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WHAT IS BANKRUPTCY?

 

          BANKRUPTCY IS, IN ESSENCE, ASKING THE FEDERAL COURT (I.E. THE GOVERNMENT) TO RELIEVE YOU OF YOUR DEBTS.  Based on your current financial situation, which you must fully disclose, the court will grant you the relief you are eligible to receive. 

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THE 2 TYPES OF BANKRUPTCY

 

          There are two types of bankruptcies that individuals and married couples (i.e. consumers) may file - CHAPTER 7 and CHAPTER 13.   They are simply named after the chapters of the United States Bankruptcy Code (Title 11 of the U.S. Code) where the laws are written.  

 

           THE EASY WAY TO LOOK AT IT:  IF YOU ARE FILING A BANKRUPTCY IDEALLY IT IS A CHAPTER 7.  Chapter 7 is the simple discharge-the-debts-you-can-discharge-and-you're-done form of bankruptcy.  YOU FILE A CHAPTER 13 IF YOU CANNOT FILE A CHAPTER 7, OR IF A CHAPTER 7 WOULD NOT ACCOMPLISH WHAT YOU NEED TO ACCOMPLISH.  Chapter 13 involves a monthly payment to the court for 36-60 months designed to pay specific debts and/or a percentage of your total debt, before discharging remaining debt.

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          Qualifying to file a chapter 7 bankruptcy depends on your income, your household size, your assets, your expenses, the types and amount of debts you have, prior bankruptcy filings, etc. - and you must disclose all of this information to the court going back several years. 

 

          A chapter 13 bankruptcy may be filed if your income is too high to file a chapter 7, you have assets you would risk losing in a chapter 7, you filed a previous chapter 7 in the last 8 years, your budget would allow you to pay something towards your debts each month, etc.

 

          A chapter 13 bankruptcy may also be filed for a specific purpose, such as catching up on a mortgage or car loan, or paying a non-dischargeable debt over time with reduced interest and penalties, such as recent taxes.

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          The court is there to grant you relief but also to protect your creditors.  If you have a certain income the court assumes you can pay some of your debts back in a chapter 13.  If you have too much money in the bank or if you have the ability to put money in the bank each month once your debts have been discharged, the court's position is you have the ability to pay some of your debts back in a chapter 13.  If you own an asset you could potentially sell and apply the proceeds towards your debts, such as expensive jewelry, collectibles, or a car with no loan on it, the court's position is either sell it first before you file, or it can be sold for you (liquidation in chapter 7), or you can keep it but pay to your creditors the amount they would have received if it was liquidated (chapter 13 payback plan).

    

        Which type of bankruptcy to file is legal advice only a lawyer may help you with.  The goal of this website is to provide you with enough general information about both types of bankruptcy that you can at least get a rough idea what your options might be.

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REASONS TO FILE BANKRUPTCY

 

          Bankruptcy should be the last resort when debt becomes overwhelming.  It is a way to start fresh and put you in a position to rebuild your credit.  For many it is a way to walk away from current debts and start with a clean slate (CHAPTER 7).  For others bankruptcy allows you to pay certain debts over time (including debts that you cannot discharge in bankruptcy and that you will have to pay anyway), without penalties, at reduced interest rates, through a consolidated monthly payment, while discharging other debts (CHAPTER 13).

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          There are benefits to bankruptcy that debt relief programs, debt consolidation programs, debt negotiations, and other approaches to debt relief simply cannot offer, including:

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• DISCHARGE OF DEBTS

  • Bankruptcy allows you to discharge certain debts.  A discharge is a federal court order that says that your debts are no longer collectible.  A discharge is the goal of most bankruptcies.  Please see list of dischargeable debts.

• STOPPING FORECLOSURE OF YOUR HOME

  • Filing a bankruptcy can stop a foreclosure sale if filed at least 24 business hours before the sale.

  • If you are keeping your home you would file a chapter 13 and pay the arrears over 36-48 months.

  • If you will be walking away from your home but need more time, a chapter 7 can buy some more time before the sale is eventually rescheduled.

• STOPPING VEHICLE REPOSSESSION (CHAPTER 13 ONLY)

  • Filing a bankruptcy will stop an impending repossession, or force an already repossessed vehicle to be returned to you if filed within 10 days of the repossession or before the vehicle is sold.

  • Understand you still may have to show that the vehicle is insured, and you still may have to pay a tow or storage fee before receiving the vehicle back!

  • In this scenario you would file a chapter 13 and pay the car in full over 36-60 months at 6.60% APR.

• STOPPING GARNISHMENTS AND LEVIES

  • Garnishments on wages must stop when a bankruptcy is filed (all garnishments not related to child support or criminal restitution).  

  • Bank account levies may also be canceled if a bankruptcy is filed before the money is actually seized (your bank usually warns you of the date funds will be seized on the levy notice, typically the return date on the garnishment/levy). 

  • A garnishment will realistically take at least a week to actually be stopped by the attorney who started it, so the next paycheck you receive after filing a bankruptcy will likely still be garnished! 

• STOPPING LAWSUITS & PREVENTING JUDGMENTS

  • Filing a bankruptcy will stop current lawsuits from proceeding, preventing judgments from being entered and will prevent further lawsuits from being filed against you for anything that occurred prior to the bankruptcy.

  • You are only being sued if you have been served a summons with a court date.

  • Bankruptcy will not stop an eviction from occurring when a landlord already has a judgment for possession.

• AVOIDING LIENS ON REAL ESTATE

  • If you own real estate then any judgment from any lawsuit that takes place in the county where you own the real estate has the potential to become a judicial/judgment lien (also called a transcribed judgment)! 

  • A judgment lien cannot be used to force the sale of the real estate, but will have to be paid if the real estate is sold while the lien is valid, and will reduce the available equity in the mean time.

  • Judgment liens on your home may be avoided entirely in bankruptcy, depending on the equity in your home. 

  • We are the only local attorneys who avoid liens at no additional cost!

• AVOIDING SECOND MORTGAGES & HELOCS (CHAPTER 13 ONLY)

  • In chapter 13 only it may possible to avoid or partially avoid a second mortgage or a home equity line of credit on your home, depending on the equity in your home.

• CRAM DOWN OF MOTOR VEHICLE LOAN (CHAPTER 13 ONLY)

  • In a chapter 13 only, when you have owned a vehicle for at least 910 days prior to filing and still have a loan balance on it, you may reduce the loan balance to the current NADA value if the NADA value is lower, and pay that reduced amount through your monthly bankruptcy payments at rate of 6.60% APR.

  • This is called a cram down of a loan on a 910 vehicle.

• CRAM DOWN OF TITLE LOANS AND NPMSI'S (CHAPTER 13 ONLY)

  • Title loans and a few other types of loans secured by personal property (non purchase money security interests) taken out over 1 year prior to filing may also be eligible for cram down to NADA value of the collateral as well.​​​

• STOPPING COLLECTIONS & HARASSMENT

  • Creditors, including collection agencies, cannot contact you at all or try to collect debts from you once a bankruptcy is filed.  They must deal with us or the court from then on, they have no choice.

• STOPPING DEROGATORY REPORTING (AND ALL REPORTING) TO THE CREDIT REPORTING AGENCIES - TRANSUNION, EXPERIAN, EQUIFAX, & INNOVA

  • Filing a bankruptcy prevents creditors from further reporting to the credit bureaus regarding your debts.  This means no more reported missed payments, late payments, or charge-offs.  Open accounts with debt must be marked as closed or included in bankruptcy, and will no longer continue to negatively affect your credit score moving forward.

  • The downside to not reporting to the credit bureaus is that if you keep your home or car and keep making the payments, most likely your future on-time payments will not positively affect your credit score either!  You will have to obtain some other form of credit after you file a bankruptcy to help rebuild your credit score.

• FORCING CREDITORS TO ALLOW YOU TO PAY BACK CERTAIN DEBTS OVER TIME AND AT REDUCED INTEREST RATES (CHAPTER 13 ONLY)

  • In a chapter 13 only certain non-dischargeable debts, such as priority tax debts, and child support or alimony arrears, i.e. debts that you cannot discharge and you cannot cram down, which you will have to pay back regardless of filing a bankruptcy, you are be able to pay back over time, at a lower or even 0% interest rate, through a set monthly payment to the court that is designed to be affordable.

  • Chapter 13 is the only way to stop the interest and penalties on such debts and the only way to force the creditors to allow you to pay over 36-60 months rather than on their terms, or through a  garnishment or levy.

 

THE AUTOMATIC STAY (VS. DEBT RELIEF PROGRAMS)

 

          The protections of bankruptcy take effect the moment it is filed.   Bankruptcies are filed online through the PACER website and the protections take effect as soon as a case number is assigned, which is almost immediately. 

 

          When you file a bankruptcy the court imposes what is called the automatic stay.   This is the legal term for the court stopping the current actions of your creditors and preventing them from doing anything further to try to collect debts from you.  The automatic stay is what stops foreclosure sales, stops garnishments, stops levies, stops lawsuits, stops harassment, forces creditors to accept lower monthly payments, forces creditors to let you pay your delinquencies over time, etc. 

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         You can only receive this legal protection by filing bankruptcy. No debt relief program comes with this protection, or any protections really.  In fact such programs have the potential to do more harm than good to your credit score through non-binding negotiations and charge-offs, whereas the Automatic Stay prevents your current debts from being further negatively reported and affecting your credit score. 

 

          No creditor is ever legally bound by any agreement made in any debt relief program, and many creditors will not even agree to participate in those programs (such as Discover Bank)!  No matter what any debt relief program represents to you, if you participate in a program that pays less than the minimum payments on your debts each month it will result in derogatory marks on your credit report and negatively impact your credit score!  Debt relief agencies prey on people who are afraid to file bankruptcy!

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          The automatic stay remains in place the entire time you are in a bankruptcy, and ends when the bankruptcy is over.  The discharge order takes the place of the automatic stay after that.  This means that debts that were not discharged in a bankruptcy can be collected again once the bankruptcy is over, such as student loans.

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          In cases where multiple bankruptcies have been filed too close together the automatic stay may only last 30 days, or it may not go into effect at all.

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ATTORNEY'S JOB

 

          When you hire us as your attorney we walk you through the process from start to finish.  Our job is to: inform you of the law and what your options are under the law, counsel you as to what we believe is in your financial best interest (not ours), help you strategically plan prior to filing, prepare all of your paperwork for you (no packets or forms to fill out), collect documents from you, and walk you through the entire process from consultation to court appearance to discharge!  Bankruptcy is mainly paperwork and filing things with the court.  As attorneys we do 99% of the work.

 

          We try  to offer a different experience as attorneys.  We are casual and easy to reach.

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          We will tell it to you like it is whether you want to hear it or not.  Our time is important to us.  We have no desire to trick you, or to answer your questions vaguely or optimistically just to get you in our door.  We'd prefer to answer questions by phone and only meet with people who qualify to file bankruptcy and need to file.

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YOUR JOB

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          Your job is to: answer our questions honestly, and get us the documents we ask you for.  Again, no packets to fill out, no writing out answers to questions!

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IS BANKRUPTCY THE RIGHT CHOICE?

 

          The decision to file bankruptcy is yours alone.  You should consider the cost of filing compared to the amount of debt you will discharge.  You should consider the impact of filing on your credit score, and how it will impact your ability to get credit and financing in the future.  Is your current debt situation causing you hardship or hurting your credit?  If you have a large amount of debt but it is not affecting your life or your credit, and you are not being sued or garnished, or if you are collection proof - meaning your source of income cannot be garnished, such as Social Security, then filing bankruptcy might not be the right choice for you financially.  Bankruptcy is a serious step, not a decision to be talked into by a lawyer, and should ultimately be the last resort.

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          Call (314) 896-1999 if you have any questions or to set up a free consultation!

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