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.
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.
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 arerarely 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.
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 do I need to begin the bankruptcy process?
Compile a list of past and present debts as well as a schedule, or list, of assets and liabilities. You’ll also need a statement of financial affairs to file with the bankruptcy court in addition to your filing fee.
Isn’t filing a bankruptcy just a matter of doing the paperwork?
For some reason, many people believe that anyone can prepare a bankruptcy petition at any time and get rid of debt. Nothing can be further from the truth. While it is true that anyone can file a Chapter 7 or 13 bankruptcy, the trustee and the bankruptcy court will look at many factors (including your assets, income, nature of debt, etc.) in your case before allowing you to obtain a discharge. For this reason, it is important for every potential debtor to do the research, whether individually or through competent counsel before filing.
Can I file without an Attorney?
Yes. You can file a bankruptcy yourself, and this is called “filing pro se”. Bankruptcy law is very complex; however, so doing your own case can be a very bad idea. Considering the time and risk involved, it is generally recommended 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.
Why do I need an attorney vs. a paralegal or myself?
Many people do not know the distinction between licensed attorneys and paralegals/legal document service providers and often choose the latter to save money. For one, paralegals cannot give any legal advice. This means that they can only prepare and type the petition based on the information you give them (in other words, you will be your own attorney throughout your bankruptcy). As such, you will be responsible for doing the legal research to exempt your assets, answering the questions in the petition, preparing your schedules, and representing yourself at the §341(a) hearing. Unless you have the time, knowledge, and experience to do this on your own, you will be better served to leave your worries with an experienced attorney who can do all of these things and advise you throughout your bankruptcy. Filing a bankruptcy is not as simple as it may seem. Even simple mistakes can be extremely costly, especially if you have valuable assets (including your home).
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.
If I file for bankruptcy will I lose my property?
The vast majority of people are able to keep all of their possessions after filing bankruptcy. How? Federal and state laws have been created to allow you to exempt your assets and protect them from being taken by the bankruptcy trustee. The fact is, most people do not have enough valuable assets to exceed the exemption amounts provided under the law.
If I file for bankruptcy what will happen to my home?
This is a very common concern for potential bankruptcy filers. Under state law, bankruptcy filers may take a homestead exemption of up to $125,000. If the equity in the home exceeds the appropriate homestead exemption, the bankruptcy trustee may elect to sell the property and administer the excess equity for the benefit of the creditors. Thus, it is very important for homeowners to know the market value of their homes before electing to pursue bankruptcy.
How long does Bankruptcy stay on my credit report?
All negative information such as late payments, collection accounts, legal actions, repossessions, defaults, and the like stay on your record for seven years. Similarly, a bankruptcy filing will stay on your credit report for seven to 10 years. However, many people interpret this as being unable to obtain credit for the next seven to 10 years following a bankruptcy filing. Nothing could be further from the truth. In fact, there are many steps that debtors can take post-bankruptcy to rebuild credit and purchase property.
If I file for bankruptcy, will I ever be able to obtain credit again?
Many people are surprised when they are told they can obtain credit cards and purchase a car upon receiving a discharge through bankruptcy. It may sound incredible, but it is true. Why? Many filers suffer years of poor credit ratings and high debt-to-income ratios before finally deciding to file bankruptcy. For such filers, bankruptcy lowers the debt-to-income ratio and permanently stops the creditors from reporting late charges, defaults, and other negative remarks to the credit bureaus. As a result, many debtors find that once they receive a discharge, they can obtain car loans and credit cards without much hassle. These loans, however, usually come at a greater cost to the debtor through high interest rates.
With regard to purchasing an automobile, many debtors qualify for an auto loan immediately upon receiving their discharge despite the recent bankruptcy and negative credit. The cost to the debtor will be in the form of higher interest rates. With timely payments over an extended period of time (one to two years), many lenders are willing to refinance the vehicle for a better interest rate.
As for home purchases, many lenders will grant financing, provided that the debtor maintains perfect credit for at least two years after receiving the bankruptcy discharge and has saved a significant down payment. In some cases, a debtor may qualify for a home loan prior to this two-year period with little or no down payment. Whether you qualify for a home purchase will depend on many other factors in addition to your credit and down payment. The point here is that it is not impossible to purchase your dream home with a bankruptcy on your record.
Will anyone find out about my bankruptcy filing?
Although it is a matter of public record, unless you are a public figure or famous, it is very unlikely that your friends, family, or co-workers will ever find out about your bankruptcy filing. In most cases no one other than the debtor, creditors, attorneys, and court officials will ever know about your bankruptcy filing.
What’s a joint petition?
A joint petition is when an individual and a spouse file a single petition. Unmarried partners must each file a separate case.
What happens if one spouse files for bankruptcy and not the other?
If one spouse files and the other doesn’t, the one who doesn’t file could be responsible for the debts. Review this carefully before filing.
Will I have to go to court?
Anyone who decides to file bankruptcy must attend a hearing known as the §341(a) meeting of creditors. The hearing usually takes place 30 to 45 days after the bankruptcy petition is filed and is presided over by the trustee assigned to the case. Those who decide to use a paralegal service or prepare the bankruptcy petition on their own must represent themselves at this hearing. All testimony at this hearing will be given under oath and penalty of perjury.
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.
Who lets my creditors know I’ve filed for bankruptcy?
The bankruptcy court notifies all creditors by mail.
Can a creditor continue to contact me after I’ve filed for bankruptcy?
During the time the debtor is working out a plan or the trustee is gathering and preparing the assets to sell, the bankruptcy code dictates that creditors must stop all collection efforts against the debtor. As soon as the bankruptcy petition is stamped “Relief Ordered” upon filing, you’re immediately protected from your creditors. This is called an automatic stay. After that time, if a creditor attempts to collect a debt, immediately notify the creditor in writing that you have filed bankruptcy, and provide them with either the case name number and filing date, or a copy of the petition that shows it was filed. If the creditor still continues to collect, you may be entitled to take legal action against them.
Will I lose my retirement accounts or payments from social security?
Generally, no. Retirement accounts that are ERISA-qualified aren’t considered property of an estate and aren’t taken into consideration as assets. Social Security benefits are protected from assignment, or garnishment for debts in bankruptcy. Once paid, the benefits continue to be protected only as long as they can be identified as Social Security benefits. For example, money in a bank account where the “only” deposits into the account are direct deposits of Social Security benefits are identifiable and generally protected.
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