- What is bankruptcy?
Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or organize a plan to repay them.
- How do I know what type of bankruptcy to file?
Choosing which chapter of bankruptcy is best for you depends on what kind of debts you have, whether you are behind on secured debts, and whether you have the regular income necessary to fund a Chapter 13 Reorganization Plan.
There are four kinds of bankruptcy proceedings. They are referred to by the chapter of the federal Bankruptcy Code that describes them.
Chapter 7 is a straight bankruptcy or "total wipe-out" of all one's unsecured debt, to enable one to make a fresh start. One's home and car is generally not at risk in a Chapter 7 case, as long as the payments are being kept current and insurance is being properly maintained. If there is excess equity in one's home or car, one may not be eligible for Chapter 7 relief and may have to consider Chapter 13 relief. Certain retirement and insurance equity is protected under additional exemptions. You need to consult with a bankruptcy attorney to determine if your assets are protected.
Chapter 7 is available to individuals, married couples, corporations and partnerships. Individual debtors get their discharge approximately 4 to 6 months after filing the case.
If there are assets that are not exempt, the trustee takes control of those assets, sells them and pays creditors as much as the proceeds permit.
Any wages the debtor earns after the case is begun are the debtor's, beyond the reach of creditors who had claims on the date of filing.
Chapter 11 is a reorganization proceeding, typically for corporations or partnerships. Individuals, especially those whose debts exceed the limits of Chapter 13, may file Chapter 11. In Chapter 11, the debtor usually remains in possession of his assets and continues to operate any business.
The debtor proposes a plan of reorganization which, upon acceptance by a majority of the creditors, is confirmed by the court and binds both the debtor and the creditors to its terms of repayment. Plans can call for repayment out of future profits, sales of some or all of the assets, or a merger or recapitalization.
Chapter 12 is a simplified reorganization for family farmers, modeled after Chapter 13, where the debtor retains his property and pays creditors out of future income.
Chapter 13 is an individual reorganization, - like a consolidated repayment plan, for individuals with regular income and unsecured debt less than $269,250 and secured debt less than $807,750. The debtor keeps his or her property and makes regular payments to the Chapter 13 trustee out of future income to pay creditors over the life of the plan (3-5 years). The amount of the monthly payments to be made into the Chapter 13 plan depends on a variety of factors that determine the debtor's eligibility for Chapter 13 relief, such as excess income, excess equity, amount of priority claims, arrearage on secured debts, and so forth.
Chapter 13 is especially helpful to individuals who are behind in their home or car payments and wish to save them from foreclosure or repossession. Also, people who cannot cope with the minimum monthly payments due to the high interest, late charges and other fees tacked on, and need some breathing room, can modify their monthly payments through a Chapter 13 Plan and avoid all future interest and other charges, and spare themselves the constant harassment, by reorganizing under Chapter 13.
Every case is different and a caring bankruptcy professional can evaluate what is best for you and may be able to save you thousands of dollars. Sometimes, you get what you pay for, and high volume lawyers who charge less might not spend the time necessary to enable you to maximize the potential benefits to you of filing for bankruptcy relief. Can you afford not to do it right? Call Bryan P. Keenan & Associates, P.C. at 412-923-4941 or 1-866-753-6857, and schedule your free consultation, so that we can help you chose the chapter that best chapter that fits your situation.
- What happens during the bankruptcy process?
When filing under Chapter 7, you file several forms with the bankruptcy court listing income, expenses, assets, debts and property transactions for the past two years. A court-appointed trustee is assigned to oversee your case. About a month after filing, you must attend a meeting of creditors where the trustee reviews your case and asks questions. The meeting typically lasts about 10 minutes, and creditors rarely attend. Bankruptcies are typically discharged three to six months later.
When filing under Chapter 13, you file all the same forms plus a proposed repayment plan, in which you describe how you intend to repay your debts over the next three to five years. A trustee is assigned to oversee the case, and you will be required to attend a meeting of creditors about one month after filing. Often one or two creditors attend this meeting, especially if they don't like something in your plan. After the meeting of the creditors, you attend a hearing before a bankruptcy judge who either confirms or denies your plan. If your plan is confirmed, and you make all the payments called for under your plan, you often receive a discharge of any balance owed at the end of your case.
- Does a previous bankruptcy prevent me from filing?
It depends on:
- what chapter you want to file now
- what chapter you filed before
- whether you received a discharge in the earlier case
You can only get a Chapter 7 discharge if a previous Chapter 7 case was filed more than 6 years ago.
If you got a Chapter 13 discharge within 6 years, the Chapter 13 plan has to meet certain repayment requirements to permit a Chapter 7 case within 6 years.
If your previous case was dismissed before discharge, it does not count in these considerations.
You can file a Chapter 13 case after a Chapter 7 without any statutory time restrictions. Some courts, however, question the debtor's good faith, a necessary element to confirm a Chapter 13 plan, if they have recently filed Chapter 7 and received a discharge.
You can freely convert a pending case from one chapter to another. It is the same case, even though the chapter is different, so these time considerations don't apply.
The advantages to bankruptcy seem so great that sometimes clients have a hard time believing that it's all true. There are, however, some disadvantages to bankruptcy that must be taken into consideration.
First, a bankruptcy filing can remain on your credit report from 7 to 10 years. While this is something to consider, most clients find that it is not insurmountable. Many are surprised to receive new credit within a few years after they filed bankruptcy.
Second, you cannot file another Chapter 7 bankruptcy for another six years. While this means that you give up your financial "safety net" for this period of time, few people require a second Bankruptcy. If additional problems arise, you may still file a Chapter 13 bankruptcy anytime after the Chapter 7 proceeding is concluded.
Third, it will be difficult to purchase a home or rent a new apartment for a few years. Real estate brokers and lenders tell us that after this period of time buyers can qualify for real estate loans once again. This is especially true if they have a sizeable down payment and a good payment history after the Bankruptcy.
- What are the alternatives to filing bankruptcy?
There are several alternatives to filing bankruptcy, including debt consolidation and credit counseling. Debt consolidation combines all of your debts into one loan, usually lowering your monthly payment. Credit counseling helps you work out a plan to manage and repay your debts without the assistance of the bankruptcy court. In evaluating your case, we consider the viability of credit counseling, debt workouts and other options. Don’t be misled by credit-counseling advertisements. Sometimes it works well and sometimes it does not make sense, even if you can manage the payments. Penalties, late fees and interest will continue to add up. Furthermore, just because you may be able to obtain a 2nd mortgage, home-equity loan, or debt consolidation loan does not necessarily mean that this is the right or smart thing to do.
- Can I put my assets in someone else's name before filing?
No. Such transfers are not effective to put your assets beyond the reach of creditors and bankruptcy trustees. Worse, such action may lead to the denial of your discharge and, therefore, you will not achieve your fresh financial start.
A bankruptcy trustee can recover assets transferred within one year of the bankruptcy filing where the debtor did not get reasonably equivalent value for the asset, or where the transfer was made with intent to hinder creditors. The "look back" period is even longer under Pennsylvania, giving the trustee that same state law look back period in which to recover assets.
If you have more assets than you can protect with the available exemptions, consider filing Chapter 13 where the debtor generally keeps all of their property and "buys back" the non-exempt value from the creditors through payments to the Chapter 13 trustee out of future income.
- Can I Save my House From Foreclosure?
The filing of bankruptcy triggers the automatic stay, which stops all creditors from any action to collect their claim including foreclosure.
In Chapter 7, the stay lasts only as long as the property is not abandoned by the trustee as either valueless to the estate or as exempt, or until the case is closed. A creditor secured by the house can seek relief from the stay to complete the foreclosure if there is danger that the security will lose value during the bankruptcy. Since the creditor's lien is not eliminated by the bankruptcy, Chapter 7 provides temporary relief from foreclosure, but no lasting solution.
In contrast, Chapter 13 is designed to allow debtors to cure defaults in their home mortgages by paying the arrearage over as long as 3 to 5 years.
- Will I have to give up all my assets?
Generally, No. The Bankruptcy Code provides that a debtor filing for bankruptcy can keep certain assets for a "fresh start" by exempting property from the estate.
The vast majority of bankruptcy cases are "no asset" cases, in which the debtors have claimed an exemption in everything they own; there are then no assets from which to pay creditors.
- Will I lose my retirement savings?
Generally, no, most forms of retirement savings are unaffected by a bankruptcy filing, either because they are not property of the estate or because they may be claimed exempt from the claims of creditors. The Supreme Court has held that an employee's interest in pension plans that are qualified under ERISA (the federal law on pensions) are not property of the estate: the debtor doesn't even have to exempt them in bankruptcy. If an assets is not property of the estate, the trustee can't cash it in for the benefit of creditors.
Retirement savings that are property of the estate can be claimed as exempt property to the extent the funds are presently being received and are necessary to support the debtor and the debtor's dependents (under the federal exemptions) or as provided by state exemption laws.
- Will bankruptcy stop wage garnishments?
Yes. Once your case is filed, creditors are no longer entitled to garnish your wages for debts that existed at the beginning of the case. The only exception may be for on-going child or family support ordered by a court. The discharge of a debt will forever eliminate a creditor's right to garnish your wages on account of that debt.
- Is the IRS affected by my bankruptcy filing?
The IRS must cease collection actions after a bankruptcy is filed, just like all other creditors. The automatic stay protects the debtor and the debtor's property. Whether the tax claim will survive the bankruptcy, (that is, whether it is nondischargeable) depends on many variables.
12. What about back taxes?
In Chapter 13 - Debt Consolidation you pay back taxes without interest, in your payment plan.
In Chapter 7 - Bankruptcy, secured taxes, such as property taxes, cannot be discharged. Unsecured taxes, such as income taxes, may be discharged if the taxes are 3 years old, you filed timely, and you have not been assessed in the prior 240 days.
- Can I keep my car?
Generally, Yes. What you must do to keep the car varies depending on whether there is non-exempt equity in the car.
If there is no equity in the car, after subtracting any car loan and exemption from the car's present value, the bankruptcy trustee will not take the car. If there is equity in the car over and above the value of the exemptions available, a debtor can usually buy any unprotected equity from the Chapter 7 trustee. Alternatively, pursuant to the federal exemptions an individual debtor can exempt an additional $925 plus up to $8,725.00 ($9,650.00 max) of any unused Homestead exemption. For joint debtors, the exemption doubles, or $1,850 plus up to $17,450 ($19,300 max).
If you still owe money on the car, you can choose to reaffirm the debt to the secured lender, keep the car, and continue paying under the existing terms; or you can buy the car from the secured creditor in a single payment for its present value (redemption). In some jurisdictions, like Pennsylvania, you don't even have to reaffirm the debt: you can keep the car if you continue to make the payments called for in the contract. If you choose, you can surrender the car and be free of any obligation to pay for it.
- Can you stop auto repossession?
Chapter 7 - The bank cannot repossess your car once you file bankruptcy. You must, however, get the payments current before the case is finished or before the bank receives permission from the bankruptcy judge to repossess the vehicle.Alternatively, if the bank has repossessed your vehicle prior to filing bankruptcy, then if you are able to pay your arrears and storage fees to bring your obligation current, you may retain your vehicle.
Chapter 13 - You can cure defaults on your car loan or even lower the payments on your car loan in Chapter 13.
- Can I discharge my student loans?
Student loans are no longer dischargeable in any chapter of bankruptcy unless you can prove that repaying the loan creates a hardship on you or your family. Prior law allowed their discharge once they had been in pay status for 7 years. The law changed in the fall of 1998.
Proving hardship usually requires showing that you can't provide a minimum standard of living for yourself and your dependents if you have to repay the loan. Some courts will discharge part of the loan.
Student loans are sometimes unenforceable due to school closures, fraud, etc. Chapter 13 may provide a way to cure defaults on student loans, or to pay them off over the course of the plan.
- Will my employer find out I filed for bankruptcy?
Unless the employer is also a creditor, generally, the employer will not know an employee has filed for bankruptcy. The Bankruptcy Court does not notify your employer that you have filed for bankruptcy.
In a Chapter 13 Bankruptcy, however, the court requires a wage attachment to be entered to fund the plan, and thus, an employer will find out about the bankruptcy.
- Can I be fired for filing Bankruptcy?
NO! Federal Bankruptcy law specifically prohibits discrimination based on an employee's filing for protection.
- Must my spouse file with me?
If you are married, you are not required to file a joint petition. Just like you have a choice whether to file your taxes separately or jointly with your spouse, you have the same option in filing bankruptcy. However the spouse that does not file will not receive the benefits of bankruptcy. In other words, if the non-filing spouse is jointly liable on certain debts, he or she will remain liable for those debts if the filing spouse files for a Chapter 7 bankruptcy. He or she will also remain liable for any amount not paid for in the filing spouse's Chapter 13 plan. On the other hand though, the non-filing spouse will not have bankruptcy noted on his or her credit report.
Therefore, if the debts you owe are also owed by your spouse, or co-signed by your spouse, it would probably be to your benefit to file a bankruptcy together as a married couple. If most of the debts are in your name only, you may want to consider filing a bankruptcy as the only debtor.
- Will I be allowed to file bankruptcy?
There are presently no income standards for filing bankruptcy. The critical question asked about those filing Chapter 7 is whether a debtor has sufficient funds after payment of his necessary future living expenses to repay his debts.
The United States Trustee or the Chapter 7 trustee can seek to have a debtor's case dismissed for "substantial abuse" if the debtor's income is sufficient to repay a significant portion of the scheduled debts. 11 U.S.C. 707(b). The real expectation is that debtors who are challenged in this way will convert their case to Chapter 13.
The law on this subject is not well developed and the attitudes of trustees and judges about what is abusive vary from district to district. This concept does not apply to Chapter 7 debtors whose debts are primarily business debts, tax debt, or to those filing Chapter 13.
- Do I have to list all my debts?
Yes, you must list all of your debts on your bankruptcy schedules.
However, you can choose to reaffirm any debt or debts you choose after the filing. Or, you can voluntarily pay a creditor after you receive a discharge, without becoming legally liable to continue paying. Thus listing a creditor does not prevent you from paying creditors you wish to pay after bankruptcy.
Also, omitting a credit card company from your schedules, because you want to retain the use of the card, does not assure continued access to the card: most major credit card issuers use a national data base to determine who has filed bankruptcy, independently of the court's notice to them of bankruptcy filings. Thus, you can't assure that your creditors won't find out about your bankruptcy by not listing a debt.
- Will I have to go to court?
Yes. Generally only one trustee meeting appearance is required 30 to 45 days after filing. This is normally a short meeting and you do not see the judge. Your creditors may be present to ask questions. An attorney will be present to represent you and explain the nature of the questions that you will be asked and swear to answer under oath.
- Will filing bankruptcy stop harassing phone calls?
Creditors usually stop calling as soon as you can give them the name and phone number of an attorney who you have hired to represent you in your bankruptcy proceeding. Of course, if you represent yourself, you will still need to take these calls.
Once your bankruptcy is filed, creditors must stop calling.
- What happens to my credit?
If you are currently behind in paying your bills, your credit is already adversely effected. Filing a bankruptcy may actually be your first step in repairing a bad credit situation. When a creditor finds a bankruptcy on your credit report, it shows them that all prior credit problems have been resolved. The question then becomes, Are you credit worthy?
Every creditor is different and each one treats bankruptcy with a different set of rules for determining your creditworthiness. Although there are many exceptions, normally a creditor likes to see how well you do in paying your bills during the first year or two after filing bankruptcy before they extend new credit to you. So although a Chapter 7 bankruptcy appears on your credit report for ten (10) years, and a Chapter 13 appears for seven (7) years, most people only find it to be a problem for a couple of years after filing provided everything else looks good on their current credit report.
In addition, there are 1,000's of creditors who extend credit to people who have filed bankruptcy and obtained a discharge. The interest rates are normally higher, of course, but you can obtain credit with one or more of them. One of the best ways to build your credit after bankruptcy is to obtain a secured credit card. This is one where you put money in a bank and the bank issues you a credit card. The credit limit of the credit card will be the same amount of money you have deposited in their bank. After you have shown that you make timely payments, your credit line may be increased without you depositing any more money.
However, the fact remains one of the main reasons for filing bankruptcy is to get OUT of debt not back into it. You should take responsibility for your own financial spending and saving, making sure not to get to the point where you have to file another bankruptcy. Once you experience the total freedom of paying for things you want to buy, and owning them free and clear you will enjoy life more and grow as a human being. You will also find that you have more money to spend and less stress in your life. The only items the average American really needs to go into debt for is an automobile for transportation and a home for their family to live in. Everything else should be purchased out of the monthly income, or saved for and purchased in full. The only reason most Americans are in debt is because they want it now and do not have the patience to wait, so they'll say, "charge it" and suffer the consequences later.
- How long will I be in Chapter 7 or 13?
Chapter 7 - Bankruptcy takes about 4 to 6 months.
Chapter 13 - Debt Consolidation takes 3 to 5 years.
- Can I get credit after I file for bankruptcy?
Filing bankruptcy does not prevent you from getting new credit; an entire class of lenders targets the recently bankrupt as customers! Immediately after a bankruptcy filing, you can expect credit to be more difficult to get, more expensive, and limited in amount.
Two years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms just as good as those with the same financial characteristics who have not filed bankruptcy. That is, in getting a home loan, the size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past. There is no "right" to credit and landlords and credit card companies are well within their rights to consider your financial history in their credit decision. However, debtors are protected from discrimination based solely on the fact that they have filed bankruptcy by provisions of the Bankruptcy Code.
While the fact that you filed bankruptcy stays on your credit report for 10 years, it becomes less significant the further in the past the bankruptcy is. In fact, you are probably a better credit risk after bankruptcy than before.
- What do I have to do to file bankruptcy?
A bankruptcy case is begun by filing a petition, schedules of assets and liabilities, and a statement of financial affairs with the bankruptcy court and paying the filing fee.
You will be required to attend at least one meeting of creditors (the § 341 meeting), in which the trustee and creditors who choose to come can ask you questions under oath about your financial affairs.
The process in Chapter 7 from filing to receipt of the discharge order is between 3 and 6 months, usually. During that period, the debtor generally does not have to do anything other than attend the first meeting of creditors.
- What happens after I file bankruptcy?
After your bankruptcy petition is filed, the bankruptcy court will send a notice to all the creditors listed on your creditor's matrix (people/companies you owe money to with their complete addresses.) This notice is normally mailed out a few days after you file your petition.
If you owe any secured creditors (mortgage company, automobiles, furniture stores, etc) you are required to notify them yourself. This is done by making a copy of the Certificate of Service and Chapter 7 Debtor's Statement of Intention (two legal papers included in your bankruptcy petition) and mailing them directly to the creditor. You are required by law to notify these secure creditors immediately after filing your petition, hopefully before the Bankruptcy Court notifies them through their normal process.
The Bankruptcy Court will also normally mail you a notice informing you that you are eligible to file bankruptcy and what documents to bring with you to your 341 Meeting of Creditors. Do not become confused when you receive this notice. You don't have to do anything but read it, understand it and keep it in your personal file while you wait on the notice that tells you the date and time of your first hearing with the Trustee.
The Bankruptcy Court will then send all your creditors, including you, a notice informing you of the hearing date when you should appear in court. This hearing is often referred to as the Meeting of Creditors or 341 Meeting.
At your Meeting of Creditors a judge is normally never present. Instead, the Trustee will review your bankruptcy petition and ask you specific questions about it. You may be asked to provide him/her with copies of your tax returns, bank statements, pay check stubs, titles to motor vehicles, an appraisal of your home (if you own one) along with a recorded mortgage and deed; or the Trustee may be satisfied with your detailed bankruptcy petition and not request anything at all. That decision is up to the particular Trustee your case is assigned to as well as the accuracy and detail of your petition.
In most no asset cases, creditors rarely appear at these hearings; however, a representative from one of the companies you owe, or a person you owe, may show up at this meeting. They normally only make an appearance to ask where the secure item is and if it is insured. Normally, their conversation is with the Trustee only, but is prepared to answer their questions if necessary.
Note: A no asset case means that you have no money left in your approved monthly budget to distribute among your creditors. Since there is nothing for an unsecured creditor to take, most would rather write off the debt versus spending time appearing in court and not get anything anyway. Normally, the only creditors who appear at the 341 Meeting of Creditors are secure creditors who have a secured interest in your real or personal property.
If your bankruptcy petition is detailed and provides all the information the Trustee requires, this meeting (hearing) will normally only last a few minutes. Remember, you are not going to court because you committed a crime and have to appear in front of a judge. Filing for bankruptcy was a voluntary choice you made. You have committed no crime unless you fraudulently attempt some criminal act such as hiding your assets, committed tax fraud, etc. In this case, the Trustee would notify the proper authorities. Therefore, make sure you reveal every debt and asset in your bankruptcy petition or you could be answering to possible fraud charges.
- What is my life like after I file for bankruptcy?
When people seek advice about bankruptcy, they are usually quite distressed. They may be facing the loss of their home and are being harassed by creditors. Frequently, these financial problems have spilled over into their personal lives and caused problems with their health or disruption of their family relationships. These people are suffering from anxiety about their future.
There is no disgrace in seeking help for financial problems. It is far better to address these issues and solve these problems now rather than ignoring them and allowing the situation to become worse.
Many successful and famous people have gone through bankruptcy. Some have heard it said that the average millionaire has been broke more than two times during his or her lifetime.
Our financial system is based on the concept of risk. People are encouraged to incur debt to finance business ventures or the purchase of goods and services associated with the "good life." Unfortunately, not all risks work out for the best. Consequently, the Constitution gives each person the right to seek relief under the Bankruptcy Code if they are unable to repay their debts.
A person's financial future is usually far better after a bankruptcy has been filed. Certainly, there are some downsides to filing. However, individuals who are starting fresh with no debt usually do quite well. However, what a person does with their fresh start is completely up to them.
- How to Choose an Attorney?
Consulting with an experienced bankruptcy professional is the first step to determining what really needs to be done. Then, you will be able to make an informed decision and enjoy the benefit of being guided by someone who understands your needs and concerns. Ignorance may be bliss in certain instances, but in the case of bankruptcy, you may never know just how much the failure to act actually costs you.
A caring bankruptcy professional will not rush you into making a decision or pressure you to do something you are not comfortable with. Procrastination is your greatest enemy. Act now by scheduling a comprehensive planning meeting. Once you understand what needs to be done, you can proceed with Peace of Mind, knowing that your concerns will be addressed.
Bryan P. Keenan & Associates, P.C. is dedicated to helping individuals and businesses solve life’s legal challenges by providing clear explanations and practical solutions at an affordable price. We have the knowledge and practical experience to guide you in this most important decision-making process. Bryan P. Keenan & Associates, P.C. is committed to providing individuals and families with Peace of Mind.