Frequently Asked Questions - Bankruptcy Questions
Many people wonder why they should pursue bankruptcy rather than one of the many debt settlement offers they see on television. Bankruptcy law provides a specific legal process to eliminate your debt while many, if not all, of the offers you may have seen advertised do not.
Many debt settlement firms instruct you to stop paying your creditors and instead pay them. They extract their fees from the money you pay them and often they pay nothing to your creditors until their fee is paid. During this time, with no legal process to stop the creditors, you continue to accrue late charges and interest, the calls from debt collectors do not stop, and most importantly you have no legal protection against a creditor taking you to court and garnishing your wage.
Once the debt settlement firm has satisfied their fee from the money you have been paying them, they then attempt to settle your debts but with no legal leverage. The creditor is under no obligation to take less, to reduce interest rates, or the minimum payment. All of these are possible under bankruptcy law.
You would be wise to consult your attorney before you sign any agreement with a debt settlement company.
No, at least not all of your personal property. In fact, the idea of a Chapter 13 bankruptcy is actually to preserve all or most of your personal property. But the idea behind a Chapter 7 filing is to cash in or liquidate all personal property of value that is not exempted from the process by law. In Chapter 7, both federal and state law work to protect or exempt some minimum amount of your personal property from the bankruptcy process. Exemptions cover everything from real property to motor vehicles and from furniture to tools of the trade. The exact exemptions you can claim in your bankruptcy will depend on which state exemptions apply to your particular case. In Chapter 13 you work to protect your property by proposing an adjusted (down) payment plan. If the plan is accepted and you complete it then you keep your property.
Not usually. The dollar amount specified under a Chapter 7 bankruptcy vehicle exemption depends on which state's exemptions apply to you. Typically, a certain amount of value can be exempted allowing you to protect a vehicle you own, if that vehicle is worth less than the exemption. If it is worth more, then the trustee will consider selling it. You will be reimbursed the exemption amount and the balance will go to pay off your creditors. An alternative in the case where you still owe money on the vehicle is to "reaffirm" the loan. As a result, it will be removed from the bankruptcy estate and you will simply continue paying under the existing loan. But this only works if you can afford it.
Not usually. Typically there is a Chapter 7 homestead exemption that allows you to exempt a certain amount of equity in your home. The mortgage for your property will remain valid and as long as you remain current the loan will continue as before. If your home is in foreclosure, bankruptcy will delay the process but it will not stop it. Saving your home from foreclosure will happen outside of bankruptcy under non-bankruptcy law, i.e. state law or possibly federal law should Congress choose to provide a federal remedy.
Most forms of retirement savings are exempted, however, exemptions do vary from state to state. Qualified ERISA (Employee Retirement Income and Security Act) retirement and pension plans are fully exempt and do not become part of the bankruptcy estate.
Yes, without a doubt. All of your debts/creditors must be listed in the bankruptcy petition even if you intent to reaffirm them. In fact, even debts that cannot be discharged must be listed on your bankruptcy petition. Failure to list all your debts/creditors can result in your bankruptcy being dismissed. The Court does not like to play guessing games regarding who your creditors are.
No. If you are married you may file with or without your spouse. Treatment of joint debts and joint property varies by state, however, if your spouse is not included in the bankruptcy they will not benefit from any of the protections conferred by the bankruptcy. Debts that are discharged as to you may still be a liability for your spouse. Also, your spouse's credit may be adversely impacted by the fact of your bankruptcy.
Only unsecured debt judgments are routinely discharged in both Chapter 7 and Chapter 13 bankruptcy. A judgment lien is considered a secured debt because all of your property secures it and, therefore, is not routinely discharged. Nevertheless, within certain limits, judgment liens on wages, bank accounts and real estate can be discharged. When you file a bankruptcy, all action to enforce or perfect the judgment lien will stop immediately pursuant to the automatic stay. During the course of your bankruptcy proceeding, a Motion to Avoid A Judicial Lien should be filed pursuant to Section 522 of the Bankruptcy Code. If the Court avoids the judicial lien, it then becomes an unsecured debt paid at the same percentage as your other unsecured debts. If the Court does not avoid the lien, it will be paid in full by the trustee as a secured claim.
No. Student loans are not normally dischargeable through bankruptcy. To discharge student loans a debtor must prove undue hardship. This is a high standard and requires showing that repaying the loan will prevent you from providing a minimum standard of living for yourself and your family, not only currently but in the future as well. Showing such hardship will continue into the future is very difficult to do unless, for example, you have become disabled and are unable to work.
Certain debts cannot be discharged in bankruptcy. Some examples are: unfiled taxes and tax debt less than three years old, domestic support obligations, criminal fines, and claims for accidents involving intoxication.
It depends. Filing bankruptcy does not prevent you from obtaining new credit, however, your credit rating, which is a consideration, will be adversely effected. To overcome the added risk you present, many creditors offer credit cards secured by valuable personal property and others provide you with credit but at higher rates. Whether you can obtain a credit card after bankruptcy will depend largely on your financial condition at the time of application and how the bank views its need for security in light of your prior bankruptcy. Generally, your opportunity to obtain a credit card will be less and less affected by your past bankruptcy as time passes.
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David C. Clarke