SOME “FREQUENTLY ASKED QUESTIONS” ABOUT BANKRUPTCY
First, I suggest you watch the bankruptcy videos on this website, if your computer is able to play them. They provide a lot of information and are more interesting than just reading this. However, the material below supplements that video – in plain language.
Keep in mind that although bankruptcy law is federal law and should be consistent throughout the country, because bankruptcy law combines with state law and each federal bankruptcy court has its own local rules and even each individual judge may have his own rules, the way the law is actually applied does vary from state to state, especially when it comes to issues of exempt property and some of the gray areas of the statutes. Therefore, generally, a bankruptcy lawyer from one state should not give advice about the way bankruptcy is practiced in another state unless specifically licensed by that state.
"What is bankruptcy?"
Bankruptcy is a legal right that you have under Federal law to stop or delay creditors from taking all your money and other assets. To qualify, you need to have money troubles - although you don’t need to be totally broke. There are several different types of bankruptcy and you should discuss with your lawyer which type is best for you, or if you should even file for bankruptcy at all. The bankruptcy process is like getting a comprehensive medical exam of all of your finances. You reveal everything you own and everything you owe. Some of your property is considered exempt – beyond the reach of creditors. In some bankruptcies, you pay something back to creditors; in other bankruptcies, you pay nothing back and still get rid of most or all of your debts.
The goal of bankruptcy is to either get you a fresh start, or to set up a manageable payment plan with some tax-free debt forgiveness. The best part of bankruptcy is that a federal judge puts up a large "STOP" sign to stop your creditors from trying to collect the debt or even contact you without special permission and a hearing from the court. BANKRUPTCY IS NOT DEAD – YOU CAN STILL FILE AND GET BENEFITS FROM THE LAW.
"What does bankruptcy cost?"
Bankruptcy costs vary based on the type and complexity of the case. in my office, legal fees for a Chapter 7 basic consumer case can typically cost anywhere from $1,200 to $2,500.00. Court filing fees are $335, and there are two courses to take - one before you file and one after you file, which usually cost under $20.00 each. Any other expenses (mail, faxes, etc.) are usually charged at cost or a flat rate per piece. By federal law, attorneys who file Chapter 7 must be paid in full before they file, or they are deemed a creditor and the legal fee is discharged with the rest of the debts. Chapter 13 cases are more complex, can take up to five years to complete, and so cost more - my fees are usually between $3,000 to $4,000 - depending on the issues in the case. Unless it's an emergency case, I can take 1/2 up front and payments for the balance within the "plan" (during the case).
"Why should I consider filing bankruptcy?"
First of all, a bankruptcy is usually not as bad as a legal judgment against you. A judgment can stay on your credit record for up to twenty years. A bankruptcy usually is on your credit record for only ten years at most – only two years more than normal bad credit. Once a bankruptcy is behind you, you can begin rebuilding your credit and your life.
Unfortunately, these days, It does not take much to fall behind on your bills. Credit balances can sneak up on you, a late payment may trigger very high interest rates on all your cards, you may have a temporary interruption of income, gotten sick, your employer may have cut back on overtime, school loans may have come out of deferral, you may have guaranteed the debt of a friend or relative who defaulted or refuses to pay, or even marital problems can cause you to suddenly fall behind.
In a normal world, credit card companies and banks would work with you to let you catch up. In the crazy real world, however, these greedy slime take advantage of you and kick you when you are down. They refuse to allow a reasonable payback time or amount, they add outrageous fees and interest rates, they call your house repeatedly at all hours, and they might even call your job. In short, they behave unreasonably and seek to terrorize you into paying their bill at the cost of your health, safety and security. The harder they make it for you to pay back, the higher the bill gets and the more money they make (at least on paper).
Bankruptcy levels the playing field and gives you more control over your life. You get a fresh start, or at least breathing room. It stops the creditor calls in their tracks. It stops the garnishments. Bankruptcy even gives you the right to punish the creditors when they misbehave. Creditors love to talk nasty to you and threaten you, but NONE of them has the guts to talk nasty to or threaten a federal judge. Bankruptcy puts a federal judge in as a guardian to stand between you and your creditors. That makes bankruptcy a powerful tool for debtors.
If you have arrears on a mortgage, your bank may refuse to take your payments. In a special bankruptcy for mortgage problems, the federal judge ORDERS and forces the lender to take your payments again – even if they don’t want to do it. He forces them to take your catch-up payments over time. No private debt relief company or debt consolidator has that power, no matter what they promise..
"When should I consider bankruptcy?"
Before a creditor gets a large judgment against you.
When you can’t even manage minimum payments on your credit cards.
When you are using one credit card to pay another.
When you have extremely large medical bills you know you will never be able to pay off.
When you are considering a loan against your IRA or 401(k) pension plan to pay debts (DON’T DO THIS).
When you are being sued.
When the debt collectors’ calls don’t stop and you are losing your sleep, your peace of mind, and your health and you are afraid to answer the phone.
When they are threatening to take your car or your house.
When your wages are being garnished or your bank account gets frozen.
When you just can’t take it any more.
"What are the different types of bankruptcy?"
Chapter 7 is a “fresh start” bankruptcy. It takes about four to five months from filing to discharge and gets rid of most, and sometimes all, of your debts.
Chapter 9 is a bankruptcy for municipalities. Yes, cities and towns also go bankrupt.
Chapter 11 is a “large money” bankruptcy designed for businesses or for people who have so much debt they can’t use a chapter 13 plan to deal with them.
Chapter 12 is used for family farmers and is similar to chapter 11 and 13, but has special advantages for farmers.
Chapter 13 is a “partial payment plan” bankruptcy designed just for individuals or couples where you pay back some or all of your debts over time from your monthly disposable income. You, not your creditors, get to propose a specific plan on how you will do it, and once the plan is confirmed by the court, your creditors have to follow your plan. A major advantage of Chapter 13 is that it protects any co -signers and co-debtors during the entire life of the plan. We often use Chapter 13 to pay back mortgage arrears over time in order to force mortgage companies to start taking your payments again.
Chapter 7 Bankruptcy
Explaining a bankruptcy under Chapter 7
Chapter 7 is a section of the U.S. Bankruptcy Code. A Chapter 7 bankruptcy is a legal proceeding to get the bankruptcy court to issue an court order to wipe out or cancel your responsibility to pay your debts. This order is called a “discharge.” This gives you a “fresh start.” It means your creditors cannot take any further action to collect on your listed debts. If they do, the court gets angry and makes them pay money to you. Unlike a debt consolidator or counseling business, a federal bankruptcy judge has a lot of power, including the power to sanction your creditors for misbehaving. Your protection begins as soon as you file. The court issues an order to your listed creditors called the “Automatic Stay.” Think of a federal judge holding up a large “Stop” sign. Whatever your creditors are doing to collect the debt - whether phone calls, a lawsuit, a garnishment, an attachment – they must immediately stop. If they don’t stop, you can ask the court to punish them.
The automatic stay stops almost everything. It doesn’t stop criminal prosecutions, or court actions for child support or alimony, or arrest orders issued by a court for not paying a fine.
After you receive your bankruptcy discharge, the automatic stay protecting you during the case is then replaced by a “permanent injunction” to forever stop your creditors from trying to collect from you on the debts. If your creditors come after you once your bankruptcy is over, you can ask the court to punish them. As you can see, bankruptcy gives you the power to fight back against creditors when they don’t behave. Creditors know this and the majority of them obey the court order. Occasionally, a stray creditor thinks he’s smarter than the court or is arrogant – that is, until he is called in front of the judge. When this happens, all the bankruptcy lawyers often stop what they are doing to watch these creditors try to talk their way out of trouble with the judge – it seldom works and their excuses are a great source of amusement. When caught, most creditors make a money settlement with the debtor’s lawyer because they are afraid to face the judge. Why is bankruptcy a powerful remedy? One, because it works (and keeps working), and two, because it gets the government to protect you.
A Chapter 7 case is controlled by a Chapter 7 panel trustee. A panel trustee is a professional, usually a lawyer or accountant, who handles the various parts of the case for the court, so the judge doesn’t have to get personally involved, In theory, they represent the unsecured creditors such as credit card companies to make sure you don’t own anything of value that could be sold. This is called non-exempt property. If you own non-exempt property, the trustee can take it and sell it so the proceeds can be fairly divided among your creditors. In most chapter 7 cases, you don’t own any non-exempt property – and all of your property is protected from creditors - these are called no-asset cases. If you file a no-asset case, the trustee wants to make sure that you haven’t hidden any assets and to make sure you really qualify for chapter 7 relief.