Bankruptcy: Frequently Asked Questions
We have provided below a list of frequently asked questions and answers:
What Is Chapter 7?
Chapter 7 is the most common type of bankruptcy; it is sometimes referred to as "fresh start bankruptcy," or "straight bankruptcy." The basic purpose of Chapter 7 is to provide you with a fresh start by wiping out all qualifying debts including credit cards, medical bills, repossession deficiencies, law suits as well as a variety of other debts. In Chapter 7 there is no repayment required for most unsecured debts, your debts are wiped out completely and permanently. The entire process usually takes less than 4 months to complete. After the bankruptcy is over, you may choose to selectively pay back debts, such as debts to family members, however repayment is not legally required.
In many cases, a person may keep their home or car (secured debt), provided that they continue to make current payments and are up to date on the loan.
Chapter 7 can eliminate:
• Credit Card debts
• Medical debts
• Personal loan debts
• Lawsuit debts
• Judgments - Unless there was fraud or criminal conduct
• Deficiency debts on repossessed autos and foreclosures
• Personal Injury Debts - except driving while intoxicated and criminal injury
• Certain other exceptions may apply.
Avoiding Problems when Filing Chapter 7
Because of the many nuances in Chapter 7 law, the specific terms of any filing will only become clear once the facts of a particular situation are known. However, if you are considering filing Chapter 7, there are a few things you should not do:
• Do not make any more charges or take any cash advances on any of your credit cards.
• Do not make any property transfers.
• Do not pay any unsecured creditors (credit cards, personal loans, etc.) more than $600 within 90 days prior to filing. This is called a "preference" and will make it more difficult for you to get a discharge.
The Filing Process
With a Chapter 7 bankruptcy filing, there are typically no bankruptcy court appearances necessary. You need only to appear (with your attorney) for a very informal meeting that takes place about five weeks after your case is filed. This meeting is referred to as a Section 341 Meeting. The purpose of this meeting is for a court-appointed trustee to ask you a few very brief questions to determine whether you have any non-exempt assets. Your creditors are given notice of this meeting and are permitted to question you, but usually they are not present. The meeting generally takes less than five minutes. After the meeting, all you have to do is wait about two-and-a-half months for your discharge papers to arrive in the mail.
You may want to consider Chapter 7 if:
• You have little property except for the basic necessities like furniture and clothing
• You have little or no money left after paying basic expenses each month—or you're not even meeting basic expenses
Advantages of Chapter 7:
• Most unsecured debts can be discharged (completely eliminated)
• The process moves quickly—you may receive your discharge in just a few months
• Creditors can't contact you while the automatic stay is in effect—or after debts are discharged.
Who can file under Chapter 7?
Debtors who have qualified under the "means test" and completed a required pre-filing session with a credit counselor may file for Chapter 7 bankruptcy protection.
What Is Chapter 13?
Chapter 13 bankruptcy allows a person to consolidate their debt while making convenient monthly payments to a trustee. A payment plan is proposed which repays the debt over a three to five year period. The amount of the monthly payment and the length of the repayment plan is based upon the following factors:
• Monthly income of the person
• Monthly expenses of the person
• Amount and nature of the debt
Secured debts are paid 100% on the dollar, while unsecured debts may be paid as little as 10% on the dollar. A person receives a discharge under Chapter 13 once the payment plan is completed.
The Chapter 13 Process
In Chapter 13, you must submit a plan in which you set out a budget detailing your take-home pay and monthly living expenses. Any excess income is paid to the bankruptcy trustee who then distributes money to creditors. The plan lasts for 3 to 5 years, unless your debts are fully repaid in a shorter period of time. At the end of the Chapter 13 plan, any amounts still owing on your unsecured debts are forgiven.
The most common uses of Chapter 13 involve:
• Stopping home foreclosures and paying off back-mortgage payments
• Stopping auto repossessions and restructuring auto loans to save a vehicle
Typically government debts are not dischargeable, however there are great benefits to putting tax debt into a Chapter 13 plan. Chapter 13 can freeze interest and penalties on some taxes. This gives you a chance to budget out a repayment plan in real dollars, and the payments you make go directly to reduce the principle. Most people trying to repay back taxes are fighting an uphill battle with interest and penalties working against them, but in Chapter 13, you may get a break from the government and pay off just what you owe on the day you filed the case.
You may want to consider Chapter 13 if:
• You have equity in a home or other property and you want to keep it
• You have regular income and can pay your living expenses, but you can't keep up the scheduled payments on your debts
Advantages of Chapter 13:
• You can keep most of your property while spreading out time to pay past due accounts
• You'll have 3-5 years to catch up delinquent accounts—according to a schedule that you and the bankruptcy trustee have agreed is workable for you.
• You'll make one monthly payment to the bankruptcy trustee for distribution—you'll have no direct contact with creditors during the protection period of 3-5 years.
• Co-signers may be protected
What is Chapter 11?
Chapter 11 bankruptcy is a form of bankruptcy reorganization available to individuals, corporations and partnerships. It has no limits on the amount of debt. It is the usual choice for businesses seeking to remain in operation and restructure their contractual and debt obligations. The debtor usually remains in possession and control of its assets, and operates the business under the supervision of the court and for the benefit of creditors. If the debtor's management is ineffective or less than honest, a trustee may be appointed. A creditors' committee is usually appointed from among the 20 largest unsecured creditors who are not insiders. The committee represents all of the creditors in providing oversight for the debtor's operations and a body with whom the debtor can negotiate an acceptable plan of reorganization. A Chapter 11 plan is confirmed only upon the affirmative votes of the creditors, who are divided by the plan into classes based on the characteristics of their claims, and whose votes are a function of the amount of their claim against the debtor. If the debtor can't get the votes to confirm a plan, the debtor can attempt to "cram down" a plan on creditors and get the plan confirmed despite creditor opposition, by meeting certain statutory tests.
How Much Property Can I Keep?
Most people keep everything. The law allows you to keep your home, furniture, clothes, and car up to certain limits of value. The law also gives you the right to protect other assets.
How Long Will My Credit Be Bad?
There is no truth to the urban legend that you have to go for seven years with bad credit. Bankruptcy will be on your credit report for 10 years, but even so you can have good credit.
We make sure you know to do the things needed to get good credit post-bankruptcy, including following up with the credit bureaus after your bankruptcy is over to make sure your credit reports are right and no longer include discharged debts. If necessary, we can sue the creditor or credit bureaus to get your credit report right after bankruptcy.
Bankruptcy Falsehoods
• #1: Any attorney can handle my bankruptcy case.
• #2: Congress has eliminated bankruptcy for the "little guy."
• #3: If I file a bankruptcy I will lose my house and car.
• #4: I won't be able to get credit after my bankruptcy.
• #5: My name is going to be in the newspaper.
• #6: My spouse is automatically liable for my debt.
• #7: If I file bankruptcy I will never be able to buy a home or a car?
• #8: A debt counseling service can help me eliminate my debts without the stigma of bankruptcy on my record.
• #9: Bankruptcy will ruin my credit record.
• #10: Filing bankruptcy makes me a bad person.
#1: Any attorney can handle my bankruptcy case?
Fact: Bankruptcy law and cases can be very complicated and technical. There are many traps and critical mistakes that can cause the dismissal of your bankruptcy case. In fact, bankruptcy law has one of the highest malpractice rates. Accordingly, be weary of those who do not have a good understanding of bankruptcy law and cases. These people are not qualified to handle your bankruptcy case.
#2: Congress has eliminated bankruptcy for the "little guy."
Fact: Despite what you may have heard in the press, bankruptcy is still alive and well and available to the little guy. In October 2005, new bankruptcy reform laws went into effect. The reforms imposed a requirement that a means test be applied to Chapter 7 filings. However, despite the changes, most people who qualified for federal debt protection before still qualify today.
#3: If I file a bankruptcy I will lose my house and car.
Fact: Not true. Most people keep everything. The law allows you to keep your home, furniture, clothes, and car up to certain limits of value. The law also gives you the right to protect other assets.
#4: I won't be able to get credit after my bankruptcy.
Fact: False. Think about it; if you owned a credit card company, who would you rather give a credit card to, someone who has a massive debt load and is behind on all their bills, or someone whose bills have been wiped out? Since many of your debts will be wiped out after bankruptcy, and, in the case of a Chapter 7, you won't be able to file another one for another eight years, many creditors will see you as a better credit risk after your bankruptcy.
#5: My name is going to be in the newspaper.
Fact: I handle all bankruptcies with a very high level of confidentiality. No one has to know that you have chosen to seek relief from your debts through bankruptcy. Many of your friends, neighbors, and coworkers may also have filed bankruptcy without you even knowing.
#6: My spouse is automatically liable for my debt.
Fact: Depending on your individual situation, your spouse is not always held liable for your debt. During your first meeting with me, we can discuss this specific matter further and determine how filing bankruptcy affects both you and your spouse.
#7: If I file bankruptcy I will never be able to buy a home or a car?
Fact: Not true. It usually takes about two years to get a house after you file Bankruptcy and it's even less of a waiting period for new car and credit card offers.
#8: A debt counseling service can help me eliminate my debts without the stigma of bankruptcy on my record.
Fact: This myth is a very dangerous one. Debt counselors cannot get rid of your debts, nor can they stop your creditors from harassing you. All debt counselors do is help you negotiate new terms on your existing debt with your creditors-your creditors do not have to agree to any restructuring, and they can still come after you for any unpaid balances. By contrast, the moment you file your bankruptcy case, many of your creditors are prohibited by law from taking any legal actions against you, and once your bankruptcy is complete, many of your debts are gone forever. Furthermore, credit counselors do not necessarily have your best interests in mind-they are often owned by the very creditors that are making your life miserable to begin with. Don't let their non-profit claims fool you-when you use a debt counselor, someone is making a lot of profit off you, and in most cases you'll still be hopelessly in debt.
#9: Bankruptcy will ruin my credit record.
Fact: This is absolutely false. What ruins your credit record is your inability to pay your debts on time. After your bankruptcy case, many of your debts will be discharged, and you will be given a fresh start. If you can keep on top of any new debts you incur after you emerge from bankruptcy, your credit record should actually improve.
#10: Filing bankruptcy makes me a bad person.
Fact: Absolutely not. Congress passed the bankruptcy laws to help individuals and businesses with severe financial problems get a fresh financial start and become productive members of society again. Millions of businesses and individuals file for bankruptcy each year. Moreover, many famous people such as Larry King, Walt Disney, Donald Trump and even former President Ulysses S. Grant have filed for bankruptcy during their lives.
Contact Us Today for Your Free Consultation
For more information about your bankruptcy options, contact us for a free initial consultation. Contact us at 703-873-7473 or contact us toll-free at 888-503-8075. For online assistance, contact us by e-mail.
Those charged with criminal offenses tend to make the same mistakes that often later impair the viability of their legal defense. From understanding the basic procedure of a criminal case, to finding the right criminal defense attorney and avoiding the common critical mistakes that destroy cases and result in convictions, Manikas Law LLC offers free copies of several books that assist the reader in placing themselves in the strongest possible strategic position.
