Bankruptcy Facts

Answers

What is bankruptcy? Bankruptcy is a legal proceeding that allows a person or business, with financial difficulty, a fresh start by canceling many debts through a court order called a discharge. However, child support, alimony, student loans, some taxes, traffic tickets, criminal fines and restitution are not discharged. Debts incurred by fraud or misrepresentation (i.e. active use of credit cards just prior to filing or overpayment of benefits), if challenged by a creditor, may also survive a bankruptcy. [top]
What can bankruptcy do for me? Bankruptcy is a powerful tool to stabilize your money problems. Some of the ways bankruptcy can be used are to stop a foreclosure, stop a repossession, get a reposessed auto back, stop a garnishment (unless it is for child or spousal support), stop an eviction, and stop creditors from collecting on debts you can’t afford to pay. Additionally, you may be able to reduce the amount of your car loan closer to the value of your car and/or reduce a high interest rate car loan through a contract modification. An attorney can discuss whether bankruptcy is an option for you and how bankruptcy can help. [top]
What kinds of bankruptcy are there?

There are four types of bankruptcy available to individuals.

  • Chapter 7 is a liquidation of assets
  • Chapter 13 is a payment plan for individuals with regular income
  • Chapter 12 is a payment plan for farmers and fisherman
  • Chapter 11 is a complex payment plan typically used by business debtors, but individuals with substantial debts and assets may find relief under this chapter.

Typically, most individuals look to chapter 7 or chapter 13 for relief. Both may provide payments to creditors and a discharge from debt.

In both chapter 7 and chapter 13 bankruptcy, once the case is filed, most creditors must stop efforts to collect debts. [top]
Does bankruptcy discharge debts incurred after the case is filed? Bankruptcy only discharges the past debts listed by the debtor on the bankruptcy petition. Future debts must be paid. [top]
How long will my credit be affected? A bankruptcy will remain on your credit for 10 years. However, it does not normally take 10 years to re-establish your credit. Credit will be available for some purposes immediately upon filing; the interest rates will be higher. [top]
I am married but my spouse does not want to file, what can I do? Married persons can file an individual bankruptcy petition; although your spouse’s income and expenses may be required to complete the bankruptcy petition depending on your situation. [top]
Do I need to go to court? Not in most cases. A chapter 7 or chapter 13 bankruptcy filing requires the debtor to appear at a meeting of creditors held about 30-40 days after the petition is filed. At the meeting, you will be sworn in, your identity verified (bring a drivers license and original social security card) and asked questions about your petition as of the date of filing. The meeting is held in a conference room and is usually brief and relatively informal. If you have hired a bankruptcy attorney, your attorney will be present at the meeting to assist you. [top]
How do I know if bankruptcy is right for me?

Whether or not to file bankruptcy is a very personal decision. Please review the following situations, and if several apply to you, you might consider bankruptcy.

  • Your wages have been garnished (or your payroll office has told you they will be garnished) or your bank account has been attached;
  • Most of your debts are unsecured debts like credit card bills, hospital or doctor bills, etc;
  • Collection agencies are calling you at home and or work daily;
  • Your payments are more than 30 days behind on more than one bill;
  • There are pending lawsuits against you;
  • You have high medical bills not covered by insurance that you are unable to pay;
  • You owe income taxes that you are unable to pay;
  • You have few assets;
  • You have little or no savings;
  • You have had property (car) repossessed.
A bankruptcy will stop a garnishment and the bankruptcy may be able to get some of the garnished money returned to the bankruptcy estate if the underlying debt is unsecured nonpriority. However, if the debt being garnished is for domestic support (child or spousal) then the garnishment will be reinstated once the garnishing agency submits a proof of claim to the bankruptcy court. [top]
What should I do if I am considering filing bankruptcy? You are welcome to schedule a free attorney consultation with our office. At the consultation, an attorney will analyze your financial situation and discuss any bankruptcy and non-bankruptcy options available. [top]
What do I need to bring to my consultation appointment?

When you make an appointment with our office, a packet of information will be mailed to you immediately to give you time to collect the information we need to fully understand and discuss your financial situation with you. Here is an idea of the information our office will need to file your bankruptcy petition.

  • Your last 6 months of pay stubs. If you do not have the pay stubs, you can request a print out from your employer. We need to know your gross wages and the withholdings per pay period. If you are self-employed, you will need to show your gross income and your business expenses for each month.
  • The past two years tax returns. If you haven’t filed, and you should have filed please collect your W-2’s and other required tax information in preparation to file. If you are not required to file, please let your attorney know.
  • Six months of bank statements for all open bank or credit union accounts (savings, checking, etc) in your name, both as an individual or on a joint account.
  • Foreclosure notices you may have received.
  • Record of any property that has been sold or transferred in the past two years.
  • Copies of contracts for any secured transactions you have entered into (home loans, auto loans, furniture loans, etc) during the past 2 ½ years.
  • Statements from all creditors. If accounts have been transferred to collection agencies, bring the letters.
  • Recent statement from your 401K, IRA or profit sharing plan.
  • Statement from any educational IRAs
  • A comparative market analysis (CMA) is helpful in determining the market value of your home. You can contact a licensed real estate agent and request a CMA. You do not have to tell the real estate agent that you are considering bankruptcy, simply request a CMA.
  • The most recent property and school tax statements.
  • Copy of any insurance policy with a cash surrender value.
  • Copies of any legal proceeding to which you are a party (as either plaintiff or defendant)
  • Information regarding any potential inheritances that you have received or you may be entitled to receive.
  • Record of a state tuition program.
  • Record of a medical savings plan.
  • Divorce decree if you divorced in the past 5 years.
  • Court order creating child or spousal support obligations.
  • Print a copy of your free credit report from www.annualcreditreport.com and bring it with you.
We realize the list of requested information is long, but realize not every person considering bankruptcy owns a home or has an IRA. You only need to bring the items that relate to your specific situation. Your financial information will provide the basis for the options the attorney will be able to suggest during your consultation. [top]
If I decide to file for bankruptcy, what do I need to do before filing? Prior to filing bankruptcy, debtors are required to receive credit counseling from an approved agency within 180 days prior to filing. Our office will provide you with a copy of the approved agencies at your consultation or a list of approved non-profit agencies can be found at the United States Trustee website. [top]
How do I file bankruptcy? A bankruptcy petition must be completed and filed with the United States Bankruptcy Court. A bankruptcy attorney can prepare the petition on your behalf. The bankruptcy petition must truthfully disclose all income, expenses, assets, debts, and other relevant information. If you intentionally leave any of the requested information out of the petition you file with the court, you may lose discharge of a specific debt or be denied discharge of any debt. Even worse, lying to the Bankruptcy Court subjects you to felony criminal prosecution. Open and honest information regarding your circumstances will prevent future problems. [top]
How much does bankruptcy cost? The court filing fee for a chapter 7 is $299. The court filing fee for a chapter 13 is $274. Attorney fees vary depending on the complexity of your situation. Our fees are reasonable and will be discussed at the free consultation after we have had an opportunity to discuss your financial situation with you. [top]
What happens after I file a bankruptcy petition?

Immediately upon filing, the automatic stay goes into effect and creditors can no longer contact you or take any further action to collect a debt. Approximately ten days after filing, you and your creditors will receive a Notice of Commencement of Case advising of the bankruptcy filing and the hearing date for your Meeting of Creditors. The hearing is mandatory and will be held approximately 30 days after the case is filed. The hearing itself takes about 10 minutes; however, you may be at the court for about an hour. The trustee, who is appointed by the court to administer your case, will swear you in and ask questions to verify that your schedules are true and accurate. Creditors are also allowed to ask questions relating to your financial affairs while you are under oath. In most cases, creditors do not appear.

If you have filed a Chapter 7 case, creditors have 60 days from the date of your meeting of creditors to file a complaint to determine the dischargeability of its debt. If no complaint is filed, the dischargeable debts are discharged and your case is completed.

If you have filed a Chapter 13 case, approximately 30 days after the Meeting of Creditors, the case will go before the court of Confirmation. If the payments are current, there are no objections, and all relevant provisions of the Bankruptcy Code satisfied, the Plan will be confirmed. As soon as all obligations have been met under the plan, the case is discharged and the plan completed. [top]