What is Bankruptcy?
An action under Chapter 7 of the Federal Bankruptcy Code to discharge, (cancel) debts is the usual meaning of the term “Bankruptcy”. The Code also provides for resolving financial problems through bill consolidation, adjustment of debt under Chapter 13, and for business reorganization under Chapter 11.
Bankruptcy is no longer available, is it?
The Bankruptcy Code was substantially changed by the Republican controlled Congress, effective Oct. 17, 2005. While the changes were very anti-consumer and harmful for those needing bankruptcy debt relief, both forms of bankruptcy, Ch. 7 ‘straight’ bankruptcy, and Ch. 13 ‘debt consolidation’ are still very much available. In fact, in some cases, the new law is more beneficial to a debtor than before, when it is prepared properly by an experienced and knowledgeable attorney.
I don’t want to go bankrupt, isn’t Chapter 13 bill consolidation just another kind of bankruptcy?
Not really. Chapter 7 bankruptcy is designed to provide a fresh start through obtaining a discharge, or release, from debts. Chapter 13 is designed to use the court’s power to provide you an affordable consolidation plan to pay your debts. Eliminating most interest and forcing unsecured creditors to wait until cars, other secured creditors and taxes are paid, can result in amazingly low payments.
If a person can’t keep up with his debts, is bankruptcy or bill consolidation usually the best solution?
Ch. 7 or Ch. 13 is usually the best option. There are other choices, but it’s important to analyze your alternatives with an attorney’s help and take the best action. Sadly, many suffer misery for years and even destroy their marriages over financial problems which could be readily resolved with a good bankruptcy strategy.
My car payments are killing me, can’t I just return my car or let it be repossessed and be free of the debt?
Unfortunately, when lenders get your car back, they sell it wholesale and then come after you for any difference. This kind of debt can, however, sometimes be eliminated without a chapter 7 bankruptcy using a special provision of chapter 13.
See also: Repossession and Assets
Can’t I stop creditors from suing by just paying each of them a little each month and gradually work my way out of the problem?
Sometimes a gradual payoff approach can work. But if the total amount of debt doesn’t seem to go down no matter how hard you try, or if you have to borrow to make your payments, you should consider other bankruptcy alternatives. Remember interest charges are eating up a lot of what you pay to creditors and your credit score still suffers, even with payments.
How quickly can creditors be stopped by filing under the Bankruptcy code?
There is an immediate automatic stay the minute you file which prohibits all debt collection by creditors, including foreclosures, lawsuits, wage garnishments, attachments, even phone calls. The court will severely penalize deliberate violations of the stay. However you may still receive some letters and calls before word filters through all departments of your creditors.
Can a creditor obtain relief from the stay?
Under certain circumstances. For instance, Real estate creditors may apply for relief if their payments aren’t kept current, and vehicle creditors may if insurance lapses.
Can all debts be discharged through a Chapter 7 bankruptcy?
Almost all can. Some exceptions are: child and spousal support, most taxes, most government insured student loans, criminal penalties, fraud debts drunk driving damages.
What can I do about debts that chapter doesn’t discharge?
A Chapter 13 plan can be used to pay these debts. In fact, Chapter 13 can sometimes even be used to discharge certain debts which aren’t dischargeable through Chapter 7. This is the Chapter I “super discharge”.
My military advance pay debt is being paid back through an automatic advances. Can I discharge this under Chapter 7?
Yes you can! Advance pay is just like any other unsecured debt. It is dischargeable in a Chapter 7 bankruptcy.
Can the military refuse to allow me to reenlist or jeopardize my career if I file a chapter 7 or 13?
No. This is specifically prohibited by law. What will cause you problems is creditors contacting your command trying to collect their bills. A filing under the Bankruptcy Code stops this creditor action.
Can my employer fire me because I file a Chapter 7 or 13?
No. The bankruptcy code specifically prohibits firing or discrimination against an employee because of a filing under any chapter. Actually your employer usually won’t even know you filed.
Can the judge refuse to grant me a bankruptcy discharge?
Not in the usual case. Under extremely unusual circumstances a discharge can be denied. However, an experienced attorney can help prepare your filing to minimize this possibility.
Will I lose my car or furniture or other assets?
Probably not. You are allowed to exempt up to a certain amount of assets from liquidation so that in most cases there are no nonexempt assets. Most security rights, however, are not eliminated, so with a car loan, for instance, you will either have to surrender the car or continue to pay for it.
Can I stop IRS or the state from intercepting my tax refund?
The law allows tax refunds to be withheld for back taxes, student loans or back support. Sometimes this may be stopped under Chapter 13 though usually not under chapter 7. The best solution is to adjust your withholding so that just enough is withheld to cover your current tax liability.
Can I pay old taxes and back support through a chapter 13 even when I already have a payment arrangement with IRS or Revenue and Recovery?
Yes! Chapter 13 is one of the best ways to take care of back taxes because it doesn’t require negotiations with IRS and can eliminate ongoing interest and penalties.
Should my spouse file bankruptcy with me?
In some, perhaps most cases, yes. There is no extra charge. However, all factors should be considered. For instance a spouse might file separately if there is a separation, or sometimes if finances are kept entirely separate, or if the debts predate the marriage.
Can the creditor harass my cosigners if I file?
Under the Chapter 7 cosigners have no protection, under Chapter 13, however, cosigners are protected if the creditor is provided for in full through the plan.
My drivers license has been suspended because I was uninsured when I had an auto accident. Can I get my license back if I file bankruptcy?
Yes, you can! (Provided you also show proof of current insurance.)
Do I have to list all my creditors? I want to keep one credit card.
The law requires that all creditors be listed. However if no balance is owed, the party usually wouldn’t be listed. Sometimes a low balance account is paid off before filing in order to avoid the necessity of reporting the account, however, unless the amount is nominal, this could be a preferential payment subject to avoidance by the trustee.
But can I still pay certain of my debts after bankruptcy?
Certainly. For instance, you may want to pay a car loan so you can keep the car, or pay a family member or protect a cosigner. In chapter 13, of course, such debts would usually be paid through the monthly plan payment.
Can I take care of the foreclosure on my home with a bankruptcy or Chapter 13?
Chapter 13 is excellent for this! The automatic stay stops the foreclosure, then you resume your regular house payments and pay off the arrearages along with your other debts through the monthly plan payment Chapter 7 can buy a little time, but it can’t solve the arrearage problem.
How is my credit effected by a bankruptcy filing?
A Bankruptcy Code filing will stay on your record with Experian and other credit agencies for as long as ten years. However, within two years or less, credit can be re-established even with a filing on your record. (See our pamphlet explaining credit effects.)
See also: Credit Repair
I need good credit, don’t I?
This idea is widely promoted by those who make big profits from credit. Actually, you can live better without credit! Think about it – money you pay in interest charges is money you can’t spend on your needs! It takes discipline and patience to stay away from credit, but except for buying a home and a credit card for emergencies, you’re usually better off without consumer credit.
After I file chapter 7 bankruptcy or chapter 13 consolidation how can I re-establish my credit so I can buy a home, and how can I get a credit card?
FHA and VA insured home loans can be approved immediately upon completion of a chapter 13 plan. Two years after a chapter 7 bankruptcy, if credit is re-established, FHA or VA will approve home loans. Credit can be re-established by a good payment history with a secured Master Card or Visa which can be obtained after filing Chapter 7. (See our pamphlet explaining credit effects.)
How often can a person file bankruptcy?
Chapter 7 can be used to obtain a discharge only once every eight years. Chapter 13 can be used more frequently.
Isn’t it immoral or irresponsible to file for relief under the Bankruptcy Code?
Certainly not. Congress has provided the Code as a proper, effective legal remedy. Additionally, the Bible expressly provides for the forgiveness of debt once every 7 years. [Deuteronomy 15:1-11, which calls for debt forgiveness every seven years.] What is irresponsible is doing nothing about problems or allowing them to just keep getting worse.
But isn’t it mostly “deadbeats,” “flakes,” and crooks who file bankruptcy?
Not at all. Most filings are by honorable hardworking people who have gotten in over their head. It is usually an action taken after careful consideration and with great reluctance. We live in a free enterprise economy which can only work if most people try very hard to pay their bills. However, under a free enterprise system, each year a certain percentage will get in financial difficulty because of unemployment, business or investment failure, marital problems, high pressure selling, health problems inexperience or human fallibility. Congress long ago realized the whole system would eventually break down unless some means were provided for people to resolve their financial burdens and they devised the bankruptcy laws for this purpose.
Are most filings under the Bankruptcy Code for large amounts of money?
No. Circumstances are relative. A small amount to some is large for others. Creditor pressure can become unbearable over comparatively minor sums. Small claims judgments can’t be over a limited amount, but a wage garnishment or bank account attachment even for a small amount is devastating.
What about attorney’s fees and costs?
The filing fee is set by law. Attorney’s fees are reviewed by the bankruptcy court. However, you can pay just as much for an inexperienced or impersonal lawyer as for one who really knows the field and cares about you. The important thing is to select a lawyer who is experienced in bankruptcy and bill consolidation and will give you personal attention.
Would I save money by “doing it myself” or going to a “paralegal” or other non-attorney?
Probably not. It’s too easy for non-experts to make very costly mistakes, especially under the ‘new’ bankruptcy laws. The bankruptcy law is so intricate that even an attorney who has financial problems, if he’s smart, will go to an attorney with exclusive experience in bankruptcy rather than file by himself. A paralegal is simply not qualified to evaluate all the new laws that apply in each situation. Relying on a non-attorney to prepare documents for you, doing it yourself, or using an attorney who doesn’t exclusively practice in the bankruptcy field are all flawed approaches. Not only are serious errors possible, but you have no protection from unexpected developments, sophisticated legal challenges or strong-arm creditor pressures.
Won’t everyone know about it if I file chapter 7 or chapter 13?
Very unlikely, except for your creditors. Filing lists are not widely publicized.
What about Debt Consolidation?
If you really want to avoid bankruptcy, then debt consolidation, while not the best choice in our opinion, should be limited to those companies that appear to be reputable. For more information go to ConsumerAffairs.com.
If you have other questions or need clarification, we invite you to call our office to set up a free consultation with one of our attorneys. We only have attorneys meet with our potential clients, as that first appointment and discussion is so very important for both our potential clients and our office. The consultation is free and without obligation. Call our office at 1-877-663-3287 or fill out our contact form and we will help set up that appointment at our Bonita Office, our Vista Office or our downtown San Diego Office at an agreeable date and time.