Getting A Fresh Start
One of the hardest processes to accept is the filing of bankruptcy. After the hard economic times, our country has faced throughout the past few years, we understand that times can get extremely difficult and that you feel like you are just underwater in debt. You try so hard to get your head above water. But, it is just nearly impossible based on unexpected debt that has incurred. Many clients tell us, “I feel like I am robbing Peter to pay Paul.” This is not a way to live. We also understand that creditors can be harassing and difficult to handle when they are calling. But understand, there is help. There is a way out. Bankruptcy can be a lifeboat that brings you back to shore when your finances are sinking. No, it is not going to look good on your credit; however, it is a chance to start a new. You will begin a better lifestyle after the process is finished.
You may be able to use Chapter 7 to provide you with many benefits.
It is for people with few or secured assets that they are willing to give up.
Chapter 7 is the type of bankruptcy that liquidates your debts except those that cannot be discharged. It lets you keep basic assets, like household goods, a certain amount of equity in your home or car, and all retirement and pension funds. There is no payment plan and the entire process to the date of discharge could be as short as 120 days.
You can stop a pending foreclosure for a number of months, even if it is your intent to walk away from a mortgage you cannot afford. It will stop the foreclosure process and give you the time needed to find a new place to live. The mortgage company would file a motion for relief, which usually takes one month to complete. The lender would then have to start the foreclosure process all over again. You could have an additional 3-4 months in the home. Chapter 7 does not allow you time to catch up on your mortgage. Most people, if behind, will surrender their homes. It will give you some time to move at your discretion.
If you intend to keep any secured creditor’s collateral, ex. an automobile, you must keep the payments current.
Under Chapter 7, you pay the court costs and attorney fees before filing.
Chapter 7 bankruptcy may eliminate most kinds of unsecured debt. Some examples of unsecured debts Chapter 7 may eliminate are credit cards, medical bills, most personal loans, judgments resulting from car accidents and deficiencies on repossessed vehicles.
In addition to getting rid of your debt, Chapter 7 typically allows you to keep all of your property. As long as your car and mortgage payments are current, and there is no significant equity in your property, we should be able to request the creditor to allow you to reaffirm the debt.
Keep your home, keep your car, keep your personal belongings, but eliminate your debt: that is our goal with Chapter 7. You may be able to use Chapter 7 to provide you with many benefits.
Are you trying to save your home from foreclosure? Is the “repo” man looking for your car?
Chapter 13 is for people with income and with assets that they do not wish to lose. Your main attention is to preserving your assets.
Chapter 13 puts an immediate stop to foreclosures and repossessions. It allows you up to five years to catch up on the missed mortgage payments or to pay your secured creditors. Most times we are able to reduce the interest that you are paying on your cars and the other creditors, but not your mortgage.
In many cases, you can wipe out some or all of your credit card debt as well as any other unsecured creditors. It is a good opportunity to keep home, cars and personal property when you need time to catch up.
Under Chapter 13, you are making payments to a trustee, usually by payroll deduction, who in turn pays the creditors your attorney has proposed under the “Plan”. Your unsecured creditors could receive anywhere from 100 cents on the dollar to 0 cents on the dollar with no interest. It is all based on your income and normal living expenses.
Chapter 13 bankruptcy is a debt repayment plan through which you consolidate your debts and make a payment on your debt over a three- to five-year period. While in a Chapter 13 debt repayment plan, the creditors cannot collect from you, and the creditors are required by a Federal Court order to adhere to the terms of the plan.
Immediately upon filing and your creditors being notified, they must cease all communication with you as the court will issue an automatic stay. This includes foreclosures, repossessions, wage garnishments, harassing bill collection calls and collection letters. You will be protected from these until your case pays out.
One very important thing to remember about Chapter 13 bankruptcy is that you must be working or have a consistent source of income for your repayment plan to be approved by the court. Not only must you be able to pay for your monthly living expenses, but you must also be able to make a payment to the court to consolidate your debts.
Debts that are generally consolidated in a Chapter 13 bankruptcy are mortgage arrears, balances on vehicle loans, credit card debts and other unsecured debts. All outstanding debts must be included in the Chapter 13 bankruptcy consolidation.
About Bankruptcy, Chapter 7 and 13
How filing bankruptcy might help you
Many of our clients call when they are about to lose their home, car, or the IRS or other creditor has garnished/levied their wages. Some call because they have been served with a lawsuit or judgment. Others come when they can’t take the bill collectors’ calls “blowing up their phone” anymore, or when they have run out of payday loans or new credit card offers they were using to “rob Peter to pay Paul.” Some clients come to see us AFTER they have used all of their savings or retirement, or pawned the title to a car to pay their debts, only to find that none of this fixed the problem; it simply delayed them coming to see us. Some clients tell me, “I am in a hole and can’t get out.” My best advice when a client says this is, “If you are in a hole, quit digging!”
We know you have tried so hard to get your head above water. But, it is just nearly impossible based on unexpected debt that has incurred. Bankruptcy, either through bill consolidation (Chapter 13) or straight Chapter 7 bankruptcy, can stop foreclosure, levy, the “repo man,” and garnishments, and give you the breathing room you need to catch up.
And you generally get to keep all of your exempt property.
So, let’s discuss the two main kinds of bankruptcy. The two main kinds of bankruptcy for individuals are Chapter 7 bankruptcy and Chapter 13 bankruptcy.
Frequently Asked Questions:
How will bankruptcy affect my credit?
I will not mislead you. Bankruptcy always looks bad on your credit report, and it will stay on your credit report for seven to ten years. But, by the time most people come to see me, their credit report is already shot. At that point, filing bankruptcy can sometimes improve the credit report since, upon receiving your discharge, you are no longer legally liable for the discharged debts.
Will I ever be able to buy a house or car after I file bankruptcy?
Yes. You will be eligible for most VA, FHA and conventional mortgages, two to five years after your discharge. Many car lenders will finance a car for you quickly after your discharge if you file a Chapter 7 bankruptcy. Also, you may even purchase a vehicle, if you file a Chapter 13 bankruptcy, during your plan if the Chapter 13 Trustee or Court approves. Please understand, however, that you will still need to qualify for these loans and you will probably be charged higher interest than a person with good credit, but you will be allowed to begin rebuilding a good credit rating.
Can I discharge my traffic tickets and other government fines in bankruptcy?
Generally, fees and fines owed to a government – whether local, state or federal – are not dischargeable, e.g., traffic violations, parking tickets, toll fee violations, and criminal restitution.
Is debt “settlement” or “consolidation” better than filing bankruptcy?
Generally, no. Most of these programs cost more than filing bankruptcy, most of them are not successful, and some are scams. They often take longer than bankruptcy and can leave your credit in shambles, even after all the payments are made. There are many debts that cannot be addressed with debt settlement companies, like car payments, etc. You will be left to deal with those creditors directly. How is that helping to get you into “one lower payment” per month? It isn’t.
If I am married, does my spouse have to file with me?
No. A married couple has the right to file a joint bankruptcy, and I do not charge extra fees for filing a joint case. However, just because you are married doesn’t mean your spouse must file, too. I find many situations where the spouse has little debt and good credit. In that instance, I advise my clients for their spouse NOT file with them. In most cases, the non-filing spouse’s credit will not reflect the bankruptcy of the filing spouse.
Can I discharge my child support or alimony in bankruptcy?
No, you will remain liable for these obligations after your discharge. However, in Chapter 13, past-due child support and alimony can be paid through your plan over 3 to 5 years and prevents your ex-spouse or DHR from garnishing your wages to collect the past-due amounts. You are required to stay current on your regular support payments in Chapter 13, and your case will be dismissed if you get behind on these payments.
Can I file for bankruptcy more than once?
Yes. The time between filings depends on whether you received a discharge in the previous case or your case was dismissed before discharge. It also depends on the Chapter you previously filed and the Chapter you are looking to file now.
If you received a discharge in your prior Chapter 7 bankruptcy, you are eligible to file another Chapter 7 eight years following the filing date of your first case; if you want to file a Chapter 13 after a Chapter 7, you are eligible to file four years after the filing date of the prior case.
If you received a discharge in Chapter 13, you might file a Chapter 7 six years after the filing date of your prior bankruptcy.
If you filed a Chapter 13, and it was dismissed, you may file another chapter 13 bankruptcy at any time if you can show a change in circumstance since the dismissal, unless the order of dismissal in the prior case bars you from filing for a specified time period (often 180 days) which can happen if you voluntarily asked for the case to be dismissed after a motion for relief from stay was filed or for other grounds the court may specify.
Will I be able to get credit after bankruptcy?
Yes, you will be able to get credit after you file bankruptcy. Most people find that shortly after filing bankruptcy, they receive many credit card offers. Although we do not encourage you to take credit card offers—after all, we are trying to get you out of debt—you will be given many offers for credit.
Will bankruptcy discharge ALL my debts?
Probably not. First, bankruptcy discharges your liability on unsecured debts — if you do not make payments on a secured debt, such as your house, car, or furniture, that creditor still has the right to repossess its collateral. In Chapter 13, these secured debts can often be restructured or the past-due payments paid back through your Chapter 13 plan. Also, not ALL unsecured debts are dischargeable in bankruptcy. For example, many taxes, child or spousal support, most student loans, and restitution obligations are not dischargeable in any Chapter in bankruptcy, although they may be repaid through a Chapter 13 Plan. In Chapter 7, there are more debts that are not dischargeable. When you come in for your free consultation, we will review these ‘problem’ debts and decide what options are best for you.
How much does bankruptcy cost?
That depends on your problems. In Chapter 13, our legal fees are set by the Bankruptcy Courts to ensure that they are fair and reasonable.
How can I pay for my bankruptcy?
In Chapter 7, all fees must be paid before filing the case. We do not mind taking payments on a Chapter 7 bankruptcy, but cannot file the case until all fees have been paid in full. In Chapter 13, the attorney fees are generally paid in and through the Chapter 13 Plan, unless there are unusual circumstances.
Will notice of me filing for bankruptcy run in the newspaper?
No. Bankruptcy filings are public record, which means if someone went to the Federal Court, they could search records to ascertain who has filed a bankruptcy; however, most people will never do that. No one has time to go through all of those records. Notices of foreclosure do run in the local newspaper, but there is NO notice run for anyone filing for bankruptcy.