Article - Bankruptcy

Should I File For Bankruptcy?

Introduction

If you find that you are not able to pay your bills as they become due, you may need to take a closer look at your financial situation. Filing for bankruptcy is usually the last resort when no other solution to your financial difficulties appears to exist.

Alternate solutions, such as working out special payment plans with your creditors that fit within your budget, may be available. Agencies such as the Consumer Credit Counseling Service can assist you in working out a plan with your creditors. Consulting with an attorney who has experience in bankruptcy law will help you to fully understand your options and avoid potential difficulties that may occur once you have filed.

While I no longer personally handle bankruptcy cases, I have provided this general information . I can refer you to a bankruptcy attorney if you required additional information.

Types Of Bankruptcies

Chapter 7

Sometimes known as a "straight bankruptcy" or liquidation, and results in a discharge of all eligible debts.

Some debts cannot be discharged, such as certain student loans or court ordered fines and restitution. Once you file Chapter 7, an estate is created and a trustee is appointed to administer and liquidate all assets of the debtor to pay off creditors.

Each debtor is entitled to certain exemptions in order to retain certain assets that may not be taken by the trustee. Once a person is discharged under a Chapter 7, they cannot file Chapter 7 bankruptcy again for six (6) years.

All personal assets must be listed on the schedule filed with the Court including furniture, clothes, bank accounts and/or equity in homes and cars. An attorney experienced in bankruptcy law can explain how this works.

Chapter 11

A reorganization in which the business or individual debtor remains in possession of the assets and formulates a plan to pay creditors over a period of time. The debtor in possession may divide creditors into different classes, rearrange or sell certain assets, and have certain protection while formulating a plan. There is no limit on the amount of debt an individual or business may have under this chapter.

Chapter 12

The newest type of bankruptcy, and was designed to provide relief for the family farmer. To be eligible, one has to be a family farmer with regular annual income. At least 50 percent of the annual income must come from farming operations. The debtor has 90 days from the date of filing to formulate a plan to repay creditors.

Chapter 13

A repayment plan to creditors under the supervision of the Bankruptcy Court for debtors with regular income. The debtor must formulate a plan of repayment, which can last between three and five years, with special permission from the court. The debtor submits a portion of his/her future earnings which is paid to a trustee, for distribution to creditors pursuant to the plan.

The plan must be confirmed by the court and entered in good faith. The debtor may designate certain classes of creditors. Frequently, this chapter is used to pay back arrearages to secured creditors, particularly mortgage holders on the debtor's personal residence.

If the debtor complies with all requirements of the plan and completes it on schedule, the balance of any unsecured debt owed will be discharged.

What Happens After I File For Bankruptcy?

The Bankruptcy Court sends out a notice of your bankruptcy filing to all of the creditors you listed when you filed your petition and schedules. This notice advises the creditors that you have filed, under which chapter you have filed, and advises that an "automatic stay" is in effect, which prevents creditors from pursuing any further efforts to collect the debt unless they obtain permission from the court. For example, if your wages are being garnished, the garnishment must stop, and the court may require that some of the money collected is returned to you.

Within four to six weeks after you file, you will be required to attend a hearing called a meeting of creditors. A trustee appointed by the court will preside at the meeting. At the meeting certain questions will be asked concerning the schedules you filed and any particular assets that you own.

Creditors have a right to be present and ask questions concerning your debts and assets. In some circumstances, creditors may seek a court order preventing their particular debt from being discharged if they can prove, for example, that the debtor made false statements or misrepresentations to obtain credit or a loan.

In a Chapter 7 case, the meeting of creditors is generally the only hearing a debtor will be required to attend. In a Chapter 11, 12, or 13, a debtor will be required to attend a hearing to consider the proposed plan. This confirmation hearing is presided over by a U.S. bankruptcy judge.

Will Filing Bankruptcy Prevent Foreclosure Or Repossession If I Am Behind On Payments On My Home Or Car?

In almost all instances, creditors who are owed money on a home or car are secured creditors and possess certain rights that unsecured creditors do not possess. For example, they have the right to foreclose on a home or repossess a car if payments are not made in accordance with the contract.

A debtor who is behind on these payments can file under Chapter 11, 12, or 13, and propose a plan to repay the arrearages. However, in all cases, the debtor must continue to make the current monthly payments.

How Does Filing Bankruptcy Affect My Credit?

If you file for bankruptcy, that information will generally show up on a credit report through the local credit bureau for up to 10 years. However, if you are in a situation which you need to file for Bankruptcy, your credit rating is usually already damaged. Also, some creditors will extend credit to you if you can provide collateral and make payments on time.

How Much Does It Cost To File For Bankruptcy?

The filing costs are about $200. Attorneys' fees vary, and it would be advisable to call several who practice in the area to determine the exact costs of their services.

Chapter 11, 12, and 13 bankruptcies will involve higher attorneys' fees because these chapters are more complex and involve more work.

Bankruptcy Law Is Federal Law.

The following paragraphs provide general information about what happens in a bankruptcy case. The information here is not intended to be complete. Always consult an attorney for detailed information.

What Is A Bankruptcy Discharge And How Does It Operate?

One of the reasons people file bankruptcy is to get a "discharge." A discharge is a court order which states that you do not have to pay most of your debts. Some debts cannot be discharged. For example, you cannot discharge debts for:

Most taxes

Child support

Alimony

Most student loans

Court fines and criminal restitution, and

Personal injury caused by driving drunk or under the influence of drugs

The discharge only applies to debts that were incurred up to the date you filed.

Also, if the Judge finds that you received money or property by fraud, that debt may not be discharged.

It is important to list all your property and debts in your bankruptcy schedules. If you do not list a debt, for example, it is possible the debt will not be discharged.

The Judge can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide property, falsify records, or lie, or if you disobey a court Order.

You can only receive a Chapter 7 discharge once every six years. No one can make you pay a debt that has been discharged, but you can voluntarily pay any debt you wish to pay. You do not have to sign a reaffirmation agreement or any other document to do this.

Some creditors hold secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your car). You do not have to pay a secured claim if the debt is discharged, but the creditor can still take the property.

What Is A Reaffirmation Agreement?

Even if a debt can be discharged, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan with the bank to keep your car. To promise to pay the debt, you must sign and file a reaffirmation agreement with the Court. Reaffirmation agreements are under special rules and are voluntary. They are not required by bankruptcy law or by any other law.

Reaffirmation agreements:

	Must be voluntary;
	Must not place too heavy a burden on you or your family;
	Must be in your best interest;
	Can be canceled any time before the Court issues your discharge or within 60 days after the agreement is filed with the Court, whichever gives you the most time.

If you are an individual and you are not represented by an attorney, the court must hold a hearing to decide whether to approve the reaffirmation agreement. The agreement will not be legally binding until approved by the Court.

If you reaffirm a debt and then fail to pay it, you owe the debt the same as though there were no bankruptcy. The debt will not be discharged and the creditors can take action to recover any property on which it has a lien or mortgage. The creditor can also take legal action to recover a judgment against you.

Collection Of Discharged Debts Prohibited

The discharge prohibits any attempt to collect from the debtor a debt that has been discharged. For example, a creditor is not permitted to contact a debtor by mail, phone or otherwise, to file or continue a lawsuit, to attach wages or other property, or to take any other action to collect a discharged debt from the debtor. (In a case involving community property; there are also special rules that protect certain community property owned by the debtor's spouse, even if that spouse did not file a bankruptcy case.) A creditor who violates this order can be required to pay damages and attorney's fees to the debtor.

However, a creditor may have the right to enforce a valid lien, such as a mortgage or security interest, against the debtor's property after the bankruptcy, if that lien was not voided or eliminated in the bankruptcy case. Also, a debtor may voluntarily pay any debt that has been discharged.

More Information

If you want more information or have questions about how the bankruptcy laws affect you, you may need legal advice. The trustee in your case is not responsible for giving you legal advice.

Documents and Important Information Needed for the Bankruptcy Hearing

Copy of Deeds, Mortgages & Deeds of Trust.

Copy of security agreements and financial statements.

Copies of last three (3) years federal and state tax returns.

List of ALL property: description, date purchased, cost new, value now.

Statements of current cash surrender value for whole life insurance policies .

List of all creditors: NAME, ADDRESS, ACCOUNT NUMBER, whether disputed by you, secured, subject to litigation, offset, counterclaim, and amount owed.

Date you are paid: weekly, monthly, gross, net, and MONTHLY INCOME and EXPENSE BUDGET.

A copy of all court papers.

A copy of auto, truck, trailer, boat, motorcycle, or tractor title. (Trustee may want to see these.)

Real property tax assessment.

Additional information and/or documentation may be needed depending on the particular facts and circumstances of your situation.

Your lawyer may not need a copy of last year's bank statements and canceled checks, BUT the Trustee may want to see them at the meeting of creditors so bring them.

Your lawyer may not need a copy of all automobile, life, and home insurance policies, BUT the Trustee may want to see them at the meeting of creditors so bring them.

Credit Reporting Agencies

It is recommended that you call each of the following credit reporting agencies and request a copy of your credit report.

If you have not received a credit report in the last year, or you have been turned down for credit, the report is free. Just answer the questions asked by the voice answering service and, by law, your report should reach you within 15 days.

CBI/EQUIFAX

P. O. BOX 740256

Atlanta, GA 30374

Voice: 1-800-685-5000

Disputes: 1-800-216-1035

Copy of Report: 1-800-562-4437

EXPERIAN/TRW

P. O. BOX 2104

ALLEN, TEXAS 75013

Nationwide: 1-800-422-4879

1-800-354-4879

TRANSUNION

P.O. BOX 390

SPRINGFIELD, PA 19064-0390

Consumer Relations Divisions

Nationwide: 1-800-916-8800

For Your Information