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Frequently Asked Questions About Bankruptcy
We are a debt relief agency and we counsel clients in the filing of bankruptcy.
Q:
What is a debt relief agency?
A: In 2005, Congress
passed the BAPCPA, the Bankruptcy Abuse Prevention and Consumer Protection Act.
The revision to the Bankruptcy Code required those professionals that counsel
and assist people in the filing of bankruptcy be called Debt Relief Agencies.
The professional actually assisting debtors is to be identified as “Debt
Relief Agents.” In addition, those who come to us are required to be advised
that we assist people in the filing of bankruptcy. You should be careful, however,
because all attorneys who counsel individuals about bankruptcy are debt relief
agents, but not all debt relief agents are attorneys. Our Attorneys are Debt
Relief Agents and regularly attend continuing education and are qualified to
give you advice.
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Q:
What is the “means test,” and how does it work?
A: The Bankruptcy Reform
Act of 2005, in an attempt to avoid abuse of the law, devised a financial test
to assist in the determination of which chapter in bankruptcy a debtor should
file. An experienced Bankruptcy Attorney, who has been designated as a Debt
Relief Agent, will gather the necessary information from you to calculate where
your income, expenses and debts place you under the test.
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Q:
What do I bring to my free initial consultation with the attorney?
A:
If available, you should bring a photo ID, all pay advices (pay stubs) for everyone
in your household for the past six months, copy of your Deed to real property,
your secured creditor monthly statements for mortgage and auto, copy of automobile
insurance, titles to vehicles and your last three filed income tax returns.
Be ready to discuss your income, debts and your monthly budget with the attorney.
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Q:
What is Bankruptcy?
A: Bankruptcy is a legal
method, provided by federal law, of eliminating debt and providing a means to
obtain a "fresh start." In many cases, bankruptcy means the elimination
of the debt that you owe to your creditors. There are two primary forms of bankruptcy,
Chapter 7 and Chapter 13, used by consumers. Businesses can use Chapter 7 or
Chapter 11.
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Q:
Who can file Chapter 7 bankruptcy?
A: You must reside or
have a domicile, a place of business, or property in the United States. You
must not have been granted a Chapter 7 discharge within the last 8 years. You
must not have had a bankruptcy filing dismissed for cause within the last 180
days. It must not be a "substantial abuse" of bankruptcy to grant
the debtor relief.
Generally speaking, if after you pay the monthly expenses for necessities there
is not enough money to pay the remaining monthly debts, then granting a discharge
would not be an abuse of Chapter 7. It would not be fundamentally unfair to
grant the debtor relief under Chapter 7 or Chapter 13.
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Q:
Why is it legal to "wipe out" your debts?
A: More so than in any
other time in our country's history, our economy is based on consumer debt.
In fact, in this age of multi-billion dollar corporate bailouts, easy credit
and relentless bombarding of seductive messages cajoling us to "charge,
consume, buy" it is not surprising that so many people are drowning in
debt.
For many of us, this debt is insurmountable and is causing family problems and
feelings of hopelessness and even suicide. With credit card interest rates of
18-21%, many feel like modern day indentured servants. Many times, the debt
is occasioned by unforeseen events such as loss of a job or medical bills, but
more often it is simply poor planning. Nevertheless, in instituting our bankruptcy
laws, Congress recognized that responsible, well-intentioned people could from
time to time run into financial problems. By allowing you to recover from your
debt burden you will be able to start afresh, look to the future and become
a more productive member of society. This is good for you and good for society
as a whole.
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Q:
What is Chapter 7 Bankruptcy?
A: This is commonly referred
to as "straight bankruptcy" and it is the most commonly filed form.
Only individuals (not businesses or partnerships) may obtain a discharge in
a Chapter 7 proceeding. Large credit card debt and other unsecured bills coupled
with few assets, typify the filer of this form of bankruptcy. In the vast majority
of cases this type of bankruptcy is able to completely eliminate all of the
filer’s debts.
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Q:
Will I have to give up any of my property to my creditors?
A: The vast majority
of filers get all or most of their debts discharged (wiped-out) without giving
up any of their own property. This is because federal as well state laws provide
exemptions for your property. Exempted property is property such as household
goods, personal belongings, tools of the trade, marital property and cash which
you may keep despite your bankruptcy.
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Q:
Are some of my debts nondischargeable?
A: Some kinds of debts
are not dischargeable, which means that you will remain obligated to repay them
even after you complete your personal bankruptcy. Examples of nondischargeable
debts are certain state and federal taxes and student loans unless there is
undue hardship.
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Q:
What is a Chapter 13 Bankruptcy?
A: Under a chapter 13
bankruptcy, a debtor proposes a 3-5 year repayment plan to the creditors offering
to pay off all or part of the debts from future income. The amount to be repaid
is determined by several factors including the debtors' disposable income and
the results of the means test. To file under this chapter you must have a "regular
source of income" and have some disposable income. Most are not required
to pay more than 25 percent of their unsecured debts. Corporations and partnerships
may not file under this chapter.
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Q:
When is a Chapter 13 a better alternative than a Chapter 7?
A: There are several
situations where a chapter 13 is preferable to a chapter 7. A chapter 13 bankruptcy
is normally for people who have too much income to file a Chapter 7 bankruptcy
or have the kind of debt that is non- dischargeable in a Chapter 7. Also, people
file Chapter 13 because they are behind on their mortgage or business payments
and are trying to avoid foreclosure. A chapter 13 bankruptcy allows them to
make up their overdue payments over time and to reinstate the original agreement.
Also, where a debtor has valuable nonexempt property and wants to keep it, a
chapter 13 may be a better option.
However, for the vast majority of individuals who are qualified and who simply
want to eliminate their heavy debt burden without paying any of it back, Chapter
7 provides the most attractive choice.
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Q:
Will Filing Bankruptcy Stop My Bill Collectors from Taking Action?
A: Yes, When you file
bankruptcy, federal law imposes an "automatic stay" which precludes
your creditors from taking any action to collect debts against you including
court judgments and tax debts during the pendency of the bankruptcy. For instance,
if you have been served by one of your creditors to appear in court over a debt,
the bankruptcy filing will stop this lawsuit.
Any wage garnishments or repossession efforts are also halted. However, once
the bankruptcy is over, a creditor holding a claim that was not discharged may
proceed to collect on the debt. Also, under some circumstances a secured creditor
may proceed to collect on the lien he has on the filer's asset during the bankruptcy
proceeding, but may only do so if the automatic stay has been limited by the
law or by filing a court motion and getting the approval of the bankruptcy court
first. An experience bankruptcy attorney will know in advance of filing which
creditors would not be stopped by the automatic stay.
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Q:
How quickly will my creditors get notice of my bankruptcy?
A: Within a couple of
days of the filing of your petition, the bankruptcy court clerk mails your creditors
notice of the filing and the imposition of the automatic stay. Until the creditors
get notice, it may be necessary for you to supply the creditor with the docket
number and date of your bankruptcy. Once they have been given notice, they must
stop collection efforts against you or may be liable for court sanctions. Thankfully,
for the vast majority of people, once their bankruptcy petition is filed that
is the last time they hear from their unsecured creditors.
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Q:
Do I have to pay my bills during the bankruptcy proceeding?
A: For the most part,
the answer is no. For specific property (usually secured) such as your car loan
or your houses mortgage that you plan on keeping you should continue to make
payments. Also, for day to day expenses such as rent and utilities you should
also continue to make payments. You should stop making payments on other old
debts incurred prior to the bankruptcy such as credit card debts.
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Q:
How long does a bankruptcy take?
A: For a typical chapter
7 case, the discharge of your debts usually takes approximately 100 days. A
chapter 13 takes anywhere from 3-5 years. The filing of a bankruptcy, provides
immediate relief from creditor collection action, garnishment, repossession
or foreclosure.
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Q:
How Do I know if it's time for me to File?
A: If your creditors
are attacking your assets and income and you are in debt way over your head,
look into the "fresh start" filing bankruptcy may be able to provide.
It seems the stigma attached to filing bankruptcy has greatly diminished over
the last decade as a fast increasing percentage of the population need to file
to protect their assets.
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Q:
Will I lose my car and my house?
A: As long as you continue
to keep up to date on your payments on the loan that secures the property, there
should not be a problem keeping your house or car, even after the bankruptcy
proceeding is concluded.
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Q:
Does Bankruptcy devastate my credit?
A: Although the record
of filing bankruptcy may stay on your credit report for up to 10 years, often
by making payments on time subsequent to your bankruptcy you can regain an "excellent"
credit rating within 2 years of your discharge.
Ironically, in many cases filing bankruptcy may actually help your credit rating
because discharging your debts greatly improves your debt to income ratio which
is a major criteria creditors use in judging your "creditworthiness".
By all accounts, bankruptcy no longer has the stigma attached to it that it
once did. Perhaps, this is one of the reasons that the number of filings has
been dramatically increasing over the last several years.
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Q:
Can I keep any of my existing credit card accounts?
A: The credit card accounts
that you have a zero balance on are not technically creditors and thus are not
discharged in bankruptcy. Often these creditors will allow you to keep your
credit with them.
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Q:
Will everyone find out about my Filing?
A: Not unless you tell
them or they go out of their way to check the public records. Bankruptcy filings
are not normally published in newspapers, therefore the only people who usually
find out that you are in a bankruptcy are creditors and those to whom you apply
for credit.
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Q:
Can I be fired for filing bankruptcy?
A: No, if your employer
finds out about your bankruptcy, it is against federal law to discriminate against
someone for filing bankruptcy.
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Q: Can I
be denied a Student Loan for filing bankruptcy?
A: No, It is against
Federal Law to deny someone a student loan because they filed bankruptcy.
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Q:
Do I have to list all of my assets on my petition?
A: Yes. Knowingly and
fraudulently concealing your assets from the bankruptcy court is a federal offense
and the court has the power to deny you a discharge. Remember that most bankruptcy
cases are considered "no asset" cases since state or Federal exemption
laws protect all of their property.
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Q: Should
I feel ashamed to file bankruptcy?
A: There is a lot to
think about before filing bankruptcy, however feeling ashamed should not be
one of them. The history of bankruptcy in the United States dates back to the
founding of our nation. The early English practice of debtor's prison was so
abhorred by our founding fathers, they expressly outlawed it and instituted
forgiving bankruptcy laws early on in our nation's history. Over the years,
some of our nation’s most revered companies and people have turned to
the bankruptcy system for help. This nation’s greatest president and founding
father, Thomas Jefferson, filed for bankruptcy not just once, but several times
to eliminate the accumulation of his huge debt. Filing bankruptcy is better
put into perspective when you know that a man of Mr. Jefferson's foresight and
intelligence could repeatedly get himself into financial trouble, and that our
government has provided bankruptcy laws as a viable, helpful and necessary remedy
to eliminate and control debt.
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For further information, call the Law Offices of Goren, Wolff & Orenstein, LLC.,
at 301-984-6266 or e-mail us at lawyers@gwolaw.com
We also offer consultation or
referral on other legal matters.
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