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Chapter 7 and
Chapter 13 Frequently Asked Questions
Why file bankruptcy?
What is
Chapter 7?
What is
Chapter 13?
Will filing bankruptcy stop
foreclosure?
Will bankruptcy stop garnishment or
lawsuits?
Will bankruptcy stop repossession?
Will my employer be notified if I file
bankruptcy?
Will filing for
bankruptcy stop
harassing phone calls?
At what point will a
bankruptcy begin
to assist a debtor?
What types of debts are typically
"wiped-out" in a bankruptcy?
Can bankruptcy help
with income tax debt?
Does filing bankruptcy
have to be done by both husband and wife?
What happens to
co-debtors who don't file?
What assets are protected when I file?
What is the cost of filing a Chapter 7
or Chapter 13 bankruptcy?
How
can your office help?
What can I expect
during the free consultation?
What Information do I
need to bring to an appointment?
How are attorney fees paid?
What happens after I file?
What should I expect in the
next few months?
What is a meeting of creditors?
Does filing bankruptcy
put any possible future tax refunds in jeopardy?
Does filing bankruptcy
put any possible future ESOP or existing 401k plans in jeopardy?
Do notices of
bankruptcy get filed or posted in the local newspapers?
What debts are not erased by bankruptcy?
What does bankruptcy
do to my credit?
How can I rebuild
my credit?
Other sources for
information in credit repair
What is Chapter 7?
A Chapter 7
bankruptcy is the most common consumer bankruptcy. A Chapter 7
will typically discharge or eliminate credit card balances,
installment loans, medical bills, and most other unsecured debt.
In nearly all cases, a debtor will keep all of his or her belongings and
property. If a debtor is current with his or her mortgage and automobile
payments, a debtor typically is able to continue the payments to
his or her lender and retain possession in virtually all Chapter 7
cases.
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What is Chapter 13?
A Chapter 13 (or
Wage Earner Plan) is a type of bankruptcy in which the debtor
proposed an
affordable repayment plan to the Chapter 13
Trustee. A Chapter 13 allows
individuals to retain his or her property and personal belongings that
may otherwise not be exempt.
Usually, a debtor will file a Chapter 13 Plan to retain possession
of homes or automobiles in which the debtor fears foreclosure or repossession. A Chapter 13 will help the debtor catch up on auto or
home loans that are past due, and pay for non-dischargeable taxes,
back child support and student loans.
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Will filing bankruptcy stop
foreclosure?
In most instances,
filing for bankruptcy will stop foreclosure on mortgages and
contracts for deed. Also, a Chapter 13 Repayment Plan can offer a
debtor a means of catching up on delinquent payments and allows a
debtor to retain possession of a home.
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Will bankruptcy stop repossession?
Filing for
bankruptcy will typically stop the repossession of automobiles and
mobile homes. Also, a Chapter 13 Repayment Plan will allow the
debtor the opportunity to become current with the automobile or mobile
home loan that is delinquent.
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Will bankruptcy stop garnishment or
lawsuits?
The filing of a
Chapter 7 or Chapter 13 bankruptcy will stop a creditor from
continuing almost all civil legal proceedings against the debtor.
The most common types of civil legal proceedings or lawsuits are
those brought on behalf of credit card lenders, hospitals,
clinics, and mortgage companies. The filing of a Chapter 7 or
Chapter 13 bankruptcy will not stop a criminal proceeding.
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At what point will a bankruptcy begin
to assist a debtor?
Usually, a
bankruptcy will protect a debtor upon the filing date of a
bankruptcy petition. A
petition for bankruptcy is filed when a
completed petition is presented along with the required filing fee
to the Federal Bankruptcy Court in your area. When your bankruptcy
petition is filed, the Federal
Bankruptcy Court mails a notice to
your creditors to discontinue any type of collection efforts,
including harassing phone calls, lawsuits, foreclosure and
repossessions.
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Will filing for bankruptcy stop
harassing phone calls?
Yes. Filing for
bankruptcy will prohibit any type of collection effort regarding a
civil debt. At our firm, we usually ask clients to begin referring
harassing telephone calls to our office even before filing the
client's bankruptcy petition.
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Will my employer be notified if I file
bankruptcy?
Usually, an
employer does not have any reason to be notified of a bankruptcy
filing. The most common instance when an employer is notified of a
bankruptcy filing would be to stop a pending garnishment
upon a debtor's paycheck.
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What types of debts are typically
"wiped-out" in a bankruptcy?
-Credit cards
-Medical bills
-Unsecured
installment loans
-Lines of credit
-Automobile
deficiencies
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Can bankruptcy help with income tax
debt?
The age of tax debt
usually determines whether an individual can wipe-out these types
of debts. Also, a Repayment Plan (Chapter 13) may be able to help
debtors with back taxes that are not old enough to
discharge in a
Chapter 7.
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What
is the cost of filing a Chapter 7 or Chapter 13
bankruptcy?
The U.S. Bankruptcy
Court will require the debtor to pay a filing fee upon the filing
of a bankruptcy petition. A Chapter 7 filing fee is $299. A
Chapter 13 filing fee is $274. If a debtor uses an attorney to
assist him or her in filing bankruptcy, the fees vary from law firm to
law firm. At our office, the attorney fees vary depending on the complexity of
the case.
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How can your office help?
At our law firm, we
can offer you a free initial consultation with an attorney at a
location nearest you. We help analyze your financial situation and
advise you as to whether the filing of a bankruptcy
petition will help you. Our
office has the experience and expertise to help you along the way.
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How are attorney fees paid?
Attorney fees in a Chapter 13 are paid
through the monthly payments made to the Chapter 13
Trustee. Attorney
fees in a Chapter 7 can be paid in one of three ways. Before
filing his or her case, our clients can pay all of the attorney fees
with a lump sum payment or make monthly payments to our office
until the attorney fee balance is paid. Our firm can make
arrangements with a third party to guaranty the payment of the
attorney fees in low monthly payments. A third party guaranty
allows our firm to file the Chapter 7
without
having the
attorney fees paid in full before filing the case.
What information do I need to being
to an appointment?
- Legal
description of home
- List of
creditors (along with addresses) and amounts owed
- Previous two
years income and
year to date gross income
- Your two most
recent pay stubs
- Any
summons,
garnishments,
judgments or other similar documents.
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What happens after I file?
In approximately
a week and a half, the court will send you a notice of the
Meeting
of Creditors. The
Meeting of Creditors is held approximately
thirty days after you file. A Chapter 7 case typically lasts 90
days until discharge. A Chapter 13 debtor begins to make Chapter
13 payments 30 days after the filing and continues on for the
duration of the plan.
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What is a Meeting of Creditors?
The Meeting of
Creditors allows your creditors the opportunity to ask questions.
However, creditors rarely appear. The
trustee asks questions about
your personal information, assets and debts. The meeting usually
lasts 4-6 minutes.
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What can I expect during the free
consultation?
Our experienced attorneys will go
through your assets, a budget and your debts. They will review the
information and ask important questions. Finally they will advise
you on all your options concerning bankruptcy and get you
ready to file in a way that best protects your interests.
Does filing bankruptcy have to be
done by both husband and wife?
A husband or a wife can
file, without the other if the situation warrants only
one person filing. A typical situation is when either the wife or
husband is the only person responsible for the debt.
However, bankruptcy court
requires both parties income and expenses in analyzing a debtor's
ability to qualify for Chapter 7 or Chapter 13. Also, if there is
joint debt, the person who does not file still will be legally
responsible for the debt.
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What happens to cosigners who don't
file?
Co-debtors can be protected
on consumer debts that are in a Chapter 13. Typically, a co-debtor
will remain legally liable on joint debts after a Chapter 7.
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What assets are
protected when I file?
The answer to this
question is different with each individual. However, generally
speaking, a debtor will keep his or her home (if current with the
mortgage), automobile (if current), life insurance, tools used in
a trade, typical household goods and 401K accounts. Also,
depending in the specific case, a debtor may be able to keep
boats, guns, computers, recreational vehicles and other "toys."
The only way to determine what assets you can keep is to meet with
one of our qualified attorneys.
Does filing bankruptcy put any
possible future tax refunds in jeopardy?
In some instances, a
debtor loses the rights to a tax refund for the year he or she files
the bankruptcy case. However, the vast majority of people keep
his or her tax refunds.
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Does filing bankruptcy put any
possible future ESOP, or existing 401k or other retirement plans in jeopardy?
Filing for bankruptcy
does not offset your future right to invest in a retirement
account. For those with a current 401k, the debtor will keep the
401k because the Supreme Court has ruled that 401k accounts are
not property of the bankruptcy estate. Therefore, a debtor can
discharge
their and
keep his or her 401k.
A debtor may have other
types of retirement accounts. Most retirement plans are protects;
however, the law is changing or unclear on certain retirement
plans. A debtor is best advised to discuss the effects of
bankruptcy on his or her retirement account with one of our qualified
attorneys.
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Do notices of bankruptcy get posted in local newspapers?
Filing for bankruptcy is
a public filing; however, a consumer bankruptcy typically does not get
published in the newspaper. On the other hand, businesses that
file for bankruptcy protection are typically published in the
newspaper. While we cannot guarantee your filings will not be
published in some newspapers, our firm tries to protect our
clients by not listing the business name on the front of the
petition thereby keeping the filing out of the newspaper.
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Why file
bankruptcy?
Approximately
one
million people or businesses file bankruptcy annually.
Bankruptcy
is a powerful tool to provide debt relief to those who need
protection. While bankruptcy may carry a perceived negative
public perception, it allows people the opportunity to remove the
stress of overbearing debt problems and to get a fresh start with
their lives
.
Bankruptcy plays an important role in
society. It relieves consumers of his or her debts, thus enabling the
consumer to live life more comfortably and to contribute to society’s
economic and credit systems.
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What
to expect in the next few months ?
Whether you are filing a Chapter 7 or
Chapter 13, the next few months will be similar in procedure. You
retained our law firm’s services by paying money toward the court
filing fee. Once retained, you can direct all creditor calls to
our law firm. In most instances this will ease the harassing
phone calls.
We will prepare the bankruptcy
petition once our firm receives all the information and
filing fee from you. You are required to review and then sign the
petition schedules prior to filing with the court. If we mail the
petition to you, please return the
petition as soon as possible so
we can get the case filed and provide you with the protection of
the Bankruptcy Court.
The bankruptcy Court will send you a
Notice of the Meeting of Creditors about 7-10 days after your case is
filed. There is a lot of information contained in this notice,
please read it thoroughly. The Notice will specify the date, time
and location of the
Meeting of Creditors (approximately 30-40 days
after your case is filed). You must attend the “Meeting of
Creditors.”
The
Meeting of Creditors is a
relatively painless hearing. One of our attorneys will be with
you at the hearing. The hearing is neither in a courtroom nor in
front of a judge. The
Meeting of Creditors is held before a
trustee and will last approximately
4-6 minutes. The
trustee will
ask questions about your assets, debts and background
information. You need to bring a picture I.D. and verification of
a social security number. Failure to bring these items could
cause the trustee to file a motion to dismiss your bankruptcy
case. If you filed a Chapter 13, you will need to bring your
first Chapter 13 payment.
If you filed a Chapter 7, the
next step is to wait 60 days until you receive your
discharge
notice. If you filed a Chapter 13, you will have to make monthly
payments to the Chapter 13 office for the duration of your plan
and then receive a discharge.
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What
does bankruptcy do to your credit ?
The credit
bureaus will report your bankruptcy filing on your credit report
for no more than ten years from filing date of the bankruptcy
petition. However, keep in mind everything you do credit-wise is
on your credit report for 7-10 years. What you do after your
bankruptcy will determine your credit score. You will want
to rebuild your credit score as fast as possible.
Bankruptcy will damage your credit if
you already have stellar credit. On the other hand, if your
credit report is already pretty banged up, a bankruptcy will not
make your credit any worse than it already is, especially in a
Chapter 7 case. Your credit can improve much faster after a
discharge in bankruptcy than prior to filing for bankruptcy
because your debt has been eliminated.
There can be items on your credit
report worse than bankruptcy. Tax liens and
judgments can be more
alarming to a credit-reviewer than a bankruptcy. A tax lien or
judgment is a red flag to a lender. However, once your debts are
eliminated, you can take steps to clean your credit report and
to begin to rebuild your credit. Therefore, a bankruptcy can improve
an individual’s credit rating, rather than damage it.
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How
can you rebuild your credit ?
The key to your future purchasing
power after a bankruptcy will be your credit rating. The way you
rebuild your credit greatly will influence whether your rating
remains low, increases slowly over time, or increases rapidly over
time.
The best starting point for the repair
process is your credit report itself. The three credit reporting
agencies in this country are:
• Experian (1-888-EXPERIAN or
www.experian.com)
• Equifax (1-800-685-1111 or
www.equifax.com)
• TransUnion (1-800-916-8800 or
www.tuc.com)
Your credit report tells you what
information prospective creditors will see when you apply for
credit. Credit reports also are used by potential employers
and some auto insurance companies, so your report should be as
accurate as possible.
Starting March 1, 2005, Federal Law
entitles you to one free copy of your credit report annually. You
can obtain this free credit report over the internet at
www.annualcreditreport.com or by telephone at 1.877.322.8228. An annual review of your credit report
will help you determine its accuracy. If you find any errors,
write to the credit bureau from which you received the report from and tell
them what information you dispute. Follow up in a couple of
months to make sure they have corrected the information. If you
dispute something in writing, the credit bureau has to check the
information, and they will remove it if his or her investigation proves
you were right.
The credit bureau may not accurately
reflect your most recent discharge; therefore, you should send
them a copy of your discharge notice and the schedule of
creditors. Furthermore, you may want to inform the credit bureaus
of the following information (the credit bureau does not have to
add this information but often will):
• Current employment
•
Current residence
•
Current phone number
• Date
of birth
•
Checking account number
Another strategy for building your
credit record is to make sure everyone that you pay on time
reports this information to the credit bureau. Therefore,
you may improve your score by asking your creditors to report
timely payments.
Once you have established that the
current information on your report is as accurate as possible,
your next goal is to improve your score as much as possible with
new credit references. A methodical approach to credit will yield
the best results.
First, establish a realistic household
budget so you have a clear idea of how much debt payment your
budget can handle. A budget allows you to realize how much money
is coming in and how much money is going out each month. A sound
budget is key to rebuilding your credit.
Second, begin
to obtain credit. Evaluate the credit offers you receive based on
the type of credit, interest rate, grace period, annual fees and
any other terms so you know your exact obligations. This process is essential because your application
process should remain focused. A large number of credit inquiries
caused by a flood of applications by you can cause you to be
rejected by creditors who would otherwise approve you. Be
selective!
A starting point in obtaining credit
is getting one credit card. You may only qualify for a secured
card but whether it is secured or unsecured, you can use it to
build your credit. Once obtained, make a small purchase each
month (e.g. $25) and pay it off when the bill arrives. By paying
the balance due and not carrying a balance over to incur interest
charges shows prospective creditors you can manage your account.
Once you have
established yourself with the one card, you might be anxious to
apply for many more cards. However, you should be careful in not
getting too carried away. Ideally, you should carry one or two
bank credit cards, maybe one department store card and one
gasoline card. Try not to charge everything on your bank credit
card and not to use your department or gasoline card. When creditors
look in your credit file; however, they want to see that you can
handle more than one credit account at a time. Do not build up
interest charges on these cards, but use them and pay the bill in
full.
Another method to rebuilding credit is
to apply for a small loan at your bank. After using a credit card
for a time, obtaining a small consumer loan and paying that on
time will improve your credit score. Please note, whether it is a
new loan, car loan, home loan, student loan or credit card, make
sure you are on time with all of your payments. You must pay all
of your bills on time after a bankruptcy to build your credit
effectively.
If you follow the steps outlined
above, it will take about two years to rebuild your credit. In
addition, it is extremely important you are on time with all of
your payments. If you aggressively build your credit after a
discharge, you may be eligible for a home mortgage within a
two-year period.
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Other sources for information in
credit repair
-
The Guerrilla Guide
to Credit Repair: How to Find Out What’s Wrong With Your Credit
Rating And How to Fix
It – By Todd Bierman, Nathaniel Wice
-
On Your Own For The
First Time – By Jeff
Bowers
-
Repair Your Own
Credit and Deal With Debt – By Brette McWhorter Sember
-
The Credit Repair
Kit – By John Ventura
-
The No
-Nonsense Credit Manual: How to
Repair Your Credit Profile, Manage Personal Debts and Get
Right Home Loan or Car Lease – By Shaun Aghill
-
The Complete Guide
to Credit Repair – By
Bill Kelly, Jr.
-
The Insider’s Guide
to Manage Your Credit :
How to Establish, Maintain, Repair, and Protect Your Credit
– By Deborah McNaughton
-
Guaranteed Credit
: A Time-Tested Program
Guaranteed to Provide Clear, Step-By-Step Information on How to
Repair, Restore and Rebuild Your Credit – By Arnold S.
Goldstein
-
Getting Out of Debt
: Repair Bad Credit and
Restore Your Finances! – By Rich Mintzer
-
Repair Your Credit
– By George Williams III
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What debts are not erased by
bankruptcy?
The following debts are
not erased in either Chapter 7 and Chapter 13. If you file for
Chapter 7, these will remain when your case is over. If you file
for Chapter 13, these debts will have to be paid in full during
your plan. If they are not, the balance will remain at the end of
your case:
-
Debts you forgot to
list in your bankruptcy papers;
-
Child support and
alimony;
-
Debts for personal
injury or death caused by your intoxicated driving;
-
Student loans, unless
it would be an undue hardship for you to repay;
-
Fines and penalties
imposed for violating the law, such as traffic tickets and
criminal restitution; and
-
Recent income tax debts
and all other tax debts. This is a complicated area of the
bankruptcy law and you should consult with one of our attorneys.
You can discharge (wipe out) debts for federal income taxes in
Chapter 7 bankruptcy only if all these five conditions are met:
-
The IRS has not
recorded a tax lien against your property. (If all other
conditions are met, the taxes may be discharged, but even
after your bankruptcy, the lien remains against all property
you own, effectively giving the IRS a way to collect.
-
You didn't file a
fraudulent return or try to evade paying taxes.
-
The liability is for
a tax return (not a substitute return) actually filed at
least two years before you filed for bankruptcy.
-
The tax return was
due at least three years ago.
-
The taxes were
assessed (you receive a notice of assessment of federal taxes
from the IRS) at least 249 days (eight months) before you file
for bankruptcy. (11 U.S.C. 523(a)(1) and (7).)
In addition, the
following debts may be declared non-dischargeable by a bankruptcy
judge in Chapter 7 if the creditor challenges your request to
discharge the item. These debts may be discharged in Chapter 13.
You can include them in your plan, and at the end of your case,
the balance is wiped out:
-
Debts you incurred on
the basis of fraud, such as lying on a credit application;
-
Credit purchases of
$1,150 or more of luxury goods or services made within sixty
days of filing;
-
Loans or cash advances
of $1,150 or more taken within 60 days of filing;
-
Debts from willful or
malicious injury to another person or another persons property;
-
Debts from
embezzlement, larceny or breech of trust, and
-
Debts you owe under a
divorce decree or settlement unless after bankruptcy you would
still not be able to afford to pay them or the benefit you would
receive by the discharge outweighs any detriment to your
ex-spouse (who would have to pay them if you
discharge them in
bankruptcy.)
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