee. This hearing is called the 341 Hearing (Meeting of Creditors). At this hearing, the Trustee (who is an Attorney) will ask questions, under oath, regarding the content of your bankruptcy papers, assets, debts, and other matters. It is very much like a deposition, not like a trial. If you can’t attend (example: if you are in the service overseas), you can answer the questions by Affidavit. The Trustee is not the judge. He is there to take any assets from you, if he can, and to check the accuracy of your paperwork. The Trustee represents the banks—not you. In a Chapter 13 you will have a second hearing to get your discharge if your case was filed after October 2005. In this hearing you must show that you are no charged or convicted of a crime of fraud or further behind in support.

Where is my 341 hearing?

Your 341 hearing is always at the Federal Court closest to you.

What do I wear to the hearing?

Don’t wear cut-offs or jeans with holes in them and don’t wear sandals. Suits are not required, but dress properly for a hearing in Federal Court. Children are not supposed to be in the hearing room. Do not borrow and wear flashy jewelry. This is not the time to brag about how rich you are or how much you own. The Trustee is looking for assets to take from you. He is not your friend. He represents the persons that you owe. You must report what you own and it’s real value, but don’t brag about your income and how much your car is worth—especially if you don’t have any.

 

When should I file tax returns if I am going to file bankruptcy? If I file in December do I keep my refund?

If you are considering filing a bankruptcy, you must file your tax returns. No file returns…. no file bankruptcy. If you can get your refund before you file. If you do and spend it, you will keep your refund no matter how much it is. If you get your refund after you file bankruptcy, and the refund is over the exemption, you may lose part of your refund. File a quick refund if you have to or apply any refund amount to next year’s tax debt. If you are considering filing in the later part of the year, file before December. If you file in January, you may have to wait for some time after you get your refund back. You will be asked when you got your refund and how you spent it if you got a large refund.

Message Edited by Tuscani on 10-01-2007 12:47 PM

[Tuscani]

What will happen to my house and car?

Usually, you keep them. If your equity is less than or equal to your debt and exemption for the property, you keep the property. You are allowed to keep a certain amount of property in bankruptcy. At the time of filing, all your property that is not exempt belongs to the Court. The idea is to exempt it all so that you keep it all. Of course, the law concerning what property you can keep varies from state-to-state.

Can a Creditor be forced into a reaffirmation or agreement to allow me to keep property in a Chapter 7? Can a Creditor be forced into redemption?

No, a Creditor can’t be forced into a reaffirmation or workout. A Creditor can be forced in redemption. If the bank does not agree to a workout, it will usually take a large loss from selling the vehicle at an auction, or the house in a foreclosure. It may even violate federal lending rules by refusing to workout a home mortgage. A bank is able foreclose or repossess, regardless of whether you are in a bankruptcy. If they have started a foreclosure, the filing of the bankruptcy stops the foreclosure but, in a Chapter 7, the bank may file a motion with the Bankruptcy Court and ask to foreclose anyway.

If a Chapter 13 offers a good repayment plan, the Court will not approve any foreclosure. If the bank is adamant that it wants the house or car back, it may do so in a Chapter 7 and take a loss. Normally, the bank will rethink their decision and give you one more chance to make payments, but no one can force them to. A redemption is an agreement to pay the bank what the security is worth in one lump sum. They cannot refuse the redemption after the judge orders it.

Can I choose which Creditors I repay?

Yes, you can pay one Creditor, but not another, after the bankruptcy. By doing this, you can keep one car, but not another, or keep a credit card, but let a lemon auto go back.

Can I revoke a reaffirmation?

Yes, but it must be revoked within 60 days of the 341 hearing or before discharge, whichever comes first. It should be revoked in writing and sent by certified mail so you have proof.

I want my house or car to go back. Will I lose it immediately?

No. You will normally have until the 341 hearing to return your car and owe nothing until then. Use that period of time to look for another vehicle you can afford. If you choose to let your house go back, you will normally have about a year to live in it rent free for some period of time. The shortest period for a foreclosure is about 6 months, and up to 2 years. Consider filing an answer to a foreclosure to stay in the home longer. Remember, a repossession will normally do a lot more damage to your credit than a bankruptcy. Filing a Chapter 13 to catch up on your payments (within 2 years) is one way to keep your home. The only good reasons to let your house go back are that you have a large amount of negative equity in it, a bad mortgage or that it is an overwhelming burden.

Will I lose my 401(k) or retirement fund?

Depends, your retirement may be completely exempt and protected. Your states may have exemptions to protect retirement plans. However, you should talk to a qualified Attorney to get his or her opinion.

The United States Supreme Court has held that pension plans, 401(k) plans, and other “ERISA-qualified plans” are generally excluded from the Bankruptcy Estate under 11 U.S.C. sec. 541(c)(2). Unlike 401(k) plans, IRA accounts are not ERISA-qualified plans.

XYZ finance company took my Household Goods as collateral. Do I have to turn them over?

Well, it is possible that you may be able to avoid such liens, if they are old enough and if you have not borrowed within a certain time before filing bankruptcy. Also you should consider a redemption.

I was just sued and they have just attached my paycheck or bank account what can I do?

If property was taken from you just before filing bankruptcy, and it was over $600, it can normally be gotten back. Liens on property that were from a lawsuit can be removed. Garnishments and foreclosures can be stopped. The sooner you seek help, the sooner you can stop the procedure. It is important to seek help as quickly as possible.

Am I liable for the taxes on items gave up in Bankruptcy Court?

No. People often give up cars and then the new owner fails to pay the tax on the car and licenses it in another state. In such cases, the tax bills will continue to be sent to the Debtor even though he gave up the property.

If the Trustee doesn't want the property, can I have it?

Yes. But if you hide an asset you have committed fraud and you lose hidden assets.

How long do I have to repay in a Chapter13?

You can s-t-r-e-t-c-h out your payments and take up to 5 years, but no longer than 60 months, to repay in a Chapter 13.

What happens if I quit making my payments in a Chapter 13?

Your Chapter 13 will be dismissed from Court, and you will go back to owing the original debt and being unprotected. You will not be able to refile for 6 months.

Can I reduce my monthly payments in a Chapter 13?

Yes, a Chapter 13 can reduce your monthly payments. It can also reduce your interest rates to 12%, 10%, or even 0% on tax, secured, and unsecured debts.

Do I have to pay back 100% of what I owe in a Chapter 13?

No. You can repay as little as 10% to your unsecured Creditors in a Chapter 13. Your Chapter 13 must pay at least what a Chapter 7 would have paid. In some states and after 10-2005 certain plans may pay much less than 10% if that is all you can afford. You must repay your disposable income.

[Tuscani]

Can I pay some Creditors and not others in a Chapter 13?

You can’t (shouldn’t) discriminate and pay one unsecured Creditor class differently than other unsecured Creditors in that class. However Secured unsecured and priority debts are paid differently.

Should I try a Debt Counseling Service instead of filing bankruptcy? How do Debt Counseling services work?

"Debt Counseling Services" are often high-interest loan companies. Other times, they are agencies that pocket 10-50% of the monthly money that you pay to them as fees for their "counseling". Most of these services will combine your bills and send a partial payment to each bill that you owe. Your credit will be listed by the credit card companies as delinquent for sending in partial payments, and the reduced amounts sent in may not even cover the interest that a debt charges.

These "Counseling Services" are often simply rip-offs that pretend to be charities or helping agencies. If you pay a debt counseling service $100 a month, what happens is that they take up to $40 for themselves and then send your Creditors $60. Your bills fall even farther behind. Eventually, Creditors file lawsuits and you are forced into bankruptcy anyway. Very few of these "repayment plans" work and over 90% fail, leaving you worse off.

Another scam is that some debt counseling companies will charge thousands of dollars by promising to find you a consolidation loan as a loan broker or mortgage broker. These loans end up being at a high-interest rate or they pocket your money and never give you the loan. Others strip the equity from your home. Whatever method used, "Debt Counseling Services" are often scams meant to take your money when you are already in trouble.

Also be wary of using services that claim to “repair” your credit file. Some may attempt to create a new credit file by getting a new social security number. Changing your identity is a felony, especially if you steal another person’s identity. Creating a false identity and using it may also be a felony.

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Admin note:  Please also be aware of the following excellent information provided by National Foundation for Credit Counseling on what to look for when considering credit counseling:

How to Select a Legitimate Credit Counseling Agency

The last thing a consumer needs when struggling financially is to fall into the hands of an unscrupulous credit counseling agency.  If you’re considering using a credit counselor, shop around, and ask each agency the following questions.  More importantly, be certain that you are comfortable with their answers before you book that first appointment.  A legitimate agency is always more interested in your bottom line than theirs.

• Is the agency affiliated with a national body such as the National Foundation for Credit Counseling (NFCC) that requires strict quality, financial and ethical standards for membership?  Examples of such requirements are annual audits by an independent CPA, written action plans provided to each consumer, and consumers provided with statements at least quarterly.

• Is the agency accredited by an independent third party?  Self-accreditation is not the answer you want.  An example of a reputable third party accreditating body is the Council on Accreditation (COA).  Such accreditation signifies that appropriate checks and balances are in place to protect you, the consumer.

• Is the agency a 501(c)(3) nonprofit community organization?  Being a nonprofit does not guarantee that the agency is legitimate, but it is a step in the right direction.

• What is the composition of their Board of Directors?  Board members should not be paid by the agency, should not be family members or friends, but should represent a wide cross-section of the community and civic interests.

• What services does the agency offer?  A wide-range of services is a good sign.  This could include: budget counseling for those who are not in debt; debt counseling for those who may need professional assistance digging out; housing counseling for pre-rental, pre-purchase, first-time homebuyer, reverse mortgage, and foreclosure prevention; and the mandated bankruptcy pre-filing counseling and pre-discharge education.

• What are the fees associated with the services provided?  The agency should be forthcoming about fees, and no fee should be assessed prior to the service being provided.  Be wary if the agency says their fees are voluntary.  Any set-up fee or monthly fee should be reasonable, usually defined as $50 or less, with monthly fees in the $25 range.  The agency should be willing to waive all fees in cases of true hardship.

• What delivery options are available to you for counseling?  Does the agency offer in-person counseling?  Counseling by phone?  Internet counseling?  Is the channel that’s most appealing to you offered?

• Is the counselor assigned to you a Certified Consumer Credit Counselor?  You want someone qualified assisting you with your critical financial decisions.  NFCC certification means that the counselor has passed a rigorous battery of tests measuring their financial knowledge.

• Does the agency provide educational classes or workshops?  Are any of these tools offered online?  Is there a fee to attend?  The absence of any true education offered to the general public is a red flag.

• Will the agency work with all of your creditors?  Some agencies only work with creditors who agree to make a payment to them.  A legitimate agency will take a holistic approach to solving your financial distress.

• Is there a minimum amount of debt required to be counseled?  True credit counseling agencies will work with you regardless of how large or how small your debt may be.

• What debt relief options are offered?  If the only tool is the Debt Management Plan (DMP), keep shopping.  A DMP is a useful tool, and is often the appropriate resolution.  However, each consumer’s situation is different, thus the solution should be customized to fit their specific needs.  A one-size-fits-all approach signals that you should continue your search.

• Are the counselors compensated for writing DMPs?  Any such incentive is not a part of a legitimate agency’s pay to their counselors.

• How long will your counseling session last?  Don’t be tempted by “drive-by” counseling.  A counselor simply cannot do an adequate intake of your income, expenses and debts in a short amount of time.  An initial session length of at least one-hour is standard.

• If you go on a Debt Management Plan, how soon after receipt of your monthly payment will it be disbursed to creditors?  The success of a DMP depends on timely, consistent payments to creditors.

• What happens to your first payment?  Believe it or not, some agencies keep the consumers first payment and consider it a donation.  Be sure to ask about this.

• Will the full amount of your payment be disbursed to your creditors?  The full amount should go toward the repayment of your debts, with no portion going into the agency’s pocket.

• How will your deposits be protected?  Ask for written evidence that the agency is bonded or insured to protect the consumer from fraud or the agency’s own financial difficulties.

As a final step, check with the Better Business Bureau and your state’s Attorney General to see if there are unresolved complaints about the provider you are considering.  Anyone can file a complaint.  What is relevant is how the agency resolved it.

Legitimate credit counseling agencies counsel and financially educate millions of consumers each year, making financial stability a reality in their lives.  It all starts with selecting the right agency.  Asking the above questions, and receiving the right answers, will ensure that your credit counseling experience is a positive one.

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How long should I keep a copy of my Bankruptcy?

You should keep a copy of your bankruptcy, with your tax papers, for at least 7 years. You will need them for any mortgage application but they are now filed electronically and available for download at any bankruptcy attorney’s office if you filed after October 2002. You are only required to keep receipts 3 years by the tax department—after 3 years they have the burden of proof—but keep tax and bankruptcy records for 7 years anyway.

When will I be able to get credit again?

Normally, you will qualify for a home mortgage at normal rates within 2 years if you let your home go back in foreclosure you will qualify in 3 years after the discharge of your bankruptcy. You will be able to get other credit within 6 months to a year. Your ability to get credit is based on your income and your history of repayment, as well as the security you offer. You should be able to purchase a car or house if you reaffirm one or two debts and pay for them on time after your discharge. You always have to be able to afford what you are buying on credit or meet credit standards. You will have to reestablish your credit by paying on time after your filing.

Will my employer and landlord find out about my bankruptcy?

Bankruptcy petitions are public records; however, under normal circumstances, no one will know you filed a bankruptcy petition unless you tell them. Chapter 13 Debtors are often required to make payments through wage garnishment, which means the employer will learn about the bankruptcy.

Will this affect my getting an apartment?

Many of the larger apartment complexes are owned by banks, and banks tend to grant leases according to credit bureau reports. This may affect you. Small landlords will call former landlords and may not check credit reports.

Can employers discriminate or fire me?

Generally no. There is an antidiscrimination section of the Bankruptcy Code that prevents employers or the state from denying you licenses or discriminating against you when hiring. But do yourself a favor: Keep it to yourself. They generally won’t know unless you tell them.

Are there bankruptcy crimes?

Yes. Criminal statutes related to bankruptcy can be found at 18 U.S.C. sections 151 to 157. Examples of bankruptcy crimes are knowingly and fraudulently concealing assets, lying under oath or on bankruptcy schedules, and knowingly and fraudulently filing a false proof of claim. Bankruptcy fraud can also be used to support a RICO claim. Bankruptcy crimes are often the result of claiming you don’t own property that you do own or that has been transferred to conceal it from the Court.

Do I have to disclose all of my assets?

Yes. If you knowingly and fraudulently conceal an asset from the Court, you have committed a felony and you can be fined up to $5000, imprisoned for up to five years, or both. However, this is rare and normally comes up in only the worst cases. In addition, the Court can deny discharge, or dismiss or convert your bankruptcy proceeding.

Can I run up charges on my credit cards just before filing?

The official answer is “No”. Many people do make some minor charges on their charge cards just before filing. Charges of over $1000 on any one card within 90 days before filing are presumed to be fraudulent and non-dischargeable. Luxury items of 500 within 90 and Cash advances of 750 within 70 days are non dischargeable. Charges to an account more than 90 days before filing are presumed proper regardless of the amount. But the rule that you can’t charge within 90 days of filing isn’t written in stone there are 12 factors that the judge will use to determine if it is fraudulent.

There is no reason to pay any further on debts that you are planning to avoid in bankruptcy. Normally, you should file as soon as you can, but it won’t matter if you pay the bills or not before you file. It doesn’t matter if you owed $10,000 or $10,000,000 before you filed or whether or not you paid on time before you file bankruptcy.

Message Edited by Barry on 07-11-2008 12:28 PM

[Tuscani]

Can I give property away just before filing?

Gifts of property over $600 just before filing are improper, and the Court can go after that property and the person you gave it to. Gifts under $600 are not improper. For example, give one gift of $900 to your child, and that is improper. But, give two separate gifts of a $450 computer and a $450 car to go to college—even minutes apart—and that should be proper.

Can student loans or taxes be bankrupted? (YES, in certain cases)

If someone tells you it can't be done, it often means that he or she doesn't know how to do it—or that he or she doesn't want to do it. Student loans over 7 years old were dischargeable until October 1998, but are no longer bankruptable in a Chapter 7 unless you get a hardship discharge although this normally require disability or retirement it is possible.

Can I bankrupt my utility bill?

Yes, but they may make you pay a deposit equal to one month's service to keep service with them. Cable TV is the exception because it is a luxury not a utility. Cable TV can discontinue service if you bankrupt their bill. You won’t have to pay it but they don’t have to turn it back on until you do. If you include utilities in your bankruptcy, you need to immediately advise your utility phone water gas and electric company that you have filed and tell them your case number and the date you filed. If you simply file a Chapter 7, don't pay, and don't contact them, you may end up having your service turned off. It may be a month before the utility finds out that you have filed, so if you list a utility advise them immediately.

Can bankruptcy stop a lawsuit?

Yes, but it will not stop criminal cases or criminal restitution. Criminal restitution is not bankruptable.

Can bankruptcy help with tax matters or high rates and penalties?

Yes, bankruptcy can get rid of income taxes, reduce interests and penalties in a cram-down Chapter 13. You can include taxes and student loans in a Chapter 13 repayment plan. Filing a Chapter 7 can also get rid of a tax lien if it impairs your equity in a property to the amount that your exemption is impaired. For instance, let’s say you have a $50,000 house, a $20,000 tax lien, and the mortgage is $42,000. Your exemption is $5000, so the IRS’s lien could be reduced to $3000. If the house is worth $45,000, the government would have no lien at all on the house. A lien can be reduced to only the equity left in the home after your exemption.

What are predatory lenders?

Certain Lenders don't care if you ever repay them not: They lend not on your ability to repay, but instead based on the equity that they can steal from your home or in their ability to overcharge you and then sell the very profitable loan to another lender. When you fail to pay, they foreclose to collect. They charge prepayment penalties, higher interest, and upfront loan costs to get you the loan. They often use unfair lending tactics, like flipping and packing, to increase income and then don't keep the loan but sell it to another company.

They target poor, elderly, minorities, and the uneducated in advertising and overcharge heavily so that the loan can never be paid off. Home improvement companies will sometimes use these mortgage companies to process loans for home improvements that are poorly made (if they are made at all), and the result is that you have signed away your home for second-class home improvements. Predatory Lenders often overcharge for filing fees, reporting costs, and closing fees, and then fail to report the charges. If you are lucky, you will be able to sue them for truth-in-lending violations and, perhaps, have a free home. The more they steal or overcharge you, the more proud they are of doing it to you.

I have a small retirement accounts is it exempt? My regular stock brokerage cash account on the day of filing will only have a minimal amount (if any) of cash and some shares of companies who are bankrupt and as of the moment, the stock is worthless.

Normally retirement accounts can’t be taken by creditors or the bankruptcy court. The question is whether or not this is a retirement account. Just calling it a retirement account does not make it one. Real retirement accounts can’t be assigned or attached. If it can be easily spent by you, assigned, or attached it isn’t a retirement account for purposes of the exemption. Of course putting large amounts of money into an account just before filing (within 6 months) is wrong. If the stock is worthless you can list it and if the trustee abandons it then it will belong to you. However at the moment of filing your Chapter 7 bankruptcy all your property technically belongs to the Trustee.

[Tuscani]

 

Positive Aspects of Chapter 13:

The power of the automatic stay keeps Creditors off your back. Payments and interest rates can be reduced, and you can modify the rights of most secured Creditors. A Chapter 13 usually allows you to keep all of your non-exempt property. Remember, however, that judges are wary of letting you keep what they consider to be luxury items on which you still owe unless you are paying 100% of your debts.

A Chapter 13 wipes out more types of debts than a Chapter 7, including some debts that are normally not bankruptable. Child Support to the state can be repaid for pennies.

A Chapter 13 consolidates your bills and gives you up to five years to repay money you owe for taxes and up to two years  to catch up mortgage payments that are in arrears. Your monthly expenses may be reduced. Some percentage of your unsecured debts may be forgiven, although you are expected to pay as much as you can afford. Plans that pay only 10 cents on the dollar are now common but 70% used to be required.

A Chapter 13 allows you to pay unsecured Creditors only what you can afford to pay them over the three to five years of your bankruptcy. However, you cannot pay less than what a Creditor would have received if you had filed a Chapter 7 bankruptcy and your property were liquidated and the proceeds used to pay Creditors.

A Chapter 13 may be your only choice if you have filed within the last 8 years. A Chapter 13 is best if you have large secured debts, like a house, a car and furniture, and a lot of equity in your property. If you are having trouble paying for these items, a Chapter 13 could lower the payments and interest rates enough so that you may be able to keep them. If you are behind on your bills, you may also be behind on making your house payments.

A Chapter 13 is an especially effective way to keep your house if you are about to lose it. Usually, your house is most important to you. You may also decrease interest rates and payment amounts.

Negative Aspects of Chapter 13:

A Chapter 13 will tend to hurt your credit more than a Chapter 7, if your credit rating was good when you filed.

A Chapter 13 requires a long period of involvement with the Court. During this time, you may fall farther behind on unsecured accounts while secured accounts are being paid. Or, your secured accounts may fall behind while taxes and priority claims are being paid. Your credit rating may not improve, it may actually worsen. This may continue for 5 years, whereas a Chapter 7 would have given you a fresh start within about 120 days.

Positive Aspects of Chapter 7:

Immediately upon filing your petition with the Court, an automatic stay is invoked and Creditors must stop their collection actions against you. This means they cannot call or write you, or repossess or foreclose on your property. In addition, the automatic stay will stop a lawsuit if one has been filed against you. It will also reinstate your drivers license if you have lost it due to involvement in an accident with too little or no insurance. This immediate action by the Court relieves the pressure on you and your family. With some exceptions, such as child support, most of your debts are wiped out.

The Chapter 7 process is quick, and it is the cheapest bankruptcy. It also offers you almost all the benefits of bankruptcy. It usually only takes about 120 days. It is often the best way to deal with a predatory mortgage where you owe 125% of the value of a home or you have a high interest rate.

Negative Aspects of Chapter 7:

Filing Chapter 7 may damage your credit rating, if you had good credit before you filed. But, more often, it allows you to repair a poor credit rating and purchase houses and cars shortly after filing. Repairing your credit is done by making prompt payments on accounts after you file. If you had bad credit before you filed a bankruptcy, a Chapter 7 is a chance to repair your credit.

A Chapter 7 bankruptcy can be reported for 10 years, but your present bad credit will be reported for 7 years after the last collection action (which can make it last far longer than 10 years). Most people who file bankruptcy already have damaged credit, so a Chapter 7 bankruptcy is unlikely to harm it very much further.

Chapter 7 does not discharge all debts. Some debts, such as child support, are non-dischargeable. It also does not discharge as many types of debts as a Chapter 13. Taxes and student loans are more likely to be discharged in a Chapter 13. The rights of secured Creditors may not be modified in a Chapter 7. These rights may be modified in a Chapter 13. An exception is that judicial liens and liens on household goods may be destroyed in a Chapter 7 and avoided if you tell your Attorney about them.

In a Chapter 7, your only options when you want to keep an asset that is collateral for a debt are to either 1) Make contractual payments promptly and reaffirm the debt with the same or different terms and possibly make up missed payments (the Creditor may not wish to reaffirm the debt if the contract is in default); or 2) Redeem the property by paying its value in a lump sum; or 3) Give up the asset to satisfy the debt.

SUMMARY:

You want to file a Chapter 7 if you have little or no equity in property or little or no secured debts. Ask your Attorney. You can only lose property if you have so much money or property that it is not exempted. This is very rare. A Chapter 7 is a good option for Debtors that owe so much that, given their income, they have no hope of paying off what they owe by filing a Chapter 13 bankruptcy. It is also a good option for Debtors who do not own a lot of property.

[Anonymous]

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Tuscani wrote:

This information is not legal advice and I am not a lawyer. Always seek a reputable bankruptcy lawyer to answer your questions prior to filing.

- Tuscani

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Some of this information is outdated, so definitely get yourself a lawyer.  For example, you cannot file Ch. 7 if your income is over a certain amount (varies by state).

[Barry]

Common Abbreviations

[Anonymous]

I might change two items on the initial FAQs:

1.  Bankruptcy is available to anyone who lives or owns something in America.  You do not need to be a US citizen or even in the country legally.

2.  Under certain circumstances, filing bankruptcy can delay, if not entirely stop, criminal proceedings.  This generally happens when one can show that the intent of the criminal action is to force payment of a debt and not simply to further the ends of justice.  A prime example would be in a prosecution for bad checks where the DA and / or the police tell you that if you just pay the checks then they will let everything slide.