What Is Bankruptcy?
Bankruptcy is a federal program established to offer a way out of seemingly insurmountable debt. There are two types of personal bankruptcy. Chapter 7 allows discharge of debts without requiring payments to the court and usually allows keeping items like houses, cars and household goods. A Chapter 13 bankruptcy is for people who earn more money or who are delinquent on things they want to keep like houses or cars. Chapter 13 requires 36-60 payments to the court to repay the delinquency or a percentage of the debt.
You can determine the chapter appropriate for you by determining your gross income or by completing a federal means test. If you earn more than the mean income in the state, you may still be eligible for a Chapter 7 if you pass the means test. If you fail them both you may be better suited for a Chapter 13 partial repayment plan.
A Chapter 13 plan is not a death sentence. It simply means that you will be required to make payments for a period of time. It may not even result in paying more money to creditors than you would in a Chapter 7.
How Do I Stop the Phone Calls?
One of the only sure ways to stop the collection calls is to actually file the bankruptcy petition. Once filed an automatic stay goes into effect and most collectors can no longer call you. Although very effective, this is not the only tool to stop harassing phone calls.
You don’t need bankruptcy to stop creditor phone calls and harassment. Federal law prohibits debt collectors from calling once you tell them in writing to stop. Under the Fair Debt Collection Practices Act, a collection agency may not act in the following ways:
Even if you orally tell debt collectors that you never intend to pay, the law prohibits them from contacting you except to send one last letter making a final demand before filing a lawsuit. It is difficult to police this action, even with the federal law protecting you, so these efforts may or may not be successful.
Another effective way to stop the phone calls is to know your rights. If a caller threatens to sue you, judgments are normally as easily dischargeable in bankruptcy as credit card debt. After you have decided on bankruptcy, this threat really has little meaning. Additionally, if your only income is from social security or disability a lawsuit will do little to help collection efforts. At this point, you may be judgment proof and may not even need a bankruptcy.
Are Student Loans Discharged in a Bankruptcy Proceeding?
Educational loans guaranteed by the United States government are generally not discharged by a Chapter 7 or Chapter 13 bankruptcy. They may be dischargeable; however, if the court finds that paying off the loan will impose an undue hardship on the debtor and his or her dependents.
In order to qualify for a hardship discharge, the debtor must demonstrate that he or she cannot make payments at the time the bankruptcy is filed and will not be able to make payments in the future. The debtor must apply before the discharge of the debtor's other debts is granted. Application for a hardship discharge is not included in the standard bankruptcy fees, and must be paid for after the case is filed.
The Bankruptcy Code does not specifically define the requirements for granting a hardship discharge of a student loan. Courts have applied different standards, but they often apply a three-part test to determine eligibility: (1) income-if the debtor is forced to pay off the student loan, the debtor will not be able to maintain a minimum standard of living for himself or herself and his or her dependents; (2) duration-the financial circumstances that satisfy the income test in (1) will continue for a significant portion of the repayment period; and (3) good faith-the debtor must have made a good-faith effort to repay the loan prior to the bankruptcy.
A Chapter 7 filing should have no effect on such collections.
Although filing bankruptcy stops, or stays, all efforts to collect debts, the Bankruptcy Code excludes actions to collect child support or spousal maintenance from the stay unless the creditor attempts to collect from the property of the estate. In a Chapter 7 proceeding, property of the estate includes all possessions, money, and interests the debtor owns at the time of filing. Money earned after the bankruptcy is filed, however, is not property of the estate. Since most child and spousal support is paid out of the debtor's current income, the bankruptcy should have little impact.
A debtor under Chapter 13 must pay all domestic support obligations that fall due after the petition is filed. Failure to do so could result in dismissal of the case.
Neither a Chapter 7 nor a Chapter 13 discharge affects future child or spousal support obligations. In other words, even at the conclusion of the bankruptcy proceeding, these on-going obligations remain.
How Does Bankruptcy Affect My Debt?
Debts are commonly separated into at least two broad categories, Secured and Unsecured. Secured debts are those where you may lose something if you don=t pay such as a home or a car loan. An unsecured debt is one where you have not pledged collateral or in which a lien has not been filed against you. Unsecured debts include credit cards as well as most other debts. Most judgments are also unsecured and can be easily discharged in bankruptcy.
Unsecured debts are normally dischargeable in bankruptcy. There are exceptions to the rule such as if the debts were incurred in anticipation of bankruptcy or within 90 days of filing or if there is some fraud associated with the transaction. Unsecured debts that were incurred to pay non-dischargeable taxes and/or student loans or associated with alcohol or malicious offenses may also be non-dischargeable, are also suspect.
Secured debts are treated completely different. If you want to retain your house or your car and you are current on your payments you will normally be able to keep them if you want to continue to make the payments. If you are not current and want to keep your secured property, you will likely be able to keep the property be entering into a repayment plan for the arrearage with the court. If, however, you want to forfeit the property and not make any more payments or incur any more debt associated with the property, even if you owe more than the property is worth, is an option as well.
Will I Lose My Home or Property?
Bankruptcy is designed to give a fresh start, not to leave you destitute. You are entitled to keep certain property. This property is commonly referred to as exempt. Most people would not be forced to liquidate any of their property in a bankruptcy filing. In addition to not losing your property, you may be able to Aredeem@ your secured personal property and only pay the value of the property instead of what you owe. For example, if you owe $10,000 on your car but it is only worth $5,000, my firm works with the court and auto financiers to obtain the court order that you only pay the $5,000 value of the car.
One of the debtor's major concerns in a consumer bankruptcy is the thought of losing the family home. Although that is possible in some cases, loss of the debtor's home need not always result from a bankruptcy filing.
If the debtor in a Chapter 7 liquidation bankruptcy is behind on his or her mortgage payments, the home could be lost. The mortgage lender in such cases usually asks the bankruptcy court to lift the automatic stay so that it can institute foreclosure proceedings, in which case the home will be sold and the proceeds used to pay off the debt. Whether a debtor who is not behind on mortgage payments will lose his or her house, depends on how much equity the debtor has in the property and the amount of the state homestead exemption. If the amount of debt owed on the home is less than the home's market value, the debtor could lose the house unless the homestead exemption entitles the debtor to most of the equity.
In a Chapter 13 proceeding, however, even if the debtor is behind on mortgage payments, if the wage-earner plan includes paying back any missed mortgage payments and current payments are paid when due as well, the debtor should not lose his or her home. If the debtor is current on his or her house payments, the home will not be lost if the debtor continues to make payments when due.
If the debtor is a renter rather than a homeowner, and if the debtor is current in his or her rent payments, it is unlikely that the lessor would even become aware of the bankruptcy proceeding. If the debtor is behind, however, he or she could be evicted. Even after the automatic stay is triggered by the bankruptcy filing, the landlord is likely to ask the court to lift the stay on its behalf, and the court is likely to grant that request.
Do I Have To List All My Credit Cards?
No, unless the trustee tells you to. You must list all of your debts. If you have a credit card with no balance, it is not considered a debt and does not need to be listed on the bankruptcy petition. The credit card may or may not survive the filing. The creditor can choose with whom they choose to do business and my cancel the card anyway, but you can be armed with this information before you file.
Who Will Know? Will I Lose My Job?
No employer (government or private) can fire you or discriminate against you because you file for bankruptcy protection. However, bankruptcy will not prevent an employer from firing you for other reasons and there are a very few jobs that are allowed to consider creditworthiness in hiring. No federal, state or local government agency can take your bankruptcy into account when making a hiring decision, but there is no such bar for private employers.
Employers and others usually are not informed of a bankruptcy. It is a public filing, but unless they are in some way involved in the bankruptcy, they will not receive notification. If you owe money to a party or otherwise list them in your petition, they will receive notice. This usually does not include your employer unless you are being garnished or a creditor has involved your employer in their collection activities. The same holds true for your family. Unless they have some stake in the bankruptcy, they are not sent notice. Unfortunately, any party can learn of a bankruptcy through an easy internet search or any public record report.
How Long Are Bankruptcy and Other Credit Information Included on My Credit Report?
A consumer credit report may include Chapter 7 and Chapter 13 bankruptcy information for ten years from the time the case is filed. One major consumer credit reporting agency is said to remove Chapter 13 information after only seven years, but it is not legally required to do so.
Most other credit information can be included in a consumer credit report for seven years. Civil suits, civil judgments and arrest records, however, can be reported for at least seven years, and longer if the information is relevant for a longer time period. For example, if the civil judgment against the debtor is valid for ten years, it can be reported for credit-rating purposes for the same time period.
These time limits on reporting credit information do not apply to reports for credit transactions that involve or are reasonably expected to involve a principal amount of $150,000 or more, the underwriting of life insurance involving or reasonably expected to involve a face amount of $150,000 or more, or the employment of a person at salary that is or is reasonably expected to be at least $75,000 annually.
Because both the Fair Credit Reporting Act, which controls what a credit-reporting agency may include in a consumer's credit report, and the Bankruptcy Code are federal law, the same rules apply in all states. There may be some differences, however, in relation to the more-than-seven-year information, since most of the relevant time periods or statutes of limitations are found in the individual states' laws.
How Sure Can I Be That My Bankruptcy Will Be Granted?
Bankruptcy is presented by the federal government as a way to relieve your debts. As a citizen, you are eligible to take advantage of the government program. It is not something you have to invent or talk them into. As long as you play by the rules, your bankruptcy will likely be granted.
What If I Don’t Do Anything?
There are many instances when bankruptcy is not the right option. For example, if all of your income is a result of disability or social security payments, and you have no assets, you may be judgment proof and there would be nothing for creditors to take.
If you have been threatened with a lawsuit or if you have been sued, you may choose to ignore such filing. This will not extinguish the debt or address the situation. This will only prolong the inevitable. Once the requisite time has passed, a judgment will likely be taken. After this, the plaintiff will be able to proceed against your assets or your income. This is not usually the best option.
If you have not been sued, remember that unsecured creditors usually (except student loans and taxes) must sue in order to collect. They cannot garnish your wages or take other actions without suing you. You cannot be thrown in jail for not paying your debts and your creditors cannot collect money that you do not have.
Before determining whether inaction is the best action, consider your budget. Write out all of your expenses and all of your income. If you cannot pay your expenses from your income and cannot find a way for the numbers to match, it is a foregone conclusion that your debt will likely someday overtake you. At this point bankruptcy is usually one of your best options.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.