What is bankruptcy?
The United States Constitution provides for the establishment of bankruptcy laws. Congress has provided a process for eliminating or restructuring debt to provide individuals, businesses, and other entities a “fresh start.” The Supreme Court of the United States affirmed that “the development of bankruptcy legislation has been towards relieving the honest debtor from oppressive indebtedness and permitting him to start afresh.” Wright v. Union Cent. Life Ins. Co., 304 U.S. 502, 514 (1938). The laws of bankruptcy are primarily found in the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, the local rules for the Bankruptcy Courts, and in the interpretations of the courts (case law).
Do I qualify for bankruptcy in general?
In most cases, any person (or business) that lives in the United States is eligible to file for bankruptcy. This includes minors and incompetent persons, although through a representative. Additionally, the Code provides for joint filing for spouses. While eligibility is broad, individuals are not eligible for bankruptcy in certain circumstances where a bankruptcy petition has been previously filed. The Bankruptcy Code does impose some requirements for filing. All cases must be filed in the correct division (based on the zip code of the residence of the individual or business). Also, debtors (and their attorneys) must utilize official bankruptcy forms in filing.
Will I lose everything I currently own if I file for bankruptcy?
In most situations, consumer debtors in bankruptcy are able to keep all their assets. This is done through a process of exemptions that the Bankruptcy Code provides to help promote a “fresh start” for individuals. In a number of situations people try to hold off bankruptcy and end up losing their vehicles, houses, and paychecks. What we do at the Henshaw Law Office is provide you with the options of both working with creditors outside of bankruptcy to see if we can alleviate as well as what can happen if you decide to file.
Do I have to go through “credit counseling” to qualify for bankruptcy?
Within 180 days of filing for bankruptcy individual debtors must attend credit counseling. The counseling service must be an approved nonprofit credit counseling agency. Also, following the filing of a bankruptcy petition you must complete a personal financial management course before you may obtain a discharge. Again, the administering agency must be approved by the United States Trustee. In both of these situations, you may have the option of completing these courses either in person, by phone, or even over the Internet.
How is my credit affected by bankruptcy?
Be wary of any company or attorney that represents that a person’s credit will instantly improve following bankruptcy. A person that is considering bankruptcy likely has debt that cannot be regularly paid. That person’s credit score is negatively affected because of that. Bankruptcy eliminates debt and can provide an individual with a clearer financial future. Also, an individual is limited in how often bankruptcy can be filed. With that said, debts that are on a credit report can be completely discharged through bankruptcy. The actual reporting of a Chapter 13 bankruptcy can stay on a person’s credit report for up to seven (7) years. A Chapter 7 bankruptcy can stay on a debtor’s credit report for up to ten (10) years.
Should I file bankruptcy?
This is a decision that should be evaluated by each individual to see whether it is the best option. You should not be pressured by any attorney to file a bankruptcy. Here are some factors to consider in making the decision to file are: How far behind in debt am I currently? What are my immediate financial needs? Am I in default? Is my house in foreclosure? Is my car going to be repossessed? Is my paycheck being garnished to satisfy my debts? Will my debts be discharged in bankruptcy? Am I financially able to satisfy my debts at the current rate I am going? What other options do I have? Am I looking to make any large purchases in the near future? Talking with the attorneys at the Henshaw Law Office can help you decide whether bankruptcy is the best option. Following your private and confidential consultation, you will be able to confidently make that decision.
What happens to my car?
Depending on your situation, you may have the ability to retain your vehicle, whether through a bankruptcy exemption or through a reaffirmation of the vehicle loan. One benefit of bankruptcy is that following bankruptcy a debtor should be in a better position to pay off a vehicle loan. A debtor in bankruptcy also has the ability to surrender the vehicle where the debtor decides that to keep the vehicle is not in the debtor’s best interest. In that case, the car is returned to the lender, with the debt potentially completely eliminated.
What happens to my house?
The first thing that happens in bankruptcy is that through the automatic stay all collection efforts and foreclosure proceedings must immediately terminate. With that stay, and the potential elimination or reduction of a debtor’s unsecured debt (such as credit cards), the debtor may be in a position to make the necessary payments to continue in their home. Further, it is also possible that based on the value of the home, a second mortgage may fall into the “unsecured” category of debt. If this becomes the case, that second mortgage may be eliminated, providing for an easier path to home retention. Because each case is different, the lawyers at the Henshaw Law Office can help strategize and decide whether remaining in your home is what is best for you. Because for most people the purchase of their home is the largest purchase they will ever make, the decision to stay or leave involves both an emotional and financial review.
Why are there different “chapters” of bankruptcy?
Each Chapter represents a different type of filing. For example, a Chapter 7 petition for an individual likely means that all of the debtor’s unsecured debt (such as credit cards) can be discharged, with the debtor not required to pay anything following the close of the case. In a Chapter 13 case, the debtor prepares a plan to pay a certain percentage of debt to creditors following the close of bankruptcy. Chapter 12 works in a somewhat similar manner to Chapter 13, but is strictly for family farmers and family fishermen. Chapter 11 is generally reserved for business reorganizations.
How much does bankruptcy cost?
The fee for the bankruptcy case will depend on the complexity of the matter. For a simple Chapter 7 matter the cost can be as low as the cost of filing ($306 as of 11/1/2011) plus $699 for the cost of hiring the Henshaw Law Office to evaluate, process, and pursue the bankruptcy petition. Additional administrative costs would be incurred for more complicated matter such as cases where home retention is sought, the debtor files jointly with his/her spouse, or where the debtor maintains a business as a sole-proprietorship. In a Chapter 13 case, the cost of filing ($281 as of 11/1/2011) must be paid in advance, plus an initial attorney fee as low as $75. The remaining fee, however, is paid out through the Chapter 13 plan.
Who is the “United States Trustee” in bankruptcy cases?
The United States Trustee Program is a component of the Department of Justice that seeks to promote the efficiency and protect the integrity of the Federal bankruptcy system. (http://www.justice.gov/ust/eo/ust_org/about_ustp.htm) The Trustee oversees the liquidation of debts in Chapter 7 cases. The Trustee also works to prevent fraud and abuse in all bankruptcy proceedings.
What do I need to do before bankruptcy?
One of the most important issues in bankruptcy is ensuring that all creditors are made aware of the filing. One reason to be thorough in this process is that should a debtor fail to notify a creditor of the bankruptcy, that creditor’s debt may be nondishchargeable; in other words, the debt would need to be repaid in full. Therefore, for each and every debt (no exceptions) gather: The creditor’s name and mailing address The name and address of any attorneys or collection agencies for the creditors The amount of debt owed Any account numbers When the debt was initially incurred The nature of the obligation (what was the reason or cause of the debt) If you own a business, you may be required to provide business information including: Complete inventory schedules Audited financial statements Property appraisals Outstanding loans or lines of credit documentation A list of all shareholders or partners Other documentation that will need to be reviewed includes: Income tax returns Inventory of real and personal property Insurance policies Bank account statements Loan documents Contracts, including leases, personal guarantees, marital agreements and support orders, and judgments
What happens when I file for bankruptcy?
The moment a bankruptcy case is filed the Bankruptcy Code provides for an “automatic stay” preventing any and all creditors from taking most actions against the bankruptcy petitioner or the petitioner’s property. Therefore, all collections, foreclosure, and civil court proceedings must cease until the stay is lifted. The purpose of the automatic stay is to provide the debtor with relief from harassment, and create room for the debtor to prepare for an orderly administration of the debtor’s bankruptcy estate.
Why do I need an attorney in bankruptcy?
For one, bankruptcy can be quite complex. The Bankruptcy Code has many rules, exceptions, and exemptions. A qualified bankruptcy attorney can navigate through the maze of the Code to provide a debtor with confidence and assurance that the correct procedures have been followed. Next, a qualified bankruptcy attorney can help you understand what rights the debtor has. There are many companies and individuals who look to take advantage of those in vulnerable positions. Your attorney can evaluate any such offers and provide true counsel based on case and statutory law. Lastly, your bankruptcy attorney can help you protect your personal assets. The United States Constitution established bankruptcy law to enable individuals to obtain a “fresh start.” Many people see bankruptcy as a personal catastrophe. While bankruptcy is obviously serious, and each individual filing for such protection should evaluate their options with care, with that fresh start, the Bankruptcy Code allows for retention of property, continuing funds, and other benefits that may be unknown to those without legal training.
Which debts must I still pay after bankruptcy?
In the majority of cases (Chapter 7), the debtor is not required to make payments on past debts (excluding potential home and car loans where the debtor retains the property). However, in Chapter 13 cases, the debtor is required to make payments on a certain percentage of debt, potentially including unsecured debt such as money owed on credit cards. Not all debts, however, are deemed “dischargeable” under the Bankruptcy Code. This means that even after a debtor’s “successful” bankruptcy case, some debts, no matter the chapter, will need to be repaid. Some of these debts include student loans, some taxes, domestic support payments, postpetition condominium association fees, and money owed based on any fraudulent behavior.