Under federal law, you have the right to file for bankruptcy relief from your creditors. Bankruptcy is a legal proceeding in which a person can get a fresh financial start. Bankruptcy can be very useful and effective in dealing with financial problems in certain cases. However, it is not the solution to all economic troubles or the right step for everyone.
The only way to make sure bankruptcy is appropriate for you is to discuss your situation with an attorney familiar with bankruptcy. Every case is different, and laws evolve every so often. This article gives you some fundamental knowledge, but it does not substitute for consultation with an attorney.
Some important things bankruptcy may possibly do:
- Discharge the legal duty to pay most or all of your debts. This is called a “discharge” of debts.
- Halt foreclosure of your residence and allow you to catch up on missed payments.
- Halt repossession of a vehicle or other belongings, or, in some situations, force the creditor to hand back property even after it has been repossessed.
- Prevent wage garnishments.
- Stop debt collection harassment.
- Get your drivers license back if it has been suspended because you didn’t pay court-ordered damages for a driving accident (unless you were driving under the influence of drugs or alcohol).
Some things bankruptcy can not do:
- Eliminate certain rights of secured creditors, such as car loans and home mortgages. You can force secured creditors to take payments over time, but generally, you can not keep the house or car unless you continue to pay the debt.
- Discharge debts that arise after the bankruptcy has been filed.
- Discharge certain types of debts, like child support, alimony (spousal maintenance), certain other debts associated with divorce, most student loans, court restitution orders, criminal fines, and most taxes.
- Eliminate the obligation of a co-signer on your loan in most cases.
What types of bankruptcy can I choose?
This is also called a “fresh start” bankruptcy, or “liquidation”. Your debts are discharged (canceled), but you must surrender any nonexempt property to the trustee to pay to your creditors. You can keep secured property if you are current on the payments and continue making the payments regularly.
This is also called “reorganization”, “Wage earner plan.” Chapter 13 enables you to keep valuable property, such as your home or car, which you might in different circumstances lose as a result of past due payments. You can retain this type of property in Chapter 13 if you are able to make the required payments. Most often that will be the routine monthly payments plus a payment toward the arrears. In Chapter 13, you are able to have between three and five years to pay back the arrears.
What assets can I retain?
In Chapter 7 bankruptcy, the trustee can take your non-exempt property and liquidate it to pay your creditors. Usually, though, you can make an agreement with the trustee to buy it back, if you desire to and are able to. In Chapter 13, you can keep all property, even non-exempt property, as long as your unsecured creditors get the value of the non-exempt property through your Chapter 13 plan.
Tax refunds and earned income credits are not exempt and will be able to be taken by the bankruptcy trustee, depending on the time when you file your bankruptcy case. You should speak to an attorney at law before filing bankruptcy to see if this will affect you.
If you own property, which is non-exempt, you might sell it prior to filing bankruptcy and make use of the funds to purchase things, which are exempt; such are food, furniture, or clothing. However, you can not give property away to friends or relatives, and have them give it back to you after the bankruptcy.
Any transfers of property without receiving fair value for it within one year before filing bankruptcy are called a fraudulent transfer. The property could be taken by the bankruptcy court and sold to cover some of your debts. If the court discovers you have been dishonest in your bankruptcy, you could be denied your discharge. You could also be charged with federal or state crimes, which bear serious fines and jail sentences.
In addition, you can not prefer one creditor over another by making payments on the debt within 90 days before filing bankruptcy (one year if the person paid is an “insider” (family, friend, etc.) If you do so, the bankruptcy court can take that money away from the person you paid. This is to ensure that all creditors are treated in the same way. This does not apply, though, to regular monthly payments for example, your car payment, house payment, rent, utilities.
Will I have to attend court?
In most cases, you will only have to go to one hearing called “meeting of creditors”, and this is not court. It’s held at the office of the Trustee. Usually, this will be short and simple. The truste ewill ask you a few questions, including your name, address, whether you have had a bankruptcy discharge before, how long you have lived here. Creditors are permitted to attend and ask you questions, although it’s exceedingly rare for any creditors to attend. They can not be abusive, however, so please don’t worry. Usually, your case will be completed within 4 to 6 months from filing it.
How will bankruptcy have an effect on my credit rating?
The information that you filed bankruptcy will be on your credit report for 10 years. However, if you have a lot of debt and are behind on it, then your credit probably isn’t very outstanding anyway. Late payments and unpaid debts will remain on your credit rating for 7 years. Filing bankruptcy doesn’t necessarily mean you won’t be able to have credit during the 10 years afterward. Many companies will lend to people who have filed bankruptcy, but they may charge you a higher interest rate than if you had not.
Can I be discriminated against for filing bankruptcy?
Law prohibits employers or government agencies from discriminating against you because you have filed for bankruptcy.
Can I file bankruptcy by myself?
You can file bankruptcy by yourself. There are do-it-yourself kits to choose from at book and stationary retailers, which cost approximately $25.00. Unfortunately, I do not strongly recommend that you file on your own. Every case is distinct. You could lose valuable property or rights if you don’t know what to do or not do. The people at the bankruptcy court are not allowed to advise or help you with your case.
While Chapter 7 is ordinarily easier than Chapter 13, even in Chapter 7, there can perhaps be legal problems you won’t know how to handle. It’s always best to seek advice from an experienced attorney at law. Very few people have successfully completed a Chapter 13 case without a lawyer or attorney.
What about attorneys and document preparation?
When you speak with a lawyer, ask him/her if he/she is experienced in bankruptcy. Before you make an appointment, ask if there will be a cost for the first appointment. If you consult a lawyer, be sure to ask him/her how much it will cost you for representation and what services you will get for the fee. Ask to see this in writing.
Non-lawyer document preparation: There are a number of non-lawyers who can prepare bankruptcy papers for a fee. Largely, it is not a good idea to employ these services.
Because they are not attorneys, there is no one watching their work, as the Bar Association does with lawyers. The non- lawyer services are not licensed to advise you about how to fill out your papers Also, in many cases, you can hire a lawyer for the same cost, or only a moderately higher fee than, you will pay the non- attorney for preparation. The court does not permit non- lawyer s to charge more than $200 and does not allow them to take your filing fee. Rather than take a chance on losing money to a person, who may not handle your case properly, call several bankruptcy lawyers and ask their fees. If you don’t know a lawyer, ask friends or family or look in the telephone yellow pages or online.