Q: What is bankruptcy?
A: Bankruptcy is a process under federal law that allows individuals either to either eliminate their debts by filing a Chapter 7 bankruptcy or to establish a payment plan to pay a portion (or all) of their debts over time by filing a Chapter 13 bankruptcy.
Q: What will bankruptcy do for me?
A: In both a Chapter 7 and a Chapter 13 case, you will receive a discharge of your debts. A discharge is a Bankruptcy Court order served on each of your creditors informing them that you no longer owe the debt and that they are prevented from any future attempts to collect that debt. The discharge is a legally enforceable court order and creditors may be fined if they violate it.
The debt relief obtained in bankruptcy enables you to receive a fresh start. After you file for bankruptcy, your income is available to satisfy your financial needs. Filing for bankruptcy is a business decision, designed to assist you in restoring financial strength. It worked for GM and Chrysler, and it works well for hundreds of thousands of individuals every year.
Q: What will I have to give up?
A: In most cases, you will retain all of your property (if you wish) and give up only your debt. Bankruptcy does not require you to give up your house or your car. You will give up property only if its sale will generate substantial money for your creditors. If your property is collateral for a loan (such as your house or your car), a sale is unlikely and will occur only if the sale would pay off the secured debt. Other property with substantial value - such as 401(k) plans, Individual Retirement Accounts and most other retirement plans - are exempt from (or not available to) your creditors. Since each case turns on its own facts, you and your attorney will need to closely examine all facts to determine the effects on your property.
Q: How can it be this easy?
A: Most people ask some variation of this question, often adding "I borrowed the money, I should have to pay it back" or "I was always taught you pay your bills." The Bankruptcy Code was enacted by Congress under the Constitution and its provisions reflect our national policy that promotes your financial stability over creditor profits. In most cases, our clients have explored several options - many of which have harmful long-term effects - to pay back their creditors. Usually, these efforts have been unsuccessful and have resulted in stress and other harmful effects. The protection from a bankruptcy filing resolves these issues and enables you to concentrate your efforts and resources on obtaining a fresh financial start.
Q: What do I have to do to qualify?
A: There is no maximum debt amount required to file bankruptcy. The foremost requirement to file for bankruptcy is honesty. In exchange for requiring creditors to stop collecting and to write off the debt, the Bankruptcy Code requires the full disclosure of all your assets, liabilities, income and expenses. In order to file a Chapter 7 case, you must satisfy the "means test," a formula that is based on several factors, including income, expenses and household size, and you cannot have received a Chapter 7 discharge within the prior 8 years. To file a Chapter 13 case, you must have sufficient income - after deducting for living expenses - to male payments on a portion of your unsecured debt.
Q: Why is it called Chapter 7, 13, etc.?
A: The "chapters" of bankruptcy simply refer to the relevant portion of the Bankruptcy Code. Chapter 7 contains provisions for people who seek to discharge all of their debt. Chapter 13 contains specialized provisions for people who have equity/value in assets that they need to protect; have negative equity they want to discharge; need time to catch up on mortgage payments; have debt that is not dischargeable in a Chapter 7 case (such as tax debt); or do not qualify for a Chapter 7. Deciding which chapter is right for you requires a careful review of your assets, liability, income and expenses, as well as a discussion of your priorities and goals.
Q: What about my credit?
A: An understandable question in considering bankruptcy is its effect on credit standing. For many people, bankruptcy improves their credit. Most people who are considering bankruptcy are only making minimum payments on debt, are delinquent or are in collection. In those circumstances, people already have or soon will have poor credit. Bankruptcy can improve your credit (and your chance for a loan in the future) by stopping collection efforts, including creditors' rights to report you as delinquent and other negative credit reporting, as well as dramatically improving your debt-to-income ratio. By discharging old credit card, medical and other debt, you may be able to save money for a down payment. The fact that you filed for bankruptcy does stay on your credit report for 10 years, but that does not mean that you have to wait that long before obtaining credit for a house or other purchases. These factors, combined with other steps to reestablish your credit after your bankruptcy will assist you in qualifying for credit after bankruptcy.
Q: What about debt I want to keep?
A: You are permitted to retain existing debt in bankruptcy. The most important factor in making this decision is whether keeping a debt makes financial sense for you. Most people want to keep paying on their house or car. People often want to pay debts to personal physicians or a credit union. That is fine also. Most importantly, almost everyone wants to repay debts to friends and relatives - although you should not make any of these payments before you file for bankruptcy. Regardless, nothing interferes with your decision to make voluntary payments after the bankruptcy.
Q: Will bankruptcy stop harassing phone calls and mail from bill collectors?
A: Yes! When you file your case, all actions by creditors to collect from you are "automatically stayed."
Q: Will bankruptcy stop a wage garnishment?
A: Yes. The automatic stay will stop the garnishment.
Q: What happens if I file and discover another debt after filing?
A: We can amend your case to include additional debts you may find after the case is filed.
Q: Are all debts discharged in a bankruptcy?
A: No. The Bankruptcy Code identifies certain debts like student loans, government loans, back taxes and other debts that cannot be discharged or can be discharged only under very limited circumstances.
Q: What should I look for in a bankruptcy attorney?
A: Your choice of legal counsel is of the utmost importance. A bankruptcy filing is stressful and its successful handling provides the basis for you and your family to obtain a fresh start on your path to financial well-being. It is essential that your attorney and you discuss all aspects of your financial situation in order for you to receive the most effective advice and counseling. We do not recommend that you file a bankruptcy case until we complete a thorough investigation of your entire financial situation. I am involved in your case from the initial phone call, office conferences, follow-up phone conferences, the drafting of your bankruptcy petition and schedules, and at all Bankruptcy Court appearances. This level of involvement results in your receiving advice that is appropriate for your individual and specific circumstances, needs and goals.
DISCLAIMER: This web page is posted for information purposes only. You should not consider any information on this web page as legal advice. No attorney-client relationship is established and no legal advice is given by the law firm of Colella & Weir, P .L.L. or Attorney Jeffrey H. Weir II until after client pays the requisite attorney retainer fee and a written fee agreement is executed.
