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FREQUENTLY ASKED QUESTIONS

"Can I keep my car in a Chapter 7 bankruptcy?"

Usually, yes, but in some cases, the answer is "it depends." The court knows you need the car to drive to work, etc., so you can keep some or all of the value of your car. The Bankruptcy Code allows you to keep some things up to a certain value. This is called an "exemption." You have an exemption for a car up to a certain amount -under 11 U.S.C. § 522(d)(2), it's currently $3,775.00, if your state allows federal exemptions. If that is not enough, then you can apply something called the "wildcard" exemption for the rest of the car 's fair market value. The monetary value of the car that you can keep varies from state to state and whether they allow federal exemptions or "opt out" and only allow you state exemptions This is somethng to discuss with your lawyer in your state. But you can't keep a car you owe money on and just not pay for it. The car dealer does not want to give you the gift of a free car. Neither does the Court. If bankruptcy gave you a free car, everybody would be doing it.

"Are there monetary debt or income limits to filing a Chapter 7?"

There are some debt limits and also some disposable monthly income limits to qualify for filing Chapter 7. You can’t file a Chapter 7 bankruptcy more than once every 8 years, although you might be able to file a different kind of bankruptcy sooner than that. Some types of debt cannot be discharged in a Chapter 7 bankruptcy. Usually you can’t get rid of student loans, some taxes, alimony and child support and debts for death or personal injury caused as a result of drunk driving or other intoxication. If you make some major purchases just before filing or have some debts based on fraud, they are not dischargeable. There are some exceptions – for example, some tax debts can be discharged if they are old enough, but the lawyer has to file a separate lawsuit within the bankruptcy case to do this. Each case is treated differently and whether the case is a “good faith” case depends on the “totality of the circumstances.” This means that two different people can have the same type and amount of debt and one would be discharged and the other may not, depending on how they got into their position. This is why a lawyer is essential in filing a case. The ideal client for a chapter 7 discharge is the honest debtor who, due to unfortunate circumstances, needs a fresh start and is willing to provide full disclosure in order to get it. Chapter 7 will usually not let you keep the house, so if you want to save it, you need a different kind of bankruptcy.

"Should I seek credit counseling before filing bankruptcy?"

I generally do not recommend those companies that do payback plans because I do not trust them to do it right (except for those authorized by the U.S. Trustee Office to conduct the mandatory certificate course required by law, and even then you need to be careful who you use. I keep a list of agencies I trust for my clients ). Many counseling operations are scams and don’t even start work on your case until they are fully paid. By then your debt may have gone up by so much that the workout won’t really save you money, or a creditor may have filed a lawsuit against you. Some creditors refuse to deal with credit counselors. Some of the agencies are actually owned or financed by the credit card companies. They get you to pay them and then they get the creditor to pay them too by giving them a percentage of what they collect. Therefore, the more you pay the creditor, the more profit they themselves make – a clear conflict of interest. As a result, you don’t usually get much of a bargain and can end up worse off than before you saw them. Credit counseling won’t stop lawsuits or save your house from foreclosure. Many agencies tell you not to file bankruptcy or that you can’t file bankruptcy – this is legal advice and only a lawyer can legally give you legal advice. Since they are not lawyers, their advice is often wrong or ill-informed.

"If I file a Chapter 7 bankruptcy, what happens to my utilities?"

Usually, nothing. They can’t shut off your service just because you filed bankruptcy. If you owed them money and listed them as a creditor, that debt will be discharged. They will close your account and make you open up a new one, usually with a new security deposit to ensure payment. In fact, some cell phone services will do this even if you don’t want to use them again.

"How long does it take to file bankruptcy?"

That’s up to you. If you are well prepared, and I am paid in full, it only takes a few days. If not, it could take months. The fastest is usually two days, because the new bankruptcy law requires you take the counseling course at least one day before you file. There are some cases where we deliberately will delay a filing for strategic reasons. This is a matter of relying on the attorney’s expertise to get maximum advantage in your case by filing at just the right time. This is a matter of art as much as law, so timing a filing correctly usually requires hiring an attorney who has skill in bankruptcy planning (such as me) and has the necessary experience to figure this out.

"I'm married and want to file bankruptcy for me alone. Can I do this?"

If you are married, you can still file separately – just like you can with your income taxes - as long as you don’t have any significant joint debts. Bankruptcy gets rid of your own liability to pay the debt but won’t protect your spouse if he or she is a co-signer or co-debtor. In those cases, you can file a different kind of bankruptcy that can better protect your spouse.

"How broke do I have to be or how much debt do I need to have to file bankruptcy?"

There is no specific minimum amount in order to be able to file a Chapter 7. I sometimes file bankruptcy for people who have no money and are “judgment proof” just to stop the creditors from bothering them any more.

"I don’t want to file bankruptcy on some of my credit cards or debts – can I do this?"

No. Bankruptcy is an all or nothing solution. Everything means everything. If you owe a dime, you must list it. Everyone means everyone – including relatives. These days, even if you don’t owe anything on a card and you don’t list it, the card company will find out – credit card companies talk to each other – and cancel your card anyway. Also, deliberately leaving out a debt is fraud and people go to jail for leaving off cards. Moral: Don’t try to save your cards. Besides, you don’t need them. Credit cards are “financial crack.” Go “cold turkey” and get off the credit card habit. With the economy in its current crisis, cash is king.

"How will bankruptcy affect my credit?"

Answer: You don’t want credit. Forget credit. Stop worrying about your credit score. You need money, not credit. Money is cash and cash equivalents. Real money is an asset – credit is a liability, and you’ve had enough of those. Up until last year, when my clients filed bankruptcy – the next week, their mailboxes were stuffed with credit card offers. That’s like standing outside of a rehabilitation center and offering free drugs when the patients leave the facility. Fortunately, this has slowed or stopped because the banks themselves are now going broke. Ironically, a recent study discovered that your credit score can go UP after bankruptcy. I suppose this is because since you don’t have to pay your old debts, you have room for new debts. You can rebuild your credit after bankruptcy. You can still get some credit after bankruptcy. You can even get a credit card after bankruptcy. Don’t do it. You may get in trouble again and may have to wait some time before you can file another bankruptcy. Of course, the more time that passes between your bankruptcy and your next credit application, the better the chance someone will take a chance on you. After you get your discharge, I can also help you rebuild credit over a one to two year period.

"What if I leave out a creditor on my bankruptcy petition?"

Answer: It depends. If you do it on purpose, you could go to jail. If you do it by accident, the automatic stay does not apply to that creditor until you tell them about the filing. In New Jersey, leaving a debt out, at least in a no-asset case, is not fatal. There is a New Jersey case – Judd v. Wolfe, that says you don’t need to reopen the case and the debt is still discharged. But that's only in New Jersey - in New York, if you leave out a debt, that debt is NOT discharged and the creditor can still come after you. Also, if you don't tell the court that you have the right to sue someone, then wait until the case is over to sue them, the defendant in that lawsuit can use your omission of this asset as a total defense against your lawsuit. Plus, you could lose your discharge and maybe even go to jail. So don't leave out creditors.

"What happens after a bankruptcy is filed?"

You get to keep all your protected/exempt property and all property and money you earn after the filing date. You have a meeting of creditors within a month of filing. About three months after that, you usually get your discharge of debts from the Court. An exception is if you get an inheritance, life insurance distribution, or property settlement within 180 days after filing - that money really belongs to the trustee and you have to tell him/her. If you buy a lottery ticket with post-petition filing funds and you win but the case is not yet over – then technically, the money is yours, but the trustee may put up a fight claiming it’s not fair.

"Can I file a Chapter 7 bankruptcy for my business?"

Most businesses simply close their doors and file documents with the state to close the company. However, some failed businesses file Chapter 7 to close up the business. A Chapter 7 is different for a business than it is for a person. One difference is that when a business files a bankruptcy it does not get a discharge and a fresh start. Instead, it gets liquidated. All the assets go to creditors because there are no exemptions for a corporation in Chapter 7. One purpose of filing a “Business Chapter 7” is to make sure business assets get distributed fairly among various creditors and to have the corporation pay debts so that owners who may be “on the hook” for the debts don’t have to pay them. There is less work for the business owners because the trustee takes over and sells assets for them. Of course, the trustee has access to the books and records of the business and there is a danger the trustee may find fraud by the owners and sue them on the corporation's behalf.

Chapter 13

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. As long as you keep making monthly payments under your plan, your creditors cannot touch you. A Chapter 13 wage earner plan can take up to five years, but your unsecured creditors (credit cards, etc.) usually don’t get paid any interest during this time – and the total amount you owe gets frozen at the date of filing - so as you make monthly payments, the debt goes down, not up. Since the payments are stretched out over time, you pay much less each month. At the end of the plan, usually your debts are discharged even if your creditors were not paid in full, and they cannot go after you for the balance. A major advantage of Chapter 13 is that it protects any co -signers and co-debtors during the entire life of the plan. When your debts are so large that they go over a certain statutory amount (which is still a very high amount), the court won’t let you use Chapter 13, and you might have to consider a different form of bankruptcy.

"Can I keep my car in a Chapter 13 bankruptcy?"

Usually, yes, you can keep your car in a Chapter 13 bankruptcy, with some exceptions But bankruptcy doesn't give you a free car, or everyone would be doing it. If you still owe money on the car, you might be able to reduce the amount you pay back on the car if you bought it more than 2 1/2 years ago.. This is called a "cram down plan" and it lowers the balance you owe AND the interest rate.

"How much do creditors receive in a Chapter 13 plan?"

It depends on two things - how good is your attorney and how good are your finances? By law,creditors in a Chapter 13 plan must receive at least as much as they would have received in a Chapter 7 plan – this is called the “best interest of creditors” test. Then the debtor must pay all of his “projected disposable income” per month into the plan for the duration of the plan – usually either 36 months or 60 months.

Debts are put into different categories and are treated differently:

A "secured" debt is one where the creditor can take something from you if you don’t pay. They usually get paid in full or if there is an installment agreement or mortgage, you can use the plan to pay catch-up payments to become current.

A priority debt is usually, but not always, paid in full during the plan. A priority claim includes administrative fees during the bankruptcy, some governmental taxes, and domestic support obligations. They get paid before unsecured debts.

"Unsecured" debts, however, are usually not paid in full, which is a huge benefit and a positive reason for filing a Chapter 13 bankruptcy. Credit card debt is usually unsecured. Ironically, although the credit card industry extensively lobbied, paid for and even helped write the new 2005 Act, attorneys have found loopholes which let us pay them even less under the new law than we did under the old law. In other words, Congress shot itself in the foot.

There are some limitations on what you can or can’t put into a bankruptcy plan, but with a good attorney you can be very creative in how you handle your debts and finance your plan. You need to show the court that the plan is feasible – that it can work financially – and that you are proposing the plan in good faith. Other than that, you are in control of how you choose to pay. A Chapter 13 plan gives you some control over the process and can let you hold on to the house and the car during the entire bankruptcy.

"Are there problems with filing a Chapter 13?"

There are problems with filing anything. In a Chapter 13, you are kept to a very tight budget during the plan. It involves a change in lifestyle. The government uses IRS tables to determine what you are allowed to spend. Forget about luxury items, and expensive private schools. A good lawyer can argue you need to spend more than the tables show but there is often a fight with the trustee over what are reasonable expenses..

For a while, trustees were arguing you could not make charitable contributions while in bankruptcy because of the way the law was written. However, when politicians heard about this, they worried about losing religious votes, so they pressured the Office of the U.S. Trustee to send a notice to trustees not to make an issue of it, so you could still make charitable contributions regardless of what the law actually said, so long as you don’t contribute too much (usually, 10% maximum). However, recently, this fight has started again.

"Which is better – a Chapter 13 or a Chapter 7?"

It depends on your circumstances and how the court in your state interprets the law. While I could give a long speech here, the answer here is to discuss your circumstances with your attorney. You can do some things in a Chapter 13 bankruptcy that you can’t do in a Chapter 7 but you are paying money to the creditors for the privilege of doing so. No one wants to file a bankruptcy but if someone has to file, they usually prefer filing a Chapter 7 case. A Chapter 13 case is filed when for some reason, a debtor can’t file a Chapter 7. A smart attorney can often partially make up for the extra payments in a Chapter 13 by using some special tactics allowed in a Chapter 13 to challenge creditors, reduce debt, change some forms of debt to other forms of debt and to pay less than 100% on the dollar. Attorneys can even put some of their fee to be paid in the Chapter 13 plan to reduce the burden on the debtor.