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Frequently answered questions about Bankruptcy...
- What is bankruptcy?
Bankruptcy is a process under the jurisdiction of the federal court that helps consumers and businesses either eliminate their debts or develop a plan to repay them. - I've heard there are new bankruptcy laws. How will they affect me?
On October 17, 2005 a number of new bankruptcy law provisions went into effect. For most consumers the changes will be limited to changes in procedures, fees and costs, and limitations on certain exemptions. The new law does not prevent anyone for filing for bankruptcy protection. One provision that could affect you is the assumption that those earning more than the median income for your state could be presumed to have to file under Chapter 13 rather than the simpler Chapter 7. The determination for which chapter you file under is made by the results of a Means Test administered by your attorney.
Another provision of the new law requires filers to attend a class session in Credit Counseling and a session on Money Management. These are normally administered over the phone. A certificate proving you have taken the Credit Counseling class must be filed with your original petition. The costs are currently running about $50 for each session or class. - Is there more than one kind of bankruptcy?
There are two classes of bankruptcy, Chapter 7 (liquidation) and Chapters 11, 12, or 13 (reorganization or debtor in possession). Chapter 7, 13, etc. are references to the sections of the federal code dealing with bankruptcy.
Under Chapter 7 bankruptcy, a consumer or business asks the bankruptcy court to erase (discharge) the debts owed. In exchange for the discharge of debts, the debtor's excess assets or the nonexempt property belonging to the debtor is sold (liquidated), and a bankruptcy trustee distributes the proceeds to creditors.
There are several types of reorganization bankruptcy. Consumers with secured debts under $871,550 and unsecured debts under $269,250 can file for Chapter 13. Family farmers can file for Chapter 12. Consumers with debts in excess of the Chapter 13 debt limits or businesses can file for Chapter 11. Reorganization is complex, time-consuming and should involve an attorney skilled in dealing with the process. In any reorganization bankruptcy, you file a plan with the bankruptcy court proposing how you will repay your creditors. Some debts must be repaid in full; others you pay only a percentage; others aren't paid at all. Some debts you have to pay with interest; some are paid at the beginning of your plan and some at the end. - What happens if I don't file bankruptcy and I continue to fall behind on my debts?
Eventually, the persons or companies you owe money to may file a lawsuit. This could allow them to have a court render a judgment against you for the amount owed plus fees and costs. If your contract so provided they may also recover attorney's fees. They would then be able to confiscate your property, attach your wages, force the sale of your real estate or similar actions to satisfy the judgment, according to the laws of your state. - Will filing bankruptcy stop harassing phone calls from creditors?
As soon as you file bankruptcy, an automatic stay goes into effect. The automatic stay prohibits virtually all creditors from taking any action to collect the debts you owe them unless the bankruptcy court lifts the stay and lets the creditor proceed with collections. Holders of collateralized debts such as secured notes will usually ask the court to lift the stay for their debt, to allow them to repossess the asset. - Will I lose my house and my automobile when I file bankruptcy?
In most cases your automobile and house can be exempted. Keeping your auto and house will require that you continue to keep your payments current. There are equity limits for protecting your house. Each state has slightly different exemption rules. See "What do I get to keep?" below. - What happens during the bankruptcy process?
When filing under Chapter 7, you must file several forms with the bankruptcy court listing income, expenses, assets, debts and property transactions for the past two years. A court- appointed trustee is assigned to oversee your case (the trustee does not represent your interests). About a month after filing, you must attend a meeting of creditors where the trustee reviews your case and asks questions. Your creditors holding secured debt have the right to attend and ask you specific questions regarding your assets. Any of your creditors, secured or not, may demand that you attend a "Debtors Exam" where they may question you about assets, income, employer's name and phone number, ability to pay, location of your personal property, and more. You have the right to be represented by an attorney at these meetings. If you have any nonexempt property, you must give it (or its value in cash) to the trustee. Bankruptcies are typically discharged three to six months after this process is complete.
When filing under Chapter 13, you must file all the same forms plus a proposed repayment plan. In the plan you describe how you intend to repay your debts over the next three to five years. A trustee is assigned to oversee the case, and you will be required to attend a meeting of creditors about one month after filing. Often creditors will attend this meeting if they don't like something in your plan. It is not uncommon for your attorney to enter into negotiations with your creditors on your behalf both before and during this meeting. After the meeting of the creditors, you attend a hearing before a bankruptcy judge who either confirms or denies your plan. If your plan is confirmed, and you make all the payments called for under your plan, you often receive a discharge of any balance owed at the end of your case. - How much will it cost me to file bankruptcy?
The court fees vary by state. In California they are $299 for a Chapter 7 and $274 for a Chapter 13 Petition. Credit counseling and money management classes will cost approximatly $50 each. Other fees will depend upon the attorney you choose. Most attorneys have a basic minimum fee that will cover all the filings and proceedings in a straightforward case. If your case is complex, you could pay fees beyond the minimum. - Should I hire an attorney to represent me, or should I hire a paralegal to type the forms and file them myself?
For the difference in cost, we recommend that you secure an attorney to represent you in the process and at the hearings. In all states, paralegals are severely restricted by law as to the amount of assistance they may render. Most states restrict them to typing your forms only. Paralegals are prohibited by law from answering legal questions and from providing you with legal advice. If you decide to use a paralegal, you must be prepared to research any questions you have and to make critical decisions without the advantage of legal counsel. In some cases a single error made while attempting to protect assets can cost you much more than the fee you will be charged by an attorney. - Does it really take ten years to regain good credit after filing bankruptcy? Your bankruptcy will likely remain on your credit report for ten years. However, many lenders will consider extending you credit much sooner if you are diligent about rebuilding your credit history.
- What do I get to keep?
You will not likely loose any property if you file a well-crafted petition under Chapter 13. Under Chapter 7, you are allowed certain exemptions from the requirement of liquidation of assets for the benefit of creditors. Exemptions are available to protect equity in personal property, professional tools, automobile, and your house or dwelling, assuming your payments are current on loans securing these items. Limits on these exemptions will depend on which schedule you choose to use in your petition. You should consult with an attorney before selecting a schedule.
If you are behind on your mortgage payments, you will almost certainly lose your house if you file a Chapter 7 bankruptcy. Your mortgage lender will ask the bankruptcy court to lift the automatic stay to begin or resume foreclosure proceedings. If you are current on your payments, a person or married couple may exempt part or all of their equity (difference in mortgage balance and market value of the house). States vary in the amount that may be exempted. Generally, married couples, seniors and disabled persons may exempt more equity.
In a Chapter 13 bankruptcy, you will not lose your house if you immediately resume making the regular payments called for under your agreement and repay your missed mortgage payments through your plan.
- Will I be able to get new credit cards after I file?
There are many companies that offer secured credit cards to assist in rebuilding your credit after you file your bankruptcy.
